Form 10-SB/A
Amendment Nos. 2
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g)
of the Securities Exchange Act of 1934
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ARC COMMUNICATIONS, INC.
(Name of small business issuer in its charter)
New Jersey 22-3201557
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Arc Communications, Inc.
788 Shrewsbury Avenue
Tinton Falls, New Jersey 07724
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (732) 219-1766
Securities to be registered under Section 12(b) of the Act:
Title of each class to be registered Name of each exchange on which
each class is to be registered
None
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Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
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(title of class)
CLASS A PREFERRED STOCK, $.20 PAR VALUE
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Arc Communications, Inc.
CROSS REFERENCE SHEET
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Item Number and Caption in Form 10-SB .................. Caption in Form 10-SB
1. Item 101. Description of Business ...................... Description of Business
2. Item 303. Management's Discussion and Analysis Management's Discussion
or Plan of Operation.................................... and Analysis
3. Item 102. Description of Property....................... Description of Properties
4. Item 403. Security Ownership of Certain Security Ownership of Certain
Beneficial Owners and Management......................... Beneficial Owners and Management
5. Item 401. Directors, Executives Officers, Directors, Executives Officers,
Promoters and Control Persons........................... Promoters and Control Persons
6. Item 402. Executive Compensation........................ Executive Compensation
7. Item 404. Certain Relationships and Related Certain Relationships and Related
Transactions............................................ Transactions
8. Item 202. Description of Securities..................... Description of Securities
9. Item 201. Market for Common Equity and Market Price of and Dividends on
Related Stockholder Matters............................. the Registrant's Common Equity
and Other Shareholder Matters
10. Item 103. Legal Proceedings ............................ Legal Proceedings
11. Item 304. Changes in and Disagreements
with Accountants on Accounting and Financial Changes in and Disagreements
Disclosure ............................................. Accountants
12. Item 701. Recent Sales of Unregistered Recent Sales of Unregistered
Securities ............................................. Securities
13. Item 702. Indemnification of Directors and Indemnification of Directors and
Officers ............................................... Officers
14. Item 310. Financial Statements ......................... Financial Statements
15. Item 601. Exhibits ..................................... Exhibits
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TABLE OF CONTENTS
PART I...................................................................... 1
ITEM 1. DESCRIPTION OF BUSINESS........................................ 1
BACKGROUND..................................................... 1
GENERAL........................................................ 2
Services.................................................. 4
THE COMPANY'S STRENGTHS........................................ 4
Focus on Clients' Business Objectives..................... 4
Technological Expertise................................... 4
Creative Expertise........................................ 4
ARC'S STRATEGY................................................. 5
Capitalize on Accomplishments and
Market Opportunities.................................... 5
Deploy Leading Technologies............................... 5
MARKETING...................................................... 5
GOVERNMENT REGULATION.......................................... 5
COMPETITION.................................................... 6
EMPLOYEES...................................................... 6
ARC INTERNET PUBLISHING, INC................................... 6
PERSONAL EMERGENCY MEDICAL INFORMATION
SERVICES INC................................................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS........................... 7
ARC YEAR 2000 COMPLIANCE....................................... 10
ITEM 3. DESCRIPTION OF PROPERTIES...................................... 11
THE NEW JERSEY OFFICE.......................................... 11
THE FLORIDA OFFICE............................................. 11
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.......................................... 12
SHAREHOLDERS AGREEMENT......................................... 13
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS................................................ 13
ITEM 6. EXECUTIVE COMPENSATION......................................... 15
SUMMARY COMPENSATION TABLE..................................... 15
OPTIONS OF MANAGEMENT.......................................... 16
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS................................................... 16
ITEM 8. DESCRIPTION OF SECURITIES...................................... 16
COMMON STOCK................................................... 16
Dividends................................................. 16
Voting Rights............................................. 17
Preemptive Rights......................................... 17
PREFERRED STOCK................................................ 17
OPTIONS........................................................ 18
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TRANSFER AGENT................................................. 18
PART II..................................................................... 19
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE
REGISTRANT'S COMMON EQUITY AND OTHER SHAREHOLDER
MATTERS........................................................ 19
MARKET......................................................... 19
OUTSTANDING SHARES AND SHAREHOLDERS OF
RECORD......................................................... 19
DIVIDENDS...................................................... 20
ITEM 2. LEGAL PROCEEDINGS.............................................. 20
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS.................................................... 20
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES........................ 20
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS...................... 21
PART F/S.................................................................... 22
ITEM 1. FINANCIAL STATEMENTS........................................... 22
PART III.................................................................... 23
ITEM 1. INDEX TO EXHIBITS.............................................. 23
INDEX OF FINANCIAL STATEMENTS.................................. 24
SIGNATURES..................................................... 25
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
a. BACKGROUND
Arc Communications, Inc. is a New Jersey corporation which was incorporated
on October 21, 1992 (hereinafter, the "Company" among others). The Company was
originally incorporated under the name Arc Slide Technologies Ltd. ("ASTL"). The
Company was initially authorized to issue an aggregate of 10,000 shares of
common stock with no par value.
On August 14, 1996, the Company, formerly Alliance Telecommunications
Holding Corp., a Florida corporation, acquired ASTL. Although the acquisition
was accounted for as a pooling of interest, the Company subsequently determined
that such accounting treatment was incorrect and the transaction should have
been treated as a reverse merger. However, as Alliance Telecommunications
Holding Corp. had no assets at the time of the acquisition, the Company believes
that any restatement of its financial statements is unnecessary.
Thereafter, ASTL became a wholly owned subsidiary of Arc Communications,
Inc. On November 21, 1997, Arc Communications, Inc., a Florida corporation (the
"Parent"), was merged with and into its wholly owned New Jersey subsidiary,
ASTL. At that time, ASTL changed its name to ARC Communications Inc., the
current name of the Company. Although the merger was accounted for as a pooling
of interest, the Company subsequently determined that such accounting treatment
was incorrect and the transaction should have been treated as a reorganization
of entities under common control. However, the Company does not anticipate
restating its financial statements as the more accurate accounting treatment
would not have any material effect on the Company's financial statements.
On July 23, 1996, Arc-Mesa Educators Ltd. ("Arc-Mesa"), a New Jersey
corporation, was formed for the purpose of engaging in the business of offering
continuing education products and services. Arc-Mesa was owned 45% by Arc
Internet Publishing Corp., a wholly owned subsidiary of ASTL, 45% by Mesa
Marketing, Inc., a Florida corporation, and 10% by Andrew Astrove, M.D. Said
parties entered into a Shareholders Agreement dated August 1, 1996 governing the
ownership and operation of Arc-Mesa. Mesa Marketing, Inc. ("Mesa-Marketing")
drafted and published books to be used by a variety of professionals and others
for the purpose of satisfying continuing educational licensing requirements.
Prior to its engagement with Arc-Mesa, Mesa-Marketing was deriving minimal
revenue, if any, from internet related products. The Company believed that this
acquisition would enable us to better service the continuing educational needs
of
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the medical profession.
On October 17, 1997, Arc Internet Publishing Corp. acquired all the assets
of Mesa Marketing, a Florida corporation, by statutory merger. The Company
issued 100,000 shares of common stock, with a par value of $.001 per share, to
the shareholders of Mesa in exchange for all the assets of Mesa. Pursuant to the
purchase agreement, 50,000 shares remain held in escrow payable to Mesa
shareholders based on the achievement of certain financial goals. The shares
remain in escrow as financial goals have not been met as of this date. On April
6, 1998, Arc Internet Publishing Corp. acquired all the assets of Arc-Mesa, by
statutory merger.
On December 19, 1997, the Company acquired all the assets of Navesink River
Group, Inc. ("Navesink"), a New Jersey corporation. The acquisition of the
Navesink River Group added marketing and public relations capability to Arc's
services. Prior to the acquisition Arc was not a full-service marketing
organization as it was primarily a boutique design firm. As a result of the
acquisition the Company is positioned to attract a higher caliber of client by
offering a full-service capability. Navesink also contributed a client base that
comprises a significant percentage of Arc's revenue. Further, the principals of
Navesink also brought experience in senior management.
As of August 31, 1999, the Company was authorized to issue 45,000,000
shares of common stock, with a par value of $0.001 per share, and 5,000,000
shares of preferred stock, with a par value of $0.20 per share. As of August 31,
1999, 13,750,622 shares of the Company's authorized shares of common stock were
issued and outstanding and 720,000 shares of preferred stock were issued and
outstanding.
The Company has not been subject to bankruptcy, receivership or any similar
proceedings.
The Company maintains two offices: 788 Shrewsbury Avenue, Tinton Falls, New
Jersey 07724; and 1648 Metropolitan Circle, Tallahassee, Florida 32308.
b. GENERAL
The Company is a full-service marketing consultancy and graphic design firm
specializing in the development and production of corporate marketing and
communications media. The Company's clients include fortune 500 companies with
concentrations in the pharmaceutical industry and information technology
industries. Services include marketing, consulting, general web site development
on the World Wide Web (the "Web"), electronic commerce, interactive multi-media,
graphics design and imaging. Additionally, since 1995, the Company has developed
and produced websites for major college football bowl games. In the year 2000,
the Company expects to produce the website for the Nokia Sugar Bowl, which will
host college football's national championship. For
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further information regarding this site refer to http://www.nokiasugarbowl.com.
The Company's graphic design and interactive multi-media products use
advanced technologies to create media for corporate communications. The Company
continues to expand its business through existing products such as a 3-D
animation design and multimedia presentations.
Interactive Sales Training Programs are a growing area of Arc's business.
The company has formed strategic alliances with large advertising agencies that
have major pharmaceutical companies as their clients. Arc provides a capability
that these agencies don't possess. They utilize our expertise in interactive
multimedia development to provide these programs for their clients. It's more
cost effective for these agencies to align themselves with Arc then to invest in
the technology themselves. The training programs should have a positive impact
on both revenue and results due to the fact the margins on these products are
substantially higher than those on the Company's core business. The Company
earns revenues from Interactive Sales Training Programs from billing for the
creative development. The expenses are principally payroll related as cost of
purchase are insignificant.
The Company's subsidiary, Arc Internet Publishing Corp. (d/b/a Arc Mesa
Educators) is in the business of providing continuing education to a variety of
professions with a primary focus in the medical profession. As a producer of
advanced multimedia technologies with a commitment to educational excellence,
Arc Mesa Educators is dedicated to providing leadership in the field of
continuing education. For our clients, we provide a level of quality education
combined with a flexible learning environment that can't be attained in a more
traditional continuing education program. Contemporary professionals needing
continuing education credits are drawn to our programs for their ease-of-use,
convenience and price, as well as the educational content and current topics of
interest that can enhance a professional practice.
Although, initially the Company's acquisition of Mesa-Marketing did not
result in enhanced revenues, the Company believes that approximately 25% of the
revenues derived in fiscal year 1999, will be a result of such acquisition.
The Accredation Council for Continuing Medical Education ("ACCME")
accredits Arc-Mesa's continuing education courses for continuing medical
education (ACCME approved provider No. 0006174). Arc Mesa Educators is an ADA
CERP recognized provider for Dental Continuing Education (# 07996090), and
Academy of General Dentistry Accepted National Sponsor (#90564) for FAGD/MAGD
Credit, and a Florida Board of Dentistry Provider (#BP-00246). The Academy of
Professional Funeral Service Practitioners (APFSP) endorse Arc-Mesa. Arc-Mesa is
an approved sponsor of continuing education in Podiatric medicine by the Council
of Podiatric Medical Education. Arc Mesa Educators is an approved provider of
continuing education for nursing professional through the American Nurses
Credentialing Center (ANCC No. AL #5-65.0).
The Company has the ability to design and create specific websites for a
client and may operate such a site if so desired. The Company also designs and
develops interactive kiosks and advertising and promotional materials, including
packaging for retail products. The Company's Web expertise has positioned it to
effectively transition into a full service integrated, interactive marketing and
communication company. The Company's services are used by its clients to create
a new medium for advertisement, promotion and technical support of such
customer's products and services. Web sites can provide commercial organizations
benefits in addition to those available through
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conventional media, including the ability to enhance a corporate brand, engage
and entertain consumers, provide in-depth information, reduce selling and
operating costs, generate leads and build retail traffic, expand distribution
channels (otherwise known as e-commerce), promote major sporting and
entertainment events and monitor popularity of content, conduct research, and
build databases for on-going marketing efforts.
Services
The Company partners with clients to focus on how new and emerging
technologies can enable them to build one-on-one customer relationships. Tapping
into strategic expertise, media know-how, creative talent and technical
excellence, the Company guides clients to achieving a favorable return on
investment from Web-based marketing.
The scope of our services has ranged from consulting services to complete
marketing-driven design and construction of multi-level Web sites. The Company
also offers numerous integrated services in addition to those discussed above,
particularly offline media planning and buying related to identification,
negotiation for and purchase of banners, sponsorship and proprietary
partnerships on Web sites.
c. THE COMPANY'S STRENGTHS
Focus on Clients' Business Objectives
The Company has made understanding its clients' business challenges the
primary focus that guides its customer services. The Company often works with
its clients' management to determine how best to integrate Web sites with the
clients' business goals.
Technological Expertise
The Company believes the creative application of leading technologies is
also crucial to the success of its business. The Company's technical programming
personnel are skilled in various computer operating systems, tools and
languages, including, C/C++, Java, HTML, CGI, PERL, Visual Basic, Shockwave
Flash, among others. These programmers are responsible for providing complex
computer programming for special features on CD-ROM products and Web sites as
well as periodically assessing new technologies in order to identify and deploy,
directly and through independent contractors, those that are most promising for
enhancing the Company's business and that of its clients.
Creative Expertise
The Company believes that, in addition to the creative elements required in
traditional graphic design, superior interactive development requires that the
end product is easy-to-use, contains intuitive interfaces and seamless
integrated technologies and has an engaging look and feel. Management believes
that the Company's creative staff possesses a broad spectrum of expertise
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to meet clients' creative needs. In order to maintain high levels of creativity
and quality, the Company intends to recruit the best talent available. However,
competition for creative personnel is especially intense and there can be no
assurance that the Company will attract or retain adequate creative talent to
accomplish these goals. For a discussion regarding material risks faced by the
Company, please see "COMPETITION."
d. ARC'S STRATEGY
Capitalize on Accomplishments and Market Opportunities
The Company believes that the proliferation of the Internet will continue
to provide substantial opportunities to the Company and that its successfully
completed projects will continue to enhance its marketing efforts. The Company's
management does not, however, believe that the Company's primary business will
always be limited to the Internet. The Company has the ability to produce
digital content which may be carried over a variety of emerging technologies
such as digital satellite and interactive television. Although there is no
assurance that any of these technologies will achieve acceptance in the
marketplace, the Company believes its services could be utilized over these
channels as well.
Deploy Leading Technologies
One of the Company's objectives is to apply both proven and emerging
technologies as they become available in order to maximize the effectiveness of
its Web site services. The Company has formed informal non-exclusive
relationships with key technology providers in an effort to gain access to, and
influence the features of, the Company's utilization of their technologies.
e. MARKETING
The Company markets its services directly and seeks to form strategic
marketing relationships with third parties. Presently, the Company has 5
employees dedicated to business development. Additionally, 3 of the Company's
executive officers spend a portion of their time marketing the Company's
services. The Company also seeks to attract new clients through other methods,
including referrals from existing clients. The Company seeks to cross-sell its
various services to its clients and prospective clients through sales
presentations that encourage clients to utilize all of the Company's services.
f. GOVERNMENT REGULATION
The Company is not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to Web site service
companies and marketing and communications firms. However, due to the increasing
media attention focused on the Internet, it is possible that a number of laws
and regulations may be adopted with respect to the Internet, covering issues
such as user privacy, pricing and characteristics and quality of products and
services. The adoption of any such laws or regulations may decrease the growth
of the Internet, which could in turn decrease the demand for the Company's
services and products and increase the Company's cost of doing business
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or cause the Company to modify its operations, or otherwise have an adverse
effect on the Company's business, operating results or financial condition.
Moreover, the applicability to the Internet of existing laws such as property
ownership, libel and personal privacy is uncertain. The Company cannot predict
the impact, if any, that future regulation or regulatory changes may have on its
business. In addition, Web site developers such as the Company face potential
liability for the actions of clients and others using their services, including
liability for infringement of intellectual property rights, rights of publicity,
defamation, libel and criminal activity under the laws of the U.S. and foreign
jurisdictions. Although the Company maintains $2,000,000 of general liability
insurance, and a $2,000,000 umbrella policy, any imposition of liability in
excess of such policies limits or if not covered by such policies could have a
material adverse effect on the Company.
g. COMPETITION
The markets for the Company's services are highly competitive and are
characterized by pressures to incorporate new technologies, accelerate
completion schedules and reduce prices. The Company expects competition for its
services to intensify in the future, partly because there are no substantial
barriers to entry into the Company's business. The Company faces competition
from a number of sources, including potential customers that perform interactive
marketing and communications services and Web site development services
in-house. These sources also include other Web site service boutique firms,
communications, telephone and telecommunications companies, computer hardware
and software companies such as Microsoft Corporation and Adobe Systems
Incorporated, established online service companies, advertising agencies,
internet-services and access providers as well as specialized and integrated
marketing communication firms. Many of the Company's competitors or potential
competitors have longer operating histories, more substantial customer
relationships and significantly greater financial, managerial, technological,
sales, marketing and other resources than the Company. The Company also competes
on the basis of creative reputation, price, reliability of services and
responsiveness. There can be no assurance that the Company will be able to
compete and its inability to do so would have a material adverse impact on the
Company's business, financial condition and operating results.
h. EMPLOYEES
At August 31, 1999, the Company had 24 employees, of which all are
full-time employees. Full-time employees include 8 in strategic planning,
executive management, business development; 3 account managers; 5 creative and
production personnel; and 3 programmers, in addition to administrative staff.
i. ARC INTERNET PUBLISHING CORP.
The Company's wholly owned subsidiary, Arc Internet Publishing, Corp.,
develops and operates internet businesses and electronically publishes
interactive educational and reference
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material for the medical and dental professions. Arc Internet Publishing, d/b/a,
Arc Mesa Educators located at http://www.arcmesa.com (the "Mesa Web site"),
which provides continuing professional education on the internet to the medical,
dental and funeral director's professions. Arc Mesa has achieved CCME Category
One accreditation. The Mesa Web site provides access to informative courses,
administers state mandated testing and provides immediate results in a live
interactive setting.
j. PERSONAL EMERGENCY MEDICAL INFORMATION SERVICES INC.
Personal Emergency Medical Information Services Inc. is a subsidiary of Arc
Internet Publishing Corp. The Company maintains an Emergency Medical Information
Services ("EMIS") website on the internet. EMIS provides 24-hour, worldwide
immediate access of a subscriber's personal medical records via the internet at
http://www.emis.org (the "EMIS Site"). Subscribers are issued an official EMIS
subscriber membership card that contains a secret personal subscriber
information number. Upon receipt of the card, subscribers must acknowledge
receipt in order to activate their records by calling the Company's customer
services department. Subscriber membership cards provide a unique identification
number that must be entered in order to retrieve a subscriber's record.
Individual subscribers or any authorized healthcare provider may obtain
individual records from anywhere in the world by entering or scanning the
barcoded identification number shown on each membership card into a computer
connected to the internet at the EMIS Site. The Company maintains a 24-hour help
hotline to provide assistance to those who might not have internet access or to
request an immediate fax. A patent application is presently pending for this
product.
The initial subscription fee for the EMIS service is $50.00. Payment of
such fee allows a subscriber to store the subscriber information form, EKG or
other medical records with a maximum page size of 8 1/2 x 14 inches. The annual
renewal fee is $25.00, and allows subscribers to update up to three of the
original records posted. Additional pages or updates may be purchased at a rate
of $15.00 per page.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
a. FORWARD-LOOKING STATEMENTS
Some of the information in this Form 10-SB may constitute forward-looking
statements which are subject to various risks and uncertainties. Such statements
can be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "anticipate," "estimate," "continue," "plan," or other similar
words. These statements discuss future expectations, contain projections of
results of operations or of financial conditions or state other
"forward-looking" information. Actual results could differ materially from those
contemplated by the forward-looking statements as a result of certain factors,
including but not limited to: competitive factors and pricing pressures;
relationships with its manufacturers and distributors; legal and regulatory
requirements; general economic conditions; and other risk factors which may be
described in our future filings with the Commission. We do not promise to update
forward-looking information to
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reflect actual results or changes in assumptions or other factors that could
affect those statements. In addition, when considering such forward-looking
statements, you should keep in mind the factors described in other cautionary
statements appearing elsewhere in this Form 10-SB/A. Such statements describe
circumstances which could cause actual results to differ materially from those
contained in any forward-looking statement.
This Form 10-SB may also include statistical data regarding the Internet.
This data may have been obtained from industry publications and reports which we
believe to be reliable sources. We have not independently verified such data nor
sought the consent of any organizations to refer to their reports herein.
b. RESULTS OF OPERATIONS
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 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 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.
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Years Ended December 31, 1998 and December 31, 1997
Arc's net sales for the years ended December 31, 1998 and 1997 were
$2,867,591 and $2,396,988 respectively, an increase of 19.6%. Management
believes that this increase resulted from increasing an expanding client base in
its core business of Web site development and full-service marketing programs,
in addition to the continuing growth of its Mesa Web site.
Selling, general and administrative expenses for the years ended December
31, 1998 and December 31, 1997 were $2,575,692 and $1,474,225 respectively. The
increase was a result of increased overhead due to the mergers of two companies
at the end of 1997. These mergers resulted in an increase in administrative
expenses due to the increase in personnel. Increases in such expenses are not
expected to continue as the Company does not anticipate acquiring other
companies in the immediate future.
Depreciation and amortization expenses for the years ended December 31,
1998 and December 31, 1997 were $168,815 and $121,921 respectively. The increase
was due to amortization for goodwill of acquisitions in 1997, and the write off
of obsolete equipment.
Net loss for the years ended December 31, 1998 and December 31, 1997
amounted to $536,730 and $77,794 respectively. The primary factors in the
increase in loss of income was that the company increased overhead in
anticipation of rapid sales growth, which did not materialize as fast as
expected. As a result the company reduced overhead in late 1998 but did not
realize the effects until the last quarter of 1998 and 1999.
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 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
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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.
Years Ended December 31, 1998 and December 31, 1997
Cash flow generated by operations were $(590,028) for the year ended
December 31, 1998 and $(62,639) for the year ended December 31, 1997. Positive
cash flow from operating activities for the year ended December 31, 1997 was
achieved, primarily due to an increase accounts payable and an increase in
accrued expenses and other current liabilities. The negative cash flow for the
years ended December 31, 1998 and December 31, 1997 was primarily due to a
decrease in accounts receivable in both years.
Cash flow from investing activities were positive for the years ended
December 31, 1998 and 1997. Net cash used in investing activities for the years
ended December 31, 1998 and 1997 were $442,470 and $648,819 respectively. The
significant increase in net cash used in investing activities in 1997 was
primarily due to the sale of common stock, which resulted in net proceeds of
$522,071. Financing cash flows were provided by loans and issuance of stock for
the year ending December 31, 1998. The company utilized $349,000 of its $475,000
line of credit through a banking institution. The company received net proceeds
from the sale of preferred stock of $113,149.
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 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 are 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.
10
<PAGE>
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.
ITEM 3. DESCRIPTION OF PROPERTIES
THE NEW JERSEY OFFICE
The Company's maintains an office at 788 Shrewsbury Avenue, Tinton Falls,
New Jersey 07724 (the "New Jersey Office"). The New Jersey Office is comprised
of 7,209 square feet and Arc Slide Technologies, Inc. as the Lessee is presently
in the third year of a five year lease at a monthly rent of $9,011.25 (the "New
Jersey Lease"). Pursuant to the terms of the New Jersey Lease, the Company has
the option to renew such lease for an additional period of five years commencing
at the end of the New Jersey Lease's initial term (December 31, 2001).
THE FLORIDA OFFICE
The Company also maintains an office at 1648 Metropolitan Circle,
Tallahassee, Florida 32308 (the "Florida Office"). The Florida Office is
comprised of 2,000 square feet and Arc Internet Publishing Corp. as the Lessee
is presently in the first year of a four year option term at a monthly rent of
2,247.00 (the "Florida Lease"). Pursuant to the terms of the Florida Lease, the
Company has the option to renew such lease for an additional period of four
years commencing at the end of the Florida Lease's option term (July 31, 2002).
11
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of the Company's common
stock beneficially owned by each officer and director of the Company and each
shareholder who holds more than 5% of the outstanding common stock of the
Company as of August 31, 1999. At such date there were 13,750,622 shares of
common stock (the "Common Stock") and 720,000 shares of preferred stock,
respectively, issued and outstanding. Unless specifically indicated otherwise,
all such ownership interests are direct.
<TABLE>
<CAPTION>
Name and Address of Beneficial
Title of Class Owner Amount Percent of Class
<S> <C> <C> <C>
Common Stock Ethel Kaplan (1)(2)(12) 4,549,270 33.08%
6 Edwards Point Road
Rumson, New Jersey 07760
Steven H. Meyer(3)(7)(9) 2,312,020 16.81%
7 Emma Drive
Wayside, New Jersey 07712 2523
Kenneth P. Meyer(4)(8)(9) 2,310,687 16.80%
7 Wemrock Drive
Wayside, New Jersey 07712 2563
Michael Rubel(5)(10) 100,000 .0072%
6 Almark Terrace
Wayside, New Jersey 07712
John Lisovitch(6)(11) 50,000 .0036%
75 White Pine Road
Columbus, New Jersey 08022
</TABLE>
(1) Does not include 90,000 shares held by three trusts to which Ms. Kaplan as
custodian under the uniform gift to minors act.
(2) Ethel Kaplan is a Director and Secretary of the Company.
(3) Steven Meyer is a Director, the Chief Executive Officer and the President
of the Company.
(4) Kenneth Meyer is a Director and the Vice President Creative Manager of the
Company.
(5) Michael Rubel is the Company's Chief Operating Officer.
(6) John Lisovitch is the Information Technology Vice President.
(7) Does not include the option to purchase 18,750 shares of the Company's
Common Stock pursuant to Mr. Meyer's Stock Option Agreement.
(8) Does not include the option to purchase 18,750 shares of the Company's
Common Stock pursuant to Mr. Meyer's Stock Option Agreement.
(9) Kenneth Meyer and Steven Meyer are brothers.
(10) Does not include the option to purchase 75,000 shares of the Company's
Common Stock pursuant to Mr. Rubel's Stock Option Agreement.
(11) Does not include the option to purchase 37,500 shares of the Company's
Common Stock pursuant to Mr. Lisovitch's Stock Option Agreement.
(12) Does not include the option to purchase 37,500 shares of the Company's
Common Stock pursuant to Ms. Kaplan's Stock Option Agreement.
12
<PAGE>
SHAREHOLDERS AGREEMENT
On August 22, 1994, Steven H. Meyer, Kenneth P. Meyer, Ethel Kaplan, Peter
C. Cosmas (collectively, the "Shareholders" for the purposes of this section)
and Arc Slide Technologies Ltd. ("ASTL") entered into a shareholders agreement
whereby the Shareholders agreed to restrict the transfer of their shares of ASTL
for the term of such agreement (the "Shareholders Agreement"). As a result of
the November 21, 1997 merger, the Shareholders received one share of ASTL for
every share of the parent corporation which was incorporated in Florida. ASTL
subsequently changed its name to Arc Communications, Inc. Thus, the Shareholders
Agreement restricts all transfers of the Shareholders' Arc's shares with the
exception of transfers of their respective shares to their immediate family
members. Although the Shareholders Agreement has been amended numerous times and
Mr. Cosman is no longer a party to such agreement, such agreement remains in
effect between Steven H. Meyer, Kenneth P. Meyer and Ethel Kaplan.
Mr. Cosmas is a former director of the Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Name Age Position
Steven H. Meyer 37 Chief Executive Officer, President
and Director
Michael Rubel 45 Chief Operating Officer
Kenneth P. Meyer 40 Vice President Creative Manager
and Director
Ethel Kaplan 67 Secretary and Director
John Lisovitch 52 Vice President Information
Technology Services
The Board of Directors of the Company consists of three persons. Directors
serve until the next annual meeting of shareholders or until their successors
are duly elected and qualified. Officers are elected to serve, subject to the
discretion of the Board of Directors, until their successors are appointed. None
of the Directors of the Company hold directorships in any other public
companies.
STEVEN H. MEYER has served as the Company's Chief Executive Officer and
President since its inception. From 1987 to 1992, Mr. Meyer founded and was
employed by Slide Effects, Inc. Mr. Meyer received a Bachelor of Fine Arts
degree from Syracuse University in 1983. Mr. Meyer is the brother of Kenneth
Meyer who is also an officer and director of the Company.
MICHAEL RUBEL has served as the Company's Chief Operating Officer since
July of 1998. Mr. Rubel was the co-founder and eventually President and Chief
Executive Officer of CMP
13
<PAGE>
Advertising ("CMP") from 1976 to 1992, He then formed the Navesink River Group
at which merged with the Company. Mr. Rubel received a Bachelor of Science
degree in accounting from Fairleigh Dickenson University in 1975.
KENNETH P. MEYER has served as the Company's Vice President Creative
Manager and Director since 1993. Mr. Meyer was a Vice President of Slide
Effects, Inc. from 1989 to 1993. Mr. Meyer attended the University of Florida
from 1976 to 1982 majoring in Fine Arts.
ETHEL KAPLAN has served as the Company's Secretary and Director since 1993.
Ms. Kaplan was the founder and President of Arc Technologies, Inc. ("Arc
Technologies") from 1989 to 1993, at which time Arc Technologies merged with
Slide Effects, Inc. to form Arc Communications, Inc. Ms. Kaplan attended
Syracuse University and Alfred University.
JOHN LISOVITCH has served as the Company's Vice President of Information
Technology since 1997. Mr. Lisovitch was employed by CMP from 1988 to 1992. He
joined with Mr. Rubel to form the Navesink River Group which merged with the
Company. Mr. Lisovitch received a degree from Pennsylvania State University with
a Bachelor of Arts degree in Advertising and Journalism in 1968.
14
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
Total cash compensation paid to all executive officers as a group for
services provided to Arc and its subsidiaries in all capacities during the
fiscal year ended December 31, 1998 aggregated $541,341. Set forth below is a
summary compensation table prepared in accordance with the applicable rules of
the Securities and Exchange Commission.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Other Securities
Annual Underly-
Name and Compensa- ing All Other
Principal Position Year Salary($) Bonus tion Options Compensation
- ------------------ ---- --------- ----- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Steven H. Meyer 1998 88,093 none none 75,000(2) none
1997 86,648 none none none none
Michael Rubel 1998 139,031 none none 150,000(1) none
Kenneth P. Meyer 1998 88,093 none none 75,000(2) none
1997 83,090 none none none none
Ethel Kaplan 1998 88,093 none none 150,000(2) none
1997 86,648 none none none none
John Lisovitch 1998 138,031 none none 150,000(2) none
</TABLE>
(1) Mr. Rubel holds options to purchase 300,000 shares of the Company's Common
Stock pursuant to his employee Stock Option Agreement. Of those 300,000
options, 75,000 have vested.
(2) 25% of these options have vested as of June 1, 1999.
15
<PAGE>
OPTIONS OF MANAGEMENT
Individual Grants
<TABLE>
<CAPTION>
% of Total % of
Granted Options Holder's
Number of Granted to Total
Securities Employees in Options
Underlying Year in which Fiscal Year in which have
Options Options were which Options Exercise vested as of Expiration
Name Granted Granted were Granted Price June 1, 1999 Date
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Steven H. Meyer 75,000 1999 9.43% $0.50 25%
Michael Rubel 150,000 1997 27.77% $0.50 25%
150,000 1999 18.86% $0.50 25%
Kenneth P. Meyer 75,000 1999 9.43% $0.50 25%
Ethel Kaplan 150,000 1999 18.86% $0.50 25%
John Lisovitch 150,000 1999 18.86% $0.50 25%
</TABLE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was not during the last two years and is not presently a party
to any transaction exceeding $60,000 with any of the following persons: (i) any
director or executive officer of the Company; (ii) any nominee for election as a
director; (iii) any holder of 5% or more of any class of the Company's voting
securities; and (iv) any member of the immediate family of any person in
(i),(ii) or (iii) above.
ITEM 8. DESCRIPTION OF SECURITIES
The Company is authorized to issue 50,000,000 shares of Common Stock, $.001
par value ("Common Stock") and 5,000,000 shares of preferred stock with a $.20
par value. As of the close of business on May 17, 1999, there were 13,750,622
shares of Common Stock and 720,000 shares of preferred stock outstanding.
COMMON STOCK
All shares of common stock which are issued and outstanding are fully paid
for and nonassessable. The following is a summary description of the general
terms and provisions of the Company's Common Stock.
Dividends. Since its inception, the Company has not paid any cash dividends
on its Common Stock. Any declaration in the future of any cash or stock
dividends will be, at the discretion of the Board of Directors and will depend
upon, among other things, earnings, the operating and financial condition of the
Company, capital expenditure requirements, and general business
16
<PAGE>
conditions. There are no restrictions currently in effect which preclude the
Company from granting dividends, with the exception that dividends may not be
paid on the Common Stock while there are accrued but unpaid dividends on the
Class A Preferred Stock (defined below). It is the current intention of the
Company to retain any earnings in the foreseeable future to finance the growth
and development of its business.
Voting Rights. A Holder of Common Stock is entitled to one vote per share
on all matters submitted for action by the shareholders. A quorum for the
transaction of business at any meeting of the holders of Common Stock is the
majority of the votes of all shares issued and outstanding. All shares of Common
Stock are equal to each other with respect to the election of directors;
therefore, the holders of more than 50% of the outstanding Common Stock present
at a meeting at which a quorum is present and at which directors are being
elected can, if they choose to do so, elect all of the directors. Thus, the
holders of as little as 25.01% of the outstanding Common Stock could elect
directors. The terms of directors are not staggered. Directors are elected
annually to serve until the next annual meeting of shareholders and until their
successor is elected and qualified. There are no preemptive rights to purchase
any additional shares of Common Stock or other securities of the Company, nor is
cumulative voting applicable to the election of the Board of Directors.
Preemptive Rights. The holders of Common Stock are not entitled to
preemptive or subscription rights.
PREFERRED STOCK
The articles of incorporation vest the Board of Directors with the
authority to divide the preferred stock into series and to fix and determine the
relative rights and preferences of the shares of any preferred series
established to the fullest extent permitted by the laws of the State of New
Jersey and the amended articles of incorporation with respect to among other
things: (a) the number of shares to constitute a series and the distinctive
designation thereof; (b) the rate and preference of dividends, if any, and, if
so, the time of the payment of dividends; (c) whether dividends are cumulative
and, if so, the date from which dividends begin accruing; (d) whether shares may
be redeemed and, if so, the redemption price and the terms and conditions of
redemption; (e) the liquidation preferences payable in the event of involuntary
or voluntary liquidation; (f) sinking fund or other provisions, if any, for the
redemption or purchase of shares; (g) the terms and conditions upon which shares
may be converted, if convertible, and (h) voting rights, if any.
Effective September 1, 1998, the Company issued a series of preferred
stock. The series was designated as Series A: 9% Cumulative, Preferred Stock,
with a par value of $0.20 per share (the "Class A Preferred Stock"). There are
1,500,000 shares in the series, each valued at the capital amount of $0.20, an
aggregate of $300,000 in total capital. Dividends accrue annually at the rate of
9% per annum, but are payable in the discretion of the Company only when funds
are available therefor. The Class A Preferred Stock may be redeemed at the
election of the Company at any time and from time to time in whole or in part by
paying $0.20 per share plus all accrued but unpaid dividends, but only after
30-days prior written notice. The Class A Preferred Stock also carries
preferential liquidation rights, but does not have voting rights or a sinking
fund for
17
<PAGE>
redemption.
OPTIONS
On May 29, 1997 the Company adopted an Incentive Stock Option Plan granting
to key employees options to purchase restricted shares of the Company's Common
Stock (the "ISOP"). Pursuant to the terms of the ISOP, the Board of Directors
determines the option price. The options granted under the ISOP generally vest
over a four year period and expire either three years after termination of
employment or ten years after the date of the grant. A total of 1,500,000 shares
have been reserved for present and future grants of stock options. The Company,
on November 15, 1998, adjusted the exercise price of all options from $1.50 per
share to $.50 per share. At December 31, 1998, options on 460,000 shares at $.50
per share were outstanding of which 97,500 were exercisable.
On April 15, 1999, the Company granted five separate options, among others,
to Steven H. Meyer, Kenneth P. Meyer, John Lisovitch, Ethel Kaplan and Michael
Rubel (the "SHM Option", the "KPM Option", the "JL Option", the "EK Option" and
the "MR Option", respectively and the "Five Options", collectively). The SHM
Option granted Steven H. Meyer the right to purchase 75,000 shares of Common
Stock at a price of $.50 per share. The KPM Option granted Kenneth P. Meyer the
right to purchase 75,000 shares of Common Stock at a price of $.50 per share.
The JL Option granted John Lisovitch the right to purchase 150,000 shares of
Common Stock at a price of $.50 per share. The EK Option granted Ethel Kaplan
the right to purchase 150,000 shares of Common Stock at a price of $.50 per
share. The MR Option granted Michael Rubel the right to purchase 150,000 shares
of Common Stock at a price of $.50 per share. The Five Options vest equally over
a four year period.
The shares of Common Stock which may be acquired under the above options
have not been registered under the Securities Act of 1933, as amended, and there
is no obligation by the Company to register such.
TRANSFER AGENT
Registrar and Transfer Company, 10 Commerce Drive, Cranford, NJ 07016
serves as the Company's transfer agent and registrar for the Company's Common
Stock.
18
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
MARKET. As of October 21, 1996, the prices for the shares of the Company's
Common Stock have been quoted on the "OTC-Bulletin Board," maintained by the
National Association of Securities Dealers, Inc. The Common Stock is presently
trading under the symbol "ACOC".
As of December 30, 1998, the prices for the Company's Class A Preferred
Stock have been quoted on the "OTC-Bulletin Board," maintained by the National
Association of Securities Dealers, Inc. The Class A Preferred Stock is presently
trading under the symbol "ACOCP".
The Following table sets forth the range of high and low bid quotations for
the Company's Common Stock and Class A Preferred Stock during each calendar
quarter since they began trading, each of which has been rounded to the nearest
whole cent.
- --------------------------------------------------------------------------------
SYMBOL TIME PERIOD LOW BID HIGH BID
ACOC January 1 - March 31, 1997 5 3/8 6 13/16
April 1- June 30, 1997 6 1/2 7 1/2
July 1 - September 30, 1997 6 7 9/16
October 1 - December 31, 1997 6 3/4 7 5/8
January 1 - March 31, 1998 3 1/16 6 3/4
April 1 - June 30, 1998 1 5/8 4 1/2
July 1 - September 30, 1998 1/4 1 3/16
October 1 - December 31, 1998 .20 15/16
January 1 - March 31, 1999 .20 7/16
March 31 - June 30, 1999 3/16 9/16
July 1 - July 19, 1999 3/8 5/16
ACOCP January 1 - March 31, 1999 7/16 1 5/8
March 31 - June 30, 1999 3/4 13/16
July 1 - July 19, 1999 3/4 3/4
The above prices were obtained from the National Quotation Bureau, Inc. The
quotations represent inter-dealer quotations without retail mark-up, mark-down
or commission, and may not necessarily represent actual transactions.
On July 1, 1999 the Company's Common Stock and Class A Preferred Stock was
delisted from the OTC-Bulletin Board due to its failure to comply with NASDAQ's
recently adopted listing requirements. The Company's Common Stock and Class A
Preferred Stock is presently trading on the "pink sheets" and is expected to
return to the OTC-Bulletin Board shortly after all of the Commission's comments
on the Company's Form 10-SB have been satisfied.
OUTSTANDING SHARES AND SHAREHOLDERS OF RECORD. As of May 12, 1999, the transfer
ledgers maintained by the Company's Stock Transfer Agent indicated that there
were approximately 13,750,622 shares of Common Stock issued and outstanding
which were held of record by 135 persons. As of May 12, 1999, the transfer
ledgers maintained by the Company's
19
<PAGE>
Stock Transfer Agent indicated that there were approximately 720,000 shares of
preferred stock issued and outstanding which were held of record by 11 persons.
DIVIDENDS. Since its inception, the Company has not paid any cash dividends on
its stock. Any declaration in the future of any cash or stock dividends will be,
at the discretion of the Board of Directors and will depend upon, among other
things, earnings, the operating and financial condition of the Company, capital
expenditure requirements, and general business conditions. There are no
restrictions currently in effect which preclude the Company from granting
dividends, with the exception that dividends may not be paid on the Common Stock
while there are accrued but unpaid dividends on the Class A Preferred Stock: 9%
Cumulative, Convertible, Redeemable Preferred Stock. It is the current intention
of the Company to retain any earnings in the foreseeable future to finance the
growth and development of its business.
ITEM 2. LEGAL PROCEEDINGS
No material legal proceedings to which the Company (or any officer or
director of the Company, or any affiliate or owner of record or beneficially of
more than five percent of the Common Stock, to management's knowledge) is party
or to which the property of the Company is subject is pending, and no such
material proceeding is known by management of the Company to be contemplated.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
During August 1996, the Company consummated and completed a private
placement offering of securities whereby the Company issued a total of 500,000
shares of Common Stock and received net proceeds of $447,200 after the deduction
of expenses amounting to $52,800 (the "First Offering"). Such offering was
exempted from registration pursuant to Section 4(2) of the Securities Act. The
entire First Offering was sold to one entity, Rushfield LTD, who was not a 10%
shareholder of the Company.
From December 1996 through March 1997, the Company conducted a second
private placement offering of securities whereby the Company issued a total of
495,000 shares of Common Stock and received net proceeds of $430,823 after the
deduction of expenses amounting to $64,177 (the "Second Offering"). Such
offering was exempted from registration pursuant to Section 4(2) of the
Securities Act. The Second Offering's expenses consisted of a 10% consulting
fee, legal, printing and accounting fees and other miscellaneous expenses. The
entire Second Offering was sold to one entity, Ainsley Engineering, who was not
a 10% shareholder of the Company.
During October 1997, the Company consummated and completed a third private
placement offering of securities whereby the Company issued a total of 300,000
shares of Common Stock and received net proceeds of $261,071 after the deduction
of expenses amounting to $38,929 (the "Third Offering"). Such offering was
exempted from registration pursuant to Section 4(2) of the Securities Act. The
Third Offering's expenses consisted of a 10% consulting fee, legal fees and
printing and registration expenses. The entire Third Offering was sold to one
entity, Maslen International, who was not a 10% shareholder of the Company.
In regards to the First, Second and Third Offerings (collectively, the
"Three Offerings"), the expenses associated therewith consisted of a 10%
consulting fee, legal, printing and accounting fees and other miscellaneous
expenses. The Three Offerings were not underwritten. Each investor in the Three
Offerings was accredited and/or sophisticated and tendered consideration.
Further, no officer or director of Rushfield LTD, Ainsley Engineering or Maslan
International was or is presently an officer, director or 10% shareholder of the
Company. In order to provide all subscribers with full and complete disclosure
the Company distributed private placement memorandum and offered to allow
inspections of its books and records. The Three Offerings integrated audited
financial statements for the two most recent fiscal years. All of the
subscribers tendered consideration in the form of cash.
From July though December 1998, the Company conducted an offering for a
total of 750,000 shares of its Class A Preferred Stock in exchange for $150,000
in cash (the "Preferred Offering"). Such offering was exempted from registration
under
20
<PAGE>
Section 4(2) of the Securities Act. Although sixty subscribers attempted to
purchase Class A Preferred Stock in the Preferred Offering, the Company was
forced to return a number of those subscriptions due to a lack of subscriber's
funds. The Company received net proceeds from the Preferred Offering of $118,149
after the deduction of expenses amounting to $31,851. Those expenses consisted
of $10,000 issued in the form of stock for legal services rendered, a 10%
consulting fee, printing and accounting fees and other miscellaneous expenses.
Such offering was not underwritten and no officers, directors or 10%
shareholders of the Company were subscribers. In order to provide all
subscribers to the Preferred Offering with full and fair disclosure, the Company
distributed private placement memorandum and offered to allow inspections of its
books and records. The Preferred Offering memorandum integrated audited
financial statements for the two most recent fiscal years.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to the Articles of Incorporation, the Company has such authority
as the New Jersey Business Corporation Act allows to indemnify its officers and
directors to the extent provided for in such statute, charter provision, bylaw,
contract or other arrangement under which any controlling person, director or
officer of the Company is insured or indemnified in any manner against which
liability they may incur in their capacity as such is the New Jersey Business
Corporation Act, as enacted and in effect upon adoption of the Articles of
Incorporation and Bylaws governing the Company. The provisions of the New Jersey
Business Corporation Act provide that a company may, but is not obligated to,
indemnify against the liability of an individual made a party to a lawsuit
because they were previously or currently a director or officer of the Company,
if such person acted in good faith and reasonably believed that his or her
actions were in the best interests of the Company. The Company may not indemnify
such persons if a judgement or other final adjudication adverse to the corporate
agent establishes that his acts or omissions (a) were in breach of his duty of
loyalty to the corporation or its shareholders, (b) were not in good faith or
involved a knowing violation of law or (c) resulted in receipt by the corporate
agent of improper personal benefit. The Company may indemnify such persons if
they are ultimately successful in the suit. Pending a final determination, the
Company may advance funds to these persons, but only if provision is made for
the return of all funds advanced in the event that such persons are subsequently
found to be unentitled to indemnification. Indemnification would include actions
of the officers and directors of the Company taken in connection with this
filing. If available at reasonable cost, the Company intends to maintain
insurance against any liability incurred by its officers and directors in
defense of any actions to which they are made parties by reason of their
positions as officers and directors.
21
<PAGE>
PART F/S
ITEM 1. FINANCIAL STATEMENTS
For information regarding this item, reference is made to the "Index of
Financial Statements."
22
<PAGE>
Part III
ITEM 1. INDEX TO EXHIBITS.
3.1 Certificate of Incorporation of Arc Slide Technologies Ltd., dated October
21, 1992.
3.2 Certificate of Amendment to the Certificate of Incorporation of Arc Slide
Technologies Ltd., dated August 1, 1994.
3.3 By-laws of Arc Slide Technologies Ltd., adopted August 1, 1994.
3.4 Certificate of Amendment to the Certificate of Incorporation of Arc Slide
Technologies Ltd., dated October 13, 1997, changing the name of the
corporation to Arc Communication, Inc., and increasing the authorized
common stock to 50,000,000 shares.
3.5 Letter from the Florida Department of State indicating that the Articles of
Merger were filed on November 19, 1997.
3.6 Articles of Merger of Arc Communications, Inc., a Florida corporation, into
its wholly-owned subsidiary Arc Communications, Inc., a New Jersey
corporation dated November 21, 1997.
3.7 Certificate of Merger of Navesink River Group Inc., into Arc Communications
Inc., dated December 19, 1997.
3.8 Plan of Merger of Navesink River Group Inc., into Arc Communications Inc.,
dated December 19, 1997.
3.9 Unanimous Consent of Directors in Lieu of Special meeting of directors of
ARC Communications dated July 14, 1998.
3.10 Certificate of Amendment to the Certificate of Incorporation of Arc
Communications Inc., dated August 31, 1998.
3.11 Certificate of Amendment to the Certificate of Incorporation by the Board
of Directors of Arc Communications Inc. dated September 1, 1998.
3.12 Class A Preferred Stock Provisions dated September 15, 1998.
9.1 Shareholders Agreement between Steven H. Meyer, Kenneth P. Meyer, Ethel
Kaplan, Peter C. Cosmas and Arc Slide Technologies, Inc. dated August 22,
1994.
10.1 $750,000 Promissory Note with Sovereign Bank, dated August 27, 1998.
10.2 The September 24, 1996 lease between Arc Slide Technologies, Inc. and
Robert F. Reynolds and Pauline Reynolds for the property located at 788
Shrewbury Avenue, Tinton Falls, New Jersey 07724.
10.3 The July 10, 1997 lease between MESA Marketing, Inc. and Steven E. Allen &
Kenneth L. Franklin for the property located at 1648 Metropolitan Circle,
Tallahassee, Florida 32308.
10.4 Consultation agreement between Wall Street Advancement, Inc. and Arc
Communications, Inc., dated March 8, 1999.
21.1 Arc Communications, Inc.'s Subsidiaries:
Name State of Incorporation
---- ----------------------
Arc Internet Publishing Corp. New Jersey
23
<PAGE>
INDEX OF FINANCIAL STATEMENTS
ANNUAL FINANCIAL STATEMENTS:
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES:
Report of Independent Auditors F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1998 and 1997 F-3
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1998 and 1997 F-4
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1998 and 1997 F-5
Notes to Consolidated Financial Statements F-6 to F-14
INTERIM FINANCIAL STATEMENTS (UNAUDITED):
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES:
Consolidated Balance Sheets as of June 30, 1999 and 1998 F-15
Consolidated Statements of Operations for the Six Months
Ended June 30, 1999 and 1998 F-16
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1999 and 1998 F-17
Notes to Consolidated Financial Statements F-18
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
ARC COMMUNICATIONS, INC.
Date: September 2, 1999 By: /s/ Michael Rubel
----------------------------
ARC COMMUNICATIONS, INC. Name: Michael Rubel
Title: Chief Operating Officer
24
<PAGE>
ARC COMMUNICATIONS, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT
Financial Statements
Consolidated Balance Sheets, December 31, 1998 and 1997
Consolidated Statements of Operations for the Years Ended
December 31, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997
Notes to Consolidated Financial Statements
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Arc Communications, Inc. and Subsidiaries
Shrewsbury, New Jersey
We have audited the accompanying consolidated balance sheets of Arc
Communications, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Arc Communications, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
As more fully described in Note 15 the financial statements have been restated
to reflect a correction in the accounting for certain intangible assets.
BECK, WEISS & COMPANY
Edison, New Jersey
February 19, 1999
Except for Note 15, as to
which the date is August 20, 1999
F-1
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS
1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 223,693 $ 428,329
Accounts receivable - net 535,838 417,614
Inventory 15,765 13,387
Prepaid expenses 11,222 20,134
Other receivables 6,000 23,050
----------- -----------
Total Current Assets 792,518 902,514
----------- -----------
PROPERTY AND EQUIPMENT - NET 396,196 496,745
----------- -----------
OTHER ASSETS
Goodwill - net 86,640 96,865
Security deposits 9,410 13,310
Due from related party 19,908 18,676
Officers' life insurance cash surrender value -0- 963
----------- -----------
Total Other Assets 115,958 129,814
----------- -----------
TOTAL ASSETS $ 1,304,672 $ 1,529,073
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ 400,115 $ 51,115
Note payable - related party -0- 160,000
Capitalized lease obligations - current portion 4,061 19,484
Accounts payable 177,744 259,627
Accrued Expenses 59,776 113,284
Deferred revenue -0- 1,000
----------- -----------
Total Current Liabilities 641,696 604,510
----------- -----------
LONG-TERM LIABILITIES
Capitalized lease obligations, less current portion 1,695 5,951
----------- -----------
Total Liabilities 643,391 610,461
MINORITY INTEREST -0- 10,572
----------- -----------
COMMITMENTS AND CONTINGENCIES 643,391 621,033
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.20 par value, authorized 5,000,000 shares, issued
and outstanding 750,000 in 1998 and -0- in 1997 150,000 -0-
Common stock, $.001 par value, authorized 45,000,000 shares, issued
and outstanding 13,750,632 in 1998 and 13,538,132 in 1997 13,751 13,538
Additional paid-in capital 1,352,566 1,212,808
Accumulated deficit (855,036) (318,306)
----------- -----------
Total Stockholders' Equity 661,281 908,040
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,304,672 $ 1,529,073
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
----------- -----------
NET SALES $ 2,867,591 $ 2,396,988
----------- -----------
COSTS AND EXPENSES
Operating costs 640,306 875,287
Selling, general and administrative 2,575,692 1,474,225
Depreciation and amortization 168,815 121,921
----------- -----------
Total Costs and Expenses 3,384,813 2,471,433
----------- -----------
OPERATING LOSS (517,222) (74,445)
----------- -----------
OTHER INCOME (EXPENSES)
Interest income 9,596 13,167
Interest expense (28,904) (16,427)
----------- -----------
Net Other Expense (19,308) (3,260)
----------- -----------
LOSS BEFORE INCOME TAX PROVISION (BENEFIT) AND
MINORITY INTEREST (536,530) (77,705)
INCOME TAX PROVISION 200 200
----------- -----------
LOSS BEFORE MINORITY INTEREST (536,730) (77,905)
MINORITY INTEREST IN EARNINGS OF SUBSIDIARY -0- (111)
----------- -----------
NET LOSS AS RESTATED FOR 1998 AND 1997 $ (536,730) $ (77,794)
=========== ===========
BASIC AND DILUTED NET LOSS PER SHARE $ (0.04) $ ( 0.01)
=========== ===========
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------------- -------------------------
Number Number
of Shares Amount Of Shares Amount
--------- --------- ----------- --------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996, RETAINED EARNINGS AS
PREVIOUSLY REPORTED -0- $ -0- 12,750,000 $ 12,750
o Prior-period adjustment to expense certain costs previously
capitalized as intangible assets, net of income tax
-------- --------- ----------- --------
BALANCE, DECEMBER 31, 1996, RETAINED EARNINGS
AS RESTATED -0- -0- 12,750,000 12,750
o Issuance of common stock pursuant to private placement
offerings net of expenses 285,000 285
o Issuance of common stock pursuant to acquisition of Mesa
Marketing, Ltd. 100,000 100
o Issuance of common stock pursuant to private placement
offerings net of expenses 300,000 300
o Issuance of common stock for professional services 10,000 10
o Issuance of common stock for services related to private placement 93,132 93
o Net loss as restated for 1997
-------- --------- ----------- --------
BALANCE, DECEMBER 31, 1997, RETAINED EARNINGS
AS RESTATED -0- -0- 13,538,132 13,538
o Issuance of preferred stock, net of costs 750,000 150,000
o Issuance of common stock for professional services 12,500 13
o Issuance of common stock for purchase of 10% minority
interest in Arc/Mesa Educators, Ltd. 15,000 15
o Issuance of common stock for services related to private placement 25,000 25
o Expenses related to private placement offerings
o Issuance of common stock related to conversion of loan from
stockholder 160,000 160
o Net loss as restated for 1998
-------- --------- ----------- --------
BALANCE, DECEMBER 31, 1998, RETAINED EARNINGS
AS RESTATED 750,000 $ 150,000 13,750,632 $ 13,751
======== ========= =========== ========
</TABLE>
<TABLE>
<CAPTION>
Additional Retained Total
Paid-In Earnings Stockholders'
Capital (Deficit) Equity
----------- ---------- -------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1996, RETAINED EARNINGS AS
PREVIOUSLY REPORTED $ 686,525 $ 72,285 $ 771,560
o Prior-period adjustment to expense certain costs previously
capitalized as intangible assets, net of income tax (312,797) (312,797)
----------- --------- ----------
BALANCE, DECEMBER 31, 1996, RETAINED EARNINGS
AS RESTATED 686,525 (240,512) 458,763
o Issuance of common stock pursuant to private placement
offerings net of expenses 242,473 242,758
o Issuance of common stock pursuant to acquisition of Mesa
Marketing, Ltd. 24,900 25,000
o Issuance of common stock pursuant to private placement
offerings net of expenses 254,013 254,313
o Issuance of common stock for professional services 4,990 5,000
o Issuance of common stock for services related to private placement (93) -0-
o Net loss as restated for 1997 (77,794) (77,794)
----------- --------- ----------
BALANCE, DECEMBER 31, 1997, RETAINED EARNINGS
AS RESTATED 1,212,808 (318,306) 908,040
o Issuance of preferred stock, net of costs (31,851) 118,149
o Issuance of common stock for professional services 6,237 6,250
o Issuance of common stock for purchase of 10% minority
interest in Arc/Mesa Educators, Ltd. 10,557 10,572
o Issuance of common stock for services related to private placement (25) -0-
o Expenses related to private placement offerings (5,000) (5,000)
o Issuance of common stock related to conversion of loan from
stockholder 159,840 160,000
o Net loss as restated for 1998 (536,730) (536,730)
----------- --------- ----------
BALANCE, DECEMBER 31, 1998, RETAINED EARNINGS
AS RESTATED $ 1,352,566 $(855,036) $ 661,281
=========== ========= ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss as restated for 1998 and 1997 $(536,730) $ (77,794)
--------- ---------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 168,815 121,921
Provision for uncollectible accounts 45,000 20,000
Issuance of common stock for professional services 6,250 5,000
Minority interest in earnings of subsidiary -0- (111)
Increase (decrease) in cash from changes in:
Accounts receivable (163,224) (169,674)
Inventory (2,378) (13,387)
Prepaid expenses 8,912 12,692
Other receivable 17,050 (23,050)
Security deposits 3,900 (2,800)
Due from related party (1,232) (8,980)
Accounts payable and accrued expenses (135,391) 144,332
Deferred revenue (1,000) (70,788)
--------- ---------
Total Adjustments (53,298) 15,155
--------- ---------
Net Cash Used in Operating Activities (590,028) (62,639)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property and equipment (58,041) (320,513)
Expenditures for intangible assets -0- (98,083)
Cash surrender value-officers' life insurance 963 (963)
--------- ---------
Net Cash Used in Investing Activities (57,078) (419,559)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 349,000 160,000
Repayment of capital lease obligations (19,679) (33,252)
Net proceeds from sale of common and preferred stock 113,149 522,071
--------- ---------
Net Cash Provided by Financing Activities 442,470 648,819
--------- ---------
NET INCREASE (DECREASE) IN CASH (204,636) 166,621
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 428,329 261,708
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 223,693 $ 428,329
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest $ 28,904 $ 16,427
Cash paid for income taxes $ 200 $ 200
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Arc Communications, Inc. is a full-service marketing consultancy and New
Media design firm specializing in sports marketing, high technology and the
pharmaceutical industry. Services include marketing consulting, website
development, electronic commerce, interactive multi-media, graphics design
and imaging.
Arc Communication's wholly owned subsidiary, Arc Internet Publishing Corp.
develops and operates internet businesses and electronically publishes
interactive educational and reference material for the medical and dental
professions, which provides continuing professional education on the
Internet to the medical, dental and funeral director's professions.
Arc Internet Publishing's wholly owned subsidiary, Personal Emergency
Medical Information Services Inc., operates on an internet basis that
provides personal medical information on line.
On February 25, 1998, Arc Internet Publishing acquired the remaining 10%
minority interest of Arc Mesa Educators, Ltd. becoming a wholly owned
subsidiary which was subsequently merged into Arc Internet Publishing.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
For those consolidated subsidiaries where Company ownership is less then
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.
Use of Estimates in Preparation of Financial Statements
The preparation of the accompanying consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make certain estimates and assumptions that directly affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period.
Actual results may differ from these estimates.
Allowance for Doubtful Accounts
The Company establishes an allowance for uncollectible trade accounts
receivable based on management's evaluation of collectibility of
outstanding accounts receivable. The allowances for doubtful accounts is
$65,000 and $20,000 as of December 31, 1998 and 1997, respectively.
Per Share Data
The basic and diluted per share data has been computed on the basis of the
net income or loss for each year after giving effect for the accrued
preferred stock dividends for 1998, divided by the weighted average number
of shares of common stock outstanding. The weighted average shares of
common stock outstanding for the years ended December 31, 1998 and 1997
aggregated 13,573,809 and 12,903,652, respectively.
Inventory
Inventories are stated at the lower cost or market, with cost determined on
a first-in, first-out basis.
F-6
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Property and Equipment
Property and equipment are stated at cost and are depreciated over their
estimated useful lives on the straight-line method for financial statement
purposes and the accelerated method for income tax purposes. Cost of major
additions and betterments are capitalized; maintenance and repairs which do
not improve or extend the life of respective assets are charged to expense
as incurred. When an asset is sold or otherwise disposed of, the cost of
the property and the related accumulated depreciation is removed from the
respective accounts and any resulting gains or losses, if any, is included
in the results of operations.
Goodwill
Goodwill represents the excess of acquisition cost over the fair value of
net assets acquired in the purchase of Mesa Marketing, Inc. during 1997, as
discussed more fully in Note 12. Goodwill is amortized on a straight-line
basis over ten years and is presented net of accumulated amortization. For
December 31, 1998 and 1997 the accumulate amortization of goodwill is
$11,443 and $1,218, respectively. Amortization included as a charge to
income amounted to $10,225 and $1,218 for the years ended December 31, 1998
and 1997, respectively.
Property Under Capital Lease
The Company accounts for capital leases, which transfer substantially all
the benefits and risks incident to the ownership of property, as an
acquisition of an asset and the incurrence of an obligation. All other
leases (operating leases) are recorded as an expense in the period
incurred.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
The Company presents cash flows under the indirect method of reconciling
net income to net cash flow.
Advertising
The Company follows the policy of charging the costs of advertising to
expense as incurred.
Revenue Recognition
The Company recognizes revenues from sales at the date the product is
shipped and as professional services are performed.
Recent Accounting Pronouncement
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the
Cost of Computer Software Developed or Obtained for Internal Use" ("SOP 98-
1"). SOP 98-1 is effective for financial statements for years beginning
after December 15, 1998. SOP 98-1 provides guidance over accounting for
computer software developed or obtained for internal uses including the
requirements to capitalize specified costs and amortization of such costs.
The Company does not expect the adoption of this standard to have a
material effect on its capitalization policy.
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified for comparative purposes to conform with the presentation in
the current year financial statements.
F-7
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 3 - PROPERTY AND EQUIPMENT
The costs and accumulated depreciation of property and equipment at
December 31 are summarized as follows:
1998 1997
-------- --------
Equipment and furniture $788,536 $732,373
Leasehold improvements 66,458 66,458
-------- --------
Total Property and Equipment 854,994 798,831
Accumulated depreciation 458,798 302,086
-------- --------
Property and equipment, net $396,196 $496,745
======== ========
Depreciation included as a charge to income amounted to $158,590 and
$120,077 for the years ended December 31, 1998 and 1997, respectively.
NOTE 4 - LINE OF CREDIT
At December 31, 1998, the Company has a $750,000 line of credit with
Sovereign Bank. The line bears interest at the bank's prime rate plus 1%
and was incurring interest at the rate of 8.75% at December 31, 1998. The
line of credit, which expires June 30, 1999, is secured by accounts
receivable. As of December 31, 1998 and 1997, the Company has $400,115 and
$51,115, respectively, outstanding on the line of credit. As of December
31, 1998, the Company is in violation of a covenant that requires
borrowings under the line of credit not to exceed 80% of the accounts
receivable under 90 days outstanding. However, the bank has agreed to waive
the violation of this covenant as of December 31, 1998.
NOTE 5 - CAPITAL LEASE OBLIGATIONS
As mentioned in Note 2, the Company is obligated under various capital
leases for certain equipment that expire at various dates during the next
two years.
The following represents future minimum lease payments and the net present
value of the future minimum lease payments under capital leases for the
years ended December 31,:
1999 $ 4,669
2000 1,788
-------
Total minimum lease payments 6,457
Less: Amount representing interest (701)
-------
Present value of net minimum lease payments 5,756
Less: Current maturities (4,061)
-------
Long-term maturities $ 1,695
=======
NOTE 6 - ACCRUED EXPENSES
Accrued expense at December 31, are summarized as follows:
1998 1997
-------- --------
Payroll $ 19,560 $ 73,421
Commissions 13,249 10,000
Professional fees 20,000 23,500
Other 6,967 6,363
-------- --------
$ 59,776 $113,284
======== ========
F-8
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 7 - INCOME TAXES
The significant components of the Company's deferred income tax and
liabilities as of December 31, 1998 and 1997 are as follows:
1998 1997
--------- ---------
Deferred income tax assets:
Net operating losses $ 228,000 $ 145,400
Deferred income tax liability:
Revenue and expense recognition differences
arising from the cash basis method of
accounting utilized for income tax purposes (78,073) (24,113)
Valuation allowance (149,927) (121,287)
--------- ---------
Net deferred income tax liability $ -0- $ -0-
========= =========
The significant components of the provision for income taxes for the years
ended December 31, 1998 and 1997 are as follows:
1998 1997
-------- --------
Current:
Federal $ -0- $ -0-
State 200 200
-------- --------
Total Current Taxes 200 200
-------- --------
Deferred:
Federal (17,900) -0-
State (10,740) -0-
Change in valuation allowance 28,640 -0-
-------- --------
Total Deferred Taxes -0- -0-
Provision for income taxes $ 200 $ 200
======== ========
The difference between the statutory federal and state income tax rate and
the effective rate for the Company's income tax provision and benefit for
each of the years ended December 31, 1998 and 1997, respectively, is
summarized as follows:
1998 1997
-------- --------
Statutory federal income tax rate 15.00% -0-%
Statutory state income tax rate 9.00 -0-
Increase in valuation allowance (24.00) -0-
-------- --------
Effective income tax rate -0-% -0-%
======== ========
As of December 31, 1998, the Company has a net operating loss carrryforward of
approximately $950,000 for federal income tax purposes, which expires through
2018.
F-9
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company is involved in various related party transactions consisting of
loans receivable, notes payable and sales to related companies.
Sales to related parties were $2,939 in 1998 and $38,781 in 1997.
The Company has a loan receivable due from Medical Licensing Service, Inc.
(MLS), which is owned by certain stockholders of the Company. The amount
due in 1998 and 1997 from MLS includes an unsecured note of $9,108 and
$13,983, respectively, bearing interest at 9.00% per annum and matures on
October 1, 1999. The remaining balance due from MLS is unsecured and
non-interest bearing.
A summary of the amounts due from related parties is as follows:
December 31
-----------------
1998 1997
------- -------
Medical Licensing Service, Inc. $10,800 $ 4,693
Medical Licensing Service, Inc. (note receivable) 9,108 13,983
------- -------
Total $19,908 $18,876
======= =======
Legal fees paid to corporate counsel, a related party, were $52,399 and
$32,687 for 1998 and 1997, respectively.
NOTE 9 - STOCKHOLDERS' EQUITY
Preferred Stock
In July 1998, the shareholders authorized 5,000,000 shares of 9% cumulative
preferred stock of $.20 par value with a liquidation at par plus accrued
dividends, if any. Holders of the preferred stock have no voting rights nor
is it convertible to common stock. On August 31, 1998, the Company sold
750,000 preferred shares at par value in a private placement offering and
received net proceeds of $118,149. Accrued dividends as of December 31,
1998 were $4,500.
Common Stock
As described in Note 1, the Company issued 15,000 shares of common stock to
acquire the 10% minority interest of Arc Mesa Educators, Ltd.
During 1998, the Company converted a note payable with an outstanding
balance of $160,000 to 160,000 shares of common stock.
During 1997, the Company completed two private placement offerings of
securities whereby the Company issued a total 585,000 shares of common
stock and received net proceeds of $497,071 after the deduction of costs
amounting to $87,929. In conjunction with the private placement offerings,
the Company issued 25,000 shares of common stock in 1998 and 93,132 shares
of common stock in 1997 for services provided to complete the private
placement.
During 1997, the Company issued common stock to acquire two existing
companies as described more fully in Note 12. On November 1, 1997, the
Company issued 100,000 shares of common stock to acquire Mesa Marketing,
Inc. Pursuant to the purchase agreement 50,000 shares are held in escrow
subject to the Company obtaining certain financial goals. On December 19,
1997, the Company issued an additional 100,000 shares to acquire Navesink
River Group, Inc.
F-10
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - STOCK COMPENSATION PLAN
Effective May 31, 1997, the Company adopted an Incentive Stock Option Plan
granting to key employees options to purchase restricted shares of Company
common stock. The Board of Directors determines the option price. Options
generally vest over a four year period and expire either three years after
termination of employment or ten years after the date of grant. A total of
1,500,000 shares have been reserved for present and future grants of stock
options. At December 31, 1998, options on 460,000 shares at $.50 per share
were outstanding of which 97,500 were exercisable. The Company, on November
15, 1998, adjusted the exercise price of all options from $1.50 per share
to $.50 per share.
The following table summarizes stock option transactions under the plan:
Year ended December 31,
1998 1997
-------------------- --------------------
Weighted Weighted
Average Average
Options Exercise Exercise
Shares Price Shares Price
--------- -------- --------- --------
Granted and outstanding
at beginning of year $ 450,000 1.50 $ -0-
Granted 530,000 0.63 450,000 1.50
Canceled (520,000) 1.50 -0-
--------- -------- --------- --------
Outstanding at end of year $ 460,000 0.50 $ 450,000 1.50
========= =========
Exercisable at end of year $ 97,500 $ -0-
========= =========
The following table summarizes information about stock options outstanding
for which the Company has an obligation to issue shares of common stock as
of December 31, 1998:
Options Outstanding Options Exercisable
--------------------------------------- ----------------------
Number Weighted Weighted Number Weighted
Outstanding Average Average Exercisable Average
Exercise as of Remaining Exercise as of Exercise
Price 12/31/98 Life (in years) Price 12/31/98 Price
-------- ----------- --------------- -------- ----------- --------
$ 0.50 460,000 3.74 0.50 97,500 0.50
The fair value of each option granted in 1997 and 1998 has been estimated
on the date of grant using the Black-Scholes options pricing model with the
following assumptions; no dividend yield, expected volatility of 40%, an
expected life of 3.74 years and a risk-free interest rate of 6.75% and
4.83% for the 1997 and 1998 options, respectively. The fair values of
options granted during 1997 and 1998 ranged from $0.42 to $0.69 per share
for 1997 and from $0.17 to $0.20 per share for 1998.
The Company applies APB 25 in accounting for its stock option incentive
plan and, accordingly, recognizes compensation expense for the difference
between fair value of the underlying common stock and the exercise price of
the option at the date of grant. The effect of applying SFAS No. 123 on
1997 and 1998 pro forma net loss is not necessarily representative of the
effect on reported net income (loss) in future years due to, among other
things (1) the vesting period of the stock options and (2) the fair value
of additional stock options in future years. Had compensation cost for the
Company's stock option plan been determined based upon the fair value at
the grant date for awards under the plan consistent with the methodology
prescribed under SFAS No. 123, the Company's pro forma net loss in 1997 and
1998 would have been approximately $(116,114) and $(562,788), respectively,
and the pro forma loss per share would have remained unchanged at $(0.01)
and $(0.04), respectively.
F-11
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office space under operating leases expiring in various
years through 2003. As of December 31, 1998, minimum aggregate annual
rentals, excluding escalation charges, are as follows:
Year Ending
December 31,
------------
1999 $ 166,698
2000 153,494
2001 136,805
2002 31,681
2003 20,321
----------
Total $ 508,999
==========
Total rent expense for facilities charged to operations for the years ended
December 31, 1998 and 1997 amounted to approximately $140,153 and $113,614,
respectively.
NOTE 12 - BUSINESS COMBINATIONS
On October 31, 1997, Arc Internet Publishing Corp., a wholly owned
subsidiary of Arc Communications, Inc. acquired Mesa Marketing, Inc. in a
tax free reorganization within the meaning of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986. Arc Communications, Inc. issued 100,000
shares of restricted common stock in exchange for Arc Internet Publishing
Corp. receiving all of the outstanding stock of Mesa Marketing, Inc. The
merger agreement provides that 50,000 shares of the common stock issued be
held in escrow until such time as certain financial goals are met by the
business unit formerly known as Mesa Marketing, Inc. Should the
contingently issued common stock become applicable, it will increase the
purchase price of Mesa Marketing, Inc. and will increase the amount of
goodwill recorded on this transaction. The acquisition was accounted for as
a purchase, and accordingly, was included with combined operations from the
acquisition date through December 31, 1997. The total cost of the
acquisition was $124,913 which included acquisition costs of $21,901,
various liabilities totaling $78,012 and the designated value of the
restricted stock issued of $25,000. This amount exceeded the fair value of
the net assets of Mesa Marketing, Inc. by $98,083. The excess is being
amortized on the straight-line method over 10 years.
The following values were assigned to the assets and liabilities acquired:
Cash $ 3,769
Property and equipment 5,670
Deposits 1,000
Other receivable 16,066
Accounts payable (26,942)
Notes payable (28,493)
Investment (22,251)
Goodwill 76,181
--------
Common Stock Issued $ 25,000
========
F-12
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 12 - BUSINESS COMBINATIONS - Continued
The following summarized pro forma (unaudited) information assumes the
acquisition had occurred on January 1, 1997:
1997
-----------
Net Sales $ 2,607,457
===========
Net Loss $ (47,768)
===========
The pro forma financial information presented above is not necessarily
indicative of the operating results which would have been achieved had the
Company acquired Mesa Marketing, Inc. at the beginning of the period
presented or of the results to be achieved in the future.
NOTE 13 - MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
Sales to several key customers, representing divisions of a single company,
for the year ended December 31, 1998 and 1997 consisted of approximately
38.0% and 48.8%, respectively, of total sales. The aggregate accounts
receivable balances at December 31, 1998 and 1997 for these major customers
were $201,859 and $154,690, respectively.
The Company maintains cash balances at several banks. At times, such cash
balances may be in excess of the Federal Deposit Insurance Corporation
insurance limit.
NOTE 14 - EMPLOYMENT AGREEMENTS
Steven Meyer, President of the Company, entered into an employment
agreement effective August 1, 1994 for a period of five years. The
employment agreement provides for a base annual compensation of $85,000.
Kenneth Meyer, Executive Vice President and Treasurer of the Company
entered into an employment agreement effective August 1, 1994 for a period
of five years. The employment agreement provides for a base annual
compensation of $85,000.
Ethel Kaplan, Secretary of the Company entered into an employment agreement
effective August 1, 1994 for a period of five years. The employment
agreement provides for a base annual compensation of $85,000.
During 1997, the Company entered into employment agreements with several
division managers effective for a period of four years. The employment
agreements provide for incentive compensation generally determined in
accordance with certain revenue goals established for each division.
NOTE 15 - CURRENT AND PRIOR PERIOD ADJUSTMENTS
Prior to 1998, the Company capitalized certain intangible assets that
should have been expensed. The impact of restating the financial statements
for this correction is to reduce retained earnings as of December 31, 1996
by $312,797, net of income tax benefit of $23,277, reduce the 1997 net
income by $80,129, net of income tax benefit of $836, from $2,335 to a net
loss of $77,794 and reduce the 1998 net loss by $392,927, net of income tax
expense of $24,170 from a net loss of $929,657 to a net loss of $556,730.
F-13
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 16 - SEGMENT INFORMATION
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." Certain information is disclosed,
per SFAS No. 131, based on the way management organizes financial
information for making operating decisions and assessing performance.
The Company currently has two major lines of businesses organized that
share some of the same infrastructure.
The creative development of multi-media products business is comprised of
interactive multi-media programs, printing, internet site development and
other creative development. These products and services are produced in the
Company's New Jersey offices.
The continuing professional education business (CPE) is comprised of the
traditional hard copy examinations and examinations taken on the internet.
The management of the CPE business is in the Company's Florida offices.
There are no intersegment revenues between the two reportable segments.
There are shared support service functions such as human resources,
facilities management and other infrastructure support groups which are not
segmented; these expenses are charged to the creative development business.
Reconciliation of Segment Information to Consolidated Amounts
1998 1997
----------- -----------
Revenues
Multi-media $ 2,567,347 $ 2,358,130
Continuing professional education 300,244 38,858
----------- -----------
Total Consolidated Revenues $ 2,867,591 $ 2,396,988
=========== ===========
Net Income (Loss)
Multi-media $ (399,792) $ (136,743)
Continuing professional education (136,938) 58,949
----------- -----------
Total Consolidated Net Loss $ (536,730) $ (77,794)
=========== ===========
Assets
Multi-media $ 1,168,500 $ 1,361,139
Continuing professional education 136,172 167,934
----------- -----------
Total Consolidated Assets $ 1,304,672 $ 1,529,073
=========== ===========
F-14
<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>
F-15
<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>
F-16
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
June 3 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>
F-17
<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 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.
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
----------- -----------
F-18
