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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
------------------
Commission file number 000-26213
ARC COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
New Jersey 22-3201557
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
788 Shrewsbury Avenue
Tinton Falls, New Jersey 07724
(Address of principal executive offices)
(732) 219-1766
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
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 [ ]
The number of shares outstanding of the issuer's common stock
as of November 10, 1999 was 13,753,132
<PAGE>
INDEX
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) Balance Sheets as of September 30, 1999 .................. 3
b) Statements of Operations for the
Three and Nine Months Ended
September 30, 1999 and 1998 .............................. 4
c) Statements of Cash Flows for the
Nine Months Ended September 30, 1999
and 1998 ................................................. 5
d) Notes to Financial Statements ............................ 6 to 7
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ............................... 8 to 10
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS
ON FORM 8-K ............................................. 11
a) EXHIBITS ................................................. 11
b) REPORTS ON FORM 8-K ...................................... 11
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
September 30,
1999
-----------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 406,529
Accounts Receivable - net 857,626
Inventory 15,765
Prepaid expenses 9,429
-----------
Total Current Assets 1,289,349
PROPERTY AND EQUIPMENT - NET 350,223
OTHER ASSETS
Goodwill - net 79,284
Security deposits 9,410
Due from Related Party 25,815
-----------
Total Other Assets 114,509
TOTAL ASSETS $ 1,754,081
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ 453,725
Accounts Payable and Accrued Expenses 317,353
-----------
Total Liabilities 771,078
STOCKHOLDERS' EQUITY
Preferred stock, $.20 par value, authorized 5,000,000 shares, issued
and outstanding 720,000 in 1999 144,000
Common stock, $.001 par value, authorized 45,000,000 shares, issued
and outstanding 13,753,132 in 1999 13,754
Additional paid-in capital 1,355,063
Retained earnings (accumulated deficit) (529,814)
-----------
Total Stockholders' Equity 983,003
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,754,081
===========
</TABLE>
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
9 Months 9 Months 3 Months 3 Months
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
NET SALES 2,837,311 2,099,768 997,262 805,116
Cost and Expenses:
Salaries and Other
employee compensation 1,263,356 1,319,402 522,341 553,001
Selling, general
and administrative 1,247,702 1,124,708 449,982 314,584
------------ ------------ ------------ ------------
Total Cost and Expenses 2,511,058 2,444,110 972,323 867,585
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 326,253 $ (344,342) $ 24,939 $ (62,469)
============ ============ ============ ============
BASIC AND DILUTED NET
INCOME (LOSS) PER SHARE 0.02 (0.03) 0.00 (0.00)
Weighted Average Number of
Shares Outstanding 13,750,650 13,564,382 13,750,686 13,564,382
</TABLE>
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) 326,253 (344,342)
Adjustments to reconcile net income or loss to net cash
provided by operating activities:
Depreciation and amortization 113,613 90,023
Bad Debt (25,653) 10,776
Issuance of stock for services 469 6,250
Increase (decrease) in cash from changes in:
Accounts receivable (296,135) (316,273)
Inventory -- 13,387
Prepaid expenses 1,793 5,794
Other Receivables 17,872
Security deposits -- 2,800
Due from related party (4,906) 1,691
Accounts payable and accrued expenses 74,076 (85,383)
--------- ---------
Total Adjustments (136,743) (253,063)
--------- ---------
Net Cash Provided (Used) in Operating Activities 189,510 (597,405)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property and equipment (60,284) (60,781)
--------- ---------
Net Cash Used in Investing Activities (60,284) (60,781)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 53,610 303,000
Proceeds from sale of stock 140,000
--------- ---------
Net Cash Provided by Financing Activities 53,610 443,000
--------- ---------
NET INCREASE (DECREASE) IN CASH 182,836 (215,186)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 223,693 428,329
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 406,529 $ 213,143
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest 39,974 8,655
Cash paid for income taxes -0- -0-
</TABLE>
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
September 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 Nine months are not
necessarily indicative of the operating results for the full year.
Amounts for the nine months ended September 30,1998 have been reclassified to
conform with the September 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 intercompany 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
September 30, 1999
4. Segment Information
September 30, September 30,
1999 1998
----------- -----------
Revenues
Multi-Media $ 2,337,290 $ 1,860,474
Continuing professional education 500,021 239,294
----------- -----------
Total Consolidated Revenue $ 2,837,311 $ 2,099,768
----------- -----------
Net Income (Loss)
Multi-Media $ 371,793 $ (49,831)
Continuing professional education (44,571) (295,761)
----------- -----------
Total Consolidated Net Loss $ 327,222 $ (345,592)
----------- -----------
International Sales
Multi-Media $ 470,793 $ 429,578
Continuing professional education -0- -0-
----------- -----------
Total Consolidated International Sales $ 470,793 $ 429,578
----------- -----------
Assets
Multi-Media $ 1,534,430
Continuing professional education 219,651
-----------
Total Consolidated Net Assets $ 1,754,081
-----------
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1999 and September 30, 1998
Net sales for ARC Communications, Inc. (the "Company") for the nine months
ended September 30, 1999 and September 30, 1998 were $2,837,311 and $2,099,768
respectively, an increase of 35.13%. The increase is due to expansion of the
continuing professional education segment along with an increase in revenues
from our multi-media segment.
Costs and expenses for the nine months ended September 30, 1999 and
September 30, 1998 were $2,511,058 and $2,444,110 respectively. The increase in
costs and expenses of 2.76% is primarily due to the continued expansion in the
continuing professional education segment which included the increased use of
outsourcing of certain labor while decreasing payroll expenses for the period.
Net income for the nine months ended September 30, 1999 was $326,253,
compared to a loss of $(344,342) for the same period ended September 30, 1998,
an increase of 194%. Management attributes this increase in net income to the
increase in sales.
Three Months Ended September 30, 1999 and September 30, 1998
The Company's net sales for the three months ended September 30, 1999 and
September 30, 1998 were $997,262 and $805,116 respectively, an increase of
23.87%. The increase in sales is primarily due to the expansion of the
continuing professional education segment. In the three months ended September
30,1999 the Company introduced professional education seminars. These seminars
provide professionals in the medical field another avenue for meeting their
continuing professional education requirements.
Costs and expenses for the three months ended September 30, 1999 and
September 30, 1998 were $972,323 and $867,585 respectively, an increase of
12.31%. The increase in costs and expenses is primarily due to the increase in
production costs in the multi-media segment and costs incurred to expand the
professional education segment.
Net income the three months ended September 30, 1999 was $24,939, compared
to a loss of $(62,469) for the same period ended September 30, 1998, an increase
of 137%. Management attributes this increase in net income to the increase in
sales.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a credit line of $750,000 as a part of its ongoing
effort to ensure an appropriate level of liquidity. As of September 30, 1999,
$296,275 of this line of credit remains unused and available for future use.
The cash flow generated (used) by operations were $189,510 and ($597,405)
for the nine months ended September 30, 1999 and September 30, 1998
respectively. The decrease in cash flows from operations for the period
September 30, 1998 is attributed to an increase in accounts receivable due to
some slower paying customers and a decrease in accounts payable. Cash generated
from operations for the period ended September 30, 1999 was attributed to an
increase in net income for the nine months which increased the Company's
accounts receivable and caused an increase in accounts payable and accrued
expenses.
Cash used for investing activities during the nine months ended September
30,1999 and September 30, 1998 was $60,284 and $60,781 respectively. The cash
used in investing activities was primarily used for equipment purchased for each
year.
Cash flows generated from financing activities during the nine months ended
September 30, 1999 and September 30, 1998 was $53,610 and $443,000 respectively.
In the first nine months of 1999 cash was provided from drawing down on the line
of credit. In the first nine months of 1998 $303,000 of cash flow was provided
from drawing down on the line of credit and $140,000 was provided from the sale
of preferred stock.
For the nine months ended September 30, 1999 operating activities provided
$189,510, investing activities accounted for the expenditure $60,284 and
financing activities provided $53,610 for a cash increase of $182,836 for the
period.
For the nine months ended September 30, 1998 operating activities accounted
for the expenditure of $597,405, investing activities accounted for the
expenditure of $60,781, and financing activities provided $443,000 for a cash
decrease of $215,186 for the period.
<PAGE>
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, the Company has taken steps to ensure
that it is Year 2000 compliant. Further, the nature of the Company'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 noncritical software which 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 the Company have informed management 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 the Company relies upon for services or products is
not Year 2000 ready, the Company may suffer irreparable economic harm.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ARC COMMUNICATIONS, INC.
Dated: November 12, 1999 By: /s/ Michael Rubel
-----------------------------
Michael Rubel,
Chief Operating Officer
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27 - Financial Data Schedule.
b) The Registrant did not file any reports on Form 8-K for events
which occurred during the nine months ended September 30, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SECTION CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ARC
COMMUNICATIONS, INC.'S FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 406,529
<SECURITIES> 0
<RECEIVABLES> 857,626
<ALLOWANCES> 0
<INVENTORY> 15,765
<CURRENT-ASSETS> 1,289,349
<PP&E> 350,223
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,754,081
<CURRENT-LIABILITIES> 771,078
<BONDS> 0
0
144,000
<COMMON> 13,776
<OTHER-SE> 1,355,041
<TOTAL-LIABILITY-AND-EQUITY> 1,754,081
<SALES> 2,837,311
<TOTAL-REVENUES> 2,837,311
<CGS> 2,511,058
<TOTAL-COSTS> 2,511,058
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 326,253
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 326,253
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
