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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
|X| Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999
|_| TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number 0-11038
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC.
(Exact name of small business issuer as specified in its charter)
California 33-0644381
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
10675 Sorrento Valley Road, Suite 200, San Diego, CA 92121
(Address of Principal Executive Offices)
(619) 657-0100
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes X No __
APPLICABLE ONLY TO CORPORATE FILERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 20,665,021 shares of common stock as
of November 12, 1999.
Transitional Small Business Disclosure Format (check one): Yes __ No X
ITEM 1. FINANCIAL STATEMENTS
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
REVENUES:
Communications systems $1,593,864 $ 881,543 $2,587,597 $ 3,234,154
Data transmission
and messaging 1,190,346 1,039,488 3,400,152 2,751,585
Video compression 741,680 1,383,951 3,084,924 1,383,951
---------- ----------- ---------- -----------
TOTAL REVENUES 3,525,890 3,304,982 9,072,673 7,369,690
----------- ----------- --------- -----------
COSTS AND EXPENSES:
Communications systems 394,100 535,106 1,033,957 2,024,778
Data transmission
and messaging 363,179 508,243 1,138,462 1,465,616
Video compression 258,384 386,798 1,013,870 386,798
Selling, general and
administrative 2,412,362 1,483,927 5,768,615 3,102,033
----------- ----------- ----------- ------------
TOTAL COSTS AND
EXPENSES 3,428,025 2,914,074 8,954,904 6,979,225
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 97,865 390,908 117,769 390,465
Interest income 22,004 2,913 27,575 41,030
Interest expense (182,689) (201,556) (590,578) (201,556)
---------- ----------- ---------- -----------
(LOSS) INCOME BEFORE
TAXES (62,820) 192,265 (445,234) 229,939
INCOME TAX (EXPENSE)
/BENEFIT (190,932) 103,846 32,568 103,846
=========== =========== =========== ===========
NET (LOSS) INCOME $ (253,752) $ 296,111 $ (412,666) $ 333,785
========== =========== =========== ===========
BASIC (LOSS) EARNINGS
PER COMMON SHARE ($0.01) $0.02 ($0.02) $0.02
------- ------ ------- -----
DILUTED EARNINGS PER
COMMON SHARE n/a $0.01 n/a $0.02
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 19,029,249 18,690,838 18,939,455 16,809,691
Dilutive effect of:
Employee stock optio n/a 1,049,316 n/a 702,536
Warrants n/a 473,148 n/a 215,117
Series A convertibl
preferred stock n/a n/a n/a n/a
Weighted average of
common shares outstanding,
assuming dilution 19,029,249 20,213,302 18,939,455 17,727,344
See Notes to Consolidated Financial Statements
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
------------------ ------------------
ASSETS 1999 1998
- ------ ---- ----
(Unaudited)
CURRENT ASSETS:
Cash $1,328,719 $416,361
Accounts receivable - net 2,998,796 2,320,404
Inventories 908,003 684,737
Prepaid expenses and other assets 326,006 259,379
------------------ ----------------
5,561,524 3,680,881
PROPERTY - net 692,676 738,337
PATENT - net 16,615,385 17,459,135
GOODWILL - net 16,301,252 11,192,133
------------------ ------------------
TOTAL $39,170,837 $33,070,486
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,181,937 $1,068,347
Accrued expenses 1,306,970 1,064,993
Current portion of notes payable 2,454,549 1,730,399
------------------ ------------------
TOTAL CURRENT LIABILITIES 4,943,456 3,863,739
NOTES PAYABLE - net of current portion 6,606,258 8,094,778
DEFERRED TAX LIABILITY 6,644,510 6,639,584
STOCKHOLDERS' EQUITY:
Convertible Preferred stock,
no par value; 1,000,000 shares
authorized, 300 shares of
Series A issued 3,000,000
Common stock, no par value;
100,000,000 shares authorized,
20,665,021 and 18,834,032
shares issued and outstanding
in 1999 and 1998 respectively 21,444,376 17,527,483
Accumulated deficit (3,467,763) (3,055,098)
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY 20,976,613 14,472,385
------------------ ------------------
TOTAL $39,170,837 $33,070,486
================== ==================
See Notes to Consolidated Financial Statements
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30,
1999 1998
---- ----
Operating activities:
Net (loss) income ($412,666) $333,785
Adjustments to reconcile net
(loss) income
to net cash used in operating activities:
Deferred tax benefit 4,926 (103,846)
Depreciation and amortization 1,929,801 628,643
Changes in assets and liabilities:
Accounts receivable, net (678,392) (1,703,211)
Inventories (223,266) (488,173)
Prepaid expenses and other assets (66,627) (163,345)
Accounts payable and accrued expenses 509,317 788,021
------------------ ------------------
Net cash provided by (used in)
operating activities 1,063,093 (708,126)
------------------ ------------------
Investing activities:
Capital expenditures (364,417) (244,537)
Net cash paid in acquisitions (1,495,092) (1,104,665)
------------------ ------------------
Net cash used in investing activities (1,859,509) (1,349,202)
------------------ ------------------
Financing activities:
Issuance of series A preferred stock 3,000,000
Payments received on notes receivable
issued for common stock 2,073,562
Cash received from exercise
of stock options 73,144 99,927
Payments on notes payable (37,000)
------------------ ------------------
Net cash provided by
financing activities 1,708,774 2,136,489
------------------ ------------------
Net increase in cash 912,358 79,161
Cash at beginning of period 416,361 392,712
------------------ ------------------
Cash at end of period $1,328,719 $471,873
================== ==================
SUPPLEMENTAL DISCLOSURE ON NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of notes payable $ 600,000 $ 10,000,000
Common stock issued in acquisitions $ 3,690,000 $ 10,558,996
Reclassification of evaluation
inventory units to property $ 88,372
Discount on redemption of note
receivable for common stock $ 44,274
Common stock issued to reduce
accounts payable $ 153,750
See Notes to Consolidated Financial Statements
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements as of and for the nine months ended
September 30, 1999 and 1998 are unaudited and have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for any other interim period or for the year ending December 31, 1999.
NOTE 2 - BALANCE SHEET DETAILS
9/30/99 12/31/98
---------------- -------------
Accounts receivable $3,088,496 $2,384,604
Less allowance for doubtful accounts 89,700 64,200
---------------- --------------
$2,998,796 $2,320,404
---------------- --------------
Inventory:
Raw materials $515,949 $364,889
Work in progress 262,886 214,155
Finished goods 129,168 105,693
---------------- -------------
Total $908,003 $684,737
---------------- -------------
Property - at cost:
Computers and equipment $1,184,144 $835,320
Furniture and fixtures 227,498 211,905
Leasehold improvements 55,390 55,390
---------------- ----------------
1,467,032 1,102,615
Less accumulated depreciation 774,356 364,278
---------------- ----------------
$692,676 $738,337
---------------- ----------------
Goodwill $17,418,290 $11,633,203
Less accumulated amortization 1,117,038 441,070
---------------- ----------------
$16,301,252 $11,192,133
---------------- ----------------
Patent $18,000,000 $18,000,000
Less accumulated amortization 1,384,615 540,865
---------------- ----------------
$16,615,385 $17,459,135
---------------- ----------------
Depreciation expense was $239,335 and $141,345 for the nine months ended
September 30, 1999 and 1998, respectively. Amortization expense was $1,519,712
and $487,297 for the nine months ended September 30, 1999 and 1998,
respectively.
NOTE 3 - ACQUISITIONS
Effective August 1, 1999, the Company acquired Innovative
Communication Technologies, Inc. ("ICTI"), a privately held company located in
Gaithersburg, Maryland. The purchase price included the payment of $1.5 million
cash to the ICTI shareholders, 1,665,000 shares of the Company's common stock
and the issuance of promissory notes in the amount of $600,000. In addition, a
promissory note in the amount of $400,000 was issued subject to certain revenue
targets. The Company purchased ICTI's assets of $1.6 million, liabilities of
$1.5 million and recorded goodwill in the amount of $5.5 million. Due to the
timing of the acquisition, estimates have been made for certain assets which may
be later adjusted.
ICTI is engaged in the design and implementation of bandwidth efficient
multimedia satellite networks. ICTI develops customized software solutions to
manage and allocate available satellite power/bandwidth resources to optimize a
satellite system's lifecycle costs.
NOTE 4 - SELLING STOCKHOLDER REGISTRATION WITH THE SECURITIES AND EXCHANGE
COMMISSION
On May 11, 1999 a Registration Statement on Form SB-2 filed with the Securities
& Exchange Commission ("Commission") was declared effective, providing for the
registration of 10,154,865 of common stock on behalf of certain selling
stockholders, including (1) QUALCOMM, Inc., one of the Company's major
suppliers, (2) shares received by an officer and director in connection with a
Restricted Stock Purchase Agreement, (3) warrants granted to two directors of
the Company, (4) warrants granted to a Company consultant and (5) shares
purchased by shareholders in private transactions. The Company did not receive
any proceeds related directly to the Form SB-2.
NOTE 5 - STOCK OPTIONS
Under the amended and restated 1996 Stock Option Plan ("the Plan"), the Company
may grant incentive and non-qualified options to purchase up to 4,000,000 shares
of common stock to employees, directors and consultants at prices that are not
less than 100% (85% for non-qualified) of fair market value on the date the
options are granted. Option life for non qualified options will not exceed 10
years and for Incentive stock options, the life shall be a 10 year period after
the options are granted and generally become exercisable ratably over a
five-year period following the date of grant. At September 30, 1999, there were
3,168,000 options outstanding under the plan.
NOTE 6 - 401(k) PLAN
In April 1999, the Company implemented a 401(k) plan allowing eligible employees
to contribute up to 10% of their salary, not to exceed $10,000 annually. The
Company matches 25% of the employees contribution with a three year vesting
schedule. During the third quarter the company contributed a total of $15,535 to
the plan.
NOTE 7 - GEOGRAPHIC AND BUSINESS SEGMENT INFORMATION
The Company operates what management believes to be two reportable business
segments: Communications and Video Compression/Multiplexing. The Company's
reportable segments are strategic business units that offer different products
and services. They are managed separately based on fundamental differences in
their operations.
The Communications segment consists of the operations of Boatracs, Boatracs
(Europe) B.V. and Oceantracs, Inc., as well as the operations of Boatracs
Gulfport. Effective August 1, 1999, the Company completed the acquisition of
Innovative Communications Technologies, Inc. "ICTI" (see Note 3 - Acquisitions).
The operations of ICTI are part of the Communications segment. The
Communications segment has exclusive distribution rights in the United States
for marine application of the OmniTRACS system of satellite-based communication
and tracking systems manufactured by QUALCOMM, Incorporated ("QUALCOMM"). In
addition, the Company's wholly owned subsidiaries, Boatracs (Europe) B.V. and
Oceantracs, Inc. have agreements with QUALCOMM's authorized service providers in
Europe and Canada for marine distribution of the OmniTRACS system in parts of
Europe and Canada. Boatracs Gulfport is a provider of software applications and
service solutions to the commercial work boat and petroleum industries,
including customers of Boatracs. ICTI is engaged in the design and
implementation of bandwidth efficient multimedia satellite networks. ICTI
develops customized software solutions to manage and allocate available
satellite power/bandwidth resources to optimize a satellite system's lifecycle
costs.
The Video Compression segment consists of the operations of Enerdyne
Technologies, Inc. ("Enerdyne") which the Company acquired in July 1998.
Enerdyne is a provider of versatile, high performance digital video compression
products and multiplexing equipment to the government and commercial markets.
Information by industry segment for the nine months ended September 30, 1999 is
set forth below.
Video
Communications Compression/ Consolidated
--------------- Multiplexing ------------
-------------
Revenues $5,987,749 $ 3,084,924 $9,072,673
Income (loss) from
operations 686,635 (568,866) 117,769
Interest income 23,570 4,005 27,575
Interest expense 10,182 580,396 590,578
Depreciation and
amortization 320,219 1,438,829 1,759,048
Total assets $10,533,549 $28,637,288 $39,170,837
The Company has two foreign subsidiaries: Boatracs (Europe) B.V. and Oceantracs
Inc. Boatracs (Europe) B.V. is located in The Netherlands and provides
communication services to the European market. Oceantracs Inc. provides
communication services in Eastern Canada. In addition, Enerdyne has limited
foreign sales. ICTI has substantial international business. The following table
presents revenues and long lived assets (excluding goodwill) for each of the
geographical areas in which the Company operates:
Nine months ended Nine months ended
9/30/99 9/30/98
Long- Long-
Lived Lived
Revenues Assets Revenues Assets
United States $7,631,036 $17,233,513 $7,171,001 $18,379,561
International 1,441,637 74,548 198,689 117,966
------------- ----------- ------------ ------------
Total $9,072,673 $17,308,061 $7,369,690 $18,497,527
------------- ------------ ------------- -------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The Company has two main segments:
1. Communications Systems which comprises two business units
(BOATRACS and Innovative Communications Technologies Inc.
("ICTI"))and
2. Enerdyne Technologies, Inc. ("ENERDYNE"), a wholly owned subsidiary
In the Communications Systems segment, the Company earns revenues primarily from
three sources:
(a) sales of satellite based communications equipment and software, and
additional complementary and/or modified equipment created or procured by
BOATRACS for marine application;
(b) data transmission and messaging charges;
(c) design and implementation of bandwidth efficient multimedia
satellite networks and satellite communications software.
Enerdyne Technologies, Inc. ("Enerdyne") earns revenue from the development and
sales of video compression products and multiplexing equipment.
Effective August 1, 1999, the Company acquired ICTI, a Maryland corporation.
ICTI designs and implements bandwidth efficient multi-media satellite networks.
At the annual meeting of shareholders on May 11, 1999, the Company passed a
resolution to change its name. To more accurately reflect the Company's
capabilities, BOATRACS, Inc. has changed its name to Advanced Remote
Communications Solutions Inc. (ARCOMS). ARCOMS is a global company delivering
innovative and proprietary solutions to customers in specific markets for their
remote information needs. BOATRACS is a business unit of ARCOMS; Enerdyne
Technologies Inc. and ICTI remain wholly owned subsidiaries of ARCOMS. ARCOMS is
headquartered in San Diego, and has offices in Santee, CA, Gulfport, MS,
Gaithersburg, MD and The Netherlands.
Statements within this 10-QSB which are not historical facts, including
statements about strategies and expectations for new and existing products,
technologies, and opportunities, are forward-looking statements that involve
risks and uncertainties. The Company wishes to caution readers to the risk
factors inherent to the business including, but not limited to, the continuing
reliance upon QUALCOMM, Inc., one of the major suppliers of equipment sold by
the Company, and reliance upon QUALCOMM's Network Management Facility through
which the Company's message transmissions are formatted and processed. These and
other risks are more fully described in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1998.
For the three months ended September 30, 1999 and 1998
Total revenues for the quarter ended September 30, 1999, were $3,525,890 an
increase of $220,908 or 7% as compared to total revenues of $3,304,982 for the
quarter ended September 30, 1998.
Communications systems revenues, which consist of revenues from the sale of
BOATRACS systems and related software and in addition, two months of ICTI
revenues (see Note 3 - Acquisitions) were $1,593,864 or 45% of total revenues,
an increase of $712,321 or 81% compared to $881,543 or 27% of total revenues in
the third quarter of 1998. The increase in communication systems revenues
compared to the same period of the prior year, includes ICTI revenues of
$1,137,478 for the months of August and September, 1999. Communication systems
revenues from the sale of BOATRACS systems and related software were $456,386
compared to $881,543 in the same period of the prior year, a decrease of
$425,157 or 48%. The decrease reflects a decrease in US and Europe sales of
BOATRACS units and software.
Data transmission and messaging revenues were $1,190,346 or 34% of total
revenues, an increase of $150,858 or 15% compared to $1,039,488 or 31% of total
revenues in the third quarter of 1998. The increase in revenues reflects an
overall increase in data transmission and messaging services provided by the
Company as a result of growth in the number of BOATRACS systems installed on
vessels in the past twelve months.
Video compression revenues were $741,680 or 21% of total revenues, a decrease of
$642,271 or 46% compared to $1,383,951 or 42% of total revenues in the prior
comparable period. The decrease in video compression revenues relates to
decreased sales in the US market.
Communications systems expenses were $394,100 or 25% of communications systems
revenues for the quarter ended September 30, 1999, a decrease of $141,006 or
26%, compared to $535,106 which represented 61% of communications systems
revenues in the corresponding quarter of the prior year. The dollar decrease in
expenses primarily reflects the decrease in communication systems sales. The
total expense also includes two months of ICTI's costs. The increase in gross
margin to 75% from 39% in the prior year is a combination of higher margins due
to an increase in the margins of BOATRACS systems from 39% to 47%, inclusion of
a higher margin for ICTI and an increase in software margins.
Data transmission and messaging expenses were $363,179 or 31% of data
transmission and messaging revenues for the quarter ended September 30, 1999, a
decrease of $145,064 or 29%, compared to $508,243 which represented 49% of data
transmission and messaging revenues in the corresponding quarter of the prior
year. The dollar decrease in costs and the increase in gross margin percentage
in the third quarter of 1999 of 18% is primarily due to a change in the billing
structure and also a reduction in costs from the service provider during the
second half of 1998 and further price reduction in the second quarter of 1999.
Video compression expenses were $258,384 or 35% of video compression revenues in
the third quarter, a decrease of $128,414 or 33% compared to $386,798 or 28% of
video compression revenues in the same period of the prior year. The decrease in
expenses reflects the decrease in video compression sales. The decrease in
margin of 7% reflects changes in the mix of products sold.
Selling, general and administrative expenses were $2,412,362 or 68% of total
revenues for the quarter ended September 30, 1999, an increase of $928,435 or
63%, compared to $1,483,927 or 45% of total revenues in the prior corresponding
quarter. Of the total expenses for the quarter, $442,261 relates to two months
expenses of ICTI. Excluding ICTI, the increase is primarily attributable to
increases in general operating expenses. Salary expenses increased due to
additional employees in the amount of $340,644 or 62%, taxes increased by
$100,234, consulting increased by $22,398 and general office expenses increased
by $46,470. In addition, amortization of goodwill and a patent increased by
$126,776 to $571,824 for the three months ended September 30, 1999 compared to
$445,048 in the prior period and depreciation of property increased $15,238 to
$84,433 for the three months ended September 30, 1999 compared to $69,195 in the
same comparable period.
Earnings before interest, taxes, depreciation and amortization for the
quarter ended September 30, 1999 were $754,124 compared to $905,151 in the
third quarter of 1998.
Interest expense in the amount of $182,689 for the third quarter of 1999 and
$201,556 in the third quarter of 1998, primarily represents interest on notes
payable issued in connection with the acquisition of Enerdyne on July 7, 1998.
The income tax expense was $190,932 in the third quarter of 1999 compared to a
income tax benefit recorded in the amount of $103,846 in the corresponding
quarter of the prior year. The difference represents the loss of past loss carry
forwards creating income tax expense versus a tax benefit in the prior year. The
income tax benefit resulted from the amortization of a temporary tax difference
on the life of the Enerdyne patent and the utilization of loss carry forwards.
For the nine months ended September 30, 1999 and 1998
Total revenues for the nine months ended September 30, 1999, were $9,072,673, an
increase of $1,702,983 or 23% as compared to total revenues of $7,369,690 for
the nine months ended September 30, 1998.
Communications systems revenues, which consist of revenues from the sale of
BOATRACS systems and related software and in addition, two months of ICTI
revenues (see Note 3 - Acquisitions) were $2,587,597 or 29% of total revenues, a
decrease of $646,557 or 20% compared to $3,234,154 or 44% of total revenues in
the corresponding period of the prior year. The decrease in communication
systems revenues compared to the same period of the prior year, reflects
decreased sales in the United States and Europe. During the first nine months of
1998 the Company experienced substantial sales resulting from legislation
related to the fishing industry in the northeast United States. The decrease was
partially offset by the two months revenues of ICTI in the amount of $1,137,478.
Data transmission and messaging revenues were $3,400,152 or 37% of total
revenues, an increase of $648,567 or 24% compared to $2,751,585 or 37% of total
revenues in the corresponding nine months of 1998. The increase in revenues
reflects an overall increase in data transmission and messaging services
provided by the Company as a result of growth in the number of BOATRACS systems
installed on vessels in the past year.
Video compression revenues were $3,084,924 or 34% of total revenues, an increase
of $1,700,973 or 123% compared to revenues of $1,383,951 or 19% of total
revenues in the same period of the prior year represent revenues from Enerdyne
which the Company acquired on July 7, 1998.
Communications systems expenses were $1,033,957 or 40% of communications systems
revenues for the nine months ended September 30, 1999, a decrease of $990,821 or
49%, compared to $2,024,778 which represented 63% of communications systems
revenues in the corresponding nine months of the prior year. The dollar decrease
in expenses primarily reflects the decrease in communication systems sales
partially offset by the inclusion of ICTI's costs in the amount of $153,025. The
gross margin on Boatracs systems and related software was 39% for the nine
months ended September 30, 1999 compared to 37% in the same period of the prior
year. The margin includes two months of ICTI.
Data transmission and messaging expenses were $1,138,462 or 34% of data
transmission and messaging revenues for the nine months ended September 30,
1999, a decrease of $327,154 or 22%, compared to $1,465,616 which represented
53% of data transmission and messaging revenues in the corresponding nine months
of the prior year. The dollar decrease in expenses and the increase in gross
margin of 20% is due primarily to a new contract with volume discounts from the
supplier commencing in the second half of 1998 with additional reduction in the
second quarter of 1999.
Video compression expenses were $1,013,870 for the nine months or 33% of video
compression revenues, an increase of $627,072 or 162% compared to the prior
year. Enerdyne was purchased on July 7, 1998 and only 3 months of expenses and
revenues are included in the year to date number for 1998. The gross margin of
67% for the nine months ended September 30, 1999 was a decrease of 5% compared
to the gross margin of 72% for the same period in the prior year.
Selling, general and administrative expenses were $5,768,615 or 64% of total
revenues for the nine months ended September 30, 1999, an increase of $2,666,582
or 86%, compared to $3,102,033 or 42% of total revenues in the prior
corresponding period. Of the total increase, $442,261 relates to the expenses of
ICTI. The remaining increase relates to general operating expenses. Salary
expenses increased due to additional employees in the amount of $937,414 or 69%,
rent increased by $68,509 or 48% due to the relocation to a new corporate office
in July, 1998, insurance increased by $70,688 or 74% and travel increased by
$78,321 or 50% all due to additional staff and expenses related to the
acquisition of Enerdyne in July, 1998. In addition, amortization of goodwill and
a patent was $1,519,712 for the nine months ended September 30, 1999 compared to
$487,297 for the nine months ended September 30, 1998. Depreciation expense was
$239,335 for the nine months ended September 30, 1999 compared to $141,345 in
the corresponding period of the prior year.
Earnings before interest, taxes, depreciation and amortization for the nine
months ended September 30, 1999 were $1,876,816 compared to $1,019,107 for the
nine months ended September 30, 1998.
Interest expense in the amount of $590,578 for the nine months ended September
30, 1999 and $201,556 for the nine months ended September 30, 1998, primarily
represents interest on notes payable issued in connection with the acquisition
of Enerdyne on July 7, 1998.
The income tax benefit recorded in the amount of $32,568 for the nine months
ended September 30, 1999 represents the amortization of a temporary tax
difference on the life of the Enerdyne patent. The income tax benefit recorded
for the nine months ended September 30, 1998 was $103,846.
Liquidity and Capital Resources
The Company's cash balance at September 30, 1999 was $1,328,719, an increase of
$912,358 compared to the December 31, 1998 cash balance of $416,361. At
September 30, 1999, working capital was $618,068 an increase of $800,926 from
the negative working capital of $182,858 at December 31, 1998. Cash of
$1,063,093 was provided by operating activities, cash of $1,859,509 was used in
investing activities and cash of $1,708,774 was provided by financing activities
in the first nine months of 1999.
On December 29, 1998, the Company signed a promissory note with a bank in the
amount of $4,250,000 and used the proceeds to pay down a portion of a $8,000,000
note issued in connection with the acquisition of Enerdyne. The interest rate on
the promissory note is 7.75% per annum, subject to change from time to time and
will be paid over five years in monthly payments of $70,833. In addition, the
Company entered into a line of credit agreement with the bank to borrow up to
$750,000 at an interest rate equal to the lender's prime rate which was 7.75% on
December 29, 1998. The agreement expires on December 29, 2000. There were no
amounts drawn on the line at September 30, 1999. The promissory note and line of
credit require that the Company meet certain covenants. At September 30, 1999
the Company was in compliance with these covenants.
Accounts receivable net of an allowance for uncollectible accounts increased
$678,392 to $2,998,796 at September 30, 1999 from $2,320,404 at December 31,
1998 due primarily to the timing and decrease of total sales for the quarter
ended September 30, 1999. Property, net of accumulated depreciation, was
$692,676 at September 30, 1999, a decrease of $45,661 due primarily to
depreciation expense. Patent, net of amortization, decreased by $843,750 due to
amortization expense in the first nine months of 1999. Goodwill, net of
amortization increased by $5,109,119 to $16,301,252 primarily due to the
goodwill recorded in the acquisition of ICTI in the amount of $5,587,211 and was
offset by amortization expense for the nine months ending September 30, 1999.
Accounts payable were $1,181,937 as of September 30, 1999, an increase of
$113,590 compared to a balance of $1,068,347 at December 31, 1998. Accrued
expenses increased $241,977 at September 30, 1999 to $1,306,970 from $1,064,993
at the same period of the prior year. The increase is primarily due to the
payables incurred with the acquisition of ICTI offset by a reduction in the
terms to a major supplier in the second quarter and additional volume discounts
received which also reduced payables. Total notes payable (short term plus long
term) in the amount of $9,060,807 at September 30, 1999 compared to $9,825,177
at year end relates to the promissory note to a bank entered into December 1998
and notes owing to the previous owners of ENERDYNE. The balance increased by
$600,000 in the nine months ended September 30, 1999 due to a note issued in the
acquisition of ICTI, offset by payments during the nine months in the amount or
$1,364,370.
The Company anticipates making capital expenditures in excess of $300,000 during
1999, excluding assets acquired in acquisitions. To date, the Company has
financed its working capital needs through private loans, the issuance of stock
and cash generated from operations. Expansion of the Company's business may
require a commitment of substantial funds. To the extent that the net proceeds
of recent private financing activities and internally generated funds are
insufficient to fund the Company's operating requirements, it may be necessary
for the Company to seek additional funding, either through collaborative
arrangements or through public or private financing. There can be no assurance
that additional financing will be available on acceptable terms or at all. If
additional funds are raised by issuing equity securities, dilution to the
existing shareholders may result. If adequate funds are not available, the
Company's business would be adversely affected.
Year 2000 Issues
In the operation of its business, the Company uses commercial computer software
primarily purchased from or provided by independent software vendors. After an
analysis of the Company's exposure to the impact of "year 2000 issues" (i.e.
issues that may arise resulting from computer programs that use only the last
two, rather than all four, digits of the year), the Company believes that such
commercial software is already substantially year 2000 compliant, and that
completion of year 2000 compliance should not have a material impact on the
Company's business, operations or financial condition.
The Company has performed an internal analysis, completed a summary plan that
identifies all critical systems, assessed the compliance status and a plan to
achieve compliance on non-compliant systems and has finalized a written plan to
address the year 2000 issues for both internally developed products and products
developed and manufactured by Qualcomm. Qualcomm has assured the Company that
all the products supplied to BOATRACS, Inc. during the course of the
relationship and going forward will be upgraded to ensure compliance with Year
2000 standards. All units in operation have been upgraded to compliance at no
charge to the Company or customers. Only deactivated units remain to be upgraded
when reactivated.
For internally developed products, the software has been upgraded and testing is
complete. No problems were discovered in the testing phase. Development costs
associated with the upgrade have been included in operations as incurred. The
Company has spent a total of $18,500 to date and does not anticipate incurring
any further material expenses. Expenses have been recorded in operations as
incurred.
The Company is not in a position to evaluate the extent (if any) to which any
year 2000 issues that may affect the economy generally would also be likely to
affect the Company. Failure of one or more of the Company supplier's computer
products to be year 2000 compliant would have a material effect on the Company's
business.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not aware of any current or pending legal proceedings to which
the Company is a party.
ITEM 2. CHANGES IN SECURITIES
In September 1999, the Company issued 9,568 shares to a company employee under
the terms of an Employment Agreement effective November 1997 and in reliance on
Section 4 (2) of the Securities Act of 1933. The shares were valued at $3.34
each.
On September 28, 1999 the Company issued 1,665,000 shares of the Company's
common stock valued at $2.125, which represents a 15% discount from the market
value due to trading restrictions on the stock, to former shareholders of ICTI
pursuant to the terms of an Agreement and Plan of Reorganization in reliance on
Section 4 (2) of the Securities Act of 1933. See note 3 - Acquisitions.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Inapplicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable
ITEM 5. OTHER INFORMATION
Inapplicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Item:
(a)(1) Exhibit 11 - Computation of Net Earnings per share
(filed herewith).
2.1 Agreement of Merger and Plan of Reorganization. Incorporated by
reference to the Company's Form 8-K filed with the Securities and
Exchange Commission on October 7, 1999.
10.30 Employment Agreement with Mohammed G. Abutaleb dated September 28,
1999 (filed herewith).
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except earnings per share data)
Three months ended Nine months ended
September 30 September 30
1999 1998 1999 1998
---- ---- ---- ----
Net (loss) income ($254) $296 ($413) $334
Basic earnings per common share ($.01) $.02 ($.02) $.02
Diluted earnings per common share n/a $.01 n/a $.02
Weighted average common shares
outstanding 19,029 18,691 18,939 16,810
Weighted average common shares
outstanding assuming 19,029 20,213 18,939 17,727
dilution
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the Undersigned,
thereunto duly authorized.
ADVANCED REMOTE COMMUNICATION SOLUTIONS, Inc.
Registrant
November 12, 1999 /s/ MICHAEL SILVERMAN
Date MICHAEL SILVERMAN
CHAIRMAN OF THE BOARD
November 12, 1999 /s/ JOHN O'BRYANT
Date CHIEF FINANCIAL OFFICER
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of September
28, 1999 among Innovative Communications Technologies, Inc., a Delaware
Corporation with a principal offices located at 9201 Gaither Road, Gaithersburg,
Maryland 20877 ("Employer"), Advanced Remote Communications Solutions, Inc., a
California Corporation with an address at 10675 Sorrento Valley Road, Suite 200,
San Diego, California 92121 ("Parent") and Mohammed G. Abutaleb, an individual,
with an address at 7308 Loch Edin Court, Potomac, Maryland 20854 ("Employee"),
with reference to the following facts:
RECITALS:
A. The Employer is currently a wholly owned Subsidiary of Parent.
B. Employee is experienced in managing the business formerly conducted
by Innovative Communications Technologies, Inc., a Maryland Corporation
("ICTI").
C. ICTI has been merged into Employer pursuant to the Agreement of
Merger and Plan of Reorganization entered into as of September 28, 1999 among
ICTI, Employer, Parent and the Shareholders of ICTI (the "Merger Agreement").
D. Employer desires to employ Employee to perform the duties and
responsibilities described herein on the terms and conditions hereinafter set
forth.
E. Certain other capitalized terms used in this Agreement are defined
in attached Exhibit G.1.
1. Employment. Employer hereby employs Employee and Employee hereby accepts such
employment upon the terms and conditions hereinafter set forth.
2. Duties. Subject to the terms and provisions of this Agreement, Employee
hereby is employed by Employer as the President of Employer. Employee's duties
shall consist of such duties as customarily are associated with service in such
capacity, and shall perform such duties as are more fully described on attached
Exhibit G.2. Employee shall report directly to the Chief Executive Officer of
Employer or his designee. During the Term of this Agreement, it is understood
that Employee may be requested from time to time to provide assistance or
consultative or other services to, or act temporarily as an executive of Parent
or any of its Affiliates or Subsidiaries other than (and in addition to) the
Employer and any Subsidiaries of the Employer. Employee shall perform such
services and, if elected as an officer or director of any such other entity,
shall hold such office (and discharge its duties) without additional
compensation other than the compensation set forth in this Agreement. Parent and
the Employer shall indemnify and hold harmless Employee from any claim asserted
against him as an employee, officer or director of the Employer (or Parent,
Affiliates and/or Subsidiaries, if applicable) to the fullest extent permitted
by applicable State law or as permitted under Employer's bylaws unless such
claim arises from the gross negligence, willful misconduct or a material breach
of this Agreement.
3. Scope of Services. Employee shall devote substantially all of his business
time, attention, energies, skills, learning and efforts to Employer's Business.
The principal place of employment of Employee shall be within a forty (40) mile
radius of Gaithersburg, Maryland or such other location as is consented to by
Employee. It is, however, understood and agreed that Employee may be required,
in connection with the performance of his duties, to travel from time to time to
other locations designated by the Chairman or the Board of Directors or as
required in connection with the Employer's Business; provided, that such travel
shall not exceed thirty percent (30%) of Employee's time. When required to
travel to and/or spend time at such other locations, Employee's reasonable
traveling and temporary living expenses shall be reimbursed to him by the
Employer, upon his submittal of detailed written vouchers, supported by
appropriate documentation and subject to the then prevailing travel and
reimbursement policies of Parent with respect to Executives.
4. Term of Employment. The employment of Employee pursuant to this Agreement
shall commence as of the execution of this Agreement and continue until
terminated on the earlier to occur of: (i) the third anniversary of the
execution of this Agreement; or (ii) the first date on which such employment is
terminated in accordance with Section 7 hereof (the "Term" or the "Term of
Employment").
5. Compensation. The Employer shall pay Employee, as compensation for
all of the services to be rendered by him hereunder during the Term, the Base
Compensation and Benefits as defined, provided for and determined pursuant to
this Agreement.
5.1. Employee's annual base compensation ("Base Compensation") under this
Agreement prorated for any partial year, shall be $120,000 per year, commencing
on the execution of this Agreement. The Base Compensation shall be payable in
accordance with the ordinary payroll procedures of Employer. Any increases in
Base Compensation relative to Employee's performance shall be in the sole and
absolute discretion of Employer.
6. Other Rights and Benefits. Employee shall also be entitled to those Benefits
afforded to Executives of the Parent and its Subsidiaries (taking into
consideration the applicable Employer's policies, Employee's years of employment
position and responsibilities with ICTI for purposes of establishing vesting
rights and level of Benefits), commencing as of the execution of this Agreement,
including the following (collectively, the "Benefits").
6.1. The type and amount of Benefits to be afforded Employee under this
Agreement shall be provided on terms not less comprehensive than provided by
ICTI to Employee immediately prior to the execution of this Agreement, as set
forth on attached Exhibit G.3 (the "ICTI Employee Benefits"). If, as of the
execution of this Agreement, it is determined that the level of any Benefit
provided by Employer to Employee is less comprehensive than the ICTI Employee
Benefits, then Employer shall, for each such Benefit, maintain the corresponding
ICTI Employee Benefit. If, during the Term of Employment it is determined that
the level of any Benefit provided by Employer to Employee is either less
comprehensive than the ICTI Employee Benefit immediately prior to the execution
of this Agreement, then Employer shall at Employer's option either: (i) provide
Employee a Benefit comparable to the corresponding ICTI Employee Benefit that
existed immediately prior to the execution of this Agreement; or (ii) make such
equitable adjustment as may be necessary to compensate Employee for the cost of
the ICTI Employee Benefits valued as of execution of this Agreement.
6.2. Employee shall be reimbursed for business use of personal automobile(s) in
accordance with the policy of the Parent and its Subsidiaries and the applicable
IRS regulations.
6.3. Employee shall participate in Parent's Bonus Plan consistent with that
afforded to other executives of Parent and its Subsidiaries with comparable
seniority.
7. Termination. The employment of Employee may be terminated as follows:
7.1. Termination by Mutual Agreement. Employer and Employee may mutually agree
in writing to terminate Employee's employment. If not previously terminated,
this Agreement and Employee's employment shall automatically terminate on the
third anniversary of the execution of this Agreement unless Employer and
Employee agree in writing to continue employment.
7.2. Termination for Death. If Employee dies during the Term: (i) his employment
under this Agreement shall automatically terminate on the date of death; and
(ii) the Employer shall immediately pay to the estate of the Employee such Base
Compensation and Benefits, earned but not yet paid, as would otherwise have been
payable to the Employee up to the date of death.
7.3. Termination Upon Disability. Employee's employment shall terminate if
Employee should become totally and permanently disabled. For purposes of this
Agreement, Employee shall be considered "totally and permanently disabled" if
Employee is treated as permanently "disabled" under any permanent disability
insurance policy maintained by Employer and is entitled to full benefits payable
under such policy upon a total and permanent disability. If any such policy is
either not in force or the benefits are not available under such policy, then
"total and permanent disability" shall mean the inability of Employee, as a
result of substance abuse, any mental, nervous or psychiatric disorder, or
physical condition, injury or illness to perform substantially all of his duties
on a full-time basis continuously for a period of six (6) consecutive months, as
determined by a licensed physician selected by the Board of Directors of
Employer and acceptable to Employee, in his reasonable judgment, which
physician's decision shall be final and binding upon the parties hereto.
Employer covenants to pay the premiums on such disability insurance policy
during the Term of Employment unless the premiums and/or coverage becomes
commercially unreasonable in which event the provision of Section 6.1(ii) shall
apply. If this Agreement is terminated as a result of Employee's disability,
Employer will pay Employee his Base Compensation and Benefits through the
remainder of the calendar month during which termination is effective and for
such period until disability insurance benefits commence under the disability
insurance coverage furnished by the Employer to the Employee.
7.4. Termination by Employer for Good Cause. Employer may terminate this
Agreement: (a) at will, for any reason, or for no reason at all, on or after the
third anniversary of the Closing; or (b) for "Good Cause" after applicable
notice and opportunity to cure in accordance with Section 7.6 herein. For
purposes of this Agreement, "Good Cause" shall mean the existence or occurrence
of any of the following:
7.4.1. Employee's conviction of a crime of moral
turpitude or of any crime punishable as a felony.
7.4.2. Employee's conviction of theft, embezzlement
or fraud.
7.4.3. Employee's willful violation of a reasonable
Employer policy previously made known to him in writing
or a reasonable directive of the Board of Directors of Employer previously
provided to him in writing.
7.4.4. Employee's breach of his obligations set
forth in Sections 8 and 10, inclusive, of this Agreement.
7.4.5. Any repeated neglect or willful breach of duty
by Employee under this Agreement, or any repeated and
willful failure by Employee to perform under this Agreement.
7.4.6. Employee's breach of any material provision
of this Agreement, on his part to be performed.
7.4.7. Employee's breach of any material term of
the Merger Agreement or the Transaction Documents as
defined in the Merger Agreement.
7.4.8. Employee's actual termination of his
employment without Good Reason.
7.4.9. Employee's breach of any material provision
of the Covenant Not to Compete Agreement.
If Employee's employment is terminated by Employer for "Good Cause" hereunder,
then Employee shall be entitled to receive only the following payments: (a) any
portion of the Base Compensation and Benefits accrued to the date of such
termination and not theretofore paid to him, and (b) reimbursement for any
expenses properly incurred by Employee prior to such termination and which have
not theretofore been reimbursed.
7.5. Termination by Employee for Good Reason. Employee may terminate Employee's
employment for "Good Reason", after applicable notice and opportunity to cure in
accordance with Section 7.6 herein. For purposes of this Agreement, "Good
Reason" shall mean the existence or occurrence of any of the following:
7.5.1. The Parent adopting of a plan of dissolution or liquidation.
7.5.2. Employer's or Parent's breach of any material provision of this
Agreement, on its part to be
performed
7.5.3. Parent's and/or Employer's breach of any material term of the
Merger Agreement or the Transaction
Documents as defined in the Merger Agreement.
7.5.4. Employer's actual termination of Employee's employment without
Good Cause.
7.5.5. A breach of Section 9.3 of the Merger
Agreement.
If Employee's employment is terminated by Employee for "Good Reason" hereunder,
then, in addition to any other rights that Employee may have under applicable
law for Employer's breach of the Agreement, the Employer shall, subject to
Employee's obligation to mitigate damages as provided by applicable law, if any,
continue to pay Employee Base Compensation and provide Benefits to Employee
through the third anniversary of the execution of this Agreement as if the
Agreement had not been terminated.
7.6. Cure of Default. No failure or default by Employer or Employee under this
Agreement shall result in the termination of Employee's employment or this
Agreement or any right hereunder unless and until the terminating Party shall
have provided written notice to the other Party (Section 23 herein) of such
failure or default and the Party in default shall have failed to remedy such
failure or cure such default within seven (7) days of the receipt of such
notice.
8. Representations and Warranties. Employee hereby represents and warrants that
as of the date of execution of this Agreement: (i) this Agreement will not cause
or require Employee to breach any obligation to, or agreement or confidence
with, any other person; (ii) Employee is not representing, or otherwise
affiliated in any capacity with, any other lines of products, manufacturers,
vendors or customers of Employer; and (iii) Employee has not been induced to
enter into this Agreement by any promise or representation other than as
expressly set forth in this Agreement, the Merger Agreement and the Transaction
Documents.
9. Proprietary Information.
9.1. For purposes of this Agreement, "Proprietary Information" shall mean any
information, observation, data, written material, record, document, computer
program, software, firmware, invention, discovery, improvement, development,
tool, machine, apparatus, appliance, design, promotional idea, customer list,
practice, process, formula, method, technique, trade secret, product, customer
lists, product design information, performance standards and/or research related
to the actual or anticipated research, marketing strategies, pricing
information, business records, financial statements, reports and other financial
data, development, products or organization (as the foregoing is demonstrated by
contemporaneous written evidence) that relates to Employer's Business.
"Proprietary Information" shall not include: (i) that which is in the public
domain as of or after the execution of this Agreement except through any act or
omission of Employee; (ii) that which is released by Employer, Parent or their
respective Subsidiaries and Affiliates before or after the execution of this
Agreement; (iii) that which qualifies fully under the provisions of California
Labor Code Section 2870 or any similar or successor statute; or (iv) that which
relates to a "Business Opportunity" that Employee notifies Employer of (except
as otherwise provided in Section 7.5 herein) and Employer does not invest in,
participate in or otherwise be affiliated with pursuant to Section 10 of this
Agreement (collectively, the "Qualified Information").
9.2. Except as otherwise provided herein, all right, title and interest of every
kind and nature whatsoever in and to the Proprietary Information made,
discussed, developed, created, invented, devised, conceived, discovered,
secured, obtained or learned (collectively, "Discovered") by Employee during the
Term of this Agreement, or the 60-day period immediately following the
Termination Date of this Agreement and the period of Employee's employment with
Employer's predecessor in title and interest, ICTI (the "Proprietary Information
Period"), shall be the sole and exclusive property of Employer for any purposes
or uses whatsoever, and shall be disclosed promptly by Employee to Employer. The
covenants set forth in the preceding sentence shall apply regardless of whether
any Proprietary Information is Discovered (a) solely or jointly with others, (b)
during the usual hours of work or otherwise, (c) at the request and upon the
suggestion of Employer or otherwise, or (d) with Employer's materials, tools,
instruments or on Employer's premises or otherwise. All Proprietary Information
Discovered by Employee during the Proprietary Information Period that are
subject to copyright protection are explicitly considered by Employee and
Employer to be works made for hire to the extent permitted by law. Employee
hereby assigns to Employer all of Employee's right, title and interest in and to
the Proprietary Information. Employee hereby forever fully releases and
discharges Employer, any Affiliates of Employer and their respective officers,
directors and employees, from and against any and all claims, demands, damages,
liabilities, costs and expenses of Employee arising out of, or relating to,
Employee's alleged ownership of title to compensation with respect to any
Proprietary Information assigned or conveyed to Employer under this Agreement.
Employee shall execute any documents and, at Employer's cost and expense, take
any action Employer may deem necessary or appropriate to effectuate Employer's
rights in and to the Proprietary Information Discovered by the Employee during
the Proprietary Information Period, including without limitation, assisting
Employer in obtaining and/or maintaining patents, copyrights or similar rights
to any such Proprietary Information assigned by Employee to Employer, if
Employer, in its sole discretion, requests such assistance. Employee shall
comply with any reasonable rules established from time to time by Employer for
the protection of the confidentiality of any Proprietary Information. Employee
irrevocably appoints the Chairman of ARCOMS to act as Employee's agent and
attorney-in-fact to perform all acts necessary to obtain and/or maintain
patents, copyrights and similar rights to any Proprietary Information assigned
by Employee to Employer under this Agreement if (a) Employee refuses to perform
those acts, or (b) is unavailable, within the meaning of any applicable laws.
Employee acknowledges that the grant of the foregoing power of attorney is
coupled with an interest and shall survive the death or disability of Employee.
Employee shall promptly disclose to Employer, in confidence (a) all Proprietary
Information that Employee Discovered during the Term of this Agreement, and (b)
all patent applications filed by Employee within six (6) months after the
Termination Date of this Agreement. Any application for a patent, copyright
registration or similar right filed by Employee within six months after the
Termination Date of this Agreement shall be presumed to relate to Proprietary
Information created by Employee during the Term of this Agreement, unless
Employee can prove otherwise. Nothing contained in this Agreement shall be
construed to preclude Employer from exercising all of its rights and privileges
as sole and exclusive owner of all of the Proprietary Information owned by or
assigned to Employer under this Agreement. Employer, in exercising such rights
and privileges with respect to any particular item of Proprietary Information,
may decide not to file any patent application or any copyright registration on
such Proprietary Information, may decide to maintain such Proprietary
Information as secret and confidential, or may decide to abandon such
Proprietary Information or dedicate it to the public. Employee shall have no
authority to exercise any rights or privileges with respect to the Proprietary
Information owned by or assigned to Employer under this Agreement. This
Agreement does not apply to any Proprietary Information that qualifies fully
under the provisions of California Labor Code Section 2870 or any similar or
successor statute.
9.3. Employee hereby acknowledges that Employer has made (or may make) available
to Employee during the Term of Employment, or Employee may Discover, certain
Proprietary Information (as defined in Sections 9.1 and 9.2 above) of Employer
and its Affiliates or Parent and its Subsidiaries (collectively, the
"Confidential Material"). Except as essential to Employee's obligations under
this Agreement, Employee shall not make any disclosure of any of the
Confidential Material. Except as essential to Employee's obligations under this
Agreement, Employee shall not make any duplication or other copy of any of the
Confidential Material. Immediately upon request from Employer, Employee shall
return to Employer all Confidential Material. Nothing contained in this Section
9 shall be construed as preventing Employee from providing Confidential Material
in compliance with a valid court order issued by court of competent
jurisdiction, providing Employee takes reasonable steps to prevent dissemination
of such Confidential Material. Employee shall comply with any reasonable rules
established from time to time by Employer for the protection of the
confidentiality of any Proprietary Information. Immediately upon request from
Employer, Employee shall return to Employer all Confidential Material. Employee
shall notify each person to whom any disclosure is made that such disclosure is
made in confidence, that the Confidential Material shall be kept in confidence
by such person, and that such person shall be bound by the provisions of this
Section.
10. Business Opportunities. Notwithstanding anything contained herein to the
contrary, during the Term of this Agreement, if Employee (or any agent,
employee, officer or independent contractor of or retained by Employee) becomes
aware of, or develops, creates, invests, devises, conceives or discovers, any
concept, technique, product, project, investment, venture, business or other
opportunity (any of the preceding, a "Business Opportunity") that is similar to,
competitive with, related to or in the same field as Employer or any Affiliate,
or any project, investment, venture, or business of Employer, Parent or any
Affiliate, or Subsidiary thereof, then Employee shall so notify Employer
immediately in writing of such Business Opportunity and shall use Employee's
good-faith efforts to cause Employer to have the opportunity to invest in,
participate in or otherwise become affiliated with such Business Opportunity. If
Employer decides to not invest in, participate in or otherwise become affiliated
with such Business Opportunity within two (2) months after being presented with
the Business Opportunity in writing by Employee, then Employee shall be free to
invest in any such Business Opportunity (to any extent within Employee's sole
and absolute discretion) and make such Business Opportunity available to any
other party(ies) (within Employee's sole and absolute discretion), subject to
Employee's compliance with all other terms of this Agreement.
11. Section Headings. The section headings or captions in this Agreement are for
convenience of reference only and do not form a part hereof, and do not in any
way modify, interpret or construe the intent of the Parties or affect any of the
provisions of this Agreement.
12. Survival. The Sections of this Agreement which relate to acts or events
subsequent to the Termination Date hereunder shall survive the termination of
this Agreement and Employee's employment and shall remain fully effective
thereafter according to their terms.
13. Venue and Jurisdiction. For purposes of venue and jurisdiction, this
Agreement shall be deemed made and to be performed in the City of San Diego,
California.
14. Arbitration.
14.1. Any claim, dispute or other controversy (a "Controversy") relating to this
Agreement shall be settled and resolved by binding arbitration in San Diego
County, California, before the American Arbitration Association ("AAA"). The
arbitration shall be conducted in accordance with AAA's rules and procedures,
except as expressly modified by this Section. The Parties to this Agreement (the
"Parties") shall be entitled to full discovery regarding the Controversy as
permitted by the California Code of Civil Procedure. The arbitrator's decision
on the Controversy shall be a final and binding determination of the Controversy
and shall be fully enforceable as an arbitration award in any court having
jurisdiction and venue over the Parties. The arbitrator shall also award the
prevailing Party any attorneys' fees and expenses the prevailing Party incurs in
connection with the arbitration, and the other Party shall pay the arbitrator's
fees and expenses. The arbitrator shall determine who is the prevailing Party.
Each Party submits to the exclusive jurisdiction of the courts located in San
Diego County, California, for purposes of Section 14.2 below compelling
arbitration or giving legal confirmation of any arbitration award. Each Party
also agrees to accept service of process for all arbitration proceedings in
accordance with AAA's rules.
14.2. The obligation to arbitrate shall not be binding upon either Party with
respect to requests for temporary restraining orders, preliminary injunctions or
other procedures in a court of competent jurisdiction to obtain interim relief
when deemed necessary by such court to preserve the status quo or prevent
irreparable injury pending resolution by arbitration of the actual dispute
between the parties.
14.3. The provisions of this Section shall be construed as independent of any
other covenant or provision of this Agreement; provided that if a court of
competent jurisdiction determines that any such provisions are unlawful in any
way, such court shall modify or interpret such provisions to the minimum extent
necessary to have them comply with the law.
14.4. This arbitration provision shall be deemed to be self-executing and shall
remain in full force and effect after expiration or termination of this
Agreement. In the event either Party fails to appear at any properly noticed
arbitration proceeding, an award may be entered against such Party by default or
otherwise notwithstanding said failure to appear.
15. Severability. Should any one or more of the provisions of this Agreement be
determined to be illegal or unenforceable in any relevant jurisdiction, then
such illegal or unenforceable provision shall be modified by the proper court,
if possible, but only to the extent necessary to make such provision
enforceable, and such modified provision and all other provisions of this
Agreement shall be given effect separately from the provision or portion thereof
determined to be illegal or unenforceable and shall not be affected thereby.
16. Waiver. The failure of any Party to enforce any provision of this Agreement
shall not be construed as a waiver of any such provision, nor prevent such party
thereafter from enforcing such provision or any other provision of this
Agreement. The rights granted the Parties herein are cumulative and the election
of one shall not constitute a waiver of such Parties' right to assert all other
legal remedies available under the circumstances.
17. Parties in Interest. Nothing in this Agreement, whether express or implied,
is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the Parties to this Agreement and their
respective heirs, executors, successors and permitted assigns, nor is anything
in this Agreement intended to relieve or discharge the obligation or liability
of any third person to any Party to this Agreement, nor shall any provision give
any third person any right of action over or against any Party to this
Agreement. Notwithstanding the foregoing sentence, Parent and its permitted
successors in interest (but no other persons) shall be deemed to be third-party
beneficiaries of this Agreement.
18. Assignment. The rights and obligations under this Agreement shall be binding
upon, and inure to the benefit of, the heirs, executors, permitted successors
and permitted assigns of the Parties. Except as specifically provided in this
Section 18, no Party may assign this Agreement or delegate their respective
responsibilities under this Agreement without the consent of the other Party
hereto. Upon the permitted assignment, sale, exchange or other transfer of
substantially all of the assets of Employer, Employer shall assign this
Agreement to such assignee/transferee; provided, that Employer shall make it a
condition of any such assignment, sale, exchange or transfer that such
assignee/transferee shall assume and be obligated to perform all of Employer's
duties and obligations under this Agreement. No assignment, sale, exchange or
transfer of this Agreement or substantially all of the assets of Employer shall
relieve Employer of, and Employer shall remain obligated to perform, its duties
and obligations under this Agreement, including, without limitation, payment of
the Base Compensation and Benefits set forth in Sections 5 and 6, above. No such
assignment, sale, exchange or transfer shall derogate Parent's guarantee of the
obligations of the Employer hereunder
19. Attorneys' Fees. In the event of any suit, action or arbitration to enforce
any of the terms or provisions of this Agreement, the prevailing Party shall be
entitled to its reasonable attorneys' fees and costs. The foregoing entitlement
shall also include attorneys' fees and costs of the prevailing party on any
appeal of a judgment and for any action to enforce a judgment.
20. Modification. This Agreement may be modified only by a contract in writing
executed by the Parties to this Agreement against whom enforcement of such
modification is sought.
21. Prior Understandings. This Agreement contains the entire agreement between
the Parties to this Agreement with respect to the subject matter of this
Agreement, is intended as a final expression of such Parties' agreement with
respect to such terms as are included in this Agreement, is intended as a
complete and exclusive statement of the terms of such agreement, and supersedes
all negotiations, stipulations, understandings, agreements, representations and
warranties, if any, with respect to such subject matter, which precede or
accompany the execution of this Agreement.
22. Exhibits. The following Exhibits are made a part of this Agreement:
(a) Exhibit G.1 - Definitions
(b) Exhibit G.2 - Employee's Duties
(c) Exhibit G.3 - ICTI Employee Benefits
23. Notices. Any notice provided for or permitted under this Agreement
will be treated as having been given when: (a) delivered personally; (b) sent by
confirmed telecopy; (c) sent by commercial overnight courier with written
verification of receipt; or (d) mailed postage prepaid by certified or
registered mail, return receipt requested, to the Party to be notified, at the
address set forth below, or at such other place of which the other Party has
been notified in accordance with the provisions of this Section 23.
To Employee: Mohammed G. Abutaleb
7308 Loch Edin Court
Potomac, MD 20854
Facsimile: (301) 365-7016
To Employer and Parent: c/o Advanced Remote Communication Solutions,
Inc.
10675 Sorrento Valley Road, Suite 200
San Diego, CA 92121
Facsimile: (619) 657-0101
With copy to: Solomon Ward Seidenwurm & Smith, LLP
401 B Street, Suite 1200
San Diego, CA 92101
Attn: Norman L. Smith, Esq.
Facsimile: (619) 231-4755
Such notice will be treated as having been received upon actual
receipt.
24. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
25. Applicable Law. This Agreement and the rights and obligations of the parties
hereunder shall be construed under, and governed by, the laws of the State of
California without giving effect to conflict of laws provisions.
26. Drafting Ambiguities. The Parent and each Party to this Agreement have
reviewed and revised this Agreement. The Parent and each Party to this Agreement
have had the opportunity to have their respective legal counsel review and
revise this Agreement. The rule of construction that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement or of any amendments or exhibits to this Agreement. ///
IN WITNESS WHEREOF, the Parent and the Parties have signed and delivered this
Agreement containing eleven (11) pages and the Exhibits
identified in Section 22 above.
EMPLOYER:
ATTEST: INNOVATIVE COMMUNICATIONS TECHNOLOGIES, INC.,
a Delaware corporation
____________________________ By: Michael L. Silverman
/s/ Michael L.Silverman
Name
Chairman
Title
September 28, 1999
Date
EMPLOYEE:
James C. Crichton /s/ Mohammed G. Abutaleb
Witness Name Mohammed G. Abutaleb
September 28, 1999
Date
The performance of all of the obligations of the Employer under this Agreement
is unconditionally guaranteed by Parent.
PARENT:
ATTEST: ADVANCED REMOTE
COMMUNICATION
SOLUTIONS, INC., a California Corporation
____________________________ By:/s/Michael L. Silverman
MICHAEL L.SILVERMAN
CHAIRMAN
September 28, 1999
EXHIBIT G.1
DEFINITIONS
1. Definitions. As used in the Agreement, the following terms
shall have the meanings set forth below:
1.1. "Affiliate" shall mean a corporation which, directly or
indirectly, controls, is controlled by or is under common control with Parent,
or which is a successor in interest to Parent, and for purposes hereof,
"Control" shall mean the ownership of 50% or more of the voting shares of the
corporation in question.
1.2. "Agreement" shall mean the Agreement and all Exhibit
identified in Section 22 thereto.
1.3. "Base Compensation" shall have the meaning assigned
to it in Subsection 5.1 of the Agreement.
1.4. "Benefits" shall have the meaning assigned to it in
Section 6 of the Agreement.
1.5. "Business Opportunity" shall have the meaning
ssigned to it in Section 10 of the Agreement.
1.6. "Confidential Material" shall have the meaning
assigned to it in Section 9 of the Agreement.
1.7. "Employee" shall have the meaning assigned to it in
the introduction located on page 1 of the Agreement.
1.8. "Employer" shall have the meaning assigned to it in
the introduction located on page 1 of the Agreement.
1.9. "Employer's Business" shall mean the business that the
Employer conducts as of the execution of the Agreement and through the Term.
1.10. "Good Cause" shall have the meaning assigned to it in
Subsection 7.4 of the Agreement.
1.11. "Good Reason" shall have the meaning assigned to it
in Subsection 7.5 of the Agreement.
1.12. "herein" or "hereof" refers to the entirety of the
Agreement and not to a particular provision.
1.13. "ICTI" shall have the meaning assigned to it in
Recital "B" of the Agreement.
1.14. "Merger Agreement" shall have the meaning assigned to
it in Recital "C" of the Agreement.
1.15. "Parent" shall have the meaning assigned to it in
the introduction located on page 1 of the Agreement.
1.16. "Parties" shall mean Employee and Employer
collectively and "Party" means any one of them.
1.17. "Proprietary Information" shall have the meaning
assigned to it in Subsection 10.1 of the Agreement.
1.18. "Qualified Information" shall have the meaning
assigned to it in Subsection 10.1 of the Agreement.
1.19. "Subsidiary" shall mean a Corporation, 50% or more of
the outstanding voting shares of which is owned or controlled directly or
indirectly by the Company, or by Parent, as the case may be.
1.20. "Term" or "Term of Employment" shall have the
meaning assigned to it in Section 4 of the Agreement.
1.21. "Termination Date" shall mean the date on which
Employee's Term of Employment ends as provided in Section 4 of the Agreement.
The Agreement shall also terminate as of the Termination Date, subject to the
survival provision set forth in Section 12 of the Agreement.
1.22. "total and permanent disability" shall have the
meaning assigned to it in Subsection 7.3 of the Agreement.
Whenever the context so requires in the Agreement, all words used in the
singular shall be construed to have been used in the plural (and vice versa),
each gender shall be construed to include any other genders, and the word
"person" shall be construed to include a natural person, a corporation, a firm,
a partnership, a joint venture, a trust, an estate or any other entity. Where
used in the Agreement, the terms "include" or "including" mean include or
including, as applicable, without limitation.
EXHIBIT G.2
EMPLOYEE'S DUTIES
Title: President
Duties:
Generally devoting all of Employee's productive time, ability and
attention to the business of the Employer including:
1. Duties consistent with the duties of a President of a Subsidiary of a Public
Company.
2. Preparing budgets and operating reports to immediate supervisor and if
necessary to the Board of Directors.
3. Supervising senior staff of ICTI.
4. Maintaining corporate ethical standards.
5. Seeking out new opportunities in related fields.
6. Representing Parent Company when requested at meetings on the East Coast.
