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 June 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 August 9, 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 June 30, Six Months Ended June 30,
2000 1999 2000 1999
REVENUES:
Communications $ 1,560,838 $ 1,569,999 $ 3,136,844 $ 3,201,623
Video compression 1,009,807 907,568 1,725,552 2,343,244
Satellite
transmission
technology 1,190,690 2,211,468
------------ ------------ ------------- ------------
TOTAL REVENUES 3,761,335 2,477,567 7,073,864 5,544,867
------------ ------------ ------------ -------------
COSTS AND EXPENSES:
Communications 673,972 624,470 1,326,397 1,413,226
Video compression 261,518 384,194 417,085 755,486
Satellite
transmission
technology 799,429 1,435,677
Selling, general
and administrative 2,857,767 1,539,782 5,558,952 2,954,925
Research and
development 259,882 199,521 513,167 401,328
------------- ------------ ---------- ----------
TOTAL COSTS AND
EXPENSES 4,852,568 2,747,967 9,251,278 5,524,965
------------- ------------ ---------- ----------
(LOSS) INCOME
FROM OPERATIONS (1,091,233) (270,400) (2,177,414) 19,902
Interest income 7,390 3,026 18,292 5,572
Interest expense 212,534 203,157 519,444 407,888
LOSS BEFORE TAXES (1,296,377) (470,531) (2,678,566) (382,414)
INCOME TAX BENEFIT 360,214 112,500 681,689 223,500
============= ============ ============= ==========
NET LOSS $ (936,163) $ (358,031) $ (1,996,877) $ (158,914)
============= ============ ============= ===========
BASIC LOSS PER
COMMON SHARE $ (0.04) $ (0.02) $ (0.10) $ (0.01)
DILUTED LOSS
PER COMMON SHARE $ (0.04) $ (0.02) $ (0.10) $ (0.01)
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING, BASIC
AND DILUTED 20,916,914 18,947,555 20,849,651 18,885,750
Dilutive effect of:
Employee stock options
Warrants
Weighted average of
common shares
outstanding,
assuming dilution 20,916,914 18,947,555 20,849,651 18,885,750
See notes to consolidated financial statements.
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
------------------ ------------------
ASSETS 2000 1999
(Unaudited)
CURRENT ASSETS:
Cash $228,109 $857,634
Accounts receivable - net 3,162,054 4,445,770
Inventories 1,132,540 918,531
Prepaid expenses and other assets 1,050,638 925,750
------------------ ------------------
Total current assets 5,573,341 7,147,685
PROPERTY - net 645,486 705,082
GOODWILL - net 15,343,720 16,023,480
PATENT - net 15,771,635 16,334,135
------------------ ------------------
TOTAL $37,334,182 $40,210,382
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,326,014 $1,831,985
Accrued expenses 794,498 1,591,254
Current portion of notes payable 5,810,173 3,254,688
------------------ ------------------
Total current liabilities 7,930,685 6,677,927
NOTES PAYABLE 2,933,213 6,190,088
DEFERRED TAX LIABILITY 6,598,026 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 3,737,500
Common stock, no par value;
100,000,000 shares authorized,
21,053,143 and 20,739,860 shares
issued and outstanding
at 2000 and 1999, respectively 22,113,021 21,459,376
Accumulated deficit (5,978,263) (3,981,386)
------------------ ------------------
Total stockholders' equity 19,872,258 17,477,990
------------------ ------------------
TOTAL $37,334,182 $37,210,382
================== ==================
See notes to consolidated financial statements.
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
2000 1999
Operating activities:
Net loss $(1,996,877) $ (158,914)
Adjustments to reconcile net loss
to net cash used in operating activities:
Deferred tax benefit (266,351) (225,000)
Issuance of warrants 139,125
Depreciation and amortization 1,417,130 1,103,475
Changes in assets and liabilities:
Accounts receivable, net 1,283,716 194,371
Inventories (214,009) 48,139
Prepaid expenses and other assets (124,888) 50,217
Accounts payable and accrued expenses (1,302,726) (505,590)
----------------- -----------------
Net cash (used in) provided by
operating activities (1,064,880) 506,698
----------------- -----------------
Investing activities:
Capital expenditures (115,274) (94,870)
Goodwill acquired in acquisition (50,000)
----------------- -----------------
Net cash used in investing activities (115,274) (144,870)
----------------- -----------------
Financing activities:
Issuance of series A preferred stock 3,000,000
Issuance of common shares, net 378,146
Issuance of series B preferred stock 737,500
Payments on line of credit (555,000) (650,000)
Proceeds from line of credit 955,000
Cash received from stock options exercised 136,374 43,143
Principal payments on notes payable (1,101,391) (401,307)
----------------- -----------------
Net cash provided by financing activities 550,629 1,991,836
----------------- -----------------
Net (decrease) increase in cash (629,525) 2,353,664
Cash at beginning of period 857,634 416,361
----------------- -----------------
Cash at end of period $ 228,109 $ 2,770,025
================= =================
SUPPLEMENTAL DISCLOSURE ON NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Common stock issued in
acquisition $ 151,875
Common stock issued as
payment on accounts payable $ 153,750
Conversion of Series A
Preferred Stock into Series B $ 3,000,000
Issuance of warrants $ 139,125
See notes to consolidated financial statements.
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
six months ended June 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 six months ended June 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
6/30/2000 12/31/1999
---------------- ----------------
Accounts receivable $3,164,575 $4,527,058
Less allowance for doubtful accounts
and sales return reserve 2,521 81,288
---------------- ----------------
$3,162,054 $4,445,770
---------------- ----------------
Inventory:
Raw materials $817,441 $497,052
Work in progress 103,241 179,072
Finished goods 211,858 242,407
-------------- ----------------
$1,132,540 $918,531
---------------- ----------------
Property:
Computers and equipment $1,363,359 $1,248,085
Furniture and fixtures 265,490 265,490
Leasehold improvements 55,390 55,390
---------------- ----------------
1,684,239 1,568,965
Less accumulated depreciation 1,038,753 863,883
---------------- ----------------
$645,486 $705,082
---------------- ----------------
Goodwill $17,481,272 $17,481,272
Less accumulated amortization 2,137,552 1,457,792
---------------- ----------------
$15,343,720 $16,023,480
---------------- ----------------
Patent $18,000,000 $18,000,000
Less accumulated amortization 2,228,365 1,665,865
---------------- ----------------
$15,771,635 $16,334,135
---------------- ----------------
Accrued expenses:
Taxes payable $58,119 $482,649
Other accrued expenses 736,378 1,108,605
---------------- ----------------
$794,498 $1,591,254
---------------- ----------------
Depreciation expense was $174,869 and $155,583 for the six months ended June 30,
2000 and 1999, respectively. Amortization expense was $1,242,261 and $947,892
for the six months ended June 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 June 30, 2000 the balance on
the line of credit was $1,150,000. 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 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 a
principal payment of $467,000 on notes payable, which was due on June 30, 2000
to the two former owners of Enerdyne Technologies, Inc. which the Company
purchased in July 1998. The two former owners held executive positions with the
Company at June 30, 2000 and one former owner is also a director 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 - 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 June 30, 2000, there
were 2,840,375 options outstanding under the Plan.
NOTE 6 - 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 (see 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.
In the first six months of 1999 there were two segments, communications and
video compression. 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 June 30, 2000 is set
forth below.
Commun- Video Satellite
ications Compression Technology Consolidated
----------- ----------- ----------- --------------
Revenues $1,560,838 $1,009,807 $1,190,690 $3,761,335
Income (loss) from $20,062 $(744,861) $(336,434) $(1,091,233)
operations
Interest income $1,089 $1,608 $4,693 $7,390
Interest expense $16,275 $183,945 $12,314 $212,534
Depreciation and $70,823 $490,590 $148,975 $710,388
amortization
Information by industry segment for the six months ended June 30, 2000 is set
forth below.
Commun- Video Satellite
ications Compression Technology Consolidated
------------ ----------- ------------ ------------
Revenues $3,136,844 $1,725,552 $2,211,468 $7,073,864
Income (loss) from$81,037 $(1,589,829) $(668,622) $(2,177,414)
operations
Interest income $5,734 $2,928 $9,630 $18,292
Interest expense $76,467 $389,156 $53,821 $519,444
Depreciation and $143,235 $976,620 $297,275 $1,417,130
amortization
Total assets $3,199,451 $27,661,645 $6,473,086 $37,334,182
Information by industry segment for the three months ended June 30, 1999 is set
forth below.
Video
Compression/
Communications Multiplexing Consolidated
------------- ------------- -------------
Revenues $1,569,999 $907,568 $2,477,567
Income (loss) from
operations $58,500 $(328,900) $(270,400)
Interest income $2,041 $985 $3,026
Interest expense $6,889 $196,268 $203,157
Depreciation and amortization $73,718 $480,828 $554,546
Information by industry segment for the six months ended June 30, 1999 is set
forth below.
Video
Compression/
Communications Multiplexing Consolidated
---------------- ------------- --------------
Revenues $3,201,623 $2,343,244 $5,544,867
Income (loss) from operations $102,202 $(82,300) $19,902
Interest income $3,654 $1,918 $5,572
Interest expense $9,193 $398,695 $407,888
Depreciation and amortization $146,369 $957,106 $1,103,475
Total assets $3,077,774 $30,111,982 $33,189,756
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 Six months Three months Six months
Ended 6/30/2000 Ended 6/30/2000 Ended 6/30/1999 Ended 6/30/1999
United States $2,982,932 $5,424,805 $2,386,242 $5,339,772
International 778,403 1,649,059 91,325 205,095
----------- ----------- ------------- -------------
Total $3,761,335 $7,073,864 $2,477,567 $5,544,867
------------ ----------- ------------- ------------
<PAGE>
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, and reliance upon QUALCOMM's Network Management Facility
through which the Boatracs' business unit 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, 1999.
For the three months ended June 30, 2000 and 1999
Total revenues for the quarter ended June 30, 2000, were $3,761,335 an increase
of $1,283,768 or 52%, compared to total revenues of $2,477,567 for the quarter
ended June 30, 1999.
Communications revenues, which consist of revenues from the sale of Boatracs
systems, software and data transmission and messaging were $1,560,838 or 41% of
total revenues for the quarter ended June 30, 2000, a net decrease of $9,161 or
1% compared to $1,569,999 or 63% of total revenues for the quarter ended June
30, 1999. The decrease in communications revenue compared to the same period of
the prior year is due primarily to a reduction in software revenues in the
amount of $50,722, or 17%, partially offset by increases in MCT sales and data
transmission and messaging and software revenues.
Video compression revenues were $1,009,807 or 27% of total revenues for the
quarter ended June 30, 2000, an increase of $102,239, or 11%, compared to
$907,568 or 37% of total revenues in the prior comparable period. The increase
in video compression revenues is due primarily to the first shipment of a new
product line.
Revenues from satellite transmission technology were $1,190,690 or 32% of total
revenues for the quarter ended June 30, 2000. The Company acquired ICTI
effective August 1, 1999 (Note 3).
Communications expenses were $673,972 or 43% of communications revenues for the
quarter ended June 30, 2000, an increase of $49,502 or 8%, compared to $624,470
which represented 40% of communications revenue in the comparable quarter of the
prior year. Overall gross margin for communications decreased 3% to 57% in the
quarter ended June 30, 2000 from 60% in the same period of the prior year due to
a decline in the gross margins on the sale of Boatracs systems due to customer
mix and data transmission and messaging due to certain volume discounts given,
partially offset by an increase in the software margin.
Video compression expenses were $261,518 or 26% of video compression revenues
for the quarter ended June 30, 2000, a decrease of $122,676 or 32% compared to
$384,194 or 42% of video compression revenues in the same period of the prior
year. The increase in gross margin of 16% from the gross margin of 58% in the
second quarter of the prior comparable quarter is primarily due to changes in
the mix of products sold.
Satellite transmission technology expenses were $799,429 or 67% of satellite
transmission technology revenues for the quarter ended June 30, 2000. ICTI was
acquired by the Company effective August 1, 1999.
Selling, general and administrative expenses were $2,857,767 or 76% of total
revenues for the quarter ended June 30, 2000, an increase of $1,317,985 or 86%,
compared to $1,539,792 or 62% of total revenues in the prior corresponding
quarter. Of the total expenses for the quarter ended June 30, 2000,
approximately $596,000 relates to ICTI, acquired by the Company effective August
1, 1999. Excluding the ICTI expenses, selling general and administrative
expenses were $2,261,745 for the quarter ended June 30, 2000 compared to
$1,539,782 for the prior comparable quarter, an increase of $721,963 or 46%.
Overall, accounting, commissions, insurance, travel, office expenses, office
rent and salary expenses increased. Salary expense includes certain nonrecurring
severance costs. In addition, marketing expenses increased significantly due to
the introduction of new products. Amortization expense increased by $146,034 to
$621,130 for the quarter ended June 30, 2000 compared to $475,095 in the prior
comparable period due to the amortization of goodwill connected with the ICTI
acquisition (see note 3).
Research and development expenses were $259,882 or 7% of total revenues for the
quarter ended June 30, 2000, an increase of $60,361 or 30% compared to research
and development expenses of $199,521 or 8% of total revenues in the comparable
quarter of the prior year.
Interest expense of $212,534 for the second quarter of 2000 and $203,157 in the
second quarter of 1999, primarily represents interest on notes payable issued in
connection with the acquisitions of Enerdyne and ICTI.
The income tax benefit of $360,214 for the quarter ended June 30, 2000 and 1999
represents the amortization of a temporary tax difference on the life of a
patent.
For the six months ended June 30, 2000 and 1999
Total revenues for the six months ended June 30, 2000, were $7,073,864 an
increase of $1,528,997 or 28% compared to total revenues of $5,544,867 for the
six months ended June 30, 1999.
Communications revenues, which consist of revenues from the sale of Boatracs
systems, software and data transmission and messaging were $3,136,844 for the
six months ended June 30, 2000, or 44% of total revenues, a net decrease of
$64,779 or 2% compared to $3,201,623 or 58% of total revenues in the six months
ended June 30, 1999. The decrease in communications revenue compared to the same
period of the prior year is due primarily to a reduction in sales of Boatracs
systems in the amount of $87,690, or 28%, and a reduction in software revenues
in the amount of $87,088, or 13%, offset by an increase in data transmission and
messaging services and miscellaneous other income.
Video compression revenues were $1,725,552 or 24% of total revenues for the six
months ended June 30, 2000, a decrease of $617,692, or 26%, compared to
$2,343,244 or 42% of total revenues in the prior comparable period. The decrease
in video compression revenues is due primarily to a weak prior quarter.
Revenues from satellite transmission technology were $2,211,468 or 31% of total
revenues for the six months ended June 30, 2000. The Company acquired ICTI
effective August 1, 1999.
Communications expenses were $1,326,397or 42% of communications revenues for the
six months ended June 30, 2000, a decrease of $86,829 or 6%, compared to
$1,413,226 which represented 44% of communications revenue in the comparable
period of the prior year. The dollar decrease is consistent with the decrease in
communications revenue in the same period. Communications expense includes data
transmission and messaging expenses of $774,404 for the six months ended June
30, 2000, which remained constant with the prior year. Overall gross margin for
communications increased to 58% in the six months ended June 30, 2000 from 56%
in the same period of the prior year.
Video compression expenses were $417,085 or 24% of video compression revenues
for the six months ended June 30, 2000, a decrease of $338,401 or 45% compared
to $755,486 or 32% 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% reflects changes in the mix of products sold.
Satellite transmission technology expenses were $1,435,677 or 65% of satellite
transmission technology revenues. ICTI was acquired by the Company effective
August 1, 1999.
Selling, general and administrative expenses were $5,558,952 or 79% of total
revenues for the six months ended June 30, 2000, an increase of $2,604,027 or
88%, compared to $2,954,925 or 53% of total revenues in the prior corresponding
period. Of the total expenses for the six months ended June 30, 2000,
approximately $1.1 million relates to ICTI, acquired by the Company effective
August 1, 1999. Excluding the ICTI expenses, selling, general and administrative
expenses were $4,424,874 for the six months ended June 30, 2000, compared to
$2,954,925 for the prior comparable quarter, an increase of $1,469,949 or 49%.
Overall, accounting, commissions, insurance, legal, rent and salary expenses
increased, offset by a minor decrease in shareholder relation expenses. Salary
expense includes certain nonrecurring severance costs. In addition, marketing
expenses increased significantly due to the introduction of new products.
Amortization expense increased by $294,369 to $1,242,261 for the six months
ended June 30, 2000 compared to $947,892 in the prior comparable period due to
the acquisition of ICTI. Depreciation expense increased by $20,991 to $176,574
for the six months ended June 30, 2000 compared to $155,583 in the same
comparable prior period.
Research and development expenses were $513,167 or 7% of total revenues for the
six months ended June 30, 2000, an increase of $111,839 or 28% compared to
research and development expenses of $401,328 or 7% of total revenues in the
comparable period of the prior year.
Interest expense in the amount of $519,444 for the six months ended June 30,
2000 and $407,888 in the six months ended 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 $681,689 for the six months ended June 30, 2000 and
$223,500 for the same period in the prior year represents the amortization of a
temporary tax difference on the life of a patent.
Liquidity and Capital Resources
The Company's cash balance at June 30, 2000 was $228,109, a decrease of $629,525
compared to the December 31, 1999 cash balance of $857,634. At June 30, 2000,
working capital was negative $2,357,344 a decrease of $2,827,102 from the
working capital of $469,758 at December 31, 1999 due primarily to the
reclassification of long term debt to current (Note 4). Cash of $1,064,880 was
used in operating activities, cash of $115,274 was used in investing activities
and cash of $550,629 was provided by financing activities in the first six
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 in June 1999 was converted into
Series B Preferred Stock.
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 June 30, 2000, and extending the expiration date to December
29, 2001. At June 30, 2000, $1,150,000 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 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
$1,283,716 to $3,162,054 at June 30, 2000 from $4,445,770 at December 31, 1999.
Property, net of accumulated depreciation, was $645,486 at June 30, 2000, a
decrease of $59,596 from December 31, 1999, due primarily to depreciation
expense. Goodwill, net of accumulated amortization, decreased by $679,760 to
$15,343,720 due to amortization expense in the first six months of 2000. Patent,
net of accumulated amortization, decreased by $562,500 to $15,771,635 from
December 31, 1999, due to amortization expense in the first six months of 2000.
Accounts payable were $1,326,014 at June 30, 2000, a decrease of $505,971
compared to $1,831,985 at December 31, 1999 and accrued expenses decreased by
$796,756 at June 30, 2000 to $1,042,211 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 $8,743,386 at June 30, 2000, compared to
$9,444,776 at December 31, 1999, relates to a promissory note to a bank entered
into December 1998 and notes owing to the previous owners of Enerdyne and ICTI.
The balance decreased by $701,390 at June 30, 2000 compared to December 31, 1999
due to payments on the notes in the amount of $1,101,390, offset by an increase
of $400,000 payable on the line of credit (Note 4).
The Company anticipates making capital expenditures in excess of $300,000 during
2000, excluding assets 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. 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.
Year 2000 Issues
The Company has not experienced significant year 2000 issues subsequent to
December 31, 1999 and does not currently believe that it will incur material
costs or experience material disruptions in its business associated with the
year 2000.
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
During June 2000, the Company issued 211,535 shares of common stock at fair
market value ($1.95 per share) through a private offering. In addition, the
Company issued 376.25 shares of Series B Preferred Stock valued at $10,000 per
share. Three hundred shares of the Series B issued were in exchange for 300
shares of Series A Preferred Stock previously issued in 1999. A total of
$1,175,000 was raised.
During the quarter ended June 30, 2000, the Company issued 23,270 warrants to
purchase common stock to a consultant. The warrants were issued at fair market
value and have a life of three years and were issued in reliance on the
exemption set forth in Section 4 (2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 23, 2000, the Company held its Annual Meeting of Shareholders at the
Wyndham Garden Hotel, 5975 Lusk Boulevard, San Diego, California 92121.
The following directors were elected:
FOR AGAINST
Michael L. Silverman 17,868,733 919
Jon S. Gilbert 17,228,281 641,371
Giles H. Bateman 17,868,701 951
Mitchell G. Lynn 17,606,250 263,402
Scott T. Boden 17,535,101 334,551
Thomas Bernard 17,868,171 1,481
Mohammed G. Abutaleb 17,868,133 1,519
John Major 17,868,139 1,513
The following proposal was adopted at the meeting:
An amendment to the Company's 1996 Stock Option Plan increasing the number of
available shares to 6,000,000 from 4,000,000.
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
14,737,703 206,396 1,247 5,880,582
ITEM 5. OTHER INFORMATION
Inapplicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
3.5 Certificate of Determination (filed herewith).
3.6 Certificate of Amendment to Advanced Remote Communications Solutions,
Inc. Certification of
Determination (filed herewith).
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
August 14, 2000 /s/ MICHAEL L. SILVERMAN
Date MICHAEL SILVERMAN
PRESIDENT, CHIEF EXECUTIVE OFFICER
CHAIRMAN OF THE BOARD
August 14, 2000 /s/ DEAN B. KERNUS
Date CHIEF FINANCIAL OFFICER
