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 June 30, 1996
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, 1996: 58,729,680 SHARES
<PAGE>
GEOTEK COMMUNICATIONS, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I: Financial Information
Item 1: Financial Statements
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II: Other Information
Item 4: Submission of Matters to a Vote of Security-Holders
Item 6: Exhibit and Reports on Form 8-K
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain "forward-looking" statements. The Company
desires to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 and is including this statement for the
express purpose of availing itself of the protections of such safe harbor with
respect to all of such forward-looking statements. Examples of forward-looking
statements contained herein include the Company's projections with respect to:
(a) the commercial implementation of GEONET and the timing of the roll-out of
GEONET; (b ) the Company's future financial results, capital needs and sources
of financing; and (c ) the effect of certain legislation and governmental
regulations on the Company. The Company's ability to predict any such projected
results or to predict the effect of any legislation or other pending events on
the Company's operating results is inherently uncertain. Therefore, the Company
wishes to caution each reader of this report to carefully consider the specific
factors discussed with such forward-looking statements and contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995 as
such factors in some cases have affected, and in the future (together with other
factors) could affect, the ability of the Company to achieve its projected
results and may cause future actual results to differ materially from those
expressed herein.
2
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Note 1)
June 30, 1996 December 31,
(Unaudited) 1995
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents $157,639 $ 61,428
Temporary investments 7,945
Restricted cash 16,577 36,971
Accounts receivable trade, net 15,499 14,028
Inventories, net 15,604 10,483
Deposits for spectrum licenses 6,616 11,500
Prepaid expenses and other 7,803 5,621
-------- --------
Total current assets 219,738 147,976
Investments in affiliates 2,417 3,078
Property, plant and equipment, net 88,982 66,110
Intangible assets, net 69,680 68,181
Other assets 21,011 7,219
-------- --------
$401,828 $292,564
======== ========
See notes to consolidated financial statements.
3
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Note 1)
June 30, 1996 December 31,
(Unaudited) 1995
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 19,718 $ 17,948
Accrued expenses and other 35,323 23,005
Notes payable, banks and other 9,228 8,285
Current maturities, long-term debt 10,469 29,577
-------- --------
Total current liabilities 74,738 78,815
-------- --------
Long-term debt 180,474 95,875
Other noncurrent liabilities 1,088 1,217
Minority interest 498 395
Redeemable preferred stock 40,000 40,000
Commitments and Contingencies
Shareholders' equity:
Preferred stocks, $.01 par value 11 11
Common stock, $.01 par value:
authorized 135,000,000; issued 58,310,000 and
55,251,000 respectively; outstanding 58,072,000
and 55,013,000, respectively 583 553
Capital in excess of par value 360,663 272,456
Foreign currency translation adjustment (750) 1,012
Accumulated deficit (254,091) (196,384)
Treasury stock, at cost (1,386) (1,386)
-------- --------
105,030 76,262
-------- --------
$401,828 $292,564
======== ========
See notes to consolidated financial statements.
4
<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,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 28,228 $ 26,318 $ 14,380 $ 13,520
Service income 15,688 13,186 7,983 6,786
----------- ----------- ----------- -----------
Total revenues 43,916 39,504 22,363 20,306
----------- ----------- ----------- -----------
Costs and expenses:
Cost of goods sold 19,933 15,256 11,173 7,857
Cost of services 15,603 7,604 8,339 4,020
Research and development 16,350 14,331 8,327 5,746
Marketing 15,950 11,382 8,948 6,434
General and administrative 17,409 10,842 7,615 5,322
Amortization of intangibles 2,518 1,882 1,320 971
Equity in losses of investees 1,020 2,078 584 883
Interest Expense 15,323 3,583 8,651 2,079
Interest Income (3,171) (1,313) (1,709) (725)
Other income (795) (950) (187) (483)
----------- ----------- ----------- -----------
Total costs and expenses 100,140 64,695 53,061 32,104
----------- ----------- ----------- -----------
Loss from operations before taxes
on income and minority interest (56,224) (25,191) (20,698) (11,798)
Taxes on income (1,380) (744) (580) (470)
Minority interest (103) (180) 3 (125)
----------- ----------- ----------- -----------
Net loss $ (57,707) $ (26,115) $ (31,275) $ (12,393)
----------- ----------- ----------- -----------
Preferred dividends (2,706) (1,606) (1,428) (940)
----------- ----------- ----------- -----------
Loss applicable to common stock $ (60,413) $ (27,721) $ (32,703) $ (13,333)
=========== =========== =========== ===========
Weighted average number of common shares
outstanding 57,064,000 51,450,000 57,756,000 51,534,000
=========== =========== =========== ===========
Per common share:
Net loss applicable to common shares $ (1.06) $ (0.54) $ (0.57) $ (0.26)
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the six months ended June 30, 1996
(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, 1996 1,063 $11 55,251 $553 $272,456 $1,012 $(196,384) $(1,386)
Issuance of common stock:
Exercise of warrants and
options 407 4 1,798
Issuance of shares to
Vanguard pursuant to
management consulting
agreement 149 1 1,548
Issuance of shares in
connection with
debt conversion 2,297 23 18,668
Issuance of shares in
connection with the
acquisition of SMR license 191 2 1,998
Issuance of shares for
preferred dividend 15 151
Issuance of Series N 55 53,350
Preferred Stock
Issuance of warrants in 13,400
connection with long-term
credit facility
Preferred dividend (2,706)
Changes in currency (1,762)
Net Loss (57,707)
----- --- ------ ---- -------- ------ --------- -------
Balances, June 30, 1996 1,118 $11 58,310 $583 $360,663 $(750) $(254,091) $(1,386)
===== === ====== ==== ======== ===== ========= =======
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
(Note 1)
Six Months Ended
June 30,
---------------------
1996 1995
-------- --------
Cash flows from operating activities:
Net loss $(57,707) $(26,115)
Adjustments to reconcile net
loss to net cash
used in operating activities:
Minority interest 103 180
Depreciation and amortization 7,513 4,613
Post acquisition adjustment for utilization
of acquired net operating loss carry forward 875
Non cash interest expense 10,243
Equity in net loss of investees 1,020 2,078
Non cash management consulting expense 1,549 1,263
Issuance of shares in connection with
research and development project 2,032
Changes in operating assets and liabilities:
Increase in accounts receivable (1,471) (798)
Increase in inventories (5,121) (649)
Increase in prepaid expenses and other assets (3,228) (1,411)
Increase (decrease) in accounts payable
and accrued expenses 14,088 (334)
Other 552 (35)
-------- --------
Net cash used in operating activities (31,584) (19,176)
-------- --------
Cash flows from investing activities:
Acquisition of spectrum licenses (400) (4,501)
Spectrum license deposit return from FCC 1,784
Net decrease in temporary investments 7,945 21,960
Acquisitions of property and equipment (25,966) (7,288)
Cash invested in unconsolidated subsidiaries (350) (371)
Decrease (increase) in contract deposits
- other current assets 1,046 (4,637)
Decrease in restricted cash 20,394
-------- --------
Net cash provided by investing activities 4,453 5,163
-------- --------
See notes to consolidated financial statements.
7
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Dollars in thousands)
(Unaudited)
(Note 1)
Six Months Ended
June 30,
---------------------
1996 1995
-------- --------
Cash flows from financing activities:
Net borrowings (repayments) under line-of-credit
agreements 1,100 (784)
Proceeds from issuance of convertible
notes 75,000
Proceeds from issuance of senior secured
notes and related warrants 36,000
Net proceeds from issuance of
Preferred Stock 53,350 26,011
Deferred financing costs (2,213)
Repayments of secured note (25,000)
Repayment of capital lease obligation (244)
Repayments of debt (800)
Exercise of warrants and options 1,752 678
Payment of preferred dividends (2,555) (1,606)
Financing costs (810)
Other (333) 1,165
-------- --------
Net cash provided by financing activities 124,247 36,464
-------- --------
Effect of exchange rate changes on cash (905) (98)
-------- --------
Increase in cash and equivalents 96,211 (22,353)
Cash and equivalents, beginning of period 61,428 27,531
-------- --------
Cash and equivalents, end of period $157,639 $ 49,884
======== ========
Supplemental schedule of non cash
investing and financing activities:
Management consulting fee paid in common stock $ 1,549 $ 1,223
Issuance of shares in connection with research
and development project $ 2,032
Issuance of shares in connection with debt conversion $ 18,691
Issuance of shares in connection with acquisition
of SMR license $ 2,000
Issuance of shares for preferred dividend $ 151
See notes to consolidated financial statements.
8
<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 (the "Company") as of December 31, 1995 has been derived from
the audited consolidated balance sheet contained in the Company's Form 10-K
and is presented for comparative purposes. 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 1995 amounts have been
reclassified to conform with the 1996 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 consolidated financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's Form 10-K for the most recent fiscal year, and
previously filed 10-Q's.
Note 2 Long Term Debt:
In April 1996, the Company and S-C Rig Investments - III, L.P. ("S-C Rig"),
a significant stockholder of the Company and an investment group affiliated
with George Soros, entered into a Senior Loan Agreement whereby S-C Rig
made a $40.0 million unsecured credit facility (the"S-C Rig Credit
Facility") available to the Company beginning in June 1996. Under the terms
of the S-C Rig Credit Facility, all borrowings are required to be made
within two years from the establishment of the credit facility. The
borrowings will accrue interest at a rate of 10% per annum and will mature
four years from the date of the final borrowing thereunder. The Company is
obligated to pay S-C Rig a fee equal to 3% of each borrowing under the S-C
Rig Credit Facility at the time of such borrowing. Borrowings under the S-C
Rig Credit Facility will constitute senior indebtedness of the Company. At
June 30, 1996, there were no outstanding loans under the S-C Rig Credit
Facility.
In connection with the establishment of the credit facility, the Company
issued to S-C Rig a five year warrant to purchase approximately 4.2 million
shares of Common Stock (subject to adjustment in certain circumstances) at
an exercise price of $9.50 per share (subject to adjustment in certain
circumstances). This warrant is exercisable at any time. In accordance with
APB Opinion No.14, "Accounting for Convertible Debt Issued With Stock
Purchase Warrants", the Warrants, which have been valued at $13.4 million,
are recorded in other assets and are being amortized over the five years.
In March 1996, the Company issued $75.0 million aggregate principal amount
of Senior Subordinated Convertible Notes ("Convertible Notes"), due 2001.
Each Convertible Notes is in the principal amount of $1,000, and beginning
on March 5, 1997 may be converted by the holders into shares of the
Company's common stock, par value $.01, at a conversion price equal to
$9.50 per share. Cash interest on the Convertible Notes accrues at a rate
of 12% per annum and is payable semi-annually on each February 15 and
August 15 commencing August 15, 1996. The Convertible Notes are unsecured
senior subordinated obligations of the Company. The Convertible Notes can
be converted at the option of the Company after 18 months if the closing
price of the Company's common stock for 20 of the 30 trading days and for
the five trading days before conversion is at least $15.20 per share.
9
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2 Long Term Debt: continued
The Company's Senior Secured Notes due 1998 (the "Replacement Notes") are
convertible into shares of the Company's Common Stock (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.
During the six months ended June 30, 1996, $19.5 million was converted into
2,297,000 shares of common stock. In connection with the conversion, the
Company incurred $810,000 in financing costs.
In July 1995, the Company placed approximately $40.5 million in a
restricted cash account as security for the Company's obligation under the
Replacement Notes. As the Replacement Notes are converted, a proportionate
amount of the restricted cash becomes unrestricted and as of June 30, 1996,
$ 10.5 million remains restricted. This amount is included in the balance
sheet of the Company, as restricted cash, and is expected to satisfy the
remaining principal balance of $ 8.5 million and total interest on the
remaining unconverted Replacement Notes.
Note 3 Equity Transactions:
In June 1996, the Company sold 55,000 shares of Series N Cumulative
Convertible Preferred Stock ("Series N Stock") at an aggregate purchase
price of $55 million, to entities affiliated with the Charles R. Bronfman
Family Trust, the Kolber Trust, The Renaissance Fund and certain existing
shareholders of the Company. The Series N Stock pays dividends in Common
Stock at a rate of 10% per annum. Additionally, the Series N Stock is
immediately convertible into shares of the Company's Common Stock at $11.00
per share. In connection with this transaction, the Company issued warrants
to purchase approximately 1.65 million shares of the Company's Common Stock
at $11.00 per share. In addition, the Company incurred financing fees equal
to 3% of the aggregate purchase price, and has recorded this as a reduction
to the net proceeds of the issuance.
In April 1996, the Company purchased 100% of the outstanding stock of
MacDermott Communications, Inc., a private company whose only asset was a
SMR License, for 190,988 shares of the Company's Common Stock. The value of
the Common Stock issued, was approximately $2.0 million.
Note 4 Formation of Joint Ventures:
In April 1996, the Company and RWE Telliance A.G. ("RWE") entered into a
letter of intent to merge their respective German mobile radio networks as
of August 31, 1996. Under the terms of this letter of intent, each of RWE
and the Company will own 50% of the merged entity. There can be no
assurances that the Company and RWE will execute a formal agreement based
on this letter of intent as this transaction is subject to, among other
things, completion of satisfactory due diligence, regulatory approvals, and
approvals of each company's board of directors.
Also in April 1996, Industry Canada, the Canadian agency responsible for
spectrum allocation, approved in principle an award of certain 900 MHz
frequencies in Ontario, Quebec, British Columbia and Alberta to a joint
venture consisting of the Company, Cogeco Cable, Inc. ("Cogeco") and
Techcom, Inc., a Canadian SMR operator. These entities had entered into a
letter of intent to form such joint venture in Canada to launch mobile
wireless communications services based on the Company's proprietary FHMATM
technology. In July 1996, the Company announced that it had been unable to
reach a final agreement with Cogeco and that the Company is actively
negotiating with other potential Canadian partners to replace Cogeco, so as
to comply with Canadian foreign ownership and regulatory requirements.
There can be no assurance that the Company will be able to identify such a
partner or, if such a partner is identified, that an agreement can be
reached on terms favorable to the Company. Any failure on the part of the
Company to enter into such an arrangement could have a material adverse
effect on the Company's prospects in Canada.
10
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4 Formation of Joint Ventures: continued
In June 1996, the Korean Ministry of Information and Communications awarded
a consortium Anam Telecom Co. Ltd. ("Anam Telecom"), in which the Company
holds a 21% interest, a license to operate a nationwide trunked radio
system in Korea. Anam Telecom, also includes approximately 53 Korean
companies, among them Anam Industrial Co. Ltd. (the Company's joint venture
partner in Korea), Hyundai Electronics, Korean Mobile Telecom, Ssangyong
Corporation and Korea Express. The license covers a geographic area with a
population of approximately 45 million people and is based on the
implementation of the Company's FHMATM system on an 800 MHz frequency. The
Company's FHMATM system currently operates in the 900 MHz frequency band.
Although the Company believes that it will successfully adapt its FHMATM
system to the 800 MHz frequency, such adaptation is subject to a number of
contingencies and the manufacture of certain equipment required in
connection therewith. There can be no assurance that the Company will be
able to successfully adapt its FHMATM system to the 800 MHz frequency on a
timely basis. Any failure on the part of the Company to successfully adapt
its FHMATM technology pursuant to the terms of the Korean license could
have a material adverse effect on the Company's prospects in Korea. In
addition, the Company will provide FHMATM related infrastructure equipment
and broad business and engineering support for the design, implementation
and operation of the network in Korea. Finally, the development of a FHMATM
based digital system in Korea will be subject to the same risks attendent
to the development of the Company's GEONETTM system in the United States.
In July 1996, the Company contributed approximately $9.6 million to Anam
Telecom which represents the Company's portion of the initial
capitalization of Anam Telecom and related Spectrum licenses.
Note 5 Commitments and Contingent Liabilities:
FCC Waiver
The Company was granted a waiver (the "Waiver") by the Federal
Communication Commission ("FCC") which permits it to construct and activate
certain systems on a delayed construction schedule. The Waiver is relevant
to the Company's designated frequency area ("DFA") licenses which were
acquired prior to the FCC's 900 MHZ specialized mobile radio ("SMR")
spectrum auctions, conducted during 1995 and 1996. For those licenses
acquired by the Company through the spectrum auctions, e.g. major trading
area ("MTA") licenses, and for previously acquired DFA licenses authorized
for overlapping frequencies with the Company's new MTA licenses, the Waiver
is inapplicable. Instead, construction requirements for these MTA and DFA
licenses will be satisfied if a portion of the market's population is
served after three years, which increases after five years.
Litigation
In June 1994, the Company filed a lawsuit against Harris Adacom Corporation
B.V. ("Harris"), a Dutch Corporation, to enforce the Company's right to
repayment of a $3.5 million loan made to Harris in January 1994. In or
about May 1994, creditors placed Harris into bankruptcy. 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 Adacom Technologies Ltd., ("ATL"), an affiliate of
Harris and an Israeli publicly traded company, 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 other 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.
11
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 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 provides operational
and marketing support to the Company for an aggregate of 1.5 million shares
of common stock. For each of the six months ended June 30, 1996 and 1995,
Vanguard earned approximately 149,000 shares pursuant to this agreement.
These shares have been recorded in the six months ended June 30, 1996 and
1995 at approximately $1.6 million, and $1.2 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, 1996 and 1995, pursuant to its consulting agreement with the
Soros Group, the holders of the Company's Series H Redeemable Preferred
Shares, Series I Convertible Preferred Shares and $5.0 million of the
Company's Series N Preferred Stock. As indicated in Note 2, in April 1996,
the Soros Group made an additional commitment to the Company.
PST has entered into a subcontractor agreement with Rafael, a shareholder
of the Company, under which Rafael will partake in the enhancement and
continued development of the digital wireless communications system to be
deployed by the Company in the United States. Research and development
expense for the six months ended June 30, 1996 and 1995, includes
approximately $2.9 million and $1.9 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 U.S. network.
Through June 30, 1996 the Company had placed firm orders for equipment
totaling $33.9 million of which $20.0 million has been paid to Rafael to
date.
Note 7 Other Events:
In June 1996, the United Kingdom Department of Trade and Industry awarded
the Company's United Kingdom operating subsidiary a license to operate a
digital Public Access Mobile Radio ("PAMR") network in the United Kingdom.
Under the terms of the new digital license, the operating subsidiary will
receive up to two megahertz of spectrum in the 410-430 MHz band for the
construction of a network based on the new Trans European Trunked Radio
("TETRA") standard. Currently, there are no TETRA systems available for
commercial application. While some potential vendors have indicated an
interest in supplying a TETRA-based system to National Band Three Limited,
the Company's United Kingdom subsidiary ("NB3"), management of the company
and NB3 cannot accurately estimate the availability, quality and costs
associated with the implementation of a TETRA-based network. Management is
continuing to work with potential vendors and regulatory authorities in the
United Kingdom regarding implementation of such system. However, there can
be no assurance that NB3 will be able to implement such a system or, if
implemented, when NB3 will be in a position to roll-out a TETRA-based
system. Finally, the development of a TETRA-based system in the United
Kingdom will be subject to the same risks attendent to the development of
the Company's GEONETTM system in the United States.
The Company expects that the digital network to be implemented by the
Company in the United Kingdom will offer a full range of mobile voice and
data services, including telephony, digital dispatch, automatic vehicle
location and packet data The Company hopes to commence commercial
operations of such a digital network in 1998. The Company's United Kingdom
operating subsidiary already provides PAMR services to over 60,000 business
subscribers throughout the United Kingdom.
Note 8 Subsequent Events:
In July 1996, through the FCC's 900 MHZ Spectrum auctions, the Company
purchased 181 10-channel blocks in 42 regional service areas known as Major
Trading Areas at an aggregate cost of approximately $30.9 million. After a
partial return by the FCC of the Company's original deposit, the Company
had $6.2 million on deposit with the FCC on June 30, 1996. The remainder
was paid with existing cash resources.
12
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9 Condensed Consolidating Financial Information For Guarantors
("Guarantor 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
GmbH Holding Corporation and BCI, the entity through which, effective
August 1995, the Company owns its interests in Bogen Communications, Inc.
and Speech Design GmbH.
The Guarantor 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 Guarantor
Information is presented as management does not believe that separate
financial statements of the Guarantor Subsidiaries would be meaningful.
This Guarantor 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, paying dividends, and incurring additional debt.
Basis of Presentation - To conform with the terms and conditions of the
Notes, the combining Guarantor Information 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 Guarantor
Information. Operating results of
Subsidiaries are therefore not reflected in
the Parent's investment accounts or earnings.
(2) Guarantor Subsidiaries -For purposes of the Guarantor Information,
Guarantor Subsidiaries includes all U.S.
wireless subsidiaries of PowerSpectrum, Inc.
("PSI") combined with MetroNet Systems, Inc.
and ANSA Communications, Inc., both direct
wholly owned subsidiaries of the Parent
Company. For purposes of the Guarantor
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 Guarantor 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.
13
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9 Condensed Consolidating Financial Information For Guarantors
("Guarantor Information"): continued
CONDENSED CONSOLIDATING BALANCE SHEET
As of June 30, 1996
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Geotek
Geotek Guarantor Non-Guarantor Reclassifications Comm,Inc.
Comm,Inc. Subsidiaries Subsidiaries & Eliminations & Subsidiaries
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
ASSETS (1) (2) (3) (4)
CURRENT ASSETS
Cash and cash equivalents $152,896 $ 362 $ 4,381 $ 157,639
Restricted cash 14,936 1,641 16,577
Accounts receivable net 127 15,372 15,499
Inventories 4,719 10,885 15,604
Deposits for spectrum licenses 6,616 6,616
Prepaid expenses and other assets 1,014 1,320 5,469 7,803
-------- -------- -------- --------- --------
Total current assets 168,846 13,144 37,748 219,738
-------- -------- -------- --------- --------
Inter-company account 203,795 37,137 286 ($241,218)
Investments in affiliates 2,580 (163) 2,417
Property, plant and equipment, net 1,170 55,371 41,204 (8,763) 88,982
Intangible assets, net 11,987 22,239 35,454 69,680
Other assets 20,309 238 2,220 (1,756) 21,011
Investments in subsidiaries, at cost 90,427 (90,427)
-------- -------- -------- --------- --------
Total Assets $499,114 $128,129 $116,912 $(342,327) $401,828
======== ======== ======== ========= ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable - trade $ 1,674 $ 6,221 $ 11,823 $ 19,718
Accrued expenses and other 4,992 3,591 26,740 35,323
Notes payable, banks and other 9,321 ($ 93) 9,228
Current maturities, long-term debt 8,562 1,398 509 10,469
-------- -------- -------- --------- --------
Total current liabilities 15,228 11,210 48,393 (93) 74,738
-------- -------- -------- --------- --------
Long-term debt 173,288 9,260 (2,074) 180,474
Intercompany accounts 195,461 45,757 (241,218)
Other non current liabilities (154) 2,406 (1,164) 1,088
Minority interest 498 498
Redeemable preferred stock 40,000 40,000
Shareholders' equity:
Preferred stocks, $.01 par value 11 11
Common stock, $.01 par value: 583 583
Capital in excess of par value 333,442 40,621 75,454 (88,854) 360,663
Foreign currency translation (750) (750)
adjustment
Accumulated deficit (61,898) (119,163) (64,106) (8,924) (254,091)
Treasury stock, at cost (1,386) (1,386)
-------- -------- -------- --------- --------
270,752 (78,542) 10,598 97,778 105,030
-------- -------- -------- --------- --------
$499,114 $128,129 $116,912 $(342,327) $401,828
======== ======== ======== ========= ========
</TABLE>
14
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9 Condensed Consolidating Financial Information For Guarantors
("Guarantor Information"): continued
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 1995
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Geotek
Geotek Guarantor Non-Guarantor Reclassifications Comm,Inc.
Comm,Inc. Subsidiaries Subsidiaries & Eliminations & Subsidiaries
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
ASSETS (1) (2) (3) (4)
CURRENT ASSETS:
Cash and cash equivalents $ 53,128 $ 522 $ 7,778 $ 61,428
Temporary investments 7,945 7,945
Restricted cash 35,230 1,741 36,971
Accounts receivables trade, net 21 14,007 14,028
Inventories 1,328 9,155 10,483
Deposits for spectrum licenses 3,500 8,000 11,500
Prepaid expenses and other assets 1,051 317 4,253 5,621
-------- -------- -------- --------- --------
Total current assets 100,854 10,188 36,934 147,976
Inter-Company account 142,286 37,154 4,893 $(184,333)
Investments in affiliates 3,241 (163) 3,078
Property, plant and equipment, net 1,088 28,962 39,487 (3,427) 66,110
Intangible assets, net 12,313 19,171 36,697 68,181
Other assets 7,684 174 3,845 (4,484) 7,219
Investments in subsidiaries, at cost 90,427 (90,427)
-------- -------- -------- --------- --------
$357,893 $95,649 $121,856 $(282,834) $292,564
======== ======= ======== ========= ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 508 $ 2,447 $ 14,993 $ 17,948
Accrued expenses and other 1,250 5,835 15,920 23,005
Notes payable, banks and other 8,604 ($319) 8,285
Current maturities, long-term debt 28,913 664 29,577
-------- -------- -------- --------- --------
Total current liabilities 30,671 8,282 40,181 (319) 78,815
-------- -------- -------- --------- --------
Inter-company account 138,107 46,226 (184,333)
Long-term debt 86,090 2,003 12,356 (4,574) 95,875
Other non current liabilities (152) 2,533 (1,164) 1,217
Minority interest 395 395
Redeemable preferred stock 40,000 40,000
Shareholders' equity:
Preferred stocks, $.01 par value 11 11
Common stock, $.01 par value 553 553
Capital in excess of par value 245,234 40,621 75,455 (88,854) 272,456
Foreign currency translation adjustment 1,012 1,012
Accumulated deficit (43,128) (93,364) (56,302) (3,590) (196,384)
Treasury stock, at cost (1,386) (1,386)
-------- -------- -------- --------- --------
201,284 (52,743) 20,165 (92,444) 76,262
-------- -------- -------- --------- --------
$357,893 $ 95,649 $121,856 $(282,834) $292,564
======== ======== ======== ========= ========
</TABLE>
15
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9 Condensed Consolidating Financial Information for Guarantors
("Guarantor Information"): continued
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For
the Six Months Ended June 30, 1996
(Dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
Geotek
Geotek Guarantor Non-Guarantor Reclassifications Comm,Inc.
Comm,Inc. Subsidiaries Subsidiaries & Eliminations & Subsidiaries
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
(1) (2) (3) (4)
REVENUES
Net sales $ 220 $ 47,259 $ (19,251) $ 28,228
Service income 88 15,600 15,688
-------- -------- --------- --------
Total revenues 308 62,859 (19,251) 43,916
-------- -------- --------- --------
Costs and expenses:
Cost of goods sold 3,082 30,620 (13,769) 19,933
Cost of services 6,441 9,376 (214) 15,603
Research and development 5,502 10,860 (12) 16,350
Marketing $ 150 7,369 8,431 15,950
General and administrative 5,443 3,826 8,140 17,409
Amortization of intangibles 966 578 974 2,518
Equity in losses of investees 1,020 1,020
Interest expense 14,464 58 1,329 (528) 15,323
Interest income (3,195) (162) (342) 528 (3,171)
Other income (78) (589) (206) 78 (795)
-------- -------- -------- --------- --------
Total Costs and expenses 18,770 26,105 69,182 (13,917) 100,140
-------- -------- -------- --------- --------
Loss from operations before
taxes on income and
minority interest (18,770) (25,797) (6,323) (5,334) (56,224)
Taxes on income (1,380) (1,380)
Minority interest (103) (103)
-------- -------- -------- --------- --------
Net loss $(18,770) $(25,797) $ (7,806) $ (5,334) $(57,707)
======== ======== ======== ========= ========
</TABLE>
16
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9 Condensed Consolidating Financial Information for Guarantors
("Guarantor Information"): continued
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For
the Six Months Ended June 30, 1995
(Dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
Geotek
Geotek Guarantor Non-Guarantor Reclassifications Comm,Inc.
Comm,Inc. Subsidiaries Subsidiaries & Eliminations & Subsidiaries
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
(1) (2) (3) (4)
REVENUES
Net sales $ 49 $ 28,184 $ (1,915) $ 26,318
Service income 1,089 12,097 13,186
-------- -------- --------- --------
Total revenues 1,138 40,281 (1,915) 39,504
-------- -------- --------- --------
Costs and expenses:
Cost of goods sold 41 16,868 (1,653) 15,256
Cost of services 1,201 6,403 7,604
Research and development $ 316 4,973 9,042 14,331
Marketing 150 2,794 8,438 11,382
General and administrative 3,558 2,897 4,387 10,842
Amortization of intangibles 323 505 1,054 1,882
Equity in losses of investees 410 1,668 2,078
Interest Expense 2,839 202 1,222 (680) 3,583
Interest Income (1,720) (33) (240) 680 (1,313)
Other Income (861) (89) (950)
-------- -------- -------- --------- --------
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>
17
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9 Condensed Consolidating Financial Information For Guarantors
("Guarantor Information"): continued
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For
the Six Months Ended June 30, 1996
(Dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
Geotek
Geotek Guarantor Non-Guarantor Reclassifications Comm,Inc.
Comm,Inc. Subsidiaries Subsidiaries & Eliminations & Subsidiaries
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
(1) (2) (3) (4)
Cash Flows From Operating Activities:
Net loss $(18,770) $(25,797) $ (7,806) $ (5,334) $(57,707)
Adjustment to reconcile net loss to net
cash used in operating activities:
Minority interest 103 103
Depreciation & amortization 988 1,788 4,870 (133) 7,513
Equity in net loss of investees 1,020 1,020
Non cash management consulting expense 1,549 1,549
Post acquisition adjustment for utilization
of acquired net operating loss carry forward 875 875
Non cash interest expense 10,243 10,243
Changes in operating assets and liabilities:
Accounts receivable (106) (1,365) (1,471)
Inventories (3,391) (1,730) (5,121)
Prepaid expenses 37 (1,003) (2,262) (3,228)
Accounts payable & accrued expenses 4,908 1,530 7,650 14,088
Other 50 502 552
-------- -------- -------- --------- --------
Net cash (used in) provided by
operating activities (1,524) (25,430) 837 (5,467) (31,584)
-------- -------- -------- --------- --------
Cash flows from investing activities:
Net decrease in temporary investments 7,945 7,945
Acquisition of spectrum licenses (400) (400)
Spectrum license deposit return 1,784 1,784
Acquisitions of property & equipment (104) (24,535) (6,661) 5,334 (25,966)
Cash invested in unconsolidated
subsidiaries (350) (350)
Decrease contract deposits - other current assets 1,046 1,046
Decrease in restricted cash 20,394 20,394
-------- -------- -------- --------- --------
Net cash (used in) investing activities 27,885 (23,151) (5,615) 5,334 4,453
-------- -------- -------- --------- --------
Cash flows from financing activities:
Net borrowings under
line of credit agreements 1,100 1,100
Proceeds from issuance of convertible notes 75,000 75,000
Deferred financing costs (2,213) (2,213)
Net proceeds from issuance of
Preferred stock 53,350 53,350
Repayments of debt (605) (195) (800)
Repayment of capital lease obligations (30) (214) (244)
Exercise of warrants & options 1,752 1,752
Payment of preferred dividends (2,555) (2,555)
Financing costs (810) (810)
Other (333) (333)
Capital contributed from parent (51,087) 49,026 1,928 133
-------- -------- -------- --------- --------
Net cash provided by financing activities 73,407 48,421 2,286 133 124,247
-------- -------- -------- --------- --------
Effect of exchange rate changes on cash (905) (905)
Increase (decrease) in cash & equivalents 99,768 (160) (3,397) 96,211
Cash & equivalents, beginning of period 53,128 522 7,778 61,428
-------- -------- -------- --------- --------
Cash & equivalents, end of period $152,896 $ 362 $ 4,381 -- $157,639
======== ======== ======== ========= ========
</TABLE>
18
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9 Condensed Consolidating Financial Information For Guarantors
("Guarantor Information"): continued
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For
the Six Months Ended June 30, 1995
(Dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
Geotek
Geotek Guarantor Non-Guarantor Reclassifications Comm,Inc.
Comm,Inc. Subsidiaries Subsidiaries & Eliminations & Subsidiaries
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
(1) (2) (3) (4)
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 3,408 4,613
Equity in net loss of investees 409 1,669 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:
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) provided by
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>
19
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the consolidated financial statements and the
notes thereto, included elsewhere in this report.
Results of Operations
General
Over the past four years, the Company has devoted and expects to continue
to devote substantial financial and management resources to the development and
deployment of a low cost, high quality integrated digital voice and data
wireless communications network in the United States ("GeoNetTM"). The Company,
through its subsidiaries and joint ventures, intends to deploy similar networks
internationally. Although Management believes these activities will have a
positive effect on the Company's results of operations in the long term, it 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
and have negative cash flow from operations for the foreseeable future,
attributable primarily to the operating, sales, marketing, general and
administrative expenses relating to the roll-out of GeoNet TM as well as to a
high investment in research and development related to its wireless
communications activities. There can be no assurance that the Company will
operate at profitable levels or have positive cash flow from operations.
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 in the United Kingdom and Germany
utilizing analog equipment, developing and selling wireless data solutions,
implementing a digital wireless communications system for the United States that
will provide integrated wireless communications services, and implementing
digital wireless communications systems internationally.
The Company is presently in the process of commencing the roll-out of
GeoNetTM. The Company started providing commercial services in Philadelphia,
Washington, DC, Baltimore, and New York during the first quarter of 1996 and in
Boston, Miami and Dallas in the second quarter of 1996. The Company intends to
offer GeoNet TM in over 35 markets by the end of 1997. However, the Company's
roll-out schedule may be reviewed and revised from time to time in light of
changing conditions.
In April 1996, the Company and RWE Telliance A.G. ("RWE") entered into a
letter of intent to merge their respective German mobile radio networks as of
August 31, 1996. Under the terms of this letter of intent, each of RWE and the
Company will own 50% of the merged entity. There can be no assurances that the
Company and RWE will execute a formal agreement based on this letter of intent
as this transaction is subject to, among other things, completion of
satisfactory due diligence, regulatory approvals, and approvals of each
company's board of directors.
Also in April 1996, Industry Canada, the Canadian agency responsible for
spectrum allocation, approved in principle an award of certain 900 MHz
frequencies in Ontario, Quebec, British Columbia and Alberta to a joint venture
consisting of the Company, Cogeco Cable, Inc. ("Cogeco") and Techcom, Inc., a
Canadian SMR operator. These entities had entered into a letter of intent to
form such joint venture in Canada to launch mobile wireless communications
services based on the Company's proprietary FHMATM technology. In July 1996, the
Company announced that it had been unable to reach a final agreement with Cogeco
and that the Company is actively negotiating with other potential Canadian
partners to replace Cogeco, so as to comply with Canadian foreign ownership and
regulatory requirements. There can be no assurance that the Company will be able
to identify such a partner or, if such a partner is identified, that an
agreement can be reached on terms favorable to the Company. Any failure on the
part of the Company to enter into such an arrangement could have a material
adverse effect on the Company's prospects in Canada.
In June 1996, the Korean Ministry of Information and Communications awarded
a consortium Anam Telecom Co. Ltd. ("Anam Telecom"), in which the Company holds
a 21% interest, a license to operate a nationwide trunked radio system in Korea.
Anam Telecom also includes approximately 53 Korean companies, among them Anam
Industrial Co. Ltd. (the Company's joint venture partner in Korea), Hyundai
Electronics, Korean Mobile Telecom, Ssangyong Corporation and Korea Express. The
license covers a geographic area with a population of approximately 45 million
people and is based on the implementation of the Company's FHMATM system on an
800 MHz frequency. The Company's FHMATM system currently operates in the 900 MHz
frequency band. Although the Company believes that it will successfully adapt
its FHMATM system to the 800 MHz frequency, such adaptation is subject to a
number of contingencies and the manufacture of certain equipment required in
connection therewith. There can be no assurance that the Company will be able to
successfully adapt its FHMATM system to the 800 MHz frequency on a timely basis.
Any failure on the part of the Company to successfully adapt its FHMATM
technology pursuant to the terms of the Korean license could have a material
adverse effect on the Company's prospects in Korea. In addition, the Company
will provide FHMATM related infrastructure equipment and broad business and
engineering support for the design, implementation and operation of the network
in Korea. Finally, the development of a FHMATM based digital system in Korea
will be subject to the same risks attendent to the development of the Company's
GEONETTM system in the United States.
In June 1996, the United Kingdom Department of Trade and Industry awarded
the Company's United Kingdom operating subsidiary a license to operate a digital
Public Access Mobile Radio ("PAMR") network in the United Kingdom. Under the
terms of the new digital license, the operating subsidiary will receive up to
two megahertz of spectrum in the 410-430 MHz band for the construction of a
network based on the new Trans European Trunked Radio ("TETRA") standard.
Currently, there are no TETRA systems available for commercial application.
While some potential vendors have indicated an interest in supplying a
TETRA-based system to National Band Three Limited, the Company's United Kingdom
subsidiary ("NB3"), management of the company and NB3 cannot accurately estimate
the availability, quality and costs associated with the implementation of a
TETRA-based network. Management is continuing to work with potential vendors and
regulatory authorities in the United Kingdom regarding implementation of such
system. However, there can be no assurance that NB3 will be able to implement
such a system or, if implemented, when NB3 will be in a position to roll-out a
TETRA-based system. Finally, the development of a TETRA-based system in the
United Kingdom will be subject to the same risks attendent to the development of
the Company's GEONETTM system in the United States.
The Company expects that the digital network to be implemented by the
Company in the United Kingdom will offer a full range of mobile voice and data
services, including telephony, digital dispatch, automatic vehicle location and
packet data The Company hopes to commence commercial operations of such a
digital network in 1998. The Company's United Kingdom operating subsidiary
already provides PAMR services to over 60,000 business subscribers throughout
the United Kingdom.
20
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: Continued
The Company's communications products subsidiaries are primarily engaged in
the development, manufacturing, and marketing of telephone peripherals and sound
and communications equipment.
The Corporate Group includes the Company's Corporate headquarters and
Geotest, Inc. subsidiary.
Summary of Operations
The Summary of Operations provides an analysis of the three month and six
month periods ended June 30, 1996, compared to the same periods in 1995. For
purposes of this discussion, year to date represents the six month period ending
June 30.
Consolidated
Consolidated revenues increased by 10% in the second quarter of 1996, and
by 11% year to date 1996, respectively, principally due to the inclusion of the
German networks, whose operating results were consolidated with the Company's
operating results beginning in July and December 1995, as well as subscriber
growth of the National Band Three Network ("NBTL").
Consolidated operating expenses increased by 65% in the second quarter of
1996, and by 55% year to date, respectively, principally due to increased cost
of service, marketing, and general and administrative expenses related to the
roll-out of the U.S. Network.
On a consolidated basis, interest expense for the three and six months
ended June 30, 1996 increased due to the 15% Senior Secured Discount Notes
issued in July 1995 and the Company's 12% $75 million Convertible Notes issued
in March 1996. Interest income increased for the three and six months ended June
30, 1996 due to greater cash and cash equivalents which resulted from the
issuance of the Senior Secured Discount Notes and Convertible Notes.
Consolidated losses from operations increased by $18.9 million for the
second quarter to $30.7 million and by $31.0 million to $56.2 million year to
date.
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
June 30, 1996 and 1995. The North American column includes the U.S. Digital
Wireless Network as well as Geotek Technologies, Inc. (which includes Geotek
Technologies Israel, Ltd., formerly PowerSpectrum Technology and GMSI, Inc.).
For the Three Months Ended June 30, 1996
(Dollars in Thousands)
German
North America NBTL Networks Total
----------------------------------------------
Revenues $2,540 $6,939 $909 $10,388
Gross profit (4,958) 4,726 (25) (257)
% of revenues (195%) 68% (3%) (2%)
Research and Development 7,523 7,523
Marketing 5,039 1,383 165 6,587
General and Administrative 1,391 890 926 3,207
Other (income) expenses (222) 17 (205)
(Loss) income before interest
and amortization & depr. (18,689) 2,453 (1,133) (17,369)
Amortization and depreciation 1,337 1,061 940 3,338
(Loss) income before interest (20,026) 1,392 (2,073) (20,707)
Net (loss) income ($20,143) $874 ($2,175) ($21,444)
Subscribers, end of period 500 60,500 13,100 74,100
21
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: Continued
For the Three Months Ended June 30, 1995
(Dollars in Thousands)
German
North America NBTL Networks Total
---------------------------------------------
Revenues $1,810 $6,129 $7,939
Gross profit (55) 3,932 3,877
% of revenues 3% 64% 49%
Research and Development 5,224 5,224
Marketing 2,451 1,308 3,759
General and Administrative 3,024 816 3,840
Equity in loss of less than
50% owned entities $731 731
Other income (860) (42) (902)
(Loss) income before interest
and amortization & depr. (9,894) 1,850 (731) (8,775)
Amortization and depreciation 537 1,042 311 1,890
(Loss) income before interest (10,431) 808 (1,042) (10,665)
Net (loss) income ($10,788) $730 ($1,042) ($11,100)
Subscribers, end of period 52,400 8,100 60,500
Revenues from wireless communications increased by $2.4 million or 31% for
the quarter ended June 30, 1996. This increase is primarily due to the inclusion
of the German networks on a consolidated basis in 1996, the increase in the
number of subscribers using the NBTL network (which totaled approximately 60,500
and 52,400 at June 30, 1996 and 1995, respectively), as well as, an increase in
GMSI, Inc.'s revenue due to its contract related to the Singapore taxi fleet.
Negative gross profit for North America is a result of direct costs related to
the roll-out of the U.S. Network which are currently not covered by revenue.
Average revenue per subscriber on the NBTL network remained constant. Gross
profit as a percent of revenues, for NBTL, increased as costs 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 were $7.5 million for the three
months ended June 30, 1996 compared to $5.2 million for the same period of 1995.
The increase in the 1996 expense is primarily attributable to costs related to
the development of the commercial subscriber unit and enhancements to GeoNetTM,
including system software. The Company expects significant research and
development expenses to continue in the future in connection with enhancements
to GeoNetTM, development of the portable subscriber unit, and development of
international digital wireless systems.
The Company is beginning to offer wireless service over its proprietary
network in many markets in the United States and accordingly continues to
establish its marketing, engineering, operations and administrative staff and
systems. Marketing expenses increased by approximately $2.8 million or 74% due
to the marketing effort and increase in staff needed to execute the roll-out of
the U.S. wireless network.
The Company's equity in losses of less than 50% owned entities for the
quarter ended June 30, 1995 relate to the Company's investment in the PBG and
DBF German networks. In July 1995 and December 1995, the Company acquired the
remaining shares of the DBF and PBG German networks, respectively, and began
consolidating these subsidiaries. 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 June 30, 1996 was
approximately 13,100. As discussed above, the Company has entered into a letter
of intent to merge these networks with RWE's network.
22
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: Continued
Wireless activities generated a loss before net interest expense, taxes,
amortization and depreciation of $ 17.4 million for the quarter ended June 30,
1996 compared to $8.8 million in 1995. 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 and the inclusion of the German
networks on a consolidated basis in 1996.
The tables below set forth certain information with respect to the results
of the Company's Wireless Communications activities for the six months ended
June 30, 1996 and 1995. The North American column includes the U.S. Digital
Wireless Network as well as Geotek Technologies, Inc. (which includes Geotek
Technologies Israel, Ltd., formerly PowerSpectrum Technology and GMSI, Inc.).
For the Six Months Ended June 30, 1996
(Dollars in Thousands)
German
North America NBTL Networks Total
---------------------------------------------
Revenues $4,604 $13,398 $1,884 $19,886
Gross profit (7,357) 9,081 (64) 1,660
% of revenues (160%) 68% (3%) 8%
Research and Development 14,738 14,728
Marketing 8,154 2,580 404 11,138
General and Administrative 4,637 1,755 1,944 8,336
Other income (785) (785)
(Loss) income before interest
and amortization & depr. (34,101) 4,746 (2,412) (31,767)
Amortization and depreciation 2,351 2,229 1,678 6,258
(Loss) income before interest (36,452) 2,517 (4,090) (38,025)
Net (loss) income ($36,129) $1,547 ($4,348) ($38,930)
Subscribers, end of period 500 60,500 13,100 74,100
For the Six Months Ended June 30, 1995
(Dollars in Thousands)
German
North America NBTL Networks Total
---------------------------------------------
Revenues $3,296 $11,865 $15,141
Gross profit 437 7,256 7,693
% of revenues 13% 61% 51%
Research and Development 13,165 13,165
Marketing 3,498 2,590 6,088
General and Administrative 6,350 1,615 7,965
Equity in loss of less than
50% owned entities $1,668 1,668
Other income (860) (89) (949)
(Loss) income before interest
and amortization & depr. (21,716) 3,140 (1,668) (20,244)
Amortization and depreciation 998 2,051 598 3,647
(Loss) income before interest (22,714) 1,089 (2,266) (23,891)
Net (loss) income ($22,688) $943 ($2,266) ($24,011)
Subscribers, end of period 52,400 8,100 60,500
23
<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 $4.7 million or 31% for
the six months ended June 30, 1996. This increase is primarily due to the
inclusion of the German networks on a consolidated basis in 1996, the increase
in the number of subscribers using the NBTL network (which totaled approximately
60,500 and 52,400 at June 30, 1996 and 1995, respectively), as well as, an
increase in GMSI, Inc.'s revenue due to its contract related to the Singapore
taxi fleet. Negative gross profit for North America is a result of direct costs
related to the roll-out of the U.S. Network which are currently not covered by
revenue. Average revenue per subscriber on the NBTL network remained constant.
Gross profit as a percent of revenues, for NBTL, increased as costs 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 were $14.7 million for the six
months ended June 30, 1996 compared to $13.2 million for the same period of
1995. The 1995 expenses included approximately $2.0 million for shares issued in
connection with a research and development project. The increase in the 1996
expense is primarily attributable to costs related to the development of the
commercial subscriber unit and enhancements to GeoNetTM, including system
software.
Marketing expenses increased by approximately $5.0 million or 82% due to
the marketing effort and increase in staff needed to execute the roll-out of the
U.S. wireless network.
The Company's equity in losses of less than 50% owned entities for the six
months ended June 30, 1995 relate to the Company's investment in the PBG and DBF
German networks. In July 1995 and December 1995, the Company acquired the
remaining shares of the DBF and PBG German networks, respectively, and began
consolidating these subsidiaries.
Wireless activities generated a loss before net interest expense, taxes,
amortization and depreciation of $ 31.8 million for the six month ended June 30,
1996 compared to $20.2 million in 1995. 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 and the inclusion of the German
networks on a consolidated basis in 1996.
Communications Products Activities
The table below sets forth certain information with respect to the results
of operations of Bogen Communications International ("BCI"), as consolidated by
the Company, for the three months and six months ended June 30, 1996 and 1995.
(Dollars in Thousands)
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
-------- -------- -------- --------
Revenues $ 10,332 $ 11,616 $ 21,690 $ 22,461
Gross profit 4,787 5,144 9,592 9,823
% of revenue 46% 44% 44% 44%
Research and Development 688 486 1,342 1,101
Marketing 2,070 2,435 4,193 4,769
General and Administration 1,011 881 1,925 1,710
Other expenses (income) 35 (7) (5)
Income before interest, tax,
minority interest, amortization
& depreciation 983 1,349 2,132 2,248
Amortization & depreciation 219 383 575 760
Interest expense, tax
& minority interest 265 826 933 1,352
Net income $ 499 $ 140 $ 624 $ 136
24
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: Continued
Revenues from communications products activities decreased by $1.3 million,
or 11% to $10.3 million for the quarter ended June 30, 1996 and $0.8 million or
3.6 % to $21.7 million year to date. The decrease in sales is primarily due to a
$1.2 million decrease in the office automation ("OAS") product line sales, which
product line is being phased out beginning December 1995.
Gross profit as a percentage of revenues increased from 44% to 46% in the
second quarter of 1996 compared to the same period in 1995. The increase
primarily resulted from the decrease in sales of OAS products which have lower
profit margins than core products.
The decrease in marketing expenses for the three and six months ended June
30, 1996 compared to the same periods of 1995 is due to the reduction of
marketing and payroll expenses related to the OAS product line.
Corporate Group
The Corporate Group generated losses before net interest expense,
amortization, depreciation, and other charges of $3.4 million and $6.9 million
for the second quarter and year to date 1996 compared to losses of $0.6 million
and $0.3 million for the same periods in 1995. These increases are primarily due
to approximately $5.2 million of expenses associated with the expansion of the
Corporate headquarters. Revenues from corporate group subsidiaries were $1.6
million and $2.3 million for the second quarter and year to date 1996,
respectively compared to revenues of $0.8 million and $1.9 million for the same
periods in 1995.
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 convertible notes and convertible preferred stock during the six months ended
June 30, 1996. At June 30, 1996, the Company had $157.6 million of cash, and
cash equivalents as well as $64.5 million available under line of credit
facilities.
The Company's short term cash needs are primarily for capital expenditures
related to the digital FHMATM system which the Company's U.S. 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) in order to provide commercial service.
Additionally, 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 the U.S. network is rolled out in various markets without
materially impacting the business results of its then operating city or regional
networks.
The Company estimates that a minimum average investment of approximately $5
million is required to roll-out its U.S. network in an average target market.
Additional expenditures will be required later in a given market 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 over 35 cities, the
repayment of convertible debt and redeemable preferred stock (if such are not
converted into equity), the repayment of the Company's Senior Secured Discount
Notes due 2005, to finance international digital wireless 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. There can be no assurance that the Company will be able to obtain any
such financing on acceptable terms, or at all. The failure to obtain such
financing may cause the Company to significantly alter its GeoNetTM rollout plan
and financing its international digital wireless networks.
25
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: Continued
In July 1996, through the Federal Communication Commission's (the "FCC")
900 MHZ Spectrum auctions, the Company purchased 181 10-channel blocks in 42
regional service areas known as Major Trading Areas at an aggregate cost of
approximately $30.9 million. After the partial return by the FCC of the
Company's original deposit, the Company had $6.2 million on deposit at June 30,
1996. The remainder was paid with existing cash resources.
In July 1996, the Company contributed approximately $9.6 million to Anam
Telecom which represents the Company's portion of the initial capitalization
of Anam Telecom and related Spectrum license.
The following discussion of liquidity and capital resources, among other
things, compares the Company's financial and cash position as of June 30, 1996,
to the Company's financial and cash position as of December 31, 1995.
During the first six months of 1996, cash and cash equivalents increased by
$96.2 million to $157.6 million, while working capital increased by $75.8
million to $145.0 million as of June 30, 1996.
Cash utilized in connection with operating activities for the six months
ended June 30, 1996, amounted to $31.6 million.
Cash outflows from investing activities, exclusive of decrease in temporary
investments of $7.9 million and the decrease in restricted cash of $20.4
million, were $23.9 million. The Company expended $26.0 million on acquisitions
of equipment during the first two quarters of 1996.
In March 1996, the Company issued $75.0 million aggregate principal amount
of Senior Subordinated Convertible Notes ("Convertible Notes"), due 2001. Each
Convertible Notes is in the principal amount of $1,000, and beginning on March
5, 1997 may be converted by the holders into shares of the Company's common
stock, par value $.01, at a conversion price equal to $9.50 per share. Cash
interest on the Convertible Notes accrues at a rate of 12% per annum and is
payable semi-annually on each February 15 and August 15 commencing August 15,
1996. The Convertible Notes are unsecured senior subordinated obligations of the
Company. The Convertible Notes can be converted at the option of the Company
after 18 months if the closing price of the Company's common stock for 20 of the
30 trading days and for the five trading days before conversion is at least
$15.20 per share.
In April, 1996, the Company and S-C Rig Investments - III, L.P. ("S-C
Rig"), a significant stockholder of the Company, which is affiliated with George
Soros, entered into an agreement whereby S-C Rig made a $40.0 million unsecured
credit facility the ("S-C Rig Credit Facility") available to the Company
beginning June 1996. Under the terms of the S-C Rig Credit Facility, all
borrowings are required to be made prior to April 5, 1998. All borrowings under
the S-C Rig Credit Facility will accrue interest at a rate of 10% per annum and
will mature four years from the date of the final borrowing thereunder. The
Company will be obligated to pay S-C Rig a fee equal to 3% of each borrowing
under the credit facility at the time of such borrowing. Borrowings under the
S-C Rig Credit Facility will constitute senior indebtedness of the Company. At
June 30, 1996, there were no outstanding loans under the S-C Rig Credit
Facility.
In connection with the establishment of the S-C Rig Credit Facility, the
Company issued to S-C Rig a five-year warrant to purchase 4.2 million shares of
Common Stock at an exercise price of $9.50 per share (subject to adjustment in
certain circumstances). This warrant is exercisable at any time.
In June 1996, the Company sold 55,000 shares of Series N Cumulative
Convertible Preferred Stock ("Series N Stock") at an aggregate purchase price of
$55 million, to entities affiliated with the Charles R. Bronfman Family Trust,
the Kolber Trust, the Renaissance Fund, and certain existing shareholders of the
Company. The Series N Stock pays dividends in Common Stock at a rate of 10% per
annum. Additionally, the Series N Stock is immediately convertible into shares
of the Company's Common Stock at $11.00 per share. In connection with this
transaction, the Company issued warrants to purchase approximately 1.65 million
shares of the Company's Common Stock at $11.00 per share. In addition, the
Company incurred financing fees equal to 3% of the aggregate purchase price and
has recorded this amount as a reduction to the net proceeds of the issuance.
26
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: Continued
In April 1996, the Company purchased 100% of the outstanding stock of
MacDermott Communications, Inc., a private company whose only asset was a SMR
License, for 190,988 shares of the Company's Common Stock. The value of the
Common Stock issued was approximately $2.0 million.
The Company paid cash dividends totaling approximately $2.6 million on its
outstanding preferred stocks during the first two quarters of 1996. Proceeds
from the exercise of warrants and options totaled approximately $1.7 million in
the first two quarters of 1996.
27
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Part II. Other Information
Item 4: Submission of Matters to a Vote of Security-Holders
(a) On June 3, 1996, the Company held its Annual Meeting of
Stockholders. As of the record date the total number of votes eligible
to cast at the Annual Meeting was 65,473,938. The following proposals
were presented for a vote by the Company's stockholders:
PROPOSAL I - Election of Eleven (11) Directors
PROPOSAL II - Amendment to the Company's Restated Certificate of
Incorporation to Increase the Number of Authorized Shares to
135,000,000 Shares of Common Stock.
PROPOSAL III - Ratification of the Appointment of Coopers &
Lybrand L.L.P. as the Company's independent auditors for the 1996
fiscal year.
Each such proposal was approved by the Company's stockholders as set
forth in 4(c) below.
(b) N/A
(c ) PROPOSAL I - Election of Directors
Name of Nominee Votes for Votes Withheld
--------------- --------- --------------
Walter Auch 51,622,349 148,498
George Calhoun 51,626,524 144,323
Purnendu Chatterjee 51,616,283 154,564
Winston Churchill 51,621,477 149,370
Jonathan C. Crane 51,621,539 149,308
Yaron Eitan 51,620,582 150,265
Haynes G. Griffin 51,626,649 144,198
Richard Krants 51,618,524 152,323
Richard Liebhaber 51,618,574 152,273
Kevin Sharer 51,625,567 145,280
William Spier 51,617,617 153,230
PROPOSAL II
Amendment to the Company's Restated Certificate of Incorporation to
Increase the Number of Authorized Shares to 135,000,000 Shares of
Common Stock.
Votes Against Non-Vote Abstain
----- ------- -------- -------
48,779,899 1,837,170 1,047,100 106,678
PROPOSAL III
Ratification of the Appointment of Coopers & Lybrand L.L.P. as the
Company's independent auditors for the 1996 fiscal year.
Votes for Against Abstain
--------- ------- -------
51,589,627 63,427 117,793
Item 6. Exhibit and Reports on Form 8-K
(a) Exhibit: 12 - Computation of Ratio of Earnings to Fixed Charges
(b) Reports on Form 8-K
The following reports on Form 8-K were filed by the Company
during the second quarter of 1996.
(I) Current Report on Form 8-K filed May 15, 1996 reporting the
employment contract of Jonathan Crane, the President & CEO -
Geotek U.S. Operations.
(II) Current Report on Form 8-K filed June 27, 1996 reporting the
sale of 55,000 units of Series N Cumulative Convertible
Preferred Stock (Series N Stock) on June 20, 1996 for an
aggregate purchase price of $55 million. Each unit consists
of (a) one share of Series N Stock with a value of $1,000
per share and (b) warrants to purchase 30 shares of the
Company's common stock.
28
<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.
Date: August 14, 1996 /s/ Michael R. McCoy
----------------------------
Michael R. McCoy
Sr. Vice President and
Chief Financial Officer
Date: August 14, 1996 /s/ Michael H. Carus
----------------------------
Michael H. Carus
Chief Accounting Officer and
Corporate Controller
29
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Earnings include income before income taxes plus fixed charges less capitalized
interest. Fixed charges include interest and one-third of rent expense
(representing the estimated interest component of operating leases). The dollar
amount of the deficiency in earnings to fixed charges was $58.9 million for the
six months ended June 30, 1996.
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<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Jun-30-1996
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