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 March 31, 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 April 30, 1996: 57,316,480 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 6: Exhibit and Report 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 "forward-looking" statements. The Company desires to
take advantage of the new "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 project
results or to predict the effect of any legislation or other pending events on
the Company's operating results in 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 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)
March 31, 1996 December 31,
(Unaudited) 1995
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 116,173 $ 61,428
Temporary investments 5,834 7,945
Restricted cash 27,567 36,971
Accounts receivable, trade 13,446 14,028
Inventories 11,526 10,483
Deposits for spectrum licenses 8,000 11,500
Prepaid expenses and other 6,798 5,621
--------- --------
Total current assets 189,344 147,976
Investments in affiliates 2,805 3,078
Property, plant and equipment, net 76,126 66,110
Intangible assets, net 69,665 68,181
Other assets 8,813 7,219
--------- --------
$ 346,753 $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)
March 31, 1996 December 31,
(Unaudited) 1995
-------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 17,715 $ 17,948
Accrued expenses and other 26,077 23,005
Notes payable, banks and other 8,227 8,285
Current maturities, long-term debt 19,592 29,577
--------- ---------
Total current liabilities 71,611 78,815
--------- ---------
Long-term debt 175,164 95,875
Other noncurrent liabilities 1,105 1,217
Minority interest 500 395
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 99,000,000;
issued 56,811,000 and 55,251,000
respectively; outstanding
56,573,000 and 55,013,000,
respectively 569 553
Capital in excess of par value 282,078 272,456
Foreign currency
translation adjustment (83) 1,012
Accumulated deficit (222,816) (196,384)
Treasury stock, at cost (1,386) (1,386)
--------- ---------
58,373 76,262
--------- ---------
$ 346,753 $ 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)
Three Months Ended
March 31,
--------------------------
1996 1995
------ ------
Revenues:
Net sales $ 13,848 $12,798
Service income 7,705 6,400
---------- ------------
Total revenues 21,553 19,198
---------- ------------
Costs and expenses:
Cost of goods sold 8,760 7,399
Cost of services 7,264 3,584
Research and development 8,023 8,585
Marketing 7,002 4,948
General and administrative 9,794 5,520
Amortization of intangibles 1,198 911
Equity in losses of investees 436 1,195
Interest expense 6,672 1,504
Interest income (1,462) (588)
Other income (608) (467)
---------- ----------
Total costs and expenses 47,079 32,591
---------- ----------
Loss from operations before taxes
on income and minority interest (25,526) (13,393)
Taxes on income (800) (274)
Minority interest (106) (55)
---------- ----------
Net loss $ (26,432) $ (13,722)
---------- ----------
Preferred dividends (1,278) (666)
---------- ----------
Loss applicable to common stock $ (27,710) $ (14,388)
========== ==========
Weighted average number of common shares
outstanding 56,505,000 51,365,000
========== ==========
Per common share:
Net loss applicable to common shares $ (0.49) $ (0.28)
========== ==========
See notes to consolidated financial statements.
5
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the three months ended March 31, 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 75 1 304
Issuance of shares to
Vanguard pursuant to
management consulting
agreement 75 1 664
Issuance of shares in
connection with
debt conversion 1,410 14 9,932
Preferred dividend (1,278)
Changes in currency (1,095)
Net Loss (26,432)
----- --- ------ ---- -------- ---- --------- -------
Balances, March 31, 1996 1,063 $11 56,811 $569 $282,078 $(83) $(222,816) $(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)
Three Months Ended
March 31,
-----------------------
1996 1995
---- ----
Cash flows from operating activities:
Net loss $(26,432) $ (13,722)
Adjustments to reconcile net
loss to net cash
used in operating activities:
Minority interest 106 56
Depreciation and amortization 3,578 1,915
Post acquisition adjustment for utilization
of acquired net operating loss carry forward 400
Non cash interest expense 4,847
Equity in net loss of investees 436 1,195
Non cash management consulting expense 665 590
Issuance of shares in connection with
research and development project 2,029
Changes in operating assets and liabilities
(net of effects from acquisitions):
Decrease (increase) in accounts receivable 582 (985)
Decrease (increase) in inventories (1,043) 247
Increase in prepaid expenses and other assets (2,042) (308)
Increase in (decrease) accounts payable
and accrued expenses 2,839 (3,184)
Other 377 3
-------- --------
Net cash used in operating activities (15,687) (12,164)
-------- --------
Cash flows from investing activities:
Acquisition of licenses (900)
Net decrease (increase) in temporary investments 2,111 (5,684)
Acquisitions of property and equipment (11,425) (3,000)
Cash invested in unconsolidated
subsidiaries (180)
Decrease in contract deposits - other
current assets 865
Decrease in restricted cash 9,404
-------- --------
Net cash provided by (used in) investing activities 775 (9,584)
-------- --------
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)
Three Months Ended
March 31,
-----------------------
1996 1995
---- ----
Cash flows from financing activities:
Net repayments under line-of-credit
agreements (58) (242)
Proceeds from issuance of convertible
notes 75,000
Proceeds from issuance of senior secured
notes and related warrants 36,000
Deferred financing costs (2,213)
Repayments of secured note (25,000)
Repayment of capital lease obligation (122)
Repayments of debt (800)
Exercise of warrants and options 280 547
Payment of preferred dividends (1,278) (666)
Financing costs (450)
Other (112) 502
-------- -------
Net cash provided by financing activities 70,247 11,141
-------- -------
Effect of exchange rate changes on cash (590) 5
-------- -------
Increase (decrease) in cash and equivalents 54,745 (10,602)
Cash and equivalents, beginning of period 61,428 27,531
-------- -------
Cash and equivalents, end of period $116,173 $16,929
======== =======
Supplemental schedule of non cash investing
and financing activities:
Management consulting fee paid
in common stock $665 $590
Issuance of shares in connection
with research and development project $2,029
Issuance of shares in connection
with debt conversion $10,396
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 condensed 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.
Note 2 Long Term Debt:
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 three months ended March 31, 1996, $10.4 million was
converted into 1,410,000 shares of common stock. In connection with the
conversion the Company incurred $450,000 in financing costs.
In July 1995, the Company placed approximately $40.5 million in a
restricted cash account as security for the Company's obligations under
the Replacement Notes. As the Replacement Notes are converted, a
proportionate amount of the restricted cash becomes unrestricted and as
of March 31, 1996, $21.4 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 $17.6 million and
total interest on the remaining unconverted Replacement Notes.
In March 1996, the Company issued $75.0 million aggregate principal
amount of its 12% Senior Subordinated Convertible Notes due 2001 (the
"Convertible Notes"). Each Convertible Note is in the principal amount of
$1,000, and beginning on March 5, 1997, may be converted into shares of
the Company's common stock, par value $.01 per share (the "Common
Stock"), at a conversion price equal to the lower of (i) $9.50 per share
or (ii) the weighted average market price of the share of Common Stock
for the ten trading day period immediately following the 90th day after
the issuance date of the Convertible Notes, but shall in no event be less
than $8.25 per share.
Cash interest on the Convertible Notes accrues at the rate of 12% per
annum and is payable semiannually on each February 15 and August 15
commencing August 15, 1996. The Convertible Notes mature on February 15,
2001. The Company has the option to redeem the Convertible Notes, on or
after February 15, 1999, in whole or in part, at a redemption price equal
to 110% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the redemption date, for the 12 month period
beginning February 15, 1999, and at a redemption price equal to 105% of
the principal amount thereof, plus accrued and unpaid interest, if any,
to the redemption date, on or after February 15, 2000. The Company also
has the option, at any time on or after September 1, 1997, to require the
conversion of all, but not less than all, of the then outstanding
Convertible Notes into common stock at the conversion price then in
effect if the closing price of the common stock for 20 of the 30 trading
days and for the five trading days preceding a designated period equals
or exceeds 160% of the conversion price then in effect. The Convertible
Notes are unsecured senior subordinated obligations of the Company. In
addition, the indenture, governing the Convertible Notes, contains
certain covenants that, subject to certain exceptions, restrict the
ability of the Company and its Subsidiaries to engage in mergers and
acquisitions.
Pursuant to a registration rights agreement (the "Registration Rights
Agreement"), the Company has filed registration statements under the
Securities Act of 1933, as amended (the "Securities Act") with respect to
the resale of the Convertible Notes and the issuance, or to the extent
the registration of such issuance is not permitted by applicable law the
resale, of the Common Stock issuable upon conversion of the Convertible
Notes.
9
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 Commitments and Contingent Liabilities:
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 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.
Note 4 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 three months ended March
31, 1996 and 1995, Vanguard earned approximately 75,000 shares pursuant
to this agreement. These shares have been recorded in each of the three
months ended March 31, 1996 and 1995 at approximately $0.7 million, which
amounts are included in marketing expenses.
The Company incurred expenses of $75,000 in each of the three month
periods ended March 31, 1996 and 1995, pursuant to its consulting
agreement with the Soros Group, the holders of the Company's Series H
redeemable Preferred Shares and Series I Convertible Preferred Shares. As
indicated in Note 5, 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 US. Research and development expense for
the three months ended March 31, 1996 and 1995, includes approximately
$1.0 million and $1.8 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. Through March 31, 1996 the
Company had placed firm orders for equipment totaling $26.9 million of
which $16.6 million has been paid to Rafael to date.
10
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 Subsequent Events:
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 will make a $40.0 million unsecured credit facility
(the"S-C Rig Credit Facility") available to the Company. 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. 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 (the "Warrant
Shares") (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 and from time to
time after such date that the Company increases its authorized shares of
common stock to allow for the reservation of the Warrant Shares. The
Company's ability to make borrowings under this credit facility is
subject to the Company so increasing its authorized shares.
In April 1996, the Company and RWE Telliance A.G. ("RWE") entered into a
letter of intent to merge each of their German mobile radio networks.
Under the terms of this letter of intent, each 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, the Company, Cogeco Cable Inc, and Techcom Inc.
entered into a letter of intent to form a joint venture in Canada to
launch mobile wireless communication services based on the Company's
proprietary FHMA(TM) technology. The letter of intent is subject to,
among other things, the completion of satisfactory due diligence,
approval by the board of directors and execution of definitive
agreements. At the same time, Industry Canada, the Canadian agency
responsible for spectrum allocation, has approved in principle to award
the joint venture 900 MHZ frequencies in major markets of Ontario,
Quebec, British Columbia and Alberta.
Additionally, in April 1996, through the Federal Communication
Commission's 900 MHZ Spectrum auctions, the Company was a successful
bidder on 181 10-channel blocks in 42 regional service areas known as
Market Trading Areas at an aggregate cost of approximately $30.9 million
of which the Company had $8.0 million on deposit at March 31, 1996. The
remainder will be financed through an existing credit facility.
11
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 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 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 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
(Parent Company) are 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.
12
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 6 Condensed Consolidating Financial Information For
Guarantors ("Guarantor Information"): continued
CONDENSED CONSOLIDATING BALANCE SHEET
As of March 31, 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>
ASSETS (1) (2) (3) (4)
CURRENT ASSETS
Cash and cash equivalents $ 110,668 $ 692 $ 4,813 $ 116,173
Temporary investments 5,834 5,834
Restricted cash 25,874 1,693 27,567
Accounts receivable net 31 13,415 13,446
Inventories 1,906 9,620 11,526
Deposits for spectrum
licenses 8,000 8,000
Prepaid expenses and other assets 1,011 6,307 4,686 $ (5,206) 6,798
--------- --------- --------- --------- ---------
Total current assets 143,387 16,936 34,227 (5,206) 189,344
--------- --------- --------- --------- ---------
Inter-company account 173,374 29,970 1,951 (205,295)
Investments in affiliates 2,968 (163) 2,805
Property, plant and equipment, net 1,104 42,088 39,690 (6,756) 76,126
Intangible assets, net 12,150 22,409 35,106 69,665
Other assets 8,058 248 4,876 (4,369) 8,813
Investments in subsidiaries, at cost 90,427 (90,427)
--------- --------- --------- --------- ---------
Total Assets 431,468 111,651 115,850 (312,216) $ 346,753
========= ========= ========= ========= =========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable - trade 348 4,111 18,462 (5,206) 17,715
Accrued expenses and other 3,707 3,262 19,108 26,077
Notes payable, banks and other 8,432 (205) 8,227
Current maturities, long-term debt 17,668 1,398 526 19,592
--------- --------- --------- --------- ---------
Total current liabilities 21,723 8,771 46,528 (5,411) 71,611
--------- --------- --------- --------- ---------
Long-term debt 167,617 12,121 (4,574) 175,164
Intercompany accounts 166,658 38,637 (205,295)
Other non current liabilities (154) 2,423 (1,164) 1,105
Minority interest 500 500
Redeemable preferred stock 40,000 40,000
Shareholders' equity:
Preferred stocks, $.01 par value 11 11
Common stock, $.01 par value: 569 569
Capital in excess of par value 254,856 40,621 75,455 (88,854) 282,078
Foreign currency translation
adjustment (83) (83)
Accumulated deficit (51,768) (104,399) (59,731) (6,918) (222,816)
Treasury stock, at cost (1,386) (1,386)
--------- --------- --------- --------- ---------
202,282 (63,778) 15,641 (95,772) 58,373
--------- --------- --------- --------- ---------
$ 431,468 $ 111,651 $ 115,850 $(312,216) $ 346,753
========= ========= ========= ========= =========
</TABLE>
13
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 6 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 5,136 $(883) 5,621
-------- ------- -------- --------- --------
Total current assets 100,854 10,188 37,817 (883) 147,976
Inter-Company account 142,286 37,154 4,010 (183,450)
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 $15,876 $(883) $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 41,064 (1,202) 78,815
-------- ------- -------- --------- --------
Inter-company account 138,107 45,343 (183,450)
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>
14
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 6 Condensed Consolidating Financial Information for Guarantors
("Guarantor Information"): continued
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended
March 31, 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 $ 17 $ 24,322 $(10,491) $ 13,848
Service income 41 7,664 7,705
-------- -------- -------- --------
Total revenues 58 31,986 (10,491) 21,553
-------- -------- -------- --------
Costs and expenses:
Cost of goods sold 415 15,508 (7,163) 8,760
Cost of services 2,616 4,679 (31) 7,264
Research and development 3,081 4,942 8,023
Marketing $ 75 2,769 4,158 7,002
General and administrative 2,702 2,606 4,486 9,794
Amortization of intangibles 446 270 482 1,198
Equity in losses of investees 436 436
Interest expense 6,284 53 603 (268) 6,672
Interest income (1,272) (156) (302) 268 (1,462)
Other income (31) (563) (45) 31 (608)
------- -------- -------- -------- --------
Total Costs and expenses 8,640 11,091 34,511 (7,163) 47,079
------- -------- -------- -------- --------
Loss from operations before
taxes on income and
minority interest (8,640) (11,033) (2,525) (3,328) (25,526)
Taxes on income (800) (800)
Minority interest (106) (106)
------- -------- -------- -------- --------
Net loss $(8,640) $(11,033) $ (3,431) $ (3,328) $(26,432)
======= ======== ======== ======== ========
</TABLE>
15
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 6 Condensed Consolidating Financial Information for Guarantors
("Guarantor Information"): continued
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended
March 31, 1995
(Dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
Geotek
Geotek Guarantor Non-Guarantor Reclassifications Comm,Inc.
Comm,Inc. Subsidiaries Subsidiaries & Eliminations & Subsidiaries
--------- ------------ ------------ -------------- -------------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
REVENUES
Net sales $ 12 $ 12,786 $ 12,798
Service income 523 5,877 6,400
------- ------- ------- --------
Total revenues 535 18,663 19,198
------- ------- ------- --------
Costs and expenses:
Cost of goods sold 9 7,390 7,399
Cost of services 278 3,306 3,584
Research and development $ 244 3,207 5,134 8,585
Marketing 75 717 4,156 4,948
General and administrative 1,451 1,892 2,177 5,520
Amortization of intangibles 162 230 519 911
Equity in losses of investees 258 937 1,195
Interest expense 1,164 57 664 $(381) 1,504
Interest income (894) (14) (61) 381 (588)
Other income (367) (100) (467)
------- ------- ------- --------
Total Costs and expenses 2,460 6,009 24,122 32,591
------- ------- ------- --------
Loss from operations before
taxes on income and
minority interest (2,460) (5,474) (5,459) (13,393)
Taxes on income (274) (274)
Minority interest (55) (55)
------- ------- ------- ------- --------
Net loss $(2,460) $(5,474) $(5,788) -- $(13,722)
======= ======= ======= ======= ========
</TABLE>
16
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 6 Condensed Consolidating Financial Information For Guarantors
("Guarantor Information"): continued
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended
March 31, 1996
(Dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
Geotek
Geotek Guarantor Non-Guarantor Reclassifications Comm,Inc.
Comm,Inc. Subsidiaries Subsidiaries & Eliminations & Subsidiaries
--------- ------------ ------------ -------------- --------------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $(8,640) $(11,033) $(3,431) $(3,328) $(26,432)
Adjustment to reconcile net
loss to net cash used in
operating activities:
Minority interest 106 106
Depreciation & amortization 456 732 2,390 3,578
Equity in net loss of investees 436 436
Non cash management consulting
expense 665 665
Post acquisition adjustment
for utilization of acquired
net operating loss carry forward 400 400
Non cash interest expense 4,847 4,847
Changes in operating assets
and liabilities(net of effects
from acquisitions):
Accounts receivable (10) 592 582
Inventories (578) (465) (1,043)
Prepaid expenses 40 (6,855) 450 4,323 (2,042)
Accounts payable & accrued
expenses 2,297 (909) 5,774 (4,323) 2,839
Other 25 352 377
-------- -------- ------ --------- --------
Net cash (used in) provided by
operating activities (539) (17,988) 6,168 (3,328) (15,687)
-------- -------- ------ --------- --------
Cash flows from investing activities:
Net decrease in temporary investments 2,111 2,111
Acquisitions of property & equipment (25) (12,288) (2,440) 3,328 (11,425)
Cash invested in unconsolidated
subsidiaries (180) (180)
Decrease contract deposits -
other current assets 865 865
Decrease in restricted cash 9,404 9,404
-------- -------- ------ --------- --------
Net cash (used in) investing
activities 11,310 (12,288) (1,575) 3,328 775
-------- -------- ------ --------- --------
Cash flows from financing activities:
Net, (repayments) under
line of credit agreements (58) (58)
Proceeds from issuance of
convertible notes 75,000 75,000
Deferred financing costs (2,213) (2,213)
Repayments of debt (605) (195) (800)
Repayment of capital lease obligations (15) (107) (122)
Exercise of warrants & options 280 280
Payment of preferred dividends (1,278) (1,278)
Financing costs (450) (450)
Other (112) (112)
Capital contributed from parent (24,555) 31,051 (6,496)
Net cash provided by (used in) -------- -------- ------ --------- --------
financing activities 46,769 30,446 (6,968) 70,247
-------- -------- ------ --------- --------
Effect of exchange rate changes on cash (590) (590)
Increase (decrease) in cash & equivalents 57,540 170 (2,965) 54,745
Cash & equivalents, beginning of period 53,128 522 7,778 61,428
-------- -------- ------ -------- --------
Cash & equivalents, end of period $110,668 $692 $4,813 -- $116,173
======== ======== ====== ======== ========
</TABLE>
17
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 6 Condensed Consolidating Financial Information For Guarantors
("Guarantor Information"): continued
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended
March 31, 1995
(Dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
Geotek
Geotek Guarantor Non-Guarantor Reclassifications Comm,Inc.
Comm,Inc. Subsidiaries Subsidiaries & Eliminations & Subsidiaries
--------- ------------ ------------ -------------- --------------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $(2,460) $(5,474) $(5,788) $(13,722)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Minority interest 56 56
Depreciation & amortization 170 329 1,416 1,915
Equity in losses of investees 258 937 1,195
Non cash management consulting expense 590 590
Changes in operating assets &
liabilities:
Issuance of shares in connection with
research & development project 2,029 2,029
Accounts receivable 25 (588) $(422) (985)
Inventories 9 399 (161) 247
Prepaid expenses and other assets (262) (2,547) 233 2,268 (308)
Accounts payable & accrued expenses 429 74 (3,699) 12 (3,184)
Other 3 3
------- ------ ------ -------- -------
Net cash (used in) provided by
operating activities (1,865) (4,965) (7,031) 1,697 (12,164)
------- ------ ------ -------- -------
Cash flows from investing activities:
Acquisition of licenses (900) (900)
Net decrease in temporary investments (5,684) (5,684)
Acquisitions of property & equipment (28) (644) (2,328) (3,000)
------- ------ ------ -------- -------
Net cash (used in) investing activities (5,712) (1,544) (2,328) (9,584)
------- ------ ------ -------- -------
Cash flows from financing activities:
Net borrowings under line of credit
agreements (242) (242)
Proceeds from issuance of senior
secured note & related warrants 36,000 36,000
Repayments of debt (25,000) (25,000)
Proceeds from exercise of warrants
& options 547 547
Payment of preferred dividends (666) (666)
Capital contributed from parent (12,692) 7,121 7,268 (1,697)
Other 502 502
------- ------ ------ -------- -------
Net cash (used in) provided by
financing activities (1,811) 7,121 7,528 (1,697) 11,141
------- ------ ------ -------- -------
Effect of exchange rate changes on cash 5 5
(Decrease) increase in cash & equivalents (9,388) 612 (1,826) (10,602)
Cash & equivalents, beginning of period 21,222 418 5,891 27,531
------- ------ ------ -------- -------
Cash & equivalents, end of period $11,834 $1,030 $4,065 - $16,929
======= ====== ====== ======== =======
</TABLE>
18
<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 of a
low cost, high quality integrated digital voice and data wireless communications
network ("GeoNet(TM)"). Although Management believes GeoNet(TM) 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, and
implementing a digital wireless communications system for the United States that
will provide integrated wireless communications services. The Company is
presently in the process of commencing the rollout of GeoNet(TM). The Company
started providing commercial services in Philadelphia, Washington, DC,
Baltimore, and New York during the first quarter of 1996 and in Boston and Miami
in April and May of 1996, respectively. 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.
The Company's communications products subsidiaries are primarily engaged in
the development, manufacturing, and marketing of telephone peripherals and sound
and communications equipment.
In April 1996, the Company and RWE Telliance A.G. ("RWE") entered into a
letter of intent to merge each of their German mobile radio networks. Under the
terms of this letter of intent, each 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, the Company, Cogeco Cable Inc, and Techcom Inc.
entered into a letter of intent to form a joint venture in Canada to launch
mobile wireless communication services based on the Company's proprietary
FHMA(TM) technology. The letter of intent is subject to, among other things,
the completion of satisfactory due diligence, approval by the board of directors
and execution of definitive agreements. At the same time, Industry Canada, the
Canadian agency responsible for spectrum allocation, has approved in principle
to award the joint venture 900 MHZ frequencies in major markets of Ontario,
Quebec, British Columbia and Alberta.
Summary of Operations
The Summary of Operations provides an analysis of the three month period
ended March 31, 1996, compared to the same period in 1995.
Consolidated
Consolidated revenues increased by 12% in the first quarter, principally
due to the inclusion of the German networks on a consolidated basis in 1996,
subscriber growth of the National Band Three Network ("NBTL"), and higher
revenues from the communications products segment.
Consolidated operating expenses increased by 30% in the first quarter,
principally due to increased cost of service, marketing, and general and
administrative expenses related to the rollout of the U.S. Network.
On a consolidated basis, interest expense increased in 1996 due to the
Senior Secured Discount Notes issued in July 1995 which accrue interest at 15%
and the $75 million Convertible Notes issued in March 1996 which accrue interest
at 12%. Interest income increased in 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 $12.7 million in the first
quarter to $26.4 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
March 31, 1996 and 1995. North American column includes the U.S. Wireless
Network (which includes PowerSpectrum Technology) as well as the Company's GMSI,
Inc. and MetroNet subsidiaries.
For the Three Months Ended March 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
German
North America NBTL Networks Total
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $2,064 $6,459 $975 $9,498
Gross profit (2,399) 4,355 (39) 1,917
% of revenues (116%) 67% (4%) 20%
Research and Development 7,215 7,215
Marketing 3,115 1,197 239 4,551
General and Administrative 3,246 865 1,018 5,129
Other income (563) (17) (580)
Income (loss) before
interest and
amortization & depr. (15,412) 2,293 (1,279) (14,398)
Amortization and depreciation 1,014 1,168 738 2,920
Income (loss) before interest (16,426) 1,125 (2,017) (17,318)
Net income (loss) ($15,986) $673 ($2,173) ($17,486)
Subscribers 200 58,600 12,500 71,300
</TABLE>
For the Three Months Ended March 31, 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
German
North America NBTL Networks Total
----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $1,466 $5,736 $7,202
Gross profit 492 3,324 3,816
% of revenues 34% 58% 53%
Research and Development 7,941 7,941
Marketing 1,047 1,282 2,329
General and Administrative 3,326 799 4,125
Equity in loss of less than
50% owned entities $937 937
Other income (47) (47)
(Loss) income before
interest and
amortization & depr. (11,822) 1,290 (937) (11,469)
Amortization and depreciation 461 1,009 287 1,757
(Loss) income before interest (12,283) 281 (1,224) (13,226)
Net (loss) income ($11,900) $213 ($1,224) ($12,911)
Subscribers 49,600 6,500 56,100
</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 $2.3 million or 32% for
the quarter ended March 31, 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
58,600 and 49,600 at March 31, 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 was $7.2 million for the three
months ended March 31, 1996 versus $7.9 million for the same period of 1995. The
1995 expense includes approximately $2.0 million for shares issued in connection
with a research and development project. The offsetting increase in the 1996
expense is primarily related to costs to develop the commercial subscriber unit.
The Company expects significant research and development expenses to continue in
the future in connection with enhancements 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 $2.2 million or 95% due to the commencement of 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 March 31, 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 March 31, 1996 was
approximately 12,500. As discussed above, the Company has entered into a letter
of intent to contribute these networks to a joint venture to be formed with RWE.
Wireless activities generated a loss before net interest expense,
amortization and depreciation of $ 14.4 million for the quarter ended March 31,
1996 compared to $11.5 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.
21
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: Continued
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 ended March 31, 1996 and 1995.
(Dollars in Thousands)
Three Months Ended
March 31
1996 1995
---- ----
Revenues $11,358 $10,845
Gross profit 4,805 4,679
% of revenue 42% 43%
Research and Development 654 615
Marketing 2,123 2,334
General and Administration 914 829
Other (income) expense (35) 2
Income before interest, tax,
amortization & depreciation 1,149 899
Amortization & depreciation 356 377
Interest expense, tax & minority interest 668 526
Net income (loss) $125 $(4)
Revenues from communications products activities increased by $0.5 million,
or 5% to $11.4 million for the quarter ended March 31, 1996. The increase in
sales is primarily due to a $1.1 million increase in the core product line
offset by a $0.6 million decrease in the office automation ("OAS") product line
which is being phased-out.
Gross profit and gross profit as a percentage of revenues in the first
quarter of 1996 compared to the same period of 1995 was relatively unchanged.
The decrease in quarterly marketing expense is due to the reduction of
marketing and payroll expenses for the OAS product line.
Corporate Group
The Corporate Group includes the Company's Corporate headquarters and
Geotest, Inc. Subsidiary. The Corporate Group generated a loss before net
interest expense, amortization, and other charges of $9.1 million for year to
date 1996 compared to a loss of $0.8 million for the same period in 1995. This
increase is primarily due to the 1996 net interest expense of $5.3 million
related to the increase debt as well as approximately $2.7 million associated
with the expansion of the Corporate headquarters. Revenues from corporate group
subsidiaries were $0.7 million for year to date 1996, compared to revenues of
$1.1 million for the same period 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 during the three months ended March 31, 1996. At March 31,
1996, the Company had $116.2 million of cash, and cash equivalents.
22
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: Continued
The Company's short term cash needs are primarily for capital expenditures
related to the digital FHMA(TM) 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 FHMA(TM) 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, 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 rollout 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 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.
The following discussion of liquidity and capital resources, among other
things, compares the Company's financial and cash position as of March 31, 1996,
to the Company's financial and cash position as of December 31, 1995.
During the first three months of 1996, cash and cash equivalents increased
by $54.8 million to $116.2 million, while working capital increased by $48.6
million to $117.7 million as of March 31, 1996.
Cash utilized in connection with operating activities for the three months
ended March 31, 1996, amounted to $15.7 million.
Cash outflows from investing activities, exclusive of decrease in temporary
investments of $2.1 million and the decrease in restricted cash of $9.4 million,
were $10.8 million. The Company expended $11.4 million on acquisitions of
equipment during the quarter.
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 the lower of (i) $9.50 per
share or (ii) the weighted average market price of the share of common stock for
ten trading day period immediately following the 90th day after issuance date of
the Convertible Notes but shall in no event be less than $8.25 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
23
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: Continued
Company's common stock for 20 of the 30 trading days and for the five trading
days before conversion is at least 160% of the conversion price.
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 will make a $40.0 million
unsecured credit facility the ("S-C Rig Credit Facility") available to the
Company. 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. 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 (the "Warrant Shares")(subject to adjustment
in certain circumstances). This warrant is exercisable at any time and from time
to time after such date that the Company increases its authorized shares of
common stock to allow for the reservation of the Warrant Shares. The Company's
ability to make borrowings under this credit facility is subject to the Company
so increasing its authorized shares.
The Company paid cash dividends totaling approximately $1.3 million on its
outstanding preferred stocks. Proceeds from the exercise of warrants and options
totaled approximately $0.3 million in the first quarter of 1996.
In April 1996, through the Federal Communication Commission's 900 MHZ
Spectrum auctions, the Company was a successful bidder on 181 10-channel blocks
in 42 regional service areas known as Market Trading Areas at an aggregate cost
of approximately $30.9 million of which the Company had $8 million on deposit at
March 31, 1996. The remainder will be financed through an existing credit
facility.
24
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Part II. Other Information
Item 6. Exhibit and Report on Form 8-K
(a) Exhibit: 12--Computation of Ratio of Earnings to Fixed Charges
(b) Report on Form 8-K
The following report on Form 8-K was filed by the Company
during the first quarter of 1996.
(I) Current Report on Form 8-K filed March 5, 1996
reporting: (a) the sale to Smith Barney, Inc. (The
"Initial Purchaser") of $67.5 million in aggregate
principal amount of its 12% Senior Subordinated
Convertible Notes due 2001 (the "Convertible Notes")
and the Initial Purchaser's option to purchase up to an
additional $7.5 million aggregate principal amount of
Convertible Notes; and (b) an agreement in principle
between the Company and S-C Rig Investments - III, L.P.
("S-C Rig"), a significant stockholder of the Company,
pursuant to which S-C Rig will make a $40 million
unsecured credit facility, which will accrue interest
at 10%, available to the Company.
25
<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: May 10, 1996 /s/ Michael R. Mc Coy
----------------------
Michael R. Mc Coy
Sr. Vice President and
Chief Financial Officer
Date: May 10, 1996 /s/ Michael H. Carus
---------------------
Michael H. Carus
Chief Accounting Officer and
Corporate Controller
26
EXHIBIT 12
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 $26.8 million for the
three months ended March 31, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 116,173
<SECURITIES> 5,834
<RECEIVABLES> 13,446
<ALLOWANCES> 0
<INVENTORY> 11,526
<CURRENT-ASSETS> 189,344
<PP&E> 110,979
<DEPRECIATION> (34,853)
<TOTAL-ASSETS> 346,754
<CURRENT-LIABILITIES> 71,611
<BONDS> 175,164
40,000
11
<COMMON> 569
<OTHER-SE> 60,565
<TOTAL-LIABILITY-AND-EQUITY> 346,753
<SALES> 21,553
<TOTAL-REVENUES> 21,553
<CGS> 16,024
<TOTAL-COSTS> 26,453
<OTHER-EXPENSES> (608)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,672
<INCOME-PRETAX> (25,632)
<INCOME-TAX> 800
<INCOME-CONTINUING> (26,432)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,432)
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
