10QSB 1 thirdq2002.txt THIRD QTR 2002 10Q 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, 2002 |_| 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) 1935 Cordell Court, El Cajon, CA 92020 (Address of Principal Executive Offices) (619) 438-6000 (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: 21,231,627 shares of common stock as of January 27, 2003. Transitional Small Business Disclosure Format (check one): Yes __ No X
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2002 2001 2002 2001 (Unaudited) (Unaudited) (Unaudited) (Unaudited) REVENUES: (As restated (As restated see Note 1) see Note 1) Communications $ 1,634,301 $ 1,637,057 $ 4,924,604 $ 5,081,656 Video compression 727,276 707,546 2,635,589 1,823,891 Satellite transmission technology 2,123,446 1,652,113 3,933,391 4,823,257 -------------- ---------------- --------------- ---------------- TOTAL REVENUES 4,485,023 3,996,716 11,493,584 11,728,804 -------------- ---------------- --------------- ---------------- COSTS AND EXPENSES: Communications 748,461 650,326 2,188,292 2,137,341 Video compression 165,967 181,047 917,669 453,654 Satellite transmission technology 1,727,011 904,596 2,612,788 2,173,148 -------------- ---------------- --------------- ---------------- Gross profit, excluding depreciation and amortization 1,843,584 2,260,747 5,774,835 6,964,661 Selling, general and administrative 3,099,668 2,515,591 10,491,559 7,668,696 Research and development 64,350 336,893 500,070 1,108,823 Asset impairment - - 11,821,590 - -------------- ---------------- --------------- ---------------- LOSS FROM OPERATIONS (1,320,434) (591,737) (17,038,384) (1,812,858) Interest expense - net 143,131 103,393 428,308 478,343 -------------- ---------------- --------------- ---------------- LOSS BEFORE TAXES (1,463,565) (695,130) (17,466,692) (2,291,201) Income tax (expense) benefit (99,041) 152,512 3,787,561 502,690 -------------- ---------------- --------------- ---------------- NET LOSS (1,562,606) (542,618) (13,679,131) (1,788,511) Dividend requirement of Series C Preferred Stock (178,594) - (239,939) - -------------- ---------------- --------------- ---------------- LOSS APPLICABLE TO COMMON STOCKHOLDERS $(1,741,200) $(542,618) $(13,919,070) $(1,788,511) ============== ================ =============== ================ BASIC AND DILUTED LOSS PER SHARE: $ (0.08) $(0.03) $ (0.66) $ (0.08) WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, BASIC AND DILUTED 21,231,627 21,198,637 21,235,803 21,135,126 Dilutive effect of: Employee stock options - - - - Warrants - - - - Convertible preferred stock - - - - Weighted average of common shares outstanding, assuming dilution 21,231,627 21,198,637 21,235,803 21,135,126 See notes to consolidated financial statements.
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC. CONSOLIDATED BALANCE SHEETS September 30, December 31, ------------------ ----------------- ASSETS 2002 2001 (Unaudited) CURRENT ASSETS: Cash $ 356,614 $ 268,731 Accounts receivable - net 2,713,720 3,810,809 Inventories - net 1,007,141 1,572,944 Prepaid expenses and other assets 508,000 541,962 ------------------ ----------------- Total current assets 4,585,475 6,194,446 DEPOSITS & OTHER ASSETS 258,950 289,849 PROPERTY - net 538,861 487,402 CAPITALIZED SOFTWARE - net 91,648 234,871 GOODWILL - net 4,890,083 5,434,138 PATENT - net 1,571,571 13,607,983 ------------------ ----------------- TOTAL $ 11,936,588 $ 26,248,689 ================== ================= LIABILITIES AND STOCKHOLDERS' (DEFICIT)/EQUITY CURRENT LIABILITIES: Accounts payable $ 2,406,138 $ 2,746,200 Accrued expenses 2,810,330 1,015,982 Deferred revenue 1,628,996 2,052,838 Current portion of notes payable 6,313,552 6,685,065 ------------------ ----------------- Total current liabilities 13,159,016 12,500,085 DEFERRED REVENUE 879,444 1,570,613 DEFERRED TAX LIABILITY 4,364,333 COMMITMENTS AND CONTINGENCIES (Note 5) STOCKHOLDERS' (DEFICIT)/EQUITY: Preferred Stock, no par value, 1,000,000 shares authorized: Convertible preferred series C stock; Series C-1, 15,000 shares authorized, 6,667 shares issued; Series C-2, 8,000 shares authorized, 4,000 shares issued; Series C-3, 2,000 shares authorized, 1,059.19 shares issued. Liquidation preference: $300 per share series C-1, $500 per share series C-2 and $3,000 per share series C-3 6,828,668 - Convertible preferred series B stock, 31.25 shares issued, liquidation preference $10,000 per share. 312,500 3,512,500 Common stock, no par value; 100,000,000 shares authorized, 21,231,627 and 21,201,627 shares issued and outstanding at 2002 and 2001, respectively 22,655,466 22,280,750 Accumulated deficit (31,898,506) (17,979,592) ------------------ ----------------- Total stockholders' (deficit)/equity (2,101,872) 7,813,658 ------------------ ----------------- TOTAL $ 11,936,588 $ 26,248,689 ================== ================= See notes to consolidated financial statements.
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine months ended September 30, 2002 2001 (Unaudited) (Unaudited) (As restated see Note 1) Operating activities: Net loss $(13,679,131) $ (1,788,511) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Asset impairment 11,821,590 - Write off of capitalized software, net 105,153 - Deferred tax (4,364,333) (329,969) Depreciation and amortization 1,147,560 1,802,064 Issuance of common stock to vendor 9,000 - Adjustment to stock options and warrants 365,716 - Changes in assets and liabilities: Restricted cash - (78,775) Deposits and other assets 10,064 - Accounts receivable, net 1,097,089 133,705 Inventories, net 272,405 (119,525) Prepaid expenses and other assets 33,962 (557,234) Deferred revenue (1,115,011) 1,889,354 Accounts payable and accrued expenses 1,738,795 1,655,214 ----------------- ----------------- Net cash (used in) provided by operating activities (2,557,141) 2,606,323 ----------------- ----------------- Investing activities: Capitalized software - 20,286 Capital expenditures (87,839) (148,268) ----------------- ----------------- Net cash used in investing activities (87,839) (127,982) ----------------- ----------------- Financing activities: Proceeds from line of credit - 450,000 Payments on line of credit (750,000) (150,000) Issuance of series C preferred stock, net 3,628,668 - Issuance of common shares, net - 10,000 Additions to notes payable 214,203 - Principal payments on notes payable (360,008) (2,579,187) ----------------- ----------------- Net cash provided by (used in) financing activities 2,732,863 (2,269,187) ----------------- ----------------- Net increase in cash 87,883 209,154 Cash at beginning of period 268,731 2,089 ----------------- ----------------- Cash at end of period $ 356,614 $ 211,243 ================= ================= SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Reclassification of accrued interest to note payable $ 399,446 Increase in accounts receivable due to deferred $2,000,000 revenue Reclassification of demo equipment from inventory to property - net $ 293,398 Note payable in exchange for insurance premium $ 125,000 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 the nine months ended September 30, 2002 and 2001 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 nine months ended September 30, 2002 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2002. Restatement - ARCOMS' quarterly report on Form 10-QSB for the three and nine month period ended September 30, 2001 was amended to restate Items 1 and 2 of Part I of our original Form 10-QSB to reflect the restatement of our consolidated financial statements. This restatement relates to certain capitalized software costs and revenue recognition of one particular licensing agreement. Subsequent to the issuance of our consolidated financial statements for the quarter ended September 30, 2001, we determined that certain software products for which costs had been capitalized had not met the definition of technological feasibility as provided in Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 86. Accordingly, we restated our financial statements for this quarter to reflect the presentation of such costs as research and development. The restatement resulted in an increase in research and development expenses of $294,097 and $968,470 for the three and nine months ended September 30, 2001, respectively. In addition, subsequent to the issuance of our consolidated financial statements for the quarter ended September 30, 2001, we determined that it would have been preferable to recognize a one time license fee ratably over the term of the agreement based on guidance provided by Staff Accounting Bulletin No. 101 issued by the U.S. Securities and Exchange Commission ("SAB No. 101"), rather than recognizing the entire fee upon receipt. The amount of the fee was $1,200,000 all of which we had recognized in the quarter ended March 31, 2001. The term of the agreement is 18 months. The restatement results in an increase to satellite transmission technology revenue of $200,000 for the three months ended September 30, 2001 and a decrease to satellite transmission technology revenue of $733,333 for the nine months ended September 30, 2001. Business Conditions - Management's Plan to Continue as a Going Concern The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. As shown in the accompanying consolidated financial statements, the Company has incurred net losses applicable to common shareholders of $1,741,200 for the quarter ended September 30, 2002 and net losses applicable to common shareholders of $13,919,070 for the nine months ended September 30, 2002 and additionally had net losses of $4,850,555, $9,111,425, and $926,288 for the years ended December 31, 2001, 2000, and 1999, respectively. The loss for the nine months ended September 30, 2002 includes a non-cash impairment charge of $11,821,590 related to a patent recorded as a result of the acquisition of Enerdyne Technologies, Inc. ("Enerdyne") and a goodwill impairment charge at Boatracs Gulfport ("Gulfport") and OceanTrac Limited ("OceanTrac"). The years ended December 31, 2001 and December 31, 2000 included non-cash impairment charges of $2,300,000 and $6,000,000, respectively, related to goodwill recorded as a result of the acquisition of Enerdyne. In addition, during 2001, 2000, and 1999, the Company undertook significant research and development efforts and refined its marketing and manufacturing processes, all of which contributed significantly to its net losses for those years. At September 30, 2002, the Company had an accumulated deficit of $31,898,506 and at December 31, 2001, the Company had an accumulated deficit of $17,979,592. Working capital was negative $8,573,541 at September 30, 2002 and negative $6,305,639 at December 31, 2001. At September 30, 2002 and December 31, 2001 the Company had classified borrowings from the sellers of Enerdyne as a current liability as the Company was not in compliance with its debt covenants. As more fully discussed below under "Recapitalization Arrangement," on May 31, 2002, the Company sold shares of its preferred stock for gross proceeds of $4,000,000 and extended the maturity dates of its debt agreements with its bank and the two former owners of Enerdyne. In addition, during the quarter ended September 30, 2002, the Company reduced its work force by 17% and approximately 37% of the remaining workforce had their salaries reduced by 30%. The chief executive officer's salary was reduced by 50%. However, the Company does not have sufficient cash available to fund operations for the next twelve months. In order to continue as a going concern, the Company must raise additional funds, including through possible sale of assets or certain operations and significantly reduce the use of cash in operations.. There can be no assurance that additional funds will be available on acceptable terms, if at all, or that the Company will be able to reduce use of cash in operations to the point where internal cash flow is sufficient to fund operations. (See Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.) Recapitalization Arrangement On May 31, 2002, the Company entered into an agreement (the "Stock Purchase Agreement") with two private companies (the "Purchasers"). Under the Stock Purchase Agreement, the Company sold an aggregate of 10,667 shares of two newly designated classes of the Company's preferred stock (series C-1 and series C-2), having a total aggregate purchase price of $4,000,000 to the Purchasers pursuant to a private placement exempt from registration under the Securities Act of 1933. As part of the total purchase price, $500,000 was paid through cancellation/conversion of a promissory note that was entered into on May 16, 2002. In addition, the Company offered all existing holders of its Series B Preferred Stock to exchange such shares for shares of a third newly designated class of its preferred stock (series C-3) in a Tender Offer, which closed July 26, 2002. Of the original 351.25 shares of Series B issued, 320 shares converted to Series C-3. The holders of the series C preferred stock are entitled to receive cumulative dividends at the rate of 10% per annum on each outstanding share of series C preferred stock semi-annually payable in either a like class of Series C or cash. The series C preferred ranks senior and prior to all other outstanding stock, including series B preferred. Each share of the newly designated classes of preferred stock is convertible into common stock at $.30 per share for series C-1 preferred stock, $.50 per share for series C-2 preferred stock and $3 per share for series C-3 preferred stock and may be adjusted for certain recapitalization events. As part of the transaction described above, the Chairman of the Company's Board of Directors resigned his chairmanship as well as the position as chief executive officer and president, and four of the remaining five members of the Company's Board of Directors resigned their directorships. Three new directors were appointed to the Company's Board of Directors, one of whom was also appointed Chairman and Chief Executive Officer. Concurrent with the execution of the Stock Purchase Agreement, the Company's debt agreement with its bank as well as its debt agreements with the two former owners of Enerdyne Technologies, Inc. were modified to extend the maturity dates of the loans and to waive all violations of the relative covenant requirements through the date of the Stock Purchase Agreement (see Note 4). In conjunction with the Stock Purchase Agreement, the Company entered into an employment contract with the Chief Executive Officer and granted him non statutory stock options to purchase 3,000,000 shares of the Company's common stock. The Stock Purchase Agreement grants the investors the exclusive right, exercisable by delivery of written notice to the Company during the period from August 2, 2002 through June 1, 2003 to purchase the assets of the Company's Boatracs division at a purchase price as defined in the agreement. In the event that the investors exercise their option to purchase Boatracs' assets, they may tender the Series C Preferred Stock toward the purchase price, which shall be valued at their original purchase price plus accrued but unpaid dividends thereon. In an unrelated transaction, in September 2002 the Purchasers purchased the Company's line of credit from the original issuing bank. (See Note 4.) Settlement with QUALCOMM On June 3, 2002, the Company executed an amendment to a license and distribution agreement ("the Agreement") the Company has with QUALCOMM, Incorporated ("QUALCOMM") and paid QUALCOMM $500,000 in order to reinstate ARCOMS' exclusivity rights under the Agreement. The exclusivity was reinstated through September 30, 2002. In accordance with the amendment, ARCOMS released QUALCOMM and waived any existing or future claims, liabilities, or arguments contesting the number of units to be purchased to meet the minimum purchase requirements for maintaining exclusivity under the Agreement for all periods prior to October 1, 2003. The amendment also defined the revised minimum purchase requirements under the Agreement. In accordance with SFAS No. 5 "Accounting for Contingencies," the Company recorded the payment of $500,000 to QUALCOMM as a contingent liability as of March 31, 2002 with a corresponding increase to selling, general and administrative expenses for the quarter then ended. Subsequent to June 2002, the Company became delinquent on its accounts payable to QUALCOMM. In December 2002, QUALCOMM informed the Company of its intent to terminate the Agreement unless the Company became current on its financial obligations under the Agreement. In January 2003, the Company reached a settlement with QUALCOMM, which requires the Company to pay its delinquent accounts payable balance of approximately $300,000 at the rate of $35,000 per month, plus interest of 1.5% per month on the delinquent balance, and to remain current on all of its other obligations. QUALCOMM has reserved the right to terminate the agreement without further notice in the event that the Company does not comply with the terms of the settlement. Reclassification - Certain balances in the prior quarter have been reclassified to conform to the presentation adopted in the current quarter. Use of estimates - In preparing the financial statements, we have made estimates and assumptions that affect the following: Reported amounts of assets and liabilities at the date of the financial statements; Disclosure of contingent assets and liabilities at the date of the financial statements; and Reported amounts of revenues and expenses during the period. Actual amounts could differ from those estimates. NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain Financial Institutions." SFAS No. 147 removes the requirement in SFAS No. 72 and Interpretation 9 thereto, to recognize and amortize any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired as an unidentifiable intangible asset. This statement requires that those transactions be accounted for in accordance with SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." In addition, this statement amends SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," to include certain financial institution-related intangible assets. This statement is not applicable to the Company. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue 94-3, a liability for an exit cost, as defined, was recognized at the date of an entity's commitment to an exit plan. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002 with earlier application encouraged. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 updates, clarifies, and simplifies existing accounting pronouncements. This statement rescinds SFAS No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in Accounting Principles Board Opinion No. 30 ("APB No. 30") will now be used to classify those gains and losses. SFAS No. 64 amended SFAS No. 4 and is no longer necessary as SFAS No. 4 has been rescinded. SFAS No. 44 has been rescinded as it is no longer necessary. SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-lease transactions. This statement also makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. This statement is not applicable to the Company. Effective January 1, 2002, the Company adopted SFAS No. 141, "Business Combinations," SFAS No. 142, "Goodwill and Intangible Assets" and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 142 sets forth the accounting for goodwill and intangible assets already recorded. Commencing January 1, 2002, goodwill is no longer being amortized. Factors we consider important which could trigger an impairment review include significant under-performance relative to expected historical or projected future operating results, significant changes in the manner of our use of the acquired assets or the strategy for our overall business and significant negative economic trends. During the second quarter, the Company employed outside consultants to perform an independent valuation analysis of the Company's total invested capital. In the analysis of the Company, the consultants utilized valuation techniques and methodologies deemed appropriate under the circumstances. The first step of the valuation test compared the fair value of a reporting unit with its carrying amount to identify potential impairment. If the carrying value of a reporting unit exceeds its fair value, the second step of the test is then performed to measure the amount of any impairment. The fair value of the Company's patent at Enerdyne was determined utilizing an income approach based on a relief from royalty method of valuation. It was concluded that the fair value of the patent was reasonably stated in the amount of $800,000, net of related deferred taxes. Accordingly, the patent was written down to this value, resulting in an asset impairment charge of $11,277,535 in the quarter ended June 30, 2002. Goodwill was also evaluated and the Company recorded an impairment charge to goodwill at Boatracs Gulfport and Canada in the aggregate amount of $544,055 in the quarter ended June 30, 2002 after evaluating the current technology at Gulfport and projected future sales at both locations. With the adoption of SFAS No. 142, the Company reassessed the useful lives and residual values of all other acquired intangible assets to make any necessary amortization period adjustments. No amortization period adjustments were necessary. As of September 30, 2002 Gross Carrying Amount Accumulated Amortization Amortized Intangible Assets Patent $1,633,323 $ 1,752 Non-compete Agreements 125,000 87,970 --------- ---------- TOTAL $1,758,323 $ 149,722 ========= ========== Unamortized Intangible Asset Goodwill $8,173,495 $ 3,283,412 ========= ========== Aggregate Amortization Expense: For the quarter ended September 30, 2002 $68,776 Estimated Amortization Expense: For year ending December 31, 2002 $948,420 For year ending December 31, 2003 $205,560 For year ending December 31, 2004 $180,085 For year ending December 31, 2005 $177,780 For year ending December 31, 2006 $177,780 The following table reflects the reconciliation of reported net loss and net loss per share to the amounts adjusted for the exclusion of goodwill amortization (in thousands):
Three Months Ended September 30, Nine Months Ended September 30, 2002 2001 2002 2001 Loss applicable to common $(1,741) $(543) $(13,919) $(1,789) shareholders Add Back: Goodwill Amortization 0 222 0 667 ------ ---- ------ ----- Adjusted Net Loss $(1,741) $(321) $(13,919) $(1,122) ====== ==== ====== ===== Basic and Diluted Loss Per Share: $(.08) $(.03) $(.66) $(.08) Add Back: Goodwill Amortization 0 .01 0 .03 ------ ---- ------ ----- Adjusted Net Loss $(.08) $(.02) $(.66) $(.05) ====== ==== ====== =====
NOTE 3 - BALANCE SHEET DETAILS 9/30/2002 12/31/2001 -------------- -------------- Accounts receivable $3,037,461 $3,936,044 Less allowance for doubtful accounts (323,741) (125,235) --------- ---------- $2,713,720 $3,810,809 ========= ========== Inventory: Raw materials $886,766 $927,575 Work in progress 41,750 270,242 Finished goods 236,863 463,186 --------- --------- $1,165,379 $1,661,003 Less allowance for obsolete inventory (158,238) (88,059) --------- --------- $1,007,141 $1,572,944 ========= ========= Property: Computers and equipment $1,738,853 $1,357,615 Furniture and fixtures 219,953 219,953 Leasehold improvements 84,531 84,531 --------- --------- 2,043,337 1,662,099 Less accumulated depreciation (1,504,476) (1,174,697) --------- --------- $ 538,861 $ 487,402 ========= ========= Goodwill $8,173,495 $9,102,022 Less accumulated amortization (3,283,412) (3,667,884) --------- --------- $4,890,083 $5,434,138 ========= ========= Patent $1,633,323 $18,299,990 Less accumulated amortization (61,752) (4,692,000) --------- ---------- $1,571,571 $13,607,983 ========= ========== NOTE 4 - LINE OF CREDIT AND NOTES PAYABLE In September 2002, the Purchasers purchased the Company's line of credit from the original issuing bank. The Company is required to meet certain restrictive financial and operating covenants under the line of credit. Under the Loan Modification Agreement (see Note 1), the bank replaced certain of the existing covenants with new covenants. At September 30, 2002 the Company was not in compliance with the new covenants. The interest rate at September 30, 2002 was 6.5% and the balance on the line of credit was $1,500,000. The Loan Modification Agreement prohibits the Company from making principal payments on notes payable to the two former owners of Enerdyne Technologies, Inc. and has further prohibited making any future principal payments on the notes until the balance of the line of credit has been fully paid. The maturity dates of the notes have been extended through January 1, 2004, and the note-holders permanently waived all events of default through May 29, 2002. The balance of the loans at September 30, 2002 was approximately $4,752,000. NOTE 5 - COMMITMENTS AND CONTINGENCIES In October 2001, the Company received approximately $1.4 million satisfying in full an obligation to be paid future guaranteed royalty payments totaling $2 million. The future guaranteed royalty payments had been due to be paid at specified dates in 2003 and 2004. The $1.4 million received may be applied by the payer against any royalties or certain purchases owed to the Company up to the original amount of future guaranteed royalty payments of $2 million though November 2004, adjusted for interest at 15 percent per annum. The Company has not accrued for this potential contingency and does not believe it is probable that the payment will be applied to royalties or purchases in the future. 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, ARCOMS Europe and OceanTrac Limited . 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. 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 September 30, 2002 is set forth below.
Commun- Video Satellite Ications Compression Technology Consolidated ---------------- ---------------- ------------------ --------------- Revenues $1,634,301 $727,276 $2,123,446 $4,485,023 (Loss) from operations $(101,876) $(724,816) $(493,742) $(1,320,434) Interest expense, net $10,898 $118,737 $13,496 $143,131 Depreciation and amortization $24,339 $89,677 $26,524 $140,540
Information by business segment for the three months ended September 30, 2001 is set forth below.
Commun- Video Satellite ications Compression Technology Consolidated ---------------- ---------------- ------------------ ------------- Revenues $1,637,057 $707,546 $1,652,113 $3,996,716 Income (loss) from operations $313,032 $(775,659) $(129,110) $(591,737) Interest expense, net $10,365 $82,526 $10,502 $103,393 Depreciation and amortization $53,160 $396,188 $153,242 $602,590
Information by business segment for the nine months ended September 30, 2002 is set forth below.
Commun- Video Satellite Ications Compression Technology Consolidated ---------------- ---------------- ------------------ ------------- Revenues $4,924,604 $2,635,589 $3,933,391 $11,493,584 (Loss) from operations $(430,465) $(3,255,430) $(1,530,899) $(5,216,794) (excluding asset Impairment) Asset impairment $544,055 $11,277,535 0 $11,821,590 Interest expense, net $44,891 $348,230 $35,187 $428,308 Depreciation and amortization $78,430 $991,319 $77,836 $1,147,585 Total assets $1,438,128 $3,753,893 $6,744,567 $11,936,588
Information by business segment for the nine months ended September 30, 2001 is set forth below.
Commun- Video Satellite Ications Compression Technology Consolidated ---------------- ---------------- ------------------ ------------ Revenues $5,081,656 $1,823,891 $4,823,257 $11,728,804 Income (loss) from operations $833,882 $(2,445,560) $(201,180) $(1,812,858) Interest expense, net $44,697 $390,221 $43,425 $478,343 Depreciation and amortization $161,975 $1,172,669 $467,420 $1,802,064 Total assets $2,547,468 $20,283,121 $9,219,961 $32,050,550
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. The financial position and results of operations of our foreign subsidiaries are generally determined using the U.S. dollar as the functional currency. Transactional gains and losses are included in determining net income for the period in which the exchange rate changes. Such amounts have remained immaterial in the aggregate. 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 9/30/02 Three months ended 9/30/01 Long Long Revenues Lived Assets Revenues Lived Assets United States $2,244,362 $2,392,280 $2,301,909 $15,364,874 International 2,240,661 0 1,694,807 2,366 --------- --------- --------- ---------- Total $4,485,023 $2,392,280 $3,996,716 $15,367,240 ========= ========= ========= ========== Nine months ended Nine months ended 9/30/02 9/30/01 Revenues Revenues United States $ 6,984,046 $ 6,692,723 International 4,509,538 5,036,081 ---------- ---------- Total $11,493,584 $11,728,804 ========== ========== NOTE 7 - SUBSEQUENT EVENTS In January 2003, the Company signed an "Agreement of Mutual General Release" ("the Agreement") with a financial advisor (see Part 11, Item 1 - Legal Proceedings) in full and final settlement of a claim previously made by the advisor. Pursuant to the Agreement, the Company will pay the advisor $100,000 commencing January 2003 in ten equal installments of $10,000 each. In addition, the Company issued a stock warrant to purchase 200,000 shares of the Company's common stock at a price of $.21 per share. The warrant expires in October 2007 and is valued at $15,650. At September 30, 2002 the Company had accrued a total expense of $115,000 in connection with the claim. 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 Form 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, 2001. Critical Accounting Policies and Estimates Valuation of long-lived and intangible assets and goodwill. As discussed under Note 2, effective January 1, 2002, the Company adopted SFAS No. 142 and reassessed the useful lives and residual values of all acquired intangible assets. In the quarter ended June 30, 2002, the Company determined that the value recorded for a patent was impaired utilizing an income approach based on a relief from royalty method of valuation. As a result, the Company recognized an impairment loss to the patent of $11,277,535 prior to a tax benefit of $4,130,079 in the quarter ended June 30, 2002. In addition, the Company recorded an impairment to goodwill recorded at Boatracs Gulfport and Canada in the aggregate amount of $544,055 due to an evaluation of the technology being used at Gulfport and future projected sales at both locations. For the three months ended September 30, 2002 and 2001 Total revenues for the quarter ended September 30, 2002, were $4,485,023 an increase of $488,307 or 12% compared to total revenues of $3,996,716 for the quarter ended September 30, 2001. Communications revenues, which consist of revenues from the sale of Boatracs systems, software and data transmission and messaging, were $1,634,301 or 36% of total revenues for the quarter ended September 30, 2002, compared to $1,637,057 or 41% of total revenues for the quarter ended September 30, 2001. Revenues from the sale of Boatracs systems are recognized under SAB No. 101 over a three-year period, the estimated period of time the Company provides messaging services to its customers. Included in communications revenues are revenues from data transmission and messaging revenues, which remained relatively constant and software revenues, which decreased 68%. Video compression revenues were $727,276 or 16% of total revenues for the quarter ended September 30, 2002, an increase of $19,730 or 3%, compared to $707,546 or 18% of total revenues in the prior comparable quarter. The increase was primarily due to the completion of engineering and the sale of new products. Revenues from satellite transmission technology were $2,123,446 or 47% of total revenues for the quarter ended September 30, 2002 compared to revenues of $1,652,113 or 41% of total revenues in the third quarter of 2001. The increase in revenues of $471,333 or 29% is due primarily to an increase in system integration revenues derived from a single contract. Communications expenses were $748,461 or 46% of communications revenues for the quarter ended September 30, 2002, an increase of $98,135 or 15%, compared to $650,326 which represented 40% of communications revenue in the comparable quarter of the prior year. Overall, gross margin for communications decreased 6% to 54% from 60%, primarily due to the reduction in high margin software revenues. Video compression expenses were $165,967 or 23% of video compression revenues for the quarter ended September 30, 2002 a decrease of $15,080 or 8% compared to $181,047 or 26% of video compression revenues in the same period of the prior year. Gross margin increased 3% to 77% in the third quarter compared to 74% gross margin in the same quarter of the prior year. Satellite transmission technology expenses were $1,727,011 or 81% of satellite transmission technology revenues for the quarter ended September 30, 2002, an increase of $822,415 or 91%, compared to $904,596 or 55% of satellite transmission technology revenues in the prior year third quarter. The gross margin decreased 26% to 19% from 45% in the prior year primarily due to increased system integration contracts which had a lower margin compared to the quarter ended September 30, 2001 which had greater royalty revenues with no related cost of sales expenses. Selling, general and administrative expenses were $3,099,668 or 69% of total revenues for the quarter ended September 30, 2002, an increase of $584,077 or 23%, compared to $2,515,591 or 63% of total revenues in the prior comparable quarter. Salary expense increased by approximately $300,000 due primarily to severance agreements recorded in the third quarter. In August 2002, the Company reduced its work force by 17%. In addition, highly paid employees' salaries were reduced by 30% and the Chief Executive Officer's salary was reduced by 50%. General office expenses increased $176,180 primarily due to the write off of unamortized bank fees and moving expenses in connection with the relocation of the corporate office to El Cajon, California. Insurance expense increased $118,566 due to overall increases in director and officer liability, workers compensation and health insurance. Amortization expense decreased $463,062 to $71,764 due to the implementation SFAS No. 141 which eliminates the amortization of goodwill and a $11.3 million write down of a patent in the quarter ended June 30, 2002 further reducing amortization expense. Research and development expenses were $64,350 or 1% of total revenues for the quarter ended September 30, 2002, a decrease of $272,543 or 81% compared to research and development expenses of $336,893 or 8% of total revenues in the prior comparable quarter. Research and development expenses for the quarter ended September 30, 2001 have been restated (Note 1). The decrease in research and development expenses is due to completion of product development programs and to the use of engineering personnel in system integration activities. Interest expense, net was $143,131 for the third quarter of 2002 and $103,393 for the third quarter of 2001, an increase of $39,738 or 38%. The income tax expense for the quarter ended September 30, 2002 was $99,041 compared to an income tax benefit of $152,512 the prior comparable quarter. For the nine months ended September 30, 2002 and 2001 Total revenues for the nine months ended September 30, 2002, were $11,493,584 a decrease of $235,220 or 2% compared to total revenues of $11,728,804 for the nine months ended September 30, 2001. Communications revenues, which consist of revenues from the sale of Boatracs systems, software and data transmission and messaging, were $4,924,604 or 43% of total revenues for the nine months ended September 30, 2002, a decrease of $157,052 or 3% compared to $5,081,656 or 43% of total revenues for the nine months ended September 30, 2001. Revenues from the sale of Boatracs systems are recognized under SAB No. 101 over a three-year period, the estimated period of time the Company provides messaging services to its customers. Included in communications revenues are revenues from data transmission and messaging which decreased by 3% and software revenues which decreased by 28% in the nine months ended September 30, 2002. Video compression revenues were $2,635,589 or 23% of total revenues for the nine months ended September 30, 2002, an increase of $811,698 or 45%, compared to $1,823,891 or 16% of total revenues in the prior comparable period. The increase was primarily due to increased sales of newly engineered products to commercial markets and increased orders for existing products from Enerdyne's military customers. Revenues from satellite transmission technology were $3,933,391 or 34% of total revenues for the nine months ended September 30, 2002 compared to revenues of $4,823,257 or 41% of total revenues in the nine months ended September 30, 2001. The decrease in revenues of $889,866 or 18% is due primarily to a reduction of $600,382 in royalty revenues for the nine months ended September 30, 2002 compared to the prior comparable period. Royalty revenues for 2001 have been restated (Note 1). Communications expenses were $2,188,292 or 44% of communications revenues for the nine months ended September 30, 2002, an increase of $50,951 or 2%, compared to $2,137,341 which represented 42% of communications revenue in the comparable quarter of the prior year. Overall, gross margin for communications decreased by 2% to 56%. Video compression expenses were $917,669 or 35% of video compression revenues for the nine months ended September 30 2002, an increase of $464,015 or 102% compared to $453,654 or 25% of video compression revenues in the same period of the prior year. Gross margin decreased 10% to 65% in the nine months ended September 30, 2002 compared to a 75% gross margin in the same period of the prior year due to increased costs of a long term project and the write off of obsolete inventory in the second quarter of 2002. Satellite transmission technology expenses were $2,612,788 or 66% of satellite transmission technology revenues for the nine months ended September 30, 2002, an increase of $439,640 or 20%, compared to $2,173,148 or 45% of satellite transmission technology revenues in the prior nine month period. The decrease in gross margin of 21% to 34% from 55% in the prior year relates primarily to a reduction in royalty revenues for the nine months ended September 30, 2002 compared to the prior period which do not have associated costs of goods sold and a reduction in margins on system integration revenues. Selling, general and administrative expenses were $10,491,559 or 91% of total revenues for the nine months ended September 30, 2002, an increase of $2,822,863 or 37%, compared to $7,668,696 or 65% of total revenues in the prior comparable period. Salaries and related benefits increased by approximately $1.5 million, primarily due to accrual of severance costs for terminated employees and to shifting of engineering efforts from research and development activities. Other increases in selling, general and administrative expenses were in bad debt expense, consulting and general office expenses, and the recognition of costs associated with the modification of the terms of previously issued options and warrants and consulting fees associated with the Recapitalization Arrangement (Note 1). In addition, the Company paid Qualcomm $500,000, to settle distribution exclusivity issues (see Note 1). Amortization expense decreased by $1,258,704 to $325,022 due to the implementation SFAS No. 141, which eliminates the amortization of goodwill and a $11.3 million write off of a patent in the second quarter of 2002 million further reducing amortization expense. Research and development expenses were $500,070 or 4% of total revenues for the nine months ended September 30, 2002, a decrease of $608,753 or 55% compared to research and development expenses of $1,108,823 or 9% of total revenues in the prior comparable period. Research and development expenses for the nine months ended September 30, 2002 includes $150,400 of previously capitalized patent and software development costs. Of this amount, $81,928 relates to a software project that attained technological feasibility in 1999, but was abandoned in the quarter ended June 30, 2002. The remaining $68,471 relates to projects where the Company determined that the net realizable value was less than the amount capitalized. Research and development expenses for the nine months ended September 30, 2001 have been restated (Note 1). Interest expense, net was $428,308 for the nine month period ended September 30, 2002 and $478,343 for the nine month period ending September 30, 2001, a decrease of $50,035 or 10% due primarily to the repayment of the Company's term note with a bank in the second quarter of 2001. The income tax benefit for the nine months ended September 30, 2002 was $3,787,561 compared to an income tax benefit of $502,690 in the prior comparable period. The income tax benefit for the nine months ended September 30, 2002 included the reduction of deferred taxes related to values recorded for a patent, which was written down substantially. Liquidity and Capital Resources The Company's cash balance at September 30, 2002 was $356,614, an increase of $87,883 compared to the December 31, 2001 cash balance of $268,731. At September 30, 2002, working capital was negative $8,573,541 an increase in negative working capital of $2,267,902 from the negative working capital of $6,305,639 at December 31, 2001. Cash of $2,557,141 was used in operating activities, cash of $87,839 was used in investing activities and cash of $2,732,863 was provided by financing activities in the first nine months of 2002. 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. On May 31, 2002, the Company sold shares of its preferred stock for gross proceeds of $4,000,000 and extended the maturity dates of its debt agreements on a line of credit and to the two former owners of Enerdyne. (See Note 1.) The report of independent auditors on the Company's December 31, 2001 financial statements includes an explanatory paragraph indicating there is substantial doubt about the Company's ability to continue as a going concern. Although the Company has entered into a recapitalization arrangement (see Note 1) under which it received additional financing and restructured its current debt arrangements, the Company does not have sufficient cash available to fund operations for the next twelve months. In order to continue as a going concern, the Company must raise additional funds and significantly reduce operating expenses. There can be no assurance that additional funds will be available on acceptable terms, if at all, or, in the absence of external funding that the Company will be able to reduce operating expenses to the point where internal cash flow is sufficient to fund operations. It is likely that any external funding, either debt or equity, will be on terms that could result in substantial dilution to common stockholders. If unable to achieve its fund-raising or operating expense reduction goals, the Company's ability to conduct its business would be materially adversely affected. ITEM 4. CONTROLS AND PROCEDURES Within the 90 days prior to the date of filing this Form 10-QSB, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company's Chief Executive Officer and the Company's Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material changes in information relating to the Company required to be included in the Company's periodic SEC filings. There have been no significant changes in the Company's internal controls or in other factors which could significantly affect internal controls subsequent to the date the Company carried out its evaluation. 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 and which may have an adverse effect on the Company. ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES As of December 31, 2001 the Company was in default under its existing revolving credit facility and subordinated notes due to failure to meet certain financial ratio covenants and as such, balances were classified as current. In May 2002, we entered into an amendment to our credit facility and subordinated notes, which, among other provisions, waived the defaults that existed at December 31, 2001 and reset all covenants for 2002 and subsequent years and as such, the balances were reclassified as long-term and current. At September 30, 2002 the Company was not in compliance with the revised covenants and accordingly the long-term debt has been classified as current. For further information see Note 4 to the condensed consolidated financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On August 29, 2002 the Company held its Annual Meeting of Stockholders in El Cajon, California. The following directors were elected: SHARES AUTHORIZED DIRECTOR TO VOTE: VOTES FOR VOTES AGAINST Elected by Series C-1 and C-2 Preferred Stockholders: Brandon Nixon 10,763,441 10,763,441 0 Joseph Niehaus 10,763,441 10,763,441 0 Elected by Series C-3 Preferred Stockholders: Harvey Gettleson 1,068,482 1,060,856 0 Elected by shareholders of all classes of stock: Michael Silverman 33,190,149 24,477,141 3,219,317 Mohammed Abutaleb 33,190,149 24,493,214 3,203,244 In addition, an amendment to the ARCOMS 1996 stock option plan was approved, increasing the number of available shares in the plan to 7,500,000 from 6,000,000. AUTHORIZED TO VOTE FOR AGAINST 33,190,149 19,139,055 3,853,139 There were no other proposals at the meeting. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K In June 2002, the Company filed Form 8-K advising the Securities and Exchange Commission of a change in control. Amendment No. 1 to the 8-K was filed July 19, 2002 and Amendment No. 2 was filed August 26, 2002. Exhibits 99.1 Written Statement of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350. 99.2 Written Statement of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350. 99.3 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer. 99.4 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer. 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 January 27, 2003 /s/ BRANDON L. NIXON Date BRANDON L. NIXON CHIEF EXECUTIVE OFFICER CHAIRMAN January 27, 2003 /s/ PAUL WICKMAN Date CHIEF FINANCIAL OFFICER EXHIBIT 99.1 Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C. ss.1350 Solely for the purposes of complying with 18 U.S.C. ss.1350, I, the undersigned Brandon L. Nixon of Advanced Remote Communication Solutions, Inc. (the "Company"), hereby certify, that to the best of my knowledge, the Quarterly Report on Form 10-QSB of the Company for the quarter ended September 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ BRANDON L. NIXON, Chief Executive Officer January 27, 2003 EXHIBIT 99.2 Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C. ss.1350 Solely for the purposes of complying with 18 U.S.C. ss.1350, I, the undersigned Paul P. Wickman of Advanced Remote Communication Solutions, Inc. (the "Company"), hereby certify, that to the best of my knowledge, the Quarterly Report on Form 10-QSB of the Company for the quarter ended September 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ PAUL P. WICKMAN Chief Financial Officer January 27, 2003 Exhibit 99.3 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Brandon L. Nixon, Chief Executive Officer of the Company, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Advanced Remote Communications Solutions, Inc. (the "registrant"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a statement of material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the evaluation date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: January 27, 2003 Signed: /s/ BRANDON L. NIXON Chief Executive Officer Exhibit 99.4 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Paul P. Wickman, Chief Financial Officer of the Company, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Advanced Remote Communications Solutions, Inc. (the "registrant"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a statement of material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the evaluation date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: January 27, 2003 Signed: /s/ PAUL P. WICKMAN Chief Financial Officer