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, 2002

                             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

                    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, 2002 was $1,057,000.

The aggregate market value of the voting stock held by non-affiliates of the
registrant is approximately $398,560 as of May 12, 2003.

State the number of shares outstanding of each of the registrant's classes of
common equity as of the latest practicable date: 14,984,459 shares of the
registrant's common stock and 720,000 shares of the registrant's preferred stock
are issued and outstanding as of May 12, 2003.

Transitional Small Business Disclosure Format (check one):

Yes |_| No |X|


<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, PROMOTORS
             AND CONTROL PERSIONS; 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, FINANCIAL STATEMENT SCHEDULES
             AND REPORTS ON FORM 8-K .......................................  14

ITEM 14.     CONTROLS AND PROCEDURES .......................................

ITEM 16.     PRINCIPAL ACCOUNTANT FEES AND SERVICES ........................

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


<PAGE>

                                     PART I

Item 1. Description of Business

a. GENERAL

Arc Communications Inc. is an interactive design firm specializing in websites
and CD-ROMs. Arc focuses its efforts in the healthcare, pharmaceutical and
technology industries.

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 Multi-media 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 multimedia
areas. Further, such strategic alliances enable Arc's clients to use leading
edge technologies without having to incur substantial development costs. The
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 the Interactive Programs from
billing for the creative development. The expenses are principally payroll
related, purchase costs are insignificant.

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 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.

On April 1, 2003 Arc sold its wholly owned subsidiary, ArcMesa Educators, Inc.
to Belcan Corporation of Cincinnati, Ohio. This completes the sale of Arc's
on-line education business and further prepares Arc for its launch into other
communications businesses such as publishing and online media. Arc is very
excited to take this step of divesting a non-core business from Arc and continue
our efforts to expand into the media industry. ArcMesa had been an under funded
asset that for the past several years experienced large operating losses. This
transaction enables Arc to add cash to the balance sheet, and provide a singular
focus to our strategic initiative.

b. 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.

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."

<PAGE>

c. ARC'S STRATEGY

Capitalize on Accomplishments and Market Opportunities Change

Arc believes that the proliferation of the Internet will continue to provide
substantial opportunities to Arc in spite of the downturn in the industry 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.

d. MARKETING

Arc markets its services directly and seeks to form strategic marketing
relationships with third parties. Presently, Arc has one employee dedicated to
business development. Additionally, 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.

e. 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.

f. 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.

There are numerous competitors which have longer operating histories, more
substantial customer relationships and significantly greater financial,
managerial, technological, sales, marketing and other resources than the
Company.

g. EMPLOYEES

At December 31, 2002, Arc had 12 employees, all of which are full-time
employees. Full-time employees include 3 in strategic planning, executive
management, business development; 1 account manager; 4 creative, production and
programming personnel; and 4 administrative staff.

Subsequent to December 31, 2002, Arc reduced its staff even further to keep its
overhead in line with decreasing revenues.

<PAGE>

Item 2. Description of Property

The Company maintains its sole corporate offices at 788 Shrewsbury Avenue,
Tinton Falls, New Jersey 07724 (the "Office"). The Company leases the Office
which is comprised of 7,209 square feet with monthly rent of $11,414 under to a
lease agreement (the "Lease"). Pursuant to the Lease, on December 1, 2001, the
Company exercised its option for five more years. In addition the Company has
added 1,949 square feet of rentable space at a monthly rent of $3,086 which it
now subleases to FCT America Limited for a term of five years at a monthly rent
of $3,086. In the beginning of 2003, Arc renegotiated its obligation under the
Lease down to $3,500 per month. The exact square footage that the Company will
be leasing has not yet been determined.

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.

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 2002 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 Board". The Common Stock is presently trading under the symbol
"ACOC".

Since December 30, 1998, the Company's Class A Preferred Stock has traded on the
"OTC-Bulletin Board". 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, 2001 - March 21, 2001     .06              .38
                  April 1 - June 30, 2001              .04              .11
                  July 1 - September 30, 2001          .02              .11
                  October 1 - December 31, 2001        .01              .12
                  January 1 - March 31, 2002           .03              .20
                  April 1 - June 30, 2002              .06              .24
                  July 1 - September 30, 2002          .06              .75
                  October 1 - December 31, 2002        .16              .35
                  January 1 - March 31, 2003           .06              .30

ACOCP

                  January 1, 2001 - March 31, 2001     .02              .02
                  April 1 - June 30, 2001              .01              .02
                  July 1 - September 30, 2001          .003             .01
                  October 1 - December 31, 2001        .003             .08
                  January 1 - March 31, 2002           .003             .085
                  April 1 - June 30, 2002              .03              .06
                  July 1 - September 30, 2002          .015             .09
                  October 1 - December 31, 2002        .03              .07
                  January 1 - March 31, 2003           .05              .05

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.

<PAGE>

OUTSTANDING SHARES AND SHAREHOLDERS OF RECORD. As of December 31, 2002,
14,984,459 shares of Common Stock issued and outstanding which were held of
record by 268 persons. As of December 31, 2002, 720,000 shares of preferred
stock issued and outstanding which were held of record by 6 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, 2002 accrued but unpaid preferred stock dividends aggregated
$30,000.00. 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

In January 2000 the Company issued 10,000 shares of common stock for payment for
the purchase of the copyright for the Writing and Speaking for Excellence
Seminar series.

In February 2001 the Company issued 2,500 shares of common stock for payment for
marketing consulting services.

In February 2001 the Company issued 5,000 shares of common stock to an employee
for compensation for moving to New Jersey from Florida.

In November 2001 the Company issued 1,000,000 shares of common stock to certain
employees for compensation.

In June 2002 the Company sold 3,687,148 shares of Common Stock to Peter A.
Bordes Jr. for the sum of $165,000. Also in June 2002 the Company issued 225,000
shares of common stock for payment of consulting services.

In August 2002 the Company sold 770,949 shares of Common Stock for the sum of
$34,500.

In June 2002 the Company purchased 4,469,270 shares of its Common Stock from
Ethel Kaplan and Richard Kaplan for the sum of $200,000. The Common Stock was
subsequently canceled.

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

Years Ended December 31, 2002 and December 31, 2001

Critical Accounting Policy

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.

Arc's net sales for the years ended December 31, 2002 and 2001 were $1,057,000
and $1,369,000, respectively, a decrease of 23 percent. The decrease in sales is
a result of web site development decreasing $78,000 (or 25%); full interactive
multi-media development decreasing $181,000 (or 42%); and Production/Print
services decreasing $8,000 (or 1.5%).

Revenue decline was driven by the continued slow down in the economy in the
Company's main areas of concentration which are technology and health care.

Operating costs for the years ended December 31, 2002 and 2001 were $102,000 and
$240,000, respectively. The decrease is due to the revenue declines and Arc's
ability to be more efficient in producing its product.

Selling, general and administrative expenses for the years ended December 31,
2002 and 2001 were $1,319,000 and $1,688,000, respectively. Selling, general and
administrative expenses for 2002 decreased $369,000 (or 22%). This decrease was
primarily due to reductions in selling expenses such as commissions and travel
expenses as a result of the decline in revenues along with the continuing
slashing of overhead to get it inline with the revenue declines.

Depreciation and amortization expenses for the years ended December 31, 2002 and
2001 were $105,000 and $151,000, respectively, a decline of 30 percent.

The loss from continuing operations for the years ended December 31, 2002 and
2001 aggregated $442,000 and $714,000 respectively and the per share amounts
totaled $0.03 and $0.05, respectively.

As a result of the closing of the Company's educational seminar programs which
generated a substantial portion of the educational division's revenue the
Company determined in late 2002 to sell its continuing professional education
business, ArcMesa Educators, Inc. to Belcan Corporation of Cincinnati, Ohio.
This took place on April 1, 2003. This area of the Company's business had
sustained continual losses. This will allow the Company to concentrate on its
core business and provide it the resources to expand into other communications
areas.

Net loss for the years ended December 31, 2002 and 2001 amounted to $449,000 and
$741,000, respectively, resulting in a decrease in losses of $292,000 (or 39%).
The Company continues to shed overhead and anticipates the losses to continue to
decline. As a result, loss per share was $0.03 for the year ended December 31,
2002 compared to the loss of $0.05 for the year ended December 31, 2001.

Years Ended December 31, 2001 and December 31, 2000

Arc's net sales for the years ended December 31, 2001 and 2000 were $1,369,000
and $3,183,000 respectively, a decrease of 58 percent. The decrease in sales is
a result of web site development decreasing $317,000 (or 50%); full interactive
multi-media development decreasing $120,000 (or 22%); and Production/Print
services decreasing $1,262,000 (or 67%).

Revenue decline was driven by the loss of three major customers and decreases in
sales volume from three other customers. The loss of the three customers were
due to the mergers of two companies to larger organizations and the third
ceasing operations. This represented a loss of $1,221,000 in revenue. In
addition three other major customer's revenues had a decrease of $512,000 in
revenue.



<PAGE>

Operating costs for the years ended December 31, 2001 and 2000 were $240,000 and
$718,000 respectively, a decrease of 67%. The decrease is due to the overall
revenue declines across Arc's core businesses.

Selling, general and administrative expenses for the years ended December 31,
2001 and 2000 were $1,688,000 and 2,325,000 respectively. Selling, general and
administrative expenses for 2001 decreased $637,000 (or 27%). This decrease was
primarily due to reductions in selling expenses such as commissions and travel
expenses as a result of the decline in revenues along with the continuing
slashing of overhead to get it inline with the revenue declines.

Depreciation and amortization expenses for the years ended December 31, 2001 and
2000 were $151,000 and $133,000 respectively, an increase of 14 percent.

The income (loss) from continuing operations for the years ended December 31,
2001 and 2000 aggregated ($714,000) and $72,000, respectively and the per share
amounts totaled ($0.05) and $0.01, respectively

In April 2003 the Company sold its educational division, ArcMesa Educators, Inc.
to Belcan Corporation of Cincinnati, Ohio.

Net loss for the years ended December 31, 2001 and 2000 amounted to $741,000 and
$100,000 respectively. Decrease in revenues was the primary factor for the
decrease in net income. As a result, loss per share were $0.05 for the year
ended December 31, 2001 compared to the loss of $0.01 for the year ended
December 31, 2000.

Liquidity and Capital Resources

Cash provided by operations for the year ended December 31, 2002 was $53,000.
The Company believes that its present client base along with the proceeds from
the sale of ArcMesa will generate sufficient revenue to maintain an appropriate
level of liquidity for the near term. If revenues continue to decline the
Company will have to seek additional financing. The Company believes that for
the near term this will not be necessary due to significant overhead reductions
that took place in February 2003.

Cash flow from investing activities was negative for the year ended December 31,
2002. Net cash used in investing activities for the year ended December 31, 2002
was $11,000 used for capital expenditures.

Cash flows from financing activities total $86,000 as the company was required
to reduce its line of credit. During 2002 the Company reduced its obligation to
Sovereign Bank from $435,000 to $295,000. The company also used $150,000 from
the proceeds of the sale of ArcMesa to further reduce its obligation to
Sovereign Bank. Additionally, beginning May 1, 2003 the Company is required to
make monthly principal payments of $2,000.

In their report on the audit of the Company's financial statements for the years
ended December 31, 2002, and 2001 our independent auditors included an
explanatory paragraph in their report because of the uncertainty that we could
continue in business as a going concern. In the event we are unable to raise the
anticipated capital needs through some form of financing or increase our
revenues and cash flows, there would be substantial doubt about our ability to
continue as a going concern.



<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.

None.

<PAGE>

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act

Name                   Age       Position
----                   ---       --------

Steven H. Meyer        41        Chief Executive Officer, President and Director

Michael Rubel          48        Chief Operating Officer, Director

Kenneth P. Meyer       44        Former Vice President, Former Director

Peter A. Bordes, Jr.   40        Director

Thom Rittenhouse       37        Vice President New Media Services

The Board of Directors of the Company consists of four persons as of December
31, 2002. 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.

On April 10, 2001, the Board of Directors of the Company removed Ms. Ethel
Kaplan as a member for "cause" and appointed Michael Rubel, the Company's Chief
Operating Officer, to serve as a director until the next annual meeting of the
Registrant. At the present time, there is no dispute between the Registrant and
Ms. Kaplan regarding her removal.

On April 1, 2003, Kenneth Meyer resigned from the Board of Directors resulting
from the sale of the ArcMesa subsidiary to Belcan Corporation.

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 and as a Director since April of 2001. Mr. Rubel was the co-founder and
eventually President and Chief Executive Officer of CMP 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 served as the Company's Vice President 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. Kenneth Meyer resigned from the Board of Directors upon
the closing of the sale of the ArcMesa subsidiary.

PETER A. BORDES, JR. has served as a Director since September 2002. Mr. Bordes
is an owner of Greater Media, Inc., a privately owned media conglomerate with
leading radio and publishing properties in Boston, Philadelphia, Detroit and New
Jersey. He is also Chairman of Empire Media, a diversified media group with a
focus on publishing, broadcasting and interactive media.

THOM RITTENHOUSE has served as the Company's Vice President of New Media
Services, since 2000. Mr. Rittenhouse joined the Company in September 1993 as an
art director in charge of interactive multi-media. Prior to joining the Company,
Mr. Rittenhouse ran his own design firm in New Jersey. Mr. Rittenhouse is
responsible for the Company's expanding role in the architecture of electronic
commerce, business-to-business, and business-to-consumer web sites as well as
the management of art directors and html and java programmers.

Item 10. Executive Compensation

                         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, 2002 aggregated $318,163. Set forth below is a summary
compensation table prepared in accordance with the applicable rules of the
Securities and Exchange Commission.

<PAGE>

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

                                      Annual Compensation                            Long Term Compensation
                                      -------------------                        -----------------------------
                                                                Other Annual      Securities
                                                                Compensa-         Underlying       All Other
Name                       Year       Salary ($)    Bonus         tion ($)         Options        Compensation
---------------            ----       ----------    -----       ------------      ----------      ------------
<S>                        <C>         <C>          <C>            <C>            <C>                 <C>
Steven H. Meyer            2001        111,142      none           1,800                              none

                           2002         97,199      none           1,400           75,000(1)          none


Michael Rubel              2001        125,000      none           2,520                              none

                           2002        117,132      none           2,520          400,000(2)          none


Kenneth P. Meyer           2001        107,744      none           3,706                              none

                           2002         96,162      none           3,750           75,000(1)          none

Thom Rittenhouse           2001        120,000      none                                              none

                           2002        120,000      none                          250,000(3)          none
</TABLE>

(1) 100% of these options are vested as of December 31, 2002.

(2) Mr. Rubel holds options to purchase 400,000 shares of the Company's Common
Stock pursuant to his employee Stock Option Agreement. Of those 400,000 options,
275,000 have vested.

(3) Mr. Rittenhouse holds options to purchase 250,000 shares of the Company's
Common Stock pursuant to his employee Stock Option Agreement. Of those 250,000
options, 125,000 have vested.

Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

Equity Compensation Plan Information

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                      Number of securities
                                                                                                      remaining available for
                                   Number of securities to be                                         future issuances under
                                   issued upon exercise of        Weighted-average exercise           equity compensation plans
                                   outstanding options,           price of outstanding                (excluding securities
                                   warrants and rights (a)        options, warrants and rights (b)    reflected in column (a))
-------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                             <C>                              <C>
Equity compensation plans
not approved by security                   950,000                         $0.32                            550,000
holders
-------------------------------------------------------------------------------------------------------------------------------
Total
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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 April 1, 2003. At such date there were 14,984,559 shares of Common
Stock and 720,000 shares of preferred stock, respectively, issued and
outstanding. Unless specifically indicated otherwise, all such ownership
interests are direct.

<PAGE>

<TABLE>
<CAPTION>
Title of Class       Name and Address
Common Stock         of Beneficial Owner                   Amount            Percent of Class
------------         -------------------                   ------            ----------------
<S>                                                      <C>                      <C>
                     Peter A. Bordes, Jr.(10)            3,724,148                24.55%
                     62 White Street
                     Suite 3 East
                     New York, NY  10013

                     Steven H. Meyer(1)(5)(7)            2,377,020                15.67%
                     26 Oxford Drive
                     Wayside, New Jersey 07712


                     Kenneth P. Meyer(2)(6)(7)           2,375,687                15.66%
                     7 Wemrock Drive
                     Wayside, New Jersey 07712 2563


                     Michael Rubel(3)(8)                  867,500                 5.71%
                     3 Aspen Court
                     Wayside, New Jersey 07712


                     Thom Rittenhouse(4)(9)               658,200                 4.34%
                     26 Jacob Drive
                     Howell, New Jersey 07731
                                                         ----------               ------

                     TOTAL                               10,002,555               65.93%

</TABLE>

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

(2) Kenneth Meyer is a former Director and Vice President of the Company.

(3) Michael Rubel is a Director and Chief Operating Officer of the Company.

(4) Thom Rittenhouse is the Vice President of New Media Services.

(5) Includes the option to purchase 75,000 shares of the Company's Common Stock
pursuant to Mr. Meyer's Stock Option Agreement, 75,000 shares are currently
vested or will vest within 60 days.

(6) Includes the option to purchase 75,000 shares of the Company's Common Stock
pursuant to Mr. Meyer's Stock Option Agreement, 75,000 shares are currently
vested or will vest within 60 days .

(7) Kenneth Meyer and Steven Meyer are brothers.

(8) Includes the option to purchase 400,000 shares of the Company's Common Stock
pursuant to Mr. Rubel's Stock Option Agreement, 275,000 shares are currently
vested or will vest within 60 days.

(9) Includes the option to purchase 250,000 shares of the Company's Common Stock
pursuant to Mr. Rittenhouse's Stock Option Agreement, 125,000 shares are
currently vested.

(10) Peter A. Bordes, Jr. is a 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.

<PAGE>

Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K

      (a) The following Exhibits are filed with this report or incorporated by
      reference:

      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)

      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  Sublease agreement dated August 1, 2001 between Arc Communications
            Inc. and FCT America Limited.

      21.1  Arc Communications Inc.'s Subsidiaries

      27.1  Financial Data Schedule

      99.1  Additional Exhibits

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

      (b) The Company filed Form 8-K Current Report on October 1, 2002 in
      connection with agreements between the Company and its principal lender
      Sovereign Bank.

<PAGE>

Item 14. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms, and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.

Within 90 days prior to the date of this report, we carried out an evaluation,
under the supervision and with the participation of our management, including
the Chief Executive Officer and the Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective.

There have been no significant changes in our internal and disclosure controls
or in other factors that could significantly affect the internal or disclosure
controls subsequent to the date we completed our evaluation.

Item 16. Principal Accountant Fees and Services.

AUDIT FEES

The aggregate fees for professional services rendered by Eisner, LLP for the
audit of our annual consolidated financial statements for the fiscal years ended
December 31, 2001 and December 31, 2002, and for the reviews of the financial
statements included in our Quarterly Reports on Form 10-Q for those fiscal
years, were $38,250 and $ $38,250, respectively.

FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES

Eisner, LLP did not render professional services relating
to financial information systems design and implementation for the fiscal years
ended December 31, 2001 and December 31, 2002.

ALL OTHER FEES

Eisner, LLP did not render services to the Company for the fiscal years ended
December 31, 2001 and December 31, 2002 other than the services described under
"Audit Fees".

<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
           ------------------------------------------------
            Steven H. Meyer
            CEO, President and Director


           /s/ Michael Rubel
           ------------------------------------------------
            Michael Rubel
            Chief Operating Officer, Secretary and Director


           /s/ Peter A. Bordes
           ------------------------------------------------
            Peter A. Bordes
            Director

<PAGE>

                                 CERTIFICATIONS

I, Steven Meyer, Chief Executive Officer, certify that:

1. I have reviewed this annual report on Form 10-KSB of Arc Communications Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: May ___, 2003


                                            /s/ Steven H. Meyer
                                            ------------------------
                                            Steven H. Meyer

                                            Chief Executive Officer

<PAGE>

                                 CERTIFICATIONS

I, Michael Rubel, Chief Operating Officer, certify that:

1. I have reviewed this annual report on Form 10-KSB of Arc Communications Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: May __, 2003


                          /s/ Michael Rubel
                          ------------------------------------------------------
                           Michael Rubel
                           Chief Operating Officer (principal financial officer)

<PAGE>

                    ARC COMMUNICATIONS INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2002

<PAGE>


ARC COMMUNICATIONS INC. AND SUBSIDIARIES

Contents

                                                                            Page
                                                                            ----
Consolidated Financial Statements

   Independent auditors' report                                              F-2

   Balance sheet as of December 31, 2002                                     F-3

   Statements of operations for the years ended
      December 31, 2002 and 2001                                             F-4

   Statements of changes in stockholders' equity/capital
      deficiency for the years ended December 31, 2002 and 2001              F-5

   Statements of cash flows for the years ended
      December 31, 2002 and 2001                                             F-6

   Notes to financial statements                                             F-7


<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, 2002, and the related
consolidated statements of operations, changes in stockholders' equity/capital
deficiency and cash flows for each of the years in the two-year period 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 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 about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. 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 consolidated 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, 2002, and the
consolidated results of their operations and their consolidated cash flows for
each of the years in the two-year period then ended in conformity with
accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has experienced recurring net losses and has a
working capital deficit and a capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note A. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Eisner, LLP
Florham Park, New Jersey
April 25, 2003


<PAGE>

ARC COMMUNICATIONS INC. AND SUBSIDIARIES

Consolidated Balance Sheet
December 31, 2002

<TABLE>
<CAPTION>

<S>                                                                                         <C>
  ASSETS
  Current assets:
     Accounts receivable - net                                                              $   126,000
     Assets of discontinued operations                                                           16,000
     Prepaid expenses and other current assets                                                    1,000
                                                                                            -----------

        Total current assets                                                                    143,000

  Property and equipment, net                                                                   142,000
  Other assets                                                                                   15,000
                                                                                            -----------

                                                                                            $   300,000
                                                                                            ===========

  LIABILITIES
  Current liabilities:
     Note payable                                                                           $   295,000
     Due to officers/stockholders                                                                74,000
     Accounts payable and accrued expenses                                                      294,000
     Liabilities of discontinued operations                                                      83,000
                                                                                            -----------

        Total current liabilities                                                               746,000
                                                                                            -----------

  Commitments and contingencies

  CAPITAL DEFICIENCY
  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;
     14,984,459 shares issued and outstanding                                                    15,000
  Additional paid-in capital                                                                  1,428,000
  Accumulated deficit                                                                        (2,033,000)
                                                                                            -----------

        Total capital deficiency                                                               (446,000)
                                                                                            -----------

                                                                                            $   300,000
                                                                                            ===========
</TABLE>

See notes to consolidated financial statements                               F-3


<PAGE>

ARC COMMUNICATIONS INC. AND SUBSIDIARIES

Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                        ----------------------------
                                                                            2002            2001
                                                                        ------------    ------------
<S>                                                                     <C>             <C>
Net sales                                                               $  1,057,000    $  1,369,000
                                                                        ------------    ------------

Costs and expenses:
   Operating costs                                                           102,000         240,000
   Selling, general and administrative                                     1,319,000       1,688,000
   Depreciation and amortization                                             105,000         151,000
                                                                        ------------    ------------

      Total costs and expenses                                             1,526,000       2,079,000
                                                                        ------------    ------------

Other income (expense):
   Interest income                                                             2,000           9,000
   Interest expense                                                          (27,000)        (25,000)
   Other income                                                               37,000          12,000
                                                                        ------------    ------------

      Total other income (expense)                                            12,000          (4,000)
                                                                        ------------    ------------

Loss from continuing operations before benefit for income taxes             (457,000)       (714,000)

Benefit for income taxes                                                      15,000
                                                                        ------------    ------------

Loss from continuing operations                                             (442,000)       (714,000)

Loss from discontinued operations                                             (7,000)        (27,000)
                                                                        ------------    ============

Net loss                                                                    (449,000)       (741,000)
Preferred stock dividend imputed                                             (13,000)        (13,000)
                                                                        ------------    ------------

Net loss attributable to common stockholders                            $   (462,000)   $   (754,000)
                                                                        ============    ============

Weighted average common shares outstanding                                14,775,000      13,849,000
                                                                        ============    ============

Basic and diluted loss per share - continuing operations and net loss
   Continuing operations                                                $      (0.03)   $      (0.05)
                                                                        ============    ============
   Net loss                                                             $      (0.03)   $      (0.05)
                                                                        ============    ============
</TABLE>


See notes to consolidated financial statements                               F-4

<PAGE>

ARC COMMUNICATIONS INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders' Equity/Capital Deficiency

<TABLE>
<CAPTION>
                                        Preferred Stock             Common Stock                                          Total
                                 -------------------------  -------------------------                                  Stockholders'
                                    Shares                     Shares                    Additional     Accumulated   Equity/Capital
                                    Issued        Amount       Issued        Amount    Paid-in Capital    Deficit       Deficiency
                                 -----------   -----------  -----------   -----------  ---------------  -----------   --------------
<S>                                  <C>       <C>           <C>          <C>            <C>            <C>            <C>
Balance, January 1, 2000             720,000   $   144,000   13,713,132   $    14,000    $ 1,407,000    $  (843,000)   $   722,000

Stock based compensation for
   professional services                                                                       4,000                         4,000

Issuance of common stock for
   services rendered                                             55,000                        3,000                         3,000

Issuance of common stock as
     Compensation                                             1,002,500         1,000         29,000                        30,000

Net loss                                                                                                   (741,000)      (741,000)
                                 -----------   -----------  -----------   -----------    -----------    -----------    -----------

Balance, December 31, 2001           720,000       144,000   14,770,632        15,000      1,443,000    $(1,584,000)        18,000
Repurchase and
Cancellation of common stock                                 (4,469,270)       (4,000)      (192,000)                     (196,000)

Common shares issued in private
placement net of costs                                        4,683,097         4,000        177,000                       181,000

Net loss                                                                                                   (449,000)      (449,000)
                                 -----------   -----------  -----------   -----------    -----------    -----------    -----------

Balance, December 31, 2002           720,000   $   144,000   14,984,459   $    15,000    $ 1,428,000    $(2,033,000)   $  (446,000)
                                 ===========   ===========  ===========   ===========    ===========    ===========    ===========
</TABLE>


See notes to consolidated financial statements                               F-5

<PAGE>

ARC COMMUNICATIONS INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                                         -----------------------
                                                                           2002          2001
                                                                         ----------   ----------
<S>                                                                      <C>          <C>
Cash flows from operating activities:
Net loss                                                                 $ (449,000)  $ (741,000)
   Adjustments to reconcile net loss to net cash provided by (used in)
      operating activities:
        Depreciation and amortization                                       109,000      156,000
        Write-off of goodwill                                                             57,000
        Provision for uncollectible accounts                                 61,000       34,000
        Stock based compensation for professional services                                 4,000
        Issuance of common stock as compensation                                          33,000
        Changes in:
           Accounts receivable                                              713,000     (392,000)
           Prepaid expenses and other current assets                                      39,000
           Security deposits                                                              (4,000)
           Due from employees                                                 8,000
           Accounts payable and accrued expenses                            156,000      (99,000)
           Billings in excess of costs, net                                (545,000)     514,000
                                                                         ----------   ----------

              Net cash provided by (used in) operating activities            53,000     (399,000)
                                                                         ----------   ----------

Cash flows from investing activities:
   Expenditures for property and equipment                                   (8,000)     (19,000)
   Cash included in assets held for sale                                     (3,000)
                                                                         ----------   ----------

              Net cash used in investing activities                         (11,000)     (19,000)
                                                                         ----------   ----------

Cash flows from financing activities:
   Proceeds from (repayments of) line of credit                            (144,000)     104,000
   Proceeds from due to officers/stockholders                                74,000
   Proceeds from issuance of common stock                                   181,000
   Repurchase of common stock                                              (196,000)
   Bank overdraft                                                            (1,000)
                                                                         ----------   ----------

              Net cash (used in) provided by financing activities           (86,000)     104,000
                                                                         ----------   ----------

Net decrease in cash and cash equivalents                                   (44,000)    (314,000)
Cash and cash equivalents - beginning of year                                44,000      358,000
                                                                         ----------   ----------

Cash and cash equivalents - end of year                                  $        0   $   44,000
                                                                         ==========   ==========

Supplemental disclosures of cash flow information:
   Interest                                                              $   25,000   $   25,000
</TABLE>

See notes to consolidated financial statements                               F-6


<PAGE>

ARC COMMUNICATIONS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2002 and 2001

NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS

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

The Company has experienced recurring net losses and has a working capital
deficit and capital deficiency and needs to raise capital to sustain operations.
There is no assurance that the Company's continuing multi-media segment will be
successful. The Company will continue to require the infusion of capital until
operations become profitable. During 2003, the Company sold its continuing
professional education segment as described in Note C. In addition, during 2003,
the Company anticipates seeking additional capital, increasing sales, and
continuing to restrict expenses. Substantial doubt exists about the ability of
the Company to continue as a going concern. These financial statements make no
adjustment to the classification or amount of assets or liabilities that may be
necessary as a result of the going concern uncertainty.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

[1]   Principles of consolidation:

      The accompanying consolidated financial statements include the accounts of
      the Company and its subsidiaries after elimination of significant
      intercompany accounts and transactions.

[2]   Cash:

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

[3]   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
      $25,000 as of December 31, 2002.

[4]   Per share information:

      Basic earnings (loss) per share is computed by dividing income (loss)
      attributable to common stockholders (net income or loss adjusted for
      preferred stock dividends of $13,000 in each year) by the weighted average
      number of common shares outstanding. Diluted earnings (loss) per share is
      computed by dividing income (loss) attributable 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 exercise 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 (basic and diluted) for the
      year ended December 31, 2002 and 2001 aggregated 14,775,000 and
      13,849,000, respectively; stock options (950,000 in 2002 and 1,500,000 in
      2001, respectively) have been excluded since they are anti dilutive.

[5]   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.
      Leasehold improvements are amortized over the shorter of the lease term or
      the lives of the respective asset.


                                                                             F-7
<PAGE>

ARC COMMUNICATIONS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2002 and 2001

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

[6]   Goodwill:

      At December 31, 2001, the Company determined that the asset was impaired
      due to the continual professional education segment's negative book value
      and net loss. As a result, the Company wrote off the remaining unamortized
      balance aggregating $57,000. Amortization expense amounted to $10,000 for
      the year ended December 31, 2001.

[7]   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.

[8]   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 to 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 plan and provide the disclosures required by SFAS No. 123 and
      SFAS 148, "Accounting for Stock-Based Compensation-Transition and
      Disclosure", which was released in December 2002 as an amendment of SFAS
      No. 123. The following table illustrates the effect on net income and
      earnings per share if the fair value based method had been applied to all
      awards.

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                               -----------------------
                                                                  2002          2001
                                                               ---------     ---------
<S>                                                            <C>           <C>
      Reported net loss from continuing operations             $(442,000)    $(714,000)

      Add stock based employee compensation included in
          reported net loss from continuing operations                 0             0

      Deduct stock based employee compensation
           determined under the fair value based method, net
           of related tax effects                                (20,000)      (26,000)
                                                               ---------     ---------

      Pro forma net loss from continuing operations            $(462,000)    $(740,000)
                                                               =========     =========

      Basic and diluted loss per share from continuing
           operations

      As reported                                              $    (.03)    $    (.05)
                                                               =========     =========

      Pro forma                                                $    (.03)    $    (.06)
                                                               =========     =========
</TABLE>
      The weighted average fair value of the options granted for both 2002 and
      2001 is $.01 per share on the date of grant using the Black-Scholes option
      pricing model with the following assumptions; dividend yield 0%,
      volatility 110% and 120% in 2002 and 2001,respectively, expected life 4
      years, risk free interest rate of approximately 4.3% and 3.9% in 2002 and
      2001, respectively.


                                                                             F-8
<PAGE>

ARC COMMUNICATIONS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2002 and 2001

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

[9]   Advertising:

      The Company follows the policy of charging the costs of advertising to
      expense as incurred. During 2002 and 2001, the Company recorded
      advertising expense of $2,000 and $3,000, respectively.

[10]  Use of estimates:

      The preparation of financial statements in conformity with accounting
      principles generally accepted in the United States of America 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.

[11]  Recent accounting pronouncements:

      In June 2001, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards ("SFAS") No. 141, Accounting for Business
      Combinations, and SFAS No. 142, Accounting for Goodwill and other
      Intangible Assets, effective for fiscal years beginning after December 15,
      2001. Under SFAS No. 141, a company must use the purchase method of
      accounting for all business acquisitions. Under SFAS No. 142, goodwill and
      intangible assets deemed to have indefinite lives will no longer be
      amortized but will be subject to annual impairment tests in accordance
      with the statements. The Company adopted these standards effective January
      1, 2002.

      In August 2001, the FASB issued SFAS No. 144, Accounting for the
      Impairment or Disposal of Long-Lived Assets. This statement superseded
      SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
      Long-Lived Assets to Be Disposed Of and addresses financial accounting and
      reporting for impairment of long-lived assets to be held and used, and
      long-lived assets and components of an entity to be disposed of. The
      Company adopted this statement on January 1, 2002.

      In December 2002, the FASB issued SFAS No. 148, "Accounting for
      Stock-Based Compensation - Transition and Disclosure" as an amendment to
      SFAS No. 123 to provide alternative methods of transition for an entity
      that voluntarily changes to the fair value based method of accounting for
      stock-based employee compensation. It also amends the disclosure
      provisions of SFAS No. 123 to require prominent disclosure about the
      effects on reported net income (loss) of an entity's accounting policy
      decisions with respect to stock-based employee compensation and amends APB
      Opinion No. 28 to require disclosure about those effects in interim
      financial information. The disclosure provisions are effective for fiscal
      years ending after December 15, 2002 and for interim periods beginning
      after December 15, 2002. The Company follows the intrinsic value method of
      accounting for stock-based employee compensation, but will continue to
      evaluate the benefits of a voluntary change to the fair value based
      method.

[12]  Reclassification:

      Certain reclassifications have been made to the consolidated statement of
      operations for the year ended December 31, 2001 to conform to the current
      year presentation.


                                                                             F-9
<PAGE>

ARC COMMUNICATIONS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2002 and 2001

Note C - Discontinued Operations

During 2002, the management of the Company committed to a plan to sell its
continuing professional education segment. The segment provides continuing
professional education to various professions with a primary focus on the
medical profession. On April 1, 2003, the Company sold the continuing
professional education segment for approximately $350,000 in cash. Additionally,
the Company signed a non-compete agreement. In connection with this agreement,
the buyer will pay $100,000 on April 1, 2004. The estimated gain on the sale
aggregates $417,000.

The loss from discontinued operations reflects the results of operations of the
discontinued segment for the years ended December 31, 2002 and 2001. The assets
and liabilities of the subsidiary are classified separately in the consolidated
balance sheet at December 31, 2002. The assets, liabilities and income (loss)
from discontinued operations in the consolidated financial statements consist of
the following:

                                               As of December
                                                  31, 2002
                                               --------------
      Assets
      Cash and cash equivalents                   $ 3,000
      Accounts receivable - net                     6,000
      Inventory                                     1,000
      Property and equipment - net                  6,000
                                                  -------

                                                  $16,000
                                                  =======

      Liabilities
      Accounts payable and accrued expenses       $83,000
                                                  =======

                                                    Year ended December 31,
                                                  --------------------------
                                                      2002           2001
                                                  -----------    -----------
      Results of operations
      Net sales                                   $   778,000    $ 1,113,000
                                                  -----------    -----------

      Costs and expenses
      Operating costs                                  13,000         37,000
      Selling, general and administrative costs       746,000      1,098,000
      Depreciation and amortization                     4,000          5,000
                                                  -----------    -----------
                                                      763,000      1,140,000
                                                  -----------    -----------
                                                       15,000        (27,000)
      Provision for income taxes                       22,000
                                                  -----------    -----------

      Loss from discontinued operations           $    (7,000)   $   (27,000)
                                                  ===========    ===========


                                                                            F-10
<PAGE>

ARC COMMUNICATIONS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2002 and 2001

NOTE D - PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 2002 consists of:

      Equipment and furniture    $ 1,001,000
      Leasehold improvements         108,000
                                 -----------
                                   1,109,000
      Accumulated depreciation      (967,000)
                                 -----------

                                 $   142,000
                                 ===========

Depreciation expense aggregated $105,000 and $151,000 for the years ended
December 31, 2002 and 2001, respectively.

NOTE E - NOTE PAYABLE

During the year ended December 31, 2002, the Company maintained a $750,000 line
of credit which was collateralized by the accounts receivable. Advances under
the line of credit were due on demand. During 2002, the bank demanded repayment
of the outstanding advances. In August 2002, the Company and the bank entered
into a stipulation agreement which required monthly payments of $3,000 plus
interest at 7% per annum and maintenance of accounts receivable aggregating at
least $250,000. As of December 31, 2002, the Company was in default of the
covenant.

During April 2003, the Company and the bank entered into a second stipulation
agreement requiring the Company to make monthly payments of $2,000 per month
plus interest at 7% per annum and maintain accounts receivable at the lesser of
$150,000 or 111% of the note payable. In connection with the sale of the
continuing education segment, the Company repaid $150,000.

NOTE F - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses are:

      Accounts payable           $   268,000
      Accrued payroll                 21,000
      Other                            5,000
                                 -----------

                                 $   294,000
                                 ===========

NOTE G - INCOME TAXES

The significant components of the Company's deferred tax asset and liability as
of December 31, 2002 are as follows:

      Deferred income tax asset:
         Net operating loss carryforwards   $   728,000

      Deferred income tax liability:
         Accrual to cash adjustment              97,000
         Property and equipment                   8,000
                                            -----------
                                                105,000
                                            -----------
      Net deferred tax asset                    833,000
      Valuation allowance                      (833,000)
                                            -----------

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


                                                                            F-11

<PAGE>

ARC COMMUNICATIONS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2002 and 2001

NOTE G - INCOME TAXES (CONTINUED)

The significant components of the provision for income taxes for the years ended
December 31, 2002 and 2001 are as follows:

                                             2002         2001
                                          ---------    ---------
      Current - federal                   $  15,000
                                          ---------
      Deferred:
         Federal                            105,000    $ 254,000
         State                               76,000       74,000
         Change in valuation allowance     (181,000)    (328,000)
                                          ---------    ---------

            Total deferred income taxes           0            0
                                          ---------    ---------

         Provision for income taxes       $  15,000    $       0
                                          =========    =========

As of December 31, 2002, the Company has net operating loss carryforwards of
approximately $1,788,000 for federal income tax purposes, which expire through
2022. As a result of the continuing losses, the Company has determined that it
is more likely than not that it will not be able to utilize its deferred tax
assets; accordingly, it has provided a valuation allowance which offsets the
deferred tax asset.

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

                                            2002     2001
                                           -----    -----
      Statutory federal income tax rate    (34.0)%  (34.0)%
      Nondeductible expenses                           .3
      Other                                  2.5     (2.7)
      Increase in valuation allowance       28.0     36.4
                                           -----    -----

      Effective income tax rate              3.5%       0%
                                           =====    =====

NOTE H - RELATED PARTY TRANSACTION

Legal fees paid to corporate counsel, with which the son of a
director/shareholder is affiliated, were $9,000 for 2001.

NOTE I - STOCKHOLDERS' EQUITY

[1]   Common stock:

      During 2002, the Company purchased 4,469,270 shares of its common stock
      owned by two related shareholders at a cost of $196,000. These shares were
      cancelled upon acquisition.

      Additionally during 2002, the Company issued 4,683,097 shares of common
      stock in a private placement in exchange for $181,000.

      During 2001, the Company issued 55,000 shares of common stock for
      consulting services rendered and recorded an expense of $3,000 based on
      the fair value of the common stock on the dates of issuance. Additionally,
      the Company issued 1,002,500 shares of common stock to certain employees
      and recorded an expense of $30,000 based on the market value of the common
      stock on the dates of issuance.


                                                                            F-12
<PAGE>

ARC COMMUNICATIONS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2002 and 2001

NOTE I - STOCKHOLDERS' EQUITY (CONTINUED)

[2]   Preferred stock:

      Dividends in arrears as of December 31, 2002 aggregated $ 56,000.

[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.

The following table summarizes stock options transactions:

<TABLE>
<CAPTION>
                                                    Year Ended December 31,
                                      ---------------------------------------------------
                                                2002                       2001
                                      ------------------------   ------------------------
                                                      Weighted                   Weighted
                                                       Average                    Average
                                                      Exercise                   Exercise
                                        Shares         Price       Shares         Price
                                      ----------    ----------   ----------    ----------
<S>                                    <C>          <C>           <C>          <C>
      Options:
         Outstanding at beginning
           of year                     1,500,000    $     0.50    1,330,000    $     0.50
         Granted                          10,000          0.01      490,000          0.01
         Cancelled                      (560,000)         0.50     (320,000)         0.50
                                      ----------                 ----------

         Outstanding at end of year      950,000    $     0.24    1,500,000    $     0.34
                                      ==========                 ==========

         Exercisable at year end         685,000    $     0.32      935,000    $     0.43
                                      ==========                 ==========
</TABLE>

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, 2002:

<TABLE>
<CAPTION>
                                        Options Outstanding                         Options Exercisable
                          ----------------------------------------------        --------------------------
                            Number                                                Number
                          Outstanding         Weighted          Weighted        Exercisable       Weighted
        Range of             as of             Average          Average            as of           Average
        Exercise          December 31,        Remaining         Exercise        December 31,      Exercise
         Prices               2002         Life (in Years)       Price              2002            Price
      -----------         -----------      ---------------    -----------       -----------      -----------
<S>                          <C>                <C>              <C>               <C>              <C>
         $0.50               450,000            0.38             $0.50             437,500          $0.50
         $0.01               500,000            2.80             $0.01             247,500          $0.01

</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, which was expensed over the life of the agreement.


                                                                            F-13
<PAGE>

ARC COMMUNICATIONS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2002 and 2001

NOTE J - COMMITMENTS

The Company leases office space and equipment under operating leases with an
initial or remaining term in excess of one year, expiring through 2006. As of
December 31, 2002, minimum aggregate rentals are as follows:

              Year Ending
              December 31,                   Lease       Sub-Lease
      --------------------------         ------------    ------------
         2003                            $    146,000    $     37,000
         2004                                  88,000          37,000
         2005                                  80,000          37,000
         2006                                  72,000          34,000
                                         ------------    ------------

         Minimum payments                $    386,000    $    145,000
                                         ============    ============

Total rent expense for the years ended December 31, 2002 and 2001 aggregated
$158,000 and $257,000, respectively.

The Company sublet office space commencing August 1, 2001; sub-lease rental
income aggregated $37,000 and $12,000 during the years ended December 31, 2002
and 2001.

NOTE K - MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK

For the year ended December 31, 2002, four customers accounted for 32%, 13%, 13%
and 11% of sales. One customer accounted for 24% of sales for the year ended
December 31, 2001.


                                                                            F-14