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, 2001
|_| 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: 21,143,554 shares of common stock as
of August 11, 2001.
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,
2001 2000 2001 2000
---- ---- ---- ----
REVENUES: (As restated (As restated
see Note 1) see Note 1)
Communications $ 1,647,713 $ 1,790,487 3,381,820 $3,630,908
Video compression 404,790 1,009,807 1,116,345 1,725,552
Satellite transmission technology 2,319,911 1,190,690 4,104,478 2,211,468
--------------- --------------- --------------- --------------
TOTAL REVENUES 4,372,414 3,990,984 8,602,643 7,567,928
--------------- --------------- --------------- --------------
COSTS AND EXPENSES:
Communications 697,747 787,036 1,424,236 1,569,325
Video compression 115,306 261,518 272,608 417,085
Satellite transmission technology 857,243 799,429 1,268,552 1,435,677
--------------- --------------- --------------- --------------
Gross margin 2,702,118 2,143,001 5,637,247 4,145,841
Selling, general and administrative 2,540,425 2,857,767 5,153,104 5,558,952
Research and development 36,864 259,882 97,558 513,167
--------------- --------------- --------------- --------------
INCOME (LOSS) FROM OPERATIONS 124,829 (974,648) 386,585 (1,926,278)
Interest expense - net (190,112) (205,144) (374,950) (501,152)
--------------- --------------- --------------- --------------
(LOSS) INCOME BEFORE TAXES (65,283) (1,179,792) 11,635 (2,427,430)
Income tax benefit (expense) 95,671 320,574 (8,995) 596,302
--------------- --------------- --------------- --------------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE 30,388 (859,218) 2,640 (1,831,128)
Cumulative effect of a change in
accounting principle - - - (333,275)
--------------- --------------- --------------- --------------
NET INCOME (LOSS) $ 30,388 $ (859,218) $ 2,640 $ (2,164,403)
=============== =============== =============== ==============
BASIC AND DILUTED EARNINGS PER SHARE:
Loss before cumulative effect of a
change in accounting principle $ 0.00 $ (0.04) $ 0.00 $ (0.09)
Cumulative effect on prior years of
a change in accounting principle - - - $ (0.01)
--------------- --------------- --------------- --------------
INCOME (LOSS) PER COMMON SHARE $ 0.00 $ (0.04) $ 0.00 $ (0.10)
=============== =============== =============== ==============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 21,114,635 20,916,914 21,102,844 20,849,651
Dilutive effect of:
Employee stock options 41,618 - 57,908 -
Warrants - - - -
WEIGHTED AVERAGE COMMON SHARES --------------- --------------- --------------- --------------
OUTSTANDING 21,156,253 20,916,914 21,160,752 20,849,651
=============== =============== =============== ==============
<FN>
See notes to consolidated financial statements.
</FN>
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
------------------ ------------------
ASSETS 2001 2000
- ------ ---- ----
(Unaudited)
CURRENT ASSETS:
Cash $711,229 $2,089
Restricted cash 235,491 152,099
Accounts receivable - net 2,364,314 3,263,327
Inventories - net 1,483,502 1,361,075
Prepaid expenses and other assets 1,772,528 1,328,931
------------------ ------------------
Total current assets 6,567,064 6,107,521
LONG TERM CONTRACT RECEIVABLE 2,000,000 -
PROPERTY - net 535,628 574,912
CAPITALIZED SOFTWARE - net 923,142 345,654
GOODWILL - net 8,205,105 8,663,958
PATENT - net 14,646,635 15,209,135
------------------ ------------------
$32,877,574 $30,901,180
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $2,287,588 $1,563,886
Accrued expenses 1,737,086 1,075,149
Deferred revenue 1,163,271 311,461
Current portion of notes payable 3,061,707 5,571,388
------------------ ------------------
Total current liabilities 8,249,652 8,521,884
DEFERRED REVENUE 2,466,667 -
NOTES PAYABLE 3,100,151 3,115,831
DEFERRED TAX LIABILITY 6,148,025 6,373,026
------------------ ------------------
Total liabilities 19,964,495 18,010,741
STOCKHOLDERS' EQUITY:
Convertible preferred series B stock, no par
value: 1,000,000 shares authorized, 376.25
shares issued, liquidation preference
$10,000 per share 3,762,500 3,762,500
Common stock, no par value; 100,000,000 shares
authorized, 21,143,554 and 21,090,922 shares
issued and outstanding at 2001 and 2000,
respectively 22,240,750 22,220,750
Accumulated deficit (13,090,171) (13,092,811)
------------------ ------------------
Total stockholders' equity 12,913,079 12,890,439
------------------ ------------------
$32,877,574 $30,901,180
================== ==================
<FN>
See notes to consolidated financial statements.
</FN>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
2001 2000
---- ----
(As restated
see note 1)
Operating activities:
Net income (loss) $ 2,640 $(2,164,403)
Adjustments to reconcile net income (loss) to
net cash provided by (used in)
operating activities:
Loss on disposal of property 7,531 -
Deferred tax benefit (225,001) (266,351)
Depreciation and amortization 1,187,100 1,417,130
Issuance of common stock warrants - 139,125
Changes in assets and liabilities:
Restricted cash (83,392) -
Accounts receivable, net 899,013 1,283,716
Inventories, net (122,427) (214,009)
Prepaid expenses and other assets (443,597) (124,888)
Deferred revenue 1,318,477 -
Accounts payable and accrued expenses 1,405,639 (1,135,200)
----------------- -----------------
Net cash provided by (used in) operating activities 3,945,983 (1,064,880)
----------------- -----------------
Investing activities:
Capitalized software (605,035) -
Capital expenditures (106,447) (115,274)
----------------- -----------------
Net cash used in investing activities (711,482) (115,274)
----------------- -----------------
Financing activities:
Proceeds from line of credit 200,000 955,000
Payments on line of credit (150,000) (555,000)
Issuance of series B preferred stock - 737,500
Issuance of common shares, net - 378,146
Cash received from stock options exercised - 136,374
Principal payments on notes payable (2,575,361) (1,101,391)
----------------- -----------------
Net cash (used in) provided by financing activities (2,525,361) 550,629
----------------- -----------------
Net increase (decrease) in cash 709,140 (629,525)
Cash at beginning of period 2,089 857,634
----------------- -----------------
Cash at end of period $ 711,229 $ 228,109
================= =================
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Common shares issued for accounts payable $ 20,000 -
Conversion of Series A Preferred Stock into Series B - $ 3,000,000
Issuance of warrants - $ 139,125
<FN>
See notes to consolidated financial statements.
</FN>
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements as of the three and six
months ended June 30, 2001 and 2000 are unaudited and have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America 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, 2001 are not
necessarily indicative of the results that may be expected for any other interim
period or for the year ending December 31, 2001.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements. SAB No.
101 provides guidance in applying accounting principles generally accepted in
the United States to revenue recognition in financial statements, including the
recognition of non-refundable up-front payments received in conjunction with
contractual arrangements that have multiple performance elements and require
continuing involvement. SAB No. 101 requires that such fees be recognized as
products are delivered or services are performed that represent the culmination
of a separate earnings process.
Prior to the adoption of SAB No. 101, the Company recognized sales of
communication equipment at the time the equipment was shipped to customers.
However, under the provisions of SAB No.101, the delivery of equipment by the
Company is not considered the culmination of an earnings process until the
related messaging service is provided by the Company to its customers. The
Company implemented SAB No. 101 in the fourth quarter of 2000 as a change in
accounting principle, retroactive to January 1, 2000, by deferring and
recognizing these up-front payments over the estimated period of the messaging
services. The cumulative effect of this change through December 31, 1999, which
was recorded in 2000, of changing the method of revenue recognition was
$(333,275) or $(0.01) per share. However, the effect on the results of
operations for the three and six months ended June 30, 2000, which have been
restated in accordance with SAB 101, was an increase in revenue of $229,649 and
$494,064 respectively, an increase in cost of goods sold by $113,064 and
$242,928, and a decrease of loss before cumulative effect of change in
accounting principle of $76,945 and $165,749 compared to the results previously
reported for the three and six months ended June 30, 2000, respectively.
NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
No. 141, Business Combinations, and Statement No. 142, Goodwill and Other
Intangible Assets. Statement 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001 as well as
all purchase method business combinations completed after June 30, 2001.
Statement 141 also specifies criteria intangible assets acquired in a purchase
method business combination must meet to be recognized and reported apart from
goodwill, noting that any purchase price allocable to an assembled workforce may
not be accounted for separately. Statement 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of Statement 142. Statement 142 will also require that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of.
The Company is required to adopt the provisions of Statement 141 immediately,
except with regard to business combinations initiated prior to July 1, 2001 and
Statement 142 effective January 1, 2002. Goodwill and intangible assets acquired
in business combinations completed before July 1, 2001 will continue to be
amortized prior to the adoption of Statement 142. The Company does not have any
intangible assets determined to have an indefinite life.
Statement 141 will require upon adoption of Statement 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in Statement 141 for recognition apart
from goodwill. Upon adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. Any
impairment loss will be measured as of the date of adoption and recognized as
the cumulative effect of a change in accounting principle in the first interim
period.
In connection with the transitional goodwill impairment evaluation, Statement
142 will require the Company to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption. To accomplish
this the Company must identify its reporting units and determine the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill and intangible assets, to those reporting units as of the
date of adoption. The Company will then have up to six months from the date of
adoption to determine the fair value of each reporting unit and compare it to
the reporting unit's carrying amount. To the extent a reporting unit's carrying
amount exceeds its fair value, an indication exists that the reporting unit's
goodwill may be impaired and the Company must perform the second step of the
transitional impairment test. In the second step, the Company must compare the
implied fair value of the reporting unit's goodwill, determined by allocating
the reporting unit's fair value to all of it assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with Statement 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
earnings.
As of the date of adoption, the Company expects to have unamortized goodwill in
the amount of approximately $7.7 million, unamortized identifiable intangible
assets in the amount of approximately $14 million which will be subject to the
transition provisions of Statements 141 and 142. Amortization expense related to
goodwill was $1,359,522 and $458,853 for the year ended December 31, 2000 and
the six months ended June 30, 2001, respectively. Because of the extensive
effort needed to comply with adopting Statements 141 and 142, it is not
practicable to reasonably estimate the impact of adopting these Statements on
the Company's financial statements at the date of this report, including whether
any transitional impairment losses will be required to be recognized as the
cumulative effect of a change in accounting principle.
NOTE 3 - BALANCE SHEET DETAILS
6/30/2001 12/31/2000
---------------- ----------------
Accounts receivable $1,732,037 $3,185,722
Accounts receivable - unbilled 714,798 135,225
Less allowance for doubtful accounts (82,521) (57,620)
---------------- ----------------
$2,364,314 $3,263,327
---------------- ----------------
Inventory:
Raw materials $902,824 $693,568
Work in progress 214,251 204,790
Finished goods 406,427 502,717
---------------- ----------------
$1,523,502 $1,401,075
Less allowance for obsolete inventory 40,000 40,000
---------------- ----------------
$1,483,502 $1,361,075
---------------- ----------------
Property:
Computers and equipment $1,499,438 $1,428,178
Furniture and fixtures 271,100 268,310
Leasehold improvements 83,574 88,832
---------------- ----------------
1,854,112 1,785,320
Less accumulated depreciation 1,318,484 1,210,408
---------------- ----------------
$535,628 $574,912
---------------- ----------------
Capitalized software $950,689 $345,654
Less accumulated amortization 27,547 -
---------------- ----------------
$923,142 $345,654
---------------- ----------------
Goodwill $11,481,272 $11,481,272
Less accumulated amortization 3,276,167 2,817,314
---------------- ----------------
$8,205,105 $8,663,958
---------------- ----------------
Patent $18,000,000 $18,000,000
Less accumulated amortization 3,353,365 2,790,865
---------------- ----------------
$14,646,635 $15,209,135
---------------- ----------------
Accrued expenses
Taxes payable $793,813 $269,586
Other accrued expenses 933,444 805,563
---------------- ----------------
$1,727,257 $1,075,149
---------------- ----------------
NOTE 4 - SIGNIFICANT CONTRACTS
During the second quarter of 2001, the Company received $1 million in connection
with the termination of a license agreement with a customer of Innovative
Communications Technologies, Inc. (ICTI). As this fee represented, in part, an
agreed-upon amount in lieu of future guaranteed royalty payments contractually
due under the original agreement, the Company has recorded the $1 million as
satellite transmission technology revenue in the second quarter.
On June 22, 2001, ICTI entered into a new exclusive license agreement for the
use of technology. The initial term of the exclusive license is through November
2004. Upon execution of the agreement in the second quarter, the Company
received a $1.5 million cash payment, which represents the first of four
guaranteed royalty payments totaling $3.5 million to be recorded over the
license term. The Company will recognize the guaranteed payments systematically
over the license period. Revenue of $83,333 was recorded in the second quarter
and the balance received was recorded as deferred revenue. Included in the long
term contract receivable on the consolidated balance sheet is $2 million
representing the remaining guaranteed payments due under the license agreement.
NOTE 5 - NOTES PAYABLE
On March 13, 2001 the Company signed a Change in Terms Agreement on the
Company's line of credit, increasing the interest rate to equal the lender's
prime rate, currently at eight percent, plus one percent. Another Change in
Terms Agreement was signed May 18, 2001 increasing the interest rate to equal
the lender's prime rate plus two percent and changed the financial and operating
covenants under the bank debt. At June 30, 2001 the balance on the line of
credit was $1,750,000 and a term loan with the bank had been paid in full. The
Company is required to meet certain restrictive financial and operating
covenants under the line of credit. The Company was in compliance with the debt
covenants on June 30, 2001. Pursuant to the Agreement, the bank has prohibited
principal payments totaling approximately $1,500,000 on notes payable, which
were due over twelve months through July 1, 2001 to the two former owners of
Enerdyne Technologies, Inc. One former owner is a director of the Company.
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"), ARCOMS 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. 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 based on revenue percentages of
each segment to total revenues.
Information by business segment for the three months ended June 30, 2001 is set
forth below.
Commun- Video Satellite
ications Compression Technology Consolidated
---------------- ---------------- ----------------- ---------------------
Revenues $1,647,713 $404,790 $2,319,911 $4,372,414
Income (loss) from $291,319 $(734,860) $568,370 $124,829
operations
Interest expense, net $16,846 $149,068 $24,198 $190,112
Depreciation and $45,172 $388,327 $154,291 $587,790
amortization
Information by business segment for the six months ended June 30, 2001 is set
forth below.
Commun- Video Satellite
ications Compression Technology Consolidated
---------------- ---------------- ------------------ ---------------------
Revenues $3,381,820 $1,116,345 $4,104,478, $8,602,643
Income (loss) from $565,138 $(1,217,236) $1,038,683 $386,585
operations
Interest expense, net $31,251 $304,914 $38,785 $374,950
Depreciation and $107,907 $763,813 $315,380 $1,187,100
amortization
Total assets $3,721,666 $20,767,383 $8,388,525 $32,877,574
Information by business segment for the three months ended June 30, 2000 is set
forth below. The segment information has been restated from the amounts
previously reported (see Note 1).
Commun- Video Satellite
ications Compression Technology Consolidated
---------------- ---------------- ----------------- ---------------------
Revenues $1,790,487 $1,009,807 $1,190,690 $3,990,984
Income (loss) from $136,647 $(744,861) $(366,434) $(974,648)
operations
Interest expense, net $15,186 $182,337 $7,621 $205,144
Depreciation and $70,823 $490,590 $148,975 $710,388
amortization
Information by business segment for the six months ended June 30, 2000 is set
forth below. The segment information has been restated from the amounts
previously reported (see Note 1).
Commun- Video Satellite
ications Compression Technology Consolidated
---------------- ---------------- ----------------- ---------------------
Revenues $3,630,908 $1,725,552 $2,211,468 $7,567,928
Income (loss) from $332,173 $(1,589,829) $(668,622) $(1,926,278)
operations
Interest expense, net $70,733 $386,228 $44,191 $501,152
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
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 tables present
revenues and long lived assets for each of the geographical areas in which the
Company operates:
Three months ended 6/30/01 Three months ended 6/30/00
------------------------- --------------------------
Long Long
Revenues Lived Assets Revenues Lived Assets
-------- ------------ -------- ------------
United States $2,059,834 $26,306,635 $3,212,581 $31,727,900
International 2,312,580 3,875 778,403 32,941
------------------- -------------------- --------------------- --------------------
Total $4,372,414 $26,310,510 $3,990,984 $31,760,841
------------------- -------------------- --------------------- --------------------
Six months ended Six months ended
6/30/01 6/30/00
----------------- ----------------
Revenues Revenues
United States $4,390,816 $5,918,869
International 4,211,827 1,649,059
-------------------- -------------------
Total $8,602,643 $7,567,928
-------------------- -------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------
Overview
The Company has three business segments:
1. Boatracs, the communications segment,
2. Enerdyne Technologies, Inc. ("ENERDYNE"), the video compression segment,
a wholly owned subsidiary, and
3. Innovative Communications Technologies, Inc. ("ICTI"), the satellite
technology segment, 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 segment, reliance upon QUALCOMM's Network Management Facility
through which the Boatracs' business segment 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, 2000.
For the three months ended June 30, 2001 and 2000
Total revenues for the quarter ended June 30, 2001, were $4,372,414, an increase
of $381,430 or 10% compared to total revenues of $3,990,984 for the quarter
ended June 30, 2000.
Communications revenues, which consist of revenues from the sale of Boatracs
systems, software and data transmission and messaging, were $1,647,713 or 38% of
total revenues for the quarter ended June 30, 2001, a decrease of $142,774 or 8%
compared to $1,790,487 or 45% of total revenues for the quarter ended June 30,
2000. Revenues for the quarter ended June 30, 2000 have been restated for SAB
No. 101 (see Note 1). The decrease in communication revenues was caused by lower
system and software sales which were partially offset by an increase in data
transmission and messaging revenues.
Video compression revenues were $404,790 or 9% of total revenues for the quarter
ended June 30, 2001, a decrease of $605,017, or 60%, compared to $1,009,807 or
25% of total revenues in the prior comparable quarter. This was caused by delays
in the development of product software applications.
Revenues from satellite transmission technology were $2,319,911 or 53% of total
revenues for the quarter ended June 30, 2001 compared to revenues of $1,190,690
or 30% of total revenues in the second quarter of 2000. The increase in revenues
of $1,129,221 or 95% is due primarily to the license fee recorded in the second
quarter of 2001 of $1.0 million.
Communications expenses were $697,747 or 42% of communications revenues for the
quarter ended June 30, 2001, a decrease of $89,289 or 11%, compared to $787,036
which represented 44% of communications revenue in the comparable quarter of the
prior year. Gross margin for communications increased 2% in the quarter ended
June 30, 2001 to 58% from 56% in the same period of the prior year due to an
increase in the margins on the sale of Boatracs systems and data transmission
and messaging, offset by a decline in the margin on software revenues.
Video compression expense was $115,306 or 28% of video compression revenues for
the quarter ended June 30, 2001, a decrease of $146,212 or 56% compared to
$261,518 or 26% of video compression revenues in the same period of the prior
year. Gross margin declined 2% to 72% in the second quarter compared to the
prior year.
Satellite transmission technology expenses were $857,243 or 37% of satellite
transmission technology revenues for the quarter ended June 30, 2001, an
increase of $57,814 or 7%, compared to $799,429 or 67% of satellite transmission
technology revenues in the prior year second quarter. The increase in gross
margin of 30% to 63% from 33% in the prior year relates to revenues from a
license assignment fee recorded in the second quarter of 2001 which does not
have associated costs of good sold.
Selling, general and administrative expenses were $2,540,425 or 58% of total
revenues for the quarter ended June 30, 2001, a decrease of $317,342 or 11%,
compared to $2,857,767 or 72% of total revenues in the prior year comparable
quarter. Amortization expense decreased $98,350 to $522,780 due to an impairment
charge to goodwill in the fourth quarter of 2000 related to the Enerdyne
acquisition, decreasing future amortization expense.
Research and development expenses were $36,864 or 1% of total revenues for the
quarter ended June 30, 2001, a decrease of $223,018 or 86% compared to research
and development expenses of $259,882 or 7% of total revenues in the prior
comparable quarter. The decrease relates to research and development projects
having reached technological feasibility and the subsequent costs have been
capitalized in accordance with SFAS 86.
Interest expense, net was $190,112 for the second quarter of 2001 and $205,144
for the second quarter of 2000, a decrease of $15,032 or 7% due primarily to the
reduction of principal on the Company's term note with a bank.
The income tax benefit for the quarter ended June 30, 2001 was $95,671 compared
to $320,574 the prior comparable quarter.
For the six months ended June 30, 2001 and 2000
Total revenues for the six months ended June 30, 2001, were $8,602,643, an
increase of $1,034,715 or 14% compared to total revenues of $7,567,928 for the
six months ended June 30, 2000.
Communications revenues, which consist of revenues from the sale of Boatracs
systems, software and data transmission and messaging, were $3,381,820 or 39% of
total revenues for the six months ended June 30, 2001, a decrease of $249,088 or
7% compared to $3,630,908 or 48% of total revenues for the six months ended June
30, 2000. Revenues for the six months ended June 30, 2000 have been restated for
SAB No. 101 (see Note 1). The decrease in communication revenues was caused by
lower system and software sales, which were partially offset by an increase in
data transmission and messaging revenues.
Video compression revenues were $1,116,345 or 13% of total revenues for the six
months ended June 30, 2001, a decrease of $609,207, or 35%, compared to
$1,725,552 or 23% of total revenues in the prior comparable period. This was
caused by delays in the development of product software applications.
Revenues from satellite transmission technology were $4,104,478 or 48% of total
revenues for the six months ended June 30, 2001 compared to revenues of
$2,211,468 or 29% of total revenues in the comparable six months of 2000. The
increase in revenues of $1,893,010 or 86% is due primarily to license fees
recorded in the first and second quarters of 2001 totaling $2.2 million.
Communications expenses were $1,424,236 or 42% of communications revenues for
the six months ended June 30, 2001, a decrease of $145,089 or 9%, compared to
$1,569,325 which represented 43% of communications revenue in the comparable six
months of the prior year. Gross margin for communications increased one percent
to 58% in the six months ended June 30, 2001 from 57% in the comparable six
months of the prior year, reflecting a higher margin on Boatracs system sales,
offset by a reduced margin on software revenue.
Video compression expense was $272,608 or 24% of video compression revenues for
the six months ended June 30, 2001, a decrease of $144,477 or 35% compared to
$417,085 or 24% of video compression revenues in the same period of the prior
year. Gross margin remained constant at 76% in the first six months compared to
the same comparable period in the prior year.
Satellite transmission technology expenses were $1,268,552 or 31% of satellite
transmission technology revenues for the six months ended June 30, 2001, a
decrease of $167,125 or 12%, compared to $1,435,677 or 65% of satellite
transmission technology revenues in the prior year six months. The increase in
gross margin of 34% to 69% from 35% in the prior year relates to revenues from
license fees in the first and second quarter of 2001 which do not have
associated costs.
Selling, general and administrative expenses were $5,153,104 or 60% of total
revenues for the six months ended June 30, 2001, a decrease of $405,848 or 7%,
compared to $5,558,952 or 73% of total revenues in the prior comparable period.
Amortization expense decreased $193,361 to $1,048,900 due to an impairment
charge to goodwill in the fourth quarter of 2000 related to the Enerdyne
acquisition, decreasing future amortization expense.
Research and development expenses were $97,558 or 1% of total revenues for the
six months ended June 30, 2001, a decrease of $415,609 or 81% compared to
research and development expenses of $513,167 or 7% of total revenues in the
prior comparable six months. The decrease relates to research and development
projects having reached technological feasibility and the subsequent costs have
been capitalized.
Interest expense, net was $374,950 for the first six months of 2001 and $501,152
for the first six months of 2000, a decrease of $126,202 or 25% due primarily to
the reduction of principal on the Company's term note with a bank.
The income tax expense for the six months ended June 30, 2001 was $8,995
compared to income tax benefit of $596,302 in the prior comparable period.
Liquidity and Capital Resources
The Company's cash balance at June 30, 2001 was $711,229, an increase of
$709,140 compared to the December 31, 2000 cash balance of $2,089. At June 30,
2001, working capital was negative $1,682,588, an increase of $731,775 from the
negative working capital of $2,414,363 at December 31, 2000. Cash of $3,945,983
was provided by operating activities, cash of $711,482 was used in investing
activities and cash of $2,525,361 was used in financing activities in the first
six months of 2001. During the quarter ended June 30, 2001, the Company received
total payments of $2.5 million related to two different license agreements. Of
this payment, $1.8 million was used to pay off its bank term note. Accounts
payable increased $723,702 in the second quarter ended June 30, 2001 primarily
due to costs incurred with the development of unbilled projects in progress.
Accrued expenses increased $661,937 in the second quarter ended June 30, 2001
primarily due to an increase in taxes payable in the amount of $524,227.
On March 13, 2001, the Company signed a Change in Terms Agreement increasing the
interest rate to equal the lender's prime rate, currently at eight percent, plus
one percent. The Company signed an additional Change in Terms Agreement, dated
May 18, 2001 increasing the interest rate to equal the lender's prime rate plus
two percent, changing the financial and operating covenants and requiring
certain mandatory prepayments on the Company's bank debt. At June 30, 2001, the
term loan with the bank had been paid in full and $1,750,000 was drawn on the
line of credit. The Company is required to meet certain restrictive financial
and operating covenants under the bank debt. The Company was in compliance with
the debt covenants on June 30, 2001.
The Company anticipates making capital expenditures of at least $300,000 during
2001, excluding assets which may be acquired in business combinations. To date,
the Company has financed its working capital needs through private loans, bank
debt, 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.
The report of independent auditors on the Company's December 31, 2000 financial
statements includes an explanatory paragraph indicating there is substantial
doubt about the Company's ability to continue as a going concern. The Company
believes that going forward, it will be able to continue as a going concern. The
Company reported an increase in revenues and earnings for the six months ended
June 30, 2001 and paid off the term debt with its bank. In addition, the Company
received total payments of $2.5 million in the second quarter, related to two
difference licence agreements. Thise payments resulted in an increase to cash
provided by operating activities. In August, the Company negotiated an increase
in its line of credit to $2,000,000 and a reduction in the interest on the line
of credit to lender's prime rate plus one and one half percent.
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
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 16, 2001, the Company held its Annual Meeting of Shareholders at the
corporate office of Enerdyne Technologies, Inc. ("Enerdyne"), a wholly owned
subsidiary, located at 1935 Cordell Court, El Cajon, California.
The following directors were elected:
For Against
Michael Silverman 21,166,436 12,455
Scott Boden 20,639,930 275,708
Mohammed Abutaleb 21,166,617 12,455
John Major 21,161,798 17,274
Andrew Werth 21,162,798 16,274
There were no other proposals for shareholder vote at the Annual Meeting.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On August 1, 2001, the Company filed with the Securities and Exchange Commission
a Form 8-K indicating that the Company had dismissed its current certifying
accountants and engaged KPMG LLP.
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, 2001 /s/ MICHAEL L. SILVERMAN
- ---------------- ------------------------
Date MICHAEL SILVERMAN
PRESIDENT, CHIEF EXECUTIVE OFFICER, CHAIRMAN OF
THE BOARD
August 14, 2001 /s/ DEAN B. KERNUS
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Date CHIEF FINANCIAL OFFICER