===========================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________________ to ________________
Commission file number 0-17581
GEOTEK COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2358635
(State of Incorporation) (I.R.S. Employer Identification No.)
20 Craig Road, Montvale, New Jersey 07645
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 930-9305
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
-----------------------------
(Title of class)
Indicate by check mark 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__
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Registration S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or amendment
to this Form 10-K. [X]
Based on the average price bid for the Registrant's Common Stock as of
March 25, 1996, the aggregate market value of the voting stock held by
non-affiliates of the Registrant as of such date was approximately
$503,211,000.
As of March 25, 1996, the number of outstanding shares of the
Registrant's Common Stock was approximately 56,774,000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference information from the
Registrant's Proxy Statement to be filed in connection with its 1996 Annual
Meeting of Stockholders.
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GEOTEK COMMUNICATIONS, INC.
FORM 10-K
TABLE OF CONTENTS
PAGE
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PART I
Item 1. BUSINESS...........................................................1
Item 2. PROPERTIES........................................................18
Item 3. LEGAL PROCEEDINGS.................................................19
Item 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS.............................................19
Item A. EXECUTIVE OFFICERS................................................20
PART II
Item 5. MARKET PRICE FOR REGISTRANTS COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.....................................22
Item 6. SELECTED FINANCIAL DATA...........................................23
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................24
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................34
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.............................36
PART III
ITEMS 10, 11, 12 AND 13 (EXCEPT FOR THE INFORMATION REGARDING EXECUTIVE
OFFICERS CALLED FOR BY ITEM 10, WHICH IS INCLUDED IN PART I HEREOF AS ITEM A)
ARE INCORPORATED BY REFERENCE FROM THE COMPANY'S DEFINITIVE PROXY STATEMENT
FOR ITS 1996 ANNUAL MEETING OF STOCKHOLDERS.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE,
AND REPORTS ON FORM 8-K...........................................36
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 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 procurement of radio spectrum and transmission sites; (c) the
Company's future financial results, capital needs and sources of financing; and
(d) 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 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.
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PART I
Item 1. BUSINESS
Geotek Communications, Inc. (the "Company" or the "Registrant"), through
its subsidiaries, currently provides specialized mobile radio ("SMR") services
in the United States, the United Kingdom and Germany. Since 1992, the Company
has devoted substantial financial and management resources to the development of
a low cost, high quality integrated digital voice and data wireless
communications network known as GEONET(TM). The Company intends to deploy
GEONET(TM) in a total of 36 markets by the end of 1997. The Company has
acquired, and intends to continue acquiring, 900 MHz SMR licenses in cities
throughout the United States and to make strategic acquisitions of spectrum and
operating networks worldwide. The Company also intends to continue to develop
technology, equipment and software which support its GEONET(TM) network. The
Company also is engaged in the development, manufacture and marketing of
communications products through its majority-owned subsidiary, Bogen
Communications International, Inc. ("BCI"). The Company is a Delaware
corporation whose principal executive offices are located at 20 Craig Road
Montvale, New Jersey 07645 and its telephone number is (201) 930-9305.
Wireless Communications Activities
Overview
The Company currently provides analog SMR services in the United Kingdom
and Germany to approximately 72,600 subscribers. The Company started providing
commercial digital voice communication services through GEONET(TM) in
Philadelphia in January 1996, in Washington, D.C. and Baltimore in February
1996, and in New York City in March 1996. The Company intends to deploy
GEONET(TM) in a number of other cities in the United States, including New York,
Boston, Miami and Dallas by the Summer of 1996 and in over 35 markets by the end
of 1997. Each market will consist of a major U.S. city and its surrounding area.
In certain markets, the Company also intends to offer its services regionally.
The Company's strategy is to differentiate its services from those of other
wireless communications providers. Specifically, the Company's strategy is to
(i) target a niche market of small- to medium-sized mobile business users in
metropolitan markets throughout the United States; (ii) provide meaningful
product differentiation by offering a wide array of digital voice and data
communications services through an integrated subscriber unit that has been
specifically designed for its mobile business users; (iii) emphasize customer
relationships through a strong dealer network and dedicated customer service
representatives; and (iv) exploit the low cost advantages inherent in its
proprietary FHMA(TM) technology.
The Company is currently offering commercial digital voice communications
services to business users through GEONET(TM). These digital voice
communications services will be expanded to enable users to access both their
internal phone network and the general public switched network (the latter of
which services is currently available). The Company expects to expand its
service offerings to include data services, including messaging, data dispatch,
automatic vehicle location and mobile data. Mobile data service offerings will
permit such applications as credit card authorization, inventory management,
automated order entry, access to electronic mailboxes, facsimile retrieval and
transmission and interconnection to both a user's internal databases and to
publicly available databases and networks. It is expected that all of such
mobile data services will be offered by the Company later in 1996. GEONET(TM)
will also permit advanced fleet management whereby businesses will be able to
configure their mobile
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workforces into, and conduct private conversations within, a number or
combination of subfleets. Moreover, businesses will be able to select different
communications capabilities for each subfleet, depending on each subfleet's
particular needs.
The Company will make continuing hardware and software enhancements to
GEONET(TM) during and after the system's commercial roll-out. For example, the
Company must integrate the initial GEONET(TM) data applications, which are
expected to be completed in the first half of 1996, with the initial GEONET(TM)
voice applications. Subsequent applications also will need to be integrated with
existing GEONET(TM) applications. There can be no assurance that the Company
will be able to satisfactorily complete such modifications and/or integration
efforts, or that they will be able to be completed in a manner that enables the
Company to offer its GEONET(TM) services on a profitable and timely basis.
To date, no other wireless service provider has been successful at
providing the level of integrated voice and data services contemplated by the
Company. Accordingly, in implementing GEONET(TM), the Company may encounter
unforeseen technical issues. In addition, each of the Company's U.S. target
markets is expected to present unique technical issues to the Company due to
differences in geography and the level of local land development and
construction. Technical difficulties in the operation and/or performance of
GEONET(TM) also may be experienced as additional subscribers are added to the
system in a given market or as the coverage area in any market is increased.
There can be no assurance that the Company will be able to adequately address
any such issues in any given market or that such issues will be able to be
addressed in a cost-effective manner.
The Company is targeting its services to small- to medium-sized business
users in over 35 of the largest metropolitan markets throughout the United
States. See "- The GEONET(TM) Roll-out." The Company's efforts will be targeted
at existing users of SMR, Private Mobile Radio ("PMR"), paging and cellular
wireless services as well as businesses currently foregoing the use of wireless
services to meet their communications needs. The Company believes that the
specific communications needs of these businesses are not being met by existing
wireless providers. The Company is targeting these markets in order to access a
large potential subscriber base and to minimize its infrastructure costs per
subscriber.
The Company intends to market its GEONET(TM) services in its target U.S.
markets primarily through an indirect sales force compromised of dealers and
agents, value-added resellers and joint marketing partners. The mix of
distribution channels used in each target market will differ depending upon the
individual characteristics of these markets. The Company's direct sales force
will focus primarily on businesses that already are heavy users of mobile
communications services. The Company will have its direct sales force target
these customers because the sales cycle for these customers is expected to be
longer and more interaction between the salesman and the potential customer is
likely to be required to migrate these customers from their existing services to
those provided by the Company. At present, the Company has a field sales force
consisting of approximately 50 salespeople throughout the U.S. and intends to
expand its direct sales force in each of its target markets as it rolls-out
GEONET(TM). The Company will also market its services through dealers and agents
that currently sell PMR, SMR, cellular and paging equipment and services to
business users. To date, the Company has entered into agreements with over 70
dealers throughout the United States and is negotiating additional distributor
agreements in its target markets. The Company also intends to utilize
value-added resellers to market its services. Value-added resellers typically
sell a variety of computing and communications solutions to business customers.
The Company also intends to pursue marketing alliances with companies that sell
complementary products and services to certain segments of the Company's
targeted customer base.
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The GEONET(TM) Roll-out
The Company presently expects to continue the roll-out of GEONETTM in
accordance with the following schedule:
Commencement of Operations* Markets
August 1995 Philadelphia**
During 1996 Baltimore** Miami
Boston New York City**
Orlando Dallas
Tampa Houston
Washington, D.C.**
Jacksonville
During 1997
Atlanta New Orleans
Buffalo Norfolk
Charlotte Phoenix
Chicago Cincinnati
Pittsburgh Denver
Portland Greensboro
Richmond Hartford
Rochester Indianapolis
Salt Lake City Kansas City
San Antonio Memphis
San Francisco Minneapolis
St. Louis Nashville
Seattle
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* Markets are not in the order that services will be initiated in such
markets. The rollout schedule is subject to change.
** The Company started providing commercial services in Philadelphia in
January 1996, in Washington, D.C. and Baltimore in February 1996 and New
York in March 1996.
The key stages to the GEONET roll-out include:
Propagation. Propagation analysis involves the identification, through
software programs and engineering analysis, of the optimal areas in a target
market for the placement of the GEONET(TM) base station and remote sites. The
Company has substantially completed its propagation analysis for its first 11
target markets.
Procurement of Site Leases and Permits. The Company must procure leases and
permits for the sites at which the GEONET(TM) base stations and remote sites are
to be located. The Company has engaged multiple site leasing organizations to
assist the Company in the identification of potential site leases, the
negotiation of leases and the acquisition of required local approvals. The
acquisition of leases and required permits is typically a two to six month
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process, although delays may occur from time to time. To date, the Company has
entered into leases and has received the necessary permits to install and
operate its base stations in Philadelphia, Boston, Dallas, New York City,
Washington, D.C./ Baltimore, Tampa, Orlando, Chicago, Jacksonville, Atlanta and
Miami. As the Company increases its coverage area in each of these markets, it
will need to procure additional site lease locations.
There are only a limited number of existing communications towers capable
of providing the Company with optimal coverage area for its radio transmissions
and that are capable of supporting the Company's transmission equipment. In the
event the Company cannot obtain leases for existing towers, it may be required
to purchase sites, obtain necessary permits and build such towers, a process
which the Company estimates could take up to one year to complete for each
tower. If the Company is required to build new towers, the roll-out of
GEONET(TM) in one or more target markets could be delayed and be more costly
than anticipated.
Build-out. Preparation of each base station, which includes ventilation and
air conditioning, grounding and equipment installation, testing and
optimization, is expected to last at least ten to twelve weeks. The Company has
completed the initial build-out of GEONET(TM) in Philadelphia, Washington
D.C./Baltimore, New York and has begun the initial build-out of GEONET(TM) in
Boston, Miami, Orlando, Tampa, and Dallas. The Company intends to begin
construction of GEONET(TM) in Jacksonville later in 1996. The Company expects to
construct remote sites in these markets to increase its coverage. The Company
intends to offer GEONET(TM) services in a over 35 markets by the end of 1997.
The Company has entered into an agreement with IBM Corporation ("IBM") to manage
the construction of the GEONET(TM) stations and the installation of FHMA
equipment in the Company's U.S. target markets. The Company has also engaged,
and intends to engage, other third party contractors to manage all or certain
aspects of such construction or installation in certain of its U.S. target
markets. A failure by IBM or such other contractors to properly manage the
preparation and construction of the Company's base stations and remote sites
could have a material adverse effect on the Company.
Spectrum Acquisition. The Company controls in excess of 1,000 900 MHz channels
in its U.S. target markets. The Company will require additional spectrum to add
capacity and to service anticipated demand in certain of its target markets,
including in certain of its 1996 target markets. The Company also requires
additional spectrum to initiate services in certain of its 1997 target markets.
Certain agreements pursuant to which the Company has the right to acquire
spectrum are subject to regulatory approval. Although the Company believes that
such approval will be forthcoming prior to its expected roll-out in each such
market, there can be no assurance that such approvals will be received on a
timely basis or at all.
The Company intends to acquire sufficient spectrum in each of its target
markets in which it does not have sufficient spectrum to initiate service and to
add additional capacity in certain of its other U.S. target markets. In December
1995, the Federal Communications Commission (the "FCC") commenced auctioning
spectrum in each market in which the Company desires to acquire additional
spectrum. Although the Company has bid on such spectrum to the extent it
believes that such spectrum is needed, there can be no assurance that the
Company will be the successful bidder for any radio spectrum auctioned by the
FCC. In addition, the Company cannot predict the cost of obtaining licenses for
additional spectrum since such costs are determined by factors beyond the
Company's control, including but not limited to, the availability of licenses
and the number of competitors seeking to acquire licenses in any particular
market. Moreover, some of the spectrum available at auction in certain of the
Company's 1996 and 1997 U.S. target markets is subject to a preferred right of
usage by incumbent licensees. The Company, in limited circumstances, may choose
to bid in the auction for licenses on a regional service area known as Market
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Trading Areas ("MTA") which may be subject to the right of prior use by a
preferred licensee in cases where it believes it will be able to successfully
gain access to such portions of the encumbered spectrum which are material to
the Company. However, there can be no assurance that the Company will gain
access to any such encumbered spectrum it may acquire. The failure to obtain
such access may materially diminish the value of any spectrum so obtained by the
Company. Although the Company believes that it will be able to acquire
sufficient spectrum in each of its U.S. target markets, there can be no
assurance that the Company will be able to make such acquisitions on
commercially acceptable terms or at all. See "- Government and Industry
Regulation."
The successful and timely implementation of GEONET(TM) will depend upon a
number of factors, including, but not limited to, the timely and cost-effective
manufacture, construction and integration of the system infrastructure and
software, the acquisition and control of additional radio spectrum, the
procurement and preparation of base station and remote sites, the receipt of all
necessary regulatory approvals, the establishment of effective sales and
marketing organizations and distribution channels and the need for additional
financing. The failure or delay with respect to any of these items could
adversely affect the timing of the implementation of GEONET(TM) in one or more
of the Company's target markets, which could have a material adverse effect on
the Company. In this regard, the Company has experienced delays in the past with
respect to its roll-out schedule related primarily to the development of its
subscriber unit from a preproduction form to a full production unit. The Geotek
subscriber units are currently being manufactured in their full production form
and the Company does not expect to experience additional delays as a result of
the production of its current subscriber units. However, there can be no
assurance in this regard. The Company's roll-out schedule may be reviewed and
revised from time to time in light of changing conditions.
Each of the Company's target markets present unique technical issues due to
differences in geography and the level of local land development and
construction. Technical difficulties in the operation and/or performance of
GEONET(TM) also may be experienced as additional subscribers are added to the
system in a given market or as the coverage area in any market is increased.
There can be no assurance that the Company will be able to adequately address
any such issues in any given market or that such issues will be able to be
addressed in a cost-effective manner. Any failure by the Company to adequately
address such issues or to address them in a cost-effective manner could have a
material adverse effect on the Company.
The implementation of GEONET(TM) in all of the Company's target markets
will require substantial additional funding. See item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
FHMA(TM) Technology
The Company will implement GEONET(TM) utilizing a relatively small number
of high power transmission sites with a transmitter capable of covering an area
of up to 30 miles. A base station containing the system computer and switching
equipment will be located at or near one of the transmission sites in each
market. Areas of high use or poor transmission quality will be served by a
simple antenna relay and related equipment that improves signal quality to that
area. The system's use of a relatively small number of high power sites and its
ability to reuse frequencies will enable the Company to divide each cell
coverage area into several sectors. In contrast, many other wireless service
providers, including conventional cellular system and Enhanced Specialized
Mobile Radio ("ESMR") operators, are required to build multiple overlapping
"cells," sometimes dozens or hundreds in a market, each with its own low power
transmission station in order to reuse frequencies. The Company believes its use
of a relatively small number of high power transmission sites will enable it to
reduce the infrastructure cost required to service a market as compared to the
multicell approach employed by other wireless service providers. The Company
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also believes that its system design will allow it to initiate service in a
given market at a lower cost and achieve profitability with fewer subscribers
than other digital wireless communications providers. Moreover, the Company's
ability to reuse frequencies will enable it to increase, at a relatively low
cost, the capacity of GEONET(TM) as such capacity is needed by further
sectorizing a coverage area or adding additional sites. The Company also
believes that GEONET(TM) will be less expensive to operate than other multicell
systems due to, among other things, lower costs for transmission lines and site
leases.
GEONET(TM) utilizes FHMA(TM), the Company's proprietary frequency hopping
technology. FHMA(TM) integrates certain standard digital technology, such as
TDMA, voice multiplexing and packet data transmission, with advanced error
correction and frequency hopping techniques in a macrocell configuration. The
Company believes that the utilization of FHMA(TM) will permit it to increase the
capacity of its radio spectrum by more than 20 times traditional analog SMR
capacity and to improve the quality and security of wireless communications over
current analog systems.
TDMA is a digital transmission technique currently utilized by digital
cellular systems that allows each channel to carry several transmission signals
at one time. FHMA(TM) employs "three slot" TDMA, which permits three
transmission signals to be carried on each channel. The use of digital FHMA(TM)
technology results in secure communications, an important attribute to many
business users. FHMA(TM) also incorporates a voice multiplexing technique
(digital speech interpolation) that is used by long distance carriers and
borrows unused portions of a communications channel to increase capacity. The
use of voice multiplexing should permit the Company to increase capacity by
approximately 1.5 times the capacity of conventional analog systems and, when
combined with 3.0 times TDMA, will result in capacity increases of up to 4.5
times the capacity of analog systems. In addition, FHMA(TM) utilizes a digital
technology technique known as frequency hopping which enables frequency reuse in
adjacent geographic areas. Typically, in wireless communications applications,
it is not possible to reuse the same frequency in adjacent areas because of
interference that generally results when two transmission signals share the same
frequency. Frequency hopping technology permits the reuse of radio spectrum in
adjacent sectors by breaking down a transmission signal into many small
components and having each component "hop" from frequency to frequency in
accordance with a predetermined sequence. Different frequency hopping sequence
sets are used in adjacent areas to minimize interference. Finally, FHMA(TM)
employs an advanced error correction feature which restores transmitted signals
in the event of interference. The Company believes that its ability to sectorize
coverage areas, when combined with 3.0 times TDMA and 1.5 times voice
multiplexing, will enable it to increase the capacity of its available radio
spectrum to more than 20 times traditional analog SMR capacity.
System Hardware
The Company offers a subscriber unit with a large screen and prominently
displayed function keys. For high-end users with a greater need for telephony
services, the Company will offer a small screen subscriber unit that is similar
in size and appearance to a mobile cellular telephone. The Company is developing
a full line of accessories for each of its subscriber units, including
push-to-talk and palm size handsets, speakers and microphones and magnetic strip
readers. A standard serial port will permit the attachment of laptop computers,
fax machines and other intelligent devices.
PowerSpectrum Technology Ltd. ("PST"), a subsidiary of the Company, is
responsible for the enhancement and manufacture of the base station and the
validation systems. The Company procures all other components utilized in
connection with GEONET(TM) from third parties. A number of these firms are
located in Israel, the United Kingdom and the United States. These firms include
PA Consulting Services Ltd. (commercial subscriber unit design), Digital Voice
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Systems, Inc. (vocoder), Tadiran Limited (switches), Orckit Communications Ltd.
(system software design) and Analog Devices Inc. (ASIC chip set for the mobile
subscriber unit).
PST is also responsible for developing and engineering the radio component
of the commercial subscriber unit for GEONET(TM) and integrating the subscriber
unit with the remaining GEONET(TM) system hardware. This project is funded by
the Company and involves a number of engineering and manufacturing firms
including Mitsubishi Consumer Electronics America ("Mitsubishi"), Hughes Network
Systems ("Hughes"), a unit of GM Hughes Electronics, Kenwood Corporation of
Japan ("Kenwood"), PA Consulting Services, Ltd. and Orckit Communications Ltd.
In particular, the Company has entered into an agreement with Mitsubishi
pursuant to which Mitsubishi manufactures the Company's large screen
vehicle-mounted subscriber units, has entered into an agreement with Hughes
pursuant to which Hughes manufactures the Company's small screen vehicle-mounted
subscriber units and will design, manufacture and deliver portable units
starting in the fourth quarter of 1996 and has entered into an agreement with
Kenwood to develop and manufacture second generation mobile subscriber units,
with initial deliveries expected in the first half of 1997. There can be no
assurance that such third parties will deliver such equipment on a timely basis
or that the Company will be able to successfully integrate such components and
hardware in a cost effective system on a timely basis, if at all. As discussed
above, the Company has only a single manufacturing source for certain of the
components of the GEONET(TM) system hardware, including the base stations and
subscriber units. Although the Company believes that it can obtain all
components necessary to build GEONET(TM) from other sources, delays may be
encountered in the event of a component shortage because of the time it may take
to identify substitute sources and manufacture substitute components. A failure
by the Company to obtain hardware components on a timely basis or at
satisfactory prices could adversely affect the ability of the Company to
roll-out and market GEONET(TM), which could have a material adverse effect on
the Company.
International SMR Operations
United Kingdom.
On July 2, 1993, the Company acquired all of the outstanding stock of
National Band Three Ltd. ("NB3"). NB3 is the only national SMR equivalent
service provider in the United Kingdom and controls approximately 70% of the
domestic market for integrated dispatch voice and data wireless communications
services, providing service to approximately 60,000 subscribers.
NB3 targets its services at business users with mobile distribution or
service fleets. NB3's major customers include providers of domestic and
commercial maintenance services, haulers and couriers. The Company believes that
NB3 will benefit from increased marketing efforts aimed at increasing its
utilization by business users. The Company intends to take advantage of NB3's
position as the only United Kingdom-SMR equivalent provider with a national
license. The Company currently is focusing its marketing efforts in the United
Kingdom on businesses utilizing their own private radio networks, emphasizing
NB3's wide coverage area and voice and data capabilities. The Company believes
that the same competitive pressures for improved field services that exist in
the United States are present in the United Kingdom and should assist the
Company in migrating private radio network users to NB3's network.
The NB3 network currently is an analog system that utilizes a series of
overlapping cells in conjunction with large switching stations. The NB3 network
currently consists of approximately 100 base stations and three switching
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stations. NB3 anticipates increasing the capacity of its analog system to
approximately 75,000 subscribers from the current capacity of approximately
67,000 subscribers. The Company also is evaluating the possibility of
establishing a nationwide digital network in the United Kingdom with either
FHMA(TM) or a European digital standard. The Company believes that any
conversion of the NB3 network to digital technology will entail significant
cost. Digital technology, though, would significantly expand NB3's product
offerings and may permit the Company to offer other wireless services to the
general population.
Germany.
In the Summer of 1994, the Company consummated the acquisitions of a
non-controlling 49.0% equity interest in Preussag Bundelfunk GmbH ("PBG") and a
non-controlling 49.9% equity interest in DBF Bundelfunk GmbH ("DBF"). During
1995, the Company acquired the remaining equity interests in PBG and DBF so that
these entities are now wholly-owned subsidiaries of the Company. PBG and DBF
provide analog trunked mobile radio service, which is equivalent to SMR service,
to eight major regions in the northern part of Germany with a population of
approximately 28 million people. This service is provided through a combined
network known as "RegioNet" that currently provides dispatch, telephony and data
communications services to approximately 12,500 subscribers. The Company intends
to increase its subscriber base in Germany by expanding RegioNet, by adding new
distribution channels and by creating differentiation from other networks by
offering wireless applications and other products. The Company is also exploring
possible startegic relationships to enhance its German operation.
Korea
The Company and Anam Industrial Co., Ltd. ("Anam") have formed a joint
venture, the purpose of which is to build an FHMA(TM) demonstration site for
wireless service in Korea. The agreement pursuant to which the joint venture was
established (the "Joint Venture Agreement") established of a new entity
("Newco") which in April 1996 expects to apply for a regional or national radio
license in Korea and otherwise pursue the establishment of an FHMA(TM) based
wireless communications system in Korea and in such other Asian countries as the
Company and Anam may hereafter agree. According to the Ministry of
Communications of Korea, a decision regarding the license application will be
made in the summer of 1996. The Joint Venture Agreement is terminable by either
the Company or Anam at any time. There can be no assurance that Newco will be
granted licenses for sufficient radio spectrum to successfully develop an
FHMA(TM) communications system in Korea or in any other jurisdiction or will
otherwise be profitable or generate positive cash flow. The development of
communications systems in Asia will be subject to many of the same risks
inherent in the establishment of GEONET(TM) in the United States.
Other Opportunities.
The Company intends to continue to seek opportunities to expand its
position internationally. This expansion may take the form of acquiring
ownership interests in trunked mobile radio licenses or the acquisition of SMR
operators, or such other international opportunities as management may determine
to be advantageous. The Company's ability to make investments is limited under
certain circumstances by the terms of the indentures under which the Notes and
the Company's 15% Senior Secured Discount Notes due 2005 were issued.
Competition
The Company expects to experience competition for each type of service it
offers and intends to offer. Many of its current competitors presently offer
generic services, such as dispatch, cellular telephony, paging or access to
public data and electronic mail services. Cellular telephony companies are the
dominant providers of wireless voice communications, although other SMR
licensees offer a combination of dispatch (the traditional service provided by
SMR licensees) and telephony over relatively discrete market areas. The Company
expects to experience competition from both of these types of providers. The
Company also expects to experience competition for traditional trunked mobile
radio customers from operators utilizing frequencies in the 220MHZ, 800 MHz and
900 MHz bands. Data communications services also may provide competition for the
data capabilities to be offered as part of the Company's integrated package. The
Company also will experience competition from manufacturers of PMR equipment,
which target existing private network operators and SMR customers and urge them
to build or upgrade their own private networks rather than utilize SMR service
providers. Many of these providers and manufacturers are larger, more
established, have more experience in the telecommunications industry, have
greater name recognition, have larger sales staffs and/or have greater financial
resources than the Company. The Company believes that its targeted business
customers currently do not have access to the quality and array of services to
be provided by the Company, and that such services will meaningfully
differentiate the Company from other wireless providers.
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NEXTEL Communications, Inc. ("NEXTEL") has announced plans to construct a
nationwide digital ESMR network and is offering services in several cities
including many of the cities that the Company plans to enter. NEXTEL has also
secured a significant number of 800 MHz SMR channels in several of the largest
U.S. markets. Furthermore, several large SMR providers are positioning
themselves to compete for wireless voice and data traffic and have announced
plans to construct digital ESMR networks utilizing equipment manufactured
primarily by Motorola. These providers include Nextel, Motorola, and
Pittencrieff Communications. Moreover, recent regulatory changes may permit the
Bell Operating Company's ("BOCs") to enter the Commercial Mobile Radio Service
("CMRS") marketplace. See " - Governmental Regulation."
The Company also may face competition from technologies and services
introduced in the future. In March 1995, the FCC completed auctions for wideband
Personal Communications Services ("PCS") licenses on an MTA within the United
States. The wideband PCS auction winners have already begun to provide service.
In December 1995, the FCC commenced its auction of 493 broadband basic trading
area PCS licenses. In addition, the FCC has also licensed national and regional
narrowband PCS licenses. Additional narrowband PCS licenses on an MTA basis will
be issued under government regulation in the future. Narrowband PCS service will
be similar to paging services already offered and may compete with the Company's
SMR proposed service. The FCC also intends to license additional spectrum for
other wireless services. It is also possible that satellite technology
ultimately could be developed to permit urban use equal to or superior to that
available through SMR systems, which would result in increased competition for
the Company's services. The commercialization or further development of any such
technologies could have a material adverse effect on the Company.
Many of the target customers for GEONET(TM) currently use other wireless
communications services. In order to be successful, the Company will need to
migrate a portion of its target customers from their existing services to those
provided by the Company over GEONET(TM). The Company's ability to migrate its
target customers over to its services will be highly dependent on the perceived
utility of the Company's services to its target customers as compared to the
services currently utilized by such customers. Because there currently is no
integrated wireless communications network commercially available that is
comparable to that expected to be offered by the Company over GEONET(TM), the
extent of the demand for the Company's wireless communication services cannot be
predicted with any degree of certainty. The demand for the Company's digital
wireless communications services also could be affected by other matters beyond
its control, such as the future cost of subscriber equipment, marketing and
pricing strategies of competitors and general economic conditions.
The Company also expects to experience competition for radio spectrum from
existing and future providers of wireless communications services and for
communications tower space.
The Company also faces competition for its existing services and products.
In the United Kingdom, NB3 competes for customers with regional SMR equivalent
systems and from private radio networks. Additionally, NB3 competes for
customers with cellular providers, PCS-like services, and wireless data. In
Germany, DBF and PBG compete with two large regional operators of SMR equivalent
systems. DBF and PBG also face competition from cellular networks, a PCS network
and wireless data networks.
The Company also experiences competition for each of its products and
services other than GEONET(TM) in the markets in which its sells such products
and services. Such competition is expected to remain strong for the foreseeable
future.
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Government and Industry Regulation
The construction, operation and acquisition of SMR systems in the United
States is regulated by the FCC under the Communications Act of 1934, as amended
(the "Communications Act"), and pursuant to the FCC's rules and policies adopted
thereunder. The FCC previously granted five-year SMR licenses to the extent
frequencies were available in a particular location. Licenses could be renewed
for additional five-year terms upon demonstrating compliance with FCC
regulations. In 1996, once new regulations adopted by the FCC in 1994 become
fully effective, the license term for the Company's licenses will be ten years
with an expectancy of renewal, provided that the Company complied with the FCC's
service and operational requirements. For Market Trading Areas ("MTA") licenses
which the Company is successful in acquiring through the ongoing 900 MHz
spectrum auctions, the Company will be granted 10-year MTA licenses. In October
1992, the Company submitted a waiver request to the FCC in connection with
certain rules and regulations covered under Part 90 of the FCC rules.
Specifically, the Company requested an extension of the construction deadline
for certain systems it has agreed to acquire so GEONET(TM) could be installed by
1997. On June 29, 1993, the FCC granted such waiver request extending the
deadline for the construction and loading of the Company's 900 MHz SMR systems
for a period of four years. This waiver allows the Company to maintain its SMR
licenses until GEONET(TM) is implemented, as scheduled. In those markets where
the Company successfully acquires an MTA license through the 900 MHz spectrum
auctions, where the Company already has a Designated Frequency Area ("DFA")
license on the same frequencies, the FCC's construction and operational rules
for the MTA license will become applicable for both the existing DFA license and
the MTA license, and the Company's waiver, for those frequencies, will become
unnecessary. Although the Company's waiver is currently subject to a pending
challenge by a third party before the FCC, the Company has vigorously opposed
the challenge.
Under the Communications Act, SMR system providers were traditionally
regulated as private carriers and, therefore, were subject to less regulation by
both the FCC and individual states than were common carriers such as cellular
telephone companies. However, the FCC has initiated and is likely to continue to
initiate regulatory proceedings with wide-ranging implications for the wireless
telecommunications industry. Most of the rule makings were initiated in response
to congressional amendments to the Communications Act, as directed by the
Omnibus Budget Reconciliation Act of 1993 (the "Budget Act"). Early this year,
President Clinton signed into law the Telecommunications Act of 1996 (the
"Telecommunications Act") which imposes sweeping reform of telecommunications
policy. Although the majority of the Telecommunications Act's measures will
directly impact large common carriers, cable and broadcast operators, and
Internet service providers, many of the Telecommunications Act's provisions will
have an effect upon the CMRS marketplace, and upon the Company. In particular,
the Telecommunications Act may: (i) require CMRS providers to offer unblocked
access to telephone toll services; (ii) require the Company to contribute to a
Universal Service Fund; (iii) require local exchange (telephone) carriers
("LECs") to establish reciprocal compensation arrangements for CMRS providers
for the origination and termination of calls; and (iv) require the Company to
ensure that its equipment is accessible to disabled persons. All of the
provisions of the Telecommunications Act which may have an effect upon the
Company will be the subject of FCC rule making proceedings during the next 15
months. The FCC has been granted authority to forbear some of these requirements
where appropriate. The primary intent of these recent amendments was to
encourage competition among communications service providers and, thus, improve
service to consumers. Accordingly, the most sweeping regulatory changes and
legislative directives have been designed to ensure a level playing field among
the Company and its competitors, although such impact could be materially
adverse to the Company.
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Commercial Mobile Service Provider Regulation
In a series of rule makings, the FCC initiated or adopted, pursuant to
congressional amendments to Sections 3(n) and 332 of the Communications Act, a
mandated reclassification of mobile services. Specifically, the FCC reconfigured
the mobile marketplace to include in the category of CMRS, any mobile service
provider (including cellular and specialized mobile radio) which offers, for a
profit, mobile service interconnected to the public switched network to a
substantial portion of the public. This restructuring has been accomplished
through a number of rule-making proceedings.
In its first decision effecting regulatory parity for CMRS providers,
released January 5, 1994, the FCC adopted similar foreign ownership limitations
under Section 310(b) of the Communications Act for CMRS providers that
previously applied only to common carrier telephone service providers. Section
310(b) limits the percentage of foreign ownership and/or participation in any
entity holding an FCC license. As a result, the Company's ability to attract
foreign investors will be limited by current FCC regulations. In a recent
decision, however, the FCC revised its standards for regulating entry of foreign
carriers and their affiliates into the U.S. market for international
telecommunications services. The FCC will apply these revised standards in the
application process for foreign entry, principally by taking into consideration
whether "effective competitive opportunities" exist for U.S. carriers in the
destination markets of foreign carriers seeking to enter the U.S. international
services market. In addition, and of specific impact for the Company, the FCC
determined that it will examine reciprocal foreign market competitive
opportunities when considering additional waiver requests by CMRS providers to
exceed foreign investment in excess of the existing 25% benchmark.
On March 7, 1994, the FCC released a decision which imposed the following
regulatory modifications, which will generally take effect on August 10, 1996,
relevant to the Company:
As a newly classified CMRS provider, the Company must comply with certain
traditional common carrier obligations. Specifically, as of August 10, 1996, the
Company (i) will be required to offer its services without discrimination, which
could be construed as prohibiting the Company from withholding from one customer
a customized service offering that it makes available to another customer; (ii)
will be required to provide access to its services to other common carriers, and
(iii) will be subject to the formal consumer complaint process.
Under past proceedings, the FCC determined that LECs must offer
interconnection to CMRS providers on reasonable terms and conditions, and under
the principle of mutual compensation. The FCC declined to impose direct
interconnection obligations for CMRS-to-CMRS transmissions, but concluded that
it would require CMRS providers to "resell" their services to another CMRS
provider. In a recent rule making now pending, the FCC proposed specific limits
with respect to prices, terms, and conditions of interconnection arrangements
for LEC-CMRS interconnection, to ensure that CMRS providers are granted equal
competitive footing with more established LEC service providers.
In a separate proceeding, the FCC proposed to amend its rules to permit
broadband and narrowband CMRS providers to offer wireless local loop and related
services. Specifically, the FCC proposed a definition of "wireless local loop"
that is sufficiently broad to allow the provision, by CMRS providers such as the
Company, of certain fixed services. The proposed definition of "wireless local
loop" is "the path between the subscriber and the first point of switching or
aggregation of traffic." Such an expansion in available service offerings could
be beneficial to the Company.
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The FCC is also considering the adoption of rules that would require CMRS
providers to offer enhanced emergency calling ("E911") access and features to
mobile radio callers in three phases within five years after adoption of the
rules. The FCC's current proposal, which is still pending, would require CMRS
providers to ensure such features as calling party automatic number
identification ("ANI"); 911 availability from any service initialized mobile
radio handset; 911 access for speech and hearing-impaired callers; and call-back
capability.
Other Regulatory Matters
Management Agreements. On November 18, 1994, the FCC issued an order requiring
CMRS providers subject to grandfathering protection that hold management
agreements with FCC licensees to execute new revised management contracts for
any managed stations by August 10, 1996. The FCC determined that the validity of
a management agreement will be guided by the FCC's prohibition against the de
facto transfer of control of the radio facilities from the licensee to the
manager. It is the Company's belief that its existing management agreements
comply with the FCC's policies by placing ultimate control over the maintenance
and operation of any managed system with the licensee of the system. The Company
will continue to monitor the FCC's positions on this issue, however, and holds a
contractual right, contained in all of its management agreements, to modify any
agreement in the event that it is determined that any are not in compliance with
the FCC's rules.
Signal Boosters. With respect to operations, the FCC recently considered
permitting the routine use of one-way or two-way signal boosters for CMRS
providers such as the Company. This matter remains pending before the FCC. In
the event that the FCC permits the use of signal boosters, the Company could
improve its service offerings by "filling out" its service footprints,
particularly where terrain or geographic anomalies cause minor interference
problems.
900 MHz Auction. Most significantly, the FCC recently adopted rules that have
had a sweeping effect on the licensing of 900 MHz SMR frequencies. The FCC
imposed auction proceedings for the licensing of 20 10- channel blocks in each
of the 51 MTA service areas in the 900 MHz bandwidth. Initiated in December
1995, the Company has been an active bidder in the 900 MHz spectrum auctions and
could, if successful as a bidder at the close of auctions, be awarded MTA
licenses in multiple markets. Although the MTA licenses will be separately
licensed, the Company will be permitted to aggregate blocks of spectrum, subject
only the 45 MHz spectrum cap for CMRS providers within three radio services,
broadband PCS, SMR and cellular.
Where the Company is awarded an MTA license for frequencies of which it is
the incumbent DFA licensee, the DFA license will be construed as included in the
MTA license for purposes of build-out, operation and coverage. In those
instances, the Company's waiver will no longer be necessary. In some markets,
the Company may successfully bid on an MTA license where the incumbent DFA
licensee is a third party. In those instances, the Company will be required to
afford interference protection to the incumbent DFA licensee. In markets or with
frequencies where the Company is the DFA licensee but not the successful MTA
bidder, the Company's DFA license will retain all of its licensing and
operational requirements, such as loading, in existence prior to the auction.
The Company's waiver, in those instances, will remain in effect.
Where the Company is a successful MTA bidder, it must complete coverage of
at least one third of the population of its service area within the first three
years of its initial MTA license grant or in the alternative demonstrate
substantial coverge of the MTA, and complete coverage of at least two thirds of
the population within five years.
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The FCC has granted type acceptance for the Company's network
infrastructure equipment and subscriber units for commercial use.
Patents and Technology Rights
In accordance with a joint venture agreement (the "Power Spectrum Joint
Venture Agreement") between the Company and Rafael Armament Development
Authority ("Rafael"), PST has the right to review the technology of Rafael
provided to PST pursuant to the terms of the PowerSpectrum Joint Venture
Agreement, and file, in Rafael's name, patent applications on any patentable
technology already in existence at the time of the signing of such agreement.
Pursuant to the PowerSpectrum Joint Venture Agreement, Rafael is also obligated
to grant PST an exclusive royalty free license under any patent applications so
granted, subject to an exclusion for military technology. PST has the right to
file patent applications on any inventions made by PST based on, or connected
to, the technology developed by PST after the date of the PowerSpectrum Joint
Venture Agreement. Pursuant to these terms, a United States patent has been
issued to Rafael.
PST has filed several patent applications in Israel and intends to file
patent applications in other countries including the United States.
In addition to those patent applications filed by PST, the Company also has
filed patent applications in Israel and the United States based on technology
developed by the Company. As of December 31, 1995, no patents had been issued to
the Company or PST and there can be no assurance that a patent will issue from
any pending or future patent applications or that if any are issued that any of
them will have any commercial significance. The Company is aware of certain
patents and patent applications held or filed by others which generally relate
to the subject matter of the Company's activities. The Company believes that
none of such patents or applications is likely to have a material adverse effect
on the ability of the Company to utilize any technology currently intended to be
utilized by the Company.
The Company protects its proprietary information by way of confidentiality
and non-disclosure agreements with employees and third parties who may have
access to such information. The Company continually reviews its technology
developments in order to file patent applications and has filed patent
applications with respect to certain aspects of its FHMA(TM) technology and
GEONET(TM) in Israel and the United States and expects to file additional patent
applications in Israel and the United States. Generally, the Company intends to
file all patent applications in the United States and Israel and in such other
countries as it deems appropriate. There can be no assurance that such
applications will be granted. There can be no assurance that any patents issued
will afford meaningful protection against competitors with similar technology or
that any patents issued will not be challenged by third parties. There also can
be no assurance that others will not independently develop similar technologies,
duplicate the Company's technologies or design around the patented aspects of
any technologies developed by the Company. Many patents and patent applications
have been filed by third parties with respect to wireless communications
technology. The Company does not believe that its technology infringes on the
patent rights of third parties. However, there can be no assurance that certain
aspects of the Company's technology will not be challenged by the holders of
such patents or that the Company will not be required to license or otherwise
acquire from third parties the right to use certain technology. The failure to
overcome such challenges or obtain such licenses or rights could have a material
adverse effect on the Company's operations.
The Company owns several trademarks, including GEONET(TM) and FHMA(TM), in
the United States and certain other countries.
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The Company's Research and Development expense related to the digital
wireless communication system totaled $33.0 million in 1995 compared to $17.0
million in 1994 and $8.9 million in 1993 (exclusive of acquired research and
development of $32.4 million in 1993).
GMSI
GMSI designs, manufactures, and sells various systems for the mobile data
market. It has a dominant position in the market for data dispatch systems for
taxicabs, limousines, and similar fleets, selling its systems in primarily North
America, as well as, Europe and Australia.
GMSI offers the Wireless Network Interface ("WNI") software package under
license to interface to a variety of private and SMR radio networks. WNI
licenses are available to UNIX, Windows and DOS machines. WNI provides software
developers with a seamless interface to multiple networks and eliminates the
complexities, cost and risk of implementing a mobile data solution with existing
dispatch and management software.
GMSI provides a variety of mobile data terminals and radio modems for
courier and other applications. "Status" terminals report predetermined events
such as on-site with a single keystroke on a labeled function key. A terminal
with an alphanumeric keyboard is able to record information such as name of
recipient. All terminals support customer designed forms, mag-swipe and bar-code
data entry.
Communications Products Activities
The Company's communications products activities are conducted through
Bogen Corporation ("Bogen") and Speech Design GmbH ("Speech Design"), which are
subsidiaries of Bogen Communications, Inc. ("BCI"). The Company owns
approximately 64% of the issued and outstanding capital stock of BCI. Bogen is a
99% owned subsidiary of BCI and Speech Design is a 68% owned subsidiary of BCI.
Bogen
Bogen develops, produces and sells telephone and telecommunications
peripherals and sound and communications equipment through its wholly owned
subsidiary, Bogen Communications, Inc. Since 1932, when originally founded,
Bogen has been involved in the communications industry, concentrating its
efforts on the development and sale of equipment for commercial, industrial,
professional and institutional markets and applications.
Bogen's traditional line of products includes audio amplifiers and related
sound equipment for professional, industrial and commercial system applications,
such as telephone paging, intercommunications and administrative communications
systems for schools, correctional facilities and other institutions.
During 1991, Bogen introduced its first product in a line of
telecommunications and telephone peripherals. The product is the MMT, a digital
announcer with automatic microprocessor controlled tape download for "on-hold"
applications. During 1992, Bogen introduced various products in the digital
telephone peripherals area, including the Automated Attendant and the Digital
Announcer. Bogen introduced, during 1993, the PCM/ZPM, zone page modules for
telephone paging. Although Bogen believes that the growth experienced in the
last four years in this line of products may continue, there can be no assurance
of such growth.
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In September 1993, Bogen introduced the Friday Home Office Receptionist, a
home-office digital receptionist with a built-in fax switch, call-forward
capabilities, four incoming mailboxes and three outgoing message mailboxes.
Additional products in this line were introduced in 1994 and 1995. In December
1995, Bogen's management decided to phase-out this product line during 1996.
Sales and Marketing
All of Bogen's products, with the exception of its office automation
products, are sold primarily through distributors, dealers and contractors,
often as complete systems designed to satisfy an end-user's specific sound and
communications needs. The principal users of these products are industrial,
professional and commercial concerns and institutions such as schools, nursing
homes and correctional institutions. Bogen management believes that these user
markets are all relatively stable markets in which Bogen enjoys name
recognition.
Sales of Bogen's traditional products are made through a network of about
2,000 distributors, dealers and contractors located throughout the United States
and Canada which purchase products directly from Bogen and then resell these
products to dealers and/or end-users.
Bogen considers its distribution network to be one of its most valuable
assets. Bogen's products are generally marketed through a field sales
organization and several independent sales representative entities under the
direction of Bogen's internal sales force. Both the representatives and the
field sales group are responsible for assigned territories. The representatives
are compensated on a commission basis and the field sales personnel are
compensated with salary and bonuses based on performance. Sales agreements are
maintained with all of Bogen's independent sales representatives and engineered
systems contractors. The sales representative agreements typically permit the
sale of Bogen products by the representative in a specific territory. Each
territory is assigned one or more sales representatives. Similarly, the
engineered systems contractor agreements typically allow the contractor to
purchase and install specific product lines in a designated territory. These
agreements, which restrict the representative or contractor from dealing in a
competitive line of products while representing Bogen, may be terminated by
either party upon 30 days' notice.
Bogen maintains its principal warehouse and executive offices at its main
location in Ramsey, New Jersey and it also maintains stock in the States of
California and Washington at warehouses managed by certain of Bogen's
independent sales representatives. Service for all of Bogen's products is
provided by its service department.
Although its sales are substantially to United States customers, Bogen also
sells its products in Canada through a stocking representative that is
headquartered in Ontario and has branch offices throughout Canada. Export sales
to other foreign countries are handled in a similar fashion to sales within the
United States, through distributors that purchase the products and sell them to
an established account base overseas.
Patents and Trademarks
"Bogen" is a trademark of the Company registered in the United States and
in certain foreign countries throughout the world, which expires in the United
States in March 2000. Bogen has also obtained trademark registration for the
trade name "Multicom 2000" utilized in connection with the engineered systems it
markets, which expires in July 2001. Bogen has various pending patents related
to its new products. There can be no assurance that any patents will ultimately
be issued.
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Sources of Material
All components and material used in the construction of Bogen's products
are of standard commercial quality or better, and are readily available from
overseas and United States suppliers. Bogen relies principally upon an
established network of suppliers and subcontractors located in the Republic of
South Korea, Taiwan, Israel and the United States. These suppliers and
sub-contractors either produce sub-assemblies for use in the final assembly of a
finished product, or produce the finished products themselves. Products are
based on Bogen designs and are built in accordance with Bogen drawings and
specifications.
Bogen's primary source of components and completed products is from
manufacturers located in the Republic of South Korea. There can be no assurances
that disruptions in supplies will not occur, or that such disruptions will not
have a material adverse effect on Bogen.
Research and Development
Bogen's engineering department is responsible for research and development,
production engineering and sales engineering. In 1995, Bogen incurred
approximately $ 1.4 million in research and development expenditures, compared
to $1.5 million in 1994 and $1.3 million in 1993.
Competition
Based in large part on its relatively broad product base and multiple
markets, Bogen believes that it has no significant direct competitor. Instead,
competition varies from market to market and product to product. Bogen competes
on the basis of several different factors, including name recognition, price,
innovation and product quality. Such factors vary in relative importance
depending on Bogen's product(s). Bogen's management has concentrated on markets
in which it believes that Bogen could obtain at least a 10% market share, be one
of the top two or three suppliers and/or obtain substantial growth.
In the general line distributor customer market, Bogen's principal
competition comes from University Sound, a United States manufacturer, and from
several off-shore suppliers. Because these off-shore suppliers have not
developed significant brand name recognition, no single one has become a major
factor in this market. Because ready availability and accessibility is a primary
consideration for retail customers, Radio Shack, with over several thousand
retail outlets, is a significant competitor. Bogen's management anticipates no
major competitive changes in this market in the foreseeable future.
In the view of Bogen's management, the Telco customer market has overall
growth potential. Bogen's main competitor is Valcom Inc. which has been
established in this market for several decades. Other competition comes
primarily form several United States companies who have been losing market share
over the past few years and from several companies attempting to enter the
market. Bogen has increased its share of the Telco market in recent years.
The Engineered Sound customer market is a highly specialized market
characterized by low unit volume/high dollar sales which has deterred potential
competition from off-shore manufacturers. Bogen's principal competition comes
from Rauland Borg Corp. and Dukane Corporation, which, like Bogen, have been in
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the market for several years and have well established name recognition and
distribution channels. Rauland Borg Corp. is currently the acknowledged market
leader.
The Commercial Sound customer market is characterized by intense
competition, particularly from several overseas companies. Bogen's principal
competitor is a Japanese company, TOA Electronics, Inc., which features broad,
high quality product lines. Other competitors are comparatively small
manufacturers that rely mainly on established account relationships.
Government and Industry Regulation
Many of Bogen's products require either certification by the Federal
Communications Commission or Underwriter's Laboratory approval, or both. All
current products of Bogen that require such approval have obtained them. Bogen's
products must also comply with applicable local and state regulations to permit
use by the end-user. Bogen makes all reasonable efforts to ensure that its
products comply with such requirements.
Speech Design
Speech Design, located in Munich, Germany, develops, manufactures and
markets telephone peripheral hardware utilizing digital voice processing
technologies. The Company acquired a controlling interest in Speech Design in
February 1993, with a goal of initially expanding sales of the Company's
communications products into Germany, Europe's largest market, and to utilize
Speech Design as a platform to penetrate other European markets.
Speech Design was engaged until 1992 primarily in selling peripheral
equipment for cellular telephones over the analog network. With the advent of
the European GSM digital standard and the related decline of prices of ancillary
subscriber equipment, Speech Design's management decided to refocus its
activities from the cellular market to the telephone peripherals. Management
expects continued growth in sales of telephone peripherals, but there can be no
assurance that such growth will be achieved.
In 1995, sales to five customers accounted for approximately 75% of Speech
Design's sales. Such customers generally packaged Speech Design products with
PBX equipment for sale to third parties.
Employees
As of December 31, 1995, the Company had approximately 450 full-time
employees, of which approximately 300 were engaged in its wireless
communications businesses and approximately 150 of which were engaged in its
communications products businesses. The Company considers its relationship with
its employees to be good.
As of December 31, 1995, approximately 90 employees of Rafael were engaged
on a full-time basis in the development of the Company's FHMA(TM) digital
system. Rafael's employees are represented by a labor union, and, from time to
time, there have been labor disputes between Rafael and its employees which have
resulted in slow-downs. To date, these slow-downs have not had a material effect
upon the Company's business. There can be no assurance, however, that any future
disputes will not have a material adverse effect on the development or
introduction of GEONET(TM) services by the Company in its target markets.
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The success of the Company will depend greatly upon the active
participation and the experience of its management. The loss of the services of
Yaron Eitan, the Company's President and Chief Executive Officer, could
adversely affect the conduct of the Company's business. In addition, the
successful implementation of the Company's business plan will depend, to a large
extent, upon the ability of the Company's and its subsidiaries' engineers and
scientific personnel to perfect and improve upon existing and proposed products.
The loss of some or all of such personnel, or the inability of the Company to
attract additional personnel, or the inability of such persons to enhance such
systems or to continue product enhancements will directly inhibit the ability of
the Company to sell its products and services and to operate in a timely or
profitable manner.
Financial Information
Financial information about the Company's industry segments and the
Company's foreign and domestic operations is disclosed in Footnote 16 to the
Company's Consolidated Financial Statements. See "Item 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA."
Item 2. PROPERTIES
Since July 2, 1993, the Company's principal place of business has been
located at 20 Craig Road, Montvale, New Jersey. The Company rents 26,800 square
feet of office space under several leases at a total rate of $500,000 per year,
plus taxes and utilities. The lease expires between April 1996 and July 1999.
The Company's Montvale facility functions both as its corporate headquarters and
the general offices of the Company's U.S. wireless operation. The Company is
considering relocating to a larger facility in the Montvale area.
Bogen subleases its facilities, located at 50 Spring Street, Ramsey, New
Jersey from an unaffiliated third party. The sublease expires on December 31,
2000 and requires rental payments at a rate of approximately $700,000 per year
for the remainder of the term.
NB3 leases its principal place of business in Chelmsford, England, pursuant
to a lease which expires in September 1999. This lease is subject to the
Company's option to extend the lease for four successive five-year periods.
Annual rental payments during the initial term of this lease are $310,000.
Rental payments pursuant to each of the options are to be negotiated prior to
the start of each five-year period. NB3 leases sites for its base stations from
different parties under leases with various terms, amounts and conditions.
Speech Design leases its facilities in Munich, Germany pursuant to a lease
which expires in 2005. Annual rental payments are approximately $240,000.
GMSI leases its facilities in Ontario, Canada pursuant to a lease which
expires in April 2005 Annual base rental payments over the remainder of the
lease are approximately $140,000.
In connection with the roll-out of GEONET(TM), the Company expects to lease
office space in each of the 35 target markets in which it intends to provide
GEONET(TM) service. In addition to office space, the Company must secure leases
for its transmission equipment at suitable locations in each of these cities. As
of March 1996, the Company had leased office space in seven of its target
markets. The aggregate annual rental payments pursuant to these leases are
$375,000.
18
<PAGE>
Item 3. LEGAL PROCEEDINGS
In June 1994, the Company filed a lawsuit in Dutch bankruptcy court against
Harris Adacom Corporation B.V. ("Harris"), a Dutch corporation, to enforce its
rights under a loan agreement between the parties. The Company is seeking
repayment of a $3.5 million loan made to Harris in January 1994 in connection
with a potential purchase transaction between the Company and Adacom
Technologies Ltd. ("ATL"), an affiliate of Harris and an Israeli publicly-traded
company. The loan was collateralized by stock owned by Harris in ATL. At the
time of the loan, the collateral had a market value in excess of $10 million and
the total market value of ATL was in excess of $100 million. The purchase
transaction was not consummated. In May 1994, the market value of ATL dropped
dramatically and ATL became insolvent, thereby reducing the value of the
collateral to practically zero. At or about the same time, creditors placed
Harris into bankruptcy proceedings in the Netherlands. The Company subsequently
received information relating to the recoverability of the loan and management
does not expect to recover the loan. The Company is aggressively pursuing its
rights under the loan in Dutch bankruptcy court and is awaiting additional
information on the assets and creditors of Harris. Based upon the information
currently available to it, the Company cannot determine the amount, if any, that
will ultimately be recovered and has established a reserve against the full
amount of the loan.
In response to the Company's lawsuit, Harris and its subsidiaries filed a
lawsuit against the Company in the courts of the State of Israel, requesting a
declaratory judgment that the Company entered into a binding agreement for the
purchase by the Company of a significant interest in certain wireless
communication business assets owned by ATL and subsequently breached such
agreement. The plaintiffs in such action have stated an intention to file a
separate claim for monetary damages and have estimated their losses to be
several million dollars. The Company believes that the claims in such action are
without merit and are only an attempt to delay efforts to collect Harris' debt
to the Company. The Company intends to defend such action vigorously.
The Company develops and utilizes technology for substantially all of the
services and products it offers and intends to offer and has, from time to time,
been the subject of infringement claims related thereto. It is often difficult
to predict the outcome of such litigation and the amount of damages which may be
awarded in these types of cases. The Company does not believe that any pending
or threatened litigation related to the Company's technology or use thereof will
have a material adverse effect on its financial position.
The Company is also, from time to time, party to litigation, which may or
may not be covered by insurance, arising in the ordinary course of business. The
Company does not believe the results of such litigation, even if the outcome
were unfavorable to the Company, would have a material adverse effect on its
financial position.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of 1995.
19
<PAGE>
Item A. EXECUTIVE OFFICERS
As of the date hereof, the executive officers of the Company are:
Name Age Position
---- --- --------
Winston J. Churchill 55 Chairman of the Board and Director
Yaron I. Eitan 39 President, Chief Executive Officer and Director
Jonathan C. Crane 46 President & CEO - GEOTEK U.S. Operation
George Calhoun 42 President - Wireless Communications Group and
Director
Yoram Bibring 38 Executive Vice President and Chief Operating
Officer
John Egidio 47 Senior Vice President, Operations
Oliver Hilsenrath 37 Senior Vice President, Technology
William A. Opet 38 Senior Vice President, Marketing and Sales
Andrew Robb 52 Managing Director, European Operations
Michael McCoy 43 Senior Vice President and Chief Financial Officer
Michael Carus 30 Chief Accounting Officer and Corporate Controller
Robert Vecsler 31 General Counsel and Secretary
Mr. Churchill has served as Chairman of the Board and as a director of the
Company since 1991. Mr. Churchill is a principal of CIP Capital Management,
Inc., a private investment firm formed in 1989. He has served as a principal of
such firm since its inception. Prior to 1989, Mr. Churchill practiced law and
served as Chairman of the Banking and Financial Institutions Department and the
Finance Committee of Saul, Ewing, Remick & Saul, Philadelphia, PA.
Mr. Eitan has served as President, Chief Executive Officer and a director
of the Company since March 1989. He is also Chairman of the Board of Bogen and a
director of PST, GMSI and NB3, subsidiaries of the Company. Mr. Eitan served as
a director of Patlex Corporation from 1985 until February 1989, during which
time he served as President of Patlex from November 1987 to June 1988 and
Executive Vice President of Patlex from July 1987 to November 1987 and from June
1988 to February 1989.
Mr. Crane joined the Company as President & CEO - GEOTEK U.S. Operations in
October 1995. Prior to joining the Company, from January 1994 through January
1995, Mr. Crane was President & Chief Executive Officer of LightStream
Corporation, a start-up ATM switch company. In January 1995, LightStream was
purchased. From May 1985 through January 1994 Mr. Crane served in various
executive capacities at MCI Telecommunications where he most recently served as
Executive Vice President - Multinational Accounts.
Mr. Calhoun was appointed a director of the Company in July 1993 when he
became President of the Company's wireless communications group. Mr. Calhoun
joined the Company in June 1992 as President, Chief Operating Officer and a
director of PST. He is also a director of NB3 and PST. Mr. Calhoun served in
various positions with InterDigital Communications Corporation (formerly
International Mobile Machines Corporation), a corporation co-founded by Mr.
Calhoun and engaged in the development of digital radio technology, most
recently as General Manager of the Intellectual Property Licensing Division,
which position he held until June 1992.
Mr. Bibring joined the Company as Chief Financial Officer in February 1990,
a position he held until September 1995. He has served as Executive Vice
President and Chief Operating Officer of the Company since June 1993. He is also
a director of Bogen. He served as Vice President of Aryt Optronics Industries,
Ltd. ("Aryt") from December 1990 to April 1991. From November 1986 to January
1990, Mr. Bibring was a Senior Auditor at Shachak & Company, a public accounting
firm in Israel.
20
<PAGE>
Mr. Egidio became Senior Vice President of the Company in October 1993.
From December 1991 to November 1992, he was President and Chief Executive
Officer of Metagram America, Inc., a company engaged in the provision of
alphanumeric messaging services. From February 1985 to April 1990, Mr. Egidio
was President and Chief Executive Officer of MobileMedia Communications, Inc.
(formerly Metromedia Paging), a subsidiary of Southwestern Bell engaged in
wireless communications.
Mr. Hilsenrath has served as Senior Vice President of the Company since
1992. From August 1990 to September 1992, he was employed as Engineering Manager
by the Aydin Vector Division of Aydin Corporation, a U.S. defense electronics
and communications company. From 1983 to 1990, Mr. Hilsenrath was employed by
the Communication Directorate of Rafael where he served as Chief Research and
Development Engineer.
Mr. Opet was appointed Vice President of Marketing for the Company in April
1994 and has been Senior Vice President, Marketing and Sales since October 1994.
From June 1990 to March 1994, he served as Vice President of Marketing for LIN
Broadcasting ("LIN"), a 52% owned subsidiary of McCaw Cellular, where he worked
extensively on the introduction of digital cellular systems. From May 1986 to
June 1990, Mr. Opet was Vice President of Marketing and Sales for LIN's
Philadelphia cellular operations.
Mr. Robb was appointed as Managing Director for the Company's European
Operations in August, 1994. Previously, he had served as Managing Director of
NB3 and one of its predecessor companies for more than five years. Prior to
January 1987, Mr. Robb served as Sales Director of the Communications Group of
Motorola in the United Kingdom for approximately four years.
Mr. McCoy has served as Senior Vice President and Chief Financial Officer
of the Company since September 1995. From November 1994 through September 1995,
Mr. McCoy was the Company's Vice President of the North East Region. Prior to
joining the Company, from September 1992 through November 1994, Mr. McCoy was
President of Greenlake Associates, Inc., a high technology consulting company.
From November 1988 through September 1992, Mr. Mc Coy was a member of the Office
of the Chairman and Senior Vice President of Business Development for LCI
International, Inc., a facilities based long distance telecommunications
company.
Mr. Carus has served as Chief Accounting Officer and Corporate Controller
of the Company since June 1995. Mr. Carus is a Certified Public Accountant and,
from August 1988 to June 1995, was a Business Assurance Manager in the
communications team at Coopers & Lybrand L.L.P., a public accounting firm.
Mr. Vecsler was appointed General Counsel and Secretary of the Company in
March 1996. From May 1995 through March 1996 he served as Corporate Counsel for
the Company. Prior to joining the Company, from August 1994 until April 1995,
Mr. Vecsler served as Assistant General Counsel at Enviro Source, Inc. From
April 1993 until July 1994, he served as Counsel to Fletcher Asset Management,
Inc. Mr. Vecsler practiced law at Kelly, Drye & Warren from September 1988 until
March 1993.
21
<PAGE>
PART II
Item 5. MARKET PRICE FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock currently trades on the NASDAQ National Market
under the symbol "GOTK" and on the Pacific Stock Exchange under the symbol
"GEO".
The following tables set forth, for the quarters indicated, the high and
low sales prices for the Company's Common Stock as reported on the NASDAQ
National Market:
Year Ended December 31, 1995 High Low
First Quarter ........................ 9 3/8 6 3/4
Second Quarter ....................... 9 7/8 7 1/8
Third Quarter ........................ 10 7 1/2
Fourth Quarter ....................... 9 1/4 5 1/2
Year Ended December 31, 1994 High Low
First Quarter ........................ 16 10 3/8
Second Quarter ....................... 11 5/8 7 1/4
Third Quarter ........................ 12 1/8 6 3/8
Fourth Quarter ....................... 10 3/4 7 1/2
As of March 25, 1996, there were 56,774,000 record holders of the Common
Stock.
The Company has not declared or paid any cash dividends on the Common Stock
since commencing operations and is restricted from paying any dividends on the
Common Stock due to debt covenant restrictions. At present, the Company is
obligated to pay, for a five-year period following the issuance of its Series H
preferred stock, cumulative dividends of $2,000,000 per year on the Series H
preferred stock, in cash, and, for a five-year period following the issuance of
its Series I preferred stock and Series K preferred stock, respectively,
cumulative dividends equaling $700,000 per year on the Series I preferred stock
and $700,000 per year on the Series K preferred stock, in cash or shares of
Common Stock of the Company, before any cash dividends may be paid on the Common
Stock. In addition, the Company is presently obligated to pay cumulative annual
dividends of $750,000 per year on its Series L preferred stock, in cash or
additional shares of Series L preferred stock, and cumulative annual dividends
of $988,125 per year on its Series M preferred stock, in cash or shares of
Common Stock, before any cash dividends may be paid on the Common Stock. At
present, the Company is current in payment of all required dividends on its
outstanding preferred stock.
22
<PAGE>
Item 6. SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Year ended December 31, 1995 1994 1993(1) 1992(1) 1991(1)
---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales $ 80,279 $ 72,991 $ 48,971 $28,546 $22,186
Net loss from continuing operations (87,199) (42,405) (50,441) (2,381) (892)
Net loss per common share from continuing
operations (1.75) (0.90) (1.43) (0.21) (0.29)
As of December 31, 1995 1994 1993(1) 1992(1) 1991(1)
---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total Assets $292,564 $179,844 $135,644 $39,366 $34,646
Long-term debt (net of current portion) and
redeemable preferred stock 135,875 69,396 44,926 3,824 8,510
Shareholders' equity 76,262 77,356 69,244 24,432 15,351
</TABLE>
(1) Historical numbers were restated for the acquisition in January 1994,
through a merger, of 100% of Metro Net Systems Inc. The merger has been
accounted for as a pooling of interests.
The Company did not pay a cash dividend on the Common Stock during any
period indicated.
The difference in financial results among the years is influenced by the
following acquisitions and dispositions. In April 1991, 87% of Bogen was
acquired. In 1992 PowerSpectrum, Inc. was formed, the defense segment was
discontinued and an additional 4% of Bogen was acquired. In 1993 NB3, Speech
Design, GMSI and the remaining interest in PowerSpectrum, Inc. were acquired and
Oram Electric Industries, Ltd., Oram Power Supplies 1990, Ltd. and Geopower were
sold. In 1994, 49% interests in PBG and DBF and an 8% interest in Bogen were
acquired. In 1995, the Company sold its interests in Special Design and Bogen to
BCI in exchange for, among other things, a 64% interest in BCI, the remaining
interests in PBG and DBF were acquired and the Company increased its interest in
PST from 56% to 94%. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
23
<PAGE>
Item 7. 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 in January 1996 and in
February 1996 announced the initiation of commercial services on GeoNet TM in
Washington, DC and Baltimore, MD and in March 1996, announced commercial service
in New York. The Company intends to offer GeoNet TM in over 35 markets by the
end of 1997.
The Company's communications products subsidiaries are primarily engaged in
the development, manufacturing, and marketing of telephone peripherals and sound
and communications equipment.
Summary of Operations
1995 Compared to 1994
Consolidated revenues increased by 10% in 1995, principally due to
subscriber growth of the National Band Three Network ("NBTL") in the United
Kingdom.
Consolidated operating expenses increased by 40.2% in 1995, principally due
to increased research and development activities associated with the Company's
digital wireless communication system and costs related to the rollout of
GeoNet(TM).
Consolidated losses increased by $44.8 million to $87.2 million in 1995.
On a consolidated basis, interest expense increased in 1995 principally due
to the July 1995 issuance of Senior Secured Discount Notes which accrue interest
at 15% as well as the accretion of the value of the warrants issued in
connection with the Senior Secured Discount Notes. Interest income increased in
1995 due to greater cash and cash equivalents which resulted from the issuance
of the Senior Secured Discount Notes. Amortization expense increased from $2.8
million in 1994 to $4.2 million in 1995 due to the Company's acquisitions of the
German Networks.
1994 Compared to 1993
Consolidated revenues increased by 49% in 1994, principally due to the
acquisition of NBTL in July 1993 and higher revenues from the communications
products segment.
24
<PAGE>
Consolidated operating expenses increased by 4.9% in 1994, due to increased
research and development activities associated with the Company's digital
wireless communication system, costs related to the rollout of GeoNet(TM) and
volume growth of the communications product segment.
Consolidated losses from continuing operations decreased by $8.0 million to
$42.2 million in 1994.
On a consolidated basis, interest expense increased in 1994 due to a higher
level of debt outstanding during the year. Interest income increased in 1994 due
to greater cash and cash equivalents and higher rates earned on invested funds.
Amortization expense increased from $0.9 million in 1993 to $2.8 million in 1994
due to of the Company's 1993 and 1994 acquisitions.
Wireless Communications Activities
The tables below set forth certain information with respect to the results
of operations of the Company's Wireless Communications Activities for the years
ended December 31, 1995 and 1994. The North American column includes the U.S.
Wireless Network as well as the Company's GMSI and MetroNet subsidiaries.
1995 Compared to 1994
For the Year Ended December 31, 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
German
North America NBTL Networks Total
------------- ---- -------- -----
<S> <C> <C> <C> <C>
Revenues $7,294 $24,985 $707 $32,986
Gross profit (1,793) 15,514 (1,364) 12,357
% of revenues (25%) 62% (193%) 37%
Research and Development 33,014 33,014
Marketing 10,906 5,585 457 16,948
General and Administrative 12,649 3,507 469 16,625
Equity in losses of less than
50% -owned entities 3,332 3,332
Other income (2,120) (116) (124) (2,360)
Income (loss) before
interest and
amortization & depr. (56,242) 6,538 (5,498) (55,202)
Amortization and
depreciation 2,462 4,136 1,614 8,212
Income (loss) before
interest (58,704) 2,402 (7,112) (63,414)
Net income (loss) ($58,311) $1,194 ($7,254) ($64,371)
Subscribers 57,400 11,800 69,200
</TABLE>
25
<PAGE>
For the Year Ended December 31,1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
North German
America NBTL Networks Total
------- ---- -------- -----
<S> <C> <C> <C>
Revenues $5,897 $19,771 $25,668
Gross profit 1,282 10,520 11,802
% of revenues 22% 53% 46%
Research and Development 17,074 17,074
Marketing 4,419 4,455 8,874
General and Administrative 11,512 2,909 14,421
Equity in loss of less than
50% owned entities $1,897 1,897
Other income (445) (52) (497)
Income (loss) before
interest and
amortization & depr. (31,278) 3,208 (1,897) (29,967)
Amortization and
depreciation 1,420 3,960 504 5,884
Loss before interest (32,698) (752) (2,401) (35,851)
Net loss ($32,066) ($1,045) ($2,401) ($35,512)
Subscribers 47,700 5,200 52,900
</TABLE>
Revenues from wireless communications increased by $7.3 million or 29% for
the year ended December 31, 1995. This increase is primarily due to the increase
in the number of subscribers using the NBTL network (which totaled approximately
57,400 and 47,700 at December 31, 1995 and 1994, respectively) as well as, the
inclusion of the DBF and PBG German Networks on the consolidated basis since
July 1995 and December 1995, respectively, amounting to $0.7 million. Average
revenue per subscriber on the NBTL network remained constant. Gross profit as a
percent of revenues increased as NBTL's cost are primarily fixed thus, allowing
subscriber growth to increase the gross profit percentage.
Research and development expenses (net of government grants) related to the
digital wireless system and subscriber unit were $33.0 million for the year
ended December 31, 1995. In 1995, the Company continued to receive grants from
the Chief Scientist of the Ministry of Commerce and Industry of the Israeli
Government ("Chief Scientist"). Such grants, which are recorded as a reduction
of research and development expenses, totaled $5.9 million in 1995 ($4.1 million
in 1994). Included in research and development expenses is a $5.6 million fourth
quarter expense related to scope changes in the development of the digital
wireless system. Additionally, research and development expense includes a $6.0
million fourth quarter charge related to payments for the development of the
portable subscriber unit. Also included in research and development expense in
1995 is $2.0 million relating to shares of Common Stock issued to Rafael
Development Corporation in consideration for a research and development project.
The Company expects significant research and development expenses to continue in
the future in connection with enhancements made to the system and subscriber
unit.
The Company is presently in the process of commencing wireless service over
its proprietary GeoNet(TM) network and accordingly continues to put in place its
marketing, engineering, operations and administrative staff and systems.
Marketing expenses increased by approximately $8.0 million or 90% due to the
commencement of the marketing effort and increase in staff needed to execute the
roll-out of GeoNetTM as well as volume growth in the German and NBTL networks.
General and administrative expenses increased $2.2 million due to an increase in
administrative staff to support GeoNetTM as well as volume growth in the German
and NBTL networks.
26
<PAGE>
For Wireless Communications Activities, equity in losses of less than 50%
owned entities increased to $3.3 for the year ended December 31, 1995 from $1.9
million in 1994. The 1995 loss relates to the Company's investment in its German
networks prior to the acquisitions of the remaining shares of these two
networks. The Company began to fully consolidate these entities subsequent to
the date of the acquisitions of the remaining interests. The 1994 loss relates
to both of the German networks for six months. 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 December 31, 1995 was
approximately 11,800.
Wireless activities generated a loss before net interest expense,
amortization and depreciation of $55.2 million for the year ended December 31,
1995 compared to $30.0 million in 1994. This increase is primarily due to the
increased research and development expense as well as costs related to the
commencement of the roll-out of the digital wireless communication system for
the U.S. network (including approximately $2.4 million relating to shares of
common stock issued to Vanguard in consideration for management consulting
services, which was $2.5 million in 1994).
The tables below set forth certain information with respect to the results
of operations of the Company's Wireless Communication activities for the years
ended December 31, 1994 and 1993. The North American column includes the U.S.
Wireless Network as well as the Company's GMSI, Inc. and MetroNet subsidiaries.
For the Year Ended December 31, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
German
North America NBTL Networks Total
------------- ---- -------- -----
<S> <C> <C> <C>
Revenues $5,897 $19,771 $25,668
Gross profit 1,282 10,520 11,802
% of revenues 22% 53% 46%
Research and Development 17,074 17,074
Marketing 4,419 4,455 8,874
General and Administrative 11,512 2,909 14,421
Equity in loss of less than
50% owned entities $1,897 1,897
Other income (445) (52) (497)
Income (loss) before interest
and amortization & Depr (31,278) 3,208 (1,897) (29,967)
Amortization and
depreciation 1,420 3,960 504 5,884
Income (loss) before interest (32,698) (752) (2,401) (35,851)
Net income (loss) ($32,066) ($1,045) ($2,401) ($35,512)
Subscribers 47,700 5,200 52,900
</TABLE>
27
<PAGE>
For the Year Ended December 31, 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
German
North America NBTL Networks Total
------------- ---- -------- -----
<S> <C> <C> <C>
Revenues $4,278 $8,060 $12,338
Gross profit 879 3,641 4,520
% of revenues 21% 45% 37%
Research and Development 41,281 41,281
Marketing 770 1,457 2,227
General and Administrative 7,922 1,037 8,959
Equity in losses of less than
50% -owned entities
Other income
Loss before interest
amortization & Depr.
and minority interest (49,094) 1,147 (47,947)
Amortization and
depreciation 510 1,330 1,840
Loss before interest and
and minority interest (49,604) (183) (49,787)
Net loss ($47,381) ($299) ($47,680)
Subscribers 40,500 40,500
</TABLE>
Wireless Communications
1994 Compared to 1993
Revenues from wireless communications activities increased by $13.3
million, or 108%, in 1994, primarily due to the acquisitions of NBTL on July 1,
1993 (1994 revenues of NBTL were $19.8 million), and GMSI, Inc. ("GMSI") on May
1, 1993 (1994 revenues of GMSI were $3.5 million). The Company's 1993 results
include the results of these subsidiaries from their date of acquisition
forward, while the results for 1994 include the results of these subsidiaries
for the entire year. On a pro forma basis year-to-year 1994 revenues of NBTL
increased by 22%, while revenues of GMSI declined slightly. In addition, the
average number of subscribers on the NBTL network increased by 29% in 1994. The
increase was the result of an aggressive marketing program as well as through
the acquisition of smaller regional networks. While average service revenue per
subscriber on the Company's core customer base remained unchanged in 1994, the
acquisition of the smaller regional networks, which charge lower tariffs,
slightly reduced NBTL's average revenue per subscriber in 1994. U.S. analog
wireless networks generated revenues of $2.5 million in 1994.
Operating expenses decreased $4.6 million or 8.0% in 1994. In 1993, the
Company had a $32.4 million non-cash charge related to the July 1993 acquisition
of the minority ownership interest in PSI (the Company's U.S. wireless
communications subsidiary). In exchange for all the shares of PSI that it did
not already own, the Company issued common shares and options to acquire
additional shares. The value of the consideration paid over the fair value of
the net assets acquired ($32.4 million) has been attributed to the incomplete
research and development project and was charged to expense at the time of the
exchange. Excluding the non cash charge of $32.4 million, operating expenses
increased by $27.7 million or 99%. Expenses at NBTL increased by $9.7 million in
1994, including $7.8 million for both the full year inclusion of NBTL, as well
as network operating costs to service the larger subscriber base and
approximately $1.9 million of additional marketing and general costs. Research
and development expenses (net of grants) related to the digital wireless system
and subscriber unit increased by $8.3 million or 94.0%. In 1994, the Company
continued to receive grants from the Chief Scientist. Such grants, which are
recorded as a reduction of research and development expenses totaled $4.0
million in 1994 and $2.8 million in 1993. Costs related to marketing,
28
<PAGE>
engineering, operations and administrative staff and systems totaled $14.8
million in 1994, an increase of $8.1 million over 1993.
In 1994, the Company acquired minority stakes in two wireless networks in
Germany. The Company's 1994 loss related to these networks was $2.4 million.
The wireless activities generated a loss before net interest expense,
amortization and depreciation of $30.0 million in 1994 compared to a loss of
$48.0 million in 1993 due to the factors discussed above. Included in the 1994
loss were $17.0 million of research and development costs related to the digital
wireless communications system and $14.8 million of rollout costs related to the
U.S. network (including approximately $2.5 million relating to shares of common
stock issued to Vanguard in consideration for management consulting services).
Communications Products Activities
In August 1995, the Company transferred its interests in Speech Design GmbH
and Bogen Communications, Inc. to Bogen Communications International ("BCI")
formerly, European Gateway Acquisition Corporation, in exchange for $7.0 million
in cash, $3.0 million in convertible notes receivable, approximately 64% of BCI
common shares and warrants to purchase 200,000 shares of BCI common stock at
$5.50 per share. The Company will also be eligible to receive additional
consideration if the future earnings of both Speech Design and Bogen through
July 1997 attain certain levels. The Company continues to control and
consolidate this entity.
The table below sets forth certain information with respect to the results
of operations of BCI as consolidated by the Company for the years ended December
31, 1995, 1994 and 1993.
(Dollars in Thousands)
December 31
1995 1994 1993
---- ---- ----
Revenues $44,518 $46,074 $30,060
Gross profit 17,180 16,428 11,829
% of revenue 39% 36% 39%
Research and Development 2,307 2,116 1,702
Marketing 9,960 8,913 6,374
General and Administration 5,962 3,342 2,374
Other income (236)
Income before interest, tax,
amortization & depreciation (813) 2,057 1,379
Amortization & depreciation 1,242 1,181 956
Interest expense, tax &
minority interest 2,069 1,245 388
Net (loss) income $(4,124) $(369) 35
29
<PAGE>
1995 Compared to 1994
Revenues from communications products activities for 1995 decreased by $1.6
million, or 3% to $44.5 million. The overall decrease in revenues is due to a
decrease in the Office Automation System ("OAS") product line revenues of $7.8
million, offset by an increase in the core product line revenues by $6.2
million. In December 1995, due to continued losses, the management of Bogen
decided to phase out the OAS product line.
Gross profit for 1995 increased $0.8 million and was equal to 39% of
revenues, compared to 36% of revenues in 1994. The increase was entirely
attributable to the core product line, in which the gross profit margin
increased to 45% in 1995, from 40% in 1994, due primarily to change in product
mix and higher average core sales prices. This was offset by the recording of a
$1.5 million reserve for certain inventory in the OAS product line based on
lower of cost or market.
The increase in marketing expense of $1.1 million and is due to marketing
programs initiated by Bogen to stimulate sales in the OAS product line of
business as well as, growth in the core product line.
The increase in general and administration expenses of $2.6 million is due
primarily to costs to execute the aforementioned BCI transaction.
1994 Compared to 1993
Revenues from communications products activities in 1994 increased by $16.0
million, or 53%. Bogen increased its sales by $11.7 million, mainly due to the
growth of its OAS product line. Speech Design's 1994 sales increased by $4.1
million, or 115%.
Cost of goods sold in 1994, amounted to $29.7 million or 64.3% of sales
compared to $18.2 million or 60.6% of sales in 1993. This decrease in gross
profit as a percentage of sales in 1994 reflects the change in product mix (the
new products introduced by Bogen are typically sold at a lower margin than
Bogen's traditional products), the sales to large customers and private label
customers which enjoy volume discounts, and Bogen's reduction of the carrying
value of certain inventories by $0.9 million. These factors were offset by the
consistently higher margins on Speech Design's products.
Marketing expenses in 1994 amounted to $8.9 million or 19.4% of sales,
compared to $6.4 million or 21.2% of sales in 1993. This increase of $2.5
million is largely the result of higher revenue levels in general and higher
distribution costs for Bogen's new products.
General and administrative expenses in 1994 were $3.3 million or 7.2% of
sales, compared to $2.4 million or 7.9% of sales in 1993. This increase of $0.9
million in general and administrative expenses is directly related to the higher
revenue levels at both Bogen and Speech Design.
Income before interest, depreciation, amortization, tax and minority
interest from the Company's Communications Products activities amounted to $2.1
million in 1994 compared to $1.4 million in 1993.
Corporate Group
The Corporate Group includes the Company's corporate headquarters and
Geotest, Inc. subsidiary. The Company's Corporate Group generated a loss before
net interest expense, amortization, depreciation and other charges of $7.2
million for 1995, compared to a loss of $5.9 million in 1994. The increase is
primarily due to the general and administrative costs associated with the
expansion of the corporate group. Revenues from corporate group subsidiaries
were $2.8 million in 1995, compared to revenues of $1.2 million in 1994.
30
<PAGE>
The Company's Corporate Group generated a loss before net interest expense,
amortization, and other charges of $5.9 million in 1994, compared to a loss of
$1.1 million in 1993. Revenues from corporate group subsidiaries were $1.2
million in 1994, compared to revenues of $6.6 million in 1993. The decrease in
revenue is primarily caused by the disposal by the Company of Oram Electric
Industries Ltd., Oram Power Supplies (1990) Ltd., and Geopower, Inc. In 1993
these entities generated a net loss of $0.3 million on revenues of $6.3 million.
Operating losses at the Company's Geotest, Inc. subsidiary increased from $0.7
million in 1993 to $1.3 million in 1994. In addition, in 1994 the Company
recorded a charge of $3.5 million as a reserve against a loan receivable.
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 borrowings and entered into a series of transactions, including the
sale of debt and equity, mainly to strategic partners. At December 31, 1995, the
Company had $61.4 million of cash and cash equivalents.
The Company's short term cash needs are primarily for capital expenditures
related to the digital FHMATM system which GeoNet(TM) is deploying and the other
costs of rolling out the U.S. network. One of the advantages of the Company's
FHMATM system is its modularity, which allows the Company to execute a flexible
roll-out plan requiring a relatively low investment in infrastructure in a given
geographical area (compared to other wireless communications systems) which is
sufficient to provide commercial service. Additionally, the Company expects to
serve customers which require primarily local or regional coverage. Management
believes therefore that the Company has additional flexibility in controlling
its resources by accelerating or slowing down the rate at which various cities
are rolled out without impacting the business results of its then operating city
or regional networks in a material way.
The Company estimates that a minimum average investment of approximately $5
million is required to roll-out an average city. Additional expenditures will be
required later if and when increased subscriber capacity or coverage is needed.
In addition, the Company estimates that it will continue its present level of
research and development expenses during the next 12 months in connection
primarily with enhancements to the system and the subscriber unit and other
related projects.
In March 1996, the Company issued $75 million Senior Subordinated
Convertible Notes ("Convertible Notes"), due 2001. The Convertible Notes are
convertible by the holders after one year from the date of issuance into common
stock at a conversion price equal to the lower of (i) $9.50 per share and (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. Interest
on the Convertible Notes accrue at a rate of 12% per annum and will be 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 160% of the
conversion price.
On March 4, 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, reached an agreement in principle pursuant to which S-C Rig will make a
$40.0 million unsecured credit facility available to the Company. It is
anticipated that all borrowings under the credit facility will accure interest
at a rate of 10% per annum and will mature four years from the date of the final
borrowing thereunder. It also is anticipated that 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 credit facility will constitute
senior indebtedness of the Company. In connection with the establishment of the
credit facility, it is anticipated that the Company will issue to S-C Rig a
five-year warrant to purchase 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). The transactions contemplated
by the credit facility are subject to a number of conditions, including the
negotiation and execution of definitive agreements and the authorization at the
Company's next annual meeting of sufficient additional shares of Common Stock to
permit the exercise in full of the warrant. There can be no assurances that the
31
<PAGE>
Company will consummate the transactions contemplated by the agreement in
principal on the terms described above, or at all.
The Company is planning to raise additional capital during the next 12
months to continue financing its current operating plan. The Company's long term
capital needs include the planned roll-out of the U.S. network in 36 cities, the
repayment of convertible debt and redeemable preferred stock (if such are not
converted into equity), to finance international networks, and to make
acquisitions of business in the field of telecommunications and of spectrum in
the United States and internationally. The Company is currently pursuing various
alternatives for raising capital including issuance of equity and debt
securities, vendor financing, as well as a combination thereof, and other
sources. 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 GeoNet TM rollout
plan.
The following discussion of liquidity and capital resources, among other
things, details the changes in the Company's financial and cash position during
the year ended December 31, 1995.
During 1995, cash and cash equivalents increased by $33.9 million to $61.4
million, while working capital increased by $22.1 million to $69.2 million as of
December 31, 1995.
Cash utilized in connection with continuing operating activities for the
year ended December 31, 1995, amounted to $42.1 million.
Cash outflows from investing activities, exclusive of decrease in temporary
investments of $14.0 million, were $82.3 million. The Company expended $33.9
million on acquisitions of property, equipment $13.1 million on SMR licenses in
the United States, and $6.4 million to purchase the remaining stock of one of
the German subsidiaries offset by the receipt of $7.0 million in the BCI
transactions.
The Company's financing activities provided cash of $143.3 million. In July
1995, the Company issued, in a private offering, $207.0 million aggregate
principal amount at maturity of 15% Senior Secured Discount Notes due July 15,
2005 ("the Notes"). Gross proceeds of the Notes were approximately $100.0
million. The Notes were issued with 6,210,000 detachable warrants ("the
Warrants"). Each Warrant entitles the holder to purchase one share of Company
common stock at an exercise price of $9.90 per share. The Notes accrue interest
until maturity at a rate of 15% per annum. Interest on the Notes are payable
semi-annually, in cash, on July 15 and January 15, commencing January 15, 2001.
The Notes include covenants that put restrictions on the Company primarily
related to making certain investments and incurring additional debt. In August,
in connection with the Notes, S-C Rig purchased approximately $21.0 million
principal amount of additional units consisting of 15% Senior Secured Discount
Notes due 2005 and 621,000 ten year warrants to purchase shares of Company
common stock at $9.90 per share. Gross proceeds to the Company were
approximately $10.0 million, bringing the total gross proceeds from the issuance
of the Notes to $110.0 million. In addition, the Notes are collateralized by a
pledge of the capital stock owned by the Company in NBTL, PowerSpectrum, Inc.
and subsidiaries, MetroNet Systems, Inc., Geotek Communications GmbH and BCI.
In March 1995, the Company refinanced the $25.0 million of Senior Secured
Notes, that were originally due in September 1995, with $36.0 million of newly
issued Senior Secured Notes ("Replacement Notes"). At closing, the Company
received net proceeds of $11.0 million and issued warrants to the purchaser to
acquire 700,000 of the Company's common shares at $8.125 per share. The
Replacement Notes are payable in three equal installments fifteen, twenty four
and thirty six months after the closing. Interest at 14.75% is payable quarterly
through the term of the Replacement Notes. In accordance with the Replacement
Note agreement, the Replacement Notes are being converted 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. As of December 31, 1995, $8.0 million has been
converted into 1,228,000 shares of common stock. As a result of the issuance of
the aforementioned Replacement Notes in July 1995, the Company's indebtedness
under the Replacement Notes was restructured in accordance with the terms
thereof by the grant to the lenders of a security interest in a restricted cash
account holding approximately $40.5 million and as of December 31, 1995, $30.9
million remains restricted. As conversion of the Replacement Notes occurs, a
32
<PAGE>
proportionate amount of the restricted cash becomes unrestricted. This amount is
recorded on the balance sheet of the Company, as restricted cash, and is
expected to satisfy the principal and total interest of the Replacement Notes.
This security interest released the original collateral for the Replacement
Notes.
The Company paid cash dividends totaling $4.1 million on its outstanding
preferred stocks. Proceeds from the exercise of warrants and options totaled
approximately $1.1 million in 1995.
In April 1995, the Company completed the previously announced sale of $10.0
million of Series K Cumulative Convertible Preferred shares to the Company's
partner in a joint venture which is attempting to secure a license to provide
wireless services in Korea. The shares pay a dividend of 7% per annum for 5
years, carry a conversion premium and can be redeemed by the Company in certain
circumstances.
In May 1995, the Company sold 531,463 shares of its Series L Cumulative
Convertible Preferred Stock ("Series L Stock"), to Toronto Dominion Investments,
Inc. ("TDI") for an aggregate purchase price of $5.0 million. In connection with
this transaction, in September 1995, Vanguard Cellular Systems, Inc.
("Vanguard"), a stockholder of the Company, purchased an additional 531,463
shares of Series L Stock for an aggregate purchase price of $5.0 million. The
shares pay a dividend of 7.5% per annum, contain a conversion premium and can be
redeemed by the Company in certain circumstances.
In connection with Vanguard's purchase of the Series L Stock, the parties
agreed to modify the terms of certain options (the "Options") to purchase shares
of the Company's common stock granted to Vanguard pursuant the Stock Purchase
Agreement between the Company and Vanguard dated December 29, 1993. Pursuant to
these modifications, the total number of shares of Common Stock subject to the
Options was decreased from ten million shares to seven million shares. Of the
remaining Options, Options to purchase two million shares of common Stock at
$15.00 per share and two million shares of Common Stock at $16.00 per share
expire September 1, 1996 ($16.00 per share options are subject to a March 1,
1997 extension under certain circumstances) and Options to purchase three
million shares of Common Stock at $17.00 per share expire one year from the
expiration of the $16.00 options. After giving effect to these modifications,
Vanguard and TDI each hold one-half of the options exercisable at $15.00 per
share, Vanguard holds six-sevenths of each of the Options exercisable at $16.00
and $17.00 per share, respectively and TDI holds one-seventh of each of the
options exercisable at $16.00 and $17.00 per share, respectively.
In May 1995, the Company sold 1,162.5 shares of its Series M Cumulative
Convertible Preferred Stock ("Series M Stock"), to a group of investors for an
aggregate purchase price of $11,625,000. The shares pay a dividend of 8.5% per
annum, contain a conversion premium and can be redeemed by the Company in
certain circumstances.
In July 1995, the Company acquired the remaining 50.1% of the one of the
German Networks that it did not own for DM 9.0 million (approximately $6.3
million) and in December 1995, the Company received regulatory approval for the
transfer of the 51% of the other German Networks network it did not already own.
In the near term these networks will require additional funding as subscriber
revenue does not cover operating costs and capital needs. The Company is seeking
outside sources of funding for the networks.
In October 1995, the Company sold 338,000 shares of common stock to Rafael
Development Corporation for $3.0 million.
In November 1995, the Company exchanged certain MetroNet licenses with
Nextel Communications, Inc. whereby the Company received 900 MHZ radio channels
in seven major U.S. markets. The exchange was accounted for as a non-monetary
transaction and no gain or loss was recognized.
In December 1995, the Company entered into an agreement with Hughes Network
Systems ("HNS"), a unit of Hughes Electronics Corporation whereby HNS will
extend a $24.5 million line of credit to the Company for a period of two years.
This line of credit may be used to acquire additional 900 MHZ spectrum in the
United States. The loans made under this agreement bear interest, payable
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<PAGE>
quarterly, at a fixed rate of 12%. As of December 31, 1995, there were no
borrowings under this line.
The debt agreements of the Company contain restrictions on the Company,
affecting, among other things, the ability of the Company to incur indebtedness,
make prepayments of certain indebtedness, pay common stock dividends and make
certain investments.
Recently Issued Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" which is effective for fiscal years
begining after December 31, 1995. The Company will adopt this standard in 1996
and is presently analyzing the impact of this new standard on its financial
position and results of operations.
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation" which is effective for fiscal years begining after December 15,
1995. The Company will adopt the disclosure provisions of this new standard in
1996. Therefore, this new standard will not have an effect on the Company's
financial position and results of operations.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The remainder of this page is intentionally left blank. The Financial
Statements of the Company begin on the following page.
34
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
Financial Statements:
Geotek Communications, Inc. and Subsidiaries
Reports of Independent Accountants F-1 - F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994 F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 F-4 - F-5
Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 1995, 1994 and 1993 F-6 - F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 F-8 - F-9
Notes to Consolidated Financial Statements F-10 - F-39
Separate Company Financial Statements for Subsidiaries whose
Capital Stock is Pledged as Collateral.
National Band Three, Ltd. F-40 - F-60
Bogen Communications International, Inc and Subsidiaries F-61 - F-84
35
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
The information called for by Items 10, 11, 12 and 13 (except for the
information regarding executive officers called for by Item 10 which is included
in Part I hereof as Item A in accordance with General Instruction G(3)) is
hereby incorporated by reference from the Company's definitive Proxy Statement
for its 1996 Annual Meeting of Stockholders, which will be filed with the
Securities and Exchange Commission within 120 days of the end of the Company's
fiscal year.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
See "Item 8. Financial Statements and Supplementary Data."
(a)(2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
(b) Reports on Form 8-K
The following Current Report on Form 8-K was filed by the Company
during the fourth quarter of 1995:
Current Report, dated December 21, 1995, reporting that a newly
incorporated subsidiary of the Company, Geotek Financing Corporation,
entered into a loan agreement with Hughes Network Systems, Inc.
("HNS") pursuant to which HNS is providing up to $24,500,000 of
financing, in the form of a note bearing interest at a rate of 12% per
annum, for use in connection with the future purchase of 900 MHz
licenses from the FCC and from existing third party holders thereof.
(c) Exhibits
The following exhibits are filed as part of this report (Exhibit
numbers correspond to the exhibits required by Item 601 of Regulation
S-K for an Annual Report on Form 10-K):
36
<PAGE>
Exhibit
No.
-------
3.1 Restated Certificate of Incorporation of the Company, as amended.(1)
3.2 By-Laws of the Company, as amended through May 30, 1992.(2)
4.1 Restated Certificate of Incorporation of the Company, as amended
(incorporated from Exhibit 3.1 above).(1)
4.2 By-Laws of the Company, as amended through May 30, 1992 (incorporated
from Exhibit 3.2 above).(2)
4.3 Certificate of Designation of Series H Participating Cumulative
Convertible Preferred Stock.(3)
4.4 Certificate of Designation of Series I Cumulative Convertible
Preferred Stock.(1)
4.5 Certificate of Designation of Series K Cumulative Convertible
Preferred Stock. (4)
4.6 Certificate of Designation of Series L Cumulative Convertible
Preferred Stock. (5)
4.7 Certificate of Designation of Series M Cumulative Convertible
Preferred Stock. (5)
** 4.8 1989 Employee Stock Option Plan, as amended, of the Company.(6)
** 4.9 1994 Employee Stock Option Plan of the Company.(7)
4.10 Certificate of Amendment of the Restated Certificate of Incorporation
of the Company filed February 26, 1993.(8)
4.11 Certificate of Amendment of the Restated Certificate of Incorporation
of the Company filed February 16, 1994.(1)
4.12 Note and Warrant Purchase Agreement, dated as of June 1, 1993, by and
between the Company and SC-Geo L.P.(9)
4.13 Form of 30-month Warrant Certificate granted to Investors in
connection with Note and Warrant Purchase Agreement referenced in
Exhibit 4.12, dated July 2, 1993.(9)
4.14 Form of 60-month Warrant Certificate granted to Investors in
connection with Note and Warrant Purchase Agreement referenced in
Exhibit 4.12, dated July 2, 1993.(9)
4.15 Form of 30-month Commitment Warrant Certificate granted to Investors
in connection with Note and Warrant Purchase Agreement referenced in
Exhibit 4.12, dated June 1, 1993.(9)
4.16 Form of 60-month Commitment Warrant Certificate granted to Investors
in connection with Note and Warrant Purchase Agreement referenced in
Exhibit 4.12, dated June 1, 1993.(9)
4.17 Senior Secured Note dated July 2, 1993 from the Company to The SC
Fundamental Value Fund, L.P. for the aggregate principal amount of
$8,592,000.(9)
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<PAGE>
4.18 Senior Secured Note dated July 2, 1993 (together with the note
referenced in Exhibit 4.17, above, the "NBTL Notes") from the Company
to The SC Fundamental Value BVI Ltd. for the principal aggregate
amount of $3,408,000.(9)
4.19 Pledge Agreement, dated as of July 2, 1993, by and among the Company,
The SC Fundamental Value Fund, L.P. [on behalf of itself] and SC
Fundamental Value BVI, Ltd.(9)
4.20 Note and Warrant Purchase Agreement, dated as of March 20, 1995, by
and among the Company, The SC Fundamental Value Fund, L.P. and SC
Fundamental Value BVI, LTD.(7)
4.21 Warrant Certificate in connection with Note and Warrant Purchase
Agreement referenced in Exhibit 4.20, dated March 30, 1995.(7)
4.22 Warrant Certificate in connection with Note and Warrant Purchase
Agreement referenced in Exhibit 4.20, dated March 30, 1995.(7)
4.23 Senior Secured Convertible Note dated March 30, 1995 from the Company
in connection with the Note and Warrant Purchase Agreement referenced
in Exhibit 4.20.(7)
4.24 Senior Secured Convertible Note dated March 30, 1995 from the Company
in connection with the Note and Warrant Purchase Agreement referenced
in Exhibit 4.20.(7)
4.25 Pledge Agreement, dated as of March 30, 1995, by and among the
Company, certain of its subsidiaries, and SC Fundamental Inc., as
agent for, and on behalf of The SC Fundamental Value Fund, L.P. and SC
Fundamental Value BVI, LTD.(7)
4.26 Unit (Note and Warrant) Purchase Agreement, dated June 29, 1995, by
and between the Company and Smith Barney Inc. (10)
4.27 Indenture, dated as of June 30, 1995, between the Company and IBJ
Schroder Bank & Trust Company, as trustee. (10)
4.28 Notes Registration Rights Agreement, dated June 29, 1995, by and
between the Company and Smith Barney Inc. (10)
4.29 Pledge Agreement, dated as of July 6, 1995, by and between the Company
and IBJ Schroder Bank & Trust Company, as collateral agent. (10)
4.30 Share Transfer Agreement, dated July 6, 1995 between the Company and
IBJ Schroder Bank & Trust Company, as collateral agent. (10)
4.31 Charge Over Shares, dated July 6, 1995, between the Company and IBJ
Schroder Bank & Trust Company, as collateral agent. (10)
4.32 Warrant Agreement, dated as of June 30, 1995, by and between the
Company and IBJ Schroder Bank & Trust Company, as warrant agent. (10)
4.33 Warrant Share Registration Rights Agreement, dated July 6, 1995,
between the Company and Smith Barney Inc. (10)
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<PAGE>
4.34 Defeasance Security Agreement, dated as of July 6, 1995, by and among
the Company and SC Fundamental Inc., as agent for and on behalf of the
SC Fundamental Value Fund, L.P. and SC Fundamental Value BVI, Ltd.
(10)
4.35 Loan agreement dated as of December 21, 1995 between the Company and
Hughes Network Systems, Inc. (11)
4.36 Note Purchase Agreement, dated March 4, 1996, by and between the
Company and Smith Barney Inc.(12)
4.37 Indenture, dated as of March 5, 1996, between the Company and The Bank
of New York, as trustee. (12)
4.38 Registration Rights Agreement, dated March 5, 1996, between the
Company and Smith Barney Inc. (12)
10.1 Stockholders Voting Agreement, dated as of February 23, 1994, among
the Company, Vanguard Cellular Systems, Inc., S-C Rig Investments-III,
L.P., Evergreen Canada-Israel Investment & Co., Ltd., Yaron Eitan and
Winston Churchill.(1)
10.2 Asset Exchange Agreement, dated as of March 24, 1995, by and between
the Company, Metro Net Systems, Inc., Nextel Communications, Inc. and
certain Nextel subsidiaries. (7)
10.3 FMHA Commercial Subscriber Unit Agreement dated as of June 8, 1994,
between the Company and Mitsubishi Consumer Electronics America, Inc.
(13)
10.4 FMHA Portable Subscriber Unit Agreement dated as of May 19, 1995,
between the Company and Hughes Network Systems, Inc. (13)
* 12 Computation of Ratio of Earnings to Fixed Charges
* 21 Subsidiaries of the Company.
* 23.1 Consent of Coopers & Lybrand L.L.P.-
Geotek Communications, Inc.
Bogen Communications International, Inc.
* 23.2 Consent of Shachak & Co. -
PowerSpectrum Technology Ltd.
23.3 Consent of Coopers & Lybrand -
National Bank Three Limited
* Filed herewith
** Compensation Plan
- ----------
(1) Incorporated by reference to the Exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993.
(2) Incorporated by reference to the Exhibits to the Company's Registration
Statement on Form S-3 (Registration No. 33-64117) filed with the Commission
on November 9, 1995.
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<PAGE>
(3) Incorporated by reference to the Exhibits to Amendment No. 1 to the
Company's Registration Statement on Form S-3 (Registration No. 33-72820)
filed with the Commission on January 25, 1994.
(4) Incorporated by reference to the Exhibits to Amendment No. 1 to the
Company's Registration Statement on Form S-3 (Registration No. 33-85296)
filed with the Commission on May 26, 1995.
(5) Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K dated May 26, 1995.
(6) Incorporated by reference to the Exhibits to the Company's Registration
Statement on Form S-3 (Registration No. 33-72820) filed with the Commission
on December 10, 1993.
(7) Incorporated by reference to the Exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
(8) Incorporated by reference to the Exhibits to Post-Effective Amendment No. 2
to the Company's Registration Statement on Form S-1 (Registration No.
33-42185) filed with the Commission on August 27, 1993.
(9) Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K/A No. 1 filed with the Commission with respect to events whose
earliest date was June 18, 1993.
(10) Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K dated July 6, 1995.
(11) Incorporated by reference to the Exhibits to the Company's current report
on Form 8-K dated Decemebr 27, 1995.
(12) Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K dated March 4, 1996.
(13) Incorporated by reference to the Exhibits to the Company's current report
on Form 8-K/A dated June 26, 1995.
40
<PAGE>
GEOTEK COMMUNICATIONS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C (1) Column C (2) Column D Column E
-------- ---------- ------------ ------------ -------- --------
Balance at Charged to Balance at
Beginning osts and End of
of Period Expenses Other Deduction Period
--------- -------- ----- --------- ------
Description
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for doubtful accounts $1,125 $950 $588 $1,487
Deferred tax asset valuation account 15,400 28,050 43,450
Reserve for inventory
lower of cost or market 1,293 2,504 939 2,858
----- ----- --------- ----- -----
$17,818 $3,454 $28,050 $1,527 $47,785
======= ====== ======= ==== =======
Year ended December 31, 1994:
Allowance for doubtful accounts $840 $527 $242(a) $1,125
Deferred tax asset valuation account 5,877 9,523 15,400
Reserve for inventory
lower of cost or market 99 1,195 1(b) 1,293
----- ----- ------ ---- -----
$6,816 $1,722 $9,523 $243 $17,818
====== ====== ====== ==== =======
Year ended December 31, 1993:
Allowance for doubtful accounts $69 $93 $678(c,d) $840
Deferred tax asset valuation account 2,767 3,110 5,877
Reserve for inventory
lower of cost or market 45 15 39 (c) 99
--- --- ----- ----
$114 $108 $3,827 $6,816
=== === ===== =====
</TABLE>
(a) Uncollectible accounts written off, net of recoveries.
(b) Write-off of obsolete inventory.
(c) Assumed through acquisition.
(d) Liability of deconsolidated and partially disposed entity.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Yaron I. Eitan
------------------
Yaron I. Eitan, Director, President and
Chief Executive Officer
Date: March 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March 28, 1996 by the following persons on behalf of
the registrant in the capacities indicated.
/s/ Winston Churchill Chairman of the Board
- ---------------------------
Winston Churchill
/s/ Yaron I. Eitan Director, President and Chief Executive
- ---------------------------
Yaron I. Eitan Officer (Principal Executive Officer)
/s/ Walter E. Auch Director
- ---------------------------
Walter E. Auch
/s/ George Calhoun Director
- ---------------------------
George Calhoun
/s/ Purnendu Chatterjee Director
- ---------------------------
Purnendu Chatterjee
/S/ Haynes Griffin Director
- ---------------------------
Haynes Griffin
/s/ Richard Krants Director
- ---------------------------
Richard Krants
/s/ Richard T. Liebhaber Director
- ---------------------------
Richard T. Liebhaber
/s/ Haim Rosen Director
- ---------------------------
Haim Rosen
/s/ Kevin Sharer Director
- ---------------------------
Kevin Sharer
/s/ William Spier Director
- ---------------------------
William Spier
<PAGE>
/s/ Michael McCoy Senior Vice President and Chief Financial
- ---------------------------
Michael McCoy Officer (Principal Financial Officer)
/s/ Michael Carus Chief Accounting Officer and Corporate
- ---------------------------
Michael Carus Controller
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
No.
- -------
12 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Coopers & Lybrand L.L.P.-
Geotek Communications, Inc.
Bogen Communications International, Inc.
23.2 Consent of Shachak & Co. -
PowerSpectrum Technology Ltd.
23.3 Consent of Coopers & Lybrand -
National Band Three Limited
<PAGE>
[Coopers & Lybrand L.L.P. Letterhead]
REPORT OF INDEPENDENT ACCOUNTANTS
----------
To the Board of Directors and Shareholders
of Geotek Communications, Inc.
We have audited the consolidated financial statements and the consolidated
financial statement schedule of Geotek Communications, Inc. and Subsidiaries as
listed in Item 14(a)(1) and (2) of this Form 10-K. The consolidated financial
statements and the consolidated financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the consolidated
financial statement schedule based on our audits. We did not audit the financial
statements of PowerSpectrum Technologies, Ltd., a consolidated research and
development joint venture, which statements reflect losses from continuing
operations of approximately 22%, 28%, and 34% of the corresponding consolidated
totals in 1995, 1994 and 1993, respectively. These statements were audited by
other auditors whose reports have been furnished to us, and our opinion, insofar
as it relates to the amounts included for PowerSpectrum Technologies, Ltd. for
1995, 1994, and 1993 is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits, and
the reports of other auditors, provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Geotek Communications,
Inc. and Subsidiaries as of December 31, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles. In addition, in our opinion, based on our audits and the reports of
other auditors, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
March 26, 1996
F - 1
<PAGE>
[Shachak Peer Reznick & Co. Letterhead]
AUDITORS' REPORT
To the shareholders of
POWERSPECTRUM TECHNOLOGY LTD.
We have audited the accompanying balance sheets of POWERSPECTRUM TECHNOLOGY LTD.
(hereinafter - "the Company") as of December 31, 1995 and 1994, and the
statements of operation, changes in shareholders' equity and cash flows for the
two years ended December 31, 1995 and for the fifteen month period ended
December 31, 1993. These financial statements are the responsibility of the
Company's Board of Directors and management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Israeli Auditors' Regulations
(Auditors' Mode of Performance), 1973. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether caused by an error in the
financial statements or by an irregularity therein. An audit includes examining,
on a test basis evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Company's Board of Directors and management,
as well as evaluating the overall financial statement presentation. We believe
that our audits provide a fair basis for our opinion.
The financial statements referred to above have been prepared on the basis of
historical cost, restated for the general purchasing power of the Israeli
currency, in conformity with statements of the Institute of Certified Public
Accountants in Israel. Condensed financial statements in nominal values, are
presented in Note 18.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1995 and 1994 and the results of operations, changes in shareholders' equity and
its cash flows for the two years ended December 31, 1995 and for the fifteen
month ended December 31, 1993, in conformity with generally accepted accounting
principles in Israel which are essentially identical in all material matters to
the accounting principles generally accepted in the U.S.
Pursuant to Section 211 of the Companies Ordinance (New Version) 1983, we state
that we have obtained all the information and explanations we required and that
our opinion on the abovementioned financial statements is given according to the
best of our information and the explanations received by us and as shown by the
books of the Company.
Without qualifying our opinion, we draw attention to Note 1B as to the Company
being in the developing stage of certain applications of its products. The
Company's ability to continue its operation is contingent upon funding by
shareholders or others.
/s/ SHACHAK PEER REZNICK & CO.
Shachak Peer Reznick & Co.
Certified Public Accountants (Israel)
Tel Aviv, March 26, 1996
F-2
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1995 and 1994
(Dollars in thousands, except per share data)
1995 1994
ASSETS --------- ---------
Current assets:
Cash and cash equivalents $ 61,428 $ 27,531
Temporary investments 7,945 21,960
Restricted cash 36,971 2,555
Accounts receivables trade, net of allowance
for doubtful accounts of $1,487 in 1995
and $1,125 in 1994 14,028 11,371
Inventories 10,483 8,667
Deposits for spectrum licenses 11,500
Prepaid expenses and other assets 5,621 7,468
--------- ---------
Total current assets 147,976 79,552
Investments in affiliates 3,078 26,582
Property, plant and equipment, net 66,110 24,446
Intangible assets, net 68,181 46,099
Other assets 7,219 3,165
--------- ---------
$ 292,564 $ 179,844
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 17,948 $ 12,490
Accrued expenses and other 23,005 12,315
Notes payable, banks and other 8,285 5,641
Current maturities, long-term debt 29,577 2,056
--------- ---------
Total current liabilities 78,815 32,502
--------- ---------
Long-term debt 95,875 29,396
Other non current liabilities 1,217 198
Minority interest 395 392
Redeemable preferred stock 40,000 40,000
Commitments and contingent liabilities
Shareholders' equity:
Preferred stocks, $.01 par value: 11
Common stock, $.01 par value:
Authorized 99,000,000 and 86,000,000
issued 55,251,000 and 50,869,000
shares respectively, outstanding 55,031,000 and
50,631,000 shares, respectively 553 509
Capital in excess of par value 272,456 186,651
Foreign currency translation adjustment 1,012 767
Accumulated deficit (196,384) (109,185)
Treasury stock, at cost (238,000 common shares) (1,386) (1,386)
--------- ---------
76,262 77,356
--------- ---------
$ 292,564 $ 179,844
========= =========
See notes to consolidated financial statements.
F - 3
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Net product sales $ 52,613 $ 48,370 $ 37,501
Service income 27,666 24,621 11,470
--------- --------- ---------
Total revenues 80,279 72,991 48,971
--------- --------- ---------
Costs and expenses:
Cost of goods sold 32,380 31,174 25,653
Cost of services 20,391 16,578 7,958
Research and development 35,580 19,477 10,570
Acquisition of minority interest of a subsidiary
assigned to a research and development project 32,430
Marketing 28,024 18,291 8,913
General and administrative 30,827 19,850 12,508
Interest expense 16,714 3,101 2,591
Interest income (5,148) (2,761) (1,188)
Amortization of intangibles 4,162 2,772 919
Equity in losses of investees 4,895 3,056 34
Other expenses (income) (2,597) 3,027 479
--------- --------- ---------
Total costs and expenses 165,228 114,565 100,867
--------- --------- ---------
Loss from continuing operations before taxes
on income and minority interest (84,949) (41,574) (51,896)
Taxes on income (2,222) (660)
Minority interest (28) (171) 1,455
--------- --------- ---------
Loss from continuing operations (87,199) (42,405) (50,441)
Discontinued operations:
Gain on disposal 323
--------- --------- ---------
323
--------- --------- ---------
Loss before extraordinary item and
cumulative effect of accounting change (87,199) (42,405) (50,118)
Extraordinary item - loss from early extinguishment of debt (2,340)
Cumulative effect of change in fiscal year of subsidiary (1,207)
--------- --------- ---------
Net loss (87,199) (42,405) (53,665)
Preferred dividends (4,132) (2,066) (246)
--------- --------- ---------
Net loss applicable to common stock $ (91,331) $ (44,471) $ (53,911)
========= ========= ---------
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS, (Continued)
for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
------ ------ ------
Weighted average number of common
shares outstanding 52,329,000 49,687,000 35,579,000
========== ========== ==========
Per common share:
Loss from continuing operations,
after preferred dividends $(1.75) $(0.90) $(1.43)
Discontinued operations:
Gain on disposal 0.01
------ ------ ------
Loss before extraordinary item and
cumulative effect of accounting change (1.75) (0.90) (1.42)
Extraordinary item - loss from early
extinguishment of debt (0.07)
Cumulative effect of change in fiscal
year of subsidiary (0.03)
------ ------ ------
Net loss applicable to common shares $(1.75) $( 0.90) $(1.52)
===== ====== =====
See notes to consolidated financial statements.
F - 5
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
as of and for the years ended December 31, 1995, 1994 and 1993
(In Thousands)
<TABLE>
<CAPTION>
Foreign
Preferred Stock Common Stock Capital in Currency
---------------- ------ ------ Excess of Translation Accumulated Treasury
Shares Amount Shares Amount Par Value Adjustment Deficit Stock
------ ------ ------ ------ --------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 1,096 $ 11 21,814 $219 $ 49,154 $(13,115) $(11,837)
Issuance of common stock and warrants:
Unit offering, net of related costs 4,952 50 18,286
Exercise of warrants and options 13,343 133 36,674
Acquisition of Speech Design 552 5 3,137
Conversion of preferred stock (484) (5) 1,323 13 (8)
Other 92 1 269
Issuance of options in connection
with the acquisition of Gandalf 303
Capital contributed to Metro Net 107
Issuance of warrants in connection
with note payable 3,708
Issuance of shares and options in
connection with the acquisition of
minority interest in PSI 5,113 51 37,589 (1,386)
Retirement of Treasury Stock (267) (3) (1,200) (12) (11,822) 11,837
Translation Adjustments (204)
Preferred dividends (246)
Net loss (53,665)
--- -- ------ ---- -------- ------ ------- -------
Balance, January 1, 1994 345 $3 45,989 $460 $137,151 $(204) $(66,780) $(1,386)
Issuance of common stock and warrants:
Exercise of warrants and options 1,394 14 3,833
Conversion of Series A preferred stock (345) (3) 345 3
Acquisition of minority interest in Bogen 233 2 3,439
Sale to Vanguard pursuant to
stock purchase agreement 2,500 25 29,225
Issuance of shares to Vanguard pursuant to
management consulting agreement 258 3 2,514
Acquisition of additional interest in GMSI 150 2 1,630
Issuance of warrants in
connection with note payable 925
Issuance of Series I Preferred Stock 10,000
Preferred dividends (2,066)
Changes in currency translation adjustment 971
Net Loss __ __ ______ ____ (42,405)
-------- ---- ------- ------
Balance, December 31, 1994 0 $0 50,869 $509 $186,651 $767 $(109,185) $(1,386)
</TABLE>
See notes to consolidated financial statements
F - 6
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY, Continued
as of and for the years ended December 31, 1995, 1994 and 1993
(in Thousands)
<TABLE>
<CAPTION>
Foreign
Preferred Stock Common Stock Capital in Currency
---------------- ------ ------ Excess of Translation Accumulated Treasury
Shares Amount Shares Amount Par Value Adjustment Deficit Stock
------ ------ ------ ------ --------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 0 $0 50,869 $509 $186,651 $767 $(109,185) $(1,386)
Issuance of common stock and warrants:
Exercise of warrants and options 466 5 1,158
Shares issued in acquisition of minority
interest in PST 1,800 18 8,550
Issuance of shares to RDC 338 3 2,997
Issuance of shares to Vanguard pursuant to
management consulting agreement 300 3 2,436
Issuance of shares in connection with
research and development project 250 3 2,029
Issuance of shares in connection
with debt conversion 1,228 12 8,008
Issuance of warrants in connection
with note payable 1,800
Issuance of warrants in connection
with bonds payable 32,107
Issuance of Series K Preferred Stock 10,000
Issuance of Series L Preferred Stock 1,062 $11 9,692
Issuance of Series M Preferred Stock 1 11,160
Preferred dividends (4,132)
Changes in currency translation adjustment 245
Net Loss (87,199)
--- --- ------ ---- -------- ---- -------- -------
Balance, December 31, 1995 1,063 $11 55,251 $553 $272,456 $1,012 $(196,384) $(1,386)
===== === ====== ==== ======== ====== ========== ========
</TABLE>
See notes to consolidated financial statements.
F - 7
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
<TABLE>
<CAPTION>
1995 1994 1993*
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(87,199) $(42,405) $(53,665)
Adjustments to reconcile net loss to net cash
used in operating activities:
Cumulative effect on prior year of changing
the fiscal year end of a subsidiary 1,207
Discontinued operations:
Gain on disposal (323)
Minority interest 28 171 (1,455)
Depreciation and amortization 10,124 7,438 2,910
Provisions for inventory reserve for lower of cost or market 1,586 1,195
Post acquisition adjustment for utilization of acquired
net operating loss carryforwards 950 573
Non cash interest expense 11,116
Non cash license income (658)
Gain on sale of property, plant and equipment (93)
Non cash acquisition of minority interest of a subsidiary,
assigned to a research and development project 32,430
Amortization of discount on senior secured note payable 298 391 1,545
Equity in losses of investees 4,895 3,056 34
Loss on extinguishment, net of cash portion 2,163
Loss on sale of subsidiaries 479
Reserve for impairment of loan 3,500
Issuance of stock for management consulting fee 2,439 2,517
Issuance of shares in connection with
Research and development project 2,032
Non cash related party compensation expense 90
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (1,945) 876 (1,732)
(Increase) decrease in inventories (3,398) (3,061) 1,083
Decrease (increase) in prepaid expenses and other assets 3,102 (5,312) (2,971)
Increase in accounts payable and accrued expenses 13,182 6,900 4,790
Other 1,400 84 (805)
-------- -------- --------
Net cash used in operating activities (42,051) (24,077) (14,310)
-------- -------- --------
Cash flows from investing activities:
Acquisition of, and deposits for, spectrum licenses (13,149) (12,963) (5,281)
Net decrease (increase) in temporary investments 14,015 (14,087) (7,872)
Non cash transaction expense for BCI 740
</TABLE>
* Opening balance sheet adjusted to reflect cumulative effect of change in
fiscal year of subsidiary.
See notes to consolidated financial statements.
F - 8
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
for the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
<TABLE>
<CAPTION>
1995 1994 1993*
--------- --------- ---------
<S> <C> <C>
Restricted cash (34,416) (2,555)
Proceeds from sale of interests in
Bogen and Speech Design 7,000
Proceeds from sale of subsidiaries shares 6,180
Contract deposits -other current assets (1,227)
Acquisitions of property, plant and equipment (33,853) (10,458) (2,279)
Collection of notes receivable 37
Proceeds from sale of property, plant and equipment 250
Cash used in acquisition of subsidiaries, net (9,732) (25,842) (27,903)
Loan to Harris Adacom B.V (3,500)
Other 2,106 (59)
--------- --------- ---------
Net cash used in investing activities (68,266) (69,405) (37,177)
--------- --------- ---------
Cash flows from financing activities:
Net borrowings, (repayments) under
line-of-credit agreements (1,000) 2,390 (268)
Proceeds from debt and warrants 2,674
Repayments of debt (2,311) (1,507) (14,035)
Net proceeds from issuance of stock and debentures 18,715
Proceeds from issuance of common stock 3,000
Proceeds from issuance of redeemable preferred stock 40,000
Proceeds from issuances of convertible preferred stock 30,863 10,000
Deferred financing costs (4,692) (1,200)
Proceeds from issuance of senior
secured note and related warrants 36,000 25,000 12,000
Repayments of Secured Note (25,000)
Proceeds from issuance of senior secured notes
and related warrants 110,079
Investment by others in stock of subsidiary 2,124
Proceeds from issuance of stock and warrants
to Vanguard 29,250
Proceeds from issuance of options 303
Proceeds from exercise of warrants and options 1,073 3,848 36,807
Payment of preferred dividends (4,132) (2,066) (246)
Repayment of capital lease obligations (617)
Other (289) 587
--------- --------- ---------
Net cash provided by
financing activities 143,263 69,300 94,787
--------- --------- ---------
Effect of exchange rate changes on cash 951 27 (277)
Increase (decrease) in cash and equivalents 33,897 (24,155) 43,023
Increase in cash due to a change in the
fiscal year end of a subsidiary 5,638
Cash and equivalents, beginning of year 27,531 51,686 3,025
--------- --------- ---------
Cash and equivalents, end of year $ 61,428 $ 27,531 $ 51,686
========= ========= =========
</TABLE>
* Opening balance sheet adjusted to reflect cumulative effect of change in
fiscal year of subsidiary.
See notes to consolidated financial statements.
F - 9
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
for the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Supplemental cash flow information:
Interest paid $5,923 $3,142 $ 822
Supplemental schedule of noncash investing
and financing activities:
Summary of acquired subsidiaries:
Fair value of assets acquired in purchase transactions 14,840 4,217
Liabilities assumed in purchase transactions 13,466 2,066 2,029
Disposition of investee 185
Stock issued for acquisition of subsidiary 3,142
Issuance of common stock and warrants to acquire:
PowerSpectrum, Inc. minority interest 37,640
Acquisition of additional interest in GMSI 1,631
Bogen, Inc. minority interest 3,441
Issuance of shares to subsidiary 1,386
Conversion of Preferred Stock -Series A 1
Management consulting fees paid in common stock 2,439 2,517
Issuance of shares in connection with
research and development project 2,032
Non cash transaction expense for BCI 740
Issuance of shares in connection with
debt conversion 8,020
Conversion of debenture by-related party
into shares of subsidiary 812
Issuance of shares for acquisition of minority
interest in PST 8,568
Stock issued in lieu of debt payment 150
Acquisition of assets under capital lease 986
</TABLE>
See notes to consolidated financial statements.
F - 10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Summary of Significant Accounting Policies:
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of Geotek Communications, Inc. ("the
Company") include all wholly-owned, majority-owned and controlled
subsidiaries. The Company accounts for 20%-50% owned entities by the equity
method. All significant intercompany accounts and transactions have been
eliminated. Certain amounts in the 1994 and 1993 financial statements and
notes have been reclassified to conform to the 1995 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the
financial statements and revenues and expenses during the period reported.
Actual results could differ from those estimates. Estimates are used for
allowance for doubtful accounts, inventory reserve for the lower of cost or
market, product warranty reserves, depreciation and amortization and the
estimated lives of assets, including intangibles.
Revenue Recognition
Commercial manufacturing product revenues, net of expected sales returns,
are recognized upon shipment. Revenues relating to contracts for the sale
and installation of wireless dispatch systems are recognized using the
percentage of completion method. Revenues for service income are recognized
when services are provided. Deferred revenues are recognized when the
customer is billed in advance and is recorded in income in the period to
which the advance billing relates.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Cash Equivalents
Cash equivalents are highly liquid debt instruments purchased with an
original maturity of three months or less, and are considered to be cash
equivalents for cash flow reporting purposes.
Temporary Investments
Management determines the appropriate classification of its investments in
debt securities with maturities of more than three months at the time of
purchase and reevaluates such determination at each balance sheet date.
Debt securities for which the Company has the intent and ability to hold to
maturity are classified as held to maturity securities and reported at
amortized cost. At December 31, 1995 and 1994, the Company did not have any
investments in equity or debt securities that qualified as trading or
available for sale.
Concentration of Credit Risk and Off-Balance-Sheet Risks
The Company provides mobile radio services to commercial customers in the
United States, the United Kingdom and Germany and designs, manufactures and
distributes electronic communications equipment for commercial customers,
under contractual arrangements. The Company performs ongoing credit
evaluations of its commercial customers and generally does not require
collateral. The Company maintains reserves for potential losses from these
contractual arrangements. Credit risk with respect to accounts receivable
is limited due to the large number of customers and their industry and
geographic dispersion. The Company's Israeli subsidiaries are prohibited
from making certain payments, including loans, to entities outside of
Israel without the Bank of Israel's approval. The subsidiaries are
permitted, however, to distribute dividends, reimburse expenses and make
other specific payments.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Property, plant and
equipment acquired through acquisition is recorded at the fair value at the
date of acquisition. Depreciation and amortization are provided principally
by the straight-line method over the estimated useful lives of the related
assets which range between 3 to 10 years. Gains or losses arising from
dispositions are recorded in operations.
F - 11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Summary of Significant Accounting Policies: continued
Interests costs incurred on borrowings during the construction of the
network infrastructure for each market (until the assets are substantially
complete and ready for use) are capitalized. Interest capitalized amounted
to $0.5 million in 1995.
Intangible Assets
The excess of cost over the fair value of net assets acquired is amortized
on a straight-line basis over twenty to forty years. At each balance sheet
date management assesses whether there has been an other than temporary
impairment in the value of goodwill by comparing anticipated undiscounted
future cash flows from operating activities with the carrying value of
goodwill. The factors considered by management in performing this
assessment include current operating results, trends and prospects as well
as the effects of obsolescence, demand, competition and other economic
factors. FCC and other private radio licenses are amortized over twenty
years.
Foreign Currency Translation
For international operations, assets and liabilities are translated at
year-end exchange rates and income statement items are translated at
average exchange rates for the period. Resulting translation adjustments
are recorded as a separate component of shareholders' equity.
Research and Development
Research and Development expenditures are expensed as incurred. All
expenses relating to research and development ventures are recorded, net of
grants, as research and development expense.
Taxes on Income
Effective January 1, 1993 the Company implemented SFAS No. 109, "Accounting
for Income Taxes". This pronouncement changed the method of accounting for
income taxes from the deferred method to the liability method, which
includes a requirement for adjustment of deferred tax balances for tax rate
changes.
Cumulative Effect on Prior Year of Changing Fiscal Year End of a Subsidiary
In 1993, the Company's PowerSpectrum, Inc. ("PSI") subsidiary changed its
fiscal year end from September 30 to December 31. This change was made in
anticipation of the merger, which occurred on July 30, 1993, of PSI into a
wholly owned subsidiary of the Company (See Note 2). The operating results
of PSI for the period October 1, 1992 to December 31, 1992 are included in
the 1993 statement of operations as a cumulative effect on prior year of
changing the fiscal year end of a subsidiary.
Loss Per Common Share
Net loss per common share is computed by dividing the net loss, after
preferred dividend requirements, by the weighted average number of common
shares outstanding during the year. Common stock equivalents are excluded
since the effect would be anti-dilutive.
Recently Issued Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" which is effective for fiscal years
beginning after December 31, 1995. The Company will adopt this standard in
1996 and is presently analyzing the impact of this new standard on its
financial position and results of operations.
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation" which is effective for fiscal years beginning after December
15, 1995. The Company will adopt the disclosure provisions of this new
standard in 1996. Therefore, this new standard will not have an effect on
the Company's financial position and results of operations.
F - 12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
2. Acquired, Discontinued and Disposed of Operations:
Wireless Networks in Germany
The Company acquired 49% of Preussag Bundelfunk GmbH ("PBG") in July 1994,
for approximately $14.0 million in cash. The Company did not have a
controlling interest in PBG and accounted for its investment under the
equity method. Under the terms of its investment, the Company agreed to
fund PBG after PBG's capital was exhausted and in 1995, the Company
recorded 100% of PBG's losses as its share under the equity method. In
December 1995, after regulatory approval for the transfer of the mobile
radio licenses, the remaining 51% of PBG was transferred to the Company for
no additional consideration and the Company began to consolidate the
results of PBG in its financial statements. The Company has guaranteed the
repayment of certain debt of PBG, due in 1999, to the seller, Preussag
Mobilefunk GmbH ("PMG"), of DM 3.5 million plus interest (approximately
$2.4 million). This guarantee has been collateralized by a letter of
credit. The excess of the purchase price over the Company's share of the
fair value of the net assets of PBG at the date of acquisition of $12.5
million has been accounted for as goodwill and is being amortized over 20
years.
The Company acquired 49.9% of DBF Bundelfunk GmbH & Co. ("DBF") in August
1994 for approximately $5.3 million in cash. In addition, the Company and
the seller, Quante A.G., committed to contribute DM 5.0 million
(approximately $3.2 million), of which DM 3.0 million (approximately $1.8
million) was contributed by the Company prior to December 31, 1994. The
Company and Quante were granted call and put options, respectively, for the
remaining 50.1% of DBF held by Quante. In March, 1995 Quante exercised its
option to sell its 50.1% interest in DBF to the Company for DM 9.0 million
(approximately $6.3 million) in cash. Prior to July 1995, the Company did
not have a controlling interest in DBF and thus, accounted for its
investment, and its funded share of the losses, under the equity method.
Upon the purchase of the remaining 50.1% interest in DBF in July 1995, the
Company began to consolidate the results of DBF in its financial
statements. The excess of the purchase price over the Company's share of
the fair value of the net assets of DBF at the date of acquisition of $10.1
million has been accounted for as goodwill and is being amortized over 20
years.
Communication Products
In August 1995, the Company transferred its interest in Speech Design GmbH
and Bogen Communications, Inc. to Bogen Communications International
("BCI") (formerly, European Gateway Acquisition Corporation) in exchange
for $7.0 million in cash, $3.0 million in convertible notes, approximately
64% of BCI's common shares and warrants to purchase 200,000 shares of BCI
common stock. The Company will also be eligible to receive additional
consideration if the future earnings of both companies through July 1997
attain certain levels. This transaction had no material recurring effect on
the Company's results of operations and the Company continues to control
and consolidate these entities. Included in general and administrative
expenses are $1.5 million of costs to effect the transaction. The BCI
warrant holders hold approximately 3,800,000 warrants to purchase one share
of BCI common stock for between $5.00 to $5.50. These warrants are callable
upon certain events. For services provided in connection with the
transaction, a director of the Company acquired 19,500 shares in BCI.
In January 1994, the Company completed a tender offer, whereby its interest
in Bogen Communications, Inc. increased from 91% to 99% in exchange for
233,442 shares of the Company's common stock. The shares have been valued
at $3.4 million, which amount was recorded as additional goodwill.
In February 1993, the Company acquired a 67% interest in Speech Design
GmbH, a Munich based developer, manufacturer and marketer of telephone
peripherals in exchange for $900,000 in cash and notes and 553,000 of the
Company's common shares. Goodwill created from this acquisition was $3.7
million, with $2.6 million remaining as of December 31, 1995.
F - 13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
2. Acquired, Discontinued and Disposed Operations: continued
Other Acquisitions
In May 1993, the Company acquired a 66% interest in GMSI (formerly known as
Gandalf Mobile Systems, Inc.) in consideration for Canadian $2.0 million
(approximately $1.5 million) and the guarantee by the Company of Canadian
$2.0 million in debt (due in 1998) to the seller. In April 1994, upon the
exercise by GTI, GMSI's former parent company, of a put option granted at
the acquisition date, the Company acquired GTI's remaining 10% interest in
GMSI in consideration for 150,000 shares of the Company's common stock. The
shares issued in April 1994 have been valued at $1.6 million, which amount
has been recorded as additional goodwill.
In July 1993, the Company acquired all of the outstanding stock of National
Band Three Ltd. ("NBTL"), the only national provider of private mobile
radio services in Great Britain, for approximately $24.0 million in cash.
The intangible asset created from this transaction was $8.1 million with
$6.1 million remaining as of December 31, 1995.
In July 1993, the Company acquired the 38% of its US wireless subsidiary,
PSI, that it did not already own, through a merger of PSI into a
wholly-owned subsidiary of the Company (the "Merger"). In connection with
the Merger, the Company issued approximately 5.1 million shares of common
stock and options to acquire an additional 2.0 million shares of the
Company's common stock. In 1992, PSI entered into a joint venture,
PowerSpectrum Technologies, Ltd. ("PST"), with an Israeli government
agency, Rafael Armament Development Authority ("RDC"). PST was formed to
develop the Company's digital wireless communications system based upon the
technology contributed to PST by Rafael. PSI held a 56% interest in PST.
The excess of consideration paid over the fair value of the net assets
acquired in the merger, of $32.4 million has been attributed to the
incomplete research and development project and was charged to expense at
the time of the Merger. In November 1995, the Company closed its September
1995 agreement with RDC, whereby RDC converted all the principal and
interest issued to it by PST under convertible debentures into shares of
PST representing its 38% interest in PST. Geotek issued to RDC 1.8 million
shares of unregistered Company common stock in exchange for RDC's shares of
PST. The unregistered shares were valued at approximately $8.6 million and
$7.8 million was recorded as goodwill. RDC was granted an option to
purchase up to 10% of PST in certain circumstances.
Pro Forma Information (unaudited)
The following table summarizes the unaudited consolidated pro forma results
of operations, assuming the acquisitions had occurred at the beginning of
each of the periods as follows (in thousands):
1995 1994 1993*
---- ---- -----
Revenue $ 82,781 $ 72,991 $ 58,190
Loss from continuing operations (89,428) (46,313) (56,107)
Loss from continuing operations per share ($1.71) ($0.93) ($1.47)
* Includes non cash charge of $32.4 million related to PSI merger.
The unaudited pro forma results of operations are not necessarily
indicative of the actual results of operations that would have occurred had
the acquisitions been made at the beginning of the period, or of results
which may occur in the future.
Merger and Exchange of Metro Net
In January 1994 the Company acquired, through a merger, all of the
outstanding stock of Metro Net Systems, Inc. ("MetroNet") in consideration
for the issuance of 3,112,500 common shares of the Company. The merger was
accounted for as a pooling of interests and, accordingly, the Company's
consolidated financial statements were restated for all periods prior to
the acquisition to include the results of operations, financial position
and cash flows of Metro Net. The effect of the merger on the results of
operations in the period in which the pooling of interests occurred is
immaterial. Metro Net is a provider of wide area SMR services in the New
York City area.
F - 14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
2. Acquired, Discontinued and Disposed Operations: continued
In November 1995, the Company exchanged all of MetroNet's 800 MHz radio
channels for the 900 MHz radio channels in seven major U.S. markets
previously held by Nextel Communications Inc. The exchange of licenses was
accounted for as a non monetary transaction and no gain or loss was
recognized upon the transaction.
3. Temporary Investments:
Temporary Investments include $7.9 and $22.0 million of U.S. Government
Agency securities at December 31, 1995 and 1994, respectively. The
amortized cost of marketable securities at December 31, 1995 and 1994
approximates fair market value. All marketable debt securities are
classified as held to maturity at December 31, 1995 and 1994 and mature
within one year.
4. Inventories:
Inventories as of December 31, 1994 and 1993 are as follows (in thousands):
1995 1994
------- -------
Raw materials $ 3,520 $ 2,030
Work-in-process 2,344 781
Finished goods 7,477 7,149
------- -------
13,341 9,960
Reserve for lower of cost or market 2,858 1,293
------- -------
$10,483 $ 8,667
======= =======
5. Investments in Affiliates:
In 1995, the Company entered into a partnership in Korea the purpose of
which is to build an FHMA(TM) demonstration site for wireless service. At
December 31, 1995, the Company's investment in this partnership was $0.5
million. The Company entered into a joint venture in Korea which is
attempting to secure a license to provide wireless service in Korea. At
December 31, 1995, the Company's investment in the joint venture is $1.2
million. As part of the joint venture agreement, the Company has agreed to
grant the joint venture partner 300,000 or 750,000 options to acquire
Company Common Stock for $10.00 conditional on the joint venture obtaining
a regional or national license in Korea, respectively.
During 1994, the Company acquired minority non controlling equity interests
in two wireless networks in Germany as described in Note 2. As of December
31, 1994 the carrying values of these equity basis investments was $14.9
million and $7.2 million in PBG and DBF, respectively.
The Company acquired, in August 1993, a 25% equity interest in Cumulous
Communications Company ("Cumulous") for aggregate consideration of $1.5
million. Cumulous is a provider of SMR services in the San Joaquin Valley
of California. The Company's investment exceeds its share of the underlying
net assets of Cumulous by approximately $940,000 which amount is being
amortized over 20 years. The carrying value of this investment as of
December 31, 1995 and 1994 was $1.3 million.
F - 15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
5. Investments in Affiliates: continued
The gross revenues and net loss from operations for affiliated companies
accounted for under the equity method were $3.1 million and $5.2 million,
respectively, for the year ended December 31, 1994. The current assets,
non-current assets, current liabilities, and non-current liabilities for
such entities were $3.6 million, $15.3 million, $8.6 million and $3.7
million, respectively, as of December 31, 1994. All such amounts were not
material in 1995.
6. Property, Plant and Equipment and Capital Leases (in thousands):
1995 1994
------- -------
Property, Plant and Equipment
Machinery and equipment $58,058 $29,064
Furniture and fixtures 7,481 1,891
Leasehold improvements 896 623
Construction in progress 25,846 724
------- -------
92,281 32,302
Capital Leases
Equipment 5,364
Construction in progress 938
-------
6,302
------- -------
98,583 32,302
Less: accumulated depreciation
Property, Plant and Equipment 30,838 7,856
Capital Leases 1,635
------- -------
32,473 7,856
------- -------
$66,110 $24,446
======= =======
Depreciation expense was $5,962, $4,666 and $1,914 in 1995, 1994, and 1993,
respectively.
7. Intangible Assets (in thousands):
1995 1994
------- -------
Excess of cost over fair value
of net assets acquired $44,847 $21,462
FCC and other private mobile radio licenses
acquired and related intangibles 29,143 27,479
Other 741 753
------- -------
74,731 49,694
Less accumulated amortization 6,550 3,595
------- -------
$68,181 $46,099
======= =======
The increase in the excess of cost over fair value of net assets acquired in
1995 is primarily attributable to the acquisitions of additional interests in
the DBF and PBG Networks offset by a decrease in goodwill in Bogen from the sale
of an interest in the Company's Bogen Communications, Inc. and Speech Design
subsidiaries to BCI. Such sale was accounted for as a reverse acquisition in
EGAC. The increase in FCC and other private mobile radio licenses is
attributable to the cost of licenses acquired in the United States.
F - 16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
8. Notes Payable:
1995 1994
------ ------
Notes payable consists of the following (in thousands):
$10.0 million line of credit, bank interest
at prime plus 2.0% to 2.75% and 2.5% in
1995 and 1994, respectively (a) $3,670 $4,355
Line of credit, bank (b) 627 728
Line of credit, bank (c ) 647 558
Line of credit, bank (d) 3,341
------
$8,285 $5,641
====== ======
Prime rate at December 31 8.50% 8.50%
(a) This line of credit for up to $10.0 million was refinanced in August
1995 and is subject to available collateral (80% of accounts
receivable and 50% of finished goods inventory of a subsidiary).
Substantially all the assets of a subsidiary are pledged as collateral
for the line, which also bears interest based on loan balance, has a
two year term, and is guaranteed by the Company. As of December 31,
1995, the unutilized amount available under the line was $0.4 million.
(b) The maximum amount available under this line of credit at December 31,
1995 is $2.7 million, including amounts outstanding under the long
term portion. Interest rates vary between 6.5% and 9.5% depending on
the length of time the funds will be used. As of December 31, 1995 the
unutilized amount available under this line of credit was $1.9
million.
(c) Interest on the line is payable at a rate of 6.75%.
(d) This line of credit for $3.5 million is collateralized by $3.5 million
restricted cash.
9. Long-term Debt:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Long-term debt consists of the following (in thousands):
Senior secured discount notes, due July 15, 2005, interest
at 15% due semiannually begining January 15, 2001 (a) $ 87,841
Senior secured convertible notes, due in various installments at
14.75%, interest due quarterly (b) 26,631
Senior secured notes, due September 1995 (b) $ 24,177
Notes payable, due in various installments
through 1999, interest between 10% and 15% (c) 2,003 2,066
Convertible debenture, face value $4.0 million
imputed interest at 10%, due in 2012 (d) 755
Debenture, interest at 5% due in quarterly payments,
payment of principal due March 31, 1998 1,466 1,427
Notes payable, interest at 7.5% due in quarterly payments
through December 31, 1995, payment of principal
due December 1995 850
Note payable due April 30, 1999, bearing interest at 8% 2,436
Notes payable, other, due in various installments
through 1997, bearing interest at rates ranging
between 7.5% and 12% 382 1,510
Subordinated notes payable, interest at prime and 9%,
due in 1996 109 667
Obligations under capital lease 4,584
-------- --------
125,452 31,452
Less, current portion 29,577 2,056
-------- --------
$ 95,875 $ 29,396
======== ========
</TABLE>
F - 17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
9. Long-term Debt: continued
(a) In July 1995, the Company issued, in a private offering, $207.0 million
aggregate principal amount at maturity of 15% Senior Secured Discount Notes
due July 15, 2005 ("the Discount Notes"). Gross proceeds of the Discount
Notes were approximately $100.0 million. The Discount Notes were issued
with 6,210,000 detachable warrants ("the Warrants"). Each Warrant entitles
the holder to purchase one share of Company common stock at an exercise
price of $9.90 per share. The Warrants, which have been valued at $29.2
million, are recorded as a reduction of the Discount Notes and are being
accredited over the ten year life of the Discount Notes.
The Discount Notes accrue interest until maturity at a rate of 15% per
annum. Interest on the Discount Notes will be payable semi-annually, in
cash, on July 15 and January 15, commencing January 15, 2001. The Discount
Notes are collateralized by a pledge of substantially all subsidiary
capital stock owned by the Company. Additionally, the Discount Notes are
fully and unconditionally guaranteed, jointly and severally on a senior
basis, by certain subsidiaries of the Company. The Discount Notes include
covenants that put restrictions on the Company primarily related to making
certain investments, incurring additional debt and paying dividends on
common shares.
In August, in connection with the Discount Notes, investors affiliated with
George Soros purchased approximately $21.0 million principal amount of
additional units consisting of 15% Senior Secured Discount Notes due 2005
and 621,000 ten year warrants to purchase shares of Company common stock at
$9.90 per share. The warrants, which have been valued at $2.9 million, are
recorded as a reduction on the Discount Notes and are being accredited over
the ten year life of the Discount Notes. Gross proceeds to the Company were
approximately $10.0 million, bringing total gross proceeds from the
issuance of the Notes to approximately $110.0 million. The Company has
recorded in other assets approximately $4.3 million of deferred financing
costs relating to this transaction which are being amortized, using the
interest method, over the ten year life of the Discount Notes.
In November 1995, the Company registered the Discount Notes through an
exchange offer, and the Warrants under the Securities Act of 1933, as
amended.
(b) In March 1995, the Company refinanced $25.0 million of Senior Secured
Notes, that were originally due in September 1995, with $36.0 million of
newly issued Senior Secured Notes (the "Replacement Notes"). At closing,
the Company received net proceeds of $11.0 million and issued warrants to
the purchaser to acquire 700,000 of the Company's common shares at $8.125
per share. The warrants have been valued at $1.8 million, which amount has
been recorded as a discount on the Replacement Notes. The Replacement Notes
are payable in three equal installments of $12 million, respectively,
fifteen, twenty four and thirty six months after issuance. Interest at
14.75% is payable quarterly through the term of the Replacement Notes. In
accordance with the Replacement Note agreement, the Replacement Notes are
being converted into shares of the Company's common stock (conversion may
occur beginning six months after the closing and end 18 months after
closing) subject to daily limits and certain other restrictions, at 87.5%
of the average trading price of the Company's common stock on the
respective conversion dates. As of December 31, 1995, $8.0 million has been
converted into 1,228,000 shares of common stock.
Concurrently with the issuance of the Discount Notes (see a above), the
Company's indebtedness under the $36 million Replacement Notes was
restructured in accordance with the terms thereof by the grant to the
lenders of a security interest in a restricted cash account holding
approximately $40.5 million. As conversion of the Replacement Notes occurs,
a proportionate amount of the restricted cash becomes unrestricted and as
of December 31, 1995, $30.9 million cash remains restricted. This amount is
separately stated on the balance sheet of the Company, as restricted cash,
and is expected to satisfy the principal and total interest of the
remaining unconverted Replacement Notes. This security interest has
released the original collateral for the Replacement Notes.
(c) These notes were assumed in connection with the purchase of certain SMR
licenses in various cities in the US. Certain analog SMR equipment as well
as revenues generated by the systems is pledged as collateral for the
notes.
F - 18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
9. Long-Term Debt: continued
(d) In accordance with the terms of this note, it was converted into a 38%
ownership interest of PST.
In December, the Company and Hughes Network Systems ("HNS"), a unit of GM
Hughes Electronics, the Company's strategic partner in the development of
the Company's portable subscriber unit, entered into an agreement whereby
HNS will extend the Company a two year, $24.5 million line of credit for
the Company to acquire additional 900 MHZ spectrum in the United States.
Loans made under the line of credit will bear interest at a fixed rate of
12% payable quarterly. As of December 31, 1995, there were no outstanding
loans under this line of credit.
Minimum annual principal repayments of long-term debt during the next five
years and thereafter, are as follows:
Year In Thousands
---- ------------
1996 $ 29,577
1997 990
1998 2,936
1999 3,542
2000 596
Thereafter 229,025
-------
Total $ 266,666
========
Included in 1996 repayments, is the remaining unconverted portion of the
Replacement Notes ($27,980) which are expected to be converted into common
shares in 1996.
The Company's debt agreements contain covenants that restrict the Company's
ability to pay dividends to common shareholders, make certain investments
and incur debt.
Extinguishment of Certain Debt
In July 1993, the Company issued a $12.0 million Senior Secured Note, (the
"Note") in connection with the acquisition of National Band Three Ltd.
In December 1993, in separate but related transactions, the Note was
retired and the purchaser of the Note exercised its rights to purchase 2.1
million common shares under warrants issued in connection with the Note and
other warrants it held. In connection with the early extinguishment of debt
the Company recorded a pre-tax extraordinary loss of $2.3 million resulting
primarily from the unamortized discount on the Note as of the date of
repayment.
10. Income Taxes:
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes". SFAS No. 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The impact of adoption of this
standard was immaterial.
F - 19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
10. Income Taxes: continued
Taxes on income in 1995 and 1994 consists of taxes paid by a foreign
subsidiary. The amounts presented includes $950,000 and $573,000 related to
the 1995 and 1994 utilization of pre-acquisition net operating losses,
respectively, by two subsidiaries which had full valuation allowances
established at the time of the acquisitions by the Company and have been
recorded in 1995 and 1994 as reductions to intangible assets.
The Company has domestic net operating loss (NOL) carryforwards for tax
purposes of approximately $95.3 million and $36.2 million in 1995 and 1994,
respectively, which expire between the years 2001 through 2010.
Additionally, the Company has net deferred tax assets of approximately $4.6
million in 1995. The Company has established a valuation allowance
offsetting the tax benefit as it is more likely than not that the tax
benefit will not be realized. An effective tax rate reconciliation has not
been provided as the Company had no domestic tax provision for the years
ended December 31, 1995, 1994 and 1993.
The Company has domestic deferred tax assets of $ 38.9 million and $14.0
million in 1995 and 1994, respectively, related to the NOLs. In accordance
with SFAS No. 109, the Company has established a valuation allowance
offsetting the tax benefit of the NOL carryforwards as it is more likely
than not that the tax benefit will not be realized.
The carryforwards are subject to certain limitations on their utilization
and limitations as a result of various changes in control which have
occurred.
The Company has not provided deferred U.S. income taxes on the
undistributed earnings of foreign subsidiaries, which totaled $2.4 million
at December 31, 1995 which the Company intends to permanently reinvest in
their operations. The Company has foreign NOL carryforwards for tax
purposes of approximately $18.8 million and $3.4 million in 1995 and 1994,
respectively. The deferred tax asset related to those NOL carryforwards is
approximately $9.4 million and $1.5 million, respectively. The Company has
established a valuation allowance offsetting the tax benefit of the NOL
carryforwards as it is more likely than not that the benefit will not be
realized.
11. Commitments and Contingent Liabilities:
Capital Leases
Future minimum lease payments under capital leases at December 31, 1995
together with the present value of the minimum lease payments are:
Year In Thousands
---- ------------
1996 $ 941
1997 934
1998 1,141
1999 718
2000 718
Thereafter 1,424
------
Total minimum payments 5,876
Amounts representing
interest (1,292)
Total present value of ------
minimum payments 4,584
Current portion 572
------
Total long-term portion $ 4,012
======
F - 20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
11. Commitments and Contingent Liabilities: continued
Operating
The Company leases facilities under noncancellable operating leases, some
of which include escalation clauses. Future minimum rental commitments
under noncancellable operating leases are as follows:
Year In Thousands
---- ------------
1996 $9,732
1997 8,577
1998 8,220
1999 7,573
2000 4,013
Thereafter 6,626
------
$ 44,741
========
Rent expense was $7.4 million, $6.4 million and $2.1 million in 1995, 1994
and 1993, respectively.
Government Participation in Research and Development Project
The Chief Scientist of the Israeli Ministry of Industry and Commerce (Chief
Scientist) has agreed to fund certain eligible expenditures related to the
development of the digital wireless communication system by PST. Funding
received from the Chief Scientist is repayable without interest only from
revenues generated by the product being developed. Such participation
amounted to $5.9 million, $4.1 million and $2.7 million, for 1995, 1994 and
1993, respectively, and have been reported in the statement of operations
as a reduction of research and development expenses.
Manufacturing Commitments
The Company has contracted with Mitsubishi Consumer Electronics of America
to manufacture Commercial Subscriber Units on behalf of the Company.
In March 1995, the Company and HNS formed a strategic partnership to
develop a series of subscriber terminals and equipment based on the
Company's proprietary technology. Under the terms of the agreement, HNS and
the Company will share equally the cost of developing the portable
subscriber unit. As of December 31, 1995, the Company has expensed
approximately $6.0 million paid to HNS under the terms of this development
contract.
Guarantees of Debt of Equity Investees
The Company has guaranteed the repayment of certain debt of PBG, due in
1999, to the former owner of PBG, in the amount of DM 3.5 million plus
interest (approximately $2.4 million). A letter of credit has been issued
as collateral for this obligation. Additionally, the Company has guaranteed
certain debt of DBF to Quante, the former owner of DBF, in the amount of DM
5.0 (approximately $3.5 million). This amount is included as restricted
cash.
FCC Waiver
The Company has applied for and received a waiver by the FCC to construct
and activate certain systems it has acquired. In the event the Company
fails to construct or activate such systems in accordance with the dates
set forth in the waiver, the Company could lose the waiver and lose all of
the frequencies covered by such waiver to the extent the systems have not
been constructed or activated.
Litigation
In June 1994 the Company filed a lawsuit against Harris Adacom Corporation
B.V. ("Harris"), a Dutch corporation, to enforce its rights under a loan
agreement between the parties. The Company is seeking repayment of a $3.5
million loan made to Harris in January 1994 in connection with a potential
purchase transaction between the Company and Adacom Technologies Ltd.
("ATL"), an affiliate of Harris and an Israeli publicly traded company. The
loan was collateralized by stock owned by Harris in ATL. At the time of the
loan, the collateral had a market value in excess of $10 million and the
total market value of ATL was in excess of $100 million. The purchase
transaction was not consummated. In May 1994 the market value of ATL
F - 21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
11. Commitments and Contingent Liabilities: continued
dropped dramatically and ATL became insolvent, thereby reducing the value
of the collateral to practically zero. At or about the same time, creditors
placed Harris into bankruptcy proceedings in the Netherlands. The Company
subsequently received limited information relating to the recoverability of
the loan, and Management does not expect to recover the loan. The Company
is aggressively pursuing its rights under the loan in Dutch bankruptcy
court and is awaiting additional information on the assets and creditors of
Harris. Based upon the information currently available, it cannot be
determined what amount, if any, will ultimately be recovered; therefore,
the Company has established a reserve against the full amount of the loan.
Accordingly, the 1994 statement of operations includes, in other expenses,
a charge of $3.5 million to establish this reserve.
In response to the Company's lawsuit, Harris and its subsidiaries filed a
lawsuit against the Company in the courts of the State of Israel,
requesting a declaratory judgment that the Company entered into a binding
agreement for the purchase by the Company of a significant interest in
certain wireless communication business assets owned by ATL and
subsequently breached such agreement. The plaintiffs in such action have
stated an intention to file a separate claim for monetary damages and have
estimated their losses to be several million dollars. The Company believes
none of plaintiffs' claims in such action have any merit and are only an
attempt to delay efforts to collect Harris's debt to the Company. The
Company intends to defend such action vigorously.
The Company is subject to various 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 will not
have a significant adverse effect on the financial position, results of
operations or cash flows of the Company, if disposed of unfavorably.
12. Redeemable Preferred Stock:
In December 1993, the Company issued to investors affiliated with George
Soros, a related party, 444,445 shares of Series H Cumulative Redeemable
Convertible Preferred Stock at a price of $90 per share. The shares bear a
dividend for five years, at a rate of five percent per year, payable
quarterly. The shares are redeemable, at stated value, on October 31, 2000
only if the Company's common stock has not closed at an average price of
$18 for any 20 consecutive trading days after the third anniversary of the
date of issuance of the preferred shares. In the event that the shares are
redeemed, the Company may elect to pay the redemption price in shares of
its common stock, provided that the common shares will have an aggregate
market value equal to 150% of the redemption value of the Series H shares
being redeemed. The shares are convertible into common shares at any time
at a ratio (adjusted for splits) of ten common shares for each preferred
share. The holders of the Series H shares are entitled to vote on all
matters voted on by common shareholders as if the Series H shares were
converted to common stock. The Company has paid dividends of $2.0 million
in each of the years ended December 31, 1995 and 1994.
13. Shareholders' Equity:
Preferred Stocks
In May 1995, the Company sold 531,463 shares of its Series L Cumulative
Convertible Preferred Stock ("Series L Stock"), to Toronto Dominion
Investments, Inc. ("TDI") for an aggregate purchase price of $5.0 million.
In connection with this transaction, Vanguard Cellular Systems, Inc.
("Vanguard"), a stockholder of the Company, purchased an additional 531,463
shares of Series L Stock on September 1, 1995 (the "Transaction Date") for
aggregate purchase price of $5.0 million. The shares pay a dividend of 7.5%
per annum, contain a Common Stock conversion premium and can be redeemed by
the Company in certain circumstances. The Company has paid dividends of
$351,000 during the year ended December 31, 1995.
In May 1995, the Company sold 1,162.5 shares of its Series M Cumulative
Convertible Preferred Stock ("Series M Stock"), to a group of investors for
an aggregate purchase price of $11,625,000. The shares pay a dividend of
8.5% per annum, contain a Common Stock conversion premium and can be
redeemed by the Company in certain circumstances. The Company has paid
dividends of $592,000 during the year ended December 31, 1995.
F - 22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
13. Shareholders' Equity: continued
In April 1995, the Company sold $10.0 million of Series K Cumulative
Convertible Preferred Stock ("Series K Stock") to an affiliate of the
Company's partner in a joint venture which is attempting to secure a
license to provide wireless services in Korea. The shares pay a dividend of
7% per annum for 5 years, carry a Common Stock conversion premium and can
be redeemed by the Company in certain circumstances. The Company has paid
dividends of $489,000 during the year ended December 31, 1995.
At December 31, 1994, there were 15 shares of Series E Preferred Stock and
20 shares of Series I Preferred Stock issued and outstanding. In May 1995,
the Series E Preferred shares were cancelled. At December 31, 1993, there
were 345,000 of Series A Preferred Stock and 30 shares of Series E
Preferred Stock issued and outstanding. In February 1994 all of the Series
A Preferred shares then outstanding were converted into an equal number of
common shares.
In December 1994, the Company issued a total of 20 shares of Series I
Convertible Preferred Stock at a price of $500,000 per share or total
consideration of $10.0 million to investors affiliated with George Soros
(currently holders of 100% of the Company's Series H Cumulative Convertible
Preferred Stock). The shares bear a dividend, payable quarterly in either
cash or common shares, for five years at a rate of 7% per annum and carry a
conversion premium. The Company has the option to retire the shares, in
either cash or common shares if the price of the Company's common stock
exceeds 150% of the conversion price for any 20 days within a period of 30
consecutive days. The Company has paid dividends of $700,000 during the
year ended December 31, 1995.
The Series E Preferred Shares were issued to collateralize principal
payments required by certain subordinated debt of which $150,000 was
outstanding as of December 31, 1994 and each share is convertible into
common shares with a market value of $10,000 based upon market price prior
to conversion. Holders of Series E shares are entitled to vote only on
matters affecting the Company's preferred stock.
During 1993, 484,000 Series A and 42 Series G shares were converted into
1,323,000 common shares.
The Company's outstanding preferred shares earn cumulative annual dividends
as follows: Series A (converted into common shares in 1994), $0.25 per
share and Series G (converted into common shares in 1993 and 1992), $2,500
per share.
Common Stock
In February 1994 the Company sold 2.5 million shares of common stock to
Vanguard Cellular Systems Inc. ("Vanguard") for a total of $30 million
(before expenses of $750,000). See below for a description of the options
issued to Vanguard.
In January 1993, the Company completed a private placement of 408,640
units, each consisting of nine common shares and three separate warrants to
purchase one common share at an exercise price of $4.8125, expiring 18
months, 30 months and 42 months from issuance, respectively. Each unit was
sold in consideration for $37.6876. Net proceeds to the Company amounted to
approximately $14.4 million.
In order to finance a portion of the acquisition of National Band Three,
the Company requested in June 1993 that warrant and option holders
immediately exercise their right to purchase the Company's common stock. To
induce the warrant and option holders to exercise early, the Company
offered discounts from the original exercise price. The amount of the
discount varied depending upon the expiration date of the warrant or
option. The Company issued approximately 9,200,000 shares in connection
with the exercise of options and warrants under this program. Net proceeds
were approximately $23 million.
F - 23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
13. Shareholder's Equity: continued
Included in the 5.1 million common shares issued in connection with the PSI
Merger (Note 2) were approximately 424,000 shares issued to PST in exchange
for the PSI shares then owned by PST. The number of shares issued was
determined using the same ratio as for other PSI shareholders. The Company
has recorded the value of its ultimate ownership interest in these shares
as treasury stock. In 1993 the Company cancelled the 1.2 million shares
that were held in treasury at December 31, 1992.
Warrants and Options
A summary of the warrants and options activity during the years ended
December 31, 1995, 1994 and 1993 is as follows (shares in thousands):
<TABLE>
<CAPTION>
1995
---- Exercise
Outstanding Outstanding Price
Name January 1, Granted Exercised Cancelled December 31, Per Share
- ---- --------- ------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Employee/Director plan 2,465 1,593 (129) (93) 3,836 $1.00-$16.00
Loan warrants and options 381 7,531 (8) (73) 7,831 $1.25-$9.90
PSI Merger 973 (95) (13) 865 $0.61-$5.06
Vanguard Options 10,000 (3,000) 7,000 $16.00-$17.00
Private Placements 67 (10) (38) 19 $3.10-$4.98
Other warrants and options 1,365 1,493 (120) (12) 2,726 $1.00-$14.00
----- ------ ----- ----- ------
Total Outstanding 15,251 10,617 (362) (3,229) 22,277
====== ====== ==== ====== ======
<CAPTION>
1994
----
Exercise
Outstanding Outstanding Price
Name January 1, Granted Exercised Cancelled December 31, Per Share
- ---- --------- ------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Employee / Director Plan 1,564 1,174 (240) (33) 2,465 $1.00-$16.00
Loan warrants and options 130 300 (49) 381 $1.25-$7.88
PSI Merger 1,056 (83) 973 $0.61-$5.06
Vanguard Options 10,000 10,000 $15.00-$18.00
Private Placements 1,026 (959) 67 $3.10-$4.98
Other warrants and options 1,208 220 (63) 1,365 $1.00-$6.00
----- --- ---- ------- -----
Total Outstanding 4,984 11,694 (1,394) (33) 15,251
===== ====== ====== === ======
<CAPTION>
1993
---- Exercise
Outstanding Exercised Exercised Outstanding Price
Name January 1, Granted Full Price Discount December 31 Per Share
---- --------- ------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Employee / Director Plan 1,223 737 (136) (260) 1,564 $1.00-$8.50
Loan warrants and options 710 1,900 (330) (2,050) 130 $1.25-$6.00
Preferred stocks 915 (60) (855) $1.00-$1.65
PSI merger 2,056 (1,000) 1,056 $0.61-$5.06
Private Placements 6,730 1,938 (323) (7,311) 1,026 $3.10-$4.98
Debt Conversion 305 (198) (107) $1.00-$2.50
Other warrants and options 1,718 213 (148) (565) 1,208 $0.18-$6.00
----- --- ----- ----- -----
Total Outstanding 11,601 6,844 (2,195) (11,148) 4,984
====== ===== ====== ======= =====
</TABLE>
F - 24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
13. Shareholder's Equity: continued
All options are vested upon issuance except those issued pursuant to the
Employee / Director plan which are described below.
Employee/Director Stock Option Plan
The Company has a non-qualified stock option plan (the "Plan") which
permits the granting of options to employees and directors to purchase up
to 2.75 million shares at not less than fair market value on the date of
grant. The options generally vest over three years and expire 10 years from
the date granted. Of the options granted pursuant to this plan, options to
purchase 1.5 million shares and 1.2 million shares, respectively, were
vested as of December 31, 1995 and 1994.
Vanguard Options
In connection with Vanguard's purchase of the Series L Preferred Stock, the
parties agreed to modify the terms of certain options (the "Options") to
purchase shares of the Company's common stock granted to Vanguard pursuant
to the Stock Purchase Agreement between the Company and Vanguard dated
December 29, 1993. Pursuant to these modifications, the total number of
shares of Common Stock subject to the Options was decreased from ten
million shares to seven million shares. Of the remaining Options, Options
to purchase two million shares of common Stock at $15.00 per share and two
million shares of Common Stock at $16.00 per share expire September 1, 1996
($16.00 per share options are subject to a March 1, 1997 extension under
certain circumstances) and Options to purchase three million shares of
Common Stock at $17.00 per share expire one year from the expiration of the
$16.00 options. After giving effect to these modifications, Vanguard and
TDI each hold one-half of the options exercisable at $15.00 per share,
Vanguard holds six-sevenths of each of the Options exercisable at $16.00
and $17.00 per share, respectively and TDI holds one-seventh of each of the
options exercisable at $16.00 and $17.00 per share, respectively.
Loan Warrants and Options
In connection with the issuance of the Discount Notes and the Replacement
Notes, the Company issued approximately 6.8 million and 1.0 million
warrants to purchase common stock, respectively.
Other Warrants and Options
In exchange for services rendered, the Company granted options to purchase
213,000 shares of common stock during 1993. The exercise prices on these
option range between $1.00 and $6.00 per share and the options expire five
years from date of grant.
14. Fair Value of Financial Instruments
The recorded amount of cash, cash equivalents, temporary investments and
notes payable banks and other, approximates fair value due to the short
term maturities of these assets and liabilities.
Investments in affiliates are accounted for by the equity method and
pertain to equity investments in privately held companies for which fair
values are not readily available. Management believes the fair values to be
at least equal to carrying amounts. The asset and liability amounts
recorded in the balance sheet (carrying amount) and the estimated fair
values of financial instruments at December 31, consisted as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994
Carrying Amount Fair Value Carrying Amount Fair Value
--------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 61,428 $ 61,428 $ 27,531 $ 27,531
Temporary investments 7,945 7,945 21,960 21,960
Restricted cash 36,971 36,971 2,555 2,555
Notes payable 8,285 8,285 5,641 5,641
Long term debt, including
current portion 125,452 135,399 31,452 29,948
</TABLE>
F - 25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
15. Certain Other Related Party Transactions:
In connection with the issuance of common shares and options to Vanguard in
February 1994, the Company entered into a five-year management consulting
agreement with Vanguard, pursuant to which Vanguard will provide
operational and marketing support to the Company for an aggregate of 1.5
million shares of common stock. Such management consulting agreement will
terminate upon Vanguard's failure to exercise any of the Vanguard Options.
For the periods ended December 31, 1995 and 1994, Vanguard earned
approximately 300,000 and 258,000 shares, respectively, pursuant to this
agreement, which has been recorded at approximately $2.4 million and $2.5
million, respectively, and is included in marketing expenses.
In 1995 and 1994, the Company incurred expenses of $300,000, pursuant to
its consulting agreement with the Soros Group, who are the holders of the
Company's Series H redeemable Preferred Shares and Series I Convertible
Preferred Shares.
PST has entered into a subcontractor agreement with Rafael, the current
holder of common shares, under which Rafael will partake in the development
of the digital wireless communications system to be deployed by the Company
in the U.S. Research and development expense for the years ended December
31, 1995, 1994 and 1993 includes approximately $12.5 million, $11.1 million
and $7.0 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 PSI in
its U.S. network. Through December 31, 1995 and 1994 the Company had placed
firm orders for equipment and engineering totaling $22.6 million and $12.8
million, respectively and had made an advance payment (recorded in other
current assets) of $1.2 million and $2.1 million to Rafael under these
orders during the years ended December 31, 1995 and 1994, respectively.
In 1995, the Company issued 250,000 shares of common stock to Rafael in
connection with the development of the digital wireless communications
system. The shares have been valued at $2.0 million, which amount has been
recorded in 1995 as research and development costs.
In October 1995, RDC converted all the principal and interest issued to it
by PST under convertible debentures into shares of PST representing its 38%
interest in PST. Geotek issued to Rafael 1.8 million shares of unregistered
Company common stock in exchange for RDC's shares of PST. The Company
valued the unregistered shares at $8.6 million and recorded the excess of
the value of the shares over the fair value of the underlying assets of PST
of $7.8 million as goodwill. As part of the arrangement, RDC was granted an
option to purchase up to 10% of PST in certain circumstances. Additionally,
in October 1995, Rafael purchased 338,000 shares of Company common stock
for $3.0 million.
16. Segment Information:
The Company's operations have been classified into three business segments:
wireless communications, communications products and other. The wireless
communications group is engaged in the development of a digital wireless
communication system, preparation for the commercial rollout of its
wireless communications network in the United States, principally through
its PSI and PST subsidiaries, provision of mobile radio services in the
United States (PSI and MetroNet), the United Kingdom (NBTL), Germany (PBG
and DBF) and the development of certain mobile data applications (GMSI).
The development of a digital wireless communication system is primarily
taking place in Israel. GMSI is located in Canada and markets its products
in Canada, the United States and the United Kingdom.
The wireless communications group is relying on certain key suppliers of
manufacturing and engineering for the development and mass-production of
GeoNet's subscriber units. In addition, the wireless communications group
has only a single manufacturing source for certain of the components of the
GeoNet system hardware which includes the base station. Although the
wireless communications group believes it can obtain all components
necessary to build GeoNet from other sources, delays may be encountered in
the event of a component shortage because of the time it may take to
identify substitute sources and manufacture substitute components. This
could adversely affect the results of operations in any given period.
Many of the target customers for GeoNet currently use other wireless
communications services. In order to be successful, the Company will need
to migrate a portion of its target customers from their existing services
to those provided by the Company over GeoNet. The Company's ability to
migrate its target customers over to its services will be highly dependent
on the perceived utility of the Company's services to its target customers
as compared to the services currently utilized by such customers. Because
there currently is no integrated wireless communications network
commercially available that is comparable to that expected to be offered by
the Company over GeoNet, the extent of the demand for the Company's
F - 26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
16. Segment Information: continued
wireless communications services cannot be predicted with any degree of
certainty. The demand for the Company's digital wireless communications
services also could be affected by other matters beyond its control, such
as the future cost of subscriber equipment, marketing and pricing
strategies of competitors and general economic conditions.
The communications products group is principally engaged in the
development, manufacturing and marketing of telephone and facsimile
peripheral products and commercial audio and paging equipment in the United
States (Bogen) and Munich, Germany (Speech Design). The other segment
primarily consists of subsidiaries engaged in the manufacturing and
marketing of customized transformers and power supplies and other
diversified operations. The Company disposed of its transformer and power
supply operations in 1993.
During 1995, the communications products group has decided to phase out of
the Office Automation Services ("OAS") product line. The communications
products group has taken a charge of $2.2 million related to this action of
which $1.5 million relates to the writedown of its inventory to expected
net realizable value. At December 31, 1995, the communications product
group had $0.2 million of OAS inventory recorded in the financial
statements.
Sales between geographic areas and industry segments are not material.
Information about the Company's segments in 1995, 1994 and 1993 follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Wireless communications $ 32,986 $ 25,668 $ 12,338
Communications products 44,518 46,075 30,060
Other 2,775 1,248 6,573
--------- --------- ---------
$ 80,279 $ 72,991 $ 48,971
--------- ========= =========
Operating income (loss):
Wireless communications $ (65,493) $ (37,225) $ (45,584)
Communications products (1,693) 45 296
Other (20) (1,348) (1,542)
Interest and other income (expense), net (17,706) 105 (1,403)
Corporate (2,287) (3,982) (2,208)
--------- --------- ---------
Loss from continuing operations $ (87,199) $ (42,405) $ (50,441)
========= ========= =========
Identifiable assets:
Wireless communications $ 159,364 $ 95,222 $ 52,824
Communications products 24,979 35,663 28,642
Other 2,620 936 509
Corporate and other assets 105,601 48,023 53,669
--------- --------- ---------
$ 292,564 $ 179,844 $ 135,644
========= ========= =========
Depreciation and amortization:
Wireless communications $ 8,212 $ 5,884 $ 1,840
Communications products 1,242 1,181 956
Other 629 181 79
Corporate 41 192 35
--------- --------- ---------
$ 10,124 $ 7,438 $ 2,910
========= ========= =========
</TABLE>
F - 27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
16. Segment Information: continued
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
Capital expenditures - property and equipment:
<S> <C> <C> <C>
Wireless communications $ 32,906 $ 9,386 $ 17,135
Communications products 803 939 1,042
Other 57 66 41
Corporate 87 67 8
--------- --------- ---------
$ 33,853 $ 10,458 $ 18,226
========= ========= =========
Capital expenditures - intangibles:
Wireless communications $ 13,055 $ 14,785 $ 15,766
Communications products 94 3,548 3,840
--------- --------- ---------
$ 13,149 $ 18,333 $ 19,606
========= ========= =========
Geographic Segments:
Revenues:
United States $ 36,720 $ 41,591 $ 30,616
Foreign 43,559 31,400 18,355
--------- --------- ---------
$ 80,279 $ 72,991 $ 48,971
========= ========= =========
Operating income (loss):
United States $ (50,770) $ (22,624) $ (37,860)
Foreign (16,436) (15,904) (8,970)
Interest and other income (expense), net (17,706) 105 (1,403)
Corporate (2,287) (3,982) (2,208)
--------- --------- ---------
Loss from continuing operations $ (87,199) $ (42,405) $ (50,441)
========= ========= =========
Identifiable assets:
United States $ 87,453 $ 51,511 $ 38,765
Foreign 99,510 80,310 43,210
Corporate and other 105,601 48,023 53,669
--------- --------- ---------
$ 292,564 $ 179,844 $ 135,644
========= ========= ---------
</TABLE>
17. Subsequent Events:
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, will be convertible into shares of the
Company's common stock, par value $0.1 per share (the "Common Stock"), at a
conversion price equal to the lower of (i) $9.50 per share and (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 will accrue at the rate of 12% per
annum and will be payable semiannually on each February 15 and August 15
commencing August 15, 1996. The Convertible Notes mature on February 15,
2001. In addition, 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 or exceeds 160% of the conversion price then in
effect. The Convertible Notes are unsecured senior subordinated obligations
F - 28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
17. Subsequent Events: continued
of the Company. In addition, the indenture 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 agreed to file 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 permitted by applicable law the
resale, of the Common Stock issuable upon conversion of the Convertible
Notes. If the Company fails to register the Convertible Notes or the shares
of Common Stock issuable upon the conversion thereof or otherwise comply
with the procedures set forth in the Registration Rights Agreement within
the time periods prescribed by the Registration Rights Agreement, the
Company will be subject to substantial monetary penalties.
One of the investors in the Convertible Notes is affiliated with a director
of the Company.
In March 1996, the Company and S-C Rig Investments - III, L.P. ("S-C Rig"),
a significant stockholder of the Company and investment group affiliated
with George Soros, reached an agreement in principal pursuant to which S-C
Rig will make a $40.0 million unsecured credit facility available to the
Company. It is anticipated that all borrowings under the credit facility
will be 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. It also is anticipated 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 credit facility will
constitute senior indebtedness of the Company. In connection with the
establishment of the credit facility, it is anticipated that the Company
will issue to S-C Rig a five year warrant to purchase 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). The transactions contemplated by the credit facility are
subject to a number of conditions, including the negotiation and execution
of definitive agreements and the authorization at the Company's next annual
meeting of sufficient additional shares of Common Stock to permit the
exercise in full of the warrant. There can be no assurance that the Company
will consummate the transactions contemplated by the agreement in principal
on the terms described above, or at all.
18. 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 F-30 through F-39 in order to present the
Guarantor Subsidiaries pursuant to the Guarantor relationship. The
Guarantor Information is presented as management does not believe that
F - 29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
18. Condensed Consolidating Financial Information for
Guarantors ("Guarantor Information") continued
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
place restrictions on the Company primarily related to making certain
investments, paying dividends and incurring additional debt.
Notes to Guarantor Information:
Basis of Presentation - To conform with the terms and conditions of the
Notes, the Condensed Consolidating financial information of the Guarantor
Subsidiaries are presented on the following basis:
(1) Geotek Communications, Inc. -Investments in consolidated
(Parent Company) subsidiaries 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) PSI -For purposes of the Guarantor
(Guarantor) Information, PowerSpectrum, Inc.
("PSI") includes all U.S. wireless
subsidiaries of PSI combined with
MetroNet Systems, Inc. and ANSA
Communications, Inc., both direct
wholly owned subsidiaries of the
Parent Company. For purposes of the
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. The assets and
liabilities of PST are not material
in relation to PSI.
(3) Non-Guarantor -This includes the Company's
Subsidiaries subsidiaries that are not Guarantor
Subsidiaries.
(4) Reclassification and -Certain reclassifications were
Eliminations made to 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.
F - 30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
18. Condensed Consolidating Financial Information for
Guarantors ("Guarantor Information") continued
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31. 1995
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Reclassi-
fications Geotek
Geotek Non-Guarantor & Elimin- Comm., Inc.
Comm.Inc. PSI Subsidiaries ations & Subsidiaries
------------- ------ ----------------- ------------ ----------------
(1) (2) (3) (4)
<S> <C> <C> <C> <C>
ASSETS
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
Deposits for spectrum licenses 3,500 8,000 11,500
Inventories 1,328 9,155 10,483
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>
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
18. Condensed Consolidating Financial Information for
Guarantors ("Guarantor Information") continued
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 1994
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Reclassi-
fications Geotek
Geotek Non-Guarantor & Elimin- Comm., Inc.
Comm. Inc PSI Subsidaries ations & Subsidaries
------------ ------- --------------- ------------ -------------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $21,222 $418 $5,891 $27,531
Temporary investments 24,515 24,515
Accounts receivables trade, net 79 11,714 $(422) 11,371
Inventories 116 8,711 (162) 8,667
Prepaid expenses and other assets 939 174 6,387 (32) 7,468
------- ------ ------- -------- ---------
Total current assets 46,676 787 32,703 (616) 79,552
------- ------ ------- -------- ---------
Inter-company account 64,313 18,359 (82,672)
Investments in affiliates 4,481 22,101 26,582
Property, plant and equipment, net 100 2,245 22,100 24,446
Intangible assets, net 4,885 18,616 22,589 9 46,099
Other assets 412 2,027 3,871 (3,145) 3,165
Investments in Subsidiaries, at cost 73,275 (73,275)
------- ------ ------- -------- ---------
$194,142 $42,034 $103,364 $(159,699) $179,844
======== ======= ======== ========= ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $496 $414 $13,902 $(2,322) $12,490
Accrued expenses and other 436 1,271 10,606 12,315
Notes payable, banks and other 5,641 5,641
Current maturities, long-term debt 2,056 2,056
------- ------ ------- -------- ---------
Total current liabilities 2,988 1,685 30,149 (2,322) 32,502
------- ------ ------- -------- ---------
Inter-company account 53,830 28,842 (82,672)
Long-term debt 23,304 2,838 30,005 (26,751) 29,396
Other non-current liabilities 49 802 (653) 198
Minority interest 406 (14) 392
Redeemable preferred stock 40,000 40,000
Shareholders' equity:
Preferred stocks, $.01 par value
Common stock, $.01 par value 509 509
Capital in excess of par value 153,414 38,592 41,736 (47,094) 186,651
Foreign currency translation
adjustment 767 767
Accumulated deficit (25,142) (54,911) (28,923) (207) (109,185)
Treasury stock, at cost (1,386) (1,386)
------- ------ ------- -------- ---------
127,395 (16,319) 13,580 (47,301) 77,356
------- ------ ------- -------- ---------
$194,142 $42,034 $103,364 $(159,699) $179,844
======== ======= ======== ========= ========
</TABLE>
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
18. Condensed Consolidating Financial Information for
Guarantors ("Guarantor Information") continued
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Reclassi-
fications Geotek
Geotek Non-Guarantor & Elimin- Comm., Inc.
Comm.Inc. PSI Subsidiaries ations & Subsidiaries
--------- --- ------------ ------ --------------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
Revenues:
Net product sales $ 83 $64,366 $(11,836) $52,613
Service income 2,020 25,646 27,666
----- ------ -------- ------
Total revenues 2,103 90,012 (11,836) 80,279
----- ------ -------- ------
Costs and expenses:
Cost of goods sold 46 40,580 (8,246) 32,380
Cost of services 5,256 15,135 20,391
Research and development 15,805 19,775 35,580
Marketing $ 300 9,513 18,211 28,024
General and administrative 5,729 10,753 14,345 30,827
Interest expense 15,383 316 2,462 (1,447) 16,714
Interest income (5,989) (76) (530) 1,447 (5,148)
Amortization of intangibles 920 1,065 2,177 4,162
Equity in losses of investees 1,563 3,332 4,895
Other expenses (income) (2,121) (476) (2,597)
-------- -------- -------- ------- --------
Total costs and expenses $17,906 $40,557 $115,011 $(8,246) $165,228
-------- -------- -------- ------- --------
Loss from continuing
operations before taxes
on income and
minority interest (17,906) (38,454) (24,999) (3,590) (84,949)
Discontinued operations:
Taxes on income (2,222) (2,222)
Minority interest (28) (28)
-------- -------- -------- ------- --------
Net loss $(17,906) $(38,454) $(27,249) $(3,590) $(87,199)
======== ======== ======== ======= ========
</TABLE>
F-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
18. Condensed Consolidating Financial Information for
Guarantors ("Guarantor Information") continued
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Reclassi-
fications Geotek
Geotek Non-Guarantor & Elimin- Comm., Inc.
Comm.Inc. PSI Subsidiaries ations & Subsidiaries
------------- ------ ----------------- ----------- --------------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
REVENUES
Net product sales $350 $ 48,968 $(948) $48,370
Service income 2,115 22,506 24,621
------- ------- ------ -------
Total revenues 2,465 71,474 (948) 72,991
------- ------- ------ -------
Costs and expenses:
Cost of goods sold 208 31,777 (811) 31,174
Cost of services 1,358 15,220 16,578
Research and development $256 5,941 13,280 19,477
Marketing 5,983 12,308 18,291
General and administrative 4,551 4,294 10,998 7 19,850
Interest expense 2,534 64 2,097 (1,595) 3,101
Interest income (3,638) (172) (546) 1,595 (2,761)
Amortization of intangibles 594 711 962 505 2,772
Equity in losses of investees 1,159 2,409 (512) 3,056
Other expenses (income) 3,524 (445) (52) 3,027
------ ------- ------- ------ -------
Total costs and expenses 8,980 17,942 88,453 (811) 114,565
------ ------- ------- ---- -------
Loss from operations before
taxes on income and
minority interest (8,980) (15,477) (16,979) (137) (41,574)
Taxes on income (660) (660)
Minority interest (185) 14 (171)
------- -------- -------- ----- --------
Net loss $(9,165) $(15,477) $(17,625) $(137) $(42,405)
======= ======== ======== ===== ========
</TABLE>
F - 34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
18. Condensed Consolidating Financial Information for
Guarantors ("Guarantor Information") continued
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year ended December 31, 1993
(Dollars in thousands)
<TABLE>
<CAPTION>
Reclassi-
fications Geotek
Geotek Non-Guarantor & Elimin- Comm., Inc.
Comm.Inc. PSI Subsidiaries ations & Subsidiaries
------------- ------ ----------------- ------------ ------------------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
Revenues:
Net product sales $205 $37,798 $ (502) $37,501
Service income 1,773 9,697 11,470
------- ------- ---- -------
Total revenues 1,978 47,495 (502) 48,971
------- ------- ---- -------
Costs and expenses:
Cost of goods sold 501 25,596 (444) 25,653
Cost of services 1,143 6,815 7,958
Research and development 766 9,804 10,570
Acquisition of minority interest of a
subsidiary assigned to a research
and development project 32,430 32,430
Marketing 164 8,749 8,913
General and administrative 2,726 4,433 5,416 (67) 12,508
Interest expense 1,984 (42) 1,332 (683) 2,591
Interest and other income (968) (373) (610) 763 (1,188)
Amortization of intangibles 210 118 591 919
Equity in losses of investees 34 34
Other expenses (income) 1,419 (940) 479
------- -------- ------- ------ --------
Total costs and expenses 5,405 39,140 56,753 (431) 100,867
------- -------- ------- ------ --------
Loss from continuing operations
before taxes on income and
minority interest (5,405) (37,162) (9,258) (71) ( 51,896)
Taxes on income
Minority interest 2,215 (724) (36) 1,455
------- -------- ------- ------ --------
Loss from continuing operations (3,190) (37,886) (9,294) (71) (50,441)
Discontinued operations:
Gain on disposal 323 323
------- -------- ------- ------ --------
Loss before extraordinary item
and cumulative effect of
accounting change (2,867) (37,886) (9,294) (71) (50,118)
Extraordinary item - loss from
early extinguishment of debt (2,340) (2,340)
Cumulative effect of change in fiscal
year of subsidiary (1,207) (1,207)
------- -------- ------- ------ --------
Net loss $(5,207) $(39,093) $(9,294) $ (71) $(53,665)
======= ======== ======= ====== ========
</TABLE>
F-35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
18. Condensed Consolidating Financial Information for
Guarantors ("Guarantor Information") continued
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Year Ended December 31. 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Geotek
Geotek Non-Guarantor Reclassifications Comm., Inc.
Comm.Inc. PSI Subsidiaries & Eliminations & Subsidiaries
--------------- -------- ------------------- ------------------ ---------------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (17,906) $ (38,454) $ (27,249) $ (3,590) $ (87,199)
Adjustments to reconcile net loss to net
cash used in operating activities:
Income from operations
Minority interest 28 28
Depreciation & amortization 957 1,738 7,429 10,124
Provisions for inventory reserve for
lower of cost or market 73 1,513 1,586
Non-cash interest expense 10,846 270 11,116
Non-cash license income (658) (658)
Post acquisition adjustment for
utilization of acquired net operating
loss carryforward 950 950
Gain on sale of property and equipment (45) (48) (93)
Amortization of discount on senior
secured note payable 298 298
Equity in losses of investees 1,563 3,332 4,895
Non cash related party compensation expense 90 90
Issuance of stock for management
consulting fee 2,439 2,439
Issuance of shares in connection
with Research and development project 2,032 2,032
Changes in operating assets and liabilities
(net of effect from acquisitions):
Decrease (increase) in accounts receivable 58 (1,582) (421) (1,945)
Increase in inventories (1,284) (1,953) (161) (3,398)
Increase (decrease) in prepaid expenses
and other assets (112) (143) 2,506 851 3,102
Increase in accts payable &
accrued expenses 826 6,597 4,321 1,438 13,182
Other 1,400 1,400
Net cash (used in) operating activities (3,483) (27,332) (9,353) (1,883) (42,051)
------- ------- ------- ----- -------
Cash flows from investing activities:
Acquisition of and deposits for
spectrum licenses (3,500) (9,555) (94) (13,149)
Net decrease in temporary investments 14,015 14,015
Restricted cash (32,675) (1,741) (34,416)
Contract deposits-other current assets (1,227) (1,227)
Acquisitions of property and equipment (84) (27,616) (9,580) 3,427 (33,853)
Proceeds from sale of property and equipment 45 205 250
Proceeds from sale of BCI 7,000 7,000
Non-cash transaction expense for BCI 740 740
Cash used in acquisition
of subsidiaries, net (9,732) (9,732)
Other 2,106 2,106
------- ------- ------- ----- -------
Net cash (used in) provided by
investing activities (22,870) (37,126) (11,697) 3,427 (68,266)
------- ------- ------- ----- -------
</TABLE>
F-36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
18. Condensed Consolidating Financial Information for
Guarantors ("Guarantor Information") continued
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Year Ended December 31. 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Geotek
Geotek Non-Guarantor Reclassifications Comm., Inc.
Comm.Inc. PSI Subsidiaries & Eliminations & Subsidiaries
--------------- -------- ------------------- -------------------- ---------------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Net repayments under
line of credit agreements (1,000) (1,000)
Proceeds from issuances of preferred stock 30,863 30,863
Repayments of debt (850) (510) (951) (2,311)
Deferred financing costs (4,692) (4,692)
Repayments under capital lease obligation (400) (217) (617)
Repayment of secured notes (25,000) (25,000)
Proceeds from issuance of senior
secured notes and related warrants 36,000 36,000
Proceeds from issuance of senior secured
discount notes & related warrants 110,079 110,079
Proceeds from issuance of common stock 3,000 3,000
Proceeds from exercise of
warrants & options 1,073 1,073
Payment of preferred dividends (4,132) (4,132)
Intercompany financing (87,682) 65,072 24,154 (1,544)
-------- ----- --------- -------- --------
Net cash provided by (used in) financing
activities 58,259 64,562 21,986 (1,544) 143,263
-------- ----- --------- -------- --------
Effect of exchange rates on cash 951 951
Increase (decrease) in cash & equivalents 31,906 104 1,887 33,897
Cash & equivalents, beginning of year 21,222 418 5,891 27,531
-------- ----- --------- -------- --------
Cash & equivalents, end of year $ 53,128 $ 522 $ 7,778 -- $ 61,428
======== ===== ========= ======== ========
</TABLE>
F-37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
18. Condensed Consolidating Financial Information for
Guarantors ("Guarantor Information") continued
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Reclassi-
fications Geotek
Geotek Non-Guarantor & Elimin- Comm., Inc.
Comm.Inc. PSI Subsidiaries ations & Subsidiaries
------------- ------ ----------------- -------------- ----------------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $(9,165) $(15,477) $(17,625) $(137) $(42,405)
Adjustments to reconcile net loss to
net cash used in operating activities:
Minority interest 185 (14) 171
Provision for inventory reserve for
lower of cost or market 1,195 1,195
Depreciation & amortization 615 894 5,418 512 7,438
Post acquisition adjustment for utilization
of acquired net operating loss carryforward 573 573
Amortization of discount on senior secured
note payable 391 391
Equity in losses of investees 1,159 2,409 (512) 3,056
Reserve for impairment of loan 3,500 3,500
Issuance of stock for management consulting fee 2,517 2,517
Changes in operating assets and liabilities
(net of effect from acquisitions):
Accounts receivable 24 852 876
Inventories 30 (3,228) 137 (3,061)
Prepaid expenses and other assets (553) (51) (4,708) (5,312)
Accounts payable & accrued expenses (509) 850 6,559 6,900
Other 33 53 (2) 84
------- ---- ------ -------
Net cash used in operating activities (4,344) (11,160) (8,571) - (24,077)
------- ---- ------ -------
Cash flows from investing activities:
Acquisition of licenses (12,961) (2) (12,963)
Net increase in temporary investments (17,531) 3,444 (14,087)
Acquisitions of property & equipment (67) (2,250) (8,141) (10,458)
Restricted cash (2,555) (2,555)
Cash invested in acquisition of subsidiaries,net (1,332) (49,064) 24,554 (25,842)
Loan to Harris Adacom B.V. (3,500) (3,500)
------- ---- ------ -------
Net cash (used in) provided by
investing activities (24,986) (11,767) (57,207) 24,554 (69,405)
------- ---- ------ -------
Cash flows from financing activities:
Net borrowings, (repayments) under
line of credit agreements 2,390 2,390
Proceeds from debt and warrants 2,674 2,674
Repayments of debt (1,053) (454) (1,507)
Proceeds from issuance of preferred stock 10,000 10,000
Proceeds from issuance of senior
secured note & related warrants 25,000 25,000
Proceeds from issuance of stock & warrants
to Vanguard 29,250 29,250
Proceeds from exercise of warrants & options 3,848 3,848
Payment of preferred dividends (2,066) (2,066)
Intercompany financing (59,995) 18,684 65,865 ( 24,554)
Other 33 24 (346) (289)
------- ---- ------ -------
Net cash provided by (used in)
financing activities 7,691 18,708 67,455 ( 24,554) 69,300
------- ---- ------ -------
Effect of exchange rate changes on cash 27 27
Increase (decrease) in cash & equivalents (21,639) (4,219) 1,703 (24,155)
Cash & equivalents, beginning of year 42,861 4,637 4,188 51,686
Cash & equivalents, end of year $21,222 $418 $5,891 - $27,531
======= ==== ====== =======
</TABLE>
F-38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
18. Condensed Consolidating Financial Information for
Guarantors ("Guarantor Information") continued
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1993
(Dollars in thousands)
<TABLE>
<CAPTION>
Geotek
Geotek Non-Guarantor Reclassifications Comm., Inc.
Comm.Inc. PSI Subsidiaries & Eliminations& Subsidiaries
--------------- --------- --------------- ------------------ -------------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $(5,207) $(39,093) $(9,294) $ (71) $(53,665)
Adjustments to reconcile net loss to net cash
used/provided in operating activities:
Cumulative effect of changing the fiscal year
end of a subsidiary 1,207 1,207
Discontinued operations: Gain on disposal (323) (323)
Minority interest (2,215) 724 36 (1,455)
Depreciation & amortization 12 142 2,756 2,910
Non cash acquisition of minority
interest of a subsidiary assigned to
a research & development project 32,430 32,430
Amortization of discount on senior
secured note payable 1,545 1,545
Equity in losses of investees 34 34
Loss on extinguishment, net of cash portion 2,163 2,163
Loss on sale of subsidiaries 479 479
Changes in operating assets and
liabilities (net of effect from acquisitions):
Accounts receivable 273 (76) (1,929) (1,732)
Inventories (147) 1,230 1,083
Prepaid expenses and other assets (149) 82 (2,904) (2,971)
Accounts payable & accrued expenses 692 354 3,744 4,790
Other (269) (92) (516) 71 (805)
------- -------- ------- ----- --------
Net cash used in operating activities (2,965) (4,469) (6,877) - (14,310)
------- -------- ------- ----- --------
Cash flows from investing activities:
Acquisition of licenses (5,281) (5,281)
Net increase in temporary investments (4,428) (3,444) (7,872)
Proceeds from sale of subsidiaries shares 6,180 6,180
Acquisitions of property & equipment (8) (38) (2,233) (2,279)
Collection of notes receivable 37 37
Cash invested in acquisition of
subsidiaries, net (27,903) (27,903)
Other (59) (59)
------- -------- ------- ----- --------
Net cash used in investing activities (26,122) (8,763) (2,292) -- (37,177)
------- -------- ------- ----- --------
Cash flows from financing activities:
Net under line of credit agreements (268) (268)
Repayments of debt (13,799) (236) (14,035)
Net proceeds from issuances of stock & debentures 18,715 18,715
Proceeds from issuance
of redeemable preferred stock 40,000 40,000
Deferred financing costs (1,200) (1,200)
Proceeds from issuance of senior
secured note & related warrants 12,000 12,000
Investment by others in stock of subsidiary 2,124 2,124
Proceeds from issuance of options 303 303
Proceeds from exercise of warrant & options 36,807 36,807
Payment of preferred dividends (246) (246)
Intercompany financing (24,467) 11,107 13,360
Other 587 587
------- -------- ------- ----- --------
Net cash provided by
financing activities 70,237 11,107 13,443 - 94,787
------- -------- ------- ----- --------
Effect of exchange rate changes on cash (276) (277)
Increase (decrease) in cash & equivalents 41,150 (2,125) 3,998 43,023
Increase in cash due to a change
in the fiscal year end of a subsidiary 5,638 5,638
Cash & equivalents, beginning of year 1,711 1,124 190 3,025
Cash & equivalents, end of year $42,861 4,637 $4,188 - $51,686
======= ======== ======= ===== ========
</TABLE>
F-39
<PAGE>
Registered no: 2672488
National Band Three Limited
Annual report
for the year ended
31 December 1995
F - 40
<PAGE>
National Band Three Limited
Annual report
for the year ended 31 December 1995
Registered no: 2672488
Pages
Directors and advisers F-42
Directors' report F-43 - F-45
Report of the auditors F-46
Profit and loss account F-47
Balance sheet F-48
Cash flow statement F-49
Notes to the financial statements F-50 - F-60
F - 41
<PAGE>
National Band Three Limited
Directors and advisers
Executive directors E J Watts
S A Style
R Conroy
M Davey
D Henson
Non-executive directors
Y Eitan - Chairman
Y Bibring
G Calhoun
A D Robb
Secretary and registered office S A Style
Wren House
Hedgerows Business Park
Colchester Road
Springfield
CHELMSFORD
Essex
CM2 5PF
Registered Auditors
Coopers & Lybrand
1 Embankment Place
LONDON
WC2N 6NN
Bankers National Westminster Bank Plc
21 Lombard Street
LONDON
EC3P 3AR
F - 42
<PAGE>
National Band Three Limited
Directors' report
for the year ended 31 December 1995
The directors present their report and the audited financial statements for the
year ended 31 December 1995.
Principal activities
The profit and loss account for the period is set out on page 6.
The principal activities of the company are the expansion and operation of a
national mobile communication system, under licences granted by the Department
of Trade and Industry under the Telecommunications Act 1984 and the Wireless
Telegraphy Act 1949.
Review of business
During the year the company continued to expand the capacity, coverage and
facilities of the network. It has also invested in and strengthened its sales
and marketing capability. This helped accelerate the growth in the subscriber
base during the year and provided new products and services which will be the
bedrock of future profitability. Both the level of business and the year end
financial position were satisfactory, and the directors expect the level of
activity to increase for the foreseeable future.
Dividends and transfers to reserves
The directors do not recommend the payment of a dividend. The profit for the
period of (pound)1,605,000 (1994: loss (pound)508,000) has been taken to
reserves.
Changes in fixed assets
The movements in fixed assets during the year are set out in note 9 to the
financial statements.
F - 43
<PAGE>
National Band Three Limited
Directors
The directors of the company during the year ended 31 December 1995 were:
A D Robb
P M Ratcliffe (resigned 6 December 1995)
G M Calhoun
Y Eitan
Y Bibring
S A Style
E J Watts
R Conroy
D Henson (appointed 5 May 1995)
M Davey (appointed 12 October 1995)
Directors' interests
None of the directors held any interest in the shares of the company at 31
December 1995 (1994: None).
At the year end the directors held options over the shares of National Band
Three's parent company, Geotek Communications, Inc.
Statement of directors' responsibilities
The directors are required by UK company law to prepare financial statements for
each financial year that give a true and fair view of the state of affairs of
the company and of the profit or loss of the company for that period.
The directors confirm that suitable accounting policies have been used and
applied consistently and reasonable and prudent judgements and estimates have
been made in the preparation of the financial statements for the year ended 31
December 1995. The directors also confirm that applicable accounting standards
have been followed and that the financial statements have been prepared on the
going concern basis.
The directors are responsible for keeping proper accounting records, for taking
reasonable steps to safeguard the assets of the company and to prevent and
detect fraud and other irregularities.
F - 44
<PAGE>
National Band Three Limited
Auditors
A resolution to reappoint the auditors, Coopers & Lybrand, will be proposed at
the annual general meeting.
By order of the board
S A Style
Company Secretary
15 March 1996
F - 45
<PAGE>
Report of the auditors to the members of
National Band Three Limited
We have audited the balance sheets of National Band Three Limited as of 31
December 1995 and 1994 and the related statements of income, changes in
shareholders' equity and cash flows for the years ended 31 December 1995 and
1994. The financial statements on pages F-47 to F-60 are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United Kingdom which do not differ in any significant respects from
auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of National Band Three Limited, as
of 31 December 1995 and 1994 and the results of their operations and cash flows
for the years ended 31 December 1995 and 1994 in conformity with generally
accepted accounting principles in the United Kingdom.
Accounting principles and financial statement presentation generally accepted in
the United Kingdom vary in certain significant respects from accounting
principles and financial statement presentation generally accepted in the United
States. The application of these requirements would have affected the financial
statement presentation and the determination of net income for the years ended
31 December 1995 and 1994 and of shareholders' equity as of 31 December 1995 and
1994, to the extent summarised in note 21 to the financial statements.
COOPERS & LYBRAND
Coopers & Lybrand
Chartered Accountants and Registered Auditors
London
27 March 1996
F - 46
<PAGE>
National Band Three Limited
Profit and loss account
for the year ended 31 December 1995
Notes 1995 1994
(pound '000) (pound '000)
Turnover 2 15,835 12,887
Cost of sales (8,366) (8,524)
------- -------
Gross profit 7,469 4,363
Net operating expenses 3 (5,696) (4,707)
------- -------
Operating profit/(loss) 1,773 (344)
Interest receivable and similar income 98 75
Interest payable and similar charges 6 (266) (266)
------- -------
Profit/(loss) on ordinary activities
before taxation 7 1,605 (535)
Tax on loss on ordinary activities 8 - 27
------- -------
Retained profit/(loss) for the
financial year 16 1,605 (508)
======= =======
All figures in the profit and loss account relate to continuing operations.
There is no difference between the profit on ordinary activities before taxation
and the profit for the year as stated above, and their historical cost
equivalents.
Statement of total recognised gains and losses
1995 1994
(pound '000) (pound '000)
Profit/(loss) for the financial period 1,605 (508)
Prior year adjustment - 26
----- -----
Total gains/(losses) recognised since last annual report 1,605 (482)
===== =====
F - 47
<PAGE>
National Band Three Limited
Balance sheet
at 31 December 1995
Notes 1995 1994
(pound '000) (pound '000)
Fixed assets
Tangible assets 9 11,889 11,702
------- -------
Current assets
Stocks 10 193 77
Debtors 11 3,322 3,105
Cash at bank and in hand 1,817 1,627
------- -------
Total current assets 5,332 4,809
Creditors: amounts falling due
within one year 12 (9,727) (10,622)
------- -------
Net current liabilities (4,395) (5,813)
------- -------
Total assets less current liabilities 7,494 5,889
Provisions for liabilities and charges
Deferred taxation 13 - -
------- -------
Net assets 7,494 5,889
======= =======
Capital and reserves
Called up share capital 14 9,000 9,000
Share premium account 15 8,800 8,800
Goodwill reserve 15 (58) (107)
Profit and loss account 15 (10,248) (11,804)
------- -------
Total shareholders' funds 16 7,494 5,889
======= =======
The financial statements on pages F-47 to F-60 were approved by the board of
directors on 15 March 1996 and were signed on its behalf by:
/s/ E. J. Watts
Director
F - 48
<PAGE>
National Band Three Limited
Cash flow statement
for the year ended 31 December 1995
Notes 1995 1994
(pound '000) (pound '000)
Net cash inflow from
operating activities 17 3,024 2,857
------- -------
Returns on investments and
servicing of finance
Interest received 98 75
Interest paid (266) (266)
------- -------
Net cash outflow from returns
on investments and servicing
of finance (168) (191)
------- -------
Taxation
United Kingdom corporation tax paid - -
------- -------
Investment activities
Purchase of goodwill - (25)
Purchase of tangible fixed assets (2,801) (3,471)
Sale of tangible fixed assets 135 66
------- -------
Net cash outflow from
investing activities (2,666) (3,430)
------- -------
Increase/(decrease) in cash and
cash equivalents 18 190 (764)
======= =======
F - 49
<PAGE>
National Band Three Limited
Notes to the financial statements
for the year ended 31 December 1995
1 Principal accounting policies
The financial statements have been prepared in accordance with applicable
Accounting Standards in the United Kingdom. A summary of the more important
accounting policies, which have been applied consistently, is set out below.
Basis of accounting
The financial statements are prepared in accordance with the historical cost
convention.
Goodwill
Goodwill arising on the acquisition of businesses is written off directly to an
unrealised goodwill reserve. It is amortised to the profit and loss account
reserve over five years, the directors' estimate of its useful economic life.
Tangible fixed assets
The cost of tangible fixed assets is their purchase cost, together with any
incidental expenses of acquisition.
Depreciation is calculated so as to write off the cost of tangible fixed assets,
less their estimated residual values, on a straight line basis over the expected
useful economic lives of the assets concerned. The estimated useful lives used
for this purpose are:
Short term leasehold improvements Over the term of the lease
Plant and machinery Between three and ten years
Fixtures and fittings Between three and five years
Motor vehicles Four years
No depreciation is charged on assets in the course of construction.
Stocks
Stocks are stated at the lower of cost and net realisable value. Provision is
made where necessary for obsolete, slow moving and defective stocks.
Turnover
Turnover, which excludes value added tax, represents the invoiced value of goods
and services supplied.
F - 50
<PAGE>
National Band Three Limited
Operating leases
Costs in respect of operating leases are charged on a straight line basis over
the lease term.
Deferred taxation
Provision is made for deferred taxation, using the liability method, on all
material timing differences to the extent that it is probable that a liability
or asset will crystallise.
Pension costs
The company operates a "money purchase" pension scheme for the benefit of its
employees.
The company provides no other post retirement benefits to its employees.
2 Turnover
Turnover consists entirely of sales in one class of business made in the United
Kingdom.
3 Net operating expenses
1995 1994
(pound '000) (pound '000)
Selling and distribution costs 3,544 2,656
Administrative expenses 2,152 2,051
----- -----
5,696 4,707
===== =====
F - 51
<PAGE>
National Band Three Limited
4 Directors' emoluments
1995 1994
(pound' 000) (pound' 000)
Emoluments (including pension contributions
and benefits in kind) 481 256
=== ===
Emoluments (excluding pension contributions)
include amounts paid to:
1995 1994
pound pound
The chairman Nil Nil
====== ======
The highest paid director 121,306 78,164
====== ======
The number of directors (including the chairman and the highest paid director)
who received emoluments (excluding pension contributions) within the following
ranges was:
1995 1994
Number Number
pound 0 to pound 5,000 3 3
pound 5,001 to pound 10,000 - 2
pound 10,001 to pound 15,000 1 -
pound 30,001 to pound 35,000 - 1
pound 40,001 to pound 45,000 1 -
pound 45,001 to pound 50,000 - 1
pound 60,001 to pound 65,000 1 -
pound 65,001 to pound 70,000 2 -
pound 70,001 to pound 75,000 1 1
pound 75,001 to pound 80,000 - 1
pound 120,001 to pound 125,000 1 -
=== ===
A provision of (pound) 95,000 has been established in these financial statements
in respect of bonus payments which may be made to directors at the company's
discretion. As these bonuses have not yet been approved, the above disclosures
include no amounts in respect of bonuses for the year. However, bonus payments
made in relation to the year ended 31 December 1994 are included above.
F - 52
<PAGE>
National Band Three Limited
5 Employee information
The average weekly number of persons (including executive directors) employed by
the company during the year was:
1995 1994
Number Number
By activity
Administration 26 22
Technical 43 45
Marketing 38 34
----- -----
107 101
===== =====
(pound '000) (pound '000)
Staff costs (for the above persons)
Wages and salaries 2,766 2,407
Social security costs 277 243
Other pension costs 154 104
----- -----
3,197 2,754
===== =====
6 Interest payable and similar charges
1995 1994
(pound '000) (pound '000)
Interest payable on sums owed to parent
undertaking 266 266
=== ===
7 Profit/(loss) on ordinary activities
before taxation
1995 1994
(pound '000) (pound '000)
The profit/(loss) on ordinary activities
before taxation is stated after
charging/(crediting):
Depreciation 2,362 2,355
Auditors' remuneration 20 17
Auditors' remuneration for non-audit services 18 11
Rentals under operating leases on land
and buildings 1,168 1,122
Hire of equipment under operating leases 1,358 1,578
Profit on disposal of fixed assets (58) (44)
====== ======
F - 53
<PAGE>
National Band Three Limited
8 Tax on loss on ordinary activities
1995 1994
(pound '000) (pound '000)
United Kingdom corporation tax at 33% (1994: 33%)
Deferred Nil 27
===== =====
No charge arises for corporation tax in the year due to losses brought forward
from previous years.
9 Tangible fixed assets
<TABLE>
<CAPTION>
Plant
Short term and Fixtures
leasehold machinery and Motor
improvements as restated fittings vehicles Total
(pound '000) (pound '000) (pound '000) (pound '000) (pound '000)
<S> <C> <C> <C> <C> <C>
Cost
At 1 January 1995 5 21,812 522 611 22,950
Additions - 2,379 95 327 2,801
Disposals - (79) (3) (126) (208)
Adjustment (see below) - (175) - - (175)
--- ------ --- --- ------
At 31 December 1995 5 23,937 614 812 25,368
--- ------ --- --- ------
Depreciation
At 1 January 1995 2 10,762 231 253 11,248
Charge for year 1 2,161 88 164 2,414
Disposals - (35) (3) (93) (131)
Adjustment (see below) - (52) - - (52)
--- ------ --- --- ------
At 31 December 1995 3 12,836 316 324 13,479
--- ------ --- --- ------
Net book value
At 31 December 1995 2 11,101 298 488 11,889
=== ====== === === ======
At 31 December 1994 3 11,050 291 358 11,702
=== ====== === === ======
</TABLE>
Included in the above are assets under construction to the value of
(pound)235,000 (31 December 1994: (pound) 265,000) which did not incur
depreciation during the year.
The adjustments relate to costs provided for and capitalised by the company in
previous years which are not payable.
F - 54
<PAGE>
National Band Three Limited
10 Stocks
1995 1994
(pound '000) (pound '000)
Goods for resale 193 77
=== ===
11 Debtors
1995 1994
(pound '000) (pound '000)
Amounts falling due within one year
Trade debtors 1,955 2,022
Amounts owed by fellow subsidiary undertakings 155 -
Other debtors 136 73
Prepayments and accrued income 1,076 1,010
----- -----
3,322 3,105
===== =====
12 Creditors: amounts falling due within one year
1995 1994
(pound '000) (pound '000)
Trade creditors 2,106 2,362
Amount owed to parent undertaking 4,432 4,432
Other taxes and social security 215 212
Accruals and deferred income 2,974 3,616
----- -----
9,727 10,622
===== =====
F - 55
<PAGE>
National Band Three Limited
13 Deferred taxation
The total liability to deferred taxation is as follows:
<TABLE>
<CAPTION>
Amount provided Amount unprovided
1995 1994 1995 1994
(pound '000) (pound '000) (pound '000) (pound '000)
<S> <C> <C>
Excess of capital allowances over
depreciation - - 355 64
Other - - (77) (88)
--- --- --- ---
Nil Nil 278 (24)
=== === === ===
</TABLE>
No provision has been made for deferred taxation on these financial statements
as the above potential liability is covered by corporate tax losses carried
forward.
14 Called up share capital
1995 1994
(pound '000) (pound '000)
Authorised
12,000,000 ordinary shares of pound 1 each 12,000 12,000
====== ======
Allotted, called up and fully paid
9,000,000 ordinary shares of pound 1 each 9,000 9,000
====== ======
15 Share premium account and reserves
<TABLE>
<CAPTION>
Share Profit
premium Goodwill and loss
account reserve account Total
(pound '000) (pound '000) (pound '000) (pound '000)
<S> <C> <C> <C> <C>
At 1 January 1995 8,800 (107) (11,804) (3,111)
Transfer in respect of
amortisation of goodwill - 49 (49) -
Profit for the financial year - - 1,605 1,605
----- --- ------ -----
At 31 December 1995 8,800 (58) (10,248) (1,506)
===== === ====== =====
</TABLE>
F - 56
<PAGE>
National Band Three Limited
16 Reconciliation of movements in shareholders' funds
1995 1994
(pound '000) (pound '000)
Profit/(loss) for the financial year 1,605 (508)
Goodwill written off - (25)
----- -----
Net movement in shareholders' funds 1,605 (533)
Opening shareholders' funds 5,889 6,422
----- -----
Closing shareholders' funds 7,494 5,889
===== =====
17 Reconciliation of operating profit/(loss)
to net cash inflow from operating activities
1995 1994
(pound '000) (pound '000)
Operating profit/(loss) 1,773 (344)
Profit on sale of tangible fixed assets (58) (44)
Depreciation of tangible fixed assets 2,362 2,355
Amounts written off fixed assets 175 -
Increase in stocks (116) (71)
Increase in debtors (217) (490)
(Decrease)/increase in creditors (895) 1,451
------ ------
Net cash inflow from operating activities 3,024 2,857
====== ======
F - 57
<PAGE>
National Band Three Limited
18 Cash and cash equivalents
1995 1994
(pound '000) (pound '000)
Changes in the period
At 1 January 1995 1,627 2,391
Net cash inflow/(outflow) 190 (764)
----- -----
At 31 December 1995 1,817 1,627
===== =====
1995 1994
(pound '000) (pound '000)
Analysis of balances
Cash at bank and in hand 1,817 1,627
===== =====
19 Financial commitments
Capital commitments 1995 1994
(pound '000) (pound '000)
Contracted for but not provided 1,490 1,242
===== =====
Authorised but not yet contracted for Nil 18
===== ====
Operating lease commitments
At 31 December 1995 the company had annual commitments under non-cancellable
operating leases, as follows:
<TABLE>
<CAPTION>
1995 1994
Other Other
Land and operating Land and operating
buildings leases buildings leases
(pound '000) (pound '000) (pound '000) (pound '000)
<S> <C> <C> <C> <C>
Leases which expire:
Within one year 300 84 342 229
Within two to five years 285 1,539 220 1,435
After five years 566 - 503 -
----- ----- ----- -----
1,151 1,623 1,065 1,664
===== ===== ===== =====
</TABLE>
F - 58
<PAGE>
National Band Three Limited
20 Ultimate parent company
The directors regard Geotek Inc (formerly Geotek Industries, Inc), a company
incorporated in the United States of America, as the ultimate parent company.
Copies of the parent's consolidated financial statements may be obtained from
The Secretary, Geotek Communications, Inc. 20 Craig Road, Montvale, New Jersey
07645, United States of America.
21 Summary of differences between UK GAAP and US GAAP
These Financial Statements are prepared in British Pounds and presented in
accordance with UK GAAP which differs in certain significant respects from US
GAAP. These differences, which have a signigicant effect on consolidated net
income and shareholders' equity, are discussed and quantified in a table of
adjustments below. While this is not a comprehensive summary of all differences
between UK GAAP and US GAAP, other differences are immaterial.
Significant differences between UK GAAP and US GAAP
(a) Deferred income taxes
Under UK GAAP, deferred taxes are only provided on timing differences where
it is considered probable that such taxes will become payable in the foreseeable
future. Under SFAS No. 109, "Accounting for Income Taxes", US GAAP requires
deferred taxes to be provided in full under the liability method. There is no
net adjustment recorded to the deferred income tax accounts for them to comply
with US GAAP. Taxes on income presented in 1995 reflects the utilization of a
(pound)770,000 pre-acqusition net operating loss which had a full valuation
allowance established at the time of acquisition by the Company. The utilization
of this net operating loss has been recorded in 1995 as a reduction to
intangible assets.
(b) Goodwill
Under UK GAAP, the Company eliminates goodwill against reserves in the year
in which it arises. US GAAP requires that goodwill is capitalized and amortized
through the income statement over the estimated period of benefit. Additionally,
under applicable rules of "push-down accounting" goodwill associated with the
Parent Company's acquisition of the Company was "pushed down" onto the books of
the Company at the time of the acquisition. The Parent Company's policy is to
amortize goodwill on a straight line basis over 20 years. Amortization expense
relating to goodwill was (pound)260,000 for December 31, 1995 and 1994. The
carrying value of goodwill at December 31, 1995 after the adjustment for
utilization of pre-acquisition net operating loss (see (a)) and amortization was
(pound)4,000,000.
(c) Statements of Cash Flows
The Company prepares its Consolidated Statements of Cash Flows under United
Kingdom Financial Reporting Standard No. 1, "Cash Flow Statements" ("FRS 1").
Its objectives and principles are similar to those set out in the US Statement
of Financial Accounting Standards No. 95, "Statement of Cash Flows" ("SFAS 95").
F - 59
<PAGE>
National Band Three Limited
The principal differences between the standards relate to classification. Under
FRS 1, the Company presents its cash flows as (a) operating activities; (b)
returns on investments and servicing of finance; (c) taxation; (d) investing
acivities; and (e) financing activities. SFAS 95 requires only three categories
of cash flow activity; (a) operating; (b) investing; and (c) financing. Cash
flows from taxation and returns on investments and servicing of finance shown
under FRS 1 would be included as operating activities SFAS 95.
Statements of income
The following is a summary of significant items which reconcile the
statements of income form that reported under UK GAAP to that which would be
reported has US GAAP been applied.
Year Ended Year Ended
31, December 31, December
1995 1994
(pound '000) (pound'000)
--------------- ------------
Net income (loss) as shown in the
financial statements (pound)1,605 (pound)(508)
US GAAP adjustments:
Amortization of goodwill (260) (260)
Taxes on Income (770)
-----
Net income (loss) under US GAAP (pound) 575 (pound)(768)
=========== ============
Shareholders' Funds
The following is a summary of the signigicant items which reconcile
shareholders' funds from that reported under UK GAAP to that which would be
reported had US GAAP been applied.
As of December 31,
(pound '000)
-----------------
1995 1994
---- ----
Shareholders' funds shown in the financial
statements (pound)7,494 (pound)5,889
US GAAP adjustments:
Goodwill 4,000 5,030
Deferred Income Tax -- --
--------- ---------
Shareholders' funds under US GAAP (pound)11,494 (pound)10,919
============= =============
F - 60
<PAGE>
Bogen Communications Internatioal, Inc.
and Subsidiaries
F - 61
<PAGE>
[Letterhead of Coopers & Lybrand L.L.P.]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Bogen Communications International, Inc.:
We have audited the accompanying consolidated balance sheets of BOGEN
COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES (formerly European Gateway
Acquisition Corp.) as of December 31, 1995 and 1994, and the related statements
of operations, common stock subject to possible redemption and stockholders'
equity and cash flows for each of the two years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bogen Communications
International, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the two years then
ended, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
March 21, 1996
New York, New York.
F - 62
<PAGE>
[Letterhead of Coopers & Lybrand L.L.P.]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Bogen Communications International, Inc.:
We have audited the accompanying consolidated statements of operations, common
stock subject to possible redemption and stockholders' equity and cash flows of
BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES (formerly European
Gateway Acquisition Corp.) for the year ended December 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Bogen Communications International, Inc. and Subsidiaries for the year ended
December 31, 1993, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
March 21, 1996
New York, New York.
F - 63
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 and 1994
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1995 1994
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,276 $ 148
Accounts receivable (less allowance
for doubtful accounts of $424
and $365 at December 31, 1995 and
1994, respectively) 4,992 6,035
Inventory, net (Note 2) 6,922 8,158
Prepaid expenses and other current
assets 1,042 1,294
-------- --------
TOTAL CURRENT ASSETS 14,232 15,635
Property and equipment, net (Note 3) 2,191 2,024
Goodwill and intangible assets, net
(Note 4) 14,706 15,055
Other assets 175 152
-------- --------
TOTAL ASSETS $ 31,304 $ 32,866
======== ========
LIABILITIES
CURRENT LIABILITIES:
Amounts outstanding under revolving credit
agreements (Note 5) $ 4,944 $ 5,635
Accounts payable, including cash overdrafts of
$-0- and $238 at December 31, 1995 and
1994, respectively 2,861 3,645
Accrued expenses 3,610 2,029
Income taxes payable 1,353 89
Advances and notes payable to related parties (Note 6) 537 2,662
Current maturities of notes payable to non-related parties 174 573
-------- --------
TOTAL CURRENT LIABILITIES 13,479 14,633
Advances and notes payable to related parties (Note 6) 3,458 5,039
Notes payable to non-related parties (Note 6) -- 174
Other long term liabilities (Note 8) 674 649
Minority interest 550 547
-------- --------
TOTAL LIABILITIES 18,161 21,042
-------- --------
Commitments and contingencies (Note 8)
Common stock - subject to possible redemption,
309,845 shares at redemption value -- 1,575
-------- --------
STOCKHOLDERS' EQUITY (Note 9)
Common stock - $.001 par value; 50,000,000 shares
authorized; 5,759,350 and 1,615,155 shares issued
and outstanding at December 31, 1995 and 1994,
respectively 6 2
Additional paid-in capital (Notes 9 and 10) 19,175 12,638
Accumulated deficit (6,185) (2,428)
Cumulative currency translation adjustments 147 37
-------- --------
TOTAL STOCKHOLDERS' EQUITY 13,143 10,249
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 31,304 $ 32,866
======== ========
Accompanying notes are an integral part of these financial statements
F - 64
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
POST - PUSHDOWN PRE-PUSHDOWN
1995 1994 1993
----------- ----------- -----------
Net sales
(Note 14: phase-out of OAS
Product Line) $ 44,518 $ 45,922 $ 30,072
Cost of goods sold (including
charges of $2,222, $1,273 and
$115 to reduce certain inventory
to market value for the years
ending December 31, 1995, 1994
and 1993, respectively)(Note 14) 27,338 29,739 18,449
----------- ----------- -----------
Gross profit (Note 14) 17,180 16,183 11,623
Operating expenses:
Research and development (Note 14) 2,307 1,999 1,696
Selling, general and administrative
(Note 14) 15,067 12,555 9,140
Amortization of goodwill and
intangible assets (Note 9) 443 424 18
----------- ----------- -----------
Income (loss) from operations (637) 1,205 769
Other (income) expenses:
Other (income) (237) (39) --
Interest expense, net 587 498 342
Interest expense - related parties 619 696 427
Transaction costs 1,491 -- --
Minority interest of consolidated
subsidiaries 184 326 37
----------- ----------- -----------
(Loss) before provision
for income taxes (Note 14) (3,281) (276) (37)
Provision for income taxes (Note 7) (1,262) (79) --
----------- ----------- -----------
Net (loss) $ (4,543) $ (355) $ (37)
=========== =========== ===========
Net (Loss) per common share:
Net (Loss) $ (1.37) (0.18) $ (0.04)
=========== =========== ===========
Weighted Average number of common
Shares Outstanding (Note 13) 3,311,668 1,925,000 865,506
=========== =========== ===========
Accompanying notes are an integral part of these financial statements
F - 65
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK SUBJECT TO
POSSIBLE REDEMPTION AND STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK COMMON STOCK FOREIGN
SUBJECT TO ----------------------- ADDITIONAL CURRENCY
POSSIBLE NUMBER OF PAID-IN ACCUMULATED TRANSLATION
REDEMPTION SHARES AMT CAPITAL DEFICIT ADJUSTMENT
------------ --------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PRE-PUSHDOWN
Balance at December 31, 1992 -- -- -- $ 6,006 $ (8,519) --
Acquisition of Speech Design -- -- -- 917 (2,041) --
Capital contribution -- -- -- 50 -- --
Original issuance of common stock -- 375,000 $ 1 -- -- --
Sale of 1,550,000 units, net of
underwriting discounts, non-accountable
expense allowance and offering expense $ 1,506 1,240,155 1 -- -- --
Accretion of redemption value of
common stock 9 -- -- -- -- --
Translation adjustments $ (70)
Net loss -- -- -- -- (37)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1993 1,515 1,615,155 2 6,973 (10,597) (70)
POST-PUSHDOWN
Translation adjustments -- -- -- -- -- 107
Accretion of redemption value
of common stock 60 -- -- -- -- --
Geotek pushdown of goodwill (Notes 1 and 9) -- -- -- 5,665 8,524 --
Net loss -- -- -- -- (355) --
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1994 1,575 1,615,155 2 12,638 (2,428) 37
Recapitalization by foreign subsidiary -- -- -- (967) 967 --
Accretion of redemption value
of common stock 52 -- -- (52) -- --
Reclass of common stock subject to
redemption to common stock
upon the Company's acquisition
of Bogen and Speech Design (1,627) 309,845 -- 1,627 -- --
Forgiveness of Bogen inter-
company debt by Geotek -- -- 7,155
Issuance of common stock and other
adjustments to effect combination
of Bogen and Speech Design (see Note 2) -- 3,701,919 4 (1,966) -- --
Issuance of common stock and warrants
to purchase 60,000 shares of common
stock for services provided to
facilitate the acquisition of
Bogen and Speech Design -- 132,431 -- 740 -- --
Dividend paid by subsidiary to minority
shareholders -- -- -- -- (181) --
Translation adjustments -- -- -- -- -- 110
Net loss -- (4,543)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1995 $ -- 5,759,350 $ 6 $ 19,175 $ (6,185) $ 147
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F - 66
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
POST PRE
PUSHDOWN PUSHDOWN
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,543) $ (355) $ (37)
Adjustments to reconcile net loss to net
cash provided by(used in)operating activities:
Non-cash transaction costs 740 -- --
Depreciation 868 574 428
Amortization 443 431 18
Provisions for doubtful accounts and
inventory obsolescence 1,344 1,281 181
Minority interest 184 326 37
Change in operating assets and liabilities
(net of effects from acquisitions):
Accounts receivable 984 (405) (3,610)
Inventories (49) (2,914) 413
Prepaid expenses and other current assets 200 (230) 24
Accounts payable and accrued expenses 1,901 412 1,874
Other -- 138 200
------- ------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,072 (742) (472)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (1,035) (892) (740)
Acquisition of Satelco -- (392) --
Cash obtained in the acquisition of
Speech Design and Bogen 8,149 -- --
Acquisition of investments and intangibles (60) -- --
Collection of notes receivable 37 38 37
------- ------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 7,091 (1,246) (703)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Amounts borrowed (paid to) non-related parties (688) (509) (486)
Amounts borrowed (paid) under revolving credit
agreements, net (691) 1,875 (92)
Dividend paid to Geotek related to
combination of Bogen and Speech Design (7,000)
Dividend paid by subsidiary (181)
Amounts borrowed from (paid to) related parties 415 552 1,992
Cash overdraft receipts (payments) -- 118 (317)
Capital contribution -- -- 50
------- ------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (8,145) 2,036 1,147
------- ------- -------
INCREASE (DECREASE) IN CASH 1,018 48 (28)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 148 87 122
Effects of Exchange Rate on Cash 110 13 (7)
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,276 $ 148 $ 87
======= ======= =======
</TABLE>
Accompanying notes are an integral part of these financial statements
F - 67
<PAGE>
BOGEN COMMUNCATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
POST - PUSHDOWN PRE-PUSHDOWN
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 829 $ 654 $ 565
Cash paid for income taxes 4 6 0
Non Cash Investing and Financing Activites:
Forgiveness of Bogen debt by
Geotek treated as an equity
contribution 7,155 -- --
Debt paid by Geotek -- -- 150
Goodwill pushed down from parent -- 14,252 --
Adjustments to combine companies 1,966 -- --
Notes payable to Geotek in
consideration for acquiring
Bogen and Speech Design 3,000 -- --
Common stock issued to Geotek in
consideration for acquiring Bogen
and Speech Design 4 -- --
Common stock and warrants issued
as consideration for certain
services provided to the Company
in connection with the acquisition
of Bogen and Speech Design 740 -- --
Assets acquired (net of cash):
Prepaid assets 8 -- --
Intangible assets 34 -- --
Liabilities assumed:
Accrued expenses 160 -- --
Note payable - to non-related party 115 -- --
Advances from Geotek 33 -- --
------- ------- -------
Net liabilities assumed $(266)
======= ======= =======
</TABLE>
Accompanying notes are an integral part of these financial statements
F - 68
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. Summary of Significant Accounting Policies
A. Principles of Consolidation
The consolidated financial statements of Bogen Communications
International, Inc., formerly European Gateway Acquisition Corp. (the
"Company"), include the accounts of Bogen Corporation, Inc. ("Bogen") and
Speech Design GmbH ("Speech Design"). All significant intercompany balances
and transactions have been eliminated in consolidation. Certain 1994 and
1993 balances have been reclassified to conform with the 1995 presentation.
B. Nature of Operations
The Company's operations are conducted in one segment engaged in the
development, manufacturing, and marketing of communication products.
Product lines sold by the company are further described below:
Telephone Products ("Telco")
Commercial Audio Products ("Commercial Sound")
Intercom/Paging Equipment ("Engineered Systems")
Small Office/Home Office Products("OAS")
C. Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.
D. Basis of Presentation
On August 21, 1995, the Company acquired a 99% interest in Bogen and a 67%
interest in Speech Design. The Company paid Geotek Communications, Inc.
("Geotek") $7,000 in cash, a convertible promissory note in the aggregate
principal amount of $3,000 and 3,700,000 shares of the Company's common
stock and warrants to acquire 200,000 shares of common stock of the
Company. As a result, Geotek acquired approximately 64% of the stock of the
Company, thereby giving it a controlling interest in the Company. Geotek,
in addition, forgave approximately $7,155 of intercompany indebtedness from
Bogen as part of the transaction. Further, as contingent consideration, the
Company could be liable to pay Geotek an amount up to $11,000, or receive
up to $2,500 from Geotek, based upon the operating results of the Company
during the two years after the transaction. For accounting purposes, the
acquisition is being treated as a joint acquisition of the Company by Bogen
and Speech Design, companies under the common control of Geotek. The
transaction is considered a reverse acquisition with Geotek as the acquiror
for accounting purposes. The historical financial statements reflect the
combination of Bogen and Speech Design in a manner similar
F - 69
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
to a pooling-of-interests. Accordingly, the historical financial statements
reflect the combined operations of Bogen and Speech Design.
E. Transaction Costs
The Company incurred transaction costs of $1,491 in connection with the
acquisition of Bogen and Speech Design which have been charged to
non-operating expenses for the year ended December 31, 1995. These costs
consist of non-recurring legal and other professional fees and other costs
of the transaction amounting to $751 and a non-cash charge of $740 for the
estimated fair value of 132,400 shares of common stock of the Company and
warrants to purchase 60,000 shares of the Company's common stock at $5.25
per share, for services provided to the Company in connection with
facilitating the acquisition of Bogen and Speech Design.
F. Revenue Recognition
Product revenue, net of expected returns, is recognized upon shipment.
G. Goodwill
As explained in Note 1D, the acquisition of Bogen and Speech Design is
being accounted for as a reverse acquisition by Geotek. Accordingly, no
goodwill will arise from the transaction described above as it is being
accounted for on a historical cost basis.
Goodwill represents the excess of cost over the fair value of net assets
acquired. Goodwill also includes the effect of push-down accounting
described below, by which Bogen recorded in its financial statements
Geotek's goodwill associated with its purchase of Bogen. Goodwill is being
amortized using the straight-line method over 40 years. At each balance
sheet date, management assesses whether there has been a permanent
impairment in the net carrying value of goodwill and the amount, if any, of
such impairment by comparing anticipated undiscounted future cash flows
from operating activities with the carrying value of goodwill. The factors
considered by management in performing this assessment include current
operating results, trends, the effect of obsolescence, demand, competition
and certain other economic factors.
Through a series of transactions from 1991 through 1993, Geotek acquired
for an aggregate consideration of approximately $8,400, 91% of Bogen. The
purchase price included $1,500 in cash and short-term notes payable, the
issuance of approximately 1,559,000 shares of Geotek's common stock and the
conversion of $5,200 of Bogen's debt. In January 1994, Geotek completed a
tender offer whereby its interest in Bogen increased from 91% to 99% in
exchange for 230,300 shares of Geotek's common stock valued at
approximately $3,300. Since Geotek acquired a greater than 95% interest in
Bogen, pursuant to the rules of push-down accounting, the acquisition gave
rise to a new basis of accounting and the goodwill related to Geotek's
acquisition was "pushed-down" to the financial
F - 70
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
statements of Bogen. Accordingly, Bogen recorded net goodwill in the amount
of $14,300 million in the first quarter of 1994. The goodwill is being
amortized over its then remaining life of approximately 38 years. The
related amortization expense for the pushed down goodwill was approximately
$376 for the years ended December 31, 1995 and 1994.
The consolidated financial statements as of and for the year ended December
31, 1993 were prepared using the Company's historical basis of accounting
(Pre-Pushdown basis of accounting). The consolidated financial statements
as of and for the years ended December 31, 1995 and 1994, were prepared
under a new basis of accounting that reflects the additional goodwill
pushed down from Geotek (Post-Pushdown basis of accounting). Comparability
of operating results for the pre-pushdown and post-pushdown periods are
affected by the additional amortization of goodwill.
Goodwill in the amount of $739 represents the excess of cost over the fair
value of net assets acquired by Speech Design related to the acquisition of
its 67% owned subsidiary Satelco.
H. Cash and Cash Equivalents
Cash includes cash on-hand and all highly-liquid debt instruments purchased
with original maturities of three months or less. The Company has invested
approximately $500 in a Certificate of Deposit in one bank at December 31,
1995.
I. Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Reserves are established for valuation purposes or determined by
management on a periodic basis, as required by conditions of obsolescence.
J. Property and Equipment
Property and equipment is recorded at cost. Depreciation is provided on a
straight-line basis over the estimated useful life of the asset which
generally ranges from three to ten years. Leasehold improvements are
amortized ratably over their remaining lease terms, or estimated useful
lives, if shorter.
Expenditures for maintenance, repairs and renewals of minor items are
charged to operations as incurred. Major renewals and improvements are
capitalized. Upon disposition, the cost and related accumulated
depreciation is removed from the accounts and the resulting gain or loss is
reflected in operations for the period.
K. Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (FAS 109). FAS 109 is an asset and liability
F - 71
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax returns.
L. Net Loss Per Share
Net loss per common share is computed by dividing net loss by the weighted
average number of shares of common stock outstanding. Common stock
equivalents are excluded from the shares outstanding since the effect would
be antidilutive.
M. Credit Risk
The Company develops, produces, markets and sells commercial audio,
electronic, paging, communications and other equipment. The Company
performs on-going credit evaluations of its customers. The accounts
receivable resulting from its sales transactions generally are not
collateralized. The Company provides reserves for potential losses from
these receivables.
N. Translation of Foreign Currencies
Assets and liabilities of the Company are translated from local currencies
into U.S. dollars at the exchange rates in effect at the end of the period.
Revenue and expense accounts are translated at average exchange rates
prevailing during the period. Local currencies are considered to be the
functional currencies of the Company and its subsidiaries. Translation
adjustments that arise from translation of the Company and its
subsidiaries' financial statements are accumulated in a separate component
of shareholder's equity. Transaction gains and losses that arise from
exchange rate changes on transactions denominated in a currency other than
local currencies are included in income as incurred.
In the consolidated statements of cash flows, financing activities have
been reflected at average rates for the years.
O. Fair Value of Financial Instruments
The recorded amount of cash, cash equivalents, notes payable and advances,
approximates fair value due to the short term maturities of these assets
and liabilities.
P. Recently Issued Accounting Pronoucements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" which is effective for fiscal years
beginning after December 31, 1995. The Company will adopt this standard in
1996 and is presently analyzing the impact of this new standard on its
financial position and results of operations.
F - 72
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation" which is effective for fiscal years beginning after December
15, 1995. The Company is still assessing the impact of implementing this
new standard and can therefore not predict the effect on the Company's
financial position and results of operations.
2. Inventory
Inventory, at the lower of cost (first in, first out) or market, as of
December 31, 1995 and 1994, is as follows:
1995 1994
------ ------
Raw materials and supplies $1,864 $1,985
Work in progress 1,155 758
Finished goods 3,903 5,415
------ ------
TOTAL $6,922 $8,158
====== ======
The inventory balances are net of a reserve for inventory valuation and
obsolescence of $2,552 and $1,267 at December 31, 1995 and 1994,
respectively.
3. Property and Equipment
Property and equipment at December 31, 1995 and 1994 is comprised of the
following items:
1995 1994
------- -------
Machinery, equipment and tooling $ 3,363 $ 2,735
Furniture and office equipment 1,485 1,367
Leasehold improvements 600 542
------- -------
5,448 4,644
Less: accumulated depreciation
and amortization, net of
disposals (3,257) (2,620)
------- -------
$ 2,191 $ 2,024
======= =======
Depreciation and amortization expense was approximately $868, $574 and $428
for the years ended December 31, 1995, 1994 and 1993, respectively.
4. Goodwill and Intangible Assets
Goodwill and intangible assets consist of the following, at December 31,
1995 and 1994:
F - 73
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1995 1994
-------- --------
Goodwill $ 16,345 $ 16,345
Other intangibles 123 29
-------- --------
Total intangibles 16,468 16,374
Less: accumulated amortization (1,762) (1,319)
-------- --------
$ 14,706 $ 15,055
======== ========
Amortization of goodwill and other intangibles was approximately $443, $424
and $18 for the years ended December 31, 1995, 1994 and 1993, respectively.
5. Revolving Credit Agreeements
In August 1995, Bogen extended a $10,000 domestic revolving senior line of
credit for a two year term expiring August 1997. The line is collateralized
by substantially all the assets of Bogen and is guaranteed by Geotek.
Advances bear interest at the rate of 2% to 2.75% over the lender's prime
rate. At December 31, 1995, the lender's prime rate was 8.75%. Advances to
Bogen are made based on a percentage of accounts receivable and inventory.
As of December 31, 1995 and 1994, Bogen had short term domestic borrowings
outstanding under the line of credit of $3,670 and $4,350. The amounts
available under the credit line based upon accounts receivable and
inventory were $437 and $264 at December 31, 1995 and 1994, respectively.
Under the terms of the line of credit, Bogen cannot, among other actions,
declare or pay any dividends, return capital to its stockholders or redeem
or repurchase any of its outstanding capital stock. Net assets of Bogen
restricted under this agreement were $14,820 and $10,839 at December 31,
1995 and 1994, respectively.
In August 1995, in connection with the Company's acqusisition of Bogen and
Speech Design, Geotek also agreed to provide Bogen with a working capital
line of credit for two years in the aggregate principal amount of $2,000.
Amounts drawn under the line bear interest at 1% per annum above the rate
Bogen pays for its then largest credit facility. There were no borrowings
under this facility at December 31, 1995.
At December 31, 1995 and 1994, Speech Design had short term lines of credit
and overdraft facilities available of $3,453 and $1,863, respectively, of
which short term borrowings amounted to $1,274 and $1,285, respectively.
The amounts available under these credit lines were $2,179 and $578 at
December 31, 1995 and 1994, respectively, with rates tied to short-term
bank notes.
Total outstanding revolving lines of credit are summarized as follows at
December 31:
F - 74
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1995 1994
------ ------
Domestic Lines of Credit Utilized $3,670 $4,350
Foreign Lines of Credit Utilized:
Speech Design 627 728
Satelco 647 557
------ ------
$4,944 $5,635
====== ======
6. Long-Term Debt
A: ADVANCES and NOTES PAYABLE TO RELATED PARTIES
Advances and notes payable to related parties at December 31, 1995 consist
of the following:
1995 1994
------- -------
Advances from Geotek $ 138 $ 4,840
Notes Payable - Geotek
(at prime rate + 1 1/8%) -- 1,565
Notes Payable - Geotek (at prime rate) -- 333
Notes Payable - Geotek (at prime rate + 1%) 133 267
Notes Payable - Geotek 266 381
Loan to Related Party 317 315
Notes Payable - Geotek (at 13%) 3,141 --
------- -------
Total 3,995 7,701
Less: Current Maturities (537) (2,662)
------- -------
$ 3,458 $ 5,039
======= =======
Advances from Geotek
The $4,840 non-interest bearing advance from Geotek to Bogen was forgiven
in connection with the acquisition of Bogen by the Company and was recorded
as a contribution to equity on August 21, 1995 (the date of the
acquisition). The remaining $138 consists of net current advances made
subsequent to the acquisition.
Notes Payable - Geotek (at prime rate + 1 1/8%)
This $1,565 note was also forgiven in connection with the acquisition of
Bogen by the Company and was recorded as a contribution to equity at the
date of acquisition. Prior to conversion into equity, principal
installments of $39 per quarter were made plus interest at the prime rate
plus 1 1/8%.
F - 75
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Notes Payable - Geotek (at prime rate)
This $333 note was also forgiven in connection with the acquisition of
Bogen by the Company and was recorded as a contribution to equity at the
date of acquisition. Prior to conversion into equity, principal
installments of $4 per month were made plus interest at the prime rate.
Notes Payable - Geotek (at prime rate + 1%)
This note payable to Geotek from Speech Design is payable in quarterly
installments of $33 plus interest at the prime rate plus 1%.
Notes Payable - Geotek
This note payable to Geotek is from Satelco, a 67% owned subsidiary of
Speech Design, and is payable in quarterly installments of $87 beginning in
September, 1995 plus annual payments of interest at the Swiss prime rate
plus 1%.
Loan to Related Party
This $315 original note from the minority shareholders of Satelco is
payable in quarterly installments of $31 plus interest at the Zurich
Kantonal Bank rate with installments beginning February, 1995. The payments
of this note have been suspended (with the approval of the noteholder)
until such time as the Satelco subsidiary becomes profitable. Accordingly,
this note payable has been classified as long-term.
Notes Payable (by the Company) to Geotek
This note payable to Geotek from the Company was incurred at the date of
acquisition for $3,000 plus interest payable quarterly in arrears at
varying rates equal to the Company's current borrowing rate from CIT plus
2%. This note is due in February, 1997. These notes are convertible into
Common Stock of the Company at any time under a conversion formula. These
notes can be prepaid at any time which would void the conversion feature.
B: NOTES PAYABLE TO NON-RELATED PARTIES
Notes payable to non-related parties at December 31, 1995 consist of the
following:
1995 1994
----- -----
Various Notes Payable (at prime rate) $ 60 $ 202
Notes Payable (with imputed interest 9%) -- 147
Notes Payable (with imputed interest at 9%) 37 177
Notes Payable (at 12% interest rate) 12 62
Notes Payable to Bank (at 8.5% interest rate) 65 159
----- -----
Total 174 747
Less: Current Maturities (174) (573)
----- -----
$ -- $ 174
===== =====
Various Notes Payable (at prime rate)
Payable in monthly installments of $12 plus interest at the prime
[ ] rate.
F - 76
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Notes Payable (with imputed interest at 9%)
Payable in monthly installments of $12 including imputed interest at 9%.
Notes Payable (with imputed interest at 9%)
Payable in annual installments of $150 including imputed interest at 9%.
Notes Payable (at 12% interest rate)
Payable in monthly installments of $4 plus interest at 12%.
Notes Payable to Bank (at 8.5% interest rate)
Payable by Speech Design in quarterly installments plus interest of 8.5%.
Principal maturities of long-term debt over the next five years and
thereafter are as follows:
Related
Parties Other Total
------ ------ ------
1996 $ 537 $ 174 $ 711
1997 3,141 -- 3,141
1998 -- -- --
1999 -- -- --
2000 -- -- --
Thereafter 317 -- 317
------ ------ ------
$3,995 $ 174 $4,169
====== ====== ======
7. Income Taxes
The Company's payable for income taxes consists of the following:
1995 1994
------ ------
Foreign:
Speech Design $1,353 $ 89
------ ------
TOTAL INCOME TAXES PAYABLE $1,353 $ 89
====== ======
The components of income tax expense (all foreign) are as follows for the
years ended December 31:
1995 1994 1993
------ ------ ------
Current income tax $1,257 $ 65 $ 0
Current corporation tax 5 14 0
------ ------ ------
$1,262 $ 79 $ -0-
====== ====== ======
Income tax expense for 1995 and 1994 differs from the amount computed by
applying the U.S. federal statutory rates due to losses in the U.S. for
which no benefit
F - 77
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
has been provided offset by foreign taxable income at tax rates different
than the U.S. federal statutory rate.
The Company had net operating loss ("NOL") carryforwards for U.S. tax
purposes of approximately $6,746 as of December 31, 1995, which expire
between the years 2004 through 2010. Under Section 382 of the Internal
Revenue Code of 1986, as amended, the net operating loss carryforwards are
subject to certain limitations on their utilization as a result of the
changes in control of the Company in 1991 and 1995.
The components of deferred tax assets at December 31, 1995 and 1994, were
approximately as follows:
1995 1994
------- -------
Deferred Tax Assets:
NOL carryforwards $ 2,601 $ 1,886
Deferred rent 251 194
Inventory Reserves 972 642
Allowance for Doubtful Accounts 163 116
Other 844 294
------- -------
TOTAL DEFERRED TAX ASSETS 4,831 3,132
Less, valuation allowance (4,831) (3,132)
------- -------
NET DEFERRED TAX ASSETS $ -0- $ -0-
======= =======
In accordance with SFAS No. 109, the Company has established a valuation
allowance of $4,831 and $3,132 for the years ended December 31, 1995 and
1994, respectively, offsetting the tax benefit of the deferred tax assets,
principally the NOL carryforwards, to the extent the benefit is not
expected to be realized.
8. Commitments and Contingencies
Operating Leases
The Company occupies its plant and office facilities and operates certain
equipment under leases expiring at various dates through 2004. The facility
lease contains an escalation clause and provides for payments of taxes and
expenses over base rent. The facility lease also contains a five year
renewal option.
F - 78
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
The minimum annual rental commitments over the next five years under
operating leases are as follows:
Year Ending
December 31,
------------
1996 $ 1,127
1997 1,116
1998 1,039
1999 954
2000 872
Thereafter 807
------
$5,915
======
Bogen's facility lease includes scheduled rent increases over the lease
term. Rent expense has been recorded on a straight-line basis and the
related deferred rent obligation of $597 and $554 at December 31, 1995 and
1994, respectively, is classified as a long-term liability.
Rent expense charged to operations totaled approximately $1,055, $779 and
$787 for the years ended December 31, 1995, 1994 and 1993, respectively.
Employment and Consulting Agreements
In March 1991, Bogen entered into an employment agreement with an officer
which, among other things, provided for annual compensation of
approximately $150 and a bonus equal to 5% of pre-tax earnings. In the
first quarter of 1993, the officer resigned from the Company. As a result,
in 1993, the Company recorded a charge of $50 for a severance payment
pursuant to the termination agreement with such officer. This payment was
made by Geotek on behalf of the Company and has been treated as a capital
contribution in 1993. Other officers of the Company are employed pursuant
to written agreements with Geotek and the Company.
Commitments
At December 31, 1995, the Company had commitments to purchase merchandise
from foreign vendors of $694 under documentary letters of credit and $133
under other sight documents. In addition, the Company has commitments to
purchase from certain foreign vendors raw materials with a value of
approximately $28. Pursuant to the sale of Aryt Optronics, Ltd. by Geotek
in 1992, the Company obtained certain benefits and concessions from Reshef
Technologies, Ltd. ("Reshef"), formerly a related company to Bogen. Such
concessions and benefits would be lost by the Company if certain target
purchases from Reshef were not met. Purchases made under this agreement
complied with the target purchase requirements and approximated $3,612,
$6,284 and $3,100 in 1995, 1994 and 1993, respectively. The
F - 79
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
concessions and benefits from Reshef expired on December 31, 1995.
Litigation
On April 13, 1995, a settlement of litigation was reached between
AccessLine Technologies, Inc. ("AccessLine") and Bogen, that was effective
January 1, 1995. Accessline had alleged patent infringement by Bogen's
"Friday" product line and had sought unspecified damages from Bogen. The
settlement resolved all current and future matters that may be brought by
AccessLine with regard to this alleged patent infringement. Under the terms
of the settlement, AccessLine granted a license to Bogen permitting Bogen
to continue selling its "Friday Home Office Receptionist" line of products
and other variations thereof on a worldwide basis. In return, the Company
has agreed to pay AccessLine a royalty of 3% of net sales for applicable
units sold after December 31, 1994. Applicable units would include current
models of the "Friday Home Office Receptionist" and future new products
that would be similar and meet the requirements of the agreement. The term
of the license agreement is coincident with the expiration of patents
applicable under the license agreement unless terminated sooner in
accordance with the agreement. Under terms of this agreement, the Company
has recorded royalty expense of $92 for the year ended December 31, 1995.
9. Stockholder's Equity
Common Stock and Common Stock Subject to Possible Redemption
The following discussion summarizes the incorporation of the Company, the
capitalization, and the requirements and privileges of the shareholders in
the periods preceding the consummation of the acquisition of Bogen and
Speech Design on August 21, 1995.
The Company was incorporated in Delaware on May 6, 1993 with the objective
of acquiring a medium-sized operating business engaged in industrial
manufacturing or industrial services and located in Germany, Switzerland or
Austria ("Business Combination"). The Company's founding directors and
advisors purchased 500,000 common shares, $.001 par value, for five hundred
dollars during the three month period after incorporation. On September 30,
1993, 125,000 shares were returned to the Company by the founding
shareholders and was retroactively reflected in the financial statements as
a net issuance of 375,000 shares.
On October 15, 1993, the Company sold 1,550,000 units ("Units") in an
initial public offering ("Offering") of the Company's common stock. Each
unit consisted of one share of the Company's common stock, $.001 par value,
and two Redeemable Common Stock Purchase Warrants ("Warrants"). Each
Warrant entitled the holder to purchase, during the period commencing on
the later of the consummation by the Company of its Business Combination or
one year from the effective date of the Offering and ending seven years
from the effective date of Offering, from the Company one share of common
stock at an exercise price of $5.50. The Warrants are redeemable at a
price of $.01 per Warrant upon 30 days notice any at time, only in the
event that the last sale price of the common stock is at least $10.00 per
share for 20 consecutive trading days ending on the third day prior to
F - 80
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
date on which notice of redemption is given. The proceeds of the Offering
were deposited in a trust fund to fund a Business Combination or
liquidation of the Company.
The Company, after signing a definitive agreement for the acquisition of a
Business Combination, submitted such transaction for stockholder approval.
In the event that 20% or more of the shareholders excluding, for this
purpose, those persons who were shareholders prior to the Offering, had
voted against the Business Combination, the Business Combination would not
have been consummated. For the first Business Combination consummated by
the Company, all of the Company's shareholders prior to the Offering,
including all of the officers, directors and advisors of the Company
("Initial Shareholders") agreed to vote their shares of common stock in
accordance with the vote of the majority in interest of all other
shareholders of the Company ("Public Shareholders") with respect to any
Business Combination. After consummation of the Company's first Business
Combination, these voting safeguards were no longer applicable.
When the Business Combination was approved and consummated, any Public
Shareholder who had voted against the Business Combination could have
demanded that the Company redeem his shares. The per share redemption price
equaled the amount in the Trust Fund, as of the record date for
determination of shareholders entitled to vote on the Business Combination,
divided by the number of shares held by Public Shareholders. Accordingly,
Public Shareholders holding 19.99% of the aggregate number of shares owned
by all Public Shareholders could have had their shares redeemed at the time
of the Business Combination. The Company has classified the value of this
redemption as common stock, subject to possible redemption, on its balance
sheet at December 31, 1994 prior to the consumation of the Business
Combination. Such Public Shareholders were entitled to receive their per
share interest in the Trust Fund computed without regard to shares held by
Initial Shareholders. On August 21, 1995, in connection with the Company's
acquisition of Bogen and Speech Design, the Company reclassified the common
stock subject to possible redemption to common stock. No shares of stock
were redeemed as discussed above.
The Company's Certificate of Incorporation had provided for mandatory
liquidation of the Company, without stockholder approval, in the event that
the Company did not consummate a Business Combination.
Warrants
In June 1993, 300,000 Warrants were issued to various individuals in
consideration for providing the Company bridge financing until its offering
in October 1993. As referred to above, the Company issued 3,100,000
Warrants to purchase its common stock in connection with the Offering.
Warrants to purchase 200,000 shares of common stock were issued to Geotek
in August 1995 in connection with the acquisition of Bogen and Speech
Design. Another 60,000 Warrants were issued as consideration for providing
certain financings and services provided to the Company to facilitate the
Business Combination. At December 31, 1995, 3,660,000 Warrants were
outstanding.
F - 81
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Options
Three members of the Company's Board of Directors have been granted an
option by the previous members of the Board of Directors to purchase from
such persons, for nominal consideration, 337,500 of the 375,000 shares of
the Company's common stock currently held by such persons.
In 1994, Bogen adopted an Employee Stock Option Plan (the "Plan"). Under
the Plan, an aggregate of 3,000,000 shares may be issued to members of its
Board of Directors, designated officers and employees and independent
contractors or consultants who perform services for the Company. No option
granted under the Plan is intended to be an incentive stock option within
the meaning of section 442A(b) of the Internal Revenue Code of 1986 for
income tax purposes. During 1994, 1,400,000 options were granted under this
Plan at a price of $1.14 per share which approximates fair value. These
options vest over a five (5) year period. During 1994, there were no
options exercised or exercisable. During 1995, 325,000 options were
granted, and 605,000 options were cancelled due to executives leaving the
Company. At December 31, 1995, 180,000 options were exercisable.
Prior to January 1, 1994, Bogen maintained a stock option plan which
provided for the grant of up to 500,000 incentive and/or non-qualified
stock options to officers and key employees. No options were granted
pursuant to this plan in 1993.
Push-Down of Goodwill
Pursuant to Accounting Principles Board No. 16 "Business Combinations"
("APB 16"), the accumulated deficit of Bogen was required to be restated on
the date of applying push-down accounting (see Note 2G, Goodwill). The
restated accumulated deficit includes Geotek's recorded equity in the
income and losses of Bogen since its original acquisition and all goodwill
amortization recorded by Geotek relating to the acquisition of Bogen.
Therefore, a reclassification of $8,524 was made from accumulated deficit
to additional paid-in capital in January 1994.
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with
such designations, voting and other rights and preferences as may be
determined from time to time by the Board of Directors.
Common Stock
At December 31, 1995 and 1994, 3,700,000 shares of common stock were
reserved for issuance upon exercise of redeemable warrants.
10. Related Party Transactions
The Company has issued 132,431 shares of its common stock for services
received in connection with the acquisition of Bogen and Speech Design. Of
these shares 19,565 were issued to a member of the Board of Directors of
Geotek.
F - 82
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
During 1995, in conjuction with the acquisition of Bogen and Speech Design
(see Note 1D above) Geotek forgave $7,155 in long-term debt due Geotek
which was recorded as an increase in additional paid-in capital. As part
of this acquisition, the Company issued $3,000 in convertible promissory
notes to Geotek.
11. Economic Dependency
During the years ended December 31, 1995, 1994 and 1993, the Company
purchased audio components of approximately $8,853, $14,016 and $7,460,
respectively, from three suppliers located in the Republic of South Korea.
Any future inability of any of these suppliers to provide the Company with
a sufficient level of components may have a negative impact on the
Company's operations.
Sales to one customer approximated $4,400 and accounted for more than 10%
of the Company's net sales in 1995. Sales to a different customer
approximated $7,100 and accounted for more than 10% of the Company's net
sales in 1994.
Twenty-two of Bogen's employees are subject to collective bargaining
agreements which expire in mid-1997.
12. Employee Benefit Plans
Bogen participates in multi-employer pension plans which cover all union
employees. Contributions for the periods ended December 31, 1995, 1994 and
1993 were approximately $15, $18 and $19, respectively.
Employees of the Company are also eligible to participate in a defined
contribution 401(K) plan sponsored by Geotek. The Company provides a
matching contribution to a portion of funds contributed by employees that
amounted to $82, $108, and $73 for the years ended December 31, 1995, 1994,
and 1993, respectively.
13. Segments
The Company's operations are conducted in one segment engaged in the
development, manufacturing and marketing of communication products, such as
telephone products, commercial audio, paging equipment, and small office
home office products in the United States (Bogen) and Germany (Speech
Design). Information about the Company for 1995, 1994, and 1993 has been
presented geographically as follows:
1995 1994 1993
------- ------- -------
Geographic Segments:
Revenues:
United States $30,677 $37,745 $26,292
Foreign 13,841 8,177 3,780
------- ------- -------
$44,518 $45,922 $30,072
------- ------- -------
F - 83
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Operating income (loss):
United States $ (2,405) $ (18) $ 656
Foreign 1,768 1,223 113
Income (loss) from operations $ (637) $ 1,205 $ 769
-------- -------- --------
Identifiable assets:
United States $ 24,425 $ 27,467 $ 12,263
Foreign 6,879 5,399 2,157
-------- -------- --------
$ 31,304 $ 32,866 $ 14,420
-------- -------- --------
14. Phase-out of OAS Product Line
In December 1995, the Company's management made a decision to phase-out the
OAS product line. This decision was made as a result of intense competitive
pressure from competing companies. The Company expects to sell all
remaining OAS inventory and complete the phase-out by the middle of 1996,
with no material exit costs anticipated. The results of the OAS product
line for the past three years are as follows:
Selected Financial Information
For The Years Ended December 31,
1995 1994 1993
------- ------- -------
Net Sales $ 4,444 $12,252 $ 2,899
Cost of Goods Sold 4,932 9,431 1,765
------- ------- -------
Gross Profit (Deficit) (488) 2,821 1,134
Engineering, Selling &
Marketing Expenses 4,026 3,773 1,849
------- ------- -------
Operating loss $(4,514) $ ( 952) $ (715)
------- ------- -------
15. Fourth Quarter Adjustments
Certain adjustments and provisions amounting to $1,500, primarily related
to inventory valuation for the OAS product line, were recorded in the
fourth quarter of 1995.
F - 84
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 $52.1 million, $43.6
million and $89.1 million for the years ended December 31, 1993, 1994 and 1995,
respectively.
Exhibit 21
WHOLLY-OWNED SUBSIDIARIES OF
GEOTEK COMMUNICATIONS, INC.
Geotek Communications, Inc. PowerSpectrum, Inc.
--------------------------- -------------------
Cumulous Holding Corp., Inc.
(Holds all interest in Cumulous PowerSpectrum of D.C., Inc.
Communications) PowerSpectrum of Seattle, Inc.
Geotek Acquisition Corp. (Shell Company) PowerSpectrum of Miami, Inc.
Geotek Beteiligungs GmbH i.G. (a PowerSpectrum of Indianapolis, Inc.
wholly owned subsidiary of Geotek PowerSpectrum of Atlanta, Inc.
Communications GmbH) PowerSpectrum of Jacksonville, Inc.
Geotek Communications GmbH i.G. PowerSpectrum of Kansas City, Inc.
(Geotek Beteiligungs & Geotek Comm. PowerSpectrum of Philadelphia, Inc.
are holding companies for interest in PowerSpectrum of New Orleans, Inc.
Preussag and DBF Bundelfunk) PowerSpectrum of Phoenix, Inc.
Metro Net Systems, Inc. (Operations of PowerSpectrum of Minneapolis, Inc.
SMR Systems in NY Metro area) PowerSpectrum of Denver, Inc.
National Band Three Limited (UK SMR PowerSpectrum of Memphis, Inc.
Provider) PowerSpectrum of Tampa, Inc.
PowerSpectrum Inc. (Holds all interest PowerSpectrum of Rochester, Inc.
in the license holding subsidiaries) PowerSpectrum of Buffalo, Inc.
USI Venture Corp. (Shell Company) PowerSpectrum of Nashville, Inc.
Geotek Asia, Inc. PowerSpectrum of Orlando, Inc.
ANSA Communications PowerSpectrum of Boston, Inc.
Bogen Communications International Inc. PowerSpectrum of Hartford, Inc.
Bogen Corporation PowerSpectrum of Salt Lake City, Inc.
Bogen Communications, Inc. PowerSpectrum of Dallas, Inc.
CLW Communications, Inc. PowerSpectrum of New York City, Inc.
DBF Bundelfunk GmbH PowerSpectrum of Chicago, Inc.
GMSI, Inc. PowerSpectrum of Cincinnati, Inc.
Geotest, Inc. PowerSpectrum Microwave
MIS Holdings Ltd.
Mobile Information Systems Ltd. (All PowerSpectrum of (city) hold FCC
Mobile Message Service of Texas, Inc. Licenses)
Oak Hill Communications, Inc.
PowerSpectrum Technology Ltd.
Protocall Ventures
<PAGE>
Satelco AG
Speech Design
Geotek License Holdings, Inc.
Geotek Financing Corporation
Geotek of America, Inc.
Geotek USA, Inc.
Gelico, Inc.
Gelico of Chicago, Inc.
Geotek of Atlanta, Inc.
Geotek of Boston, Inc.
Geotek of Chicago, Inc.
Geotek of D.C., Inc.
Geotek of Dallas, Inc.
Geotek of Houston, Inc.
Geotek of Miami, Inc.
Geotek of New York, Inc.
Geotek of Orlando, Inc.
Geotek of Philadelphia, Inc.
Geotek of Tampa, Inc.
EXHIBIT 23.1
[LETTERHEAD OF COOPERS & LYBRAND, L.L.P.]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Geotek Communications, Inc. on Form S-3 (Nos. 33-5508, 33-49548, 33-57530,
33-61034, 33-72820, 33-78540, 33-85296, 33-62073, 33-62327, 33-64117 and
33-64533), on Form S-4 (No. 33-62333) and Form S-8 (No. 33-67144) of our report
dated March 26, 1996, on our audits of the consolidated financial statements and
consolidated financial statement schedule of Geotek Communications, Inc. and
Subsidiaries as of December 31, 1995 and 1994, and for the years ended December
31, 1995, 1994 and 1993, which report is included in this Annual Report on Form
10-K.
COOPERS & LYBRAND L.L.P
New York, New York
March 27, 1996
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND, L.L.P.]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Geotek Communications, Inc. on Form S-3 (Nos. 33-5508, 33-49548, 33-57530,
33-61034, 33-72820, 33-78540, 33-85296, 33-62073, 33-62327, 33-64117 and
33-64533), Form S-4 (No. 33-62333) and Form S-8 (No. 33-67144) of our report
dated March 21, 1996, on our audits of the consolidated financial statements of
Bogen Communications International, Inc. (formerly European Gateway Acquisition
Corp.) as of December 31, 1995 and 1994 and for each of the three years in the
period ended December 31, 1995, which is included in this Annual Report on Form
10-K.
COOPERS & LYBRAND L.L.P.
New York, New York
March 27, 1996
EXHIBIT 23.2
[LETTERHEAD OF SHACHAK & CO.]
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in the Registration Statements of Geotek Communications, Inc. on Form
S-3 (Nos. 33-5508, 33-49548, 33-57530, 33-61034, 33-72820, 33-78540, 33-85296,
33-62073, 33-62327, 33-64117 and 33-64533), Form S-4 (No. 33-62333) and Form S-8
(No. 33-67144) of our report dated March 26, 1996, on our audits of the
financial statements of PowerSpectrum Technology Ltd. as of December 31, 1995
and 1994, and for the years ended December 31, 1995 and 1994 and the fifteen
months period ended December 31, 1993, which report is included in this Annual
Report on Form 10-K.
/S/ SHACHAK PEER REZNICK & CO
Shachak Peer Reznick & Co.
Certified Public Accountants (Isr.)
March 27, 1996
Tel Aviv, Israel
EXHIBIT 23.3
[LETTERHEAD OF COOPERS & LYBRAND]
The Directors
Geotek Communications Inc.
20 Craig Road
Montvale
NJ 07645
USA
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Geotek Communications Inc. on Form S-3 (numbers 33-5508, 33-49548, 33-57530,
33-61034, 33-72820, 33-78540, 33-85296, 33-62073, 33-62327, 33-64117 and
33-64533) Form S-4 (number 33-62333) and Form S-8 (number 33-67144) of our
report dated 27 March 1996, on our audits of the financial statements of
National Band Three Limited as of 31 December 1995 and 1994, and for the years
ended 31 December 1995 and 1994, which report is included in this Annual Report
on Form 10-K.
COOPERS & LYBRAND
London, United Kingdom
27 March 1996
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