SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB

                     Annual Report under Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                   For the fiscal year ended December 31, 1999

                             ARC COMMUNICATIONS INC.
                 (Name of Small Business Issuer in its charter)


         New Jersey                                             22-3201557
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                             Identification No.)

788 Shrewsbury Avenue, Tinton Falls, New Jersey                  07724
    (Address of Principal Executive Offices)                   (Zip Code)

Issuer's telephone number:  (732) 219-1766

Securities registered under Section 12(b) of the Act:  None

Securities registered under Section 12(g) of the Act:

     (i)  Common Stock, $.001 Par Value; and

     (ii) Class A Preferred Stock, $.20 Par Value.

Check  whether the issuer (1) filed all reports  required to be filed by section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes: [X] No: [_]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of the Form  10-KSB  or any
amendment to this Form 10-KSB [_]

The issuer's revenue for the fiscal year ended December 31, 1999 was $3,629,000

State the  aggregate  market  value of the voting  stock held by  non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked prices of such stock, as of March 17, 2000: . The aggregate market
value  of  the  voting  stock  held  by  non-affiliates  of  the  registrant  is
approximately $3,154,128as of March 17, 2000.

     State the number of shares outstanding of each of the registrant's  classes
of common equity as of the latest  practicable  date:  13,703,132  shares of the
registrant's common stock and 720,000 shares of the registrant's preferred stock
are issued and outstanding as of March 17, 2000.

Transitional Small Business Disclosure Format (check one):

Yes [_]        No [X]


<PAGE>


     Certain  statements  in this Annual  Report that are not  historical  facts
constitute  "forward-looking  statements"  within  the  meaning  of the  Federal
securities laws. Discussions  containing such forward-looking  statements may be
found  in the  sections  entitled,  "Management's  Discussion  and  Analysis  of
Financial  Condition and Results of Operations"  and "Business," as well in this
Annual  Report  generally.  In  addition,  when used in this  Annual  Report the
words"anticipates,"  "intends," "seeks,"  "believes,"  "plan,"  "estimates," and
"expects" and similar  expressions  as they relate to us or our  management  are
intended  to identify  such  forward-looking  statements.  Such  statements  are
subject to a number of risks and uncertainties.  Our actual results, performance
or  achievements  could  differ  materially  from the results  expressed  in, or
implied by, these  forward-looking  statements.  We undertake no  obligation  to
revise  these  forward-looking  statements  to  reflect  any  future  events  or
circumstances


<PAGE>


                                TABLE OF CONTENTS

                                     PART I

ITEM 1.      DESCRIPTION OF BUSINESS.........................................  1

ITEM 2.      DESCRIPTION OF PROPERTY.........................................  5

ITEM 3.      LEGAL PROCEEDINGS...............................................  5

ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............  6


                                     PART II

ITEM 5.      MARKET FOR COMMON EQUITY
             AND RELATED STOCKHOLDER MATTERS.................................  6

ITEM 6.      MANAGEMENT'S DISCUSSION
             AND ANALYSIS OF FINANCIAL CONDITION
             AND PLAN OF OPERATION...........................................  7

ITEM 7.      FINANCIAL STATEMENTS............................................  9

ITEM 8.      CHANGES IN AND DISAGREEMENTS WITH
             ACCOUNTANT ON ACCOUNTING FINANCIAL DISCLOSURE................... 10


                                    PART III

ITEM 9.      DIRECTORS, EXECUTIVE OFFICERS,
             PROMOTERS AND CONTROL PERSONS;
             COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT...............  9

ITEM 10.     EXECUTIVE COMPENSATION.......................................... 11

ITEM 11.     SECURITY OWNERSHIP OF CERTAIN
             BENEFICIAL OWNERS AND MANAGEMENT................................ 12

ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................  14

ITEM 13.     EXHIBITS AND REPORTS ON FORM 8-K................................ 14


SIGNATURES..................................................................  16


<PAGE>


                                     PART I

Item 1.   Description of Business

Introduction and General Development of Business

PART I


a.   BACKGROUND

     Arc Communications  Inc. is a New Jersey corporation which was incorporated
on October 21, 1992 ( hereinafter  referred to as "Arc" or the  "Company").  Arc
was originally incorporated under the name Arc Slide Technologies Ltd. ("ASTL").

     On August 14, 1996ASTL acquired Alliance  Telecommunications Holding Corp.,
in a transaction accounted for as a reverse acquisition.

     On July 23, 1996 Arc-Mesa  Educators LTD.  ("Arc-Mesa")  was formed for the
purpose of engaging in the business of offering  continuing  education  products
and services.  45 % of Arc-Mesa was initially owned by a wholly owned subsidiary
of Arc. In October 1997,  Arc acquired an  additional 45 % of Arc-Mesa.  In 1998
the remaining 10% was acquired.

     On  December  19,  1997,  Arc  acquired  all the  outstanding  stock of The
Navesink  River Group,  Inc.  ("Navesink").  The  acquisition  of Navesink added
marketing  and  public  relations  capability  to Arc's  services.  Prior to the
acquisition  Arc  was  not a  full-service  marketing  organization  as  it  was
primarily  a  boutique  design  firm.  As a  result  of the  acquisition  Arc is
positioned  to  attract a higher  caliber of client by  offering a  full-service
capability. Navesink also contributed a client base that comprises a significant
percentage of Arc's  revenue.  Further,  the principals of Navesink also brought
experienced management.


b.   GENERAL

     Arc  is a  full-service  marketing  consultancy  and  graphic  design  firm
specializing  in the  development  and  production  of corporate  marketing  and
communications   media.  Arc's  clients  include  Fortune  1000  companies  with
concentrations  in  the  pharmaceutical   industry  and  information  technology
industries.   Services   include   marketing,   consulting,   general  web  site
development,  electronic commerce, interactive multi-media,  graphics design and
imaging.  Additionally,  since 1995, Arc has developed and produced websites for
major college  football bowl games. In January 2000, Arc produced and hosted the
Year 2000  National  College  Football  Championship.  For  further  information
regarding this site refer to http://www.nokiasugarbowl.com.

     Arc's  graphic  design and  interactive  multi-media  products use advanced
technologies  to create media for  corporate  communications.  Arc  continues to
expand its business through existing products such as a 3-D animation design and
multimedia presentations.

     Interactive  Sales Training  Programs are a growing area of Arc's business.
Arc has formed  strategic  alliances with large  advertising  agencies that have
major  pharmaceutical  companies as their clients.  By forming these  alliances,
Arc's clients are able to use Arc's expertise in a variety of interactive


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multimedia areas.  Further, such strategic alliances enable Arc's clients to use
leading edge technologies without having to incur substantial development costs.
The training  programs should have a positive impact on both revenue and results
due to the fact that the margins on these products are substantially higher than
those on Arc's core business. Arc earns revenues from Interactive Sales Training
Programs from billing for the creative development. The expenses are principally
payroll related, purchase costs are insignificant.

     Arc's subsidiary,  Arc Internet Publishing Corp. (d/b/a Arc Mesa Educators)
("Arc  Educators")  is in the  business of providing  continuing  education to a
variety  of  professions  with a primary  focus in the  medical  profession.  By
utilizing  advanced  technologies,  developed by Arc Educators',  our goal is to
provide a quality education  combined with a flexible learning  environment that
cannot  be  attained  in  a  more  traditional   continuing  education  program.
Contemporary professionals needing continuing education credits are drawn to our
programs for their ease-of-use,  convenience,  price, as well as the educational
content and current topics of interest that can enhance a professional practice.


     Arc Mesa Educators is an approved provider of continuing  education for the
following:

     o    Physicians,  Physician Assistants,  Radiologic Technicians through the
          Accrededation Council for Continuing Medical Education ("ACCME")

     o    Dentists and Dental Hygeniests through an ADA CERP recognized provider
          for Dental Continuing and Academy of General Dentistry

     o    Funeral  Service  Practitioners  through The  Academy of  Professional
          Funeral Service Practitioners

     o    Podiatric Medicine through the Council of Podiatric Medical Education

     Arc has the ability to design and create specific websites for a client and
may operate such a site if so desired. Arc also designs and develops interactive
kiosks and advertising and promotional materials, including packaging for retail
products. Arc's Web expertise has positioned it to effectively transition into a
full service integrated,  interactive marketing and communication company. Arc's
services  are used by its  clients  to create a new  medium  for  advertisement,
promotion and technical  support of such customer's  products and services.  Web
sites  can  provide  commercial  organizations  benefits  in  addition  to those
available  through  conventional  media,  including  the  ability  to  enhance a
corporate brand, engage and entertain consumers,  provide in-depth  information,
reduce selling and operating  costs,  generate  leads and build retail  traffic,
expand  distribution  channels  (otherwise  known as e-commerce),  promote major
sporting and  entertainment  events and monitor  popularity of content,  conduct
research, and build databases for on-going marketing efforts.

     Arc's wholly owned subsidiary, Arc Internet Publishing, Corp., develops and
operates   internet   businesses  and   electronically   publishes   interactive
educational and reference material for the medical and dental  professions.  Arc
Internet Publishing, d/b/a, Arc Mesa-Educators located at http://www.arcmesa.com
(the "Mesa Web site"), which provides continuing  professional  education on the
internet to the medical, dental and funeral director's professions. Arc Mesa has
achieved ACCME Category One accreditation.  The Mesa Web site provides access to
informative  courses,  administers state mandated testing and provides immediate
results in a live interactive setting.

     Personal Emergency Medical Information Services Inc. is a subsidiary of Arc
Internet  Publishing  Corp.  which  maintains an Emergency  Medical  Information
Services  ("EMIS")  website on the internet.  EMIS provides  24-hour,  worldwide
immediate access of a subscriber's  personal medical records via the internet at
http://www.emis.org  (the "EMIS Site").  Subscribers are issued an official EMIS
subscriber   membership  card  that  contains  a  secret   personal   subscriber
information


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<PAGE>


number. Upon receipt of the card,  subscribers must acknowledge receipt in order
to  activate  their  records  by calling  Arc's  customer  services  department.
Subscriber  membership cards provide a unique identification number that must be
entered in order to retrieve a subscriber's  record.  Individual  subscribers or
any authorized  healthcare  provider may obtain individual records from anywhere
in the world by entering or scanning the barcoded identification number shown on
each membership card into a computer connected to the internet at the EMIS Site.
Arc  maintains a 24-hour help hotline to provide  assistance  to those who might
not have internet access or to request an immediate fax. A patent application is
presently pending for this product.

     Arc partners with clients to focus on how new and emerging technologies can
enable them to build one-on-one customer  relationships.  Tapping into strategic
expertise, media know-how,  creative talent and technical excellence, Arc guides
clients to achieving a favorable return on investment from Web-based marketing.

     The scope of our services has ranged from  consulting  services to complete
marketing-driven  design and  construction  of multi-level  Web sites.  Arc also
offers  numerous  integrated  services  in addition  to those  discussed  above,
particularly  offline  media  planning  and buying  related  to  identification,
negotiation   for  and  purchase  of  banners,   sponsorship   and   proprietary
partnerships on Web sites.

c.   ARC'S STRENGTHS

Focus on Clients' Business Objectives

     Arc has made  understanding  its clients'  business  challenges the primary
focus that  guides its  customer  services.  Arc often  works with its  clients'
management  to  determine  how best to  integrate  Web sites  with the  clients'
business goals.

Technological Expertise

     Arc believes  the  creative  application  of leading  technologies  is also
crucial to the success of its business.  Arc's technical  programming  personnel
are  skilled  in  various  computer  operating  systems,  tools  and  languages,
including,  C/C++,  Java, HTML, CGI, PERL, Visual Basic,  Shockwave Flash, among
others.  These  programmers  are  responsible  for  providing  complex  computer
programming  for special  features on CD-ROM  products  and Web sites as well as
periodically  assessing  new  technologies  in order  to  identify  and  deploy,
directly and through independent contractors,  those that are most promising for
enhancing Arc's business and that of its clients.

Creative Expertise

     Arc  believes  that,  in  addition  to the  creative  elements  required in
traditional graphic design,  superior interactive  development requires that the
end  product  is  easy-to-use,   contains  intuitive   interfaces  and  seamless
integrated  technologies and has an engaging look and feel.  Management believes
that Arc's  creative  staff  possesses  a broad  spectrum of  expertise  to meet
clients'  creative  needs.  In order to maintain high levels of  creativity  and
quality, Arc intends to recruit the best talent available.  However, competition
for creative  personnel is especially intense and there can be no assurance that
Arc will attract or retain adequate  creative talent to accomplish  these goals.
For  a  discussion   regarding   material   risks  faced  by  Arc,   please  see
"COMPETITION."


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<PAGE>


d.   ARC'S STRATEGY

Capitalize on Accomplishments and Market Opportunities

     Arc  believes  that the  proliferation  of the  Internet  will  continue to
provide  substantial  opportunities to Arc and that its  successfully  completed
projects will continue to enhance its marketing  efforts.  Arc's management does
not,  however,  believe  that  Arc's  primary  business  will be  limited to the
Internet.  Arc has the ability to produce  digital  content which may be carried
over  a  variety  of  emerging   technologies  such  as  digital  satellite  and
interactive  television.  Although  there  is no  assurance  that  any of  these
technologies  will  achieve  acceptance  in the  marketplace,  Arc  believes its
services could be utilized over these channels as well.

Deploy Leading Technologies

     One of Arc's  objectives is to apply both proven and emerging  technologies
as they become available in order to maximize the  effectiveness of its Web site
services.  Arc  has  formed  informal   non-exclusive   relationships  with  key
technology  providers in an effort to gain access to, and influence the features
of, their technologies.

e.   MARKETING

     Arc markets its  services  directly and seeks to form  strategic  marketing
relationships with third parties.  Presently,  Arc has 5 employees  dedicated to
business  development.  Additionally,  3 of  Arc's  executive  officers  spend a
portion of their time marketing  Arc's  services.  Arc also seeks to attract new
clients through other methods,  including  referrals from existing clients.  Arc
seeks to cross-sell its various services to its clients and prospective  clients
through  sales  presentations  that  encourage  clients to utilize  all of Arc's
services.

f.   GOVERNMENT REGULATION

     Arc is not currently subject to direct regulation by any government agency,
other  than  regulations  applicable  to  businesses  generally,  and  there are
currently  few laws or  regulations  directly  applicable  to Web  site  service
companies and marketing and communications firms. However, due to the increasing
media  attention  focused on the Internet,  it is possible that a number of laws
and  regulations  may be adopted with respect to the Internet,  covering  issues
such as user privacy,  pricing and  characteristics  and quality of products and
services.  The adoption of any such laws or regulations  may decrease the growth
of the Internet,  which could in turn decrease the demand for Arc's services and
products  and  increase  the  Company's  cost of doing  business or cause Arc to
modify its  operations,  or otherwise have an adverse effect on Arc's  business,
operating  results or financial  condition.  Moreover,  the applicability to the
Internet of existing laws such as property ownership, libel and personal privacy
is uncertain.  Arc cannot predict the impact,  if any, that future regulation or
regulatory  changes may have on its business.  In addition,  Web site developers
such as Arc face potential liability for the actions of clients and others using
their services,  including  liability for infringement of intellectual  property
rights, rights of publicity,  defamation,  libel and criminal activity under the
laws of the U.S. and foreign jurisdictions. Although Arc maintains $2,000,000 of
general liability insurance, and a $2,000,000 umbrella policy, any imposition of
liability in excess of such  policies  limits or if not covered by such policies
could have a material adverse effect on Arc.


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<PAGE>


g.   COMPETITION

     The markets for Arc's services are highly competitive and are characterized
by pressures to incorporate new technologies,  accelerate  completion  schedules
and reduce prices. Arc expects  competition for its services to intensify in the
future,  partly  because there are no  substantial  barriers to entry into Arc's
business.  Arc faces competition from a number of sources,  including  potential
customers that perform interactive marketing and communications services and Web
site development  services  in-house.  These sources also include other Web site
service  boutique  firms,   communications,   telephone  and  telecommunications
companies,   computer   hardware  and  software   companies  such  as  Microsoft
Corporation  and  Adobe  Systems   Incorporated,   established   online  service
companies, advertising agencies,  internet-services and access providers as well
as  specialized  and integrated  marketing  communication  firms.  Many of Arc's
competitors  or potential  competitors  have longer  operating  histories,  more
substantial   customer   relationships  and  significantly   greater  financial,
managerial,  technological,  sales,  marketing  and  other  resources  than  the
Company.  Arc  also  competes  on  the  basis  of  creative  reputation,  price,
reliability of services and  responsiveness.  There can be no assurance that Arc
will be able to compete and its inability to do so would have a material adverse
impact on Arc's business,  financial condition and operating results.  Also, for
the year ended December 31, 1999, two customers accounted for 34% of sales.

h.   EMPLOYEES

     At December  31, 1999,  Arc had 27  employees,  of which all are  full-time
employees.  Full-time  employees  include  9 in  strategic  planning,  executive
management,  business development; 5 account managers; 5 creative and production
personnel; and 3 programmers, in addition to 5 administrative staff.

Item 2. Description of Property

     The Company maintains its sole corporate offices at 788 Shrewsbury  Avenue,
Tinton Falls, New Jersey 07724 (the "Office").  The Office is comprised of 7,209
square feet and is presently in the third year of a five year lease at a monthly
rent of $9,011.25 (the "Lease"). Pursuant to the terms of the Lease, the Company
has the  option to renew  such  lease  for an  additional  period of five  years
commencing at the end of the Lease's initial term (December 31, 2001).

Item 3. Legal Proceedings

     No  material  legal  proceedings  to which the  Company  (or any officer or
director of the Company,  or any affiliate or owner of record or beneficially of
more than five percent of the Common Stock, to management's  knowledge) is party
or to which the  property  of the  Company is subject  is  pending,  and no such
material proceeding is known by management of the Company to be contemplated.


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<PAGE>


Item 4. Submission of Matters to a Vote of Security Holders

     No  matters  were  submitted  to a vote  of  security-holders  through  the
solicitation  of proxies  or  otherwise  during  the fourth  quarter of the 1999
Fiscal Year.

PART II

Item 5. Market for Common Equity and Related Stockholders Matters

     MARKET.  Since October 21, 1996,  the Company's  Common Stock has traded on
the  "OTC-Bulletin  BoardThe Common Stock is presently  trading under the symbol
"ACOC".

     Since December 30, 1998,  shares of the Company's  Class A Preferred  Stock
has traded on the "OTC-Bulletin  Board," maintained by the National  Association
of Securities  Dealers,  Inc. The Class A Preferred  Stock is presently  trading
under the symbol "ACOCP".

     The Following table sets forth the range of high and low bid quotations for
the  Company's  Common Stock and Class A Preferred  Stock  during each  calendar
quarter since they began trading,  each of which has been rounded to the nearest
whole cent.


--------------------------------------------------------------

SYMBOL            TIME PERIOD                          LOW BID          HIGH BID

ACOC              January 1 - March 31, 1998           3                7 1/8
                  April 1 - June 30, 1998              1 3/4            4 1/2
                  July 1 - September 30, 1998          1/4              1 5/16
                  October 1 - December 31, 1998        1/8              1 1/8
                  January 1 - March 31, 1999           1/8              7/8
                  April 1- June 30, 1999               3/16             9/16
                  July 1 - September 30, 1999          1/8              9/16
                  October 1 - December 31, 1999        3/16             5/8
                  January 1 - March 17, 2000           3/16             2 1/2


ACOCP             January 1 - March 31, 1999           1/8              1 5/8
                  March 31 - June 30, 1999             3/4              1 5/16
                  July 1 - September 30, 1999          1/4              3/4
                  October 1 - December 31, 1999        3/16             3/8
                  January 1 - March 17, 2000           3/16             7/8

     The above prices were obtained from the National Quotation Bureau, Inc. The
quotations represent inter-dealer  quotations without retail mark-up,  mark-down
or commission, and may not necessarily represent actual transactions.

     On July 1, 1999 the Company's Common Stock and Class A Preferred Stock were
delisted from the OTC-Bulletin Board due to the Company's failure to comply with
NASDAQ's recently adopted listing  requirements.  The Company's Common Stock and
Class A Preferred Stock returned to the OTC-Bulletin Board on November 30, 1999.


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<PAGE>


     OUTSTANDING  SHARES AND  SHAREHOLDERS  OF RECORD.  As of December 31, 1999,
13,703,132  shares of Common  Stock  issued and  outstanding  which were held of
record by 135  persons.  As of December 31,  1999,  720,000  shares of preferred
stock issued and outstanding which were held of record by 11 persons.

     DIVIDENDS. Since its inception, the Company has not paid any cash dividends
on its stock.  There are no restrictions  currently in effect which preclude the
Company from  declaring  dividends.  However,  dividends  may not be paid on the
Common  Stock  while  there are  accrued  but  unpaid  dividends  on the Class A
Preferred Stock: 9% Cumulative,  Convertible,  Redeemable Preferred Stock. As of
December  31,  1999  accrued but unpaid  preferred  stock  dividends  aggregated
$14,000.00. It is the current intention of the Company to retain any earnings in
the foreseeable future to finance the growth and development of its business and
not pay dividends on the common stock.

     RECENT SALES OF UNREGISTERED  SECURITIES.  From December 1996 through March
1997, the Company conducted a private placement  offering of securities  whereby
the Company  issued a total of 495,000  shares of Common  Stock and received net
proceeds of $430,823  after the deduction of expenses  amounting to $64,177 (the
"First  Offering").  Such  offering was exempted from  registration  pursuant to
Section 4(2) of the Securities Act. The First Offering's expenses consisted of a
10% consulting fee, legal,  printing and accounting fees and other miscellaneous
expenses. The entire First Offering was sold to one entity, Ainsley Engineering,
who was not a 10% shareholder of the Company.

     During  October  1997,  the Company  completed a second  private  placement
offering of securities  whereby the Company  issued a total of 300,000 shares of
Common  Stock and  received  net  proceeds of $261,071  after the  deduction  of
expenses  amounting  to $38,929  (the  "Second  Offering").  Such  offering  was
exempted from  registration  pursuant to Section 4(2) of the Securities Act. The
Second  Offering's  expenses  consisted of a 10% consulting  fee, legal fees and
printing and registration  expenses.  The entire Second Offering was sold to one
entity, Maslen International, who was not a 10% shareholder of the Company.

     From July 1998 though December 1998, the Company  conducted an offering for
a total of  700,000  shares  of its  Class A  Preferred  Stock in  exchange  for
$140,000 in cash and subscriptions  receivable (the "Preferred Offering").  Such
offering was exempted from  registration  under  Section 4(2) of the  Securities
Act.  Subsequently,  30,000  shares were  cancelled  resulting in a reduction of
gross proceeds to $134,000. The Company received net proceeds from the Preferred
Offering of $112,149 after the deduction of expenses amounting to $25,851. Those
expenses  consisted of a 10% consulting  fee,  printing and accounting  fees and
other miscellaneous expenses.  Additionally, the Company issued 50,000 shares of
preferred  stock as payment for certain  offering  cost.  Such  offering was not
underwritten and no officers,  directors or 10% shareholders of the Company were
subscribers.

Item 6.   Management's  Discussion and Analysis of Financial  Condition and Plan
          of Operation

Years Ended December 31, 1999 and December 31, 1998

     Arc's  net  sales  for the  years  ended  December  31,  1999 and 1998 were
$3,629,000  and  $2,868,000  respectively,  an increase of 27 percent.  In Arc's
multi-media  segment,  sales for the years ended December 31, 1999 and 1998 were
$2,975,000  and  $2,567,000  respectively,  an increase  of 16  percent.  In its
continuing  education  segment,  sales for the years ended December 31, 1999 and
1998 were $654,000 and $301,000 respectively, an increase of 117 percent.


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<PAGE>


     Revenue  growth  was  driven by an  expanding  revenue  base in Arc's  core
business of Internet site development,  interactive multi-media development, and
new capability of delivering live  educational  seminars  through its continuing
professional education company, Arc Educators.

     The  increase  in the  multi-media  segment  is a  result  of (1) web  site
development revenue increasing $343,000 (or 394%) as a result of Arc's expansion
into  the  burgeoning  area  of   business-to-business   e-commerce,   (2)  full
interactive  multimedia  development  increased  $287,000  (or 92%) due to Arc's
expansion into high-level  corporate training and (3) these gains were partially
offset by the anticipated  decline in professional  services revenue of $222,000
(or 45%).

     The increase in revenue for continuing professional education, is primarily
due to the new capability of delivering live  educational  seminars  through its
distance learning company.

     Operating  costs  for the  years  ended  December  31,  1999 and 1998  were
$580,000 and $640,000 respectively.  The decrease is due to the reduction in the
amount of outside labor and the decrease in outside printing costs.

     Selling,  general and administrative  expenses for the years ended December
31, 1999 and  December 31, 1998 were  $2,765,000  and  $2,576,000  respectively.
Selling,  general and administrative expenses for 1999 increased at the low rate
of 7 percent. The increase is primarily due to an increase in salaries.

     Depreciation  and  amortization  expenses for the years ended  December 31,
1999 and December 31, 1998 were $144,000 and $169,000 respectively. The decrease
is due to the fact that the  fiscal  year  ending  December  31,  1998  included
impairment charges relating to certain capitalized web site development costs.

     Net income  (loss) for the years ended  December  31, 1999 and December 31,
1998 amounted to $112,000 and  ($537,000)  respectively.  The primary factor for
the profitability in 1999 was the ability for sales growth with minimal increase
in costs and expenses.  Earnings per share for 1999 were $0.01, an increase over
1998's per share loss of $0.04.

Liquidity and Capital Resources

     Cash flow  generated by operations for the year ended December 31, 1999 was
$185,000.  Positive  cash  flow from  operating  activities  for the year  ended
December 31, 1999 was achieved, due to the significant increases in revenue. The
Company  believes that its present clients will generate  sufficient  revenue to
maintain an appropriate level of liquidity for the near term.

     The Company  maintains  a line of credit of  $750,000.  As of December  31,
1999, $306,000 of the line of credit remains available for future use subject to
collateral  restrictions.  The Company  utilizes  the line of credit for working
capital.  Although the company believes that the amount available under the line
of credit is sufficient  for its short term  requirements,  the Company  expects
that the line of credit might be increased  for its long term  financing  needs.
Management intends to obtain term financing in addition to its line of credit.

     Cash  flow from  investing  activities  were  negative  for the year  ended
December 31,  1999.  Net cash used in  investing  activities  for the year ended
December 31, 1999 was $101,000 and was for capital expenditures.  Financing cash
flows were provided by utilization of an additional $44,000 of the $750,000 line
of credit.


                                        8
<PAGE>


Item 7.   Financial Statements

Please see the attached consolidated financial statements.


Item 8.   Changes  In and  Disagreements  With  Accountants  on  Accounting  and
          Financial Disclosure

     On July 15, 1999, Beck, Weiss & Company, the Company's  independent auditor
for the previous two fiscal years,  resigned in that capacity as a result of the
Company's  newly  reporting  status and such  auditor's  limited  experience  in
matters governing compliance with the federal and state securities laws. On that
same  date,  Beck,  Weiss &  Company  accepted  the  position  of the  Company's
principal accountant.

     On July  15,  1999,  the  Registrant's  Board  of  Directors  approved  the
engagement of Richard A. Eisner & Company,  LLP to serve as independent auditors
for the fiscal year ending December 31, 1999.

     During   fiscal   years  1998  and  1997,   respectively,   there  were  no
disagreements with Beck, Weiss & Company on any matter of accounting  principals
or practices,  financial statement disclosure, or auditing scope or procedure or
any reportable events.

PART III

Item 9.   Directors, Executive Officers, Promoters and Control Persons


Name                   Age       Position

Steven H. Meyer        37        Chief Executive Officer, President and Director

Michael Rubel          45        Chief Operating Officer

Kenneth P. Meyer       40        Vice President Creative Manager and Director

Ethel Kaplan           67        Secretary and Director

John Lisovitch         52        Vice President Information Technology Services

     The Board of Directors of the Company consists of three persons.  Directors
serve until the next annual meeting of  shareholders  or until their  successors
are duly elected and  qualified.  Officers are elected to serve,  subject to the
discretion of the Board of Directors, until their successors are appointed. None
of  the  Directors  of the  Company  hold  directorships  in  any  other  public
companies.

     STEVEN H. MEYER has served as the  Company's  Chief  Executive  Officer and
President  since its  inception.  From 1987 to 1992,  Mr. Meyer  founded and was
employed  by Slide  Effects,  Inc.  Mr.  Meyer  received a Bachelor of Fine Arts
degree from  Syracuse  University  in 1983.  Mr. Meyer is the brother of Kenneth
Meyer who is also an officer and director of the Company.

     MICHAEL RUBEL has served as the  Company's  Chief  Operating  Officer since
July of 1998. Mr. Rubel was the  co-founder  and eventually  President and Chief
Executive Officer of CMP


                                        9
<PAGE>


Advertising  ("CMP") from 1976 to 1992. He then formed The Navesink  River Group
which merged with the Company.  Mr. Rubel  received a Bachelor of Science degree
in accounting from Fairleigh Dickenson University in 1975.

     KENNETH  P.  MEYER has  served as the  Company's  Vice  President  Creative
Manager  and  Director  since  1993.  Mr.  Meyer was a Vice  President  of Slide
Effects,  Inc. from 1989 to 1993.  Mr. Meyer  attended the University of Florida
from 1976 to 1982  majoring  in Fine Arts.  Mr.  Meyer is the  brother of Steven
Meyer who is also an officer and director of the Company.

     ETHEL KAPLAN has served as the Company's Secretary and Director since 1993.
Ms.  Kaplan was the  founder  and  President  of Arc  Technologies,  Inc.  ("Arc
Technologies")  from 1989 to 1993. Ms. Kaplan attended  Syracuse  University and
Alfred University.

     JOHN  LISOVITCH has served as the Company's  Vice  President of Information
Technology  since 1997. Mr.  Lisovitch was employed by CMP from 1988 to 1992. He
joined with Mr.  Rubel to form The  Navesink  River Group which  merged with the
Company. Mr. Lisovitch received a degree from Pennsylvania State University with
a Bachelor of Arts degree in Advertising and Journalism in 1968.


                                       10
<PAGE>


Item 10.  Executive Compensation


                                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                                               Annual Compensation                            Long Term Compensation
                                               -------------------                         -----------------------------

                                                                         Other Annual
                                                                         Compensa-         Securities
                                                                         tion ($)          Underlying       All Other
Name                       Year                Salary ($)    Bonus                         Options          Compensation
---------------            ----                ----------     ----       ------------      ----------       ------------
<S>                        <C>                  <C>           <C>            <C>           <C>                  <C>
Steven H. Meyer            1999                  97,308       none           3,149          75,000(1)           none

                           1998                  88,093       none           3,103                              none

                           1997                  86,648       none            none                none          none



Michael Rubel              1999                 125,000       none            none         150,000(2)           none

                           1998                 139,031       none            none         150,000(2)           none


Kenneth P. Meyer           1999                  97,308       none           6,204          75,000(1)           none

                           1998                  88,093       none           6,150                              none

                           1997                  83,090       none


Ethel Kaplan               1999                  97,308       none           5,442         150,000(1)           none

                           1998                  88,093       none           5,363                              none

                           1997                  86,648

John Lisovitch             1999                 124,000       none            none         150,000(1)           none

                           1998                 138,031       none            none                              none
</TABLE>


(1)  25% of these options vested as of December 31, 1999.

(2)  Mr. Rubel holds options to purchase  300,000 shares of the Company's Common
     Stock  pursuant to his employee  Stock Option  Agreement.  Of those 300,000
     options, 102,500 have vested.

Compensation Pursuant To Plans

     Total  cash  compensation  paid to all  executive  officers  as a group for
services  provided  to Arc and its  subsidiaries  in all  capacities  during the
fiscal year ended December 31, 1999  aggregated  $555,719.  Set forth below is a
summary compensation table prepared in accordance with the applicable


                                       11
<PAGE>


rules of the Securities and Exchange Commission.

OPTIONS OF MANAGEMENT

     Individual Grants


<TABLE>
<CAPTION>

                      Number of
                      Securities      Employees in               Total Options
                      Underlying      Fiscal Year in             which have
                      Options         which Options    Exercise  vested as of    Expiration
 Name                 Granted         were Granted     Price     12/31/99        Date
-------------------------------------------------------------------------------------------
<S>                   <C>             <C>              <C>       <C>             <C>
Steven H. Meyer        75,000          9.43%           $ 0.50                    2003

Michael Rubel         150,000         18.86%           $ 0.50                    2003

Kenneth P. Meyer       75,000          9.43%           $ 0.50                    2003

Ethel Kaplan          150,000         18.86%           $ 0.50                    2003

John Lisovitch        150,000         18.86%           $ 0.50                    2003
</TABLE>



Item 11.  Security Ownership of Certain Beneficial Owners and Management

Common Stock

     The following table sets forth the number of shares of the Company's common
stock  beneficially  owned by each  officer and director of the Company and each
shareholder  who  holds  more  than 5% of the  outstanding  common  stock of the
Company  as of March 17,  2000.  At such date there  were  13,703,132  shares of
common  stock (the  "Common  Stock")  and  720,000  shares of  preferred  stock,
respectively,  issued and outstanding.  Unless specifically indicated otherwise,
all such ownership interests are direct.


                                       12
<PAGE>


<TABLE>
<CAPTION>
                     Name and Address
Title of Class       of Beneficial Owner                      Amount                 Percent of Class
<S>                                                           <C>                    <C>

Common Stock
                     Ethel Kaplan (1)(2)(12)                   4,624,270              33.6%
                     6 Edwards Point Road
                     Rumson, New Jersey 07760

                     Steven H. Meyer(3)(7)(9)                  2,349,520              17.1%
                     7 Emma Drive
                     Wayside, New Jersey 07712

                     Kenneth P. Meyer(4)(8)(9)                 2,348,187              17.1%
                     7 Wemrock Drive
                     Wayside, New Jersey 07712 2563

                     Michael Rubel(5)(10)                        250,000               1.80%
                     6 Almark Terrace
                     Wayside, New Jersey 07712

                     John Lisovitch(6)(11)                       125,000                .91%
                     75 White Pine Road
                     Columbus, New Jersey 08022
                                                              ----------             -----

                     TOTAL                                     9,696,977              68.9%
</TABLE>


(1)  Does not include  90,000 shares held by three trusts to which Ms. Kaplan as
     custodian under the uniform gift to minors act.

(2)  Ethel Kaplan is a Director and Secretary of the Company.

(3)  Steven Meyer is a Director,  the Chief Executive  Officer and the President
     of the Company.

(4)  Kenneth Meyer is a Director and the Vice President  Creative Manager of the
     Company.

(5)  Michael Rubel is the Company's Chief Operating Officer.

(6)  John Lisovitch is the Information Technology Vice President.

(7)  Includes the option to purchase 75,000 shares of the Company's Common Stock
     pursuant to Mr. Meyer's Stock Option Agreement, 37,500 shares are currently
     vested.

(8)  Includes the option to purchase 75,000 shares of the Company's Common Stock
     pursuant to Mr. Meyer's Stock Option Agreement, 37,500 shares are currently
     vested.

(9)  Kenneth Meyer and Steven Meyer are brothers.

(10) Includes  the option to purchase  300,000  shares of the  Company's  Common
     Stock  pursuant to Mr.  Rubel's  Stock Option  Agreement,150,000shares  are
     currently vested.

(11) Includes  the option to purchase  150,000  shares of the  Company's  Common
     Stock pursuant to Mr. Lisovitch's Stock Option Agreement, 75,000 shares are
     currently vested.

(12) Includes  the option to purchase  150,000  shares of the  Company's  Common
     Stock pursuant to Ms.  Kaplan's Stock Option  Agreement,  75,000 shares are
     currently vested.

SHAREHOLDERS AGREEMENT

     On August 22, 1994, Steven H. Meyer,  Kenneth P. Meyer, Ethel Kaplan, Peter
C. Cosmas  (collectively,  the  "Shareholders" for the purposes of this section)
and Arc Slide  Technologies Ltd. ("ASTL") entered into a shareholders  agreement
whereby the Shareholders agreed to restrict the transfer


                                       13
<PAGE>


of  their  shares  of ASTL  for the term of such  agreement  (the  "Shareholders
Agreement"). In 1997 the shareholders received one share of ASTL for every share
of Arc. ASTL subsequently  changed its name to Arc Communications Inc. Thus, the
Shareholders Agreement restricts all transfers of the Shareholders' Arc's shares
with the exception of transfers of their  respective  shares to their  immediate
family members.  Although the  Shareholders  Agreement has been amended numerous
times  and Mr.  Cosman is no longer a party to such  agreement,  such  agreement
remains in effect between Steven H. Meyer, Kenneth P. Meyer and Ethel Kaplan.

     Mr. Cosmas is a former director of the Company.

Item 12.  Certain Relationships and Related Transactions

     The Company was not during the last two years and is not  presently a party
to any transaction  exceeding $60,000 with any of the following persons: (i) any
director or executive officer of the Company; (ii) any nominee for election as a
director;  (iii) any holder of 5% or more of any class of the  Company's  voting
securities;  and (iv) any  member  of the  immediate  family  of any  person  in
(i),(ii) or (iii) above.

Item 13.  Exhibit and Reports on Form 8-K

(a)  Index to Exhibits

3.1       Certificate of  Incorporation  of Arc Slide  Technologies  Ltd., dated
          October 21, 1992.(1)

3.2       Certificate of Amendment to the  Certificate of  Incorporation  of Arc
          Slide Technologies Ltd., dated August 1, 1994.(1)

3.3       By-laws of Arc Slide Technologies Ltd., adopted August 1, 1994.(1)

3.4       Certificate of Amendment to the  Certificate of  Incorporation  of Arc
          Slide Technologies Ltd., dated October 13, 1997,  changing the name of
          the  corporation  to  Arc  Communication,  Inc.,  and  increasing  the
          authorized common stock to 50,000,000 shares.(1)

3.5       Letter  from  the  Florida  Department  of State  indicating  that the
          Articles of Merger were filed on November 19, 1997.(1)

3.6       Articles of Merger of Arc Communications  Inc., a Florida corporation,
          into its  wholly-owned  subsidiary  Arc  Communications,  Inc.,  a New
          Jersey corporation dated November 21, 1997.(1)

3.7       Certificate  of  Merger  of  Navesink  River  Group  Inc.,   into  Arc
          Communications Inc., dated December 19, 1997.(1)

3.8       Plan of Merger of Navesink River Group Inc.,  into Arc  Communications
          Inc., dated December 19, 1997.(1)

3.9       Unanimous Consent of Directors in Lieu of Special meeting of directors
          of ARC Communications dated July 14, 1998.(1)


                                       14
<PAGE>


3.10      Certificate of Amendment to the  Certificate of  Incorporation  of Arc
          Communications Inc., dated August 31, 1998.(1)

3.11      Certificate of Amendment to the  Certificate of  Incorporation  by the
          Board of  Directors  of Arc  Communications  Inc.  dated  September 1,
          1998.(1)

3.12      Class A Preferred Stock Provisions dated September 15, 1998.(1)

9.1       Shareholders  Agreement  between  Steven H.  Meyer,  Kenneth P. Meyer,
          Ethel Kaplan,  Peter C. Cosmas and Arc Slide Technologies,  Inc. dated
          August 22, 1994.(1)

10.1      $750,000  Promissory  Note  with  Sovereign  Bank,  dated  August  27,
          1998.(1)

10.2      The September 24, 1996 lease between Arc Slide Technologies,  Inc. and
          Robert F.  Reynolds and Pauline  Reynolds for the property  located at
          788 Shrewsbury Avenue, Tinton Falls, New Jersey 07724.(1)

10.3      Consultation  agreement between Wall Street Advancement,  Inc. and Arc
          Communications Inc., dated March 8, 1999.(1)

21.1      Arc Communications Inc.'s Subsidiaries

27.1      Financial Data Schedule

(1)       Filed as the same encumbered exhibit to a Registration Statement (File
          No. 0-26213) filed on October 5, 1999.


                                       15
<PAGE>


                                   SIGNATURES


In accordance  with the Section 13 or 15(d) of the Exchange Act, the  registrant
has duly  caused  this  report to be signed  on its  behalf by the  undersigned,
thereunto duly authorized.

Date:                                               Arc Communications Inc.



                                                    By:  /s/ Michael Rubel
                                                         -----------------
                                                         Michael Rubel
                                                         Chief Operating Officer


In  accordance  with the Exchange  Act, this report has been signed below by the
following persons on behalf of the Registrant,  and in the capacities and on the
date indicated.


/s/   Steven H. Meyer
------------------------------------
name: Steven H. Meyer
      CEO, President and Director



/s/   Michael Rubel
------------------------------------
name: Michael Rubel
      Chief Operating Officer



/s/ Kenneth P. Meyer
------------------------------------
name: Kenneth P. Meyer
      Vice President and Director



/s/ Ethel Kaplan
------------------------------------
name: Ethel Kaplan
      Secretary and Director


                                       16
<PAGE>





                         REPORT OF INDEPENDENT AUDITORS







                                       18
<PAGE>




                    ARC COMMUNICATIONS, INC. AND SUBSIDIARIES

                              FINANCIAL STATEMENTS

                           DECEMBER 31, 1999 and 1998




<PAGE>


ARC COMMUNICATIONS, INC. AND SUBSIDIARIES

Contents

                                                                            Page
                                                                            ----
Consolidated Financial Statements

   Independent auditors' reports                                             F-2

   Balance sheet as of December 31, 1999                                     F-4

   Statements of operations for the years ended
      December 31 1999 and 1998                                              F-5

   Statements of changes in stockholder's equity
      for the years ended December 31, 1999 and 1998                         F-6

   Statements of cash flows for the years ended
      December 31, 1999 and 1998                                             F-7

   Notes to financial statements                                             F-8


<PAGE>


INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Arc Communications, Inc.
Tinton Falls, New Jersey


We  have   audited  the   accompanying   consolidated   balance   sheet  of  Arc
Communications,  Inc. and  subsidiaries as of December 31, 1999, and the related
consolidated statements of operations,  changes in stockholders' equity and cash
flows for the year then ended. These consolidated  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance  about  whether  the  consolidated  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 audit  provides a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the consolidated financial position of Arc Communications
Inc. and subsidiaries as of December 31, 1999, and the  consolidated  results of
their  operations and their  consolidated  cash flows for the year then ended in
conformity with generally accepted accounting principles.


Richard A. Eisner & Company, LLP


Florham Park, New Jersey
February 10, 2000


                                                                             F-1
<PAGE>


To the Board of Directors and Stockholders
of Arc Communications, Inc.

We have audited the accompanying  statement of operations,  stockholders' equity
and cash flows of Arc Communications, Inc. for the year ended December 31, 1998.
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 audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  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 or 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 audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  results  of  operations  and  cash  flows  of Arc
Communications,  Inc. for the year ended  December 31, 1998, in conformity  with
generally accepted accounting principles.


                                                      BECK, WEISS & COMPANY


Edison, New Jersey
February 19, 1999


                                                                             F-2
<PAGE>


ARC COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Balance Sheet
December 31, 1999

<TABLE>
<CAPTION>
ASSETS
Current assets:
<S>                                                                                               <C>
   Cash and cash equivalents                                                                      $   352,000
   Accounts receivable - net                                                                          724,000
   Inventory                                                                                           10,000
   Prepaid expenses and other current assets                                                            8,000
                                                                                                  -----------

      Total current assets                                                                          1,094,000
                                                                                                  -----------

Property and equipment, net                                                                           363,000
                                                                                                  -----------

Other assets:
   Goodwill - net                                                                                      77,000
   Security deposits                                                                                    8,000
   Due from employees                                                                                  28,000
                                                                                                  -----------

      Total other assets                                                                              113,000
                                                                                                  -----------

                                                                                                  $ 1,570,000
                                                                                                  ===========
LIABILITIES
Current liabilities:
   Advances under line of credit                                                                  $   444,000
   Accounts payable and accrued expenses                                                              315,000
   Deferred revenue                                                                                    21,000
                                                                                                  -----------

      Total current liabilities                                                                       780,000

Commitments and contingencies

STOCKHOLDERS' EQUITY
Preferred stock, 9% cumulative, stated value $.20; 5,000,000 shares authorized; 720,000
   shares issued and outstanding (at liquidating value)                                               144,000
Common stock, no par value, stated value $.001; 45,000,000 shares authorized;
   13,703,132 shares issued and outstanding                                                            14,000
Additional paid-in capital                                                                          1,375,000
Accumulated deficit                                                                                  (743,000)
                                                                                                  -----------

      Total stockholders' equity                                                                      790,000
                                                                                                  -----------

                                                                                                  $ 1,570,000
                                                                                                  ===========
</TABLE>


See notes to financial statements                                            F-3
<PAGE>


ARC COMMUNICATIONS, INC. AND SUBSIDIARIES


Consolidated Statements of Operations
<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                               ------------------------------
                                                                  1999                1998
                                                               -----------        -----------
<S>                                                            <C>                <C>
Net sales                                                      $ 3,629,000        $ 2,868,000
                                                               -----------        -----------

Costs and expenses:
   Operating costs                                                 580,000            640,000
   Selling, general and administrative                           2,765,000          2,576,000
   Depreciation and amortization                                   144,000            169,000
                                                               -----------        -----------

      Total costs and expenses                                   3,489,000          3,385,000
                                                               -----------        -----------

Other income (expense):
   Interest income                                                  14,000              9,000
   Interest expense                                                (42,000)           (29,000)
                                                               -----------        -----------

      Total other expense                                          (28,000)           (20,000)
                                                               -----------        -----------

Net income (loss)                                              $   112,000        $  (537,000)
                                                               ===========        ===========

Basic and diluted income (loss) per share                      $      0.01        $     (0.04)
                                                               ===========        ===========
</TABLE>


See notes to financial statements                                            F-4
<PAGE>


ARC COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholder's Equity

<TABLE>
<CAPTION>
                                          Preferred Stock            Common Stock
                                       ---------------------   ------------------------                                    Total
                                       Shares                     Shares                   Additional    Accumulated   Stockholders'
                                       Issued       Amount        Issued        Amount  Paid-in Capital     Deficit       Equity
                                       -------   -----------   -----------    --------- ---------------  -----------   -------------
<S>                                    <C>       <C>            <C>           <C>         <C>            <C>            <C>
Balance, December 31, 1997                                      13,538,132    $  14,000   $ 1,212,000    $  (318,000)   $ 908,000
Issuance of preferred stock            750,000   $   150,000                                  (32,000)                    118,000
Issuance of common stock for
   professional services                                            12,500                      6,000                       6,000
Issuance of common stock for
   purchase of 10% minority
   interest in a subsidiary                                         15,000                     11,000                      11,000
Issuance of common stock                                            25,000                     (5,000)                     (5,000)
Conversion of loan from stockholder
   to common stock                                                 160,000                    160,000                     160,000

Net loss                                                                                                    (537,000)    (537,000)
                                      --------   -----------   -----------    ---------   -----------    -----------    ---------

Balance, December 31, 1998             750,000       150,000    13,750,632       14,000     1,352,000       (855,000)     661,000
                                      --------   -----------   -----------    ---------   -----------    -----------    ---------

Issuance of common stock and options
   services rendered                                                 2,500                     23,000                      23,000
Cancellation of preferred stock        (30,000)       (6,000)                                                              (6,000)
Cancellation of common stock
   subject to an escrow agreement                                  (50,000)
Net income                                                                                                   112,000      112,000
                                      --------   -----------   -----------    ---------   -----------    -----------    ---------

Balance, December 31, 1999             720,000   $   144,000    13,703,132    $  14,000   $ 1,375,000    $  (743,000)   $ 790,000
                                      ========   ===========   ===========    =========   ===========    ===========    =========

</TABLE>


See notes to financial statements                                            F-5

<PAGE>


ARC COMMUNICATIONS, INC. AND SUBSIDIARIES


Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                              -------------------------
                                                                                1999            1998
                                                                              ---------       ---------
<S>                                                                           <C>             <C>
Cash flows from operating activities:
Net income (loss)                                                             $ 112,000       $(537,000)
   Adjustments to reconcile net loss to net cash provided by (used in)
      operating activities:
        Depreciation and amortization                                           144,000         169,000
        Provision for uncollectible accounts                                     73,000          45,000
        Issuance of options for professional services                            23,000
        Issuance of common stock for professional services                                        6,000
        Changes in :
           Accounts receivable                                                 (261,000)       (163,000)
           Inventory                                                              5,000          (2,000)
           Prepaid expenses and other current assets                              3,000          26,000
           Security deposits                                                      1,000           4,000
           Due from employees                                                    (8,000)         (1,000)
           Accounts payable and accrued expenses                                 72,000        (135,000)
           Deferred revenue                                                      21,000          (1,000)
                                                                              ---------       ---------

              Net cash provided by (used in) operating activities               185,000        (589,000)
                                                                              ---------       ---------

Cash flows from investing activities:
   Expenditures for property and equipment                                     (101,000)        (58,000)
   Cash surrender value - officers' life insurance                                                1,000
                                                                              ---------       ---------

              Net cash used in investing activities                            (101,000)        (57,000)
                                                                              ---------       ---------

Cash flows from financing activities:
   Proceeds from line of credit                                                  44,000         349,000
   Repayment of capital lease obligations                                                       (20,000)
   Net proceeds from sale of common stock                                                       113,000
                                                                              ---------       ---------

              Net cash provided by financing activities                          44,000         442,000
                                                                              ---------       ---------

Net increase (decrease) in cash and cash equivalents                            128,000        (204,000)
Cash and cash equivalents - beginning of year                                   224,000         428,000
                                                                              ---------       ---------

Cash and cash equivalents - end of year                                       $ 352,000       $ 224,000
                                                                              =========       =========

Supplemental disclosures of cash flow information:
   Interest                                                                   $  43,000       $  29,000
</TABLE>


See notes to financial statements                                            F-6
<PAGE>


ARC COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 1999 and 1998


NOTE A - ORGANIZATION AND DESCRIPTIONS OF BUSINESS

Arc Communications,  Inc. (the "Company") is a full-service marketing consulting
and New Media design firm specializing in sports  marketing,  technology and the
pharmaceutical  industry.  Services  include  marketing,   consulting,   website
development,  electronic commerce, interactive multi-media,  graphics design and
imaging.

The Company,  through its  subsidiaries,  electronically  publishes  interactive
educational  and  reference  material  for the medical  and dental  professions,
provides on-line continuing  professional  education to the medical,  dental and
funeral   director's   professions  and  provides   on-line   personal   medical
information.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

[1]  Principles of consolidation:

     The accompanying  consolidated financial statements include the accounts of
     the  Company  and  all  of  its  subsidiaries   after  elimination  of  all
     significant  intercompany accounts and transactions.  On February 25, 1998,
     the Company  acquired the remaining  10% minority  interest of a previously
     90% owned subsidiary by issuing 15,000 shares of the Company's common stock
     with a fair value of $11,000.

[2]  Cash and cash equivalents:

     The Company  considers  all highly  liquid  investments  with a maturity of
     three months or less at the date of purchase to be cash equivalents.

     The Company  maintains  cash  balances in various  financial  institutions.
     Management   periodically   evaluates   the  credit   worthiness   of  such
     institutions.

[3]  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.

[4]  Allowance for doubtful accounts:

     The Company  establishes  an allowance  for  uncollectible  trade  accounts
     receivable   based  on  management's   evaluation  of   collectibility   of
     outstanding  accounts  receivable.  The allowance for doubtful  accounts is
     $57,000 as of December 31, 1999.


                                                                             F-7
<PAGE>


ARC COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 1999 and 1998

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

[5]  Per share information:

     Basic earnings per share ("EPS") is computed by dividing  income  available
     to common  stockholders  by the weighted  average  number of common  shares
     outstanding. Diluted EPS is computed by dividing income available to common
     stockholders  by the  weighted  average  shares  outstanding,  assuming all
     dilutive  potential  common shares were issued  using,  with respect to the
     assumed  proceeds  from the excess of dilutive  options and  warrants,  the
     treasury  stock method  calculated  based upon average market price for the
     period.  The weighted  average number of common shares  outstanding for the
     year ended December 31, 1999 and 1998 aggregated 13,739,000 and 13,574,000,
     respectively.

[6]  Inventory:

     Inventories are stated at the lower of cost or market, with cost determined
     on a first-in, first-out basis.

[7]  Property and equipment:

     Property and  equipment  are stated at cost and are  depreciated  using the
     straight-line method over their estimated useful lives of 5 years.

[8]  Goodwill:

     Goodwill resulting from an acquisition accounted for as a purchase is being
     amortized on a  straight-line  basis over ten years.  The carrying value of
     goodwill is analyzed  quarterly by the Company based upon the expected cash
     flows of the acquired enterprise.  Amortization expense amounted to $10,000
     for each of the years ended December 31, 1999 and 1998.

[9]  Revenue recognition:

     The Company recognizes income from sales at the date the product is shipped
     and as  professional  services are performed.  Revenue from custom software
     development is recognized based on its percentage of completion.

[10] Stock-based compensation:

     Statement  of  Financial  Accounting  Standards  No. 123,  "Accounting  for
     Stock-Based  Compensation"  ("SFAS 123") allows companies to either expense
     the  estimated  fair value of stock  options or to  continue  to follow the
     intrinsic  value method set forth in APB Opinion 25,  "Accounting for Stock
     Issued to  Employees"  ("APB 25") but disclose the pro forma effects on net
     income had the fair value of the  options  been  expensed.  The Company has
     elected to  continue  to apply APB 25 in  accounting  for its stock  option
     incentive plans.

[11] Advertising

     The  Company  follows the policy of charging  the costs of  advertising  to
     expense as incurred. During 1999 and 1998, the Company recorded advertising
     expense of $33,000 and $65,000, respectively.


                                                                             F-8
<PAGE>


ARC COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 1999 and 1998


NOTE C - PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 1999 consists of:

          Equipment and furniture                      $    868,000
          Leasehold improvements                             88,000
                                                       ------------
                                                            956,000
          Accumulated depreciation                          593,000
                                                       ------------

          Property and equipment, net                  $    363,000
                                                       ============


Depreciation  expense included in selling,  general and  administrative  expense
aggregated $134,000 and $159,000 for the years ended December 31, 1999 and 1998,
respectively.

NOTE D - ADVANCES UNDER LINE OF CREDIT

Advances  under a $750,000 line of credit bear interest at the bank's prime rate
plus 1.5% (10% as of December 31, 1999) and are  collateralized by the Company's
accounts receivable. The line of credit is due on demand.

NOTE E - INCOME TAXES

The significant  components of the Company's deferred tax asset and liability as
of December 31, 1999 are as follows:

          Deferred income tax asset:
           Net operating losses carry forwards         $    476,000

          Deferred income tax liability:
             Accrual to cash adjustment                    (172,000)
                                                       ------------
          Deferred tax asset                                304,000
                                                       ------------
          Valuation allowance                              (304,000)
                                                       ------------

          Net deferred tax asset                        $         0
                                                        ===========

The significant components of the provision for income taxes for the years ended
December 31, 1999 and 1998 are as follows:

                                                  1999         1998
                                               ---------    ---------
          Deferred:
             Federal                           $(119,000)   $ (18,000)
             State                               (35,000)     (11,000)
             Change in valuation allowance       154,000       29,000
                                               ---------    ---------

                Total deferred income taxes    $       0    $       0
                                               =========    =========


                                                                             F-9
<PAGE>


ARC COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 1999 and 1998


NOTE E - INCOME TAXES (CONTINUED)

As of December 31, 1999,  the Company has net operating  loss  carryforwards  of
approximately  $1,227,000 for federal income tax purposes,  which expire through
2019.

The  difference  between the statutory  federal income tax rate on the Company's
pre-tax income (loss) and the Company's  effective income tax rate is summarized
as follows:

                                                      1999       1998
                                                     ------     ------

          Statutory federal income tax rate            34.0%      15.0%
          State income tax, net of federal benefit                 9.0
          Prior year overaccrual                       90.6
          Change in tax rate                           21.4
          Increase (decrease) in valuation
             allowance                               (142.8)     (24.0)
          Other                                        (3.2)
                                                     ------     ------



          Effective income tax rate                       0%         0%
                                                     ======     ======


NOTE F - RELATED PARTY TRANSACTION

Legal   fees   paid   to   corporate   counsel,   with   which   the  son  of  a
director/shareholder is affiliated,  were $37,000 and $52,000 for 1999 and 1998,
respectively.


NOTE G - STOCKHOLDERS' EQUITY

[1]  Common stock:

     In connection with the Company's 1997  acquisition of a subsidiary,  50,000
     shares were issued  subject to an escrow  agreement  whereby,  if a certain
     performance  benchmark  was met on or before  October 31, 1999,  the shares
     would be released.  The benchmark was not met and the shares were cancelled
     in 1999.

[2]  Preferred stock:

     On August 31, 1998, the Company issued 720,000 shares of preferred stock in
     a private placement offering and received net proceeds of $118,000. Accrued
     dividends as of December 31, 1999 aggregated $17,000.

     During  1999,  30,000  shares of preferred  stock and related  subscription
     receivable were canceled.

[3]  Stock options:

     The Company has a stock option plan under which 1,500,000  shares of common
     stock are  reserved  for  issuance  upon  exercise of either  incentive  or
     nonincentive  stock  options  which may be granted from time to time by the
     Board of  Directors  to  employees  and  others.  The  Board  of  Directors
     determines  the  option  price (not to be less than fair  market  value for
     incentive options) at the date of grant. The options have a maximum term of
     4 years.

NOTE G - STOCKHOLDERS' EQUITY (CONTINUED)


                                                                            F-10
<PAGE>


ARC COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 1999 and 1998

     The Company  applies APB 25 in  accounting  for its stock option  incentive
     plan and, accordingly,  recognizes  compensation expense for the difference
     between  the fair value of the  underlying  common  stock and the  exercise
     price of the  option at the date of grant.  Had  compensation  cost for the
     Company's  stock option plan been  determined  based upon the fair value at
     the grant date for awards under the plans  consistent  with the methodology
     prescribed  under SFAS No. 123, the  Company's  proforma net income and net
     income per share for 1999 would have been  approximately  $90,000 and $.01,
     respectively. The weighted average fair value of the options granted during
     1999  were  $.20 per  share on the date of grant  using  the  Black-Scholes
     option  pricing model with the following  assumptions;  dividend  yield 0%,
     volatility  486%,  expected  life 4  years,  risk  free  interest  rate  of
     approximately 5.3%.

The following table summarizes stock options transactions under the plan:

<TABLE>
<CAPTION>

                                                               Year Ended December 31,
                                               ----------------------------------------------------
                                                          1999                        1998
                                               ------------------------       ---------------------
                                                               Weighted                    Weighted
                                                               Average                      Average
                                                               Exercise                    Exercise
                                                Shares          Price          Shares        Price
                                               ---------       --------       --------     --------
<S>                                            <C>              <C>           <C>            <C>
Options:
   Granted and outstanding at beginning
     of year                                     460,000        $0.50          450,000       $1.50
   Granted                                       640,000         0.50          530,000        0.63
   Cancelled                                                                  (520,000)       1.50
                                               ---------                      --------

   Outstanding at end of year                  1,100,000        $0.50          460,000       $ .50
                                               =========                      ========
</TABLE>


On November 15, 1998, the Company  repriced all outstanding  options to the then
current market value of $0.50 per share.

The following table summarizes  information about stock options  outstanding for
which the  Company  has an  obligation  to issue  shares  of common  stock as of
December 31, 1999:

<TABLE>
<CAPTION>
                                            Options Outstanding                   Options Exercisable
                              -------------------------------------------     -------------------------
                                 Number          Weighted        Weighted         Number       Weighted
         Range of             Outstanding        Average         Average       Exercisable     Average
         Exercise                as of          Remaining        Exercise         as of        Exercise
          Prices                12/31/99     Life (in Years)      Price         12/31/99        Price
         --------             -----------    ---------------     --------      -----------     --------
<S>       <C>                  <C>                 <C>            <C>            <C>            <C>
          $0.50                1,100,000           3.01           $0.50          390,000        $0.50
</TABLE>



In March 1999, the Company entered into a two year  consulting  agreement with a
public relations company.  Under the terms of the agreement,  the Company issued
225,000  options  exercisable at $1.00 per share with an estimated fair value of
the date of grant of  $56,000.  During the year ended  December  31,  1999,  the
Company recognized an expense of $23,000.


                                                                            F-11
<PAGE>


ARC COMMUNICATIONS, INC. AND SUBSIDIARIES

Notes to Financial Statements
December 31, 1999 and 1998


NOTE H - COMMITMENTS

The Company  leases office space and equipment  under  operating  leases with an
initial or remaining  term in excess of one year,  expiring  through 2003. As of
December 31, 1999, minimum aggregate rentals are as follows:

         Year Ending
         December 31,
         ------------
             2000                  $  153,000
             2001                     128,000
             2002                      31,000
             2003                      23,000
                                   ----------

                                   $  335,000
                                   ==========

Total rent  expense for the years ended  December  31, 1999 and 1998  aggregated
$167,000 and $140,000, respectively.

NOTE I - MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK

For the year ended December 31, 1999, two customers  accounted for 34% of sales.
One of these  customers  accounted for 38% of sales for the year ended  December
31, 1998. The aggregate accounts receivable balances as of December 31, 1999 for
these customers were $212,000.

NOTE J - SEGMENT INFORMATION

The Company has two reportable segments; multi-media and continuing professional
education.  The  multi-media  products  business  is  comprised  of  interactive
multi-media  programs,  printing and internet site  development.  The continuing
professional  education business (CPE) is comprised of the traditional hard copy
examinations and examinations taken on the internet.

<TABLE>
<CAPTION>
                                                               1999                   1998
                                                           -----------            -----------
          Revenues
<S>                                                        <C>                    <C>
             Multi-media                                   $ 2,975,000            $ 2,567,000
             Continuing professional education                 654,000                301,000
                                                           -----------            -----------

                Total consolidated revenues                $ 3,629,000            $ 2,868,000
                                                           ===========            ===========

          Net income (loss)
             Multi-media                                   $   226,000            $  (400,000)
             Continuing professional education                (114,000)              (137,000)
                                                           -----------            -----------

                Total consolidated net income (loss)       $   112,000            $  (537,000)
                                                           ===========            ===========

          Assets
             Multi-media                                   $ 1,402,000            $ 1,169,000
             Continuing professional education                 168,000                136,000
                                                           -----------            -----------

                Total consolidated assets                  $ 1,570,000            $ 1,305,000
                                                           ===========            ===========
</TABLE>


                                                                            F-12