U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
Quarterly Report Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarter ended June 30, 1999
Commission File No. 000-26213
ARC COMMUNICATIONS, INC.
A New Jersey Corporation 22-3201557
788 Shrewsbury Avenue
Tinton Falls, New Jersey 07724
Issuer's telephone number: (732) 219-1766
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 __ No _X_
Issuer has been subject to the applicable filing requirements since July
27, 1999, the effective date of its Form 10-SB.
State the number of shares outstanding of each of the registrant's classes
of common equity as of the latest practicable date: 13,750,622 shares of the
registrant's common stock are issued and outstanding as of September 8,1999.
Total number of pages contained in this document is 12.
<PAGE>
ARC COMMUNICATIONS, INC.
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets as of June 30, 1999 and December 31, 1998.
Consolidated Statements of Operations for the Three and Six Months Ended June
30, 1998 and 1999.
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and
1999.
Notes to Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
PART II. OTHER INFORMATION
Items 1-6.
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
Unaudited Audited
June 30, Dec. 31,
1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 409,366 $ 223,693
Accounts Receivable - net 733,173 535,838
Inventory 23,086 15,765
Prepaid expenses 11,497 11,222
Other receivables -0- 6,000
----------- -----------
Total Current Assets 1,177,122 792,518
----------- -----------
PROPERTY AND EQUIPMENT - NET 375,243 396,196
----------- -----------
OTHER ASSETS
Goodwill - net 81,736 86,640
Security deposits 9,410 9,410
Due from Related Party 22,374 19,908
----------- -----------
Total Other Assets 113,520 115,958
----------- -----------
TOTAL ASSETS $ 1,665,885 $ 1,304,672
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ 450,115 $ 400,115
Accounts Payable and Accrued Expenses 259,176 243,277
----------- -----------
Total Liabilities 709,291 641,697
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.20 par value, authorized 5,000,000 shares, issued
and outstanding 720,000 in 1999 and -0- in 1998 144,000 150,000
Common stock, $.001 par value, authorized 45,000,000 shares, issued
and outstanding 13,750,632 in 1999 and 13,553,132 in 1998 13,751 13,751
Additional paid-in capital 1,352,566 1,352,566
Retained earnings (accumulated deficit) (553,723) (855,037)
----------- -----------
Total Stockholders' Equity 956,594 661,280
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,665,885 $ 1,304,672
=========== ===========
</TABLE>
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
6 Months 6 Months 3 Months 3 Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 1,840,049 $ 1,294,652 $ 874,105 $ 692,809
Cost and Expenses:
Salaries and Other
employee compensation 741,015 766,401 394,393 397,031
Selling, general
and administrative 797,720 811,374 419,978 399,422
------------ ------------ ------------ ------------
Total Cost and Expenses 1,538,735 1,577,775 814,371 796,153
NET INCOME (LOSS) 301,314 (283,123) 59,734 (103,344)
------------ ------------ ------------ ------------
BASIC AND DILUTED NET
INCOME (LOSS) PER SHARE $ 0.02 $ (0.02) $ 0.004 $ (0.01)
------------ ------------ ------------ ------------
Weighted Average Number of
Shares Outstanding 13,750,632 13,564,382
</TABLE>
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
June 30, June 30,
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 301,314 $(283,123)
--------- ---------
Adjustments to reconcile net income or loss to net cash
provided by operating activities:
Depreciation and amortization 73,640 70,660
Bad Debt 25,999 -0-
Increase (decrease) in cash from changes in:
Accounts receivable (223,334) (137,961)
Inventory (7,321) -0-
Prepaid expenses (275) (204)
Other Receivables -0- 17,576
Due from related party (2,466) (51,682)
Accounts payable and accrued expenses 15,899 (94,606)
Deferred revenue -0- (1,000)
--------- ---------
Total Adjustments (117,858) (191,059)
--------- ---------
Net Cash Provided (Used) in Operating Activities 183,456 (474,182)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property and equipment (47,783) (26,001)
Net Cash Used in Investing Activities (47,783) (26,001)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 50,000 303,000
--------- ---------
Net Cash Provided by Financing Activities 50,000 303,000
--------- ---------
NET INCREASE (DECREASE) IN CASH 185,673 (197,183)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 223,693 428,329
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 409,366 $ 231,146
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest $ 26,119 $ 8,655
Cash paid for income taxes -0- -0-
</TABLE>
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
JUNE 30, 1999
1. Basis of Presentation
In the opinion of the Company, the accompanying consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to fairly present the Company's financial position and
its results of operations and cash flows as of the dates and for the periods
indicated.
Certain information and footnote disclosures normally contained in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These condensed consolidated financial statements should be
read in conjunction with the audited December 31, 1998 consolidated financial
statements and related notes included in the Company's year end certified
Financial Statement. The results of operations for the six months are not
necessarily indicative of the operating results for the full year.
Amounts for the six months ended June 30,1998 have been reclassified to conform
with the June 30,1999 presentation.
2. Principles of Consolidations
The consolidated financial statements include the accounts of the Company and
all of its subsidiaries in which a controlling interest is maintained. All
significant inter- company accounts and transactions have been eliminated in
consolidation. For those consolidated subsidiaries where Company ownership is
less than 100%, the outside stockholders' interests are shown as minority
interests. Investments in affiliates over which the Company has significant
influence but not a controlling interest are carried on the equity basis.
3. Revenue Recognition
The Company recognizes revenue from sales at the date the product is shipped and
as professional services are performed.
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
JUNE 30, 1999
Segment Information
June 30, June 30,
1999 1998
----------- -----------
Revenues
Multi-Media $ 1,655,594 $ 1,142,882
Continuing professional education 184,455 151,770
----------- -----------
Total Consolidated Revenue $ 1,840,049 $ 1,294,652
----------- -----------
Net Income (Loss)
Multi-Media $ 344,918 $ (17,355)
Continuing professional education (43,604) (265,768)
----------- -----------
Total Consolidated Net Loss $ 301,314 $ (283,123)
----------- -----------
Assets
Multi-Media $ 1,511,660 $ 1,272,570
Continuing professional education 154,225 124,530
----------- -----------
Total Consolidated Net Assets $ 1,665,885 $ 1,397,100
----------- -----------
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Six Months ended June 30, 1999 and June 30, 1998
ARC's Net Sales for the six months ended June 30, 1999 and June 30, 1998
were $1,840,049 and $1,294,652 respectively. An increase of 42.13%. The increase
in sales is due to the increase in ARC Mesa internet activities in continuing
professional educators. ARC also has continued its growth by capitalizing on the
formation of its sales force in the second half of 1998. This sales force has
been able to generate an increase in sales in the area of interactive multimedia
programs, web site development and print collateral.
Costs and expenses for the six month ended June 30,1999 and June 30,1998
were $1,538,735 and $1,577,775 respectively a decrease of 2.53% for the same
period ended June 30,1998. The decrease is primarily due to overhead cuts made
in the Third Quarter of 1998.
Net income for the six months ended June 30, 1999 was $301,314, compared to
a loss of $283,123 for the same period ended June 30, 1998 an increase of
206.4%. Management attributes this increase in net income to the increase in
sales and decrease in overhead expenses.
Three Months ended June 30, 1999 and June 30, 1998
ARC's Net Sales for the period ended June 30, 1999 and June 30, 1998 were
$874,105 and $692,809 respectively. An increase of 26.17%. The increase in sales
is due to the increase in ARCMesa internet activities in continuing professional
educators. ARC also has continued its growth by capitalizing on the formation of
its sales force in the second half of 1998. This sales force has been able to
generate an increase in sales in the area of interactive multimedia programs,
web site development and print collateral.
Costs and expenses for the three months ended June 30,1999 and June 30,1998
were $814,371 and $796,153 respectively. An increase is primarily due to the
hiring of outside consultants used in the production of sales.
Net income for the three months ended June 30, 1999 was $59,734 compared to
a loss of $103,344 for the three months ended June 30, 1998. The increase in net
income in 1999 is due to the increase in Sales over the 1998.
LIQUIDITY AND CAPITAL RESOURCES
Six Months ended June 30, 1999 and June 30, 1998
The Company maintains a credit limit of $750,000 as a part of its ongoing
effort to ensure appropriate level of liquidity. As of June 30,1999 $299,885 of
this line of credit remain unused and available for future use. Although the
Company believes that the amount remaining unused under this line of credit is
sufficient for its short term
<PAGE>
requirements, the Company expects that this line of credit may be increased or
other lines of credit established as needed for its long term financing needs.
The cash flow generated by operations was $183,456 for the six months ended
June 30,1999. For the same period ended June 30, 1998 operations used $474,182.
The decrease in June 30,1998 was attributed to an increase in accounts
receivable and a decrease in accounts payable. Cash used for investing
activities during the six months ended June 30,1999 and June 30,1998 was $47,783
and $26,001 respectively. The cash used in investing activities was used for
equipment purchased.
Cash flows generated from financing activities during the six months ended
June 30,1999 and June 30,1998 was $50,000 and $303,000 respectively. The cash
was provided from drawing down on the line of credit.
For the six months ended June 30,1999 operating activities provided
$183,456. Investing activities used $47,783 and financing activities provided
$50,000 for a cash increase of $185,673 for the period.
The cash flows used in operating activities for the six months ended June
30,1998 was $474,182, investing activities used $26,001 and financing provided
cash of $303,000 for a cash decrease in the period of $197,183.
ARC YEAR 2000 COMPLIANCE
The Year 2000 issue arises as the result of computer programs having been
written, and systems having been designed, using two digits rather than four to
define the applicable year. Consequently, such software has the potential to
recognize a date using "00" as the Year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company's current accounting and other bookkeeping software was
purchased "off-the-shelf" through retail vendors and were represented to the
Company by such manufacturers as being Year 2000 compliant.
As a user of leading edge technology, Arc has taken steps to ensure that it
is Year 2000 compliant. Further, the nature of Arc's business requires that its
systems and programs be evaluated on an ongoing basis to ensure that they
continue to be Year 2000 compliant.
In addition to testing its programs internally, the Company hired IBS
Interactive ("IBS"), an independent consultant, to perform a Year 2000 audit on
the Company's network. IBS determined that there were no substantial
deficiencies in its report dated August 27, 1999. However, the IBS report did
identify some non-critical software which
<PAGE>
was questionable. Non-critical software consists of programs that are either
graphic or spreadsheet in nature. It has been determined that such questionable
programs will not necessarily fail on January 1, 2000, but may apply incorrect
dates (such as 1900) to files saved or created after December 31, 1999.
Notwithstanding the fact that approximately 80% of all of its software is
compliant, the Company continues to test, evaluate and update the questionable
programs and anticipates that it will complete such testing and updates by
November 1, 1999. The Company has no contingency plans in place in the event
that it is unable to complete its testing and updating of the questionable
software by January 1, 2000. However, as such software is non-critical, the
Company does not expect to suffer irreparable economic harm or loss of critical
data. To date the Company has spent approximately $1,200 to address the Year
2000 problem.
The Company believes that the servers it uses to interact on the internet
are Year 2000 compliant. Further, the Companies which presently supply products
or services to Arc have informed Arc that they have taken the appropriate steps
to ready their hardware and software for Year 2000. However, the Company cannot
guarantee any other company's Year 2000 readiness and in the event that any
Company which Arc relies upon for services or products is not Year 2000 ready,
the Company may suffer irreparable economic harm.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4 Submission of Matters to Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
None.
SIGNATURES
In accordance with requirements of the Exchange Act, the Issuer caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: September 9, 1999
ARC COMMUNICATIONS, INC.
BY: /s/ Michael Rubel
-----------------------------
Michael Rubel
Chief Operating Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SECTION CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ARC
COMMUNICATIONS, INC.'S FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 409,366
<SECURITIES> 0
<RECEIVABLES> 733,173
<ALLOWANCES> 0
<INVENTORY> 23,086
<CURRENT-ASSETS> 1,177,122
<PP&E> 375,243
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,665,885
<CURRENT-LIABILITIES> 709,291
<BONDS> 0
0
144,000
<COMMON> 13,751
<OTHER-SE> 1,352,566
<TOTAL-LIABILITY-AND-EQUITY> 1,665,885
<SALES> 874,105
<TOTAL-REVENUES> 874,105
<CGS> 814,371
<TOTAL-COSTS> 814,371
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,119
<INCOME-PRETAX> 59,734
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,734
<EPS-BASIC> .004
<EPS-DILUTED> .004
</TABLE>
