October 7, 1996
Securities and Exchange Commission
Judiciary Plaza
450 5th Street NW
Washington, DC 20549
RE: ARC Capital
Enclosed in accordance with Rule 13a-11 of the Securities Exchange Act of
1934 is ARC Capital's report on Form 8-K-A dated October 7, 1996.
Very truly yours,
Alan R. Steel
Vice President, Finance & CFO
ARS/smk
<PAGE>
FORM 8-K-A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 24, 1996
ARC CAPITAL
(Exact name of registrant as specified in its charter)
California
(State or other jurisdiction of incorporation)
0-20097 33-0256103
(Commission File Number) (I.R.S. Employer Identification No.)
2067 Commerce Drive
Medford, Oregon 97504
(Address of principal executive offices) (Zip Code)
541-776-7700
(Registrant's telephone number, including area code)
N.A.
(Former name or former address, if changed since last report)
<PAGE>
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K, filed
July 25, 1996, as set forth in the pages attached hereto:
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
Report of Independent Accountants
Balance Sheets at December 31, 1995 and 1994
Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993
Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993
Statement of Changes in Shareholders'
Equity for the Years Ended December 31, 1995,
1994 and 1993
Notes to Financial Statements as of
December 31, 1995, 1994 and 1993
(b) Unaudited pro forma financial information.
Balance Sheet at June 30, 1996
Statement of Operations for the Year Ended
December 31, 1995
Statement of Operations for the Six Months
Ended June 30, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ARC Capital
Date: October 7, 1996 By: /s/ Alan R. Steel
-----------------
Vice President of Finance and
Chief Financial Officer
<PAGE>
ARC Capital
Form 8-K-A Item 7(a)
Financial Statements of Business Acquired
<PAGE>
Ventek, Inc.
Financial Statements
December 31, 1995, 1994 and 1993
<PAGE>
Ventek, Inc.
Financial Statements
Contents
Report of Independent Accountants.............................................1
Balance Sheets at December 31, 1995 and 1994..................................2
Statements of Operations for the years ended
December 31, 1995, 1994 and 1993.....................................3
Statements of Shareholders' Equity
for the years ended December 31, 1995,
1994 and 1993........................................................4
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993.....................................5
Notes to Financial Statements.................................................6
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
ARC Capital
In our opinion, the accompanying balance sheets and the related statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Ventek, Inc. at December 31, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. These 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As described in Note 8, on July 24, 1996, ARC Capital acquired the business and
certain assets of Ventek, Inc., subject to certain liabilities.
PRICE WATERHOUSE LLP
Portland, Oregon
September 27, 1996
<PAGE>
Ventek, Inc.
Balance Sheets
<TABLE>
<CAPTION>
ASSETS
December 31, December 31,
1995 1994
---------------------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents (Note 1) $ 1,454,181 $ 135,566
Accounts receivable, net (Note 1) 466,942 185,368
Inventories (Notes 1 and 2) 270,220 --
Prepaid expenses and other assets 12,590 603
Receivables from shareholders (Note 7) -- 30,150
------------- -------------
Total current assets 2,203,933 351,687
Equipment, net (Notes 1 and 3) 21,721 32,087
------------- -------------
$ 2,225,654 $ 383,774
============= =============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 87,143 $ 12,292
Accrued SEP contribution (Note 4) 90,000 84,900
Accrued payroll 47,796 21,928
Customer deposits (Note 1) 223,382 --
Accrued commissions 64,404 --
------------- -------------
Total current liabilities 512,725 119,120
------------- -------------
Commitments and contingencies (Note 5)
Shareholders' equity:
Capital stock - $20 par value, one vote per share:
100,000 shares authorized, 300 shares issued
and outstanding at December 31, 1995 and 1994 6,000 6,000
Retained earnings 1,706,929 258,654
------------- -------------
Total shareholders' equity 1,712,929 264,654
------------- -------------
$ 2,225,654 $ 383,774
============= =============
<FN>
See Accompanying Notes to Audited Financial Statements.
</FN>
</TABLE>
<PAGE>
Ventek, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
----------------------------------
<S> <C> <C> <C> <C> <C>
Net sales (Notes 1 and 6) $ 4,584,884 $ 1,379,504 $ 654,095
Cost of sales 1,021,446 619,108 322,914
------------- -------------- ------------
Gross profit 3,563,438 760,396 331,181
------------- -------------- ------------
Operating expenses:
Selling and marketing 385,797 199,286 81,278
Research and development (Note 1) 320,104 265,697 113,968
General and administrative 246,419 133,371 49,816
------------- -------------- ------------
952,320 598,354 245,062
------------- -------------- ------------
Income from operations 2,611,118 162,042 86,119
Interest income 28,073 3,793 83
------------- -------------- ------------
Net income $ 2,639,191 $ 165,835 $ 86,202
============= ============== ============
<FN>
See Accompanying Notes to Audited Financial Statements.
</FN>
</TABLE>
<PAGE>
Ventek, Inc.
Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Capital Stock Retained
Shares Amount Earnings
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 400 $ 8,000 $ 52,597
Net income -- -- 86,202
Distributions to shareholders -- -- (16,280)
----------- ----------- ------------
Balance, December 31, 1993 400 8,000 122,519
Net income -- -- 165,835
Distributions to shareholders -- -- (29,700)
Repurchase of shares (100) (2,000) --
----------- ----------- ------------
Balance, December 31, 1994 300 6,000 258,654
Net income -- -- 2,639,191
Distributions to shareholders -- -- (1,190,916)
----------- ----------- ------------
Balance, December 31, 1995 300 $ 6,000 $ 1,706,929
=========== =========== ============
<FN>
See Accompanying Notes to Audited Financial Statements.
</FN>
</TABLE>
<PAGE>
Ventek, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,639,191 $ 165,835 $ 86,202
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation 15,276 3,998 2,383
Changes in assets and liabilities:
Accounts receivable (281,574) (179,564) 7,821
Inventories (270,220) 9,171 2,176
Prepaid expenses and other assets (11,987) 2,113 (1,486)
Receivables from shareholders 30,150 (30,150) --
Current liabilities 393,605 83,305 (2,416)
------------ ------------ ------------
Net cash provided by operating activities 2,514,441 54,708 94,680
------------ ------------ ------------
Cash (used in) investing activities:
Purchases of equipment (4,910) (27,036) (7,383)
------------ ------------ ------------
Net cash (used in) investing activities (4,910) (27,036) (7,383)
------------ ------------ ------------
Cash (used in) financing activities:
Distributions to shareholders (1,190,916) (29,700) (16,280)
Repurchase of shares -- -- (2,000)
------------ ------------ -------------
Net cash (used in) financing activities (1,190,916) (29,700) (18,280)
------------ ------------ ------------
Net increase (decrease) in cash 1,318,615 (2,028) 69,017
Cash and cash equivalents - beginning of the period 135,566 137,594 68,577
------------ ------------ ------------
Cash and cash equivalents - end of the period $ 1,454,181 $ 135,566 $ 137,594
============ ============ ============
<FN>
See Accompanying Notes to Audited Financial Statements.
</FN>
</TABLE>
<PAGE>
8
Ventek, Inc.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Operations: Ventek, Inc. ("Ventek" or the
"Company") designs, manufactures, markets and services computer
aided vision sorting and defect detection equipment for use in the
processing of wood veneer.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that 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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentrations of Credit Risk: Financial instruments that potentially
subject the Company to concentrations of credit risk consist
principally of money market instruments and trade receivables. The
Company invests its excess cash in money market instruments and
certificates of deposit with high credit quality financial
institutions. Concentrations of credit risk with respect to trade
receivables exist because the Company relies heavily on a relatively
small number of customers in a single industry. The Company performs
ongoing credit evaluations of its customers and requires a significant
deposit upon acceptance of a customer's order. The Company does not
require any other collateral. The Company has not experienced any
credit losses to date.
Cash Equivalents: For financial reporting purposes, cash equivalents
consist primarily of money market instruments that have original
maturities of three months or less.
Inventories: Manufacturing inventories are stated at the lower of
cost or net realizable value, with cost determined principally by use
of the first-in, first-out method.
Equipment: Equipment is stated at cost. Depreciation and amortization
are computed by the straight-line method over the estimated useful
lives of the assets (five years), or the term of the lease in the case
of leasehold improvements. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed
from the accounts and any resulting gain or loss is recognized in
income for the period. The cost of maintenance and repairs is charged
to expense as incurred; significant renewals and betterments are
capitalized.
Revenue Recognition: The Company recognizes revenue upon the shipment
of products. Customer deposits represent monies received in advance of
shipment of products.
Research and Development Costs: Research and development costs are
expensed as incurred. A substantial portion of the research and
development expenses is related to developing new products and to
improving existing products or processes.
Income Taxes: Ventek has elected to be taxed under the provisions of
Sub-Chapter "S" of the Internal Revenue Code. Under the provisions of
Sub-Chapter "S," the Company is not liable for payment of federal and
state corporate income taxes. The shareholders are liable for payment
of federal and state income taxes based on their respective share of
the Company's taxable income.
Fair Value of Financial Assets and Liabilities: Statement of Financial
Accounting Standards No. 107, Disclosures About Fair Value of Financial
Instruments, requires disclosure of the fair value of certain financial
assets and liabilities. The Company estimates the fair value of its
monetary assets and liabilities based upon the existing interest rates
related to such assets and liabilities compared to current market rates
of interest for similar nature and degree of risk. The Company
estimates that the carrying value of all its monetary assets and
liabilities approximate fair value as of December 31, 1995 and 1994.
NOTE 2 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Raw Materials $ 142,555 $ --
Work-in-process 127,665 --
------------- -------------
$ 270,220 $ --
============= =============
</TABLE>
NOTE 3 - EQUIPMENT
Equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Office and production equipment $ 29,730 $ 24,820
Leasehold improvements 13,020 13,020
------------- -------------
42,750 37,840
Less accumulated depreciation (21,029) (5,753)
------------- -------------
$ 21,721 $ 32,087
============= =============
</TABLE>
Depreciation expense aggregated $15,276, $3,998, and $2,383 for the
years ended December 31, 1995, 1994, and 1993, respectively.
NOTE 4 - RETIREMENT PLAN
The Company has established a Simplified Employee Pension (SEP) Plan
pursuant to the Internal Revenue Code. The contributions are
discretionary and aggregated $90,000, $84,900 and $24,300 for the years
ended December 31, 1995, 1994, and 1993, respectively. The
contributions are accrued during the year in which they are earned and
have been fully funded in the subsequent year.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company leases the current location of its administrative offices
and manufacturing site. The lease is noncancelable and expires on May
31, 1997. The following is a schedule by years of future minimum rental
payments required by the above lease as of December 31, 1995:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1996 $ 39,000
1997 16,250
--------------
Total minimum payments required 55,250
Less: sublease rentals (18,417)
--------------
$ 36,833
==============
</TABLE>
<PAGE>
The following schedule shows the composition of total rent expense for
all operating leases:
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
--------------------------------------------
<S> <C> <C> <C>
Minimum rentals $ 33,250 $ 10,300 $ 3,600
Less: Sublease rentals (10,400) (800) --
-------------- -------------- ------------
Net rent expense $ 22,850 $ 9,500 $ 3,600
============= ============= ============
</TABLE>
NOTE 6 - GEOGRAPHIC INFORMATION Sales to geographic areas are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
---------------------------------------------
<S> <C> <C> <C>
United States $ 4,249,884 $ 1,293,504 $ 654,095
Export 335,000 86,000 --
------------- ------------- ------------
$ 4,584,884 $ 1,379,504 $ 654,095
============= ============= ============
</TABLE>
In 1995, Ventek sold equipment to one unaffiliated customer totaling
approximately 26% of sales.
In 1994, Ventek sold equipment to two different unaffiliated customers
totaling approximately 33% and 13% of sales.
In 1993, Ventek sold equipment to two different unaffiliated customers
totaling 13% and 12% of sales.
NOTE 7 - RELATED PARTY TRANSACTIONS
As of December 31, 1994, various shareholders of the Company owed
Ventek $30,150 for temporary loans made to such shareholders. The loans
bore interest between five and eight percent and were repaid in full
during 1995. Interest from these loans to shareholders approximated
$1,000 in 1995 and is included in interest income in the accompanying
Statement of Operations.
NOTE 8 - SUBSEQUENT EVENT
On July 24, 1996, ARC Capital acquired the business and certain assets
of Ventek, subject to certain liabilities. The accompanying financial
statements do not reflect any effects of the acquisition of the Company
by ARC Capital.
<PAGE>
ARC Capital
Form 8-K-A Item 7(b)
Unaudited Pro Forma Financial Information
<PAGE>
ARC Capital
INTRODUCTORY INFORMATION
On July 24, 1996, ARC Capital ("ARC") acquired certain assets and the business
of Ventek, Inc. ("Ventek") subject to certain liabilities. Ventek manufactures,
markets, and services computer-aided vision defect detection systems used in the
wood veneer industry.
The purchase price was approximately $5.1 million in notes: (i) a 6.75%
$1,000,000 note due in three years; (ii) a 6.75% $2,250,000 note due in three
years convertible into ARC's Class A Common Stock at $2.25 per share; and (iii)
a note and stock appreciation rights agreement payable by issuance of up to
1,800,000 shares of Class A Common Stock or, at ARC's option, in cash in three
years. ARC also issued a warrant to purchase 1,000,000 shares of Class A Common
Stock which vests over a four year period subject to Ventek meeting specified
sales and earnings goals.
The acquisition was accounted for under the purchase method of accounting. The
$5.1 million purchase price was allocated based on the fair values of the
identifiable assets of Ventek as follows: $0.2 million represents the acquired
net assets of Ventek and the remaining $4.9 million represents goodwill and
other intangibles to be amortized over 15 years.
On March 1, 1996, ARC acquired all of the outstanding capital stock of Pulsarr
Holding B.V. ("Pulsarr"). Pulsarr designs, manufactures and markets
computer-aided vision sorting and defect removal equipment primarily for use in
the food processing industry. The acquisition of Pulsarr was reported to the
Securities and Exchange Commission on the Company's Form 8-K and Form 8-K-A
dated March 6, 1996, and May 13, 1996, respectively.
The purchase price was approximately $7.8 million in cash and notes payable. The
acquisition was accounted for under the purchase method of accounting. The $7.8
million purchase price was allocated based on the fair values of the
identifiable assets of Pulsarr as follows: $1.3 million represents the net
assets of Pulsarr, $6.1 million represents in-process research and development
technology intangibles which were charged against operations in the quarter
ending March 31, 1996, and the remainder of $0.4 million represents goodwill to
be amortized over 15 years. The $6.1 million charge for in-process research and
development technologies has been eliminated from the accompanying pro forma
statements of operations.
The unaudited pro forma statements of operations for the twelve months ended
December 31, 1995, and the unaudited pro forma statements of operations for the
six months ended June 30, 1996, were prepared as if the acquisitions had taken
place at the beginnings of the periods presented. The unaudited pro forma
balance sheet as of June 30, 1996, was prepared as if the acquisitions had taken
place on June 30, 1996.
The unaudited pro forma financial information is intended to provide information
about the continuing impact of the acquisitions by showing how they might have
affected historical financial statements if they had been consummated at an
earlier date. This information is not necessarily indicative of future
operations or the actual results that would have occurred had the acquisitions
been consummated at the beginning of the earliest period presented. This
information should be read in conjunction with the accompanying notes to the
unaudited pro forma financial information.
<PAGE>
ARC Capital
Unaudited Pro Forma Balance Sheet
June 30, 1996
(In thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
ARC Ventek Adjustments Results
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,166 $ 582 $ -- $ 1,748
Accounts receivable 3,139 -- -- 3,139
Inventories 8,933 361 -- 9,294
Prepaid expenses and other assets 1,143 -- -- 1,143
--------- ------- ----------- ---------
Total current assets 14,381 943 -- 15,324
--------- ------- ----------- ---------
Property, plant and equipment, net 6,890 14 -- 6,904
Goodwill, intangibles and other assets, net 3,137 -- 4,820(A) 7,957
--------- ------- ----------- ---------
$ 24,408 $ 957 $ 4,820 $ 30,185
========= ======= =========== =========
</TABLE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable $ 3,474 $ 124 $ -- $ 3,598
Accrued liabilities 1,425 -- 100(A) 1,525
Customer deposits 3,393 582 -- 3,975
Short-term borrowings 816 -- -- 816
Accrued payroll 524 -- -- 524
Warranty reserve 474 -- -- 474
Current portion of long-term liabilities 2,248 -- -- 2,248
--------- ------- ----------- ---------
Total current liabilities 12,354 706 100 13,160
--------- ------- ----------- ---------
Long-term liabilities, less current portion 9,899 -- 4,779(A) 14,678
--------- ------- ----------- ---------
Shareholders' equity:
Common stock 25,083 6 (6)(B) 25,083
Common stock warrants 2,211 -- 192(A) 2,403
Additonal paid in capital 2,797 -- -- 2,797
(Accumulated deficit) retained earnings (27,980) 245 (245)(B) (27,980)
Accumulated translation adjustment 44 -- -- 44
--------- ------- ----------- ---------
Total shareholders' equity 2,155 251 (59) 2,347
--------- ------- ----------- ---------
$ 24,408 $ 957 $ 4,820 $ 30,185
========= ======= =========== =========
<FN>
See Accompanying Notes to Unaudited Pro Forma Financial Statements.
</FN>
</TABLE>
<PAGE>
ARC Capital Unaudited Pro Forma
Statement of Operations For the Year Ended December 31, 1995
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------------- ---------------------
ARC Pulsarr Ventek Adjustments Results
<S> <C> <C> <C> <C> <C>
Net sales $ 19,394 $ 11,443 $ 4,585 $ -- $ 35,422
Cost of sales 11,194 6,605 1,022 -- 18,821
-------- -------- -------- --------- ---------
Gross margin 8,200 4,838 3,563 -- 13,038
Operating expenses:
Selling and marketing 3,255 65 386 -- 4,297
Research and development 1,987 2,134 320 -- 4,441
General and administrative 1,933 1,354 246 -- 3,533
Goodwill/intangible amortization 371 -- -- 348(D) 719
-------- -------- -------- --------- ---------
7,546 4,144 952 348 12,990
-------- -------- -------- --------- ---------
Income (loss) from continuing operations
before other income and expense 654 694 2,611 (348) 3,611
Other income and expense:
Gain on rescission of stock
compensation, net 732 -- -- -- 732
Investment and other income 212 16 28 -- 256
Interest expense (483) (38) -- (791)(G) (1,312)
-------- -------- -------- --------- ---------
Income (loss) from continuing operations
before income taxes 1,115 672 2,639 (1,139) 3,287
Provision for income taxes -- (235) -- 147(I) (88)
-------- -------- -------- --------- ---------
Income from continuing operations 1,115 437 2,639 (992) 3,199
Loss from discontinued operations (173) -- -- -- (173)
-------- -------- -------- --------- ---------
Net income $ 942 $ 437 $ 2,639 $ (992) $ 3,026
======== ======== ======== ========= =========
Net income per share:
Continuing operations $ 0.12 $ 0.25
Discontinued operations (0.02) (0.01)
-------- --------
$ 0.10 $ 0.24
======== ========
Weighted average shares outstanding 9,451 3,200(J) 12,651
======== ======== ========
<FN>
See Accompanying Notes to Unaudited Pro Forma Financial Statements.
</FN>
</TABLE>
<PAGE>
ARC Capital
Unaudited Pro Forma Statement of Operations
For the Six Months Ended June 30, 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical (C) Pro Forma
ARC Pulsarr Ventek Adjustments Results
<S> <C> <C> <C> <C> <C>
Net sales $ 10,032 $ 1,257 $ 3,750 $ -- $ 15,039
Cost of sales 5,955 572 792 -- 7,319
-------- -------- -------- --------- ---------
Gross margin 4,077 685 2,958 -- 7,720
Operating expenses:
Selling and marketing 1,691 155 330 -- 2,176
Research and development 1,943 100 113 -- 2,156
General and administrative 2,064 218 142 -- 2,424
Goodwill/intangible amortization 194 -- -- 166 (E) 360
Charge for acquired in-process technology 6,088 -- -- (6,088)(F) --
Charge for royalty expense 647 -- -- -- 647
-------- -------- -------- --------- ---------
12,627 473 585 (5,922) 7,763
-------- -------- -------- --------- ---------
(Loss) income before other income and expense (8,550) 212 2,373 5,922 (43)
Other income and expense:
Investment and other income 104 -- 32 -- 136
Interest expense (424) -- -- (275) (H) (699)
-------- -------- -------- --------- ---------
(Loss) income before income taxes (8,870) 212 2,405 5,647 (606)
Provision for income taxes -- (74) -- 31 (I) (43)
-------- -------- -------- --------- ---------
Net (loss) income $ (8,870) $ 138 $ 2,405 $ 5,678 $ (649)
======== ======== ======== ========= ========
Net (loss) income per share $ (0.85) $ (0.05)
======== ========
Weighted average shares outstanding 10,388 2,269(J) 12,657
======== ========= ========
<FN>
See Accompanying Notes to Unaudited Pro Forma Financial Statements.
</FN>
</TABLE>
<PAGE>
ARC Capital
Notes to Unaudited Pro Forma Financial Information
(A) The pro forma balance sheet adjustments represent the consideration paid
and the preliminary allocation of the purchase price based on the fair
values of the assets acquired and liabilities assumed of Ventek as of
June 30, 1996, with the remainder allocated to goodwill and other
intangibles.
(B) The pro forma balance sheet adjustments represent the elimination of
common stock and retained earnings of Ventek.
(C) The amounts on the Unaudited Pro Forma Statement of Operations for the
six months ended June 30, 1996, in the "Historical" ARC column, include
the consolidated results of ARC's operations for the period from January
1 through June 30, 1996, which includes Pulsarr's results from its
acquisition date of March 1, 1996. The amounts in the "Historical"
Pulsarr column represent the results of Pulsarr's operations for the
period from January 1 through February 29, 1996. The amounts in the
"Historical" Ventek column represent the results of Ventek's operations
for the period from January 1 through June 30, 1996.
(D) The pro forma adjustment to "Goodwill/intangible amortization" for the
year ended December 31, 1995, represents the amortization of $406,000 and
$4,820,000 of goodwill/intangibles resulting from the preliminary
allocation of the purchase price of Pulsarr and Ventek, respectively.
Goodwill/intangibles will be amortized over 15 years. The
goodwill/intangible amortization associated with the Ventek acquisition
is deductible for tax purposes whereas the goodwill amortization
associated with the Pulsarr acquisition is not tax deductible.
(E) The pro forma adjustment to "Goodwill/intangible amortization" for the
six months ended June 30, 1996, represents the amortization resulting
from the preliminary allocation of the purchase price of Pulsarr and
Ventek, as described in (D) above. As ARC's "Historical" results include
Pulsarr from its acquisition date of March 1, 1996, the adjustment
relating to Pulsarr is for the two months ended February 29, 1996.
(F) The charge for acquired in-process technology has been eliminated from
the Pro Forma Statement of Operations for the Six Months Ended June 30,
1996, as required by the Security and Exchange Commission's requirement
to eliminate nonrecurring acquisition related expenses.
(G) The pro forma adjustment to "Interest expense" for the year ended
December 31, 1995, represents the interest expense associated with the
acquisitions of Pulsarr and Ventek.
(H) The pro forma adjustment to "Interest Expense" for the six months ended
June 30, 1996, represents the interest expense associated with the
acquisitions of Pulsarr and Ventek. As ARC's "Historical" results include
Pulsarr from its acquisition date of March 1, 1996, the adjustment
relating to Pulsarr is for the two months ended February 29, 1996.
(I) The pro forma adjustment to "Provision for income taxes" represents the
tax benefits associated with the Pulsarr acquisition interest expense
included in (G) and (H) above. Ventek was a Subchapter S Corporation
prior to its acquisition. No pro forma adjustments have been made for
taxes on Ventek's income as such income will be offset by ARC's current
period losses or net operating loss carryforwards.
(J) The pro forma adjustments to "Weighted average shares outstanding" are
comprised of the following transactions, to fully reflect the number of
shares as outstanding for the entire periods presented:
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1996 1995
<S> <C> <C>
Sale of 1,400,000 shares of ARC Class A Common Stock on March 1,
1996, the proceeds of which were used to
partially fund the acquisition of Pulsarr 469,000 1,400,000
Shares of ARC Class A Common Stock underlying the note and stock
appreciation rights issued to the former owners of
Ventek. 1,800,000 1,800,000
--------------- --------------
2,269,000 3,200,000
</TABLE>
