Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Annual Report -- [x] Reg. S-K Item 405 71 296K
2: EX-4.1 Exhibit 4.1-Senior Secured Debenture Purchase Agr 59 189K
3: EX-10.10 Exhibit 10.10-Employment Agreement 13 38K
4: EX-10.11 Exhibit 10.11-Consulting Agreement 4 12K
5: EX-10.28 Exhibit 10.28-Standard Offer, Agreement, Escrow 20± 73K
6: EX-24 Exhibit 24-Consent of Independent Public Account 1 6K
7: EX-27.1 Exhibit 27.1 (FDS) 2 6K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
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
Transition Report Pursuant to Section 13 or 15(d) of the Securities
------ Exchange Act of 1934.
For the Transition Period From to
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Commission File Number: 0-9160
INTEK DIVERSIFIED CORPORATION
-----------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 04-2450145
--------------------------- ---------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
970 West 190th Street, Suite 720, Torrance, California 90502
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 366-7335
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 Par Value
---------------------------
(Title of Each 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 twelve months, 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 Regulation S-K (229.405 of this chapter) 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 any amendment to this Form 10-K. [ ]
As of March 27, 1996, the aggregate market value of voting stock held by
nonaffiliates was approximately $51,484,710. The number of shares outstanding of
the Registrant's Common Stock was 10,958,278 as of March 27, 1996.
Documents Incorporated by Reference: None.
This Report includes a total of 35 pages, excluding Exhibits. The Exhibit index
appears on page 36.
Page 2
INTEK DIVERSIFIED CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
[Download Table]
Page No.
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PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . .12
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .12
Item 4. Submission of Matters to a Vote of Security Holders. . . . .12
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . . . .13
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . .14
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . .14
Item 8. Financial Statements and Supplementary Data. . . . . . . . .19
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . .19
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . .20
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . .21
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . .26
Item 13. Certain Relationships and Related Transactions . . . . . . .30
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . .32
Page i
PART I
ITEM 1. BUSINESS
GENERAL
INTEK Diversified Corporation ("INTEK" or the "Company") was incorporated
in 1969. On September 23, 1994, INTEK acquired the business of Simrom, Inc.
("Simrom"), an Ohio corporation, whose principal assets were certain rights
relating to licenses granted by the Federal Communications Commission (the
"FCC") for the 220 megahertz to 222 megahertz ("220 MHz") narrowband spectrum
through a business combination (the "Merger") involving the merger of Simrom
into a newly formed subsidiary of INTEK (the "Acquisition Subsidiary").
Subsequent to the Merger, the Acquisition Subsidiary changed its name to Roamer
One, Inc. ("Roamer One") and the Company refocused its business to a development
stage enterprise engaged in developing, constructing and managing a specialized
mobile radio ("Specialized Mobile Radio" or "SMR") network in the United States
utilizing the recently licensed 220 MHz narrowband spectrum from that of
fabricating and selling plastic products primarily from injection and
compression molding of various plastic resins to customers in the electronics,
aerospace and commercial aircraft markets (the "Plastics Business"). See
"Cautionary Statement for Purposes of the Safe Harbor' Provisions of the
Private Securities Litigation Reform Act of 1995."
The Company has one principal subsidiary, Roamer One, and three
insignificant subsidiaries, Olympic Plastics Company, Inc. ("Olympic"), IMCX,
Inc. and IDC, Inc.
SUBSIDIARIES
ROAMER ONE, INC.
Roamer One is a manager of SMR systems through its contracts with
certain holders of 220 MHz local licenses. A proposed SMR Network will be built
with equipment designed to operate on very narrow, 5 kilohertz ("KHz"),
bandwidths linking these SMR systems together (the "Roamer One Network"). The
evolution of narrowband technology is a result of the efforts of the Federal
Communications Commission ("FCC") to achieve spectrum efficiency for all types
of broadcast service. The 220 MHz spectrum was allocated to explore further the
development of narrowband equipment in a "virgin" spectrum (I.E. virtually free
of existing licensees or authorized users). In 1991, the FCC adopted rules and
permitted license applications to be filed for SMR systems and other private
land-mobile communication systems in the 220 MHz spectrum. In 1993,
approximately 3,300, five channel, trunked licenses were awarded to licensees.
Roamer One has contracts with certain holders of 220 MHz local
licenses covering approximately 2,125 channels. Roamer One has classified such
contracts as: Category I, Category II, or Category III Agreements.
Under the Category I Agreements, each of the licensees (which are, in
some instances, directors of the Company) have entered into an "Exclusive
Management Agreement and Right of First Refusal" ("Management Agreement"). Each
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licensee under a Category I Agreement also has entered into an Option to
Purchase Agreement (the "Option Agreement") providing Roamer One with the
exclusive right to purchase the constructed 220 MHz SMR system, together with
the 220 MHz FCC license. Under the Option Agreement, Roamer One is required to
fund all capital costs and operating expenses. The purchase under the Option
Agreement may be exercised by Roamer One at any time after construction by
Roamer One of the 220 MHz SMR system is completed.
Under Category II Agreements, each of the licensees has entered into a
Management Agreement which permits Roamer One to earn and retain a percentage of
the gross subscriber revenues. Each of the licensees also has entered into an
Option Agreement, however, the option may be exercised only after a prescribed
period of operation. Roamer One is required to finance the building of the 220
MHz SMR system and contribute operating capital until such time as the system is
profitable. The purchase price of the 220 MHz SMR system, together with the 220
MHz license, is computed using a multiple of earnings at the time of purchase.
Under the Category III Agreements, each of the licensees has entered
into a Management Agreement which provides that Roamer One will manage the 220
MHz SMR system for a fee based upon a percentage of subscriber revenues earned
from the operation of the SMR system. Under a Category III Agreement, Roamer One
has no option to purchase such 220 MHz SMR system but does have a right of first
refusal to purchase the SMR system in the event that an acceptable offer to buy
such system is submitted to the licensee by a third party. The licensees under
Category III Agreements are obligated to provide the funds for the system
construction and operating costs.
At December 31, 1995, the Company had 425 Management Agreements for a
total of 2,125 channels. Roamer One will provide services related to managed SMR
systems that include:
1. System design and construction
2. Market demographics
3. Advertising
4. Subscriber acquisition and loading
5. Dealer network establishment
6. Subscriber billing and tracking
7. Budget administration
8. System management, maintenance and repair
The FCC has allocated nationwide channels for licensing. Of this
allocation, the FCC has issued licenses for four commercial systems, one of
which is now subject to further administrative litigation. The remaining two
commercial licenses and the non-commercial licenses have yet to be issued by the
FCC pending resolution of regulatory matters involving the applicants. Roamer
One does not have agreements related to licenses for nationwide channels.
TECHNOLOGY. Roamer One has a supply arrangement with Simmonds Capital
Limited ("SCL"), formerly known as Simmonds Communications Ltd. SCL installs
large, integrated systems and has the technological expertise to insure that the
systems network properly. Roamer One purchases all base station equipment and
installation labor from SCL and SCL is responsible for the turn-key
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construction of each of the sites as directed by Roamer One and, ultimately, the
licensee of each system. See "Certain Relationships and Related Transactions."
The current manufacturers of 220 MHz transceiver equipment from whom
SCL obtains its base station repeater equipment are SEA, Inc. of Mountlake
Terrace, Washington and Securicor's Linear Modulation Technology, Ltd.
("Securicor LMT"), located in England. Equipment from these and certain other
vendors may not be available in time to allow the completed construction of all
220 MHz SMR systems subject to Management Agreements with Roamer One prior to
the FCC amended deadline. Roamer One has placed orders with SCL for the
equipment which Roamer One requires to construct 241 systems. Included in this
order is equipment required by Category III licensees, for which Roamer One will
earn an incremental profit upon delivery and invoicing to the licensee. During
1995, Roamer One purchased $9,298,000 of radio equipment and installation
services from SCL. As of December 31, 1995, Roamer One had an accounts payable
balance of $2,452,000. On February 29, 1996, the Company made a payment to SCL
in the amount of $2,300,000. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Due to the recognition of the Roamer One name in the marketplace, the
Company negotiated for the purchase of mobile radios bearing the Roamer One logo
from Securicor LMT and the receipt, warehousing and distribution of such Roamer
One mobile radios by Midland International Corporation ("MIC") of Kansas City,
Missouri, a wholly-owned subsidiary of SCL. See "Certain Relationships and
Related Transactions."
SMR USERS; ROAMER ONE SERVICES. The largest segment of SMR users today
use trunked channels with traditional, push-to-talk, voice radios. Subscribers
consist mainly of service companies such as contractors, plumbers, electricians,
roofers, maintenance personnel and other operators of fleets of vehicles. In
addition, a large segment consists of couriers, limousine services and other
transportation companies. Utility companies, package handlers, fire and
paramedic vehicles and other public safety concerns are typical SMR users who
may own or lease entire systems in a local area. The SMR spectrum is used
because a form of voice communication from a dispatch location, or base station
location is required for a fleet of vehicles. The Roamer One radio offers these
customers dispatch group calling capability and privacy since the operator has
the capability to contact each radio individually or a group of radios at the
same time.
The Roamer One radios are similar in appearance to the traditional SMR
radios currently in use by dispatch customers such as taxi cabs, trucking firms
and construction companies. The microphone can be equipped with a key pad that
provides for telephone interconnect dialing and other numeric functions
permitted within the feature set of the equipment. The speaker can either be
contained within the radio or mounted separately in another location for better
sound quality. The Roamer One radios require a 12 volt DC power supply and draw
from 400 milli-amps to 1.25 amps.
Portable radios have now been type accepted by the FCC and are on the
market. Securicor LMT has forecasted that its portable radio will be available
by the end of 1996. The other major development area is data transmission and
devices. Securicor LMT is capable of a 14.4 kilobit per second (kbps)
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transmission rate and can send data over its existing radio, via a standard
RS232 pin plug on the chassis at 1200 band. SEA is working on enhancements to
its bit rate, which is currently well below those products of Securicor LMT.
Due to the 5 KHz bandwidth in the 220 MHz spectrum, compared to 25 KHz
bandwidth in the 800 MHz spectrum, high speed data transmissions are a far more
efficient use of the narrowband spectrum than other applications such as mobile
telephone service. Roamer One does not intend to compete with cellular or
personal communications systems ("PCS") operators. Roamer One's initial
marketing effort is directed toward traditional dispatch users. Data
communication is expected to be a longer term product which has not been fully
realized with current equipment offerings. Examples of available data
communications equipment include global positioning system receivers mounted on
a vehicle to determine location and to monitor fuel consumption, speed, engine
performance, two way messaging, credit card reading for wireless authorizations,
and remote control of any application or function (lights, valves, doors,
switches, etc.) A key element to the deployment of data services is the
development by original equipment manufacturer ("OEM") vendors of integrated
devices not requiring a separate radio for transmission. The current offerings
of data terminals require connection to a radio to facilitate messaging. Roamer
One can provide no assurances that OEM vendors will develop these integrated
data devices, applications or integrated application software, that
manufacturers will be able to provide any or all of such data communication
devices economically, or that consumers will desire such services in the future.
ADVANTAGES OF LINEAR MODULATION AT 220 MHZ. The advantages of linear
modulation at 220 MHz, which management of Roamer One believes creates a
competitive advantage over other applications, are:
1. The signal propagation characteristics at 220 MHz are superior to
those at higher frequencies, including 800 MHz and 900 MHz. The
signal is less susceptible to loss due to trees, rain, variable
terrain and buildings.
2. The signaling protocol being used in the Securicor LMT
equipment has been proven in many other installations to be
stable with large numbers of subscribers while continuing to
provide an excellent quality of service. The techniques
being employed in competing digital compression systems are
yet to be perfected.
3. The protocol being used by the Securicor LMT equipment is
substantially similar to equipment currently utilized in Europe
which has proven to be a effective means to "network" multiple
sites and multiple channels. The protocol will be a distinct
advantage over other SMR analog logic trunked radio ("LTR")
operators as Roamer One rolls out its plan to create a national
network of systems.
4. The Securicor LMT systems allow for the assignment of an
electronic site address and a unique identity number for
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the mobile radio. These features will allow for the control of,
and the accounting for, each subscriber on the service.
Traditional LTR operators are unable to police their systems and
account for the number of subscribers. As a consequence, LTR
operators are unable to bill appropriately for their services
because they have no method of accurately determining how many
subscribers there are on each of the licensee's systems. Roamer
One will be able to charge accurately for usage of its managed
systems. Additionally, the assignment of unique identity numbers
will provide for the subscribers to contact other subscribers
individually and with privacy instead of communicating through a
shared group of mobile codes.
COMPETITION. Roamer One believes that it will be able to provide
services that are competitive with certain services provided by SMR operators in
the 800 MHz and 900 MHz frequencies and other existing and future wireless
communication providers of dispatch and data communications services, including
the emerging personal communication services ("PCS"). Roamer One does not expect
to compete directly with cellular carriers, paging companies or providers of
one-way PCS communications, although to some extent services provided by Roamer
One and by these other carriers will be substitutes for each other.
The SMR operators in the 800 MHz spectrum are expending large sums of
money to build-out digitally enhanced mobile networks to provide an integrated
package of services, including mobile telephone service, dispatch, and data
communications services. The technology in use is sometimes generally referred
to as Enhanced Specialized Mobile Radio ("ESMR"). A consolidation of 800 MHz
licenses and operators has been underway for some time by publicly traded, well-
capitalized, companies. During 1995, ESMR service has been implemented in
selected major cities in the United States. The technology employed has been
developed in large part by Motorola, but is still unproved commercially.
Due to the high level of capital expenditures being made by 800 MHz
system operators, the reportedly better transmission quality of the digital
networks to the traditional analog SMR channels, and the claim that the new
integrated package of services is a more effective and comprehensive
communications product, it is expected that a premium will be charged for the
service over the rates currently charged to dispatch users of analog systems. As
a result, Roamer One believes this will provide an opportunity for it to attract
a significant number of dispatch customers to the Roamer One Network who are not
interested in paying the higher premiums for an ESMR service. Current users of
800 MHz SMR service also will be required to purchase new digital mobile radio
equipment to continue use of the SMR system once a conversion has been made to
ESMR. Roamer One believes that a window of opportunity exists to offer these
displaced users a more economical alternative for fleet communications.
There are, however, several factors which may impact negatively Roamer
One's ability to attract 800 MHz customers to its 220 MHz SMR service:
1. Many 800 MHz system operators own channels in the 900 MHz
spectrum in the same market in which they are converting
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their 800 MHz SMR to an ESMR. As a result, they are able to load
those existing clients who do not desire ESMR on the analog 900
MHz system. This migration still requires the purchase of new
mobile radio equipment, however, the 900 MHz equipment is priced
below levels of the 220 MHz equipment.
2. The conversion to ESMR involves in most cases the use of a
technique known as time divisional multiple access ("TDMA"). TDMA
provides up to six times the number of channels and may allow the
operator to eventually lower its basic subscriber rates as a
function of capacities and economies of scale.
3. The 800 MHz SMR operators are able to offer subscribers a mature
radio product that has progressed through the commercial
development stages. The Roamer One radio has not progressed
through such commercial development stages. The volume of sales
related to the 800 MHz radios has resulted in significantly lower
prices compared to the price of the Roamer One radio. Also, the
800 MHz operators and service providers are generally well
established and better able to withstand the efforts of a
competing product offering, such as that of Roamer One through
subsidizing the air time or mobile radio costs beyond the level
at which Roamer One may be able to compete.
4. Other SMR operators have already begun a consolidation with a
goal of achieving a nationwide network. Because these operators
have had clients and systems in operation for a considerably
longer period than that of Roamer One, they have a competitive
advantage in completing their respective networks and maintaining
a significant percentage of their existing subscriber base.
The FCC has commenced a competitive bidding schedule for licenses in
the recently allocated PCS market. To date, the FCC has issued national and
regional narrow band PCS licenses and certain broad band PCS licenses. The FCC
is now auctioning other broad band PCS licenses and has indicated that in the
future it intends to auction additional narrow band and broad band PCS licenses.
PCS is described to be the next generation in personal wireless communications
and will provide for digital voice, data, paging, messaging and dispatch
operations all transmitted with low power, lightweight, portable hand-held
units.
The FCC has commenced a competitive bidding process for licenses in
900 MHz frequencies intended for use by SMR service providers and paying
companies. An additional geographic area-based allocation of 220 MHz SMR
licenses is scheduled for auction during the fourth quarter of 1996. All of
these licensees are potential competitors for Roamer One in its quest for new
subscribers.
In addition to PCS, there are a host of other services that could
eventually compete with the 220 MHz SMR operators and Roamer One due to the
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movement that the FCC is taking towards a "level playing field" or
"regulatory parity." Services such as interactive video data service or wireless
cable may be allowed to offer dispatch services under the FCC proposed rule
making. This regulatory parity, however, is a corresponding benefit to Roamer
One as 220 MHz operators will be allowed to offer fixed point transmissions,
paging, messaging and other services previously garnered by licensees of a
differing spectrum.
SITE LEASES. As of December 31, 1995, Roamer One had entered into 101
site leases to permit installation, operation, and maintenance of
transmission/reception equipment facilities in connection with the 220 MHz SMR
systems. These leases generally have a five-year term, with three consecutive
five-year extension periods upon the mutual agreement of the parties. As of
December 31, 1995, Roamer One paid $780,500 in 1995 site lease fees. As of
December 31, 1995, total future minimum lease payments for the Category I and
Category II site leases, which are contractual obligations of Roamer One, are as
follows:
[Download Table]
1996 $837,220
1997 781,021
1998 674,960
1999 620,978
2000 283,972
Thereafter -
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$3,198,151
==========
EMPLOYEES AND OFFICES. The Company has 10 employees operating from its
offices located at 970 West 190th Street, Suite 720, Torrance, California. In
addition, the Company has a national sales manager based in Texas and a regional
sales manager based in New York.
REGULATION BY THE FCC. SMR operators, just as radio and television
stations, are subject to the jurisdiction of the FCC under the Communications
Act of 1934, as amended, (the "Communications Act") which empowers the FCC,
among other things, to issue, renew, revoke, and modify licenses (usage rights
to frequencies), to approve the assignment or transfer of control of licenses,
to regulate the apparatus used by stations, to designate areas served by
particular stations or operators, to assign frequencies, to adopt such
regulations as may be necessary to carry out the provisions of the
Communications Act and to impose penalties for violations of such regulations.
The FCC's policy considerations, as well as technical limitations and
interference standards, determine the number of persons or entities that can be
granted licenses.
Because Roamer One's business is regulated by the FCC, its business
affairs (and those of its actual and potential competitors) are always subject
to changes in FCC rules and policies. Such changes can increase the level of
competition, the cost of regulatory compliance, the methods in which the Company
manages its systems, the difficulty in obtaining or keeping licenses, or other
facets of the Company's regulatory environment. Further, each FCC proceeding
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which might affect the Company is subject to reconsideration, appellate review,
and FCC modification from time-to-time.
The FCC requires that licensees maintain de jure and de facto control
of their radio systems at all times. This requirement is applicable to the 220
MHz licensees which Roamer One seeks to manage and acquire. A licensee's failure
to maintain control can result in an FCC investigation or hearing, imposition of
monetary forfeitures, or revocation of the license. Although certain guidelines
have been adopted, the FCC has yet to establish a firm rule to determine if a
licensee has given control to a manager, either under the terms of the agreement
or as result of the course of dealing between the licensee and the manager.
Although non-nationwide 220 MHz licenses originally were granted with
a "construction period" of eight (8) months following the date of issuance, the
construction period was extended three times, most recently by the FCC Second
Report and Order in PR Docket No. 89-552 and GN Docket No. 93-252. The current
construction deadline is March 11, 1996 for all non-nationwide 220 MHz licensees
that elect to construct base stations at currently authorized locations, and at
least until August 15, 1996, for all licensees granted authority to modify
licenses to relocate base stations. The August deadline is applicable only to
licensees who file with the FCC (a) on or before March 11, 1996, a Letter of
Intention to modify their location, and (b) on or before May 1, 1996, a valid
application to modify their authorizations by relocating their stations to a
different location. Pursuant to the Management Agreements, the Company on behalf
of licensees has prepared approximately 280 Letters of Intention which were
subseqently filed. The Company currently is assessing available site locations
and presently intends to assist its licensees in preparing applications for
modifications to the site locations for substantially all the unconstructed
systems relating to licenses for which it holds Management Agreements.
Under the FCC's rules, any failure to construct a 220 MHz system on or
before its construction deadline and to notify the FCC thereof results in
automatic cancellation of the license for any unconstructed frequencies. Any
systems constructed at an alternate site prior to January 26, 1996 pursuant to
Special Temporary Authority ("STA") granted by the FCC are considered having met
the construction deadline and will be granted a permanent modification to the
license regardless of the compliance to the rules as contained in the FCC Second
Report and Order. These STA sites must be constructed, however, within the
technical rules for 220MHz systems as outlined by the FCC. The Company believes
the systems subject to Management Agreements which have been constructed
pursuant to the STA meet the technical parameters as defined by the FCC and,
therefore, the Company expects that each of the systems that were constructed as
of March 11, 1996 will be granted a permanent license. There are no assurances,
however, that the FCC will not reverse its position on the grant of permanent
licenses or in some other manner deny authorization to operate such sites as
alternate sites.
The Company will have until at least August 15, 1996 (with the
possibility of slight extensions depending on the date a modification is
granted) to construct each system for which a modification is obtained from the
FCC. There are no assurances that the Company will be successful in gaining a
grant of site modification on behalf of all licenses for which an application is
made. The Company will continue to assess site locations, market indicators and
its financial resources in deciding whether to construct a system. No assurance
can
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be made that the Company will be able to complete the construction of all
systems for which a modification is granted by the end of the extended
construction period or that it will have the financial resources to do so. In
the event a system for which a modification to the license was granted by the
FCC is not built by the construction deadline, the license would be forfeited
and the Company would lose all of its rights and benefits under its Management
Agreement with respect to such license.
Under FCC regulations, 220 MHz base-station transmitters must be
operated at a maximum power level and antenna height in accordance with a
prescribed formula published by the FCC. The system operations are protected
from interference from other co-channel reuse of the same frequency to the 38dbu
V/m service contour. The signal strength of the 38dbu V/m as promulgated by a
base station operating at the prescribed power level affords a predicted
coverage radius of approximately 45 kilometers (28 miles). According to the
rules relating to modification contained in the FCC Second Report and Order and
in the original rules under which the licenses were allocated, no co-channel
reuse generally will be permitted within 120 kilometers (approximately 75
miles).
Licensees whose sites are located near the Canadian border are subject
to the same rules and have the same opportunity to modify site locations, except
that the construction period of one year does not become effective until such
time as a treaty is signed between Canada and the United States regarding the
use of the 220MHz frequencies that cross borders. If the Company decides to
construct such systems prior to a treaty between Canada and the United States,
there can be no assurance that a treaty will ultimately be negotiated and
ultimately adopted or that the Company will be able to retain its rights and
benefits afforded by the Management Agreement relating to such licenses in the
event a treaty is not negotiated.
Although current technology imposes capacity limitations on each 220
MHz channel, there is no regulatory limit on the maximum number of mobile units
that SMR operators may serve on their systems. The FCC has not established
loading requirements for 220 MHz channels.
Licenses are generally granted for a five-year term, subject to
compliance with FCC rules. Licenses may be renewed for additional five-year
terms upon demonstrating compliance with FCC rules and provision of adequate
service to the public. All SMR licenses may be revoked for cause after notice
and opportunity for hearing.
FOREIGN OWNERSHIP. The Communications Act restricts foreign investment
in and ownership of FCC licensees which are classified as common carriers,
including CMRS providers. This restriction is not applicable to non-licensee
managers of communications systems, such as the role initially contemplated by
Roamer One. The FCC generally has no regulatory authority over non-licensee
managers.
Among other things, foreign citizens, corporations and partnerships
may not own more than 20% of a common carrier or CMRS licensee directly or more
than 25% of the parent of a common carrier or CMRS licensee. Foreign nationals
may not serve as officers or members of a common carrier or CMRS licensee's
board
Page 9
of directors, but officers and up to one-fourth of the board of a common carrier
or CMRS licensee's parent may be non-US citizens. In the case of parent
corporations, the FCC can determine that this limitation can be exceeded in
specific cases where consistent with the public interest. Although certain FCC
precedent supports such a waiver in the case of citizens of Canada or Great
Britain having interests in the parent companies of common carriers or CMRS
licensees, no assurance can be given that the Company would be able to receive
such a favorable determination if required. At present, Roamer One is not a CMRS
licensee and therefore the FCC has no regulatory authority over the ownership
structure of Roamer One or INTEK.
TARIFFS. Common carriers, including CMRS providers, are subject to the
tariff requirements of Title II of the Communications Act for interstate
communications services. Pursuant to its statutory authority under the 1993
Budget Act, the FCC exercised its authority to forebear from enforcing the
tariff requirements against CMRS licensees. The FCC did retain its statutory
authority over CMRS rates and to permit users to recover unlawful charges.
Additionally, in May 1994, the FCC initiated a proceeding to determine if it
should forebear from other aspects of its Title II authority. That proceeding is
continuing. The Company cannot provide any assurance that such regulation or
forbearance will not adversely affect its business plan.
USER FEES. The 1993 Budget Act adopted a schedule of user fees for
virtually all FCC licensees. This schedule provides for an annual fee of $16 per
license for 220 MHz SMR licenses. The 1993 Budget Act also specifies a mechanism
by which this user fee will increase over time, although there was no increase
for the 1995 fiscal year. In contrast, the user fee for certain other CMRS
licensees for fiscal year 1995 was raised to $0.15 per two-way radio.
Additionally, Congress also has been presented with proposals to increase its
FCC user fees substantially for a variety of purposes. No assurance can be given
that 220 MHz user fees will be maintained at or near their present levels, or
that any such increases will not be so high as to affect the profitability of
220 MHz system.
OLYMPIC PLASTICS, INC.
Olympic was engaged in the Plastics Business but ceased all operations
of its Plastics Business on or about March 31, 1995. Olympic sold the productive
assets and inventory of its compression molding, electrostatic discharge,
aerospace product lines and custom molding operations. Olympic continues to own
land and a building located at 5800 West Jefferson Boulevard, Los Angeles,
California. See "Property."
IMCX CORPORATION
On June 7, 1985, the Company acquired all the issued and outstanding
stock of IMCS Corporation ("IMCS"), a California manufacturer of electrostatic
simulation and testing systems. On August 12, 1993 the Company incorporated IMCX
Corporation ("IMCX") in California for the purposes of holding patents and other
Page 10
assets and liabilities previously owned by IMCS. On August 12, 1993 IMCS was
sold to Advanced Technology Inc.
HISTORY OF THE COMPANY
In 1973, the Company acquired Olympic. In 1982, the Company founded
IDC International Corporation ("IDC") for the purpose of engaging in
international ore trade. IDC ceased all international ore trading activity in
February 1987 and is presently inactive. In June 1984, the Company acquired all
the issued and outstanding stock of Bengal, Inc. ("Bengal"), a manufacturer and
distributor of anti-static and conductive resins. Olympic and Bengal merged in
December 31, 1985. On June 7, 1985, the Company acquired all the issued and
outstanding stock of IMCS Corporation ("IMCS"), a California manufacturer of
electrostatic simulation and testing systems. On August 12, 1993 the Company
incorporated IMCX Corporation ("IMCX") in California for the purposes of holding
patents and other assets and liabilities previously owned by IMCS. On August 12,
1993, IMCS was sold to Advanced Technology Inc.
On February 3, 1994, the Company entered into a letter of intent with
SCL and Roamer One Holdings, Inc. ("ROH") to acquire the radio carrier business
of a joint venture, Simrom, a company formed by SCL and ROH. On April 12, 1994
the Company incorporated Romnet, Inc. ("Romnet"), a wholly-owned subsidiary, for
the purpose of effecting the acquisition of Simrom. On April 20, 1994, the
Company, Romnet, and Simrom executed an Agreement and Plan of Merger (the
"Merger Agreement") whereby Simrom would transfer all of its capital stock to
Romnet in exchange for 6,000,000 shares of the Company's Common Stock. On
September 23, 1994 the shareholders of all parties approved the Merger, which
became effective on that date. The Merger Agreement provided for (1) the merger
of Simrom into Romnet, with Romnet as the surviving corporation and (2) the
conversion, at the effective time of the Merger, of each of the issued and
outstanding shares of Common Stock, without par value, of Simrom (consisting of
10,000 shares) into the right to receive, subject to certain possible subsequent
adjustments, 600 shares of Common Stock, par value $0.01 per share (the "Common
Stock") of the Company. The Merger was accounted for as a reverse acquisition
because subsequent to the Merger, SCL and ROH, the former shareholders of Simrom
(sixty percent (60%) of the total outstanding voting stock of Simrom was held by
ROH and the remaining forty percent (40%) was held by SCL), held a majority of
the Common Stock of the Company.
Pursuant to the Merger Agreement, 3,000,000 shares of Common Stock
were delivered to Simrom's stockholders immediately after the Merger became
effective. All certificates representing the remaining Merger consideration, an
additional 3,000,000 shares of Common Stock (the "Consideration"), would be held
in escrow pending the build-out of one hundred (100) licenses subject to Option
Agreements, or, alternatively, fifty (50) licenses subject to Option Agreements
and one hundred (100) licenses subject to Management Agreements. As of December
31, 1995, the Company completed construction of 100 systems subject to Option
Agreements and 67 systems subject to Management Agreements. Accordingly, the
escrow agent released all certificates representing the remaining consideration
to the shareholders of Simrom in January, 1996.
Page 11
IDC INTERNATIONAL CORPORATION
IDC International Corporation ceased all business activity in 1987 and
is presently inactive.
ITEM 2. PROPERTIES
The Company, Roamer One, Olympic, IMCX, and IDC operate from 3,372 square
feet of leased office space at 970 West 190th Street, Suite 720, Torrance,
California 90502. The lease was entered into on February 15, 1995 and has a term
of five years.
Olympic owns, in fee, land and a building (the "Property") located at 5800
West Jefferson Boulevard, Los Angeles, California. The building consists of a
one-story masonry building with approximately 66,750 square feet of
manufacturing and office space on 89,214 square feet of land. On March 22, 1996,
the Company executed a Standard Offer, Agreement and Escrow Instructions for
Purchase of Real Estate ("Property Purchase Agreement") for the sale of the
Property. The Property is encumbered by a deed of trust in favor of MeesPierson
ICS Limited. See "Management's Discussion and Analysis of Financial Condition
and Results of Operation -- Liquidity and Capital Resources."
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Page 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Company's Common Stock trades on the NASDAQ Small-Cap Market (NASDAQ)
under the symbol IDCC. The following table sets forth the high and low bid
quotations and the trade price in the NASDAQ market as reported by the NASDAQ
system for each quarter during the two years ended December 31, 1995 and 1994.
These NASDAQ market quotations reflect interdealer prices, without retail mark-
up, mark-down, or commission and may not necessarily represent actual
transactions.
[Download Table]
TRADE PRICE BID
----------------------- ----------------------
HIGH LOW HIGH LOW
1995
First Quarter $ 4-7/8 $ 2-1/8 $ 4-1/2 $ 1-7/8
Second Quarter 10-3/4 3-7/8 10-3/8 3-3/4
Third Quarter 12-1/4 5-1/2 11-5/8 6-1/4
Fourth Quarter 8-5/8 5-7/8 8-1/8 5-7/8
1994
First Quarter $ 3-5/8 $ 7/16 $ 3-1/2 $ 3/8
Second Quarter 5-3/8 2-9/16 5 2-9/16
Third Quarter 5-1/8 2-13/16 4-7/8 2-3/4
Fourth Quarter 5-1/4 2-5/8 5 2-5/8
The number of common shareholders of record was approximately 1,831 on
March 27, 1996. The latest reported sales price for the Company's Common Stock
on the NASDAQ exchange of March 27, 1996 was $8.375.
The Company has never paid a cash dividend and has no present intention to
pay any cash dividends on its Common Stock.
Page 13
ITEM 6. SELECTED FINANCIAL DATA
As previously stated, the Company is now a development stage enterprise,
and has redirected its efforts and resources to the development of an SMR mobile
radio network in the United States. The following selected financial data
represents information relevant to the future business of the Company.
(Thousands, except per share amounts)
[Download Table]
INCEPTION
(FEB. 4, 1994)
THROUGH
-----------------------------
YEAR ENDED
DEC. 31, 1995 DEC. 31, 1994 DEC. 31, 1995
------------- ------------- -------------
Statement of Operations Data
Net Sales $ 3,547 $ 329 $ 3,876
Net Loss (2,837) (939) (3,776)
Net Loss per Share $ (0.30) $ (0.22) $ (0.52)
DEC. 31, 1995 DEC. 31, 1994
------------- -------------
Balance Sheet Data
Working Capital $ 844 $ 3,216
Total Assets 12,534 9,263
Shareholders' Equity $ 7,934 $ 3,265
No cash dividends have ever been paid by the Company.
The above schedule should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results
of operations of the Company for the year ended December 31, 1995 and the year
ended December 31, 1994. Similarly, the management discussion for the year
ended December 31, 1994 covers only the period from the February 4, 1994
inception of Roamer One to December 31, 1994. The following should be read in
connection with the consolidated financial statements and related notes
appearing elsewhere in this report. Historical results of operations,
percentage relationships and any trends that may be inferred therefrom are not
necessarily indicative of the operating results of any future period. See
"Cautionary Statement for Purposes of the Safe Harbor' Provisions of the
Private Securities Litigation Reform Act of 1995."
Page 14
1995 RESULTS OF OPERATIONS - YEAR COMPARED TO PRIOR YEAR
Through its wholly-owned subsidiary, Roamer One, INTEK is
constructing, and plans to operate an SMR network in the United States utilizing
certain rights and benefits accorded it by licensees in the newly allocated 220
MHz narrowband spectrum. Roamer One's business has been conducted by INTEK
since a September 23, 1994 reverse merger with INTEK. Consequently, the
management discussion for the year ended December 31, 1994 covers only the
period from the February 4, 1994 inception of Roamer One to December 31, 1994
and does not include a comparative discussion for prior periods. See "Business-
-Subsidiaries--Olympic."
NET SALES. As of December 31, 1995, the Company completed construction
of 100 systems subject to Option Agreements and 67 systems subject to Management
Agreements for a total of 167 systems. This is an increase of 146 systems over
the 21 systems that were constructed as of December 31, 1994. During 1995,
billing to licensees for site equipment, construction and installation resulted
in equipment sales of $3,547,000 compared to $329,000 in 1994.
COST OF GOODS. Cost of goods sold as a percentage of net equipment
sales was 91.7% in 1995, compared to 88.8% in 1994. The 2.9% increase was
generally caused by the requirement to complete installation within the FCC
deadlines. Field installation technicians had to travel to installation sites in
the order that tower leases and equipment became available, which did not allow
for the most efficient use of their time. Some installation sites were impacted
by the harsh winter weather, making installation difficult and costly, and
certain metropolitan areas required field upgrades of selected components and
on-site tuning of systems to eliminate the effects of interference.
SITE EXPENSES. Site expenses are primarily tower lease, telephone
(for modem access), and insurance. For 1995, site expenses were $469,000, up
from $86,000 in 1994. The increased expenses were required to support the
additional 146 systems that were constructed in 1995.
SELLING EXPENSES. Selling expenses are primarily salaries, travel and
preparation of promotional material. The selling expenses for 1995 were
$183,000. The Company incurred no such expense in 1994 as few sites had been
constructed.
GENERAL ADMINISTRATIVE EXPENSES. General administrative expenses are
primarily salaries, consulting and management fees, legal and audit and merger
expenses. These expenses rose from $857,000 in 1994 to $2,866,000 in 1995 due to
the development of the infrastructure to support the management of the systems,
together with the efforts to raise capital and the efforts toward the planned
merger, that was ultimately terminated, of the Midland Business owned by SCL
which operates as a distribution and value added reseller of LMR products for
the professional LMR market and as a systems integrator for LMR networks.
General administrative expenses in 1994 resulted from a much lower level of
business activity that included the cost of compliance reporting and the Merger,
but included minimal cost related to management of the SMR systems. Consulting,
management and directors' fees increased by $620,000 over 1994 fees.
Accounting, audit and legal expenses increased by $445,000 over 1994 expenses
and non-recurring expenses from merger activities increased by $283,000 of 1994
expenses.
Page 15
OPERATING PROFIT (LOSS). In 1995, the operating loss was $3,225,000
up from $906,000 in 1994, due to start-up and development costs and the fact
that subscribers have not yet been sought for the Company's services. The
Company offset some of this loss in 1995 with a gain from sale of assets of
$1,204,000 related to the disposal of the Olympic Plastics business.
INTEREST EXPENSE. Interest expense, included in other income
(expense), was $209,000 during 1995, up from $41,000 in 1994. 1995 interest
expense increased due to the $2,500,000 loan from Quest Capital Corporation.
See "Liquidity and Capital Resources." The 1995 financing cost of $635,000 was
in the form of Common Stock that was issued to Quest Capital Corporation for
extensions of the promissory note originally due from December 1994 but extended
to December 1995.
NET LOSS. The net loss was $2,837,000 in 1995, compared to $939,000
in 1994.
1994 RESULTS OF OPERATIONS
NET SALES. As of December 31, 1994, the Company completed
construction of 21 systems pursuant to its Management Agreements. During 1994,
billing to licensees for site equipment, construction and installation resulted
in equipment sales of $329,000.
COST OF GOODS. Cost of goods sold as a percentage of net equipment
sales was 88.8% in 1994.
SITE EXPENSES. Site expenses are primarily tower lease, telephone
(for modem access), and insurance. For 1994, site expenses were $86,000.
GENERAL ADMINISTRATIVE EXPENSES. General administrative expenses are
primarily salaries, consulting and management fees, legal and audit and merger
expenses. General administrative expenses were $857,000 in 1994
INTEREST EXPENSE. Interest expense, included in other income
(expense), was $41,000 in 1994.
OPERATING PROFIT (LOSS). Net loss from continuing operations in 1994
was $939,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of cash is selling shares of its Common
Stock, borrowing against the Company's assets, selling the assets relating to
the Plastics Business and obtaining vendor financing.
Additional capital will be required to complete the build-out of the
Roamer One Network of 220 MHz SMR systems and to fund the administrative costs
of the Company prior to its generation of recurrent revenues on a consistent
basis. The Company has invested the majority of its capital in the equipment
necessary to build out those sites for which it holds an option to purchase. In
Page 16
the event that the Company is unable to secure equipment or other financing, the
number of built-out systems will be reduced in relation to the available
funding. Thus, the Company may be unable to build out some of the licenses
before they expire. However, the Company believes that it has already built the
sites most critical to its future success and that it now has completed enough
sites to support its planned operations.
BORROWINGS. In November, 1994, the Company borrowed from Quest
Capital Corporation ("Quest"), formerly known as Noramco Mining Corporation,
$2,500,000 (the "Loan") bearing interest at the rate of twelve percent (12%) per
annum. The Loan was originally due in installments of $1,000,000 on December 30,
1994 and $1,500,000 on March 31, 1995. Quest agreed to extend the term of the
Loan until the earlier of December 15, 1995, the sale of the Property or the
closing of any equity financing by INTEK, in exchange for 162,000 shares of
Common Stock of INTEK. The cost of $635,000 for the shares was amortized over
the 1995 extension period. On December 29, 1995, Quest agreed to convert the
Loan, through an offering pursuant to Regulation S under the Securities Act of
1933, as amended (the "Securities Act"), into 336,842 shares of Common Stock of
INTEK and to release its liens in the collateral and guarantees.
On February 29, 1996, the Company raised $2,500,000 through the
issuance of a Senior Secured Debenture ("Debenture") to MeesPierson ICS Limited
("MeesPierson"), a United Kingdom limited liability company. INTEK also issued
50,000 shares of its Common Stock under Regulation S of the Securities Act to
MeesPierson as a closing fee for its investment banking services and paid an
agent fee of $25,000 to Octagon Capital Canada Corporation. See "Certain
Relationships and Related Transactions." The Debenture matures in six months
and bears interest based on the Bank of America Prime Rate. The Debenture is
secured by perfected liens against the Property and the equipment related to 15
Category I licenses.
On March 21, 1996, the Company executed a letter agreement with Global
Emerging Markets, LTD regarding the placement of up to $6 million of
subordinated notes and warrants to qualified purchasers pursuant to Regulation S
under the Securities Act. No assurance can be made that such offering will
occur.
EQUITY SALES. On June 30, 1995, the Company issued 947,042 shares of
Common Stock of INTEK to Securicor LMT in payment of invoices then outstanding
totaling $4,000,000. The shares were issued pursuant to the Financing Agreement
entered into between the companies on April 20, 1995.
On December 4, 1995, the Company sold 170,000 shares of the Company's
Common Stock and a warrant to acquire additional shares of Common Stock of INTEK
under Regulation S of the Securities Act. The sale generated $1,020,000 at a
discounted rate. On February 29, the warrant was exercised for 36,645 shares of
Common Stock of INTEK at $0.01 per share.
On January 12, 1996, the Company sold 201,000 shares of the Company's
Common Stock pursuant to an offering under Regulation S of the Securities Act.
The sale generated $849,342 net of fees and broker commissions.
Page 17
SALES OF ASSETS. The Company is pursuing the sale of the Property.
The sale price is $2,200,000. The Property has a net book value of $1,555,000.
On March 22, 1996, the Company executed the Property Purchase Agreement for the
sale of the Property and escrow was opened. If the Company is successful in
selling the Property (which Property is encumbered by a lien in favor of
MeesPierson in the amount of $2,500,000), the Debenture to MeesPierson will be
repaid, in part, with all the proceeds of such sale. While the Property
Purchase Agreement contemplates the closing on the sale to occur on or before
June 4, 1996, a number of conditions exist, such as the buyer's obtaining
financing, an updated appraisal and a satisfactory environmental report, no
assurance can be made that the conditions will be satisfied and the Property
sold in the near term.
During the first half of 1995, the Company entered into agreements to
sell the machinery, equipment and inventory of the Plastics Business to four
separate buyers. As of December 31, 1995, the Company completed four sales
totaling $4,022,407 for equipment and inventory. The Company received cash of
$3,868,560 and a note in the remaining principal amount of $153,847 bearing
interest at the rate of ten percent (10%) per annum with monthly principal and
interest payments and a maturity date of July, 1998. The first three payments
under this note were interest only. Of the proceeds from these sales, $263,000
was applied against a note payable secured by Olympic's assets, $900,000 was
repaid to Quest under the Loan and the remainder was used for working capital.
VENDOR FINANCING. The Company also is pursuing vendor financing for
equipment purchases for the build-out of the systems for the Roamer Network.
MERGER WITH SCL AND SECURICOR
On March 7, 1996, INTEK, SCL and Securicor Group plc ("Securicor")
signed a letter of intent ("Letter of Intent") regarding a proposed combination
of certain of their wireless communication businesses and related technology.
The transaction would combine INTEK's Roamer One air time services business with
the United States LMR business of Midland International Corporation ("Midland"),
a wholly-owned subsidiary of SCL, and the wireless technology and manufacturing
operations of Securicor Radiocoms Limited ("SRL"), a wholly-owned subsidiary of
Securicor. If the proposed transactions are consummated, INTEK will become an
integrated wireless company providing air time services, product development,
distribution and manufacturing for the LMR market. The completion of the
proposed transactions is subject to the completion of due diligence reviews by
the parties, the negotiation and execution of definitive documentation and
customary other closing conditions, including the receipt of regulatory and
third party approvals and consents and the approval of INTEK's stockholders to
the transactions and the issuance of its Common Stock. The parties expect the
transactions to close during the second quarter of 1996. The previously
announced proposed acquisition of the LMR Midland Business has been terminated
by mutual agreement of SCL and INTEK.
Under the terms of the Letter of Intent, INTEK will purchase a license
from Midland for the use of the Midland trademark in the United States for the
LMR market in exchange for approximately 2.5 million shares of Common Stock of
INTEK. In addition, INTEK will purchase for cash from Midland certain
Page 18
assets which are used in the business. SCL will retain the international
operations of Midland and the SCL Systems business which operates as a systems
integrator for wide area communications networks. SCL would provide certain
management services to INTEK for the support of the Midland two-way radio
business in the United States. The Letter of Intent also provides that INTEK
will acquire all of the shares of SRL in exchange for approximately 25 million
shares of Common Stock of INTEK. The SRL business includes the linear
modulation radio technology, a manufacturing facility in Bath, England, a
network of wireless dealers and resellers in the United Kingdom, a SMR network
in England, a wireless systems integration business, and all of Securicor's
convertible preferred shares in E.F. Johnson, a manufacturer of wireless
communications equipment in Waseca, Minnesota. INTEK has retained the
investment banking firm FAHNESTOCK & Co., Inc. to provide financial advisory
services to INTEK including an opinion as to the fairness, from a financial
point of view, to the stockholders of INTEK of the terms of the proposed
transactions. FAHNESTOCK & Co. will be paid a cash fee for its services.
EFFECTS OF INFLATION
The Company was not affected in any material respect by inflation
during fiscal 1995 or 1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by Item 8 are
set forth at the pages indicated in Item 14 (a)(1) and (2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Page 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
directors and executive officers of the Company as of December 31, 1995.
DIRECTOR
NAME AGE POSITIONS WITH THE COMPANY SINCE
-------------------------- ---- -------------------------- --------
Nicholas R. Wilson 51 Chairman of the Board 1994
Vincent P. Paul (Deceased) Vice Chairman of the Board 1984
John G. Simmonds 44 Chief Executive Officer 1994
and Director
Harry Dunstan 44 President, Chief Operating 1994
Officer and Director
Peter A. Heinke 37 Chief Financial Officer, 1994
Treasurer and Director
Steven L. Wasserman 42 Secretary and Director 1994
David Neibert 40 Director 1994
Christopher Branston 50 Director 1994
Nicholas R. Wilson became the Chairman of the Board of the Company on
September 23, 1994. Mr. Wilson is the President of Roamer One Holdings, Inc., a
holding company which owns approximately 31.5% of the outstanding shares of
Common Stock of the Company, and since 1990, the Chairman of the Board of
Opportunities Associates, Inc., a real estate development company. From 1990 to
1994, Mr. Wilson was the President of Roamer Corporation of America, a
corporation engaged in the short-term rental of portable cellular telephones.
Mr. Wilson is also President of Roamer Communications Network, which was
responsible for providing engineering services to a large number of 220 MHz
licensees during 1990 and 1991.
Vincent Paul became the Vice-Chairman of the Company on September 23, 1994.
Mr. Paul was the President and Chairman of the Board of Directors of the Company
from June 1992 to September 1994. Mr. Paul died on January 31, 1996 after a
lengthy battle with cancer. A successor to fill the Board vacancy has not been
selected.
John G. Simmonds became the Chief Executive Officer of the Company on
September 23, 1994. Since 1990, Mr. Simmonds has been the Chairman of the Board
of Directors, President and Chief Executive Officer of Simmonds Capital Limited,
a diversified electronics company and since 1990, the Chairman of the Board of
Directors and Chief Executive Officer of Kustom Electronics Inc., a manufacturer
of equipment for wireless data transmission. Since October, 1995, Mr. Simmonds
has been the Chairman of the Board of Ventel, Inc., a Canadian corporation
listed on the Vancouver Stock Exchange and Montreal Exchange. In January 1995,
Mr. Simmonds was appointed to the Board of Directors of American Digital
Corporation, a publicly traded company in the LMR business. Mr. Simmonds was
Executive Vice President and a director of Glenayre Electronics, Ltd., a
wireless communications business, from 1988-1990. He was formerly a director
(1977-1990) and Vice
Page 20
President (1968-1990) of A.C. Simmonds & Sons Limited., an electronics
distributor.
Harry Dunstan is a Professional Engineer who became the President and Chief
Operating Officer of the Company on September 23, 1994. Since 1991, Mr. Dunstan
has been a Director of Simmonds Capital Limited and Kustom Electronics Inc. At
SCL and its affiliates, he has held various executive offices from time to time,
including being President of SCL, Inc. During 1989-1991, Mr. Dunstan was the
Vice President of Technology and Systems for Glenayre Electronics, a wireless
communications company. Prior to 1989, Mr. Dunstan was President of RMS and
Signalcom, both of which are LMR communications companies.
Peter Heinke became the Chief Financial Officer and Treasurer of the
Company on September 23, 1994. Mr. Heinke was the Chief Financial Officer of
Simmonds Communications Limited (1993-1995). He was formerly self-employed as a
financial consultant (1990-1992) and the Treasurer/Controller of Trac Industries
Inc. (1986-1990).
Steven L. Wasserman became Secretary and a director of the Company on
September 23, 1994. Mr. Wasserman is a member of the Company's Audit Committee
and the Stock Option Committee. Mr. Wasserman is an attorney and a partner of
the law firm of Kohrman Jackson & Krantz, Cleveland, Ohio. He is a director of
Roamer One Holdings, Inc. Mr. Wasserman was a vice-president of the law
corporation of Honohan, Harwood, Chernett & Wasserman, Cleveland, Ohio, from
September 1983 until September 1, 1994.
David Neibert became a director of the Company on September 23, 1994. Mr.
Neibert is the President and a director of Roamer One, Inc. Mr. Neibert is a
director and was the President (1992-1994) of Roamer One Holdings, Inc. and was
the President of Master Marine Incorporated D.B.A. Seamark Marine Electronics
(1987-1992). Mr. Neibert is also a director of the American Mobile
Telecommunications Association and serves as the Chairman of its 220 MHz
Council.
Christopher Branston became a director of the Company on September 23,
1994. Mr. Branston is also a member of the Company's Stock Option Committee.
Mr. Branston has been qualified and practicing as a Solicitor in the United
Kingdom since 1971. Since October, 1987, Mr. Branston has been practicing on
his own, and since September 1994, a consultant to the United Kingdom law firm
of Rogers & Burton.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth as of December 31, 1995 all compensation
paid by the Company to the Company's Chief Executive Officer and the other
executive officers of the Company whose total annual salary and bonus exceeds
$100,000 (the "Named Executive Officers").
Page 21
SUMMARY COMPENSATION TABLE
[Download Table]
SECURITIES
CAPACITY IN WHICH CASH UNDERLYING
NAME COMPENSATION RECEIVED COMPENSATION OPTIONS
--------------- --------------------- ------------ -------
Nicholas Wilson Chairman of the Board,
1995 $ 158,750
1994 $ 20,000 40,000
1993 $ 0
John Simmonds Chief Executive Officer
INTEK Diversified Corporation
1995 $ 0(1)
1994 $ 0 40,000
1993 $ 0
Vincent P. Paul Vice Chairman of the Board,
INTEK Diversified Corporation
1995 $ 200,000
1994 $ 200,000 40,000
1993 $ 200,000
David Neibert President, Roamer One
Director INTEK Diversified
Corporation
1995 $ 131,000
1994 $ 80,000 40,000
1993 $ 0
(1) Mr. Simmonds did receive compensation as a director of INTEK. See
"Executive Compensation -- Director Compensation."
INCENTIVE STOCK OPTION PLANS
1988 PLAN
In 1988, the shareholders of the Company approved the 1988 Key Employee
Incentive Stock Option Plan (the "1988 Plan"). The 1988 Plan is intended to
qualify as an "incentive stock option plan" within the meaning of Section 422A
of the Internal Revenue Code of 1954, as amended.
The 1988 Plan provides that, subject to adjustment as described below,
500,000 shares of the Company's Common Stock will be reserved for issuance upon
the exercise of options to be granted. The stock options are exercisable over a
period determined by the Stock Option Committee, but no longer than ten years
after the date they are granted. The options are to be exercisable at a price
equal to the fair market value (average of the closing per share bid and asked
price of the Company's Common Stock on the date an option is granted) or 110% of
fair market value for persons who have in excess of a 10% voting interest in all
classes of the Company's stock prior to the date of grant. The dollar amount of
Page 22
options issued under the 1988 Plan in any calendar year is limited to $100,000
per person in value plus any unused limit carry-over.
The 1988 Plan provides that the number of shares subject to the 1988 Plan,
the outstanding options and their exercise prices are to be appropriately
adjusted for mergers, consolidations, recapitalizations, stock dividends, stock
splits, or combinations of shares.
The 1988 Plan is administered by a Stock Option Committee consisting of not
less than three members appointed by the Board of Directors. The Stock Option
Committee has the authority to designate participants and to determine the terms
and provisions of each option agreement and interpret and amend the Plan. The
Board of Directors, upon recommendation of the Stock Option Committee, may
terminate, amend or modify the 1988 Plan, except that the following actions may
not be taken without the approval of the Company's stockholders: (1) increase in
the number of shares of the Company's Common Stock available under the Plan
(except for the adjustments referred to above); or (2) alteration in the method
of determining the exercise price of options granted under the Plan.
The persons eligible to receive options under the 1988 Plan are all
officers or other key employees of the Company and its subsidiaries (as defined
in the Plan). There have been no material amendments to the 1988 Plan since its
inception.
1994 PLAN
The Company adopted the 1994 Stock Option Plan (the "1994 Plan") which
provides for the granting of options for up to an aggregate 600,000 shares of
the Company's Common Stock to key employees, officers or consultants of the
Company. On July 5, 1995, the 1994 Plan was approved by the stockholders of
INTEK. The options granted under the 1994 Plan shall be exercisable at a price
equal to or exceeding the market value per share on the date an option is
granted. The dollar amount of options issued under the Plan in any calendar year
is limited to 60,000 shares of Common Stock per person. The 1994 Plan provides
for the administration of such plan by a committee of not less than two members
of the Board of Directors of the Company.
The 1994 Plan provides that the number of shares subject to the 1994 Plan,
the outstanding options and exercise prices therefor, shall be adjusted in the
event of a stock dividend, stock split, recapitalization, reorganization, merger
or other event that causes a change in the capital structure of the Company.
No further awards may be granted under the 1994 Plan after the passage of
ten (10) years from the date first approved by the stockholders of the Company.
Further, any amendment that increases the aggregate number of shares of Common
Stock covered by the 1994 Plan or otherwise causes the Plan to cease to satisfy
any applicable condition of Rule 16b-3 under the Securities Exchange Act of 1934
is subject to approval of the stockholders of the Company.
1994 DIRECTORS PLAN
In September, 1994, the Board of Directors of the Company adopted the 1994
Directors Stock Option Plan (the "1994 Director Plan") which provides for the
Page 23
granting of options of up to 300,000 shares of the Company's Common Stock to
members of the Board of Directors of the Company. On July 5, 1995, the 1994
Director Plan was approved by the stockholders of the Company. The 1994
Directors Plan provides that options granted under such plan will be exercisable
at a price equal to or exceeding the market value per share on the date the
option is granted.
OPTIONS IN THE LAST FISCAL YEAR
The Company did not grant any options to any of the Named Executive
Officers in 1995.
Options for 57,500 shares of Common Stock of INTEK were exercised under the
1988 Key Employee Plan during 1995 and 7,500 options were terminated, leaving no
outstanding options under this plan as of December 31, 1995. Options for 40,000
shares of Common Stock of INTEK were exercised under the 1994 Stock Option Plan
and options were issued to 4 non-executive officer employees for a total of
72,000 shares at an exercise price of $5.875 per share. As of December 31, 1995,
options for 412,000 shares were outstanding under the 1994 Stock Option Plan. No
options under the 1994 Directors Plan were exercised in 1995.
SEP-IRA PLAN
Olympic adopted a Simplified Employees Pension Individual Retirement
Account Plan ("SEP-IRA") in 1979. The plan is one by which Olympic may
contribute up to 15% of a salaried employee's annual remuneration to any
qualified SEP-IRA account of the employees' choice. The annual contribution, if
any, is solely at the discretion of the Board of Directors and is not based on
profits, sales or any other operational measure. No contribution was made to the
SEP-IRA for the year ended December 31, 1995.
EMPLOYMENT AGREEMENTS AND CONSULTING AGREEMENTS
Pursuant to an oral consulting agreement between Roamer One Holdings, Inc.
("ROH") and the Company, the Company paid $10,000 per month to ROH and ROH made
available the services of Nicholas R. Wilson, the Chairman of the Board, to the
Company. This arrangement was terminated on June 30, 1995. The Company entered
into a Consulting Agreement with Nicholas R. Wilson on July 1, 1995. The
consulting period is 3 years commencing on July 1, 1995 and terminating June 30,
1998. Total annual compensation is $120,000, paid in monthly installments of
$10,000. Mr. Wilson is not entitled to participate in any retirement, bonus,
insurance or other employee benefit plan maintained by the Company for the
benefit of its employees.
Roamer One entered into an Employment Agreement with David Neibert,
President of Roamer One on July 1, 1995. The employment period is 3 years
commencing on July 1, 1995 and terminating June 30, 1998. Salary begins at
$150,000 and increases by 7% at each anniversary date of the employment period.
Mr. Neibert will receive a one-time bonus in an amount equal to 10% of gross
subscriber billings of the Company in the first month that gross subscriber
billings exceed $250,000.
Page 24
Pursuant to a management agreement dated September 23, 1994, the Company
paid an annual management fee of $200,000 to Peter Paul Corporation, Inc., an
affiliate of Anglo York Industries, Inc., a stockholder of the Company. Peter
Paul Corporation, Inc., made the services of Mr. Vincent Paul, Vice Chairman of
the Board of Directors, available to the Company without additional
compensation. The management agreement terminated on January 31, 1996 upon the
death of Mr. Paul.
DIRECTOR COMPENSATION
All directors (except Vincent Paul) are paid an annual director's fee of
$4,000 plus $500 for each board meeting, special committee meeting or audit
committee meeting. The annual maximum fee per director is $10,000. The directors
fees for 1995 were:
UNPAID FEES
ACCRUED AS OF
DIRECTORS NAME FEES EARNED FEES PAID IN 1995 12/31/95
-------------- ----------- ----------------- -------------
Nicholas Wilson $10,000 $7,500 $2,500
Vincent Paul 0 0 0
John Simmonds $9,500 $7,000 $2,500
Harry Dunstan $9,000 $7,000 $2,000
Peter Heinke $8,500 $6,500 $2,000
Steven Wasserman $10,000 $7,000 $3,000
David Neibert $10,000 $8,500 $1,500
Christopher Branston $10,000 $8,000 $2,000
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
GENERALLY. Under Section 16(a) of the Exchange Act, the Company's
directors, executive officers and any persons holding ten percent or more of the
Common Stock are required to report their ownership of Common Stock of the
Company and any changes in that ownership to the Securities and Exchange
Commission (the "SEC") and to furnish the Company with copies of such reports.
Specific due dates for these reports have been established and the Company is
required to report any failure to file on a timely basis by such persons.
SECTION 16(A) REPORTING DELINQUENCIES. Based solely upon a review of
copies of reports filed with the Securities and Exchange Commission during the
fiscal year ended December 31, 1995, except for Vincent Paul who filed one late
report involving two transactions, Anglo York Industries, Inc. which filed two
late reports involving two transactions and SCL which filed one late report
involving one transaction, all persons subject to the reporting requirements of
Section 16(a) filed all required reports on a timely basis.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS.
The Company has no compensation committee. Compensation decisions for the
executive officers (other than grants of options which are determined by the
Page 25
Stock Option Committee consisting of Messrs. Branston and Wasserman) are made by
the Board of Directors of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the information regarding the beneficial
ownership of the Company's Common Stock as of March 10, 1996, by (i) each person
known by the Company to own beneficially more than five percent of the Company's
outstanding Common Stock and (ii) each Director of the Company, and (iii) all
Directors and Officers as a group. Unless otherwise noted, the persons named in
the table have sole voting and investment power with respect to all shares of
the Company's Common Stock shown as beneficially owned by them.
Page 26
[Download Table]
PERCENT OF
COMMON STOCK &
AMOUNT AND NATURE OF STOCK OPTIONS
NAME AND ADDRESS BENEFICIAL OWNERSHIP (11,440,278 SH.)1/
---------------- -------------------- ------------------
Roamer One Holdings, Inc. 3,400,000(2) 29.7%
1431 West 117th Street
Cleveland, OH 44107
Simmonds Capital Limited 3,210,850(3) 28.1%
5255 Yonge Street, #1050
Willowdale, Ontario, Canada
Anglo York Industries, Inc. 926,649(4) 8.0%
1050 McNicoll Avenue, Unit 13
Scarborough, Ontario
M1W 2L8 Canada
Octagon Investments Limited 829,000 7.2%
LaTourgabd House
Lomer Pollet
St. Peter Port,
Guernsey, Channel Islands GYI 4E A
Securicor International Limited 937,042 8.2%
Sutton Park House
15 Carshalton Road
Sutton, Surrey SM 1 4LD
United Kingdom
Nicholas R. Wilson 3,440,000(5) 30.1%
13700 Tahiti Way, Suite 154
Marina del Rey, CA 90291
Harry Dunstan 45,000(6) 0.4%(4)
RR #2
Caledon East, Ontario
Canada
John Simmonds 57,500(7) 0.5%
44 Old Yonge Street
North York, Ontario, Canada
M2P 1P7
Peter Heinke 50,000(8) 0.4%
RR #1 Clarksburg
Ontario, Canada NOH 1JO
Steven L. Wasserman 40,000(9) 0.3%
2800 Belgrave Road
Pepper Pike, Ohio 44124
Page 27
David Neibert 40,455(10) 0.4%
23275 Lenora Drive
Woodland Hills, CA 91367
Christopher Branston 40,000(11) 0.3%
14 Willow Avenue
Barnes, London
SW13OLT England
All officers and directors
as a group (7 persons) 3,712,955 32.5%
(1) Includes 10,958,278 shares of Common Stock outstanding at March 15, 1996,
and options for 362,000 shares under the 1994 Stock Option Plan and 120,000
shares under the 1994 Directors Stock Option Plan which the holder has the
right to acquire within 60 days of March 31, 1996 by the exercise of vested
stock options.
(2) On June 16, 1995, ROH entered into an option agreement (the "SCL Option")
with SCL pursuant to which SCL paid ROH $1,800,000 for an option to
purchase up to 1,800,000 shares of Common Stock at a purchase price of
$1.50 per share. The option may be exercised, in whole or in part, for a
period of five years. ROH also entered into a pledge agreement granting to
SCL a security interest in the shares subject to the option and depositing
certificates representing the shares with R-M Trust Company as agent for
SCL. Under the pledge agreement, ROH has the right to exercise any and all
voting and other consensual rights pertaining to ROH's pledged shares. ROH
is a private company controlled by Nicholas R. Wilson, Chairman of the
Board of the Company. Messrs. Neibert and Wasserman are also shareholders
of ROH. On March 1, 1996, SCL exercised options to acquire 200,000 shares
of Common Stock from ROH.
(3) On September 30, 1994, SCL granted an option (at an option price of
$800,000) to Murray Sinclair of Toronto, Canada, to purchase 800,000 shares
of Common Stock at $1.50 per share, and granted an option (at an option
price of $200,000) to Choi & Choi HK Limited of London, England, to
purchase 200,000 shares of Common Stock at $1.50 per share. Each option is
exercisable, partially or in whole, at any time (subject to applicable
regulatory or tax restrictions), for a period of five years. On May 1,
1995, Choi & Choi HK Limited exercised the options granted to it by SCL and
a portion of 600,000 additional options which have been assigned to it by
Mr. Murray Sinclair to acquire 400,000 shares of Common Stock.
On March 24, 1995, SCL purchased 45,000 shares of Common Stock at $4.25 per
share from certain of SCL's employees, including certain officers and
directors of the Company, and SCL has agreed, under the Employee Option
Agreement dated as of April 7, 1995, to permit each employee from whom
shares were purchased to repurchase the same number of such shares at $4.25
per share until March 31, 1997 subject to SCL's right to cancel these
options upon 90 days' written notice.
Page 28
On June 16, 1995, SCL entered into an option agreement with ROH pursuant to
which SCL paid ROH $1,800,000 for an option to purchase up to 1,800,000
shares of Common Stock at a purchase price of $1.50 per share. The option
may be exercised, in whole or in part, for a period of five years. On
March 1, 1996, SCL exercised options to acquire 200,000 shares of Common
Stock of INTEK.
(4) Anglo York Industries, Inc. ("Anglo York") is a wholly-owned subsidiary of
Anglo York Industries, Limited, an Ontario corporation ("Anglo Limited").
The outstanding voting securities of Anglo Limited are beneficially owned
in equal amounts by three children of Vincent P. Paul who have obtained
majority and by one child who is a minor and whose interest is held in
Trust. Nancy A. Paul, the wife of Vincent Paul, is the Trustee of such
Trust and may be deemed to beneficially own the shares of the Company's
Common Stock beneficially owned by their minor child. Mrs. Paul disclaims
beneficial ownership of the shares of the Company's Common Stock
beneficially owned by any of their adult children. Mr. Paul died on January
31, 1996. Anglo York has pledged 1,000,049 shares of the Company's Common
Stock to the Royal Bank of Canada and 220,000 shares in the aggregate to
Swiss Bank Corporation (Canada) to secure certain indebtedness of Anglo
York. Accordingly, the Royal Bank of Canada and the Swiss Bank Corporation
(Canada) may be deemed to be the respective beneficial owners of such
shares. All of the shares pledged to Swiss Bank Corporation (Canada) were
sold as of February 29, 1996. Of the 1,000,049 shares of INTEK pledged to
Royal Bank of Canada, 80,000 shares were sold as of March 5, 1996.
(5) Mr. Wilson controls ROH which beneficially owns 3,600,000 shares of the
Company's Common Stock. Pursuant to the 1994 Plan, Mr. Wilson has an
option to acquire 40,000 shares of Common Stock of the Company at an
exercise price of $3.75 per share.
(6) On March 24, 1995, Mr. Dunstan sold 5,000 shares of Common Stock to SCL at
$4.25 per share and SCL granted to Mr. Dunstan an option to purchase the
same number of shares at $4.25 per share until March 31, 1997, subject to
SCL's right to cancel such option upon 90 days' written notice. Pursuant
to the 1994 Plan, Mr. Dunstan has an option to acquire 40,000 shares of
Common Stock of the Company at an exercise price of $3.75 per share.
(7) On March 24, 1995, Mr. Simmonds sold 16,150 shares of Common Stock to SCL
at $4.25 per share and SCL granted Mr. Simmonds an option to purchase the
same number of shares at $4.25 per share until March 31, 1997, subject to
SCL's right to cancel such option upon 90 days' written notice. Pursuant
to the 1994 Plan, Mr. Simmonds has an option to acquire 40,000 shares of
Common Stock of the Company at an exercise price of $3.75 per share.
(8) On March 24, 1995, Mr. Heinke sold 10,000 shares of Common Stock to SCL at
$4.25 per share and SCL granted Mr. Heinke an option to purchase the same
number of shares at $4.25 per share until March 31, 1997, subject to SCL's
right to cancel such option upon 90 days' written notice. Pursuant to the
Page 29
1994 Plan, Mr. Heinke has an option to acquire 40,000 shares of Common
Stock of the Company at an exercise price of $3.75 per share.
(9) Pursuant to the 1994 Director Plan, Mr. Wasserman has an option to acquire
40,000 shares of Common Stock of the Company at an exercise price of $3.75
per share.
(10) Pursuant to the 1994 Plan, Mr. Neibert has an option to acquire 40,000
shares of Common Stock of the Company at an exercise price of $3.75 per
share.
(11) Pursuant to the 1994 Director Plan, Mr. Branston has an option to
acquire 40,000 shares of Common Stock of the Company at an exercise
price of $3.75 per share.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to a management agreement dated September 23, 1994, the Company
paid an annual management fee of $200,000 to Peter Paul Corporation, Inc., an
affiliate of Anglo York Industries, Inc., a stockholder of the Company. Peter
Paul Corporation, Inc., made the services of Mr. Vincent Paul, Vice Chairman of
the Board of Directors, available to the Company without additional
compensation. The management agreement terminated on January 31, 1996 upon the
death of Mr. Paul. For the years ended December 31, 1995 and 1994, the Company
paid management fees of $200,000 and $200,000 respectively to Peter Paul
Corporation, Inc.
In November 1994, the Company borrowed $2,500,000 evidenced by a short-term
promissory note, bearing 12% interest, from Quest Capital Corporation ("Quest").
The loan was secured by a first mortgage on the Property and a guaranty by SCL.
Quest was issued a total of 262,000 shares of INTEK Common Stock as a loan
commitment fee and compensation for two extensions to the maturity date. During
the second quarter of 1995, the Company reduced the principal balance to
$1,600,000 and on December 29, 1995 the Company issued 336,842 shares of INTEK
Common Stock to Quest as payment in full of the principal then due.
Roamer One, Inc. borrowed $150,000 from SCL evidenced by a short-term, non-
interest bearing note in October, 1994 and repaid the obligation in November,
1994.
Pursuant to an oral consulting agreement between ROH and the Company, the
Company paid $10,000 per month to ROH and ROH made available the services of
Nicholas R. Wilson, Chairman of the Board of Directors of INTEK, to the Company.
This arrangement was terminated on June 30, 1995. The Company entered into a
Consulting Agreement with Nicholas R. Wilson on July 1, 1995. The consulting
period is 3 years commencing on July 1, 1995 and terminating June 30, 1998.
Total annual compensation is $120,000, paid in monthly installments of $10,000.
Mr. Wilson is not entitled to participate in any retirement, bonus, insurance or
other employee benefit plan maintained by the Company for the benefit of its
employees. For the year ended December 31, 1995, the Company incurred $100,000
and paid $90,000 to Mr. Wilson. In addition, the Company paid $30,000 to Mr.
Wilson that had been accrued as of December 31, 1994.
Page 30
Pursuant to an oral management agreement between SCL and the Company, the
Company pays SCL $10,000 per month and SCL makes available the services of John
G. Simmonds, Harry Dunstan and Peter A. Heinke to the Company. For the year
ended December 31, 1995, the Company incurred $100,000 and paid $90,000 to SCL
pursuant to this agreement. In addition, the Company paid $30,000 to SCL that
had been accrued as of December 31, 1994.
Pursuant to an oral consulting agreement between Simmonds Mercantile and
Management Inc. ("SMM"), a company controlled by SCL, the Company pays SMM
$8,000 per month for consulting services. For the year ended December 31, 1995,
the Company incurred $112,000 and paid $104,000 to SMM pursuant to this
agreement.
On April 18, 1995, Roamer One and Midland International Corporation
("MIC"), a wholly-owned subsidiary of SCL, entered into a Memorandum of
Understanding granting MIC exclusive sales and distribution rights for all
Roamer One private branded 220 MHz radio product in the United States. MIC will
be paid a commission on sales of such radios. Roamer One also entered into an
agreement with Securicor LMT, whereby Securicor LMT will supply Securicor radios
bearing the Roamer One logo.
Pursuant to a Financing Agreement and related agreements between the
Company, Roamer One, SCL and Securicor LMT, Securicor LMT has delivered
approximately $4,000,000 worth of base station equipment and mobile radios in
exchange for 937,042 shares of the Company's Common Stock to Securicor
International Limited. Pursuant to the Financing Agreement, such shares were
issued at a share price of $4.26875. The Financing Agreement provides that
approximately $3.9 million in additional equipment will be financed by Securicor
LMT over a period of 12 months upon the delivery of letters of credit by INTEK
to Securicor LMT. As of December 31, 1995, Roamer One had purchased $968,000
worth of equipment.
The Company and SCL have an arrangement whereby Roamer One, Inc. purchases
equipment and installation services from SCL. During the twelve months ended
December 31, 1995, Roamer One, Inc. purchased $9,298,209 of radio equipment and
installation services from SCL. Previous accounts payable for equipment totaled
$1,212,300. Roamer One made payments to SCL totaling $7,941,802 leaving a
balance of $2,568,707 as of December 31, 1995. On February 29, 1996, Roamer One
made a payment to SCL in the amount of $2,300,000.
On September 23, 1994, the Company and SCL, ROH, Anglo York Industries,
Inc. and Harold Davis (collectively referred to as the "Holders") entered into a
Registration Rights Agreement to provide the Holders with certain demand and
"piggy-back" registration rights with respect to the Company's Common Stock
owned by the Holders. ROH is a stockholder of the Company holding approximately
31.5% of the Company's Common Stock. Anglo York Industries, Inc. is a
stockholder of the Company holding approximately 8.0% of the Company's Common
Stock. Mr. Davis was an executive vice president and treasurer of the Company
until September 23, 1994.
Kohrman Jackson & Krantz, a Cleveland, Ohio, law firm of which Steven L.
Wasserman is a partner, performs legal services for the Company and its
subsidiaries. Mr. Wasserman is a member of the Company's Board of Directors. The
law firm received fees of $162,097 in 1995 and $8,856 in 1994 from INTEK.
Page 31
Mr. Wasserman was formerly a principal with the law firm of Honohan, Harwood,
Chernett & Wasserman, which received fees of $23,722 in 1994 from INTEK.
In connection with the issuance of the Debenture to MeesPierson by the
Company on February 29, 1996, the Company paid Octagon Capital Canada
Corporation, a 7.2% stockholder in the Company an agency fee of $25,000. See
"Management's Discussion and Analysis of Financial Condition -- Merger with SCL
and Securicor."
On March 7, 1996, INTEK, SCL and Securicor signed a Letter of Intent
regarding a proposed combination of certain of their wireless communication
businesses and related technology. Under the terms of the Letter of Intent,
INTEK will purchase a license from Midland for the use of the Midland trademark
in the United States for the LMR market in exchange for approximately 2.5
million shares of Common Stock of INTEK. In addition, INTEK will purchase for
cash from Midland certain assets which are used in the business. The Letter of
Intent also provides that INTEK will acquire all of the shares of SRL in
exchange for approximately 25 million shares of Common Stock of INTEK. See
"Management's Discussion and Analysis of Financial Condition -- Merger with SCL
and Securicor."
The Company believes that the terms of the transactions and the agreements
described above are on terms at least as favorable as those which it could
otherwise have obtained from unrelated parties. On-going and future transactions
with related parties will be (1) on terms at least as favorable as those which
the Company would be able to obtain from unrelated parties; (2) for bona fide
business purposes; and (3) approved by a majority of the disinterested and non-
employee directors.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS AND SCHEDULES
Page
(1) The following financial statements are included in this Annual
Report:
Report of Independent Public Accountants F-1
Consolidated Balance Sheets - December 31, 1995 and
1994 F-2, F-3
Consolidated Statements of Shareholders' Equity for
the Years Ended December 31, 1995, 1994 and 1993 F-4, F-5
Consolidated Statements of Operations for the year
ended December 31, 1995, the period from inception
(February 4, 1994) through December 31, 1994, and the
Page 32
period from inception (February 4, 1994) through
December 31, 1995. F-6
Consolidated Statements of Cash Flows for the year
ended December 31, 1995, the period from inception
(February 4, 1994) through December 31, 1994, and
the period from inception (February 4, 1994) through
December 31, 1995. F-7, F-8
Consolidated Statements of Operations (Pre-reverse
merger) for the period from January 1, 1994 through
September 23, 1994 and for the year ended December
31, 1993. F-9
Consolidated Statements of Cash Flows (Pre-reverse
merger) for the period from January 1, 1994 through
September 23, 1994 and for the year ended December
31, 1993. F-10, F-11
Notes to Consolidated Financial Statements F-12-F-28
(B) REPORTS ON FORM 8-K
The Registrant filed one report on Form 8-K during the last quarter of
1995. The report, filed on November 21, 1995, related to the second amendment to
the Purchase Agreement between the Company and SCL. The principal purpose of the
second amendment was to reduce the amount of debt to be assumed by the Company
in the acquisition and to provide for the Company to issue a class of preferred
shares in exchange for the reduction of debt. The report was filed pursuant to
Item 5 of Form 8-K.
(C) EXHIBITS
See Index to Exhibits at Page 36 of this Annual Report on Form 10-K for a
list of Exhibits filed with this Annual Report.
Items 10.5, 10.11, and 10.12 constitute a compensatory plan or arrangement.
Page 33
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company has decided to take advantage of the new "Safe Harbor"
provisions of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). In that connection, this annual report on Form 10-K includes forward
looking statements concerning the Company. The forward looking statements are
made pursuant to the Reform Act. There are many factors that could cause the
events in such forward looking statements to not occur, including general or
specific economic conditions, the ability and willingness of LMR users to
subscribe for services provided by the Company, the perceived absolute or
relative overall value of these products by the purchasers, including the
features, quality and price in comparison to other competitive products, the
level of availability of products and substitutes and the ability and
willingness of purchasers to acquire newer or more advanced models, and pricing,
purchasing, financing, operational, advertising and promotional decisions by
intermediaries in the distribution channels which could affect the supply of or
end-user demands for the Company's products, the amount and rate of growth and
the Company's selling, general and administrative expenses, difficulties in
obtaining materials, supplies and equipment for building out SMR systems,
difficulties or delays in the development, production, testing and marketing of
products including, but not limited to, failure to ship new products and
technologies when anticipated, the failure of customers to accept these products
or technologies when planned, any defects in products, any failure of economies
to development when planned, the acquisition of fixed assets and other assets,
including inventories and receivables, the making or incurring of any
expenditures, the effects of and changes in trade, monetary and fiscal policies,
laws and regulations, other activities of governments, agencies and similar
organizations and social and economic conditions, such as trade restrictions or
prohibitions, inflation and monetary fluctuations, import and other charges or
taxes, the ability or inability of the Company to obtain or hedge against,
foreign currency, foreign exchange rates and fluctuations in the those rates,
intergovernmental disputes as well as actions affecting frequency, use and
availability, spectrum authorizations and licensing, the costs and other effects
of legal and administrative cases and proceedings (whether civil or criminal),
settlements and investigations, claims and changes in those items, developments
or assertions by or against the Company relating to intellectual property
rights, adaptions of new, or changes in, accounting policies and practices in
the applications of such policies and practices and the effects of changes
within the Company's organization or in compensation benefit plans, any
activities of parties with which the Company has an agreement or understanding,
including any issues affecting any investment or joint venture in which the
Company has an investment, and the amount, type and cost of financing which the
Company has, and any changes to that financing.
Page 34
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, on March 26, 1996.
INTEK DIVERSIFIED CORPORATION
By: /s/Steven L. Wasserman
--------------------------
Steven L. Wasserman
Secretary and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
SIGNATURES TITLE DATE
-------------------------- --------------------- --------------
/s/Nicholas R. Wilson Chairman of the Board March 26, 1996
--------------------------
Nicholas R. Wilson
Vincent P. Paul (Deceased) Vice Chairman
--------------------------
/s/John G. Simmonds Chief Executive March 26, 1996
-------------------------- Officer and Director
John G. Simmonds
/s/John H. Dunstan President Chief March 26, 1996
-------------------------- Operating Officer
John H. Dunstan and Director
/s/Peter A. Heinke Chief Financial March 26, 1996
-------------------------- Officer, Treasurer
Peter A. Heinke and Director
/s/Steven L. Wasserman Secretary and Director March 26, 1996
--------------------------
Steven L. Wasserman
/s/David W. Neibert Director March 26, 1996
--------------------------
David W. Neibert
/s/Christopher N. Branston Director March 21, 1996
--------------------------
Christopher N. Branston
Page 35
INDEX TO EXHIBITS
Exhibit No. Page No.
----------- --------
3.1(i) Articles of Incorporation of INTEK Diversified
Corporation (the "Registrant"). *
3.1(ii) By-Laws of the Registrant. *
4.1 Senior Secured Debenture Purchase Agreement dated
as of February 27, 1996 by and between the Registrant
and MeesPierson ICS Limited. +
4.2 Registration Rights Agreement between Noramco Mining
Corporation and the Registrant dated September 23,
1994 between the Registrant and Roamer One, Inc.,
Simmonds Communications Ltd., Anglo York Industries,
Inc. and Harold H. Davis. *
10.1 Registration Rights Agreement dated February 9, 1995 among
Quest Capital Corporation and the Registrant relating to
the grant of the registration rights. *
10.2 1985 INTEK Diversified Corporation Key Employee Incentive
Stock Option Plan (adopted by Registrant as its 1988 Key
Employee Incentive Stock Option Plan). *
10.3 1994 Stock Option Plan *
10.4 1994 Directors Stock Option **
10.5 Management Agreement between the Registrant and Peter
Paul Corporation Inc. dated September 23, 1994. *
10.6 Sales Agreement dated February 13, 1995 between Arvan, Inc.
and Olympic Plastics Company, Inc. ("Olympic"). *
10.7 Asset Purchase Agreement dated as of February 9, 1995 by and
among Olympic, the Registrant and Intermetro Industries
Corporation. *
Page 36
10.8 Asset Purchase Agreement and Escrow Instructions dated
April 3, 1995 between Nylon Molding Corporation and Olympic. *
10.9 Office Lease between Nissan Real Estate Corporation U.S.A.
and Roamer One, Inc. dated February 15, 1995. *
10.10 Employment Agreement dated July 1, 1995 by and between
Roamer One, Inc. and David Neibert. +
10.11 Consulting Agreement dated July 1, 1995 by and
between Nicholas R. Wilson and the Registrant. +
10.12 Equipment Sale Agreement dated April 20, 1995 among
Linear Modulation Technology Limited, Simmonds
Communications Limited and Roamer One, Inc. ***
10.13 Financing Agreement dated April 20, 1995 among
Linear Modulation Technology Limited, Roamer One,
Inc., INTEK Diversified Corporation, Simmonds
Communications Limited and Roamer One Holdings, Inc. ***
10.14 Guaranty dated April 20, 1995 by the Registrant ***
10.15 Assignment Agreement dated April 20, 1995 among
Simmonds Communications Limited, Roamer One, Inc.,
the Registrant and Linear Modulation Technology Limited. ***
10.16 Security Agreement dated April 20, 1995 among Simmonds
Communications Limited and Roamer One, Inc. ***
10.17 Secured Promissory Note dated April 20, 1995 by Roamer
One, Inc. payable to the order of Simmonds Communications
Limited. ***
10.18 Letter Agreement dated April 17, 1995 between
Olympic Plastics Co., Inc. and Industrial Assets, Inc. ***
10.19 Memorandum of Understanding by and between Roamer One,
Inc. and Midland International Corporation. ***
Page 37
10.20 Amendment to Loan Agreement dated as of February 9, 1995
between Quest Capital Corporation and the Registrant. ****
10.21 Agreement dated as of February 9, 1995 between Quest Capital
Corporation and the Registrant. ****
10.23 Asset Purchase Agreement between Brookline Minerals Inc. and
Orvilliers Resources Ltd. dated as of August 24, 1995. ****
10.24 Escrow Agreement between Simmonds Communications Ltd.,
Sendeck Travel, Limited and the Registrant dated
September 20, 1995. ****
10.25 Management Services Agreement dated as of August 24, 1995
between the Registrant and Brookline Minerals Inc. ****
10.26 Management Services Agreement dated as of August 24, 1995
among Brookline Minerals Inc., Simmonds Communications Ltd.
and Midland International Corporation. ****
10.27 Share Purchase Agreement dated as of August 24, 1995
among Brookline Minerals Inc., Simmonds Communications Ltd.,
the Registrant and Sendeck Travel, Limited. ****
10.28 Standard Offer Agreement and Escrow Instructions for Purchase
of Real Estate dated March 21, 1996 between Missak Azirian
and Olympic Plastics, Inc. +
11 Statement re computation of per share earnings. *****
12 Statement re computation of ratios. *****
21 Subsidiaries *
24 Consent of Arthur Andersen LLP +
27 Financial Data Schedule +
+ Included in this Report.
* This exhibit is contained in the Registrant's Annual Report on Form 10K for
the year ended December 31, 1994, filed with the Commission on
Page 38
April 17, 1995 (Commission File No. 0-9160), and incorporated herein by
reference.
** This exhibit is contained in the Registrant's Proxy Statement filed with
the Commission on June 26, 1995 (Commission File No. 0-9160) and
incorporated herein by reference.
*** This exhibit is contained in the Registrant's quarterly report on
Form 10Q for the quarterly period ended March 31, 1995, filed with
the Commission May 15, 1995 (Commission File No. 0-9160), and
incorporated herein by reference.
**** This exhibit is contained in the Registrant's quarterly report on
Form 10Q for the quarterly period ended September 30, 1995, filed
with the Commission November 13, 1995 (Commission File No. 0-9160),
and incorporated herein by reference.
***** Not Required
Page 39
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of INTEK Diversified Corporation:
We have audited the accompanying consolidated balance sheets of INTEK
Diversified Corporation (a Delaware corporation in the development stage) and
subsidiaries as of December 31, 1995 and 1994 (Post-Reverse Merger - See Note
1), and the related consolidated statements of operations, shareholders' equity
and cash flows for the year ended December 31, 1995, for the periods from
February 4, 1994 through December 31, 1994 (Post-Reverse Merger, consisting of
the statements of operations and cash flows of Roamer One, Inc., predecessor
corporation in the continuing business of INTEK Diversified Corporation and
subsidiaries for the period from inception (February 4, 1994) through September
23, 1994 (Pre-Reverse Merger), audited by us, and the statements of operations
and cash flows of INTEK Diversified Corporation and subsidiaries for the period
from September 24, 1994 through December 31, 1994 (Post-Reverse Merger), also
audited by us), for the period from January 1, 1994 through September 23, 1994
(Pre-Reverse Merger) and for the year ended December 31, 1993 (Pre-Reverse
Merger). We have also audited the statements of operations and cash flows of
INTEK Diversified Corporation and subsidiaries for the period from inception
(February 4, 1994) through December 31, 1995 (Post Reverse Merger, consisting of
the statements of operations and cash flows of Roamer One, Inc. and INTEK
Diversified Corporation and subsidiaries as described above). 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 audits 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 INTEK Diversified Corporation
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the periods indicated above in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 22, 1996
F-1
INTEK DIVERSIFIED CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(Thousands)
ASSETS
December 31, 1995 and 1994
[Download Table]
December 31,
--------------------
1995 1994
-------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 678 $ 1,557
Accounts receivable, net
of allowance for
doubtful accounts of $60
in 1995 and $35 in 1994 1,199 922
Notes receivable 54 68
Inventories of equipment 1,248 1,127
Prepaid expenses and
other current assets 77 483
Assets held for sale 1,555 4,334
-------- --------
Total current assets 4,811 8,491
-------- --------
PROPERTY AND EQUIPMENT, AT COST 7,535 794
Less-accumulated depreciation (37) (22)
-------- --------
7,498 772
-------- --------
NOTE RECEIVABLE 100 -
-------- --------
INVESTMENT IN JOINT VENTURE AND OTHER ASSETS 125 -
-------- --------
TOTAL ASSETS $ 12,534 $ 9,263
-------- --------
-------- --------
The accompanying notes are an integral part of these consolidated balance sheets
F-2
INTEK DIVERSIFIED CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, 1995 and 1994
[Download Table]
December 31,
--------------------
1995 1994
-------- --------
CURRENT LIABILITIES:
Accounts payable $ 301 $ 718
Accrued liabilities 870 270
Related party payable 2,452 1,292
Notes payable - 2,992
Licensee deposits 344 3
-------- --------
Total current liabilities 3,967 5,275
-------- --------
DEFERRED INCOME TAXES 633 723
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value
Authorized - 20,000,000 shares
Issued - 11,086,215 in 1995,
9,382,831 in 1994 111 94
Capital in excess of par value 12,369 4,880
Treasury stock, at cost - 465,582
shares in 1995 and 1994 (770) (770)
Deficit accumulated during the
development stage (3,776) (939)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 7,934 3,265
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 12,534 $ 9,263
-------- --------
-------- --------
The accompanying notes are an integral part of these consolidated balance sheets
F-3
INTEK DIVERSIFIED CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Thousands, except shares)
For the years ended December 31, 1995, 1994 and 1993
[Enlarge/Download Table]
DEFICIT
CAPITAL ACCUMULATED TOTAL
COMMON STOCK IN EXCESS DURING THE SHARE-
------------------- OF PAR TREASURY DEVELOPMENT HOLDERS'
SHARES AMOUNT VALUE STOCK STAGE EQUITY
---------- ------- --------- -------- ----------- ---------
BALANCE, 12/31/92 3,282,831 $ 33 $ 1,187 $ (770) $ 4,304 $ 4,754
Net loss - - - - (737) (737)
---------- ------- --------- -------- ----------- ---------
BALANCE, 12/31/93 3,282,831 33 1,187 (770) 3,567 4,017
Net loss prior to
September 23, 1994
reverse merger - - - - (678) (678)
---------- ------- --------- -------- ----------- ---------
BALANCE, 9/23/9
(before reverse
merger) 2,889 3,282,831 33 1,187 (770) 3,339
Acquisition of
Roamer One through
reverse merger
(Note 1) (3,668) 6,000,000 60 3,269 - (339)
---------- ------- --------- -------- ----------- ---------
BALANCE, 9/24/94
(after reverse
merger) 9,282,831 (779) 93 4,456 (770) 3,000
Shares issued for
services on 11/22/94
at $4.25 per share 100,000 1 424 - - 425
Net loss-subsequent
to September 23,
1994 reverse merger - - - - (160) (160)
---------- ------- --------- -------- ----------- ---------
BALANCE, 12/31/94 9,382,831 94 4,880 (770) (939) 3,265
Shares issued in
connection with
financing:
F-4
for fees on
5/17/95 at
$3.92 per share 40,000 1 156 - - 157
for settlement of
accounts payable
on 7/28/95 at
$4.27 per share 937,042 9 3,991 - - 4,000
for fees on
9/14/95 at
$3.92 per share 122,000 1 477 - - 478
for cash on
11/30/95 at
$6.00 per share 170,000 2 1,018 - - 1,020
conversion of
debt to equity
on 12/29/95 at
$4.75 per share 336,842 3 1,597 - - 1,600
Exercise of stock
options 97,500 1 250 - - 251
Net loss - - - - (2,837) (2,837)
---------- ------- --------- -------- ----------- ---------
BALANCE, 12/31/95 11,086,215 $ 111 $ 12,369 $ (770) $ (3,776) $ 7,934
---------- ------- --------- -------- ----------- ---------
---------- ------- --------- -------- ----------- ---------
The accompanying notes are an integral part of these consolidated statements
F-5
INTEK DIVERSIFIED CORPORATION
(Roamer One, Inc. Prior to September 23, 1994 Reverse Merger)
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands, except share and per share amounts)
For the year ended December 31, 1995, for the period from inception
(February 4, 1994) through December 31, 1994 and for the period from inception
(February 4, 1994) through December 31, 1995
[Download Table]
Inception (February 4, 1994)
Through December 31,
--------------------------
1995 1994 1995
-------- -------- --------
Net sales $ 3,547 $ 329 $ 3,876
Cost of goods sold 3,254 292 3,546
-------- -------- --------
Gross profit 293 37 330
Operating expenses:
Site 469 86 555
Selling 183 - 183
General administrative 2,866 857 3,723
------- -------- --------
Operating loss (3,225) (906) (4,131)
Other income (expense):
Gain on sale of assets
held for sale 1,204 - 1,204
Interest (209) (41) (250)
Financing costs (635) - (635)
Other 28 8 36
-------- -------- --------
Net loss $(2,837) $ (939) $(3,776)
-------- -------- --------
-------- -------- --------
Net loss per share $ (0.22) $ (0.30) $ (0.52)
-------- -------- --------
-------- -------- --------
Weighted average number
of shares outstanding 9,558,982 4,341,449 7,218,159
--------- --------- ---------
--------- --------- ---------
The accompanying notes are an integral part of these consolidated statements
F-6
INTEK DIVERSIFIED CORPORATION
(Roamer One, Inc. Prior to September 23, 1994 Reverse Merger)
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
For the year ended December 31, 1995, for the period from inception
(February 4, 1994) through December 31, 1994 and for the period from inception
(February 4, 1994) through December 31, 1995
[Download Table]
Inception (February 4, 1994)
Through December 31,
----------------------------
1995 1994 1995
-------- -------- --------
Cash Flows From
Operating Activities:
Net loss $(2,837) $ (939) $(3,776)
-------- -------- --------
Adjustments to reconcile
net loss to net cash
used in operating activities:
Financing costs 635 - 635
Management fees - 425 425
Depreciation and amortization 14 48 62
Loss (gain) on sale of
assets held for sale (1,204) - (1,204)
Changes in assets and
liabilities:
Decrease (increase) in:
Accounts receivable (277) (214) (491)
Notes receivable 68 - 68
Inventories (121) (1,127) (1,248)
Prepaid expenses and
other current assets 406 (366) 40
Increase (decrease) in:
Accounts payable (417) 352 (65)
Licensee deposits 341 3 344
Accrued liabilities 600 132 732
Deferred income taxes (90) - (90)
-------- -------- --------
Total Adjustments (45) (747) (792)
-------- -------- --------
Net cash used in operating
activities (2,882) (1,686) (4,568)
F-7
Cash Flows From Investing
Activities:
Capital expenditures (2,740) (795) (3,535)
Equity acquired in reverse
merger - 3,228 3,228
Net change in assets
acquired in reverse merger - (3,739) (3,739)
Proceeds, net of note rec-
eivable, from sale of assets
held for sale 3,868 - 3,868
Investment in joint venture (125) - (125)
Change in working capital
of discontinued operations (39) - (39)
-------- -------- --------
Net cash provided by (used
in) investing activities 964 (1,306) (342)
Cash Flows From Financing
Activities:
Issuance of common stock 1,278 75 1,346
Loan proceeds - 2,500 2,500
Principal payments
on borrowings (1,392) - (1,392)
Related party borrowings 1,160 1,293 2,453
-------- -------- --------
Net cash provided by
financing activities 1,039 3,868 4,907
-------- -------- --------
Net increase (decrease)
in cash and cash equivalents (879) 876 (3)
Cash and cash equivalents
at beginning of period 1,557 427 427
Cash and equivalents
acquired in reverse merger - 254 254
-------- -------- --------
Cash and cash equivalents
at end of period $ 678 $ 1,557 $ 678
-------- -------- --------
-------- -------- --------
Supplemental disclosures of
cash flow information:
Cash paid for interest $ 227 $ 42 $ 87
Cash paid for income taxes $ - $ 2 $ 5
Non-cash transactions
(see Note 2b)
The accompanying notes are an integral part of these consolidated statements
F-8
INTEK DIVERSIFIED CORPORATION
(Pre-Reverse Merger - See Note 1)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands, except share and per share amounts)
For the period from January 1, 1994 through September 23, 1994 and
for the year ended December 31, 1993
[Download Table]
The Period
From January 1,
1994 through Year Ended
September 23, December 31,
1994 1993
-------- --------
Net sales $ 5,202 $ 5,302
Cost of goods sold 4,683 4,738
-------- --------
Gross profit 519 564
Selling, general and administrative expenses 1,171 1,323
-------- --------
Operating loss (652) (759)
Other income (expense):
Interest (51) (87)
Other, net 25 135
Royalty income - 14
-------- --------
Loss from continuing operations (678) (697)
-------- --------
Discontinued operations:
Loss from discontinued operations - (52)
Gain on disposal of subsidiary - 12
-------- --------
Net loss from discontinued operations - (40)
-------- --------
Net loss $ (678) $ (737)
-------- --------
-------- --------
Per Share Data:
Continuing Operations $ (0.24) $ (0.25)
Discontinued Operations - 0.01
-------- --------
Net loss per share $ (0.24) $ (0.26)
-------- --------
-------- --------
Weighted average number of shares
outstanding 2,817,249 2,817,249
--------- ---------
--------- ---------
F-9
The accompanying notes are an integral part of these consolidated statements
F-10
INTEK DIVERSIFIED CORPORATION
(Pre-Reverse Merger - See Note 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
For the period from January 1, 1994 through September 23, 1994 and
for the year ended December 31, 1993
[Download Table]
The Period
From January 1,
1994 through Year Ended
September 23, December 31,
1994 1993
--------------- ------------
Cash Flows From
Operating Activities:
Net loss $ (679) $ (697)
--------- ---------
Adjustments to reconcile
net loss to net cash
provided by operating activities:
Depreciation and amortization 418 592
Provision for losses on accounts
receivable 31 -
Gain on sale of fixed assets - (13)
Changes in assets and
liabilities:
Decrease (increase) in:
Accounts receivable, net 14 232
Income tax refund receivable - 166
Inventories 160 (137)
Prepaid expenses and
other current assets - 1
Increase (decrease) in:
Accounts payable 165 (3)
Deferred income taxes (6) 6
--------- ---------
Total Adjustments 782 844
--------- ---------
Net cash provided by operating activities 103 147
F-11
Cash Flows From Investing
Activities:
Capital expenditures (21) (237)
Proceeds from sale of
discontinued operations - 75
Proceeds from sale of fixed assets - 13
Proceeds on notes receivable 75 23
--------- ---------
Net cash provided by (used in )
investing activities 54 (126)
Cash Flows From Financing
Activities:
Principal payments
on borrowings (134) (162)
--------- ----------
Net cash used in
financing activities (134) (162)
--------- ---------
Net increase (decrease)
in cash and cash equivalents 23 (141)
Cash and cash equivalents
at beginning of period 231 372
--------- ---------
Cash and cash equivalents
at end of period $ 254 $ 231
--------- ---------
--------- ---------
Supplemental disclosure of
cash flow information
Cash paid for interest $ 52 $ 87
Cash paid for income taxes $ 2 $ 5
Non-cash transactions (see Note 2b)
The accompanying notes are an integral part of these consolidated statements
F-12
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(1) BUSINESS AND SIGNIFICANT RISKS
a. DEVELOPMENT STAGE ENTERPRISE
INTEK Diversified Corporation (INTEK or the Company) was incorporated in
1969 and had been primarily engaged in the business of molding, fabricating and
selling plastic products through its wholly owned subsidiary, Olympic Plastics
Corporation (Olympic Plastics).
On September 23, 1994, a newly formed, wholly-owned subsidiary of INTEK,
Romnet, Inc., a Delaware corporation, acquired all of the issued and outstanding
stock of Simrom, Inc. ("Simrom"), an Ohio corporation in exchange for 6,000,000
shares of INTEK common stock. Effective September 23, 1994, Simrom merged with
and into Romnet, Inc. (the "Merger"). After the merger of Simrom into Romnet,
Inc., the surviving corporation changed its name to Roamer One, Inc. ("Roamer
One") and redirected the focus of the Company and its resources to the
development of the Roamer One business and the telecommunications industry and
to discontinue and divest the operations of Olympic Plastics. Since the former
shareholders of Roamer One retained more than a 50 percent controlling interest
in the surviving company (INTEK), the business combination was treated as a
reverse merger for accounting purposes. Roamer One's principal assets were
certain rights relating to licenses granted by the FCC for the 220 MHz to 222
MHz ("220 MHz") narrowband spectrum. Pursuant to the merger, Roamer One's net
deficit equity of $338,637 was transferred to INTEK. Pro forma combined
operating results of the merged companies are not presented since INTEK's former
business is treated as if it were a divested operation.
Through its wholly-owned subsidiary, Roamer One, the Company is now a
development stage enterprise and is constructing, and plans to operate, a
Specialized Mobile Radio ("SMR") network in the United States utilizing certain
rights and benefits afforded it by licensees in the newly allocated 220 MHz
spectrum. Roamer One's business has been conducted by the Company since
September 23, 1994 when the Merger became effective.
Contracts between Roamer One and certain holders of 220 MHz licensees have
been classified by Roamer One as either: Category I, Category II, or Category
III Agreements. Under the Category I Agreements, each of the licensees (which
are, in some instances, directors of the Company) have entered into an
"Exclusive Management Agreement and Right of First Refusal" (the "Management
Agreement"). The Management Agreement permits Roamer One to retain 100% of the
subscriber revenues until such time as $200,000 is earned from system operation,
after which time the licensee receives 10% of the gross subscriber revenues.
Each licensee under a Category I Agreement also has entered into an Option to
Purchase Agreement (the "Option Agreement") providing Roamer One with the
exclusive right to purchase the constructed 220 MHz SMR system, together with
the 220 MHz
F-13
license. Under the Option Agreement, Roamer One is required to fund all capital
costs and operating expenses. The purchase under the Option Agreement may be
exercised by Roamer One at any time after construction by Roamer One of the 220
MHz SMR system is completed.
Under Category II Agreements, each of the licensees has entered into a
Management Agreement which permits Roamer One to earn and retain a percentage of
the gross subscriber revenues. Each of the licensees also has entered into an
Option Agreement. However, the option may be exercised only after a prescribed
period of operation. Roamer One is required to finance the building of the 220
MHz SMR system and contribute operating capital until such time as the system is
profitable. The purchase price of the 220 MHz SMR system, together with the 220
MHz license, is computed using a multiple of earnings at the time of purchase.
Under the Category III Agreements, each of the licensees has entered into a
management agreement providing that Roamer One will manage the 220 MHz SMR
system for a fee based upon a percentage of subscriber revenues earned from
system operation. Under a Category III Agreement, Roamer One has no option to
purchase such 220 MHz SMR system but does have a right of first refusal to
purchase the system in the event an acceptable offer to buy such system is
submitted to the licensee by a third party. The licensees under Category III
Agreements are obligated to provide the funds for the system construction and
operating costs.
While 167 systems have been constructed by Roamer One as of December 31,
1995, the number of subscribers to the service is insignificant and the
Company's proposed marketing strategy has not yet been implemented. The focus of
the Company has been directed to the construction of as many systems as possible
by the Federal Communication Commission's (the "FCC") deadline date. On January
26, 1996, the FCC adopted a SECOND REPORT AND ORDER in PR Docket No. 89-552 and
GN Docket No. 93-252 that extended the construction deadline to March 11, 1996
for all non-nationwide 220 MHz licenses that elect to construct their base
station at their currently authorized location, and to August 15, 1996 for all
licensees granted authority to modify their licenses to relocate their base
stations. The FCC has granted licensees until May 1, 1996 to submit applications
for permanent modifications to site locations. Systems that have been completed
are being used for testing of the Company's billing system software, signal
coverage, and system performance. Subscriber loading is anticipated to begin in
selected markets during the first quarter of 1996. No assurances can be made
that Roamer One will ultimately complete all of the sites which are currently
subject to its management agreements or that it will obtain subscribers for
completed sites. In particular, certain vendors who will supply equipment needed
to construct these systems may not be able to supply the equipment in time to
allow the completed construction of all systems prior to August 15, 1996. In
addition, Roamer One must raise a significant amount of capital to complete and
operate the systems it must finance. No significant revenues are expected to be
generated from the operation of these systems prior to the second quarter of
1996.
The Company can make no assurances that it will be able to achieve the
level of financing that would be required to complete the construction of the
remaining 74 systems Roamer One has on order, or to fund the administrative
costs
F-14
of Roamer One.
b. LICENSEE UNDER FCC AUTHORITY
The construction, licensing, operation, sale, management, ownership, and
acquisition of 220 MHz licenses are regulated by the FCC. The Company's actions
with respect to 220 MHz systems which it owns or manages may be delayed by the
time required to obtain FCC approval or consent for certain actions, or such
approval or consent may be denied or withheld. FCC requirements also may impose
certain costs or requirements upon the Company which it would not bear in the
absence of regulation.
Because the Company's business is regulated by the FCC, its business
affairs (and those of its actual and potential competitors) are always subject
to changes in FCC rules and policies. Such changes, which generally follow
extensive FCC consideration, can increase the level of competition, the cost of
regulatory compliance, the methods in which the Company manages its systems, the
difficulty in obtaining or keeping licenses, standards for products and services
or other facets of the Company's regulatory environment. Further, each FCC
proceeding which might affect the Company is subject to reconsideration,
appellate review, and FCC modification from time-to-time.
To the extent that the Company or the licensee does not construct or
operate any 220 MHz system in compliance with applicable FCC requirements, the
Company or the licensee of such system could be subject to increased regulatory
requirements, formal or informal FCC investigations, loss or cancellation of
licenses which it may in the future acquire, imposition of monetary forfeitures,
or disqualification from holding further FCC licenses. Such risks could arise
from the Company's failure to meet FCC construction deadlines, the licensee's
failure to maintain ultimate control over its system, or the level and type of
alien ownership and control in either the Company or licensee.
The FCC requires that licensees maintain de jure and de facto control of
their radio systems at all times. This requirement is applicable to the 220 MHz
licenses which the Company seeks to operate as a result of management agreements
entered into between the Company and various licensees. A failure to maintain
control can result in an FCC investigation or hearing, imposition of monetary
forfeitures, or revocation of a license. Although management agreements are
common in the SMR industry, the FCC has not issued any guidelines specifically
applicable to 220 MHz management agreements and has not considered or passed on
the compliance of the Company's management agreements with general FCC
guidelines or policies. No assurance can be given that the Company's management
agreements or course of conduct in acquiring rights to the 220 MHz systems will
be found to comply with such FCC requirements.
c. SITE CONSTRUCTION DEADLINE
If the systems for the licenses that are subject to the Company's purchase
option and management agreements are not constructed within the period required
by the FCC, such licenses will be returned to the FCC. The construction deadline
as set by the FCC of December 31, 1995 was amended in late 1995 to February 2,
F-15
1996. On January 26, 1996, the FCC adopted a SECOND REPORT AND ORDER in PR
Docket No. 89-552 and GN Docket No. 93-252 that extended the construction
deadline to March 11, 1996 for all non-nationwide 220 MHz licenses that elect to
construct their base station at their currently authorized location, and to
August 15, 1996 for all licensees granted authority to modify their licenses to
relocate their base stations. There is currently a case pending before the U.S.
Court of Appeals, D.C. Circuit, filed by another 220 MHz service provider, which
challenges the FCC's denial of its request to provide multiple-market service on
a single system, and a request for an extension of its construction deadline.
There is no assurance that this appeal, if successful, will impact the deadline
for construction previously announced by the FCC for licenses in which the
Company has an interest.
The Company has built out 167 systems prior to December 31, 1995. The
Company can offer no assurances that all or most of the remaining 74 licenses
will be built out by the FCC construction deadline or that an extension to the
FCC construction deadline can be obtained.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of INTEK (from
September 23, 1994 through December 31, 1994) and its wholly-owned subsidiaries
Roamer One (from February 4, 1994 (inception) through December 31, 1994), IMCX
Corporation ("IMCX"), and IDC International Corporation ("IDC") with Olympic
Plastics Company, Inc. ("Olympic") assets reported as Assets Held for Sale. The
results of operations of Olympic have been excluded from continuing results of
operations after September 23, 1994. The operating assets of IMCS were sold by
the Company on August 12, 1993 and thus revenues have been restated to exclude
IMCS from continuing operations. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Although the operations of Roamer One were combined with those of the
Company for a period of seven days prior to September 30, 1994 pursuant to the
Merger, the Consolidated Statements of Operations do not include the operations
of Roamer One during this period as such operations did not involve significant
revenues or expenses.
b. CASH FLOW STATEMENT
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
The following summarizes the supplemental disclosure of non-cash investing
and financing activities:
During 1995, the Company exchanged 162,000 shares of its common stock for
certain loan extension fees valued at $635,000 (equating to $3.92 per share) and
937,042 shares of its common stock for equipment purchased from Securicor valued
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at $4,000,000 (equating to $4.27 per share). The values attributed to the common
stock were the approximate fair market values on the dates of issuance.
On September 23, 1994, the Company exchanged 6,000,000 shares of its common
stock for 100 percent of the common stock of Simrom, Inc., in the Merger which
was accounted for as a reverse merger (See Note 1). Accordingly, the assets and
liabilities of INTEK at September 23, 1994 are assumed to have been acquired by
Roamer One.
On November 22, 1994, the Company issued 100,000 shares of its common stock
in exchange for certain management services valued at $425,000 (equating to
$4.25 per share), which was the approximate fair market value at the date of
issuance.
In November, 1994, the Company obtained a $2,500,000 loan from Quest
Capital Corporation ("Quest"), formerly known as Noramco Mining Corporation, to
fund the initial costs of implementing Roamer One's construction program. During
the second quarter of 1995, the Company reduced the principal balance to
$1,600,000 and on December 29, 1995 the Company issued 336,842 shares (at a
value of $4.75 per share) of INTEK common stock to Quest as payment in full of
the principal then due (see Note 11).
c. INVENTORIES
Inventories are stated at the lower of cost or market and consist of
repeater site receive/transmit systems for sale to Category III licensees and
mobile radios for sale to subscribers.
d. PROPERTY AND EQUIPMENT, AT COST
Depreciation is provided on the straight-line method over the estimated
useful lives of the assets which are ten years for site equipment and 5 years
for furniture, fixtures, office equipment, and computers. The Company's policy
is to begin depreciating repeater site equipment at such time as it begins to
generate subscriber revenues. Normal maintenance and repairs are charged to
expense as incurred. Expenditures which increase the useful lives of assets are
capitalized.
e. REVENUE RECOGNITION
Revenue is recognized for sales of equipment when delivered.
f. INCOME TAXES
The Company and its subsidiaries file consolidated Federal and combined
state income tax returns. The Company accounts for income taxes in accordance
with Statement of Financial Accounting Standard No. 109 "Accounting for Income
Taxes" (SFAS 109). SFAS 109 requires, among other things, the use of the
liability method in computing deferred income taxes.
The Company provides for deferred income taxes relating to timing
differences in the recognition of income and expense items (primarily relating
to depreciation, amortization and certain leases) for financial and tax
reporting
F-17
purposes. Such amounts are measured using current tax laws and regulations in
accordance with the provisions of SFAS 109.
In accordance with SFAS No. 109, the Company has recorded valuation
allowances against the realization of its deferred tax assets. The valuation
allowance is based on management's estimates and analysis, which includes tax
laws which may limit the Company's ability to utilize its tax loss
carryforwards.
g. NET LOSS PER SHARE
The net loss per share for all periods shown is based upon the weighted
average number of shares outstanding for the periods. No common stock
equivalents are included in the calculation since they would have an anti-
dilutive effect.
h. RECLASSIFICATIONS
Certain amounts in the December 31, 1994 and 1993 Financial Statements have
been reclassified to conform with the current period presentation.
i. 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 at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
j. CONCENTRATIONS OF RISK
Accounts receivable are unsecured and the Company is at risk to the extent
such amounts become uncollectible. As of December 31, 1995, one customer
comprised 71% of accounts receivable.
The Company's equipment sales are to customers located primarily in the
United States. During 1995, the Company had sales to one customer (discussed
above) which represented approximately 90% of sales. During 1994, the same
customer represented 100% of sales.
The Company purchases a significant portion of its equipment from suppliers
located outside the United States. The Company believes that if these foreign
suppliers were no longer available, it would be able to obtain the equipment
from existing suppliers located within the United States. The Company believes
this would not have a severe impact on it financial position or results of
operations.
k. NEW PRONOUNCEMENTS
ADOPTION OF SFAS 121 - IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
F-18
Assets to be Disposed Of" (the Statement). The Statement establishes
accounting standards for long-lived assets, certain identifiable intangibles
and goodwill related to those assets to be held and used and for long-lived
assets and certain identifiable intangibles and goodwill related to those
assets to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. The Company will adopt the Statement in 1996.
The Company has not yet evaluated the impact of this Statement.
ADOPTION OF SFAS 123 - STOCK-BASED COMPENSATION
In November 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation." The statement recommends changes in accounting for employee
stock-based compensation plans, and requires certain disclosures with respect to
these plans. The Statement's disclosures will be adopted by the Company
effective January 1, 1996.
(3) INVENTORIES
Inventories at December 31, 1995 and 1994 consist of the following (in
thousands):
[Download Table]
1995 1994
-------- --------
Site installations $ 549 $ 1,127
Mobile radios 699 -
-------- --------
$ 1,248 $ 1,127
-------- --------
-------- --------
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1994 consist of the
following (in thousands):
[Download Table]
1995 1994
-------- --------
Site equipment $ 7,283 $ 768
Furniture and fixtures 73 26
Computers 179 -
-------- --------
Total property and equipment, at cost 7,535 794
Less accumulated depreciation (37) (22)
-------- --------
Net property and equipment 7,498 $ 772
-------- --------
-------- --------
(5) INCOME TAXES
There was no provision for income taxes for the twelve months ended
December 31, 1995 and 1994 except for the minimum state tax. Taxes included in
general and administrative expenses amounted to $3,200, $3,200, and $9,000 in
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1995, 1994 and 1993 respectively. The Company is expecting an "ordinary" loss
for the current fiscal year and this, combined with net operating loss
carryforwards from the previous years, are expected to offset any current tax
liability.
For 1993, the provision for income taxes consisted of a current state
provision of $2,000 and a deferred Federal provision of $7,000.
The reconciliation of the provision (benefit) for income taxes at December
31 to the amount computed at the Federal statutory rate is as follows (in
thousands):
[Download Table]
1995 1994 1993
------- ------- -------
Benefit at the statutory rate $ (965) $ (319) $ (291)
State taxes, net of federal
tax benefit 3 3 2
Operating losses not currently
available for use 965 319 291
Other - - 7
------- ------- -------
$ 3 $ 3 $ 9
------- ------- -------
------- ------- -------
The approximate tax effect of temporary differences which gave rise to
significant deferred tax assets and liabilities are as follows (in thousands):
[Download Table]
1995 1994
-------- --------
Deferred tax assets (state and Federal):
Accrued liabilities $ 25 $ 36
Inventory reserve - 14
Allowance for doubtful accounts receivable 13 15
Building valuation allowance 173 -
Amortization of Roamer One startup costs 118 -
Operating loss carryforwards 956 856
-------- --------
1,285 921
Valuation allowance (1,285) (921)
-------- --------
$ - $ -
-------- --------
-------- --------
Deferred tax liabilities (state and Federal):
Depreciation $ (607) $ (607)
Other (26) (116)
-------- --------
$ (633) $ (723)
-------- --------
-------- --------
In 1990, the State of California passed legislation which disallowed the
utilization of net operating loss carryforwards and carrybacks until 1993. At
December 31, 1995, the Company had net operating loss carryforwards available
for Federal and California income tax purposes of approximately $2,225,000, and
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$2,147,000, respectively. The net operating loss carryforwards expire in the
year 2008 and thereafter for Federal and 1997 and thereafter for State income
tax purposes.
(6) PENSION PLAN
One of the Company's subsidiaries has a Simplified Employees Pension
Individual Retirement Account Plan (the Plan). Annual contributions to the Plan
are at the discretion of the Board of Directors and cannot exceed 15 percent of
all employee's compensation. No contributions were made for 1995, 1994 or 1993.
(7) DIRECTOR COMPENSATION
On June 20, 1995, the Board of Directors approved a resolution stating that
directors will be compensated for services at the rate of $4,000 per year plus
$500 per meeting to a maximum of $10,000 per director, retroactive to January 1,
1995. For the twelve months ended December 31, 1995, the Company paid Directors
fees of $51,500 and has accrued $15,500 for unpaid directors fees.
(8) STOCK OPTION PLAN
In July 1985, the shareholders approved the "1985 INTEK Diversified
Corporation Key Employee Incentive Stock Option Plan" which provides for the
granting of options on up to 500,000 shares of the Company's common stock to key
employees. In 1988, the shareholders of the Company approved the 1988 "Key
Employee Incentive Stock Option Plan." The stock options are exercisable over a
period determined by the Stock Option Committee, but no longer than ten years
after the date they are granted.
The options are to be exercisable at a price equal to the "Fair Market
Value" (average of the closing per share bid and asked price of the Company's
Common Stock on the date an option is granted) or 110 percent of Fair Market
Value for persons who have in excess of a 10 percent voting interest in all
classes of the Company's stock prior to the date of grant. The dollar amount of
options issued under the Plan in any calendar year is limited to $100,000 per
person in value plus any unused limit carry-over.
In September 1994, the shareholders approved the "1994 Stock Option Plan"
which provides for the granting of options up to 600,000 shares of common stock
per person.
On June 23, 1995 the Company filed with the Securities and Exchange
Commission a registration statement on Form S-8 for the offering and sale by the
Company of up to 500,000 shares of the Company's common stock, par value $0.01
pursuant to stock options granted or to be granted under the 1988 INTEK
Diversified Corporation Key Employee Incentive Stock Option Plan.
At the Annual Meeting of Shareholders held on July 5, 1995, the
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shareholders voted to approve the 1994 Stock Option Plan which provides for the
granting of options of up to 600,000 shares of the Company's Common Stock. The
1994 Plan provides for the granting of "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and "nonqualified stock options", which are not intended to qualify
under any provision of the Code. Each grant shall specify the number of shares
of Common Stock to which it pertains; provided, however, that no optionee may be
granted stock options for more than 60,000 shares in any fiscal year of the
Company.
The shareholders also voted to approve the 1994 Directors' Stock Option
Plan (the "Directors' Plan") which provides for the granting of options of up to
300,000 shares of the Company's Common Stock. Under the terms of the Directors'
Plan, each member of the Stock Option Committee received an option to purchase
40,000 shares of Common Stock on September 24, 1994. All other members of the
Board received an option to purchase 40,000 shares of Common Stock under the
1994 Stock Option Plan. In addition, each director who was not a director on
September 23, 1994 will receive, on the date of his or her initial election as a
director, an option to purchase 20,000 shares of Common Stock. Options are
exercisable on the first anniversary of the date of grant, provided the optionee
remains a director on such anniversary. No person may receive an option pursuant
to the Directors' Plan more than once.
On August 2, 1995 the Company filed with the Securities and Exchange
Commission a registration statement on Form S-8 for the offering and sale by the
Company of up to 900,000 shares of the Company's common stock, par value $0.01
pursuant to stock options granted or to be granted under the INTEK Diversified
Corporation 1994 Stock Option Plan and the INTEK Diversified Corporation
Directors' 1994 Stock Option Plan.
A summary of the Company's Stock Option Plans is as follows:
[Download Table]
OPTION PRICE
1988 Plan SHARES PER SHARE
--------- -------- ---------
Shares granted:
January 1, 1987 155,000 $ 1.75
Shares terminated (97,500) 1.75
Shares exercised in 1995 (57,500) 1.75
--------
Shares under option 0
--------
1994 Stock Option Plan
----------------------
Shares granted:
September 23, 1994 50,000 $ 2.75
September 23, 1994 330,000 3.75
December 20, 1995 72,000 5.875
Shares exercised in 1995 (40,000) 3.75
--------
Shares under option 412,000
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--------
1994 Directors' Stock Option Plan
---------------------------------
Shares granted:
September 23, 1994 120,000 $ 3.75
--------
Total shares under option 532,000
--------
--------
As of December 31, 1995, options available for future grant were as follows:
[Download Table]
1988 Plan 442,500
1994 Stock Option Plan 148,000
1994 Directors Plan 180,000
-------
770,500
-------
-------
(9) Related Party Transactions
Pursuant to a management agreement dated September 23, 1994, the Company
paid an annual management fee of $200,000 to Peter Paul Corporation, Inc., an
affiliate of Anglo York Industries, Inc., a stockholder of the Company. Peter
Paul Corporation, Inc., made the services of Mr. Vincent Paul, Vice Chairman of
the Board of Directors, available to the Company without additional
compensation. The management agreement terminated on January 31, 1996 upon the
death of Mr. Paul. For the years ended December 31, 1995 and 1994, the Company
paid management fees of $200,004 and $200,000 respectively to Peter Paul
Corporation, Inc.
In November 1994, the Company borrowed $2,500,000 evidenced by a short-term
promissory note, bearing 12% interest, from Quest Capital Corporation ("Quest").
The loan was secured by a first mortgage on the property owned by Olympic and a
guaranty by Simmonds Capital Ltd ("SCL"), formerly known as Simmonds
Communications Ltd. Quest was issued a total of 262,000 shares of INTEK common
stock, at a weighted average price of $4.05 per share which was the fair market
value at the time, as a loan commitment fee and compensation for two extensions
to the maturity date. During the second quarter of 1995, the Company reduced the
principal balance to $1,600,000 and on December 29, 1995 the Company issued
336,842 shares of INTEK common stock to Quest as payment in full of the
principal. The shares were issued at $4.75 per share which was the fair market
value at the date of repayment of the debt.
Roamer One, Inc. borrowed $150,000 from SCL evidenced by a short-term,
non-interest bearing note in October, 1994 and repaid the obligation in
November, 1994.
For the year ended December 31, 1995, the Company incurred $100,000 and
paid $90,000 to Roamer One Holdings, Inc. ("ROH"), a stockholder of the Company
and a company controlled by Nicholas R. Wilson, Chairman of the Board of the
Company for the services of Mr. Nicholas Wilson. In addition, the Company paid
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$30,000 to ROH that had been accrued as of December 31, 1994.
For the year ended December 31, 1995, the Company incurred $100,000 and
paid $90,000 to SCL, a stockholder of the Company, for management services. In
addition, the Company paid $30,000 to SCL that had been accrued as of
December 31, 1994.
For the year ended December 31, 1995, the Company incurred $112,000 and
paid $104,000 to Simmonds Mercantile and Management Inc., a company controlled
by SCL, for consulting services.
On April 18, 1995, Roamer One and Midland International Corporation
("MIC"), a wholly-owned subsidiary of SCL, entered into a Memorandum of
Understanding granting MIC exclusive sales and distribution rights for all
Roamer One private branded 220 MHz radio product in the United States. MIC will
be paid a commission on sales of such radios. Roamer One also entered into an
agreement with Securicor, whereby Securicor will supply Securicor radios bearing
the Roamer One logo.
Pursuant to a Financing Agreement and related agreements between the
Company, Roamer One, SCL and Securicor, Securicor has delivered approximately
$4,000,000 worth of base station equipment and mobile radios in exchange for
937,042 shares of the Company's common stock to Securicor. Pursuant to the
Financing Agreement, such shares were issued at a share price of $4.26875. The
financing agreement calls for Roamer One to purchase approximately $3.9 million
in additional equipment over a 12 month period. As of December 31, 1995, Roamer
One had purchased $968,000.
The Company and SCL have an arrangement whereby Roamer One, Inc. purchases
equipment and installation services from SCL. During the twelve months ended
December 31, 1995, Roamer One, Inc. purchased $9,298,000 of radio equipment and
installation services from SCL. Previous accounts payable for equipment totaled
$1,212,000. Roamer One made payments to SCL totaling $8,058,000 leaving a
balance of $2,452,000 as of December 31, 1995.
On September 23, 1994, the Company and SCL, ROH, Anglo York Industries,
Inc. and Harold Davis (collectively referred to as the "Holders") entered into a
Registration Rights Agreement to provide the Holders with certain demand and
"piggy-back" registration rights with respect to the Company's Common Stock
owned by the Holders. ROH is a stockholder of the Company holding approximately
34.8% of the Company's Common Stock. Anglo York Industries, Inc. is a
stockholder of the Company holding approximately 10.5% of the Company's Common
Stock. Mr. Davis was an executive vice president and treasurer of the Company
until September 23, 1994.
Kohrman Jackson & Krantz, a Cleveland, Ohio, law firm of which Steven L.
Wasserman is a partner, performs legal services for the Company and its
subsidiaries. Mr. Wasserman is a member of the Company's Board of Directors. The
law firm received fees of $162,097 in 1995 and $8,856 in 1994 from INTEK.
Mr. Wasserman was formerly a principal with the law firm of Honohan, Harwood,
Chernett & Wasserman, which received fees of $23,722 in 1994 from INTEK.
F-24
At December 31, 1995, Octagon Investments, Ltd had beneficial interest in
8% of the Company's outstanding common stock and stock options. On February 29,
1996, the Company borrowed $2,500,000 in debentures from Octagon. The loan is
due in six months and carries interest that is based on the Bank of America
Prime Rate. The loan is secured by the Olympic Plastics land and building and by
the equipment related to 15 Category I licenses. A closing fee was paid to
Octagon Limited of 50,000 shares of the Company's common stock under Regulation
S of the Securities Act of 1933 as amended. An agency fee of $25,000 cash was
paid to Octagon Capital Corp., Canada.
The Company believes that the terms of the transactions and the agreements
described above are on terms at least as favorable as those which it could
otherwise have obtained from unrelated parties. On-going and future transactions
with related parties will be (1) on terms at least as favorable as those which
the Company would be able to obtain from unrelated parties; (2) for bona fide
business purposes; and (3) approved by a majority of the disinterested and
non-employee directors.
(10) INVESTMENT IN JOINT VENTURE
In May 1995, INTEK contributed $125,000 for a 50% interest in SLW
Properties, Ltd., an Ohio limited liability company ("SLWLLC"). The assets of
SLWLLC consisted of twenty-five percent (25%) of the outstanding shares of
common stock of Pagers Plus Cellular, a California corporation ("PPC"), a
$250,000 secured promissory note issued by PPC to SLWLLC on May 9, 1995, a
security interest in certain assets of PPC, the right to appoint a director to
PPC's Board of Directors, and the right to assume PPC's rights under certain
management and joint venture agreements if PPC fails to repay the note by
November 11, 1995. On July 12, 1995, the members of SLWLLC assigned all of the
assets of SLWLLC to Brookline Capital Corp. "Brookline Capital", formerly known
as Brook SIG Corp.). Brookline Capital has been since renamed Ventel and is a
publicly traded company in Canada. Brookline Capital was formed for the purpose
of providing financing to various 220 MHz SMR management companies in the United
States. The Company and SCL were shareholders of Brookline Capital. On September
20, 1995, the Company sold its shares in Brookline Capital to Brookline
Minerals, Inc. In exchange for its shares in Brookline Capital, the Company will
receive certain shares of Brookline Minerals common stock pursuant to a formula
based on the number of SMR systems financed by Brookline Capital which should
increase its holdings and influence. SCL also exchanged certain assets and
Brookline Capital shares for shares of Brookline Minerals common stock pursuant
to the same formula. INTEK and SCL entered into separate management services
agreements with Brookline Minerals to provide certain management services and
technical expertise for the development and implementation of Brookline
Mineral's ongoing business strategy. Nicholas Wilson, a director of the Company,
is a director of Brookline Capital and Brookline Minerals, John Simmonds, a
director of the Company, is a director of Brookline Capital and Brookline
Minerals and the President of Brookline Capital and Steven L. Wasserman, a
director of the Company, is the Secretary of Brookline Minerals, which has been
renamed Ventel, Inc. is a publicly traded company in Canada. To date, INTEK has
received 50,000 shares of the common stock of Ventel.
F-25
(11) NOTE PAYABLE
In November 1994, the Company borrowed $2,500,000 evidenced by a
short-term promissory note, bearing 12% interest, from Quest Capital Corporation
("Quest"). The loan was secured by a first mortgage on the property owned by
Olympic and a guaranty by Simmonds Capital Ltd ("SCL"), formerly known as
Simmonds Communications Ltd. Quest was issued a total of 162,000 shares of INTEK
common stock as a loan commitment fee and compensation for two extensions to the
maturity date. During the second quarter of 1995, the Company reduced the
principal balance to $1,600,000 and on December 29, 1995 the Company issued
336,842 shares of INTEK common stock to Quest as payment in full of the
principal.
(12) COMMITMENTS
As of December 31, 1995, Roamer One had entered into 101 site leases to
permit installation, operation, and maintenance of transmission/reception
equipment facilities in connection with the 220 MHz SMR systems. These leases
generally have a five-year term, with three consecutive five-year extension
periods upon the mutual agreement of the parties. As of December 31, 1995,
Roamer One had paid $780,500 in site lease fees pertaining to 1995. As of
December 31, 1995, Roamer One has entered into 73 site leases relating to
Category I Licensees; 28 site leases relating to Category II Licensees; and
arranged for its Category III licensees to enter into 58 site leases. As of
December 31, 1995, total future minimum lease payments for the Category I and
Category II site leases, which are contractual obligations of Roamer One, are as
follows:
[Download Table]
1996 $ 837,220
1997 781,021
1998 674,960
1999 620,978
2000 283,972
Thereafter -
----------
$3,198,151
----------
----------
In November 1994, INTEK entered into a management services agreement with
Quest for corporate finance and corporate restructuring services. In
consideration for these services, INTEK paid $1,000 and issued 100,000 shares of
its common stock.
(13) MAJOR CUSTOMERS
Roamer One has commenced construction and management of 220 MHz Specialized
Mobile Radio systems pursuant to Management Agreements. Of these agreements, 161
obligate the licensee to provide the funds for system construction and operating
costs. During 1995 and 1994, billing for site equipment, construction and
F-26
installation accounted for 100% of consolidated net sales. As of December 31,
1995, a total of 67 systems had been completely constructed for one customer,
VDC. During 1995, a total of 51 systems had been delivered and invoiced to VDC
at a gross profit of $270,000.
(14) DISCONTINUED OPERATIONS
On August 12, 1993, the Company sold to Advanced Technology, Inc., ("ATI"),
all of the issued and outstanding capital stock of its wholly owned subsidiary,
IMCS. At the time of the sale, IMCS owned office furnishings and equipment and a
Technical Information Agreement with American Telephone and Telegraph Company
dated January 1, 1991, pursuant to which IMCS received certain rights to
manufacture and sell electronic equipment. Prior to the sale, the Company had
transferred to a newly formed wholly owned subsidiary, IMCX, all other assets
and all liabilities of IMCS. In consideration for the sale of the capital stock
of IMCS, the Company received cash in the amount of $75,000 and a long-term
non-interest bearing note in the amount of $180,000. The note was completely
repaid by December 31, 1994. The gain on the sale from this transaction was
$11,552. Net sales for IMCS were $530,000 and $758,000 for the eight months
ended August 1993 and 1992 respectively and the net losses were $52,000 and
$170,000.
Subsequent to the Merger, the Company redirected its business from
fabricating and selling plastic products, primarily by injection and compression
molding of various plastic resins, to customers in the electronics aerospace and
commercial aircraft markets to the business of developing and managing a SMR
Network in the United States utilizing the recently licensed 220 MHz narrowband
spectrum. Consequently, during the first half of 1995, the Company entered into
agreements to sell its machinery, equipment and inventory to four separate
buyers.
As of December 31, 1995, the Company completed four sales totaling
$4,022,407 for equipment and inventory. The Company received cash of $3,605,560
and a note in the remaining principal amount of $153,847 bearing interest at the
rate of ten percent (10%) per annum with monthly principal and interest payments
and a maturity date of July, 1998. The first three payments under this note were
interest only.
Of the proceeds from these sales, $263,000 was applied against a note
payable secured by Olympic's assets, $900,000 was repaid to Quest under the Loan
and the remainder was used for working capital. Included in liabilities at
December 31, 1994 was a note payable balance of $492,000. This note was repaid
in full during 1995.
A summary of the assets held for sale is as follows (in thousands):
[Download Table]
1995 1994
-------- --------
Inventories $ - $704
F-27
Property, Plant and Equipment, Net 1,555 3,493
Patent Rights - 137
-------- --------
Net Assets $1,555 $4,334
-------- --------
-------- --------
(15) SALE OF SECURITIES
On December 4, 1995, the Company sold 170,000 shares and a warrant of the
Company's common stock outside the United States under Regulation S of the
Securities Act of 1933 as amended. The sale generated $1,020,000 at current
market rates. The warrant was exercised on February 29, 1996 for 36,645 shares
at a price of $0.01 per share.
(16) SUBSEQUENT EVENTS
a. FINANCINGS
On January 12, 1996, the Company sold 201,000 shares of the Company's
Common Stock outside the United States under Regulation S of the Securities Act
of 1933 as amended. The sale generated $849,342 at current market rates.
On February 29, 1996, the Company raised $2,500,000 through the issuance of
a Senior Secured Debenture to MeesPierson ICS Limited, a UK limited liability
company. INTEK also issued 50,000 shares of its common stock under Regulation S
of the Securities Act of 1933 as amended to MeesPierson as a closing fee for its
investment banking services and paid an agent fee of $25,000 to Octagon Capital
Canada Corporation. The debentures mature in six months and carry interest that
is based on the Bank of America Prime Rate. They are secured by perfected liens
against Olympic Plastics land and building and by the equipment related to 15
Category I licenses.
b. SALE OF THE BUILDING
On March 22, 1996, the Company entered into a Purchase Agreement and escrow
was opened for sale of the Olympic Plastics land and building. The sale price is
$2,200,000 and the property has a book value of $1,555,000. The building is
encumbered by a deed of trust in favor of MeesPierson ICS Limited. Escrow is
scheduled to close on or before June 4, 1996, subject to the buyer's ability to
obtain financing, and the results of updated appraisal, and environmental
reports.
c. PROPOSED MERGER
On March 7, 1996, INTEK, SCL and Securicor signed a Letter of Intent to
combine certain of their wireless communication businesses and related
technology. The transaction will combine INTEK's Roamer One air time services
F-28
business with the United States land mobile radio business of Midland
International Corporation, a wholly owned subsidiary of SCL, and the narrowband
wireless technology and manufacturing operations of Securicor Radiocoms Limited
("SRL"), a wholly owned subsidiary of Securicor. As a result of the proposed
transaction, INTEK will become an integrated wireless company providing air time
services, product distribution and manufacturing for the Land Mobile Radio
market. The completion of the proposed transactions is subject to the completion
of due diligence reviews by the parties, the negotiation and execution of
definitive documentation and customary other closing conditions, including the
receipt of regulatory and third party approvals and consents and the approval of
INTEK's shareholders to the transactions and the issuance of its common stock.
The parties expect the transactions to close during the second quarter of 1996.
This new three way transaction replaces the previously announced proposed
acquisition of Midland, which has been terminated by mutual agreement of SCL and
INTEK. Under the terms of the Letter of Intent, INTEK will purchase a license
from Midland for the use of the Midland trademark in the United States for the
Land Mobile Radio market in exchange for approximately 2.5 million common shares
of INTEK. In addition, INTEK will purchase for cash from Midland certain assets
which are used in the business. SCL will retain the international operations of
Midland and the SCL Systems business which operates as a systems integrator for
wide area communications networks. It is contemplated that SCL will provide
certain management services to INTEK for the support of the Midland two-way
radio business in the United States. The Letter of Intent also provides that
INTEK will acquire all of the shares of SRL in exchange for approximately 25
million common shares of INTEK. The SRL business includes the Linear Modulated
radio technology, a manufacturing facility in Bath, England, a network of
wireless dealers and resellers in the United Kingdom, a Specialized Mobile Radio
network in England, a wireless systems integration business, and all of
Securicor's convertible preferred shares in E.F. Johnson, a manufacturer of
wireless communications equipment in Waseca, Minnesota. INTEK has retained the
investment banking firm FAHNESTOCK & Co., Inc. to provide financial advisory
services to INTEK including an opinion as to the fairness, from a financial
point of view, to the stockholders of INTEK of the terms of the proposed
acquisitions. FAHNESTOCK & Co. will be paid a cash fee for its services.
F-29
Dates Referenced Herein and Documents Incorporated by Reference
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