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Previous: OMTOOL LTD, 10-Q, EX-27.1, 2000-11-09 |
Next: ARC COMMUNICATIONS INC, 10QSB, EX-27, 2000-11-09 |
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark
One)
[X] QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934.
For the quarterly period ended September 30, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to .
Commission file number 000-26213
ARC
COMMUNICATION INC.
(Exact Name of Registrant as Specified in Its Charter)
| New Jersey | 22-3201557 |
| (State or Other Jurisdiction of Incorporation or Organization) |
(IRS Employer Identification Number) |
| 788 Shrewsbury Avenue, Tinton Falls, New Jersey | 07724 |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant's Telephone Number, Including Area Code 732-219-1766
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has 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 __ .
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 13,713,122 shares of common stock, as of September 30, 2000.
ARC COMMUNICATIONS INC.
TABLE OF CONTENTS
| PART I. | - | FINANCIAL INFORMATION |
| Item 1. | Financial Statements (Unaudited) | |
| a) | Consolidated Balance Sheet as of September 30, 2000 | |
| b) | Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 1999 and 2000 | |
| c) | Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and 2000 | |
| d) | Notes to Consolidated Financial Statements | |
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| PART II. | - | OTHER INFORMATION |
| Item 6. | Exhibits |
PART I - Financial Information
Item 1. - Financial Statements
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
September 30, 2000
ASSETS
September 30,
2000
------------------
CURRENT ASSETS
Cash and Cash Equivalents $ 338,000
Accounts Receivable-Net of Allowances for Doubtful Accounts of $49,000 847,000
Inventory 6,000
Prepaid Expenses 28,000
Other Receivables 28,000
------------------
Total Current Assets 1,247,000
------------------
PROPERTY AND EQUIPMENT-NET 369,000
OTHER ASSETS
Goodwill-Net 69,000
Security Deposits 12,000
------------------
Total Other Assets 81,000
------------------
TOTAL ASSETS $ 1,697,000
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of Credit $ 150,000
Accounts Payable and Accrued Expenses 341,000
Billings in Excess of Costs 145,000
------------------
Total Current Liabilities 636,000
------------------
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 13,713,122 in 2000 14,000
Additional Paid in Capital 1,412,000
Retained Earnings (Accumulated Deficit) (509,000)
------------------
STOCKHOLDERS' EQUITY 1,061,000
------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,697,000
==================
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
UNAUDITED
September 30, 2000
9 Months Ended 9 Months Ended 3 Months Ended 3 Months Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
--------------- ---------------- --------------- ----------------
NET SALES $ 3,418,000 $ 2,827,000 $ 903,000 $ 987,000
COSTS AND EXPENSES
Operating Costs 519,000 434,000 95,000 183,000
Selling, General and Administrative 2,539,000 1,923,000 901,000 722,000
Depreciation and Amortization 113,000 114,000 33,000 40,000
--------------- ---------------- --------------- ----------------
Total Costs and Expenses 3,171,000 2,471,000 1,029,000 945,000
--------------- ---------------- --------------- ----------------
OTHER INCOME (EXPENSES)
Interest Income 11,000 10,000 3,000 4,000
Interest Expense (24,000) (40,000) (1,000) (19,000)
Other Income 0 0 0 (2,000)
--------------- ---------------- --------------- ----------------
Total Other Expense (13,000) (30,000) 2,000 (17,000)
--------------- ---------------- --------------- ----------------
NET INCOME (loss) $ 234,000 $ 326,000 $ (124,000) $ 25,000
=============== ================ =============== ================
BASIC AND DILUTED
INCOME (loss) PER COMMON SHARE $ 0.02 $ 0.02 $ (0.01) $ 0.00
=============== ================ =============== ================
Weighted Average Number of Shares Outstanding 13,712,000 13,751,000 13,713,000 13,751,000
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS
UNAUDITED
September 30, 2000
September 30, September 30,
2000 1999
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 234,000 $ 326,000
Adjustments to Reconcile Net Income or Loss to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 113,000 114,000
Provision for doubtful accounts 21,000 (26,000)
Issuance of stock for services 3,000 0
Increase (Decrease) in Cash from Changes in:
Accounts Receivable (143,000) (296,000)
Inventory 4,000 0
Prepaid Expenses (24,000) 2,000
Due from Related Party 0 (5,000)
Accounts Payable and Accrued Expenses 60,000 74,000
Billings in Excess of Cost 124,000 0
----------------- -----------------
Total Adjustments 158,000 (137,000)
----------------- -----------------
Net Cash Provided by Operating Activities 392,000 189,000
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for Property and Equipment (113,000) (60,000)
----------------- -----------------
Net Cash Used in Investing Activities (113,000) (60,000)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment to Line of Credit (294,000) 54,000
----------------- -----------------
Net Cash Provided by (Used by) Financing Activities (294,000) 54,000
----------------- -----------------
NET INCREASE (DECREASE) IN CASH (15,000) 183,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 352,000 224,000
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 337,000 $ 407,000
================= =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid for Interest 24,000 40,000
See Notes to Consolidated Financial Statements.
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Unaudited
September 30, 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 nine months ended September 30, 1999 have been reclassified to conform with the September 30, 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.
3. Revenue Recognition
The Company recognized revenue from sales at the date the product is shipped and as professional services are performed.
ARC
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Unaudited
September 30, 2000
4. Segment Information
9 Months Ended 9 Months Ended
September 30, September 30,
2000 1999
-------------------- --------------------
Revenue
Multi-Media $ 2,656,000 $ 2,337,000
Continuing professional education 762,000 500,000
-------------------- --------------------
Total Consolidated Revenue $ 3,418,000 $ 2,837,000
-------------------- --------------------
Net Income (Loss)
Multi-Media $ 299,000 $ 372,000
Continuing professional education (65,000) (45,000)
-------------------- --------------------
Total Consolidated Net Income $ 234,000 $ 327,000
-------------------- --------------------
Assets
Multi-Media $ 1,328,000 $ 1,534,000
Continuing professional education 368,000 220,000
-------------------- --------------------
Total Consolidated Net Assets $ 1,696,000 $ 1,754,000
==================== ====================
This Form 1O-QSB contains forward-looking statements within the meaning of the "safe harbor" provisions under section 21E of the Securities and Exchange Act of 1934 and the Private Securities Litigation Act of 1995. The Company uses forward looking statements in its description of its plans and objectives. Forward-looking terminology includes the words "may", "expects", "believes", "anticipates", "intends", "forecasts", "projects", or similar terms, variations of such terms or the negative of such terms. These forward-looking statements are based on management's current expectations and are subject to factors and uncertainties which could cause actual results to differ materially from those described in such forward looking statements. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this Form 10-QSB to reflect any change in its expectations or any changes in events, conditions, or circumstances on which any forward-looking statement is based.
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 | |
| Nine Months Ended September 30, 2000 and September 30, 1999 | |
| Arc's net sales for the nine months ended September 30, 2000 were $3,418,000, an increase of $591,000 or 20.9% over the $2,827,000 of net sales for the nine months ended September 30, 1999. In Arc's multi-media segment, sales for the nine months ended September 30, 2000 and September 30, 1999 were $2,656,000 and $2,327,000, respectively, an increase of 14.1 percent. In its continuing education segment, sales for the nine months ended September 30, 2000 and September 30, 1999 were $762,000 and $500,000, respectively, an increase of 52.4 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 $231,000 or 81.9%, as a result of Arc's expansion into the burgeoning area of business-to-business e-commerce (2) revenue from full interactive multi-media development increasing $24,000 or 4.7% and (3) an increase in revenue from production and professional services of $253,000 or 21.8%. | |
| 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 benefited from increased sales of continuing professional education delivered through our website. | |
| Operating costs for the nine months ended September 30, 2000 and September 30, 1999 were $519,000 and $434,000, respectively. The increase is due to the overall revenue increases realized across Arc's core businesses. | |
| Results of Operations - Continued | |
| Selling, general and administrative expenses for the nine months ended September 30, 2000 increased to $2,539,000, an increase of $616,000 or 32.%, over the $1,923,000 of expenses for the nine months ended September 30, 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. Furthermore, additional professional personnel have been hired to support the effort to expand Arc's multi-media segment. | |
| Depreciation and amortization expenses for the nine months ended September 30, 2000 and September 30, 1999 were $113,000 and $114,000, respectively, a modest decrease of 1 percent. | |
| Net income for the nine months ended September 30, 2000 of $234,000 represents a decrease of $92,000 from the net income of $326,000 reported for the nine month period ended September 30, 1999. The decrease in net income reflects additional costs incurred to support an expansion of Arc's multi-media segment. Earnings per share remained unchanged from the same period in 1999. | |
| Three Months Ended September 30, 2000 and September 30, 1999 | |
| Arc's net revenues for the three months ended September 30, 2000 were $903,000, a decrease of $84,000 on the $987,000 of net revenues for the three months ended September 30, 1999. In Arc's multi-media segment, revenues for the three months ended September 30, 2000 and September 30, 1999 were $615,000 and $681,000, respectively, a decrease of 9.7 percent. The decrease is primarily related to the fact that revenue from Arc's key accounts this year was recognized in the second quarter, due to changes in the clients business pattern resulting in a decrease in third quarter sales . In its continuing education segment, revenues for the three months ended September 30, 2000 and September 30, 1999 were $288,000 and $316,000, respectively, a decrease of 8.9 percent. | |
| Operating costs for the three months ended September 30, 2000 and September 30, 1999 were $95,000 and $183,000, respectively. The decrease in third quarter operating costs is due to the decrease in printing costs associated with the Production Sales of the multi-media segment. | |
| Selling, general and administrative expenses for the three months ended September 30, 2000 increased to $901,000, an increase of $179,000 or 24.8%, over the $722,000 of expenses for the three months ended September 30, 1999. This increase was primarily due to supporting the anticipated increased revenues from Arc's core businesses and to expenses incurred in the planned expansion to providing the live educational seminars. | |
| Depreciation and amortization expenses for the three months ended September 30, 2000 and September 30, 1999 were $33,000 and $40,000, respectively, a decrease of 17.5 percent. | |
| The net loss for the three months ended September 30, 2000 of $124,000 represents a decrease of $149,000 from the net income of $25,000 reported for the three month period ended September 30, 1999. The decrease in third quarter sales of $84,000 is the primary factor for the decrease in net income. As a result, earnings per share were $(0.01) compared to $0.00 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 $392,000 and $190,000 for the nine months ended September 30, 2000 and September 30, 1999, respectively. The increase in 2000 was principally attributable to advanced collections of work in process. | |
| Cash flows used in investing activities were $113,000 for the nine months ended September 30, 2000 as compared to $60,000 for the same period in 1999. Cash used for investing activities during the current period were for capital expenditures. | |
| Arc uses it working capital to finance ongoing operations and to fund the marketing and the development of its products and services. At September 30, 2000, the Company had working capital of $611,000 as compared to $518,000 at September 30, 1999. Current assets decreased by $42,000, from $1,289,000 at September 30, 1999, to $1,247,000 at September 30, 2000, while current liabilities decreased by $135,000, from $771,000 at September 30, 1999 to $636,000 at September 30, 2000. The decrease in current assets was primarily attributable to a decrease in cash. The change in current liabilities was due to increases in accounts payable and billings in excess of cost and the repayment of $304,000 to the line of credit. The Company maintains a line of credit of $750,000. As of September 30, 2000, $600,000 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: November 9, 2000 | ARC COMMUNICATIONS INC. | |
| By: /s/ Michael Rubel
Michael Rubel Chief Operating Officer |
| PART II. | OTHER INFORMATION | |
| Item 6. | Exhibits | |
| a) | Exhibit 27 - Financial Data Schedule |
|
|