The sinking ship that is Geotek Communications Inc. wallowed deeper into troubled waters last week when the company filed voluntary petitions for Chapter 11 bankruptcy protection while its captain and founder, Yaron Eitan, stepped down as chief executive officer and resigned from the company’s board of directors.
Also abandoning ship were Michael McCoy, executive vice president and chief operating officer, and Dr. George Calhoun, senior vice president of strategic marketing. Calhoun will retain his seat on the board of directors. Meanwhile, Chief Financial Officer Anne Eisele was named chief administrative officer.
Four board members representing the company’s largest investors resigned the previous week, including Haynes G. Griffin, Winston J. Churchill, Walter E. Auch and Purnendu Chatterjee. The remaining members of the board are Chairman William Spier, Richard T. Liebhaber, Richard Krants and Calhoun.
Spier earlier had replaced Eitan as chairman, who recommended Spier as his successor, and has intended to step down as CEO as well once a replacement was found by the board’s search committee. However, no replacement has been named.
Geotek operates a digital specialized mobile radio business using Frequency Hopping Multiple Access at 900 MHz, primarily aimed at driver location, navigation, voice and other mobile services.
The bankruptcy filing, as well as a $10 million debtor-in-possession financing loan from Soros Group affiliate S-C Rig Investments III L.P., will allow the company to continue operations while it reorganizes with creditors and seeks additional financing, or alternatively finds a buyer, the company said.
As of March 31, the company had unaudited consolidated assets of about $351 million and unaudited consolidated liabilities of about $424 million, leaving the company $73 million in the hole.
An investor relations employee said the company was not commenting on its current state beyond its press releases, and upper management officials did not return phone calls by press time.
In May, Geotek announced a restructuring and recapitalization plan to try to solve its financial calamities.
“Cash resources at May 15 are insufficient to fund both … current operations and the full implementation of [the] business plan in the short and long term,” the company said at the time. In particular, Geotek said it was looking for concessions and funding from debt and preferred equity holders and also from trade creditors. It retained Rothschild Inc. as its financial adviser to assist in the rebuilding efforts.
The company has a $100 million credit facility with Hughes Network Systems Inc. for FHMA infrastructure, of which it used $15.4 million of in the first quarter. Standard & Poor’s Corp. gave the company an speculative CCC+ rating on Geotek’s $300 million in outstanding senior secured debt and placed it on CreditWatch for a likely downgrade.
Nasdaq National Market Exchange discontinued listing Geotek, whose stock had reached a low of 12 cents.
Geotek claimed 800 customers accounts and 17,053 subs in the first quarter. Its net loss for that period totaled $34.3 million. Much of the loss came from the 72-percent increase in sales and marketing costs of the business plan, while operational revenues reached only $4.4 million.
Geotek has been on the ropes for a while. Steve Virostek, senior consultant, North American telecommunications with the Strategis Group, said the company faced two obstacles-trying to develop a new technology and building a new service business at the same time.
New technologies often face stumbling blocks when brought from the lab to a service environment. Even Code Division Multiple Access wireless technology was questionable for a while, Virostek said. But the companies behind these technologies had the financing to stick it out while polishing their inventions.
Geotek touted its FHMA technology as superior to other products available at the time, but felt it needed to commercialize the service first before resting back and collecting license royalties, so it bought spectrum and tried to become a service operator.
“It’s hard for a small business to make it in telecom services,” said John Bensche, wireless analyst at Lehman Brothers. “You’ve got to have deep pockets to carry you through the start up losses.”
Geotek faced significant competition from Nextel Communications Inc., which already dominated the space Geotek was entering. While Geotek offered a phone with more functionality and services than Nextel, it was designed for a more high-end and exclusive user. Nextel was selling thousands of phones to a more mainstream segment.
“They were coming into a marketplace later than they hoped,” Bensche said. “They were never going to get enough volumes of users to drive the handset cost down.”
Now that Geotek is in Chapter 11, it has the chance to reorganize to emerge with those assets in place. But the likelihood of surviving bankruptcy is affected by the fact that the company has very little spectrum and therefore few assets to carry it through. Moody’s Investors Service downgraded Geotek’s senior unsecured debt to Ca and its subordinated debt to Caa2, reflecting its expectation that “any recover for debtholders in the event of a liquidation is likely to be extremely limited.”
Virostek said he wouldn’t be surprised if Geotek applications were to appear in other service providers’ offerings. “They did some pretty slick applications.”
