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 March 31, 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 5,706,528 shares of common stock, no par value per
share, outstanding as of April 30, 1997.
Transitional Small Business Disclosure Format (Check One ): YES _ NO X
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 March 31, 1997
Signature Page 10
PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements
ACI TELECENTRICS, INCORPORATED
STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended
---------------------------
March 31,
---------------------------
1997 1996
----------- -----------
TELEMARKETING REVENUES $ 3,172,691 $ 1,470,373
COST OF SERVICES 1,551,303 687,118
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,335,423 670,509
----------- -----------
OPERATING INCOME 285,965 112,746
OTHER INCOME (EXPENSE)
Interest income 59,301 1,304
Interest expense (4,355) (29,188)
Other, net 6,884 0
----------- -----------
Total other income (expense) 61,830 (27,884)
----------- -----------
INCOME BEFORE TAXES 347,795 84,862
INCOME TAX EXPENSE 143,600 --
----------- -----------
NET INCOME $ 204,195 $ 84,862
=========== ===========
PRO FORMA DATA
Historical income before income taxes $ 347,795 $ 84,862
Pro Forma income taxes 143,600 33,945
----------- -----------
Pro Forma net income $ 204,195 $ 50,917
=========== ===========
Pro Forma net income per share $ .04 $ .01
=========== ===========
Shares used in computing Pro Forma
net income per share 5,751,289 4,288,000
=========== ===========
See notes to financial statements
<TABLE>
<CAPTION>
ACI TELECENTRICS INCORPORATED
BALANCE SHEETS
March 31,
1997 DECEMBER 31,
ASSETS (Unaudited) 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $4,687,948 $5,005,813
Trade receivables, less allowance for
doubtful accounts of $88,000 and $73,000
respectively 1,618,655 1,130,451
Other current assets 113,193 149,064
---------- ----------
Total Current Assets 6,419,796 6,285,328
PROPERTY AND EQUIPMENT, NET 2,043,424 1,900,843
OTHER ASSETS 9,449 9,449
---------- ----------
$8,472,669 $8,195,620
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 395,191 $ 520,318
Accrued expenses 411,208 176,975
Income taxes payable 123,149 144,200
Current portion of long-term debt and
capital lease obligations 105,546 104,384
---------- ----------
Total current liabilities 1,035,094 945,877
LONG TERM LIABILITIES:
Long-term debt and capital lease obligations,
less current portion 104,997 121,757
Deferred capital lease liabilities 144,151 156,000
Deferred income taxes 214,063 206,412
---------- ----------
Total long-term liabilities 463,211 484,169
SHAREHOLDERS' EQUITY:
Common stock, no par value 6,582,158 6,577,563
Retained earnings 392,206 188,011
---------- ----------
Total shareholders' equity 6,974,364 6,765,574
---------- ----------
$8,472,669 $8,195,620
========== ==========
</TABLE>
See notes to financial statements
<TABLE>
<CAPTION>
ACI TELECENTRICS INCORPORATED
STATEMENT OF CASH FLOWS
(UNAUDITED)
3 Months Ended March 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS (UTILIZED IN) OPERATING ACTIVITIES:
Net income $ 204,195 $ 84,862
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation 110,332 43,107
Amortization of deferred capital leases (11,849)
Deferred income taxes 7,651 --
Changes in operating assets and liabilities:
Trade receivables (488,204) 135,610
Other current assets 35,871 15,193
Accounts payable and accrued expenses 109,106 9,587
Income Taxes (21,051) --
----------- -----------
Net cash (utilized in) provided by
operating activities (53,949) 288,359
CASH FLOWS (UTILIZED IN) FROM INVESTING ACTIVITIES:
Purchase of property and equipment (252,913) (72,653)
Increase in other assets -- (4,700)
----------- -----------
Net cash used in investing activities (252,913) (77,353)
CASH FLOWS (UTILIZED IN) PROVIDED BY
FINANCING ACTIVITIES:
Decrease in revolving line credit -- (150,000)
Net proceeds from issuance of common stock 4,595 --
Repayments of long term debt and capital leases (15,598) (48,722)
----------- -----------
Net cash used in financing activities (11,003) (198,722)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (317,865) 12,284
CASH AT BEGINNING OF PERIOD 5,005,813 67,483
----------- -----------
CASH AT END OF PERIOD $ 4,687,948 $ 79,767
=========== ===========
</TABLE>
See notes to financial statements
ACI TELECENTRICS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
1. The balance sheet of ACI Telecentrics, Incorporated ("Company") as of
March 31, 1997 and the related statements of earnings and cash flows
for the three months ended March 31, 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 March 31, 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 months ended March 31, 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 months ended March 31, 1996 include
unaudited pro forma information for income taxes which would have been
recorded if the Company had been a C Corporation for the three months
ended March 31, 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.
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
five leased call centers located at the corporate headquarters in Minneapolis
and in Twin Valley, Minnesota; Valley City and Devils Lake, North Dakota; and
Redfield, South Dakota. The Devils Lake and Redfield locations began operating
subsequent to March 31, 1996. These five call centers collectively have 289
workstations, where over 580 TSR's are employed as of March 31, 1997.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997, COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Revenues for the three months ended March 31, 1997 were $3,172,691 a
116% increase over the 1996 first quarter revenues of $1,470,373. Approximately
73% of 1997 first quarter revenues were generated by three clients in the
telecommunications industry, an industry which the Company did not provide
services to the first quarter of 1996. One client represented 68% of 1997 first
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 first quarter 1996 revenue. Financial services
accounted for less than 1% of 1997 first quarter revenues.
The Company prices its services in connection with bids for client
contracts. In 1997, billable telemarketing service representative hours
increased by 119%, primarily as a result of five call centers operating in first
quarter 1997 compared to three in the first quarter 1996. The Company operated
145 call stations in the first quarter 1996 compared to 289 call stations in the
first quarter of 1997.
Cost of Services in the first quarter of 1997 was $1,551,303 or 48.9%
of revenues compared to $687,118 or 46.7% of revenues in the first 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 4% of
its revenue in the first quarter of 1997 to other qualified telemarketing
companies. The cost of services on the outsourced services was 78.7%. The cost
of services as a percentage of revenue was also negatively impacted by a 4.3%
reduction in the average hourly billing rate in the first quarter of 1997
compared to the first quarter of 1996 as the company adjusted its pricing to
compete for large volume accounts.
Selling, general and administrative expenses were $1,335,423 in 1997
compared to $670,509 in 1996. This 99% increase was primarily related to
increased volume of calls, the new call centers which were not yet open in the
first quarter of 1996 and the additional management infrastructure required by
revenue growth and the public sale of the company's securities. As a percentage
of revenues, selling, general and administrative expenses were 42.1% in the
first quarter of 1997 compared to 45.6% in the first quarter of 1996.
As a result of these factors, operating income increased 154% to
$285,965 (9.0% of revenues) versus $112,746 (7.7% of revenue). Other income and
expense improved $89,714 in the first quarter of 1997 over the first quarter of
1996. The Company was favorably impacted by interest earnings on cash generated
from the initial public offering in October 1996 which reduced debt and added
interest bearing investments to the balance sheet. The net change in interest
income/expense was $82,830 in the first quarter of 1997 versus the first quarter
of 1996.
Prior to October 21, 1996, the date of the initial public offering
("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 three months ended March 31, 1996
include pro forma information for income taxes which would have been recorded if
the Company had been a C Corporation for the quarter, based on the tax laws in
effect during those periods. Pro forma net income includes an estimated federal
and state tax provision of 40%.
Accordingly, net income was $204,195, or $.04 per share in the first
quarter of 1997, compared to pro forma net income of $50,917 or $.01 per share,
in the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet continues to be strong as a result of its
1996 IPO. At March 31, 1997, the Company had cash and cash equivalents of
$4,687,948 compared to $5,005,813 at December 31, 1996. The Company has adopted
investment guidelines which restrict the types and quality of investments which
may be acquired. At March 31, 1997 the Company had invested approximately
$225,000 in money market funds, approximately $4,449,000 in commercial paper
rated a minimum of A-1/P-1. At March 31, 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 three months ended March 31, 1997, the company utilized cash
flows in operating activities of $53,949 compared to providing cash flows of
$288,359 in the first quarter of 1996. The decrease was primarily the result of
a net change in operating assets and liabilities of ($524,688), which is
primarily an increase in accounts receivables, partially offset by increased net
income of $119,333 and increased non-cash charges of $63,027 including
depreciation. Investing activities, which is primarily capital expenditures,
required $252,913 of cash in 1997 compared to $77,353 in 1996. The Company
utilized $11,003 in the first quarter of 1997 for financing activities compared
to $198,722 in the first quarter of 1996.
The Company believes that funds available at March 31, 1997 together
with funds which should be generated from future operations, equipment and
financial 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 variations 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, start-up 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 one 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 the Company's marketing efforts
will this customer will in fact generate sufficient new business to meet
expectations or to fully utilize the additional call center capacity to be
created in 1997.
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 May 5, 1997 By: /s/Steven A. Kahn
-----------------------------------
Steven A. Kahn
Vice President and
Chief Financial Officer
(Principal Accounting Officer)
Dated May 5, 1997 By: /s/Rick N. Diamond
-----------------------------------
Chief Executive Officer and
Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,687,948
<SECURITIES> 0
<RECEIVABLES> 1,706,655
<ALLOWANCES> 88,000
<INVENTORY> 0
<CURRENT-ASSETS> 6,419,796
<PP&E> 3,081,378
<DEPRECIATION> 1,037,954
<TOTAL-ASSETS> 8,472,669
<CURRENT-LIABILITIES> 1,035,094
<BONDS> 249,148
0
0
<COMMON> 6,582,158
<OTHER-SE> 392,206
<TOTAL-LIABILITY-AND-EQUITY> 8,472,669
<SALES> 0
<TOTAL-REVENUES> 3,172,691
<CGS> 1,551,303
<TOTAL-COSTS> 2,886,726
<OTHER-EXPENSES> (6,884)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (54,946)
<INCOME-PRETAX> 347,795
<INCOME-TAX> 143,600
<INCOME-CONTINUING> 204,195
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 204,195
<EPS-PRIMARY> .04
<EPS-DILUTED> 0
</TABLE>
