SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
Form 10Q
(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, 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 October 31, 1995: 54,079,824 SHARES
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Note 1)
September 30, 1995 December 31,
(Unaudited) 1994
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 100,826 $ 27,531
Temporary investments 24,515
Restricted cash 45,263
Accounts receivable, trade 14,460 11,371
Inventories 10,071 8,667
Prepaid expenses and other 13,108 7,468
--------- --------
Total current assets 183,728 79,552
Investments in affiliates 14,345 26,582
Property, plant and equipment, net 45,410 24,446
Intangible assets, net 54,104 46,099
Other assets 6,366 3,165
--------- --------
$ 303,953 $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)
September 30, 1995 December 31,
(Unaudited) 1994
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 12,465 $ 12,490
Accrued expenses and other 22,157 12,315
Notes payable, banks and other 4,641 5,641
Current maturities, long-term debt 12,703 2,056
-------- --------
Total current liabilities 51,966 32,502
-------- --------
Long-term debt 109,212 29,396
Other noncurrent liabilities 5,237 198
Minority interest 822 392
Redeemable preferred stock 40,000 40,000
Commitments and Contingencies
Shareholders' equity:
Preferred stocks $.01 par value 11
Common stock, $.01 par value: authorized
86,000,000; issued 51,704,000 and
50,869,000, respectively; outstanding
51,459,000 and 50,631,000,
respectively 517 509
Capital in excess of par value 253,200 186,651
Foreign currency translation adjustment 921 767
Accumulated deficit (156,547) (109,185)
Treasury stock, at cost (1,386) (1,386)
-------- --------
96,716 77,356
-------- --------
$303,953 $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>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------- ----------------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 38,147 $ 31,818 $ 13,185 $ 11,413
Service income 22,287 17,569 7,745 6,221
---------- ---------- ---------- ----------
Total revenues 60,434 49,387 20,930 17,634
---------- ---------- ---------- ----------
Costs and expenses:
Cost of goods sold 22,411 19,897 8,304 6,996
Cost of services 14,519 12,548 5,767 4,515
Research and development 17,961 12,218 3,630 2,678
Marketing 18,702 13,493 7,320 4,674
General and administrative 19,820 13,475 8,978 5,003
Amortization of intangibles 3,101 1,892 1,219 966
Equity in losses of investees 3,854 1,218 1,776 1,030
Interest expense (income), net 7,473 (500) 5,201 472
Other (income) expense, net (1,491) 3,280 (540) 3,290
---------- ---------- ---------- ----------
Total costs and expenses 106,350 77,521 41,655 29,624
---------- ---------- ---------- ----------
Loss from operations before taxes
on income and minority interest (45,916) (28,134) (20,725) (11,990)
Taxes on income (1,178) (434)
Minority interest (268) (294) (88) (114)
---------- ---------- ---------- ----------
Net loss $ (47,362) $ (28,428) $ (21,247) $ (12,104)
---------- ---------- ---------- ----------
Preferred dividends (2,837) (1,503) (1,231) (504)
---------- ---------- ---------- ----------
Loss applicable to common stock $ (50,199) $ (29,931) $ (22,478) $ (12,608)
========== ========== ========== ==========
Weighted average number of common shares
outstanding 51,523,000 49,317,000 51,670,000 49,383,000
========== ========== ========== ==========
Per common share:
Net loss applicable to common shares $ (0.97) $ (0.61) $ (0.43) $ (0.26)
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the nine months ended September 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 361 3 725
Issuance of shares in
connection with research
and development project 250 3 2,029
Issuance of shares to
Vanguard pursuant to
management consulting
agreement 224 2 1,872
Issuance of warrants
in connection with
notes payable 1,800
Issuance of warrants
in connection with
bonds payable 32,107
Issuance of Series K
Preferred Stock 10,000
Issuance of Series L
Preferred Stock 1,062 $11 9,818
Issuance of Series M
Preferred Stock 1 11,035
Preferred dividend (2,837)
Changes in currency 154
Net Loss (47,362)
----- --- ------ ---- -------- ---- --------- -------
Balances,September 30, 1995 1,063 $11 51,704 $517 $253,200 $921 $(156,547) $(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)
Nine Months Ended
September 30,
------------------
1995 1994
---- ----
Cash flows from operating activities:
Net loss $(47,362) $ (28,428)
Adjustments to reconcile net
loss to net cash
used in operating activities:
Minority interest 268 294
Depreciation and amortization 7,807 3,980
Equity in net loss of investees 3,854 1,218
Non cash management consulting expense 1,874 1,808
Issuance of shares in connection with
research and development project 2,032
Non-cash transaction expense for BCI 740
Changes in operating assets and liabilities
(net of effects from acquisitions):
Accounts receivable (3,088) (3,322)
Reserve for impairment of loan 3,500
Inventories (1,404) (3,350)
Prepaid expenses and other assets 1,027 (2,255)
Accounts payable and accrued expenses 9,817 3,091
Other 129
------ ------
Net cash used in operating activities (24,435) (23,335)
------ ------
Cash flows from investing activities:
Acquisition of licenses (4,977) (9,812)
Net decrease in temporary investments 24,515 7,873
Acquisitions of property and equipment (18,127) (6,601)
Collection of notes receivable 389
Cash invested in acquisition
of subsidiaries, net (6,358) (23,400)
Contract deposits - other current assets (6,667)
Restricted cash (45,263) (2,555)
Loans receivable and other 1,358 (3,748)
Proceeds from sale to BCI 7,000
------ ------
Net cash used in investing activities (48,519) (37,854)
------ ------
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)
Nine Months Ended
September 30,
-----------------------
1995 1994
---- ----
Cash flows from financing activities:
Net repayments under
line-of-credit agreements (1,386) 2,947
Proceeds from issuance of senior secured
notes and related warrants 110,079
Proceeds from issuance of senior secured
notes and related warrants 36,000 24,511
Deferred financing costs (4,560)
Repayments of debt (25,000) (644)
Net proceeds from issuance
of preferred stock 30,864 29,250
Exercise of warrants and options 728 1,896
Payment of preferred dividends (1,606) (1,503)
Other (470)
-------- -------
Net cash provided by financing activities 145,119 55,987
-------- -------
Effect of exchange rate changes on cash 1,130 733
-------- -------
Increase (decrease) in cash and equivalents 73,295 (4,469)
Cash and equivalents, beginning of period 27,531 51,686
-------- -------
Cash and equivalents, end of period $100,826 $47,217
======== =======
Supplemental schedule of non cash investing
and financing activities:
Interest paid $3,000 $1,961
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 $1,874
Issuance of shares in connection
with research and development
project $2,032
Issuance of common stock
to acquire additional interest
in GMSI $1,630
Issuance of shares in subsidiary in
connection with sale $740
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 #3 and is presented for comparative purposes. All other
financial statements are unaudited. In the opinion of management, all
significant adjustments including 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 previous
1995 quarters and 1994 amounts have been classified to conform with
current 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 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 $6.4 million). This acquisition was initiated by the
controlling shareholder's exercise of its option to sell its interest
in DBF to the Company. Prior to July 1995, the Company accounted for
DBF using the equity method. The Company began to consolidate the
results of DBF 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.
Note 3 Long Term Debt:
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 were
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, which have been valued at $29.2 million,
are recorded as a discount on the Notes and are being amortized over
the life of the Notes. The Company has recorded in other assets
approximately $4.3 million of deferred financing costs which are being
amortized over the life of 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. The Notes are
collateralized 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. 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 $36 million Senior Secured Notes were 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 is separately stated on the balance sheet of
the Company, as restricted cash, and is expected to satisfy the
principal and total interest of the Senior Secured Notes. This security
interest has released the original collateral for the Senior Secured
Notes.
8
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 Long Term Debt: continued
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. The warrants, which have been valued at $2.9
million, are recorded as a discount on the Notes and are being
amortized over the life of the Notes. Gross proceeds to the Company
were approximately $10.0 million, bringing total gross proceeds from
the issuance of the Notes to $110.0 million.
In November 1995, the Company registered through an exchange offer, the
Notes and Warrants under the Securities Act of 1933, as amended.
Note 4 Equity Transactions:
In August 1995, the Company transferred its interest in Speech Design
GmbH and Bogen Communications, Inc toe ogtes and are being
amortized over the life of the Notes. Grosan Gateway Acquisition
Corporation) in exchange for $7.0 million in cash, $3.0 million in
convertible notes, approximately 64% of BCI's common shares and
warrants to purchase 200,000 shares of BCI 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.
This transaction had no material recurring effect on the Company's
results from operations and the Company continues to control and
consolidate the entities. Included in general and administrative
expenses are $1.5 million of costs to effect the transaction. The BCI
warrant holders hold approximately 3,800,000 warrants to purchase one
share of BCI common stock for between $5.00 to $5.50. These warrants
are callable upon certain events.
In September 1995, in accordance with the Company's agreement with
Vanguard Cellular Systems, Inc. ("Vanguard"), a stockholder of the
Company, Vanguard purchased 531,463 shares of Series L stock for an
aggregate purchase price of $5.0 million. The shares, which pay a
dividend of 7.5% per annum, contain a common stock conversion premium
and can be redeemed by the Company in certain circumstances.
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 September 30, 1995 cumulative participation amounted
to $ 9.5 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. An
initial order of $3.0 million has been paid in advance and is included
in other current assets.
9
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 Commitments and Contingent Liabilities: continued
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). Additionally, the Company has
guaranteed certain debt of DBF to Quante, the former owner of DBF in
the amount of DM 2.5 (approximately $1.8 million). These amounts are
included as restricted cash.
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
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.
Note 6 Interest Expense, Net:
Interest expense for the nine months ended September 30, 1995 and 1994,
amounted to $ 10,257,000 and $1,457,000, respectively. Interest income
for the nine months ended September 30, 1995 and 1994, amounted to
$2,784,000 and $1,730,000 respectively.
10
<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 nine
months ended September 30, 1995 and 1994, Vanguard earned approximately
224,000 and 180,000 shares, respectively, pursuant to this agreement.
These shares have been recorded at approximately $1.9 million and $1.8
million, respectively, which amounts are included in marketing
expenses.
The Company incurred expenses of $225,000 in each of the nine month
periods ended September 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 3, in August 1995, the Soros Group made an additional
investment in the Company.
PST has entered into a subcontractor agreement with Rafael under which
Rafael will partake in the development of the digital wireless
communications system to be deployed by the Company in the US. Research
and development expense for the nine months ended September 30, 1995
and 1994, includes approximately $4.2 million and $5.8 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 September 30, 1995 the Company
had placed firm orders for equipment totaling $22.9 million and has
made advance payments (recorded in other current assets) of $3.6
million to Rafael under these orders.
The Company issued 250,000 shares of common stock to Rafael Development
Corporation 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 November 1995, the Company closed its September 1995 agreement with
Rafael Development Corporation ("RDC") whereby RDC converted all the
principal and interest issued to it by Powerspectrum Technology Limited
("PST") under convertible debentures into shares of PST representing
its 38% interest in PST. Geotek issued to RDC 1.8 million shares of
unregistered Company common stock in exchange for RDC's shares of PST.
The unregistered shares will be valued at $8.3 million and will be
recorded as goodwill. RDC was granted an option to purchase up to 10%
of PST in certain circumstances. Additionally, in October 1995, RDC
purchased $3.0 million of Company common stock.
11
<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") (See Note 3).
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 BCI, the entity
through which, effective August 1995, the Company owns its interests in
Bogen Communications, Inc. and Speech Design GmbH.
The Supplemental Combining Financial Information of Geotek
Communications, Inc. and Subsidiaries has been presented on pages 13
through 18 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.
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
(Parent Company) are 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.
(3) Non-Guarantor Subsidiaries -This includes the Company's subsidiaries
that are not Guarantor Subsidiaries.
(4) Reclassification and -Certain reclassifications were made to
Eliminations conform 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.
12
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9 Supplemental Guarantor Financial Information: continued
SUPPLEMENTAL COMBINING BALANCE SHEET
As of September 30, 1995
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Geotek
Geotek Non-Guarant Reclassification Comm,Inc.
Comm,Inc. PSI Subsidiaries & Eliminations & Subsidiaries
---------- ---- -------------- -------------- --------------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 94,999 $ 805 $ 5,022 $100,826
Restricted cash 45,263 45,263
Accounts receivable net 73 14,387 14,460
Inventories 221 12,760 $ (2,910) 10,071
Prepaid expenses and other assets 423 7,448 9,478 (4,241) 13,108
-------- ------- -------- --------- --------
Total current assets 140,685 8,547 41,647 (7,151) 183,728
-------- ------- -------- --------- --------
Inter-company account 112,922 26,782 1,120 (140,824)
Investments in affiliates 2,244 12,101 14,345
Property, plant and equipment, net 198 14,139 29,503 1,570 45,410
Intangible assets, net 4,718 22,780 26,606 54,104
Other assets 6,240 192 457 (523) 6,366
Investments in subsidiaries, at cost 79,281 (79,281)
-------- ------- -------- --------- --------
Total Assets $346,288 $72,440 $111,434 $(226,209) $303,953
======== ======= ======== ========= ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable - trade $ 1,027 $ 1,775 $ 9,663 $ 12,465
Accrued expenses and other 3,839 3,109 19,477 $ (4,268) 22,157
Notes payable, banks and other 4,956 (315) 4,641
Current maturities, long-term debt 12,509 194 12,703
-------- ------- -------- --------- --------
Total current liabilities 17,375 4,884 34,290 (4,583) 51,966
-------- ------- -------- --------- --------
Long-term debt 104,899 2,634 4,679 (3,000) 109,212
Intercompany accounts 96,966 70,539 (167,505)
Other non current liabilities 49 91 6,261 (1,164) 5,237
Minority interest 822 822
Redeemable preferred stock 40,000 40,000
Shareholders' equity:
Preferred stocks, $.01 par value 11 11
Common stock, $.01 par value: 517 517
Capital in excess of par value 219,965 43,049 38,594 (48,408) 253,200
Foreign currency translation
adjustment 921 921
Accumulated deficit (35,142) (75,184) (44,672) (1,549) (156,547)
Treasury stock, at cost (1,386) (1,386)
-------- ------- -------- --------- --------
183,965 (32,135) (5,157) (49,957) 96,716
-------- ------- -------- --------- --------
$346,288 $72,440 $111,434 $(226,209) $303,953
======== ======= ======== ========= ========
</TABLE>
13
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9 Supplemental Guarantor Fina ncial Information: continued
SUPPLEMENTAL COMBINING BALANCE SHEET
As of December 31, 1994
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Geotek
Geotek Non-Guarant Reclassification Comm,Inc.
Comm,Inc. PSI Subsidiaries & Eliminations & Subsidiaries
---------- ---- -------------- -------------- --------------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
ASSETS
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>
14
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9 Supplemental Guarantor Financial Information: continued
SUPPLEMENTAL COMBINING STATEMENT OF
OPERATIONS For the Nine Months Ended
September 30, 1995
(Dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
Geotek
Geotek Non-Guarant Reclassification Comm,Inc.
Comm,Inc. PSI Subsidiaries & Eliminations & Subsidiaries
---------- ---- -------------- -------------- --------------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
REVENUES
Net sales $ 69 $ 43,130 $(5,052) $ 38,147
Service income 1,615 20,672 22,287
-------- -------- ------- --------
Total revenues 1,684 63,802 (5,052) 60,434
-------- -------- ------- --------
Costs and expenses:
Cost of goods sold 53 26,070 (3,712) 22,411
Cost of services 2,619 11,900 14,519
Research and development $ 550 5,967 11,444 17,961
Marketing 225 5,635 12,842 18,702
General and administrative 1,766 8,129 9,925 19,820
Amortization of intangibles 562 793 1,746 3,101
Equity in losses of investees 986 2,868 3,854
Interest expense, net 5,911 163 1,399 7,473
Other income (1,402) (89) (1,491)
-------- -------- -------- ------- --------
Total Costs and expenses 10,000 21,957 78,105 (3,712) 106,350
-------- -------- -------- ------- --------
Loss from continuing operations
before Taxes on income and
minority interest (10,000) (20,273) (14,303) (1,340) (45,916)
Taxes on income (1,178) (1,178)
Minority interest (268) (268)
-------- -------- -------- ------- --------
Net loss $(10,000) $(20,273) $(15,749) $(1,340) $(47,362)
======== ======== ======== ======= ========
</TABLE>
15
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9 Supplemental Guarantor Financial Information: continued
SUPPLEMENTAL COMBINING STATEMENT OF
OPERATIONS For the Nine Months Ended
September 30, 1994
(Dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
Geotek
Geotek Non-Guarant Reclassification Comm,Inc.
Comm,Inc. PSI Subsidiaries & Eliminations & Subsidiaries
---------- ---- -------------- -------------- --------------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
REVENUES
Net sales $ 334 $ 32,001 $ (517) $ 31,818
Service income 1,598 15,971 17,569
-------- ------- ------ --------
Total revenues 1,932 47,972 (517) 49,387
-------- ------- ------ --------
Costs and expenses:
Cost of goods sold 190 19,881 (174) 19,897
Cost of services 1,076 11,472 12,548
Research and development 4,329 7,200 12,218
Marketing $ 2,049 2,316 9,128 13,493
General and administrative 3,727 4,517 5,920 13,475
Amortization of intangibles 639 415 838 1,892
Equity in losses of investees 270 948 1,218
Interest (income) expense, net (1,563) (75) 1,138 (500)
Other expense (income), net 3,500 (220) 3,280
------- -------- ------- ------ --------
Total Costs and expenses 8,622 12,548 56,525 (174) 77,521
------- -------- ------- ------ --------
Loss from continuing operations
before Taxes on income and
minority interest (8,622) (10,616) (8,553) (343) (28,134)
Minority interest (294) (294)
------- -------- ------- ------ --------
Net loss $(8,622) $(10,616) $(8,847) $ (343) $(28,428)
======= ======== ======= ====== ========
</TABLE>
16
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9 Supplemental Guarantor Financial Information: continued
SUPPLEMENTAL COMBINING STATEMENTS OF CASH
FLOWS For the Nine Months Ended
September 30, 1995
(Dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
Geotek
Geotek Non-Guarant Reclassification 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 $(10,000) $(20,273) $(15,749) $(1,340) $(47,362)
Adjustment to reconcile net loss to net
cash used in operating activities:
Minority interest 268 268
Depreciation & amortization 588 1,634 5,585 7,807
Equity in net loss of investees 986 2,868 3,854
Non cash management consulting expense 1,874 1,874
Issuance of shares in connection with
research and development project 2,032 2,032
Non cash transaction expense for BCI 740 740
Changes in operating assets
and liabilities (net of effects
from acquisitions):
Accounts receivable 6 (2,673) (421) (3,088)
Inventories (104) (4,049) 2,749 (1,404)
Prepaid expenses 516 (607) (3,091) 4,209 1,027
Accounts payable & accrued expenses 3,934 3,199 4,631 (1,947) 9,817
------- ------- ------- ------- --------
Net cash (used in)
operating activities (3,976) (12,239) (11,470) 3,250 (24,435)
------- ------- ------- ------- --------
Cash flows from investing activities:
Acquisition of licenses (4,973) (4) (4,977)
Net decrease in temporary investments 24,515 24,515
Acquisitions of property & equipment (122) (11,617) (3,478) (2,910) (18,127)
Cash invested in acquisition of
subsidiaries, net (6,358) (6,358)
Contract deposits - other current assets (6,667) (6,667)
Restricted cash (45,263) (45,263)
Loans receivable and other (1,268) 1,835 3,413 (2,622) 1,358
Proceeds from sale to BCI 7,000 7,000
------- ------- ------- ------- --------
Net cash (used in) investing activities (21,496) (21,422) (69) (5,532) (48,519)
------- ------- ------- ------- --------
Cash flows from financing activities:
Net, (repayments) under
line of credit agreements (1,386) (1,386)
Proceeds from issuance of senior
secured bond & related warrants 110,079 110,079
Proceeds from issuance of senior
secured note & related warrants 36,000 36,000
Deferred financing costs (4,560) (4,560)
Repayments of debt (25,000) (25,000)
Net proceeds from issuance of
preferred stock 30,864 30,864
Exercise of warrants & options 728 728
Payment of preferred dividends (1,606) (1,606)
Capital contributed from parent (47,256) 34,048 10,926 2,282
Net cash provided by (used in) ------- ------- ------- ------- --------
financing activities 99,249 34,048 9,540 2,282 145,119
------- ------- ------- ------- --------
Effect of exchange rate changes on cash 1,130 1,130
Increase (decrease) in cash & equivalents 73,777 387 (869) 73,295
Cash & equivalents, beginning of period 21,222 418 5,891 27,531
------- ------- ------- ------- --------
Cash & equivalents, end of period $94,999 $ 805 $ 5,022 -- $100,826
======= ======= ======= ======= ========
</TABLE>
17
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9 Supplemental Guarantor Financial Information: continued
SUPPLEMENTAL COMBINING STATEMENTS OF CASH
FLOWS For the Nine Months Ended
September 30, 1994
(Dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
Geotek
Geotek Non-Guarant Reclassification 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 $(8,622) $(10,616) $(8,847) $(343) $(28,428)
Adjustments to reconcile net loss to
net cash used in operating activities:
Minority interest 294 294
Depreciation & amortization 653 519 2,808 3,980
Equity in losses of investees 270 948 1,218
Non cash management consulting expense 1,808 1,808
Changes in operating assets & liabilities:
Reserve for impairment of loan 3,500 3,500
Accounts receivable (881) (42) (2,651) 252 (3,322)
Inventories 13 (3,542) 179 (3,350)
Prepaid expenses and other assets (536) (18) (2,480) 779 (2,255)
Accounts payable & accrued expenses (761) 1,019 4,030 (1,197) 3,091
Other 706 1,068 (308) (1,337) 129
------- ------ ------ ------- -------
Net cash (used in) operating
activities (5,671) (6,249) (9,748) (1,667) (23,335)
------- ------ ------ ------- -------
Cash flows from investing activities:
Acquisition of licenses (9,541) (271) (9,812)
Net decrease in temporary investments 4,428 3,445 7,873
Acquisitions of property & equipment (32) (937) (5,632) (6,601)
Collection of notes receivable 357 32 389
Cash invested in acquisition
of subsidiaries,
net (23,400) (23,400)
Restricted cash -letters of credit (2,555) (2,555)
Other (3,423) (96) 345 (574) (3,748)
------- ------ ------ ------ -------
Net cash (used in) investing activities (24,625) (7,129) (5,526) (574) (37,854)
------- ------ ------ ------ -------
Cash flows from financing activities:
Net borrowings under line of credit
agreements 2,947 2,947
Proceeds from issuance of senior
secured note & related warrants 24,511 24,511
Repayments of debt (655) (194) 790 (585) (644)
Proceeds from issuance of stock &
warrants to Vanguard 29,250 29,250
Proceeds from exercise of warrants
& options 1,896 1,896
Payment of preferred dividends (1,503) (1,503)
Capital contributed from parent (23,605) 9,862 10,917 2,826
Other (470) (470)
------- ------ ------ ------ -------
Net cash provided by
financing activities 29,894 9,668 14,184 2,241 55,987
------- ------ ------ ------ -------
Effect of exchange rate changes on cash 733 733
Increase (decrease) in cash & equivalents (402) (3,710) (357) (4,469)
Cash & equivalents, beginning of period 42,861 4,637 4,188 51,686
------- ------ ------ ------ -------
Cash & equivalents, end of period $42,459 $ 927 $3,831 -- $47,217
======= ====== ====== ====== =======
</TABLE>
18
<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 three types of
activities: wireless communications, communications products and corporate. 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 peripherals and sound and communications equipment.
Summary of Operations
The Summary of Operations provides an analysis of the three month and nine month
periods ended September 30, 1995, compared to the same periods in 1994. For
purposes of this discussion, year to date represents the nine month period ended
September 30.
Consolidated
Consolidated revenues increased by 18.7% and 22.4% in the third 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 39.4% and 45.0% in the third
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 $8.7 million in the third
quarter to $20.7 million and for the year to date increased $ 17.8 million to $
45.9 million.
19
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: Continued
Wireless Communications Activities
The tables below set forth certain information with respect to the results of
the Company's Wireless Communications activities for the three months ended
September 30, 1995 and 1994.
<TABLE>
<CAPTION>
For the Three Months Ended September 30, 1995
(Dollars in Thousands)
German
United States NBTL Networks Total
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $1,447 $6,469 $300 $8,216
Gross profit (593) 4,017 (469) 2,955
% of revenues (41%) 62.1% (156%) 36%
Research and Development 3,088 3,088
Marketing 4,191 1,176 5,367
General and Administrative 2,406 810 356 3,572
Equity in loss of less than
50% owned entities 1,201 1,201
Other income (541) (541)
Net income (loss) before
interest and
amortization & depr. (9,737) 2,031 (2,026) (9,732)
Amortization and
depreciation 1,078 1,037 591 2,706
Net income (loss) before
interest (10,815) 994 (2,617) (12,438)
Net income (loss) ($10,769) $924 ($2,654) ($12,499)
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended September 30,1994
(Dollars in Thousands)
German
United States NBTL Networks Total
-------------------------------------------------------
<S> <C> <C> <C>
Revenues $1,489 $5,017 $6,506
Gross profit 333 2,418 2,751
% of revenues 22% 48% 42%
Research and Development 2,153 2,153
Marketing 1,223 1,252 2,475
General and Administrative 3,051 585 3,636
Equity in loss of less than
50% owned entities 648 648
Other income (52) (52)
Net income (loss) before interest
and amortization & depr. (6,094) 633 (648) (6,109)
Amortization and
depreciation 374 1,059 227 1,660
Net loss before interest (6,468) (426) (875) (7,769)
Net loss ($6,081) ($505) ($875) ($7,461)
</TABLE>
20
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: Continued
Revenues from wireless communications increased by $1.7 million or 26% for the
quarter ended September 30, 1995. This increase is primarily due to the increase
in the number of subscribers using the NBTL network (which totaled approximately
54,700 and 45,400 at September 30, 1995 and 1994, respectively) as well as, the
inclusion of the DBF German Network on the consolidated basis since July 1995
amounting to $0.3 million. Average revenue per subscriber on the NBTL network
remained constant. Gross profit as a percent of revenues increased as NBTL's
cost are primarily fixed thus, allowing subscriber growth to increase the gross
profit percentage.
Research and development expenses (net of government grants) related to the
digital wireless system and subscriber unit was $3.1 million for the three
months ended September 30, 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 continues to put in place its marketing,
engineering, operations and administrative staff and systems. Marketing expenses
increased by approximately $2.9 million or 117% due to the commencement of the
marketing effort and increase in staff needed to execute the roll-out of the
U.S. wireless network. General and administrative expenses remained relatively
flat due to the Company's third quarter allocation of certain managerial costs
from the U.S. wireless network to the corporate group for corporate activities
not related to the U.S. wireless network.
The Company's equity in losses of less than 50% owned entities increased to $1.2
for the quarter ended September 30, 1995 from $0.6 million in 1994. The 1995
loss relates to the Company's investment in the PBG German network. The 1994
loss relates to both the PBG and DBF German networks. In July 1995, the Company
acquired the remaining shares of the DBF German network and began consolidating
this subsidiary. This subsidiary generated losses of $1.0 million and $0.3
million during the third quarter of 1995 and 1994, respectively. The Company
expects to acquire the remaining interest in the PBG network by the end of 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 number of subscribers on these
networks as of September 30, 1995 was approximately 9,500.
Wireless activities generated a loss before net interest expense, amortization
and depreciation of $ 9.7 million for the quarter ended September 30, 1995
compared to $6.1 million in 1994. This increase is primarily due to costs
related to the commencement of the roll-out of the digital wireless
communication system for the U.S. network.
21
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: Continued
The tables below set forth certain information with respect to the results of
operations of the Company's Wireless Communication activities for the nine
months ended September 30, 1995 and 1994.
<TABLE>
<CAPTION>
For the Three Months Ended September 30, 1995
(Dollars in Thousands)
German
United States NBTL Networks Total
--------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $4,722 $18,334 $300 $23,356
Gross profit (157) 11,273 (469) 10,647
% of revenues --% 61.5% (156%) 46%
Research and Development 16,253 16,253
Marketing 6,673 3,766 10,439
General and Administrative 8,756 2,425 356 11,537
Equity in loss of less than
50% owned entities 2,869 2,869
Other income (1,401) (89) (1,490)
Net income (loss) before interest
and amortization & Depr (30,438) 5,171 (3,694) (28,961)
Amortization and
depreciation 2,076 3,088 1,189 6,353
Net income (loss) before interest (32,514) 2,083 (4,883) (35,314)
Net income (loss) ($32,442) $1,867 ($4,920) ($35,495)
Subscribers 54,700 9,500 64,200
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended September 30, 1994
(Dollars in Thousands)
German
United States NBTL Networks Total
--------------------------------------------------------
<S> <C> <C> <C>
Revenues $4,125 $14,207 $18,332
Gross profit 926 6,813 7,739
% of revenues 22% 48% 42%
Research and Development 10,789 10,789
Marketing 3,189 3,330 6,519
General and Administrative 8,500 1,616 10,116
Equity in loss of less than
50% owned entities 648 648
Other income (52) (52)
Net loss before interest
amortization & Depr (21,552) 1,919 (648) (20,281)
Amortization and
depreciation 836 2,815 227 3,878
Net loss before interest (22,388) (896) (875) (24,159)
Net loss ($21,727) ($1,111) ($875) ($23,713)
Subscribers 45,400 3,500 48,900
</TABLE>
22
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: Continued
Revenues from wireless communications increased by $5.0 million or 27% for the
nine months ended September 30, 1995. This increase is primarily due to the
increase in the number of subscribers using the NBTL network (which totaled
approximately 54,700 and 45,400 at September 30, 1995 and 1994, respectively) as
well as, the inclusion of the DBF German Network on the consolidated basis since
July 1995 amounting to $0.3 million. Average revenue per subscriber on the NBTL
network remained constant. Gross profit as a percent of revenues increased as
NBTL's cost are primarily fixed thus, allowing subscriber growth to increase the
gross profit percentage.
Research and development expenses (net of government grants) related to the
digital wireless system and subscriber unit was $16.3 million for the nine
months ended September 30, 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 continues to put in place its marketing,
engineering, operations and administrative staff and systems. Marketing expenses
increased by approximately $3.9 million or 60% due to the commencement of the
marketing effort and increase in staff needed to execute the roll-out of the
U.S. wireless network. General and administrative expenses increased $1.4
million due to an increase in administrative staff and related expenses.
The Company's equity in losses of less than 50% owned entities increased to
$2.8 for the nine months ended September 30, 1995 from $0.6 million in 1994. The
1995 loss relates to the Company's investment in the PBG German network for the
nine month period ended September 30, and the Company's investment in the DBF
German network for the six months ended June 30, 1995. The 1994 loss relates to
both the PBG and DBF German networks for the three months ended September 30,
1995 as the Company's initial investments were made in July 1994. In July 1995,
the Company acquired the remaining shares of the DBF German network and began
consolidating this subsidiary. This subsidiary generated losses of $1.0 million
and $0.3 million during the third quarter of 1995 and 1994, respectively. The
Company expects to acquire the remaining interest in the PBG network by the end
of 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 number of subscribers
on these networks as of September 30, 1995 was approximately 9,500.
Wireless activities generated a loss before net interest expense, amortization
and depreciation of $29.0 million for the nine months ended September 30, 1995
compare to $20.3 million in 1994. This increase is primarily due to costs
related to the commencement of the roll-out of the digital wireless
communication system for the U.S. network.
23
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: Continued
Communications Products Activities
In August 1995, the Company transferred its interests in Speech Design GmbH and
Bogen Communications, Inc. to Bogen Communications International ("BCI")
formerly, European Gateway Acquisition Corporation, in exchange for $7.0 million
in cash, $3.0 million in convertible notes receivable, approximately 64% of BCI
common shares and warrants to purchase 200,000 shares of BCI common stock. The
Company will also be eligible to receive additional consideration if the future
earnings of both Speech Design and Bogen through July 1997 attain certain
levels. The Company continues to control and consolidate this entity.
The table below sets forth certain information with respect to the results of
operations of BCI for the three and nine months ended September 30, 1995 and
1994.
(Dollars in Thousands)
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
---- ---- ---- ----
Revenues $11,689 $10,886 $34,150 $30,558
Gross profit 4,428 4,382 14,251 12,266
% of revenue 38% 40% 42% 40%
Research and Development 492 526 1,593 1,430
Marketing 2,678 1,146 7,447 6,857
General and Administration 2,263 1,025 4,418 2,589
Operating Income (Loss) $(1,005) $686 $793 $1,390
Revenues from communications products activities increased by $0.8 million, or
7% to $11.7 million for the quarter ended September 30, 1995. Revenues from
communications products activities for year to date 1995 increased by $3.5
million, or 12% to $34.2 million. The increase in quarterly sales is due to a
$1.7 million increase in the core segment offset by a $0.9 million decrease in
the office automation segment ( OAS ). For year to date, the core segment sales
increased by $5.4 million offset by a decrease in the OAS segment of $1.9
million.
Gross profit in the third quarter of 1995 was flat with gross profit margins
reducing to 38% compared to 40% in the third quarter of 1994. Gross profit in
the OAS segment decreased by $1.0 million due to the decrease in sales and the
recording of a $0.7 million reserve of select inventory based on lower of cost
or market. This was offset by a $1.1 million increase in gross profit of the
core segment, in which the gross profit margin increased to 45% in the third
quarter of 1995, from 40% in the comparable period in 1994. The increase in
gross profit margin was due to higher average core sales prices.
Gross profit in the first nine months of 1995 increased $2.0 million and was 42%
of sales, compared to 40% of sales in the comparable period of 1994. The
increase was almost entirely attributable to the core segment, in which the
gross profit margin increased to 45% in the first nine months of 1995, from 41%
in the comparable period in 1994, due primarily to change in product mix and
higher average core sales prices. This was offset by the recording of a $0.7
million reserve of select inventory in the OAS segment based on lower of cost or
market.
The increase in quarterly and year to date marketing expense of $1.5 million and
is due to marketing programs initiated by Bogen to stimulate sales in the OAS
segment as well as, growth in the Core segment.
The increase in quarterly and year to date general and administration expenses
of $1.2 million and $1.8 million, respectively, is due primarily to costs to
execute the aforementioned BCI transaction.
24
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: Continued
Corporate Group
The Company's other activities generated a loss before net interest expense,
amortization, and other charges of $1.8 million for year to date 1995, and a
loss of $1.8 million for the quarter ended September 30, 1995, compared to a
loss of $1.1 and $0.4 million for the same periods, respectively, in 1994. This
increase is primarily due to the Company's third quarter allocation of certain
managerial costs from the U.S. wireless network to the corporate group for
activities not related to the U.S. wireless network. Revenues from corporate
group subsidiaries were $2.9 million for year to date 1995, compared to revenues
of $0.5 million for the same period in 1994.
On a consolidated basis, interest expense increased in 1995 due to Notes issued
in July 1995 which accrue interest at 15%. Interest income increased in 1995 due
to greater cash and cash equivalents which resulted from the issuance of the
Notes. Amortization expense increased from $1.9 million in the nine months ended
September 30,1994 to $3.1 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 September 30, 1995, the
Company had $100.8 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 other costs 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.
The Company is planning to raise capital during the next 12 months to continue
financing its current operating plan. The Company's long term capital needs
include the planned roll-out of the U.S. network in 36 cities, the repayment of
convertible debt and redeemable preferred stock (if such are not converted into
equity), to finance international networks, and to make acquisitions of business
in the field of telecommunications and of spectrum in the United States and
internationally. The Company is currently pursuing various alternatives for
raising capital including issuance of equity and debt securities, vendor
financing as well as, a combination thereof and other sources.
The following discussion of liquidity and capital resources, among other things,
compares the Company's financial and cash position as of September 30, 1995, to
the Company's financial and cash position as of December 31, 1994.
During the first nine months of 1995, cash, equivalents, and temporary
investments increased by $73.3 million to $100.8 million, while working capital
increased by $84.7 million to $131.8 million as of September 30 1995.
Cash utilized in connection with continuing operating activities for the nine
months ended September 30, 1995, amounted to $24.4 million.
Cash outflows from investing activities, exclusive of decrease in temporary
investments of $24.5 million, were $73.0 million. The Company expended $18.1
million on acquisitions of property, equipment and $5.0 million on SMR licenses
in the United States, and $6.4 million to purchase the remaining stock of one of
the German subsidiaries offset by the receipt of $7.0 million in the BCI
transaction.
25
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: Continued
The Company's financing activities provided cash of $145.1 million. 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 were 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 Notes accrue interest
until maturity at a rate of 15% per annum. Interest on the Notes are payable
semi-annually, in cash, on July 15 and January 15, commencing January 15, 2001.
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 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 were approximately $10.0 million, bringing the total gross proceeds
from the issuance of the Notes to $110.0 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 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. As a result of the issuance of the
aforementioned Replacement 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 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. If conversion of
the Replacement Notes occurs, a proportionate amount of the restricted cash
becomes unrestricted.
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, in September 1995, Vanguard Cellular Systems, Inc.
("Vanguard"), a stockholder of the Company, purchased an additional 531,463
shares of Series L Stock 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.
26
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: Continued
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 $6.4 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.
27
<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
third quarter of 1995.
(i) Current Report on Form 8-K filed July 18, 1995 reporting the
sale by the Company of 207,000 units consisting of
$207,000,000 in aggregate principal amount at maturity of its
15% Senior Secured Discount Notes due 2005 and warrants to
purchase an aggregate of 6,210,000 shares of the Company's
common stock.
(ii) Current Report on Form 8-K filed August 24, 1995 reporting
(a) shareholder approval at the July 31, 1995 Annual Meeting
for the increase in total number of authorized shares of
capital stock of the Company to 103,000,000, consisting of
99,000,000 shares of common stock and 4,000,000 shares of
preferred stock; (b) an August 3, 1995 letter of intent
between RDC-Rafael Development Corp. ("RDC") and the Company
whereby RDC agreed to sell to the Company RDC's interest in
PowerSpectrum Technology, Ltd. ("PST"), resulting in the
Company owning approximately 95% of PST and (c) the sale on
August 21, 1995 of the Company's Communications Product
segment, consisting of its 99% interest in Bogen Corporation
and its 67% interest in Speech Design GmbH to European
Gateway Acquisition Corp. ("EGAC") in exchange for a 64%
interest in EGAC, $7 million in cash and convertible
promissory notes in the aggregate principal amount of $3
million.
28
<PAGE>
GEOTEK COMMUNICATIONS, INC.
SIGNATURES
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: November 14, 1995 ------------------------------
Michael R. Mc Coy
Chief Financial Officer
/s/ Michael H. Carus
Date: November 14, 1995 ------------------------------
Michael H. Carus
Chief Accounting Officer and
Corporate Controller
29
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 100,800
<SECURITIES> 45,300
<RECEIVABLES> 14,500
<ALLOWANCES> 0
<INVENTORY> 10,700
<CURRENT-ASSETS> 183,700
<PP&E> 45,400
<DEPRECIATION> 0
<TOTAL-ASSETS> 304,000
<CURRENT-LIABILITIES> 52,000
<BONDS> 109,200
<COMMON> 517
40,000
11
<OTHER-SE> 96,700
<TOTAL-LIABILITY-AND-EQUITY> 304,000
<SALES> 60,400
<TOTAL-REVENUES> 60,400
<CGS> 37,000
<TOTAL-COSTS> 106,300
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 7,473
<INCOME-PRETAX> (45,916)
<INCOME-TAX> 1,178
<INCOME-CONTINUING> (47,362)
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<EXTRAORDINARY> 0
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<NET-INCOME> (47,362)
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