UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
Securities Exchange Act of 1934
Date of report: December 8, 2003
(Date of earliest event reported)
Commission file number 000-26213
ARC COMMUNICATIONS INC.
(Exact Name of Registrant as specified in its charter)
New Jersey 22-3201557
---------- ----------------------
(State of Incorporation) (IRS Identification No.)
401 Hackensack Avenue
3rd Floor
Hackensack, NJ 07601
732/219-1766
(REGISTRANT'S ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER)
1
Item 2. Acquisition or Disposition of Assets
On December 8, 2003, the Registrant, RoomLinX, Inc., a Nevada corporation
("RoomLinX"), and RL Acquisition, Inc. ("RL"), a Nevada corporation and
wholly-owned subsidiary of the Registrant, entered into an Agreement and Plan of
Merger, and on February 25, 2004, the parties entered into the Amendment to
Agreement and Plan of Merger (together, with all changes and amendments thereto,
the "Merger Agreement"). The Merger Agreement provides for the issuance of
securities pursuant to the provisions of Section 368(a) of the Internal Revenue
Code of 1986, as amended, whereby the Registrant will acquire RoomLinX through
the merger of RoomLinX with and into RL, with RL as the surviving corporation of
such merger. In consideration for the merger, the stockholders of RoomLinX shall
receive an aggregate of (i) 68,378,346 shares of the Registrant's common stock
and (ii) warrants to purchase 11,465,001 shares of the Registrant's common
stock. The consideration for the merger was determined through arms length
negotiations.
As a condition to consummating the transactions contemplated by the Merger
Agreement, simultaneously with the filing of the certificate of merger with the
Secretary of State of the State of Nevada to effect the merger, the Registrant
is required to file an amendment to its Certificate of Incorporation increasing
the number of authorized shares of its common stock to 250,000,000 and changing
its name to "RoomLinX, Inc." In addition, following the merger, the Registrant
will be reincorporated from a New Jersey corporation to a Nevada corporation by
means of a merger of the Registrant with and into its wholly-owned subsidiary
RL, with RL continuing as the surviving corporation under the name RoomLinX,
Inc. The consummation of the merger is subject to the approval of the
stockholders of each of the constituent corporations and other customary closing
conditions.
The number of shares of the Registrant's common stock and warrants to
purchase shares of the Registrant's common stock to be issued to RoomLinX
stockholders will represent approximately 65% of the surviving corporation's
issued and outstanding common stock on the effective date of the merger,
assuming the exercise of all outstanding options and warrants to purchase common
stock.
The foregoing description of the Merger Agreement and the Amendment to the
Merger Agreement does not purport to be complete and is qualified in its
entirety by the terms and conditions of the Merger Agreement and the Amendment
to the Merger Agreement. A copy of the Merger Agreement is attached as an
exhibit to the Registrant's Form 8-K filed with the Securities and Exchange
Commission on December 23, 2003 and is incorporated herein by reference and a
copy of the Amendment to Merger Agreement is attached as an exhibit to the
Registrant's Form 8-K filed with the Securities and Exchange Commission on March
4, 2004 and is incorporated herein by reference.
This Form 8-K/A is being filed as Amendment No. 2 to the Form 8-K of Arc
Communications Inc. filed with the Securities and Exchange Commission on
December 23, 2003, as amended by the Form 8-K/A filed with the Securities and
Exchange Commission on February 24, 2004, to provide the financial statements
required by Item 7(a) of Form 8-K and to amend the financial information
required by Item 7(b) of Form 8-K.
Item 7. Financial Statements and Exhibits:
(a) Financial Statements of Business Acquired.
Audited Consolidated Financial Statements of RoomLinX, Inc. as of and for
the year ended December 31, 2003:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statement of Operations
Consolidated Statements of Capital Deficiency
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
2
(b) Pro Forma Financial Information:
Unaudited Pro Forma Condensed Combined Financial Statements
as of and for the Year Ended December 31, 2003:
Unaudited Pro Forma Condensed Combined Balance Sheet
Unaudited Pro Forma Condensed Combined Statement of Operations
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
(c) Exhibits.
2.1 Agreement and Plan of Merger by and among RoomLinX, Inc., Arc
Communications Inc. and RL Acquisition, Inc. dated as of
December 8, 2003. (1)
2.2 Amendment to Agreement and Plan of Merger by and among
RoomLinX, Inc., Arc Communications Inc. and RL Acquisition,
Inc. dated as of February 25, 2004. (2)
(1) Incorporated by reference to the Form 8-K filed on December 23, 2003.
(2) Incorporated by reference to the Form 8-K filed on March 4, 2004.
3
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Arc Communications Inc.
-----------------------
(Registrant)
By: /s/ Peter Bordes
-----------------------
Peter Bordes
Chairman and
Chief Executive Officer
Date: April 7, 2004
4
Item 7(a) Financial Statements of Business Acquired.
INDEPENDENT AUDITORS' REPORT
To the Directors of
RoomLinX Inc.
We have audited the accompanying balance sheets of RoomLinX Inc. as of December
31, 2003 and 2002 and the related statements of operations, capital deficiency
and cash flows for the year ended December 31, 2003, the seven month period
ended December 31, 2002 and the year ended May 31, 2002. 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 in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance 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 RoomLinX Inc. as of December
31, 2003 and 2002 and the results of its operations and its cash flows for the
year ended December 31, 2003, the seven month period ended December 31, 2002 and
the year ended May 31, 2002 in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company's recurring losses from operations and stockholders'
capital deficiency raise substantial doubt about its ability to continue as a
going concern. Management's plans concerning these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
(SIGNED) DELOITTE & TOUCHE LLP
Chartered Accountants Vancouver,
British Columbia January 16, 2004
5
ROOMLINX INC.
BALANCE SHEETS
(STATED IN UNITED STATES DOLLARS)
December 31, December 31,
2003 2002
----------- -----------
ASSETS
Current
Cash and cash equivalents ..................................... $ 7,252 $ --
Accounts receivable and other ................................. 225,995 198,399
Prepaid expenses and other .................................... 20,930 15,279
----------- -----------
Total current assets ............................................ 254,177 213,678
Property and equipment, net ..................................... 269,809 358,145
----------- -----------
Total assets .................................................... $ 523,986 $ 571,823
=========== ===========
LIABILITIES
Current
Bank overdraft ................................................ $ -- $ 8,182
Accounts payable and accrued liabilities ...................... 579,091 270,732
Deferred revenue .............................................. 12,077 69,800
Due to related parties ........................................ 182,009 123,442
Current portion of obligations under capital lease ............ 225,374 178,810
Loans payable ................................................. 23,139 --
Current portion of convertible debentures ..................... 200,000 --
----------- -----------
Total current liabilities ....................................... 1,221,690 650,966
Long-term portion of obligations under capital lease ............ -- 8,016
Convertible debentures, net of current portion .................. 180,000 200,000
----------- -----------
Total liabilities ............................................... 1,401,690 858,982
----------- -----------
Continuing operations (Note 1)
Commitments (Note 6)
CAPITAL DEFICIENCY
Capital stock
Authorized
25,000,000 common shares with a par value of $0.001 per share
Issued
14,786,963 common shares (December 31, 2002 - 14,426,963) ... 14,787 14,427
Additional paid-in capital ...................................... 4,551,779 4,408,139
Warrants ........................................................ 157,200 60,000
Deficit ......................................................... (5,601,470) (4,769,725)
----------- -----------
Total capital deficiency ........................................ (877,704) (287,159)
----------- -----------
Total liabilities and capital deficiency ........................ $ 523,986 $ 571,823
=========== ===========
See accompanying Notes to the Financial Statements.
6
ROOMLINX INC.
STATEMENTS OF OPERATIONS
(STATED IN UNITED STATES DOLLARS)
Seven months
Year ended ended Year ended
December 31, December 31, May 31,
2003 2002 2002
------------ ------------ ------------
Revenue
System sales and installation .......................................... $ 1,523,836 $ 305,275 $ --
Service, maintenance and usage ......................................... 482,738 182,880 248,302
------------ ------------ ------------
2,006,574 488,155 248,302
------------ ------------ ------------
Cost of Revenue
System sales and installation .......................................... 1,232,969 284,873 --
Service, maintenance and usage ......................................... 206,216 90,135 164,287
------------ ------------ ------------
1,439,185 375,008 164,287
------------ ------------ ------------
Gross profit ............................................................. 567,389 113,147 84,015
------------ ------------ ------------
Operating expenses
Sales and marketing .................................................... 451,368 196,899 363,849
General and administrative ............................................. 575,967 155,314 338,094
Amortization of property and equipment ................................. 110,015 77,398 166,770
------------ ------------ ------------
1,137,350 429,611 868,713
------------ ------------ ------------
Loss from operations ..................................................... (569,961) (316,464) (784,698)
------------ ------------ ------------
Other
Interest expense ....................................................... (25,982) (6,972) (1,816)
Foreign exchange ....................................................... (82,602) 5,808 (10,042)
Non-cash financing costs ............................................... (153,200) (64,545) (4,535)
------------ ------------ ------------
Total other .............................................................. (261,784) (65,709) (16,393)
------------ ------------ ------------
Net loss ................................................................. $ (831,745) $ (382,173) $ (801,091)
============ ============ ============
Basic and diluted loss per share ......................................... $ (0.06) $ (0.03) $ (0.07)
============ ============ ============
Basic weighted-average number of common
shares used to calculate basic and diluted
loss per share ......................................................... 14,442,196 14,058,539 11,073,567
============ ============ ============
See accompanying Notes to the Financial Statements.
7
ROOMLINX INC.
STATEMENTS OF CAPITAL DEFICIENCY
(STATED IN UNITED STATES DOLLARS)
Additional
Number of Paid-In
Shares Amount Capital Warrants Deficit
----------- ----------- ----------- ----------- -----------
Balance, June 1, 2001 ....................................... 10,093,678 $ 10,094 $ 2,997,156 -- $(3,586,461)
Issued for cash - private placement ......................... 3,627,156 3,628 1,041,259 -- --
Issued for property and equipment ........................... 200,000 200 249,800 -- --
Financing expenses - options ................................ -- -- 4,535 -- --
Net loss .................................................... -- -- -- -- (801,091)
----------- ----------- ----------- ----------- -----------
Balance, May 31, 2002 ....................................... 13,920,834 13,922 4,292,750 -- (4,387,552)
Issued for cash - private placement ......................... 506,129 505 110,844 -- --
Financing expenses - options ................................ -- -- 4,545 -- --
Issued on convertible debenture ............................. -- -- -- 60,000 --
Net loss .................................................... -- -- -- -- (382,173)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2002 .................................. 14,426,963 14,427 4,408,139 60,000 (4,769,725)
Issued for cash - private placement ......................... 70,000 70 27,930 -- --
Issued on settlement of loans payable 150,000 ............... 150 59,850 -- --
Issued as financing costs ................................... 140,000 140 55,860 -- --
Issued on convertible debenture ............................. -- -- -- 54,000 --
Issued on private placement ................................. -- -- -- 43,200 --
Net loss .................................................... -- -- -- -- (831,745)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2003 .................................. 14,786,963 $ 14,787 $ 4,551,779 $ 157,200 $(5,601,470)
=========== =========== =========== =========== ===========
See accompanying Notes to the Financial Statements.
8
ROOMLINX INC.
STATEMENTS OF CASH FLOWS
(STATED IN UNITED
STATES DOLLARS)
Seven months
Year ended ended Year ended
December 31, December 31, May 31,
2003 2002 2002
----------- ----------- -----------
Operating activities
Loss for the period ............................................................... $ (831,745) $ (382,173) $ (801,091)
Items not affecting cash:
Amortization of property and equipment .......................................... 110,015 77,398 166,770
Amortization of capital lease obligation ........................................ 38,547 (8,098) (944)
Forgiveness of debt ............................................................. -- -- (49,140)
Loss on disposal of property and equipment ...................................... -- 12,929 74,014
Non-cash financing and consulting costs ......................................... 153,200 64,545 4,535
Change in operating assets and liabilities ........................................ 217,389 (137,743) (29,833)
----------- ----------- -----------
Cash used in operating activities ................................................... (312,594) (373,142) (635,689)
----------- ----------- -----------
Investing activities
Proceeds from disposal of property and equipment .................................. -- 14,461 89,959
Purchase of property and equipment ................................................ (21,679) (12,830) (123,621)
----------- ----------- -----------
Cash (used in) provided by investing activities ..................................... (21,679) 1,631 (33,662)
----------- ----------- -----------
Financing activities
Due to related parties ............................................................ 58,567 86,097 --
Loans payable ..................................................................... 83,140 (56,858) 56,858
Convertible debenture ............................................................. 180,000 200,000 --
Funds advanced for share subscription ............................................. -- -- (412,797)
Issuance of common shares for cash ................................................ 28,000 111,349 1,044,887
Cash provided by financing activities ............................................. 349,707 340,588 688,948
Net increase (decrease) in cash and cash equivalents .............................. 15,434 (30,923) 19,597
Cash and cash equivalents, beginning of period ...................................... (8,182) 22,741 3,144
----------- ----------- -----------
Cash and cash equivalents, end of period ............................................ $ 7,252 $ (8,182) $ 22,741
----------- ----------- -----------
Non-cash investing and financing activities
Issuance of common shares for property
and equipment ....................................................................... $ 56,000 $ -- $ 250,000
=========== =========== ===========
Issuance of common shares on settlement
of loans payable .................................................................... $ 60,000 $ -- $ --
=========== =========== ===========
See accompanying Notes to the Financial Statements.
9
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
(STATED IN UNITED STATES DOLLARS)
1. CONTINUING OPERATIONS
These financial statements of RoomLinX Inc. ("RoomLinX" or the
"Company") have been prepared on the basis of accounting principles
applicable to a going concern which assumes that the Company will be
able to continue in operation for the foreseeable future and will be
able to realize its assets and discharge its liabilities in the
normal course of business.
Several adverse conditions cast doubt on the validity of this
assumption. The Company has incurred significant operating losses
over the past several fiscal years, has a working capital deficiency
of $967,513 and a capital deficiency of $877,704.
Management has evaluated the Company's alternatives to enable it to
pay its liabilities as they become due and payable in the current
year, reduce operating losses and obtain additional or new financing
in order to advance its business plan. Alternatives being considered
by management include, among others, completing a merger/public
financing (Note 14), obtaining financing from new lenders and the
issuance of additional equity. The Company believes these measures
will provide liquidity for it to continue as a going concern
throughout fiscal 2004, however, management can provide no assurance
with respect to their success in affecting one or more of these
measures, or whether, if affected, such measures will provide
sufficient financing to sustain their operations.
These financial statements do not reflect adjustments that would be
necessary if the going concern assumption were not appropriate
because management believes that the actions already taken or planned
will mitigate the adverse conditions and events that raise doubts
about the validity of the going concern assumption used in preparing
these financial statements.
If the going concern assumption were not appropriate for these
financial statements then adjustments would be necessary in the
carrying value of assets and liabilities, the reported revenue and
expenses and the balance sheet classifications used.
2. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(a) Nature of operations
The Company is involved in providing cost-effective networking
solutions for high speed Internet access instalments available to
hotels, commercial buildings, convention centres and other locations.
10
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
(STATED IN UNITED STATES DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
(b) Basis of Presentation
The Company's 100% owned subsidiary Reserve X Internet
Reservation Systems Inc. ("ReserveX") was formally dissolved
on February 26, 2003. Prior to the dissolution, ReserveX was
inactive and had no material assets or liabilities.
Subsequent to May 31, 2002, the Company changed its fiscal
reporting period from a fiscal year ended May 31 to a fiscal
year ended December 31 to align better with its current and
future reporting requirements. Accordingly, the Company has
presented the statements of operations, capital deficiency
and cash flow for the year ended December 31, 2003, the
seven month period ended December 31, 2002 and the year
ended May 31, 2002.
(c) Use of estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the United
States of America ("U.S. GAAP") requires the Company to make
estimates and assumptions that may affect the amounts of
assets and reported liabilities at the date of the financial
statements as well as the reported amounts of revenues and
expenses during the period. Despite the Company's best
effort to make these good faith estimates and assumptions,
actual results may differ.
(d) Foreign currency translation
The United States dollar is the functional currency of the
Company. Assets and liabilities in foreign currencies are
translated into United States dollars using the exchange
rate at the balance sheet date. Revenues and expenses are
translated at average rates of exchange during the period.
Gains and losses from foreign currency transactions are
included in operations.
(e) Cash and cash equivalents
Cash and cash equivalents includes cash on hand, demand
deposits, and short-term highly liquid investments that have
original maturities of three months or less at the date of
purchase.
11
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
(STATED IN UNITED STATES DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
(f) Accounts receivable and allowance for doubtful accounts
Accounts receivable are comprised of billed and unbilled
receivables arising from recognized or deferred revenues.
The Company maintains an allowance for doubtful accounts at an
amount it estimates to be sufficient to provide adequate
protection against losses resulting from collecting less than
full payment on its receivables. In judging the adequacy of
the allowance for doubtful accounts, the Company considers
multiple factors including historical bad debt experience, the
general economic environment, and the aging of receivables. A
considerable amount of judgment is required when the Company
assesses the realization of receivables, including assessing
the probability of collection and the current creditworthiness
of each customer. If the financial condition of the Company's
customers were to deteriorate, resulting in an impairment of
their ability to make payments, an additional provision for
doubtful accounts may be required.
(g) Fair value of financial instruments
At December 31, 2003, the Company has the following financial
instruments: cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities and convertible
debentures. The carrying value of cash and cash equivalents,
accounts receivable, and accounts payable and accrued
liabilities approximates their fair value based on their
liquidity or based on their short-term nature. The fair value
of the Company's obligations under capital leases and
convertible debentures debt at December 31, 2003 was not
readily determinable.
(h) Concentration of credit risk
Financial instruments that potentially subject the Company to
a concentration of credit risk consist principally of cash and
cash equivalents and accounts receivable. Cash and cash
equivalents are custodied with high quality financial
institutions to mitigate exposure to credit risk. The
Company's customer base is dispersed across many different
geographic areas throughout North America. The Company
performs ongoing credit evaluations of its customers and
generally does not require collateral or other security to
support credit sales. During the year ended December 31, 2003,
no single customer accounted for more than 10% of revenues.
12
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
(STATED IN UNITED STATES DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
(i) Property and equipment
Property and equipment are initially recorded at cost and the
Company provides for amortization as follows:
Furniture 20% declining balance method
Computer hardware 30% declining balance method
Automobile 30% declining balance method
One-half of the above rate is taken in the year of
acquisition.
(j) Impairment of long-lived assets
The Company makes periodic reviews for impairment of
long-lived assets whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Under SFAS No. 144, an impairment loss would be
recognized when estimate of undiscounted future cash flows
expected to result from the use of an asset and its eventual
disposition are less than its carrying amount. No such
impairment losses have been identified by the Company as at
December 31, 2003.
(k) Revenue recognition
Over the course of its development, the Company has derived
revenue from the following sources:
(i) Revenue from the sale and installation of Wi-Fi Wireless
networking solutions is recognized under contracted
arrangements upon delivery and installation at customer
sites where the fee is fixed or determinable and
collection is probable. Where contracted arrangements
provide for customer acceptance or there is uncertainty
about customer acceptance, revenue is deferred until the
Company has evidence of customer acceptance. Customers
generally do not have the right of return.
(ii) Service maintenance and usage revenue is recognized
under contracted arrangements with customers when the
fee is fixed or determinable and collection is probable.
Service and maintenance contract revenue is recognized
ratably over the contractual period. Usage fees are
recognized under specific customer contracts as services
are rendered where the fee is fixed or determinable and
collection is probable.
(iii) Deferred revenue consists of payments received in
advance of revenue being earned under installation and
service contracts described above.
13
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
(STATED IN UNITED STATES DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
(l) Loss per share
Basic earnings per share is computed by dividing income
available to common shareholders by the weighted average
number of common shares outstanding during the period. The
computation of diluted earnings per share assumes the
conversion, exercise or contingent issuance of securities
only when such conversion, exercise or issuance would have
a dilutive effect on earnings per share. The dilutive
effect of convertible securities is reflected in diluted
earnings per share by application of the "if converted"
method. The dilutive effect of outstanding options and
warrants and their equivalents is reflected in diluted
earnings per share by application of the treasury stock
method.
(m) Stock-based compensation
Under the Company's Stock Option Plan, the Company may
grant options to its directors, officers, employees,
independent contractors and consultants.
As of December 31, 2003, the Company has not issued stock
options to its employees or directors. As permitted under
SFAS No. 123, the Company has elected to continue to follow
APB Opinion No. 25 in accounting for stock-based awards to
employees. Under APB Opinion No. 25, the Company will
generally recognize no compensation expense with respect to
such awards, since the exercise price of the stock options
granted are expected to equal to the fair market value of
the underlying security on the grant date.
The Company's policy is to record deferred compensation
charges related to its employee stock options in those
situations where options are granted at an exercise price
lower than the deemed fair value of the underlying common
shares or where options are granted to non-employees. These
amounts are amortized as a charge to operations over the
vesting periods of the individual stock options.
Pro forma information regarding net income and earnings per
share is required by SFAS No. 123 for awards granted after
December 31, 1994 as if the Company had accounted for its
stock-based awards to employees under the fair value method
of SFAS 123. The fair value of the Company's stock-based
awards to employees is estimated as of the date of the
grant using a Black-Scholes option pricing model. As the
Company has issued no stock options to its employees or
directors, there are no pro forma stock compensation
charges to disclose. Limitations on the effectiveness of
the Black-Scholes option valuation model are that it was
developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully
transferable and that the model requires the use of highly
subjective assumptions including expected stock price
volatility.
14
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
(STATED IN UNITED STATES DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
(n) Income taxes
The Company accounts for income taxes under the provisions
of SFAS No. 109, Accounting for Income Taxes. This statement
provides for a liability approach under which deferred
income taxes are provided based upon currently enacted tax
laws and rates. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amounts
expected to be realized.
(o) Comprehensive income
SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components in a full
set of general purpose financial statements. The Company has
no comprehensive income items, other than net loss, in any
of the periods presented.
(p) Advertising
The Company expenses advertising costs as they are incurred.
Advertising expense is included in sales and marketing
expenses and amounted to $128,667 in the year ended December
31, 2003 (seven months ended December 31, 2002 - $34,605;
twelve months ended May 31, 2002 - $55,007).
(q) Newly adopted and recently issued accounting standards
On January 1, 2002, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 144. SFAS No.
144 supersedes SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to be Disposed
of, and elements of APB 30, Reporting the Results of
Operations - Reporting the Effects on Disposal of a Segment
of a Business and Extraordinary, Unusual or Infrequently
Occurring Events and Transactions. SFAS No. 144 establishes
a single-accounting model for long-lived assets to be
disposed of while maintaining many of the provisions
relating to impairment testing and valuation. The adoption
of this statement did not have an impact on the Company's
consolidated financial position, results of operations or
cash flows.
In April 2002, SFAS No. 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections, was issued. This statement provides
guidance on the classification of gains and losses from the
extinguishment of debt and on the accounting for certain
specified lease transactions. The adoption of this statement
did not have an impact on the Company's consolidated
financial position, results of operations or cash flows.
15
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
(STATED IN UNITED STATES DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
(q) Newly adopted and recently issued accounting standards
(continued)
In June 2002, SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, was issued. This statement
provides guidance on the recognition and measurement of
liabilities associated with disposal activities and is
effective on January 1, 2003. Under SFAS No. 146, companies
will record the fair value of exit or disposal costs when
they are incurred rather than at the date of a commitment to
an exit or disposal plan. The adoption of SFAS No. 146 may
result in the Company recognizing the cost of future
restructuring activities, if any, over a period of time
rather than in one reporting period.
In November 2002, the EITF reached a consensus on Issue No.
00-21, Revenue Arrangements with Mutliple Deliverables
("Issue 00-21"). Issue 00-21 provides guidance on how to
account for arrangements that involve the deliver or
performance of multiple products, services and/or rights to
use assets. The provisions of Issue 00-21 will apply to
revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. The Company does not believe
that the adoption of Issue 00-21 will have a material effect
on its consolidated financial position, results of
operations or cash flows.
In November 2002, the FASB issued Interpretation No. 45,
Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Guarantees of Indebtedness of Others,
("FIN 45"). FIN 45 requires the Company to recognize, at the
inception of a guarantee, a liability for the fair value of
the obligation undertaken in the issuance of the guarantee.
FIN 45 is effective for guarantees issued or modified after
December 31, 2002. The disclosure requirements effective for
the year ending December 31, 2002, expand the disclosures
required by a guarantor about its obligations under a
guarantee. The adoption of the accounting requirements of
this statement did not impact the Company's financial
position, results of operations or cash flows. The adoption
of the disclosure requirements of this statement did not
result in additional disclosures.
In December 2002, SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, was issued. SFAS No.
148 amends SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition
for a voluntary change to the fair value method of
accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual
and interim financial statements about the method of
accounting for stock-based employee compensation and the
effect of the method used on the reported results. The
disclosure provisions of SFAS No. 148 are effective for
financial statements for fiscal years ending after December
15, 2002 and interim periods beginning after December
15,2002. The adoption of this statement did not impact the
Company's financial position, results of operations or cash
flows.
16
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
(STATED IN UNITED STATES DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
(q) Newly adopted and recently issued accounting standards
(continued)
In January 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities, ("FIN 46") that
addresses the consolidation of variable interest entities.
In December 2003, the FASB issued a revised Interpretation
"FIN 46R". Under the revised Interpretation, an entity
deemed to be a business, based on certain specified
criteria, need not be evaluated to determine if it is a
Variable Interest Entity. Company must apply the provisions
to variable interests in entities created before February
1, 2003 during the quarter ended December 31, 2003. Adoption
of FIN 46 and FIN 46R did not have an impact on the
Company's financial condition or results of operations.
In May 2003, the FASB issued Statement No. 150, Accounting
for Certain Financial Instruments with Characteristics of
both Liabilities and Equity ("SFAS No. 150"). SFAS No. 150
establishes standards for classifying and measuring as
liabilities certain financial instruments that embody
obligations of the issuer and have both characteristics of
liabilities and equity. SFAS No. 150 represents a
significant change in practice in the accounting for a
number of financial instruments, including mandatorily
redeemable equity instruments and certain equity
derivatives. SFAS No. 150 is effective for all financial
instruments created or modified after May 31, 2003, and to
other instruments as of July 1, 2003. The Company will adopt
the provisions of SFAS No. 150 on July 1, 2003. The Company
does not expect that the adoption of this Statement will
have a material impact on its results of operations and
financial position.
3. ACCOUNTS RECEIVABLE AND OTHER
The principle components of accounts receivable and other were as
follows:
December 31,
-------------------
2003 2002
-------- --------
Trade accounts receivable .............................................................. $194,875 $135,768
Unbilled receivables ................................................................... 2,116 52,855
GST receivable ......................................................................... 29,004 9,776
-------- --------
$225,995 $198,399
======== ========
It is anticipated that the Company will recover 100% of its accounts
receivable and therefore no allowance for doubtful accounts has been
provided.
17
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
(STATED IN UNITED STATES DOLLARS)
4. PROPERTY AND EQUIPMENT
The components of property and equipment are as follows:
December 31, December 31,
2003 2002
-------------------------------------------- --------------
Accumulated Net Book Net Book
Cost Depreciation Value Value
----------- -------------- ---------- --------------
Furniture ................... $ 11,385 $ 5,720 $ 5,665 $ 6,586
Computer hardware ........... 797,603 540,821 256,782 341,042
Automobile .................. 21,425 14,063 7,362 10,517
----------- -------------- ---------- --------------
$ 830,413 $ 560,604 $ 269,809 $ 358,145
=========== ============== ========== ==============
The net book value of property and equipment under capital leases at
December 31, 2003 totalled $72,738 (2002 - $103,913), net of
accumulated amortization of $204,166 (2002 - $172,991).
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The principle components of accounts payable and accrued liabilities
were as follows:
December 31,
-------------------
2003 2002
-------- --------
Trade accounts payable ......................................................................... $333,562 $ 86,641
Accrued compensation ........................................................................... 167,177 134,797
Other accrued liabilities ...................................................................... 43,966 42,433
Interest payable ............................................................................... 34,386 6,861
-------- --------
$579,091 $270,732
======== ========
At December 31, 2003, accrued compensation includes $30,000 (2002 -
$33,000) of consulting fees due to a director of the Company.
At December 31, 2003, accrued compensation and accrued liabilities
include, $124,139 and $7,857 which will be converted to common shares
on or before the closing date of the proposed merger of the Company
with ARC Communications Inc. (refer to Note 14).
18
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003 (STATED IN
UNITED STATES DOLLARS)
6. COMMITMENTS
(a) Capital leases
December 31,
========== ==========
2003 2002
========== ==========
LeaseTec Corp International - various leases
bearing interest from 21.6% - 35.2%,
with monthly payments of principal
and interest totalling $11,944 ......................... $ 228,790 $ 187,349
---------- ----------
Howard Carter Lease Ltd. - bearing interest at
1.08% per annum, with a monthly payment of
principal and interest of $237 ......................... 9,790 10,352
========== ==========
238,580 197,701
Less amounts representing imputed interest at
1.08% to 35.2% per annum ................................ 13,206 10,875
========== ==========
Present value of net future minimum lease payments........ 225,374 186,826
Less current portion...................................... 225,374 178,810
========== ==========
$ - $ 8,016
========== ==========
The total amount of interest paid on capital leases for the
year ended December 31, 2003 was $70 (period ended December
31, 2002 - $71; year ended May 31, 2002 - $140).
Management attempted to renegotiate the capital lease
obligation with LeaseTec Corp International ("LeaseTec"). The
Company has been unsuccessful in contacting representatives of
LeaseTec and has therefore suspended payments and has ceased
accrual of interest on this obligation until such time they
are able to contact the lessor and renegotiate the terms. The
lease obligation is personally guaranteed by the former
directors of the Company.
(b) Operating leases
In addition, the Company is committed under a lease on its
head office premises to May 31, 2007. Minimum future payments
are as follows:
2004 ........................................ $ 32,607
2005 ............................................ 32,607
2006 ........................................... 32,607
2007............................................. 32,607
2008 and thereafter.............................. --
------------------------------------------------------------
$ 130,428
============================================================
19
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003 (STATED IN
UNITED STATES DOLLARS)
7. CONVERTIBLE DEBENTURE
The current and non-current portions of the debenture balance that
total $380,000 ($200,000 as of December 31, 2002) is part of a private
placement of debentures having an aggregate subscription level of
$500,000. Each debenture has a face value of $10,000 and has a term of
two years, expiring at various dates beginning November 1, 2004. All or
any portion of the outstanding principal sum and accrued interest of
each debenture is convertible at the option of the subscriber into
common shares of the Company at a price of $0.50 per share if converted
on or before the due date. The debentures are due and payable on the
due date, if not converted prior to the due date. As security for the
payment of the principal and interest, the Company has granted a
general security interest on all of its present and after-acquired
personal property and a floating charge over all of its present and
after-acquired real property. Each debenture carries interest at the
rate of 12% per annum, payable quarterly.
For each $1.00 invested, each debenture holder was also granted two
share purchase warrants, entitling the holder to purchase one share of
common stock at a price of $0.75. The warrants have a two-year term.
The total fair value of the warrants issued during the year was
determined to be $54,000 and was recorded as a non-cash financing cost
in the statement of operations.
During the year, the Company offered its debenture holders the limited
opportunity to convert their debentures to common shares at $0.40 per
share prior to the closing of the proposed merger of the Company with
ARC Communications Inc. (refer to Note 14). Of the above-noted amount,
$370,000 will be converted to common shares on or before the closing
date of the merger.
8. SHARE CAPITAL
(a) Stock-based compensation
The Company issued options to purchase common shares to
contractors during the seven month period ended December 31,
2002 and the year ended May 31, 2002 as follows:
Number of Exercise Expiry
Shares Price Date
----------- ---------- ------------------
113,363 $ 0.22 January 6,2005
113,636 0.22 November 30,2004
----------- ---------- ------------------
226,999
20
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003 (STATED IN
UNITED STATES DOLLARS)
8. SHARE CAPITAL (CONTINUED)
(a) Stock-based compensation (continued)
The total fair value of these options was determined to be
$4,545 and was recorded in the statement of operations for the
seven month period ended December 31, 2002 (May 31, 2002 -
$4,535) as a non-cash financing cost. The fair value of these
options was determined using the Black-Scholes option pricing
model with the following assumptions:
Seven months ended Year ended
December 31, 2002 May 31, 2002
------------------ --------------
Expected dividends ..................... 0% 0%
Expected volatility .................... 15% 25%
Risk-free interest rate ................ 3.25% 3.25%
Expected option life in years .......... 2 2
As at December 31, 2003, the following share purchase warrants were
outstanding:
Number of Exercise Expiry
Warrants Price Date
----------- ---------- ------------------
760,000 $ 0.75 Beginning,
November 1, 2004
180,000 $ 0.80 Beginning
December 18, 2005
-----------
940,000
===========
(b) Private placement
During the year, the Company issued a new private placement
offering closing in November 2003 at a price of $0.40 per
unit. Each unit consists of one common share in the capital of
the Company and one-half of one common share purchase warrant.
Each whole warrant is transferable and entitles the holder to
purchase one common share of the Company for a period of
twenty-four months after closing at a price per warrant of
$0.80. During the year, the Company issued 360,000 units
(which included 180,000 warrants). The total fair value of the
warrants issued during the year was determined to be $43,200
and was recorded as a non-cash financing cost in the statement
of operations.
21
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003 (STATED IN
UNITED STATES DOLLARS)
9. RELATED PARTY TRANSACTIONS
Except as noted elsewhere in these consolidated financial statements,
related party transactions at December 31, 2003 are as follows:
(a) Amounts due to related parties include $42,009 (2002 - $23,443) of
non-interest bearing loans and $140,000 (2002 - $100,000) of loans bearing
interest at 35% per annum, acquired. The holders of the interest-bearing
loans in the amount of $140,000 have agreed to convert such amounts into
common shares on or before the closing date of the ARC merger (Note 13).
The loans may be secured and have no specific terms of repayment.
(b) During the year ended December 31, 2003, $102,783 (2002 - $40,780) of
consulting fees and salaries were incurred to directors, companies
controlled by directors and officers of the Company.
10. INCOME TAXES
At December 31, 2003, subject to the approval of the United States
Internal Revenue Service and Canada Customs and Revenue Agency, the
Company has approximately $5 million of non-capital and net operating
losses that commence expiry in 2010, which may be used to reduce future
income taxes otherwise payable.
The Company's statutory tax rate is reduced to zero due to the impact of
unbenefited tax loss carryforwards.
Deferred income taxes result principally from temporary differences in the
recognition of certain revenue and expense items for financial and income
tax reporting purposes. Deferred tax assets and liabilities of the Company
as of December 31, 2003 and 2002 are as follows:
December 31, December 31,
2003 2002
----------- -----------
Deferred income tax assets
Net operating tax loss carryforwards ......................... $ 2,001,655 $ 1,698,976
Valuation allowance for deferred income tax assets ........... (2,001,655) (1,698,976)
----------- -----------
Net deferred income tax assets ............................... $ - $ -
=========== ===========
Deferred income tax liabilities
Book and tax differences on assets ............................ $ - $ -
----------- -----------
Net deferred income tax liabilities ........................... $ - $ -
=========== ===========
22
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003 (STATED IN
UNITED STATES DOLLARS)
10. INCOME TAXES (CONTINUED)
Due to the uncertainty surrounding the realization of deferred income tax
assets in future income tax returns, the Company has recorded a 100%
valuation allowance against its deferred income tax assets.
A reconciliation between the Company's effective tax rate and the U.S.
Federal statutory rate is as follows:
Seven months
Year ended ended Year ended
December 31, December 31, May 31,
2003 2002 2002
----------- ---------- -----------
Net loss ................................................... $ (831,745) $ (382,173) $ (801,091)
Federal statutory tax rate ................................. 35% 35% 35%
Income taxes at U.S. Federal statutory rate ................ $ (291,110) $ (133,761) $ (280,382)
Benefit of losses not tax effected ......................... 291,110 133,761 280,382
----------- ---------- -----------
$ - $ - $ -
=========== ========== ===========
11. CHANGES IN NON-CASH OPERATING ASSETS AND LIABILITIES
Seven months
Year ended ended Year ended
December 31, December 31, May 31,
2003 2002 2002
----------- ---------- -----------
Accounts receivable and other .............................. $ (27,596) $ (155,590) $ (11,470)
Prepaid expenses and other ................................. (5,651) (3,367) (10,414)
Accounts payable and accrued liabilities ................... 308,359 (48,586) (7,949)
Deferred revenue ........................................... (57,723) 69,800 -
=========== ========== ===========
$ 217,389 $ (137,743) $ (29,833)
=========== ========== ===========
23
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003 (STATED IN
UNITED STATES DOLLARS)
12. SEGMENTED DISCLOSURES
The Company manages its operations in one business segment, the provision
of wireless high-speed Internet network solutions to hotels, conference
centres and commercial buildings. The Company attributes revenue among
geographical areas based on location of the customers involved. The
following table presents a summary of total revenues by geographical
region:
December 31,
2003 2002
----------- -----------
United States .................................................. $ 1,884,047 $ 436,139
Canada ......................................................... 122,527 52,016
----------- -----------
$ 2,006,574 $ 488,155
=========== ===========
The following table presents a summary of property and equipment by geographical
region:
December 31,
2003 2002
----------- -----------
Property and equipment, net
United States................................................. $ 181,767 $ 257,010
Canada........................................................ 88,042 101,135
----------- -----------
$ 269,809 $ 358,145
=========== ===========
24
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
(STATED IN UNITED STATES DOLLARS)
13. SUPPLEMENTARY INFORMATION
The unaudited results of operations for the seven month period ended
December 31, 2001 are as follows:
Seven months
ended
December 31,
2001
(Unaudited)
------------
Revenue
System sales and installation $ -
Service, maintenance and usage 119,362
------------
119,362
------------
Cost of Revenue
System sales and installation -
Service, maintenance and usage 99,442
------------
99,442
------------
Gross profit 19,920
------------
Operating expenses
Sales and marketing 213,842
General and administrative 185,157
Amortization of property and equipment 104,455
------------
503,454
------------
Loss from operations (483,534)
------------
Other
Interest expense (6,356)
Foreign exchange 4,884
Non-cash financing costs -
------------
Total other (1,472)
------------
Loss for the period $ (485,006)
============
Basic loss per share $ (0.04)
============
Basic weighted-average number of common
shares used to calculate loss per share 11,016,657
============
25
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003 (STATED IN
UNITED STATES DOLLARS)
14. PROPOSED MERGER WITH ARC COMMUNICATIONS INC.
In December 2003, the Company executed a definitive Agreement to merge
with ARC Communications Inc. ("ARC"), a full service media and technology
communications firm. ARC is a publicly traded company trading on the
OTCBB. Under the current capitalization structure, ARC will acquire the
Company in a reverse take-over transaction whereby the ARC shares
following the merger will be held approximately 3/4 by the Company's
shareholders and 1/4 by ARC shareholders. The closing of the merger is
subject to a number of conditions, including approval by the shareholders
of the Company and ARC.
15. SUBSEQUENT EVENTS
The Company received $40,000 from a shareholder on January 13, 2004. This
loan will bear interest at 12% and is secured by all contract rights and
general intangibles whether now owned or hereafter acquired.
26
Item 7(b). Pro Forma Financial Information.
==========
Arc Communications Inc.
Pro Forma Condensed Combined Balance Sheet
(Unaudited)
(Expressed in United States Dollars)
Historical Historical Pro Forma Pro Forma
ARC RoomLinx Adjustments Combined
----------- ----------- ----------- -----------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 2,000 $ 7,000 $ 1,076,000 1 $ 1,085,000
Accounts Receivable-net 48,000 226,000 274,000
Costs in Excess of Billings 12,000 12,000
Prepaid Expenses 21,000 21,000
Other Receivables 2,000 2,000
Due from sale of continuing professional segment 100,000 100,000
----------- ----------- ----------- -----------
Total Current Assets 164,000 254,000 1,076,000 1,494,000
----------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT-NET 7,000 270,000 277,000
OTHER ASSETS
Deferred Costs 54,000 (54,000)1
Security Deposits 16,000 16,000
----------- ----------- ----------- -----------
Total Other Assets 77,000 270,000 (54,000) 293,000
----------- ----------- ----------- -----------
TOTAL ASSETS $ 241,000 $ 524,000 $ 1,022,000 $ 1,787,000
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS
EQUITY (CAPITAL DEFICIENCY)
CURRENT LIABILITIES
Line of Credit $ 120,000 $ $ (120,000)1 $
Accounts Payable and Accrued Expenses 716,000 579,000 (54,000)1 1,241,000
Deferred revenue 12,000 12,000
Due to related parties 182,000 (182,000)2
Current portion of obligations under capital lease 225,000 225,000
Loans payable 23,000 23,000
Current portion of convertible debentures 200,000 (200,000)2
----------- ----------- ----------- -----------
Total Current Liabilities 836,000 1,221,000 (556,000) 1,501,000
----------- ----------- ----------- -----------
Convertible debentures, net of current portion 180,000 (170,000)2 10,000
----------- ----------- ----------- -----------
Total Current Liabilities 836,000 1,401,000 (726,000) 1,511,000
----------- ----------- ----------- -----------
Preferred Stock, Stated Value $.20;
5,000,000 Shares Authorized;
Issued and Outstanding 720,000 Shares 144,000 144,000
Common Stock, $.001 Par Value,
Authorized 45,000,000 shares (250,000,000
pro forma, issued and outstanding
14,984,459 shares; pro forma 100,279,465 shares) 15,000 15,000 17,000 1 100,000
53,000 3
Additional Paid in Capital 1,428,000 4,709,000 1,179,000 1 5,633,000
552,000 2
(53,000)3
(2,182,000)4
Accumulated Deficit (2,182,000) (5,601,000) 2,182,000 4 (5,601,000)
----------- ----------- ----------- -----------
EQUITY (CAPITAL DEFICIENCY) (595,000) (877,000) 1,748,000 276,000
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 241,000 $ 524,000 $ 1,022,000 $ 1,787,000
=========== =========== =========== ===========
See notes to the unaudited pro forma condensed combined financial statements.
27
Arc Communications Inc.
Pro Forma Condensed Combined Statements of Operations
For the Year Ended Decemebr 31, 2003
(Unaudited)
(Expressed in United States Dollars)
Historical Historical Pro Forma Pro Forma
Arc RoomLinx Adjustments Combined
----------- ----------- ----------- -----------
REVENUES
System sales and installation $ 1,524,000 $ 1,524,000
Service, maintenance and usage 483,000 483,000
Multimedia $ 762,000 - 762,000
----------- ----------- ----------- -----------
Total Revenue 762,000 2,007,000 2,769,000
----------- ----------- ----------- -----------
COSTS AND EXPENSES
System sales, installation and service - 1,233,000 1,233,000
Operating Costs 202,000 206,000 408,000
Selling, General and Administrative 970,000 1,027,000 1,997,000
Impairment Loss 76,000 - -
Depreciation and Amortization 65,000 110,000 175,000
----------- ----------- ----------- -----------
Total Costs and Expenses 1,313,000 2,576,000 3,813,000
----------- ----------- ----------- -----------
OTHER EXPENSES
Foreign exchange - 83,000 - 83,000
Interest Expense 15,000 26,000 $ (15,000)1 26,000
Non-cash financing costs - 153,000 - 153,000
----------- ----------- ----------- -----------
Total Other Expense 15,000 262,000 (15,000) 262,000
----------- ----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS (566,000) (831,000) (1,306,000)
Provision for income taxes 6,000 6,000
----------- ----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS (572,000) (831,000) (15,000) (1,312,000)
Preferred stock dividend imputed (13,000) (13,000)
----------- ----------- ----------- -----------
Loss from continuing operations
attributable to common stockholders $ (585,000) $ (831,000) $ (15,000) $(1,325,000)
=========== =========== =========== ===========
Weighted Average Number of Shares Outstanding 14,984,000 85,295,000 a 100,279,000
BASIC AND DILUTED
LOSS PER COMMON SHARE $ (0.04) $ (0.01)
=========== ===========
See notes to unaudited pro forma condensed combined financial statements.
28
Arc Communications Inc.
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited pro forma condensed combined financial
statements give effect to the acquisition of RoomLinX by way of the merger
of ARC with RoomLinX as if the merger had occurred on January 1, 2003 for
the purposes of the statements. The pro forma condensed combined balance
sheet combines the December 31, 2003 balance sheets of ARC and RoomLinX.
The pro forma condensed combined statement of operations for the year
ended December 31, 2003 combines the historical results of ARC for the
fiscal year ended December 31, 2003 with the historical results of
RoomLinX for the fiscal year ended December 31, 2003.
The pro forma adjustments are based on currently available information and
upon estimates and assumptions that we believe are reasonable under the
circumstances. A final determination of the allocation of the purchase
price to the assets acquired and liabilities assumed has not been made,
and the allocation reflected in the unaudited pro forma condensed combined
financial statements should be considered preliminary and is subject to
the completion of a more comprehensive valuation of the assets acquired
and liabilities assumed. The final allocation of purchase price could
differ materially from the pro forma allocation included herein. You
should read the accompanying unaudited pro forma condensed combined
financial data and related notes in conjunction with the audited financial
statements and notes thereto included in ARC's Form 10-KSB for the year
ended December 31, 2003 and the financial statements of RoomLinX included
in this Form 8-K/A. We provide the accompanying unaudited pro forma
condensed combined financial statements for informational purposes only.
It is not necessarily indicative of the results that will be achieved for
future periods and does not purport to represent what our financial
position or results of operations would actually have been if the merger
of ARC with RoomLinX had, in fact, occurred on January 1, 2003.
The pro forma condensed consolidated financial statements included in this
Form 8-K/A have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles in the United
States of America have been condensed or omitted pursuant to such rules
and regulations. However, we believe that the disclosures are adequate to
make the information not misleading.
29
2. Pro Forma Adjustments
1. Through March 29, 2004, ARC issued 16,666,661 shares of its common
stock in a private placement transaction raising $1,196,000 after
expenses. Pursuant to the Merger Agreement, as a condition to
closing, ARC was required to raise a minimum of $500,000 in a
private placement of its securities. ARC used a portion of the funds
raised in the private placement to repay its line of credit and
certain accounts payable and anticipates using the remainder for
working capital.
2. Prior to the consummation of the merger, all of the outstanding
convertible debentures and amounts due from related parties will be
converted into RoomLinX common stock except for a $10,000
convertible debenture.
3. All outstanding shares of RoomLinX common stock will be converted
into 68,378,346 shares of ARC's common stock, including shares
relating to the conversion of the RoomLinX convertible debt.
Additionally, 250,000 shares of ARC's common stock will be issued to
financial consultants as commissions for the merger.
4. ARC's accumulated deficit has been eliminated since the transaction
will be accounted for as a reverse acquisition whereby RoomLinX will
be the accounting acquirer.
The combination is being accounted for as a purchase business
combination as defined by Statement of Financial Account Standards
No. 141, Business Combinations. Because RoomLinX stockholders will
own a majority of the outstanding shares of the combined company
upon completion of the combination, the combination will be
accounted for as a reverse acquisition in which ARC will survive as
the combined company. Accordingly, for accounting purposes, ARC is
treated as the acquired company and RoomLinX is treated as the
acquiring company. Under reverse acquisition accounting, the
purchase price of ARC is based upon the fair value of ARC common
stock and the fair value of ARC stock options. The purchase price of
ARC will be allocated to the assets and liabilities of ARC assumed
by RoomLinX as the acquiring company for accounting purposes, based
on their estimated fair market values at the acquisition date.
a. Loss Per Share
Basic and diluted net loss per share is calculated by dividing pro
forma net loss by the pro forma outstanding common shares.
The weighted average shares outstanding have been adjusted to
reflect the shares to be issued as a result of the merger
transaction.
31