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, 2000
|_| 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)
(858) 450-7600
(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 CORPORATE FILERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 21,090,922 shares of common stock as
of November 7, 2000.
Transitional Small Business Disclosure Format (check one): Yes __ No X
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
REVENUES:
Communications .......... $ 1,755,849 $ 1,646,732 $ 4,892,693 $ 4,850,271
Video compression ............ 979,993 741,680 2,705,545 3,084,924
Satellite transmission
technology 976,177 1,137,478 3,187,645 1,137,478
--------- --------- --------- ---------
TOTAL REVENUES .. 3,712,019 3,525,890 10,785,883 9,072,673
--------- --------- --------- ---------
COSTS AND EXPENSES:
Communications ............ 709,963 607,108 2,036,360 2,019,394
Video compression ............ 231,847 258,384 648,932 1,013,870
Satellite transmission
technology ................... 662,154 150,171 2,097,831 153,025
Selling, general and
administrative ............. 2,528,955 2,106,378 8,087,907 5,061,303
Research and development 340,132 305,984 853,299 707,312
--------- --------- --------- ---------
TOTAL COSTS AND EXPENSES 4,473,051 3,428,025 13,724,329 8,954,904
-------- --------- --------- ---------
(LOSS) INCOME
FROM OPERATIONS ............. (761,032) 97,865 (2,938,446) 117,769
Interest income ............ 3,763 22,004 22,056 27,575
Interest expense ........... 204,279 182,689 723,724 590,578
--------- --------- --------- ---------
LOSS BEFORE TAXES .......... (961,548) (62,820) (3,640,114) (445,234)
INCOME TAX
BENEFIT/(EXPENSE) ............ 213,482 (190,932) 895,171 32,568
--------- --------- --------- ---------
$(748,066) $(253,752) $(2,744,943) $(412,666)
========= ========= ========= =========
BASIC LOSS PER
COMMON SHARE ........ $ (0.04) $ (0.01) $ (0.13) $ (0.02)
DILUTED LOSS PER
COMMON SHARE .......... $ (0.04) $ (0.01) $ (0.13) $ (0.02)
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING, BASIC
AND DILUTED .............. 21,085,050 19,029,249 20,926,151 18,939,455
Dilutive effect of:
Employee stock options ..... -- -- -- --
Warrants ................ -- -- -- --
Weighted average of
common shares
outstanding,
assuming dilution ...... 21,085,050 19,029,249 20,926,151 18,939,455
See notes to consolidated financial statements.
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
------------------ ------------------
ASSETS 2000 1999
(Unaudited)
CURRENT ASSETS:
Cash $118,094 $857,634
Accounts receivable - net 3,313,516 4,445,770
Inventories 1,236,187 918,531
Prepaid expenses and other assets 1,045,221 925,750
------------------ ------------------
Total current assets 5,713,018 7,147,685
PROPERTY - net 585,003 705,082
GOODWILL - net 15,003,838 16,023,480
PATENT - net 15,490,385 16,334,135
------------------ ------------------
TOTAL $36,792,244 $40,210,382
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,131,256 $1,831,985
Accrued expenses 1,039,286 1,591,254
Current portion of notes payable 6,304,454 3,254,688
------------------ ------------------
Total current liabilities 8,474,996 6,677,927
NOTES PAYABLE 2,616,181 6,190,088
DEFERRED TAX LIABILITY 6,485,526 6,864,377
STOCKHOLDERS' EQUITY:
Convertible preferred series A
stock, no par value; 3,000,000
1,000,000 shares authorized,
300 shares issued
Convertible preferred series
B stock, no par value;
1,000,000 shares authorized,
376.25 shares issued 3,762,500
Common stock, no par value;
100,000,000 shares authorized,
21,090,922 and 20,739,860 shares
issued and outstanding
at 2000 and 1999, respectively 22,179,370 21,459,376
Accumulated deficit (6,726,329) (3,981,386)
------------------ ------------------
Total stockholders' equity 19,215,541 20,477,990
------------------ ------------------
TOTAL $36,792,244 $40,210,382
================== ==================
See notes to consolidated financial statements.
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30,
2000 1999
Operating activities:
Net loss $(2,744,943) $ (412,666)
Adjustments to reconcile net loss
to net cash (used in) provided by
operating activities:
Deferred tax (benefit)/expense (378,851) 4,926
Issuance of warrants 139,125
Depreciation and amortization 2,131,441 1,929,801
Changes in assets and liabilities:
Accounts receivable, net 1,132,254 (678,392)
Inventories (317,656) (223,266)
Prepaid expenses and other assets (128,592) (66,627)
Accounts payable and accrued expenses (1,252,696) 509,317
----------------- -----------------
Net cash (used in) provided by
operating activities (1,419,918) 1,063,093
----------------- -----------------
Investing activities:
Capital expenditures (138,849) (364,417)
Goodwill acquired in acquisition (1,495,092)
----------------- -----------------
Net cash used in investing activities (138,849) (1,859,509)
----------------- -----------------
Financing activities:
Issuance of series A preferred stock 3,000,000
Issuance of common shares, net 425,897
Issuance of series B preferred stock 762,500
Payments on line of credit (755,000)
Proceeds from line of credit 1,705,000
Cash received from stock
options exercised 154,972 73,143
Principal payments on notes payable (1,474,142) (1,364,370)
----------------- -----------------
Net cash provided by financing activities 819,227 1,708,773
----------------- -----------------
Net (decrease) increase in cash (739,540) 912,357
Cash at beginning of period 857,634 416,361
----------------- -----------------
Cash at end of period $ 118,094 $ 1,328,718
================= =================
SUPPLEMENTAL DISCLOSURE ON NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Common stock issued in acquisition $ 3,690,000
Common stock issued as payment
on accounts payable $ 153,750
Issuance of notes payable in acquisition $ 600,000
Conversion of Series A Preferred
Stock into Series B $ 3,000,000
See notes to consolidated financial statements.
<PAGE>
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements as of and for the three and
nine months ended September 30, 2000 and 1999 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
three and nine months ended September 30, 2000 are not necessarily indicative of
the results that may be expected for any other interim period or for the year
ending December 31, 2000.
NOTE 2 - BALANCE SHEET DETAILS
9/30/2000 12/31/1999
---------------- ----------------
Accounts receivable $3,319,037 $4,527,058
Less allowance for doubtful accounts
and sales return reserve 5,521 81,288
---------------- ----------------
$3,313,516 $4,445,770
---------------- ----------------
Inventory
Raw materials $769,260 $497,052
Work in progress 154,087 179,072
Finished goods 312,840 242,407
---------------- ---------------
$1,236,187 $918,531
---------------- ----------------
Property:
Computers and equipment $1,386,974 $1,248,085
Furniture and fixtures 263,532 265,490
Leasehold improvements 57,307 55,390
---------------- ----------------
1,707,813 1,568,965
Less accumulated depreciation 1,122,810 863,883
---------------- ----------------
$585,003 $705,082
---------------- ----------------
Goodwill $17,481,272 $17,481,272
Less accumulated amortization 2,477,434 1,457,792
---------------- ----------------
$15,003,838 $16,023,480
---------------- ----------------
Patent $18,000,000 $18,000,000
Less accumulated amortization 2,509,615 1,665,865
---------------- ----------------
$15,490,385 $16,334,135
---------------- ----------------
Accrued expenses:
Taxes payable $85,686 $482,649
Other accrued expenses 953,600 1,108,605
---------------- ----------------
$1,039,286 $1,591,254
---------------- ----------------
Depreciation expense was $268,050 and $239,335 for the nine months ended
September 30, 2000 and 1999, respectively. Amortization expense was $1,863,391
and $1,519,712 for the nine months ended September 30, 2000 and 1999,
respectively.
NOTE 3 - ACQUISITIONS
Innovative Communications Technologies, Inc. ("ICTI") - Effective August 1,
1999, the Company completed the acquisition of all of the shares of ICTI, a
privately held company located in Gaithersburg, Maryland that is engaged in the
design and implementation of bandwidth efficient multi-media satellite networks.
The purchase price to the former shareholders of ICTI included the payment of
$1.5 million in cash, the issuance of 1,665,000 shares of the Company's common
stock and the delivery of promissory notes in the amount of $600,000. In
addition, the Company delivered a non-interest bearing note in the amount of
$400,000 that is subject to attainment of certain revenue targets. This note
will be recorded in the Company's accounts if and when these targets are met.
The Company effectively acquired ICTI's assets of $1.6 million, assumed its
liabilities of $1.5 million, and recorded goodwill in the amount of $5.5
million, which is being amortized over ten years under the straight line method.
NOTE 4 - NOTES PAYABLE
On February 28, 2000 the Company signed a Change in Terms Agreement (the
"Agreement") with a bank increasing the line of credit to $1,750,000 and
extending the expiry date to December 29, 2001. At September 30, 2000 the
balance on the line of credit was $1,700,000. The Company is required to meet
certain restrictive financial and operating covenants under the line of credit.
The Company received waivers of certain of the covenants for the quarters ended
September 30, 2000, June 30, 2000 and March 31, 2000. The Company is in the
process of re-negotiating the covenants and examining financing alternatives for
ongoing activities and future acquisitions. The bank has expressed a willingness
to continue as the Company's bankers. In addition, pursuant to the Agreement,
the bank has prohibited principal payments totaling approximately $520,000 on
notes payable, which were due as of October 1, 2000 to the two former owners of
Enerdyne Technologies, Inc. One former owner is a director and executive officer
of the Company.
Due to the uncertainties surrounding the Company's ability to maintain
compliance with certain financial covenants, the long term portion of notes
payable and the line of credit to the bank have been reclassified as current.
NOTE 5 - RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS No. 133"). SFAS No.133 establishes accounting and
reporting standards for other contracts and for hedging activities.
The statement requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair market value. In June 1999, the FASB issued SFAS
No. 137 Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133. SFAS No. 137
deferred implementation of SFAS 133 until the first quarter of 2001. In June
2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities - An Amendment of FASB Statement No.
133. SFAS 138 amends the accounting and reporting standards of SFAS No. 33
for certain derivative instruments and certain hedging activities.
The Company has evaluated, and will continue to evaluate in future periods, the
impact of SFAS Nos. 133 and 138 on its results of operations and financial
position. Management does not believe that the adoption of these pronouncements
will result in any material adjustments to the Company's financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101") which summarizes the SEC staff's
position on selected revenue recognition issues. The Company is currently
evaluating what effect, if any, SAB 101 may have on its existing revenue
recognition policies, principally with respect to performance-based incentives.
The Company does not believe that adoption of this SAB will have a material
impact on its financial statements. Implementation of SAB 101 is required
commencing with the first quarter of 2001.
NOTE 6 - 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 6,000,000 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. Options issued under the Plan expire between five and 10
years after the options are granted and generally become exercisable ratably
over a five-year period following the date of grant. At September 30, 2000,
there were 2,817,900 options outstanding under the Plan.
NOTE 7- GEOGRAPHIC AND BUSINESS SEGMENT INFORMATION
The Company operates three reportable business segments: communications, video
compression and satellite transmission technology. 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
Gulfport ("Gulfport"), Boatracs Europe ("Europe") and OceanTrac Limited
("OceanTrac"). The communications segment has exclusive distribution rights in
the United States for marine application of the OmniTRACS(R) system of
satellite-based communication and tracking systems manufactured by QUALCOMM
Incorporated ("QUALCOMM"). In addition, the Company's wholly owned subsidiaries,
Europe and OceanTrac, have agreements with QUALCOMM's authorized service
providers in Europe and Canada for marine distribution of OmniTRACS(R) in parts
of Europe and Canada. Gulfport is a provider of software applications and
service solutions to the commercial work boat and petroleum industries,
including customers of Boatracs.
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 government and commercial markets.
The satellite transmission technology segment consists of the operations of
ICTI, which the Company acquired effective August 1999 (Note 3). ICTI is engaged
in designing and implementing bandwidth efficient multimedia satellite networks
and develops customized software solutions to manage and allocate available
satellite power/bandwidth resources to optimize a satellite system's lifecycle
costs.
Corporate overhead expenses have been allocated to the segments based on each
segments revenue as a percentage of total revenues.
Information by industry segment for the three months ended September 30, 2000 is
set forth below.
Commun- Video Satellite
ications Compression Technology Consolidated
------------ ------------ ------------- -------------
Revenues $1,755,849 $979,993 $976,177 $3,712,019
Income (loss)
from operations $277,120 $(595,049) $(443,103) $(761,032)
Interest income $1,115 $1,325 $1,323 $3,763
Interest expense $17,262 $177,481 $9,536 $204,279
Depreciation and $72,375 $491,366 $148,866 $712,607
amortization
Information by industry segment for the nine months ended September 30, 2000 is
set forth below.
Commun- Video Satellite
ications Compression Technology Consolidated
------------ ------------ ------------- --------------
Revenues $4,892,693 $2,705,545 $3,187,645 $10,785,883
Income (loss) from $357,302 $(2,185,458) $(1,110,290) $(2,938,446)
operations
Interest income $6,849 $4,253 $10,954 $22,056
Interest expense $94,830 $567,329 $61,565 $723,724
Depreciation and $215,597 $1,469,687 $446,157 $2,131,441
amortizatization
Total assets $3,256,851 $27,331,158 $6,204,235 $36,792,244
Information by industry segment for the three months ended September 30, 1999 is
set forth below.
Commun- Video Satellite
ications Compression Technology Consolidated
------------ ------------ -------------- ------------
Revenues $1,646,732 $741,680 $1,137,478 $3,525,890
Income (loss)
from $49,178 $(486,566) $535,253 $97,865
operations
Interest income $4,112 $2,087 $15,805 $22,004
Interest expense $581 $181,701 $407 $182,689
Depreciation and $75,702 $481,722 $269,587 $827,011
amortization
Information by industry segment for the nine months ended September 30, 1999 is
set forth below.
Commun- Video Satellite
ications Compression Technology Consolidated
------------ ------------ ----------- -------------
Revenues $4,850,271 $3,084,924 $1,137,478 $9,072,673
Income (loss)
from $151,380 $(568,866) $535,255 $117,769
operations
Interest income $7,765 $4,005 $15,805 $27,575
Interest expense $9,775 $580,396 $407 $590,578
Depreciation and $221,386 $1,438,828 $269,587 $1,929,801
amortization
Total assets $3,526,092 $28,637,288 $7,007,457 $39,170,837
The Company has two foreign subsidiaries: Europe and OceanTrac. Europe is
located in the Netherlands and provides communication services to the European
market. OceanTrac provides communication services in Eastern Canada. In
addition, Enerdyne and ICTI have foreign sales. The following table presents
revenues for each of the geographical areas in which the Company operates:
Three months Nine months Three months Nine months
Ended 9/30/2000 Ended 9/30/2000 ended 9/30/1999 Ended 9/30/1999
United States $3,053,325 $8,478,130 $2,289,348 $7,631,036
International 658,694 2,307,753 1,236,542 1,441,637
------------- ------------- -------------- -------------
Total $3,712,019 $10,785,883 $3,525,890 $9,072,673
------------- ------------- -------------- -------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company has three business units:
1. Boatracs,
2. Enerdyne Technologies, Inc. ("ENERDYNE"), a wholly owned subsidiary, and
3. Innovative Communications Technologies, Inc. ("ICTI"), a wholly owned
subsidiary.
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, one of the major suppliers of equipment sold by the
Boatracs business unit, reliance upon QUALCOMM's Network Management Facility
through which the Boatracs' business unit message transmissions are formatted
and processed, the development of more advanced technology by competitors and
continuing technological innovation by the Company. These and other risks are
more fully described in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999.
For the three months ended September 30, 2000 and 1999
Total revenues for the quarter ended September 30, 2000, were $3,712,019 an
increase of $186,129 or 5.3% compared to total revenues of $3,525,890 for the
quarter ended September 30, 1999.
Communications revenues, which consist of revenues from the sale of Boatracs
systems, software and data transmission and messaging, were $1,755,849 or 47.3%
of total revenues for the quarter ended September 30, 2000, an increase of
$109,117 or 6.6% compared to $1,646,732 or 46.7% of total revenues for the
quarter ended September 30, 1999. The increase in communications revenues
compared to the same period of the prior year is due primarily to an increase in
data transmission and messaging and software revenues in the amount of $136,924,
or 30%, partially offset by a decrease in Boatracs system sales in the amount of
$13,970.
Video compression revenues were $979,993 or 26.4% of total revenues for the
quarter ended September 30, 2000, an increase of $238,313, or 32.1%, compared to
$741,680 or 21.0% of total revenues in the prior comparable period. The increase
in video compression revenues is due primarily to shipments of a new product
line.
Revenues from satellite transmission technology were $976,177 or 26.3% of total
revenues for the quarter ended September 30, 2000 compared to revenues of
$1,137,478 in the third quarter of 1999. The Company acquired ICTI effective
August 1, 1999 (Note 3). The reduction in revenues is due primarily to a license
fee recorded in the quarter ended September 30, 1999 and a reduction of
royalties in the current third quarter.
Communications expenses were $709,963 or 40.4% of communications revenues for
the quarter ended September 30, 2000, an increase of $102,855 or 16.9%, compared
to $607,108 which represented 36.9% of communications revenue in the comparable
quarter of the prior year. Gross margin for communications decreased 3.5% to
59.6% in the quarter ended September 30, 2000 from 63.1% in the same period of
the prior year. This decrease is primarily due to a decline in the sale of
Boatracs systems due to customer mix. In addition, data transmission and
messaging margins decreased due to certain volume discounts. The overall gross
margin decline was partially offset by an increase in the margin of software
sales.
Video compression expenses were $231,847 or 23.7% of video compression revenues
for the quarter ended September 30, 2000, a decrease of $26,537 or 10.3%
compared to $258,384 or 34.8% of video compression revenues in the same period
of the prior year. The increase in gross margin of 11.1% from 65.2% in the third
quarter of the prior comparable quarter, is primarily due to changes in the mix
of products sold.
Satellite transmission technology expenses were $662,154 or 67.8% of satellite
transmission technology revenues for the quarter ended September 30, 2000
compared to $150,171 or 13.2% of satellite transmission technology revenues in
the prior third quarter. ICTI was acquired by the Company effective August 1,
1999 and therefore only two months of revenues and costs are included in the
quarter ending September 30, 1999. In the quarter ended September 30, 1999, 30%
of the satellite transmission technology revenues came from royalties and
license fees which have a 100% margin, compared to 3% of satellite transmission
technology revenues in the quarter ending September 30, 2000.
Selling, general and administrative expenses were $2,528,955 or 68.1% of total
revenues for the quarter ended September 30, 2000, an increase of $422,577 or
20.1%, compared to $2,106,378 or 59.7% of total revenues in the prior
corresponding quarter. Excluding ICTI which was acquired effective August 1,
1999 selling, general and administrative expenses were $2,044,195 for the
quarter ended September 30, 2000 compared to $1,756,014 for the quarter ended
September 30, 1999 an increase of $288,181 or 16.4%. Overall, accounting,
commissions, insurance, consulting, office expenses and office rent increased
offset by a decrease in salary expense. In addition, marketing expenses
increased significantly due to the introduction of new products. Amortization
expense increased by $49,306 to $621,130 for the quarter ended September 30,
2000 compared to $571,824 in the prior comparable period due to a full quarter
of goodwill amortization expense connected with the ICTI acquisition (Note 3)
compared to two months of goodwill amortization expense in the prior year.
Research and development expenses were $340,132 or 9.2% of total revenues for
the quarter ended September 30, 2000, an increase of $34,148 or 11.2% compared
to research and development expenses of $305,984 or 8.7% of total revenues in
the prior comparable quarter.
Interest expense of $204,279 for the third quarter of 2000 and $182,689 for the
third quarter of 1999 primarily represents interest on notes payable issued in
connection with the acquisitions of Enerdyne and ICTI and interest on a line of
credit to a bank.
The income tax benefit of $213,482 for the quarter ended September 30, 2000
primarily represents the amortization of a temporary tax difference on the life
of a patent.
For the nine months ended September 30, 2000 and 1999
Total revenues for the nine months ended September 30, 2000 were $10,785,883, an
increase of $1,713,210 or 18.9% compared to total revenues of $9,072,673 for the
nine months ended September 30, 1999.
Communications revenues, which consist of revenues from the sale of Boatracs
systems, software and data transmission and messaging were $4,892,693 for the
nine months ended September 30, 2000, or 45.4% of total revenues, an increase of
$42,422 or 1.0% compared to $4,850,271 or 53.5% of total revenues for the nine
months ended September 30, 1999. The increase in communications revenues
compared to the same period of the prior year is due primarily to an increase in
data transmission and messaging in the amount of $166,095 or 5% offset by a
reduction in sales of Boatracs systems in the amount of $100,589, or 20%, and a
reduction in software revenues in the amount of $33,061, or 4%.
Video compression revenues were $2,705,545 or 25.1% of total revenues for the
nine months ended September 30, 2000, a decrease of $379,379, or 12.3%, compared
to $3,084,924 or 34.0% of total revenues in the prior comparable period. The
decrease in video compression revenues is primarily due to a particular large
sale in the first quarter 1999, partially offset by an increase in revenue for
the second quarter 2000 attributable to the shipment of a new product line.
Revenues from satellite transmission technology were $3,187,645 or 29.6% of
total revenues for the nine months ended September 30, 2000, compared to
$1,137,478 for the nine months ended September 30, 1999. The Company acquired
ICTI effective August 1, 1999 and therefore only two months of revenues were
recorded in 1999.
Communications expenses were $2,036,360 or 41.6% of communications revenues for
the nine months ended September 30, 2000, an increase of $16,966 or 1.0%,
compared to $2,019,394 which represented 41.6% of communications revenue in the
comparable period of the prior year. The dollar increase is consistent with the
increase in communications revenue in the same period. Communications expense
includes data transmission and messaging expenses of $1,212,094 for the nine
months ended September 30, 2000 and $1,138,462 for the nine months ended
September 30, 1999. Overall gross margin for communications remained constant at
58% in the nine months ended September 30, 2000 and 1999, respectively.
Video compression expenses were $648,932 or 24.0% of video compression revenues
for the nine months ended September 30, 2000, a decrease of $364,938 or 36.0%
compared to $1,013,870 or 32.9% of video compression revenues in the same period
of the prior year. The decrease in expenses reflects the decrease in video
compression sales. The increase in margin of 8.9% reflects changes in the mix of
products sold.
Satellite transmission technology expenses were $2,097,831 or 65.8% of satellite
transmission technology revenues for the nine months ended September 30, 2000.
ICTI was acquired by the Company effective August 1, 1999 and therefore only two
months of expenses are shown for the nine months ended September 30, 1999. The
decrease in margins of 52.4% is primarily due to the decrease in royalty and
license fee income, which have no associated costs. Royalty and license fee
revenues represented 30% of satellite transmission technology revenues for the
nine months ended September 30, 1999 and only 4.3% for the nine months ended
September 30, 2000.
Selling, general and administrative expenses were $8,087,907 or 75.0% of total
revenues for the nine months ended September 30, 2000, an increase of $3,026,604
or 59.8%, compared to $5,061,303 or 55.8% of total revenues in the prior
corresponding period. ICTI was acquired effective August 1, 1999 and therefore
only two months of selling, general and administrative expenses are included for
the period ended September 30, 1999. Excluding ICTI, selling, general and
administrative expenses increased $1,710,068 or 37.1%. Overall, accounting,
commissions, insurance, legal, consulting, rent and salary expenses increased,
offset by a minor decrease in shareholder relation expenses. Salary expenses for
the nine months ended September 30, 2000 included certain nonrecurring severance
costs. In addition, marketing expenses increased significantly due to the
introduction of new products. Amortization expense increased by $343,679 to
$1,863,391 for the nine months ended September 30, 2000 compared to $1,519,712
in the prior comparable period due to the acquisition of ICTI. Depreciation
expense increased by $28,715 to $268,050 for the nine months ended September 30,
2000.
Research and development expenses were $853,299 or 7.9% of total revenues for
the nine months ended September 30, 2000, an increase of $145,987 or 20.6%
compared to research and development expenses of $707,312 or 7.8% of total
revenues in the comparable period of the prior year.
Interest expense in the amount of $723,724 for the nine months ended September
30, 2000 and $590,578 for the nine months ended September 30, 1999 primarily
represents interest on notes payable issued in connection with the acquisitions
of Enerdyne and ICTI, interest paid on a line of credit and warrants issued to a
bank in the first quarter of 2000.
The income tax benefit of $895,171 for the nine months ended September 30, 2000
and $32,568 for the same period in the prior year primarily represents the
amortization of a temporary tax difference on the life of a patent.
Liquidity and Capital Resources
The Company's cash balance at September 30, 2000 was $118,094, a decrease of
$739,540 compared to the December 31, 1999 cash balance of $857,634. At
September 30, 2000, working capital was negative $2,761,978, a decrease of
$3,231,736 from the working capital of $469,758 at December 31, 1999 due
primarily to the reclassification of a portion of long term debt to current in
the amount of $4,462,500 (Note 4). Cash of $1,419,918 was used in operating
activities, cash of $138,849 was used in investing activities and cash of
$819,227 was provided by financing activities in the first nine months of 2000.
During the second quarter, the Company issued 211,535 unregistered common shares
to private investors at fair market value of $1.95 per share. The Company also
entered into Series B Preferred Stock purchase agreements to issue 76.25
unregistered shares at $10,000 per share for total combined proceeds of
$1,175,000. The Preferred Stock shall be entitled to receive, when and if
declared by the Board of Directors, cumulative cash dividends, in preference and
priority to dividends on any junior stock at 10% yearly. Concurrently, the 300
shares of Series A Preferred Stock that was issued in June 1999 were converted
into Series B Preferred Stock.
On February 28, 2000 the Company signed a Change in Terms Agreement with a bank
increasing the line of credit to $1,750,000 at an interest rate equal to the
lender's prime rate, which was 9-1/2% on September 30, 2000, and extending the
expiration date to December 29, 2001. At September 30, 2000, $1,700,000 was
drawn on the line of credit. The Company is required to meet certain restrictive
financial and operating covenants under the line of credit. The Company received
a waiver of certain of the covenants for the quarters ended September 30, 2000,
June 30, 2000 and March 31, 2000. The Company is in the process of
re-negotiating the covenants and examining financing alternatives for ongoing
activities and future acquisitions. The bank has expressed a willingness to
continue as the Company's bankers.
Accounts receivable, net of an allowance for uncollectible accounts, decreased
by $1,132,254 to $3,313,516 at September 30, 2000 from $4,445,770 at December
31, 1999. Property, net of accumulated depreciation, was $585,003 at September
30, 2000, a decrease of $120,079 from December 31, 1999, due primarily to
depreciation expense. Goodwill, net of accumulated amortization, decreased by
$1,019,642 to $15,003,838 due to amortization expense in the first nine months
of 2000. Patent, net of accumulated amortization, decreased by $843,750 to
$15,490,385 from December 31, 1999, due to amortization expense in the first
nine months of 2000.
Accounts payable was $1,131,256 at September 30, 2000, a decrease of $700,729
compared to $1,831,985 at December 31, 1999, and accrued expenses decreased by
$551,968 at September 30, 2000 to $1,039,286 from $1,591,254 due primarily to a
reduction in revenues and associated expenses. Total notes payable (short term
plus long term) in the amount of $8,920,635 at September 30, 2000, compared to
$9,444,776 at December 31, 1999, relate to a line of credit and promissory notes
with a bank and notes owing to the previous owners of Enerdyne and ICTI. The
balance of the total notes payable decreased by $524,141 at September 30, 2000
compared to December 31, 1999 due to payments on the notes in the amount of
$1,474,141, offset by a net increase of $950,000 on the line of credit (Note 4).
The Company anticipates making capital expenditures of less than $300,000 during
2000, excluding assets which may be acquired in acquisitions. To date, the
Company has financed its working capital needs through private loans, the
issuance of common and preferred stock and cash generated from operations. Any
expansion of the Company's business may require a commitment of substantial
funds. To the extent that the net proceeds of 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. When additional funds are raised by issuing
equity securities, dilution to the existing shareholders result. If adequate
funds are not available in the future, the Company's business would be adversely
affected.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not aware of any current or pending legal proceedings to which it
is a party.
ITEM 2. CHANGES IN SECURITIES
In September 2000, the Company issued 10,085 shares of common stock 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 an average price of $2.97 each.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
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
None
<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 14, 2000 /s/ MICHAEL L. SILVERMAN
Date MICHAEL SILVERMAN
PRESIDENT, CHIEF EXECUTIVE OFFICER
CHAIRMAN OF THE BOARD
November 14, 2000 /s/ DEAN B. KERNUS
Date CHIEF FINANCIAL OFFICER
