U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
Quarterly Report Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarter ended June 30, 2000
Commission File No. 000-26213
ARC COMMUNICATIONS INC.
A New Jersey Corporation 22-3201557
788 Shrewsbury Avenue
Tinton Falls, New Jersey 07724
Issuer's telephone number: (732) 219-1766
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No
[_]
The number of shares outstanding of the Issuer's common stock as of June
30, 2000 was 13,713,122.
<PAGE>
ARC COMMUNICATIONS INC.
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
a) Consolidated Balance Sheet as of June 30, 2000 .............. 3
b) Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 1999 and 2000 ................. 4
c) Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1999 and 2000 ......................... 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 to 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Forms 8-K ........................ 12
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
UNAUDITED
June 30, 2000
ASSETS
<TABLE>
<CAPTION>
June 30,
2000
-----------
<S> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 451,000
Accounts Receivable-Net of Allowances for Doubtful Accounts
of $49,000 876,000
Inventory 6,000
Prepaid Expenses 35,000
Other Receivables 5,000
-----------
Total Current Assets 1,373,000
-----------
PROPERTY AND EQUIPMENT-NET 363,000
OTHER ASSETS
Goodwill-Net 72,000
Security Deposits 9,000
-----------
Total Other Assets 81,000
-----------
TOTAL ASSETS $ 1,817,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of Credit $ 243,000
Accounts Payable and Accrued Expenses 314,000
Billings in Excess of Costs 77,000
Capitalized Lease Obligations 1,000
-----------
Total Current Liabilities 635,000
-----------
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 1,409,000
Retained Earnings (Accumulated Deficit) (385,000)
-----------
STOCKHOLDERS' EQUITY 1,182,000
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,817,000
===========
</TABLE>
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ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
June 30, 2000
<TABLE>
<CAPTION>
6 Months Ended 6 Months Ended 3 Months Ended 3 Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 2,515,000 $ 1,840,000 $ 1,321,000 $ 874,000
COSTS AND EXPENSES
Operating Costs 424,000 251,000 273,000 184,000
Selling, General and Administrative 1,638,000 1,201,000 829,000 587,000
Depreciation and Amortization 80,000 74,000 40,000 38,000
----------- ----------- ----------- -----------
Total Costs and Expenses 2,142,000 1,526,000 1,142,000 809,000
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES)
Interest Income 8,000 6,000 4,000 3,000
Interest Expense (23,000) (21,000) (11,000) (9,000)
Other Income 0 2,000 0 0
----------- ----------- ----------- -----------
Total Other Expense (15,000) (13,000) (7,000) (6,000)
----------- ----------- ----------- -----------
NET INCOME $ 358,000 $ 301,000 $ 172,000 $ 59,000
=========== =========== =========== ===========
BASIC AND DILUTED
INCOME PER COMMON SHARE $ 0.03 $ 0.02 $ 0.01 $ 0.00
=========== =========== =========== ===========
13,712,000 13,751,000 13,713,000 13,751,000
</TABLE>
Weighted Average Number of Shares Outstanding
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
June 30, 2000
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 358,000 $ 301,000
Adjustments to Reconcile Net Income or Loss to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 80,000 74,000
Bad Debt 21,000 26,000
Increase (Decrease) in Cash from Changes in:
Accounts Receivable (172,000) (223,000)
Inventory 4,000 (7,000)
Prepaid Expenses (4,000) (1,000)
Other Receivable (2,000) 0
Due from Related Party 28,000 (3,000)
Accounts Payable and Accrued Expenses 14,000 16,000
Capitalized Lease Obligations (2,000) 0
Deferred Revenue 56,000 0
--------- ---------
Total Adjustments 23,000 (118,000)
--------- ---------
Net Cash Provided by Operating Activities 381,000 183,000
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for Property and Equipment (82,000) (48,000)
--------- ---------
Net Cash Used in Investing Activities (82,000) (48,000)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment to Line of Credit (200,000) 0
Proceeds from Notes Payable 0 50,000
--------- ---------
Net Cash Provided by (Used by) Financing Activities (200,000) 50,000
--------- ---------
NET INCREASE IN CASH 99,000 185,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 352,000 224,000
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 451,000 $ 409,000
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid for Interest 23,000 26,000
</TABLE>
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
June 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 six months ended June 30, 1999 have been reclassified to conform
with the June 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.
<PAGE>
ARC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
June 30, 2000
4. Segment Information
<TABLE>
<CAPTION>
6 Months Ended 6 Months Ended
June 30, June 30,
2000 1999
------------------- -------------------
<S> <C> <C>
Revenue
Multi-Media $ 2,041,000 $ 1,656,000
Continuing professional education 474,000 184,000
------------------- -------------------
Total Consolidated Revenue $ 2,515,000 $ 1,840,000
------------------- -------------------
Net Income (Loss)
Multi-Media $ 407,000 $ 345,000
Continuing professional education (49,000) (44,000)
------------------- -------------------
Total Consolidated Net Income $ 358,000 $ 301,000
------------------- -------------------
Assets
Multi-Media $ 1,613,000 $ 1,512,000
Continuing professional education 204,000 154,000
------------------- -------------------
Total Consolidated Net Assets $ 1,817,000 $ 1,666,000
=================== ===================
</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
Six Months Ended June 30, 2000 and June 30, 1999
Arc's net revenues for the six months ended June 30, 2000 were $2,515,000, an
increase of $675,000 or 36.7% over the $1,840,000 of net revenues for the six
months ended June 30, 1999. In Arc's multi- media segment, revenues for the six
months ended June 30, 2000 and June 30, 1999 were $2,041,000 and $1,656,000,
respectively, an increase of 23.2 percent. In its continuing education segment,
revenues for the six months ended June 30, 2000 and June 30, 1999 were $474,000
and $184,000, respectively, an increase of 158 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 $211,000 or 119.8%, 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 $86,000 or 19.6% and (3) an
increase in revenue from professional services of $88,000 or 8.6%.
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 revenues
of continuing professional education delivered through our website.
<PAGE>
Results of Operations - Continued
Operating costs for the six months ended June 30, 2000 and June 30, 1999 were
$424,000 and $251,000, 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 six months ended June 30,
2000 increased to $1,638,000, an increase of $437,000 or 36.4%, over the
$1,201,000 of expenses for the six months ended June 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.
Depreciation and amortization expenses for the six months ended June 30, 2000
and June 30, 1999 were $80,000 and $74,000, respectively, a modest increase of
8.1 percent. This increase is attributable to the purchase of new desktop
computer systems in 2000.
Net income for the six months ended June 30, 2000 of $358,000 represents an
increase of $57,000 from the net income of $301,000 reported for the six month
period ended June 30, 1999. The increase primarily due to increase in
profitability of the multi-media segment as well as the growth of the CPE
segment which has become profitable in the second quarter. As a result, earnings
per share were $0.03 compared to $0.02 for the same period in 1999.
Three Months Ended June 30, 2000 and June 30, 1999
Arc's net revenues for the three months ended June 30, 2000 were $1,321,000, an
increase of $447,000 or 51.1% over the $874,000 of net revenues for the three
months ended June 30, 1999. In Arc's multi-media segment, revenues for the three
months ended June 30, 2000 and June 30, 1999 were $1,071,000 and $763,000,
respectively, an increase of 40 percent. In its continuing education segment,
revenues for the three months ended June 30, 2000 and June 30, 1999 were
$250,000 and $111,000, respectively, an increase of 125 percent.
For several quarters, our revenue growth has been driven by an expanding revenue
base in Arc's core businesses of internet site development, interactive
multi-media development and through its continuing professional education
company, Arc Mesa Educators, by expanding its ability to provide professional
education in the medical field, including the new capability to deliver live
seminars.
Operating costs for the three months ended June 30, 2000 and June 30, 1999 were
$273,000 and $184,000, 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 June 30,
2000 increased to $829,000, an increase of $242,000 or 41.2%, over the $587,000
of expenses for the three months ended June 30, 1999. This increase was
primarily due to supporting the increased revenues from Arc's core businesses
and to expenses incurred in the planned expansion to providing the live
educational seminars.
<PAGE>
Depreciation and amortization expenses for the three months ended June 30, 2000
and June 30, 1999 were $40,000 and $38,000, respectively, a modest increase of
5.3 percent. This increase is attributable to the purchase of new desktop
computer systems in 2000.
Net income for the three months ended June 30, 2000 of $172,000 represents an
increase of $113,000 from the net income of $59,000 reported for the three month
period ended June 30, 1999. The increase is primarily due to increase in
profitability of the multi-media segment as well as the growth of the CPE
segment which has become profitable in the second quarter. As a result, earnings
per share were $0.02 compared to essentially none 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 $381,000 and $183,000 for the six
months ended June 30, 2000 and June 30, 1999, respectively. The increase in 2000
was principally attributable to an increase in income as well as advanced
collections on Work In Process.
Cash flows used in investing activities were $82,000 for the six months ended
June 30, 2000 as compared to $48,000 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 June 30, 2000,
the Company had working capital of $738,000 as compared to $468,000 at June 30,
1999. Current assets increased by $196,000, from $1,177,000 at June 30, 1999, to
$1,373,000 at June 30, 2000, while current liabilities decreased by $74,000,
from $709,000 at June 30, 1999 to $635,000 at June 30, 2000. The increase in
current assets was primarily attributable to an increase in accounts receivable.
The change in current liabilities was due to the repayment of $200,000 to the
line of credit partially offset by increases in accounts payable and accrued
expenses. The Company maintains a line of credit of $750,000. As of June 30,
2000, $506,000 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
<PAGE>
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: August 10, 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/A, dated April 12, 2000, was filed reporting the change of
accountants which occurred on July 15, 1999.
A Form 8-K/A, dated May 3, 2000, was filed reporting the change of
accountants which occurred on July 15, 1999.
