U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
Quarterly Report Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarter ended March 31, 2000
Commission File No. 000-26213
ARC COMMUNICATIONS INC.
(Exact name of small business issuer as specified in its charter)
A New Jersey Corporation 22-3201557
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
788 Shrewsbury Avenue
Tinton Falls, New Jersey 07724
(Address of principal executive offices)
Issuer's telephone number: (732) 219-1766
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes _X_ No ___
The number of shares outstanding of the Issuer's common stock as of May 10,
2000 was 13,703,132.
<PAGE>
ARC COMMUNICATIONS, INC.
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
a) Consolidated Balance Sheets as of March 31, 2000 ....... 3
b) Consolidated Statements of Operations for the Three
Months Ended March 31, 2000 and 1999 ................... 4
c) Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999 ............. 5
d) Notes to Consolidated Financial Statements ............. 6 to 7
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations .............................. 8-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ....................... 11
a) Exhibits .............................................. 11
b) Reports on Form 8-K ................................... 11
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
ASSETS Three Months Ended
March 31,
2000
----------
<S> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 431,000
Accounts Receivable-Net of Allowances for Doubtful Accounts
of $57,000 and $65,000 respectively 841,000
Inventory 10,000
Prepaid Expenses and Other Receivables 49,000
Costs in Excess of Billings 22,000
----------
Total Current Assets 1,353,000
----------
PROPERTY AND EQUIPMENT-NET 355,000
OTHER ASSETS
Goodwill-Net 74,000
Security Deposits 8,000
Due from Related Party 28,000
----------
Total Other Assets 111,000
----------
TOTAL ASSETS $1,819,000
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of Credit $ 444,000
Accounts Payable and Accrued Expenses 365,000
----------
Total Current Liabilities 809,000
----------
COMMITMENTS AND CONTINGENCIES
Preferred Stock, Stated Value $.20; 5,000,000 Shares Authorized;
720,000 Shares Issued and Outstanding in 2000 144,000
Common Stock, $.001 Par Value, Authorized 45,000,000 Shares, Issued
and Outstanding 13,703,132 in 2000 14,000
Additional Paid in Capital 1,409,000
Retained Earnings (Accumulated Deficit) (557,000)
----------
STOCKHOLDERS' EQUITY 1,010,000
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,819,000
==========
</TABLE>
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES 3
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, March 31,
2000 1999
---------- ----------
<S> <C> <C>
NET SALES $1,194,000 $ 966,000
COSTS AND EXPENSES
Operating Costs 151,000 67,000
Selling, General and Administrative 809,000 614,000
Depreciation and Amortization 40,000 36,000
---------- ----------
Total Costs and Expenses 1,000,000 717,000
---------- ----------
OTHER INCOME (EXPENSES)
Interest Income 4,000 3,000
Interest Expense (12,000) (12,000)
Other Income 0 2,000
---------- ----------
Total Other Expense (8,000) (7,000)
---------- ----------
NET INCOME $ 186,000 $ 242,000
========== ==========
INCOME PER COMMON SHARE $ 0.01 $ 0.02
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, March 31,
2000 1999
------------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $186,000 $242,000
Adjustments to Reconcile Net Income or Loss to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 40,000 36,000
Increase (Decrease) in Cash from Changes in:
Accounts Receivable (116,000) (252,000)
Prepaid Expenses (8,000) 1,000
Other Receivable 0 6,000
Due from Related Party 0 (1,000)
Accounts Payable and Accrued Expenses 51,000 (57,000)
Capitalized Lease Obligations (1,000) (1,000)
Deferred Revenue (43,000) 0
-------- --------
Total Adjustments (77,000) (268,000)
-------- --------
Net Cash Provided by (Used in) Operating Activities 109,000 (26,000)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for Property and Equipment (30,000) (13,000)
-------- --------
Net Cash Used in Investing Activities (30,000) (13,000)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Notes Payable 0 40,000
-------- --------
Net Cash Provided by Financing Activities 0 40,000
-------- --------
NET INCREASE IN CASH 79,000 1,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 352,000 224,000
-------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $431,000 $225,000
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid for Interest 12,000 12,000
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
March 31, 2000
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, 1999 consolidated financial statements and related notes
included in the Company's year end certified financial statement. The
results of operations for the three months are not necessarily indicative
of the operating results for the full year.
Amounts for the three months ended March 31, 1999 have been reclassified to
conform with the March 31, 2000 presentation.
2. Principles of Consolidations
The consolidated financial statements included 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 recognized revenue from sales at the date the product is
shipped and as professional services are performed.
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
March 31, 2000
4. Segment Information
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, March 31,
2000 1999
---------- ----------
<S> <C> <C>
Revenue
Multi-Media $ 970,000 $ 893,000
Continuing professional education 224,000 73,000
---------- ----------
Total Consolidated Revenue $1,194,000 $ 966,000
---------- ----------
Net Income
Multi-Media $ 239,000 $ 279,000
Continuing professional education (53,000) (38,000)
---------- ----------
Total Consolidated Net Income $ 186,000 $ 241,000
---------- ----------
Assets
Multi-Media $1,632,000 $1,425,000
Continuing professional education 187,000 103,000
---------- ----------
Total Consolidated Net Assets $1,819,000 $1,528,000
---------- ----------
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Arc Communications Inc. ("ARC" or the "Company") is a full-service
marketing consulting and new media design firm specializing in sports marketing,
technology and the pharmaceutical industry. Services include marketing,
consulting, website development, electronic commerce, interactive multi-media,
graphics design and imaging.
Arc, through its subsidiaries, electronically publishes interactive
educational and reference material for the medical and dental professions,
provides on-line continuing professional education to the medical, dental and
funeral director's professions and provides on-line personal medical
information.
Arc has organized these lines of businesses into two separate product
groups, the multi-media group and continuing education group. These groups are
supported by a common infrastructure. This organization structure allows Arc to
develop and grow multiple revenue streams by utilizing the common infrastructure
across the product lines it currently has, as well as cost-effectively compete
in new and emerging markets.
Results of Operations
Arc's net sales for the three months ended March 31, 2000 were $1,194,000,
an increase of $228,000 or 23.6% over the $966,000 of net sales for the three
months ended March 31, 1999. In Arc's multi-media segment, sales for the three
months ended March 31, 2000 and March 31, 1999 were $970,000 and $893,000,
respectively, an increase of 8.7 percent. In its continuing education segment,
sales for the three months ended March 31, 2000 and March 31, 1999 were $224,000
and $73,000, respectively, an increase of 205 percent.
Our revenue growth continues to be driven by an expanding revenue base in
Arc's core businesses of internet site development, interactive multi-media
development and a new capability to deliver live educational seminars through
its continuing professional education company, Arc Mesa Educators.
The increase in the multi-media segment is a result of (1) website
development revenue increasing $121,000 or 463%, as a result of Arc's expansion
into the burgeoning area of business-to- business e-commerce and (2) revenue
from full interactive multi-media development increasing $124,000 or 20.3%, due
to Arc's expansion into high-level corporate training. These gains were
partially offset by the $167,000 decline in professional services which was
anticipated.
<PAGE>
The increase in revenue for continuing professional education is primarily
due to the new capability of delivering live educational seminars through its
distance learning company. This segment also benefitted from increased sales of
continuing professional education delivered through our website.
Operating costs for the three months ended March 31, 2000 and March 31,
1999 were $151,000 and $67,000, respectively. The increase is due to the
increase in costs relating to live educational seminars and outside vendor
costs. Selling, general and administrative expenses for the three months ended
March 31, 2000 increased to $809,000, an increase of $195,000 or 31.7%, over the
$614,000 of expenses for the three months ended March 31, 1999. This increase
was primarily due to expenses incurred in the planned expansion to providing the
live educational seminars. The increased expenses relating to the expansion
plans included the costs of hiring several key personnel to support and develop
this segment.
Depreciation and amortization expenses for the three months ended March 31,
2000 and March 31, 1999 were $40,000 and $36,000, respectively, a modest
increase of 10.2 percent. This increase is attributable to the purchase of new
desktop computer systems in 1999.
Net income for the three months ended March 31, 2000 of $186,000 represents
a decrease of $56,000 from the net income of $242,000 reported for the three
month period ended March 31, 1999. Despite an increase of $228,000 of net sales,
the added expenses associated with the expansion to providing live educational
seminars and, to a lesser degree, increases in certain general and
administrative expenses, were the main factors in the reduction of earnings. We
believe the increases are necessary, as we anticipate continued revenue growth
through the second quarter. For the foregoing reasons, earnings per share were
$0.01 compared to $0.02 for the same period in 1999.
Liquidity and Capital Resources
Arc is currently financing its operations primarily through cash generated
from operations. Cash flows from operations were $109,000 for the three months
ended March 31, 2000 as compared to a reduction of cash from operations of
$26,000 for the same period in 1999. The increase in 2000 was principally
attributable to an accelerated rate of collection of receivables.
Cash flows used in investing activities were $30,000 for the three months
ended March 31, 2000 as compared to $13,000 for the same period in 1999. Cash
used for investing activities during the current period were for capital
expenditures.
Arc uses its working capital to finance ongoing operations and to fund the
marketing and the development of its products and services. At March 31, 2000,
the Company had working capital
<PAGE>
of $544,000 as compared to $413,000 at March 31, 1999. Current assets increased
by $314,000, from $1,038,000 at March 31, 1999, to $1,353,000 at March 31, 2000,
while current liabilities increased by $183,000, from $626,000 at March 31, 1999
to $809,000 at March 31, 2000. The increase in current assets was primarily
attributable to an increase in cash and short-term investments resulting from
cash generated by operations. The change in current liabilities was due to
increases in accounts payable and accrued expenses. The Company maintains a line
of credit of $750,000. As of March 31, 2000, $306,000 of the line of credit
remains available for future use subject to collateral restrictions. The Company
utilizes the line of credit for working capital. Although the Company believes
that the amount available under the line of credit is sufficient for its
short-term requirements, the Company expects that the line of credit might be
increased for its long term financing needs. Management intends to obtain term
financing in addition to its line of credit. The Company anticipates that cash
on hand and cash provided by operating activities will maintain an appropriate
level of liquidity and will be sufficient to fund its operations for the next
twelve months.
Business Strategies
Arc continues to position itself to service the needs of the new media of
the Internet, building a strong infrastructure and developing capabilities to
provide an end-to-end solutions platform for our clients' internet businesses.
The benefits of these efforts have begun to be realized with the addition of a
major national account as a customer during the current period.
These same efforts and the ability to leverage our internet capabilities
will continue to be applied to the continuing education segment, focusing on
extending the strong revenue growth realized from our live educational seminars
and internet site education programs.
SIGNATURES
In accordance with requirements of the Exchange Act, the Issuer caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 15, 2000 ARC COMMUNICATIONS INC.
BY: /s/ Michael Rubel
---------------------------
Michael Rubel
Chief Operating Officer
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 27 - Financial Data Schedule
b) A Form 8-K, dated March 30, 2000, was filed reporting the change of
accountants which occurred on July 15, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SECTION CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ARC
COMMUNICATIONS INC.'S FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<CASH> 431,000
<SECURITIES> 0
<RECEIVABLES> 841,000
<ALLOWANCES> 0
<INVENTORY> 10,000
<CURRENT-ASSETS> 1,353,000
<PP&E> 335,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,819,000
<CURRENT-LIABILITIES> 809,000
<BONDS> 0
0
144,000
<COMMON> 14,000
<OTHER-SE> 1,409,000
<TOTAL-LIABILITY-AND-EQUITY> 1,819,000
<SALES> 1,194,000
<TOTAL-REVENUES> 1,194,000
<CGS> 1,000,000
<TOTAL-COSTS> 1,000,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,000
<INCOME-PRETAX> 186,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 186,000
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
