UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
XXX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________ to __________
Commission File Number 000-21557
ACI Telecentrics, Incorporated
(Exact name of business issuer as specified in its charter)
Minnesota 41-1572571
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3100 West Lake Street, Suite 300, Minneapolis, MN 55416-4510
(Address of principal executive offices)
(612) 928-4700
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES _X_ NO____
The Company had 5,708,583 shares of common stock, no par value per
share, outstanding as of July 31, 1997.
Transitional Small Business Disclosure Format (Check One ): YES__ NO_X_
<PAGE>
ACI TELECENTRICS, INCORPORATED
FORM 10-QSB
TABLE OF CONTENTS
PAGE #
------
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Statements of Earnings 3
Balance Sheets 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
a. Exhibits
27. Financial Data Schedule
b. Reports on Form 8-K
No current reports on Form 8-K were filed in the
fiscal quarter ended June 30, 1997
Signature Page 10
<PAGE>
PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements
ACI TELECENTRICS, INCORPORATED
STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
TELEMARKETING REVENUES $ 4,079,976 $ 2,486,589 $ 7,252,667 $ 3,956,962
COST OF SERVICES 2,091,611 1,185,476 3,642,914 1,872,594
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,534,586 917,479 2,870,009 1,587,988
------------ ------------- ------------- ------------
OPERATING INCOME 453,779 383,634 739,744 496,380
OTHER INCOME (EXPENSE)
Interest income 51,829 629 111,130 1,933
Interest expense (3,151) (45,967) (7,506) (75,155)
Other, net 14,746 5,000 21,630 5,000
------------ ------------- ------------- ------------
Total other income (expense) 63,424 (40,338) 125,254 (68,222)
------------ ------------- ------------- ------------
INCOME BEFORE TAXES 517,203 343,296 864,998 428,158
INCOME TAX EXPENSE 185,100 - 328,700 -
------------ ------------- ------------- ------------
NET INCOME $ 332,103 $ 343,296 $ 536,298 $ 428,158
============ ============= ============= ============
PRO FORMA DATA
Historical income before income taxes $ 517,203 $ 343,296 864,998 428,158
Pro Forma income taxes 185,100 137,055 328,700 171,000
------------ ------------- ------------- ------------
Pro Forma net income $ 332,103 $ 206,241 $ 536,298 $ 257,158
============ ============= ============= ============
Pro Forma net income per share $ .06 $ .05 $ .09 $ .06
=========== ============ ============= ============
Shares used in computing Pro Forma
net income per share 5,758,000 4,288,000 5,756,000 4,288,000
============ ============= ============= ============
</TABLE>
See notes to financial statements
<PAGE>
ACI TELECENTRICS INCORPORATED
BALANCE SHEETS
(Unaudited)
June 30, December 31,
ASSETS 1997 1996
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $4,923,327 $5,005,813
Trade receivables, less allowance for
doubtful accounts of $99,000 and $73,000
respectively 1,564,492 1,130,451
Other current assets 72,685 149,064
---------- ----------
Total Current Assets 6,560,504 6,285,328
PROPERTY AND EQUIPMENT, NET 2,133,673 1,900,843
OTHER ASSETS 9,410 9,449
$8,703,587 $8,195,620
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 606,934 $ 520,318
Accrued expenses 223,959 176,975
Income taxes payable 12,922 144,200
Current portion of long-term debt and
capital lease obligations 106,525 104,384
---------- ----------
Total current liabilities 950,340 945,877
LONG TERM LIABILITIES:
Long-term debt and capital lease obligations,
less current portion 102,083 121,757
Deferred capital lease liabilities 121,407 156,000
Deferred income taxes 223,290 206,412
---------- ----------
Total long-term liabilities 446,780 484,169
SHAREHOLDERS' EQUITY:
Common stock, no par value 6,582,158 6,577,563
Retained earnings 724,309 188,011
---------- ----------
Total shareholders' equity 7,306,467 6,765,574
---------- ----------
$8,703,587 $8,195,620
========== ==========
See notes to financial statements
<PAGE>
ACI TELECENTRICS INCORPORATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 536,298 $ 428,158
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation 236,945 145,047
Amortization of deferred capital leases (25,700) -
Gain on Sale of equipment - (5,000)
Deferred income taxes 16,878 -
Changes in operating assets and liabilities:
Trade receivables (434,041) (351,400)
Other current assets 76,379 (19,861)
Accounts payable and accrued expenses 133,600 223,711
Income Taxes (131,278) -
----------- -----------
Net cash provided by
operating activities 409,081 420,655
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (469,775) (184,547)
Proceeds from Sale of equipment - 5,000
(Increase) Decrease in other assets 39 (487)
----------- -----------
Net cash used in investing activities (469,736) (180,034)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments in revolving line credit - (100,000)
Proceeds from issuance of long term debt - 50,000
Net proceeds from issuance of common stock 4,595 -
Repayments of long term debt and capital leases (26,426) (125,860)
----------- -----------
Net cash used in financing activities (21,831) (175,860)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (82,486) 64,761
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 5,005,813 67,483
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 4,923,327 $ 132,244
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
ACI TELECENTRICS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
1. The balance sheet of ACI Telecentrics, Incorporated ("Company") as of
June 30, 1997 and the related statements of earnings and cash flows for
the three months and six months periods ended June 30, 1997 and 1996,
have been prepared by the Company without being audited. In the opinion
of management, these statements reflect all adjustments consisting of
all normal recurring entries necessary to present fairly the financial
position of ACI Telecentrics, Incorporated as of June 30, 1997 and the
results of operations and cash flows for all periods presented. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Therefore, these financial
statements should be read in conjunction with the financial statements
and notes thereto included in the Company's 1996 Form 10-KSB. The
results of operations for interim periods are not necessarily
indicative of results which will be realized for the full fiscal year.
2. Prior to October 21, 1996, the effective date of the Company's initial
public offering, the Company was a Subchapter S Corporation. As a
result, any income tax liability was the sole responsibility of the
individual stockholders. Therefore, no provision for income taxes or
income tax liability was recorded in the financial statements for the
three and six months ended June 30, 1996.
On October 21, 1996, the company terminated its status as an S
Corporation and was subject to federal and state income taxes
thereafter. Accordingly, for informational purposes, the accompanying
statement of earnings for the three and six months ended June 30, 1996
include pro forma information for income taxes which would have been
recorded if the Company had been a C Corporation for the three and six
months ended June 30, 1996 based on the tax laws in effect at that
time.
3. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share". This Statement specifies the computation, presentation, and
disclosure requirements for earnings per share. This Statement is
effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. Adoption by the company
in 1997 is not expected to have a material impact on the earnings per
share computation.
4. On August 1, 1997 the company acquired all of the outstanding common
stock of Encylcopaedia Britannica Communications Corporation
("Britcom"). The acquisition will be accounted for as a purchase. The
initial cash purchase price was $1,250,000. The final purchase price is
based on Britcom achieving certain revenue levels in 1998 and could be
up to $3 million and must be paid by January 31, 1999. The Company has
provided the seller with a $500,000 security interest in a Treasury
Bill owned by the Company as a guaranty of payment of the future
purchase price.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Revenues from telemarketing services are recognized as these services
are performed and are generally based on an hourly rate. Cost of services
includes salary and commissions for telephone sales representatives ("TSR's"),
payroll taxes and other benefits associated with such personnel, telephone
expenses and other direct costs associated with providing services to customers.
Selling, general and administrative expenses include administrative, sales,
marketing, occupancy, depreciation and other indirect costs.
The telemarketing services provided by the Company are performed in six
leased call centers located at the corporate headquarters in Minneapolis,
Minnesota; Twin Valley, Minnesota; Valley City and Devils Lake, North Dakota;
and Redfield and Pierre, South Dakota. These six call centers collectively have
289 workstations, where over 720 TSR's are employed as of June 30, 1997. On
August 1, 1997, the Company acquired all of the common stock of Encylcopaedia
Britannica Communications Corporation (the "Britcom Acquisition") which added
two new call centers, 230 new work stations, and 290 TSR's. See item 5 and
footnote #4 to financial statements included in item 1 herein.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997, COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Revenues for the three months ended June 30, 1997 were $4,079,976 a 64%
increase over the 1996 second quarter revenues of $2,486,589. Approximately 73%
of 1997 second quarter revenues were generated by three clients in the
telecommunications industry, an industry which the Company did not provide
services to during the second quarter of 1996. One of these clients represented
68% of 1997 second quarter revenues and is expected to represent a significant
portion of the Company's business during the balance of 1997. Financial services
clients have historically been a significant industry segment in which the
company has operated, accounting for 42% of second quarter 1996 revenue. As a
result of fewer credit card acquisition programs, financial services accounted
for less than 2% of 1997 second quarter revenues.
The Company prices its services in connection with bids for client
contracts. In 1997, billable telemarketing service representative hours
increased by 54%, primarily as a result of six call centers operating in second
quarter 1997 compared to four in the second quarter 1996. The Company operated
289 call stations in the second quarter 1997 compared to 184 call stations in
the second quarter of 1996.
Cost of Services in the second quarter of 1997 was $2,091,611 or 51.3%
of revenues compared to $1,185,470 or 47.7% of revenues in the second quarter of
1996. The increase in cost of services as a percentage of revenues in 1997
compared to 1996 was the result of the Company outsourcing approximately 7% of
its revenue in the second quarter of 1997 to other qualified telemarketing
companies. The cost of services on outsourcing services was 80%. The cost of
services as a percentage of revenue was also negatively impacted by a 4% decline
in the average hourly billing rate in the second quarter of 1997 compared to the
second quarter of 1996 as the company adjusted its pricing to compete for large
volume accounts.
Selling, general and administrative expenses were $1,534,586 in 1997
compared to $917,479 in 1996. This 67% increase was primarily related to
increased volume of calls, the new call centers which were not open in the
second quarter of 1996 and the additional personnel required by revenue growth.
As a percentage of revenues, selling, general and administrative expenses were
37.6% in the second quarter of 1997 compared to 36.9% in the second quarter of
1996.
<PAGE>
As a result of these factors, operating income increased 18.3% to
$453,779 (11.1% of revenues) versus $383,634 (15.4% of revenue). Other income
and expense improved $103,762 in the second quarter of 1997 over the second
quarter of 1996. The Company was favorably impacted by interest earnings on cash
generated from the initial public offering ("IPO") which reduced debt and added
interest bearing investments to the balance sheet. The net change in interest
income/expense was $94,016 in the second quarter of 1997 versus the second
quarter of 1996.
Prior to October 21, 1996, the date of the IPO, the Company was a Sub
Chapter S Corporation. As a result, any income tax liability was the
responsibility of the individual shareholders and no provision for income taxes
or income tax liability was recorded in the financial statements. Effective with
the IPO, the Company terminated its status as an S Corporation and became
subject to federal and state income taxes. Accordingly, for informational
purposes, earnings for the periods ended June 30, 1996 include pro forma
information for income taxes which would have been recorded if the Company had
been a C Corporation for the period, based on the tax laws in effect during
those periods. Pro forma net income includes an estimated federal and state tax
provision of 40%.
SIX MONTHS ENDED JUNE 30, 1997, COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues for the six months ended June 30, 1997 were $7,252,667 an
83.3% increase over the six months ended June 30, 1996 of $3,956,962.
Approximately 72.5% of the 1997 six month revenues were generated by three
clients in the telecommunications industry, an industry which the Company did
not provide services to in the first six months of 1996. One of these clients
represented 68% of 1997 six months revenues and is expected to represent a
significant portion of the Company's business during the balance of 1997.
Financial services clients have historically been a significant industry segment
in which the company has operated, accounting for 47.8% of the first six months
of 1996 revenue. As a result of fewer credit card acquisition programs financial
services accounted for less than 2% of 1997 first six months revenues.
In 1997, billable telemarketing service representative hours increased
by 78%, primarily as a result of six call centers operating in the six months
ending June 30, 1997 compared to four in the in the six months ending June 30,
1996. The Company operated 289 call stations during the six months ending June
30, 1997, compared to 160 call stations in the six months ending June 30, 1996.
Cost of services for the six months ended June 30, 1997 were $3,642,914
or 50.2% of revenues compared to $1,872,594 or 47.3% of revenues for the six
months ended June 30, 1996. The increase in the cost of services as a percentage
of revenue in 1997 compared to 1996 was the result of the Company outsourcing
approximately 6.7% of its revenue in the first six months of 1997 to other
qualified telemarketing companies. The cost of services on outsourcing was 80%.
The cost of services as a percentage of revenue was also negatively impacted by
a 2.6% reduction in the average hourly billing rate for the six months ending
June 30, 1997 compared to the six months ending June 30, 1997 as the Company
adjusted its pricing to compete for large volume accounts.
Selling, general and administrative expenses were $2,870,009 for the
six months ending June 30, 1997 compared to $1,587,988 in 1996. The increase of
80.7% was primarily related to the increased volume of calls, the two call
centers that were not yet open in the first six months of 1996, and the
additional personnel required by revenue growth. Primary components of the
increase were an increase in salaries, payroll taxes and related benefits of
$791,012 and depreciation increased $91,848, attributable to the opening of the
new call centers.
LIQUIDITY AND CAPITAL RESOURCES
<PAGE>
The Company's balance sheet continues to be strong as a result of its
1996 IPO. At June 30, 1997, the Company had cash and cash equivalents of
$4,923,327 compared to $5,005,813 at December 31, 1996. In connection with the
Britcom Acquisition on August 1, 1997, the Company paid $1,250,000 in cash and
pledged an additional $500,000, consequently the Company's available cash and
cash equivalents were reduced by $1,750,000 as of this date. See item 5 in
footnote #4 to financial statements included in item 1 herein. The Company has
adopted investment guidelines which restrict the types and quality of
investments which may be acquired. At June 30, 1997 the Company had invested
approximately $3,754,000 in commercial paper rated a minimum of A-1/P-1. At June
30, 1997, the Company had an unused revolving line of credit agreement of
$400,000 which is limited to a borrowing base equal to 75% of eligible accounts
receivable (as defined in the agreement).
In the six months ended June 30, 1997, the operating activities
provided cash flows of $409,081 compared to $420,655 in the six months ended
June 30, 1996. Investing activities, which are primarily capital expenditures,
required $469,736 of cash in 1997 compared to $180,034 in 1996. The Company
utilized $21,831 in the six months ending June 30, 1997 for financing activities
compared to $175,860 in the six months ended June 30, 1996.
The Company has historically received private and government sector
economic development grants in connection with the opening of call centers. The
Company has entered into an agreement with the State of Nebraska and certain
Nebraska communities to provide for grants of approximately $1.6 million in
connection with the opening of 3 call centers by April 1998.
The Company believes that funds available at June 30, 1997 together
with funds which should be generated from future operations, economic
development grants, equipment and finance leases, and revolving credit
arrangements will be sufficient to finance its current operations and planned
capital expenditures.
QUARTERLY RESULTS
The telemarketing industry tends to be slower in the first and third
quarters of the year because client marketing and customer service programs are
typically slower in the post-holiday and summer months. The Company has
experienced, and expects to continue to experience, quarterly fluctuations in
revenues and operating income principally as a result of the timing of clients'
telemarketing campaigns, the commencement of new contracts, changes in the
Company's revenue mix, opening of new call centers, and the additional selling,
general and administrative expenses to acquire and support such new business.
OUTLOOK
Certain of the statements in this section are "forward-looking
statements" within the meaning of the federal securities laws. The following
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed or implied by
such statements.
Management expects that its major client in the telecommunications
industry will continue to account for a significant portion of the Company's
revenues in 1997. There is no assurance that this client will continue to
generate sufficient new business to meet expectations or to fully utilize the
company's current call center capacity or the additional call center capacity
that is being added in 1997.
ITEM 5 - OTHER INFORMATION
On August 1, 1997, the Company acquired all the common stock of
Encylcopaedia Britannica Communication Corporation as more fully described in
Form 8K which was filed on August 12, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACI TELECENTRICS, INCORPORATED
Registrant
Dated August 12, 1997 By: /s/STEVEN A. KAHN
--------------------------------------
Steven A. Kahn
Vice President and
Chief Financial Officer
(Principal Accounting Officer)
Dated August 12, 1997
By: /s/RICK N. DIAMOND
--------------------------------------
Rick N. Diamond
Chief Executive Officer and
Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,923,327
<SECURITIES> 0
<RECEIVABLES> 1,663,492
<ALLOWANCES> 99,000
<INVENTORY> 0
<CURRENT-ASSETS> 6,560,504
<PP&E> 3,298,240
<DEPRECIATION> 1,164,567
<TOTAL-ASSETS> 8,703,587
<CURRENT-LIABILITIES> 950,340
<BONDS> 223,490
0
0
<COMMON> 6,582,158
<OTHER-SE> 724,309
<TOTAL-LIABILITY-AND-EQUITY> 8,703,587
<SALES> 0
<TOTAL-REVENUES> 7,252,667
<CGS> 3,642,914
<TOTAL-COSTS> 6,512,923
<OTHER-EXPENSES> (21,630)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (103,624)
<INCOME-PRETAX> 864,998
<INCOME-TAX> 328,700
<INCOME-CONTINUING> 536,298
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
