SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-QSB
(Mark One)
_X_ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
___ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OR THE EXCHANGE ACT
For the transition period from __________ to __________
Commission File No.: 000-21557
ACI TELECENTRICS, INC.
(Name of Small Business Issuer as specified in its charter)
MINNESOTA 41-1572571
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
3100 WEST LAKE STREET, SUITE 300, MINNEAPOLIS, MINNESOTA, 55416
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (612) 928-4700
Check whether the Issuer (1) has 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 5,731,471 shares of common stock, no par value per share,
outstanding as of November 6, 1998.
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 Consolidated Financial Statements (unaudited)
Statements of Operations 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 8
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 6 Exhibits and Reports on Form 8-K 13
Signature Page 14
2
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
ACI TELECENTRICS, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
TELEMARKETING REVENUES $ 3,574,772 $ 3,427,756 $ 11,433,674 $ 10,680,423
COST OF SERVICES 1,920,769 1,986,911 6,414,202 5,629,825
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,919,342 1,853,454 6,171,840 4,723,463
------------ ------------ ------------ ------------
OPERATING (LOSS) INCOME (265,339) (412,609) (1,152,368) 327,135
OTHER INCOME (EXPENSE)
Interest income 7,514 48,657 31,245 159,787
Interest expense (17,048) (2,996) (43,062) (10,502)
Other, net -- 988 10,133 22,618
------------ ------------ ------------ ------------
Total other income (expense) (9,534) 46,649 (1,684) 171,903
------------ ------------ ------------ ------------
(LOSS) INCOME BEFORE TAXES (274,873) (365,960) (1,154,052) 499,038
INCOME TAX (BENEFIT) EXPENSE (103,200) (139,100) (438,200) 189,600
------------ ------------ ------------ ------------
NET (LOSS) INCOME $ (171,673) $ (226,860) $ (715,852) $ 309,438
============ ============ ============ ============
Basic and diluted net (loss) income
per share $ (.03) $ (.04) $ (.12) $ .05
============ ============ ============ ============
Basic shares used in computing net
(loss) income per share 5,720,404 5,709,000 5,718,843 5,709,000
============ ============ ============ ============
Diluted shares used in computing net
(loss) income per share 5,720,404 5,709,000 5,718,843 5,716,000
============ ============ ============ ============
</TABLE>
See notes to financial statements
3
<PAGE>
ACI TELECENTRICS, INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 687,967 $ 659,042
Restricted investment -- 493,345
Trade receivables, less allowance for
doubtful accounts of $157,000 and $195,000,
respectively 2,526,767 2,369,323
Income tax receivable 143,991 586,498
Other current assets 150,284 89,152
----------- -----------
Total Current Assets 3,509,009 4,197,360
PROPERTY AND EQUIPMENT, NET 2,917,747 3,243,205
OTHER ASSETS:
Goodwill, less accumulated amortization of
$81,000 and $29,000, respectively 969,407 1,016,726
Deferred income taxes 340,402 --
Other assets 74,189 38,993
----------- -----------
$ 7,810,754 $ 8,496,284
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable 721,839 811,568
Accrued expenses 337,715 764,463
Current portion of long-term debt and
capital lease obligations 304,227 138,481
----------- -----------
Total current liabilities 1,363,781 1,714,512
LONG TERM LIABILITIES:
Long-term debt and capital lease obligations,
less current portion 295,163 64,650
Deferred capital lease liabilities 411,051 214,600
Deferred income taxes -- 73,210
----------- -----------
Total long-term liabilities 706,214 352,460
SHAREHOLDERS' EQUITY:
Common stock, no par value 6,620,145 6,592,846
Accumulated deficit (879,386) (163,534)
----------- -----------
Total shareholders' equity 5,740,759 6,429,312
----------- -----------
$ 7,810,754 $ 8,496,284
=========== ===========
</TABLE>
See notes to financial statements
4
<PAGE>
ACI TELECENTRICS, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (715,852) $ 309,438
Adjustments to reconcile net (loss) earnings to cash
provided by operating activities:
Depreciation and amortization 691,992 436,921
Amortization of deferred capital leases (103,550) (38,549)
Deferred income taxes (413,612) 16,878
Changes in operating assets and liabilities:
Trade receivables (157,444) (677,291)
Other current assets (13,248) (53,662)
Accounts payable and accrued expenses (198,068) 249,124
Income Taxes 442,507 (300,378)
----------- -----------
Net cash (used in) operating activities (467,275) (57,519)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (259,849) (1,109,189)
Payments for business acquired -- (1,417,780)
Decrease (increase) in other assets 11,920 (40,134)
Decrease (increase) in restricted investments 493,345 (486,990)
----------- -----------
Net cash provided by (used in) investing activities 245,416 (3,054,093)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 27,299 15,283
Proceeds from sale and leaseback of equipment 93,922 --
Proceeds from deferred grants 250,000 --
Repayments of long term debt and capital leases (120,437) (39,718)
----------- -----------
Net cash provided by (used in) financing activities 250,784 (24,435)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 28,925 (3,136,047)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 659,042 5,005,813
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 687,967 $ 1,869,766
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND
NON CASH TRANSACTIONS:
Equipment acquired through capital leases $ 372,773 --
Deferred grant $ 76,565 --
Cash paid for interest $ 43,062 $ 10,502
</TABLE>
See notes to financial statements
5
<PAGE>
ACI TELECENTRICS, INCORPORATED AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1. The balance sheet of ACI Telecentrics, Incorporated and subsidiary (the
"Company") as of September 30, 1998 and the related statements of
operations and cash flows for the three and nine month periods ended
September 30, 1998 and 1997, 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 the Company as of September
30, 1998 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 1997 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. Effective December 15, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). Basic
earnings per share are computed using the weighted average number of
common shares outstanding during each period. Diluted earnings per
share include the dilutive effect of common shares potentially issuable
upon the exercise of stock options. Earnings per share amounts for the
nine month period ended September 30, 1997, have been restated to
conform with the requirements of SFAS 128. The following table
reconciles the denominators used in computing basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding 5,720,404 5,709,000 5,718,843 5,709,000
Effect of Dilutive stock options -- -- -- 7,000
--------------- --------------- --------------- ---------------
5,720,404 5,709,000 5,718,843 5,716,000
=============== =============== =============== ===============
</TABLE>
The Company reported a net loss for the three month periods ending
September 30, 1998 and 1997 and for the nine month period ending
September 30, 1998. No adjustment was made for the effect of stock
options as the effect is anti-dilutive.
3. Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS
130), which establishes standards for the reporting of comprehensive
income and its components. Comprehensive income is defined as the
change in equity during the period from transactions and other events
and circumstances from non-owner sources. Implementation of SFAS 130
did not have an effect on the Company's financial statements because
comprehensive income (loss) is the same as the Company's net income
(loss).
4. In May 1998 the Company closed its inbound call center operations in
Lombard, IL. As a result, the Company has exited the inbound call
center business. The net losses and closure costs of this call center,
on an after tax basis, accounted for $221,000 ($.04 per share) of the
1998 losses for the nine month period.
5. On August 1, 1997 the Company acquired all of the outstanding common
stock of EBCC. The acquisition was accounted for using the purchase
method of accounting. The purchase price consists of (i) $1,250,000
cash paid at closing; and (ii) four quarterly payments (each an
"Earn-Out Payment," cumulatively the "Total Earn-Out Payment"). The
amount of the Total Earn-Out Payment depended on the amount of revenues
generated by certain EBCC clients and prospective clients during the
period from January 1, 1998 through December 31, 1998 (the "Earn-Out
Revenues"). Based on revenues generated from January 1, 1998 through
September 30, 1998 no quarterly payment were due EBCC. The excess of
Purchase Price over Net Assets Acquired is being amortized over 15
years using the straightline method as of September 30, 1998.
The Company provided the seller with a $375,000 security interest in an
investment account owned by the Company as a guaranty of payment of the
remaining installments of purchase price, if any. During the month of
August 1998 the Company paid EBCC $5,000 as consideration for EBCC's
early release of its security interest in the Company owned investment
account.
6
<PAGE>
The following unaudited pro forma financial information for the Company gives
effect to the EBCC acquisition as if it had occurred at the beginning of periods
reported.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1997 September 30, 1997
------------------ ------------------
<S> <C> <C>
Net Revenues $ 3,993,105 $ 14,065,802
Net (Loss) $ (385,174) $ (111,502)
Basic and diluted net (loss) $ (.07) $ (.02)
Basic shares used in computing pro forma
net (loss) per share 5,709,000 5,709,000
Diluted shares used in computing pro forma
net (loss) per share 5,709,000 5,716,000
</TABLE>
7
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
ACI provides telephone-based sales and marketing services primarily to
the telecommunications, insurance, publishing and financial services industries.
The Company operates nine outbound call centers in five Midwest states, which,
as of September 30, 1998 had 454 calling stations. During 1998 the Company
opened two new call centers-Valentine, Nebraska (March) and Ogallala, Nebraska
(May), and closed its inbound call center in Lombard, IL during May 1998. The
Company had 874 full and part-time employees as of September 30, 1998.
On August 1, 1997 the Company acquired all of the outstanding common
stock of Encyclopaedia Britannica Communications Corporation (EBCC), which had
call centers in Lombard, Ill. and Merrillville, Ind. Operations of EBCC are
included from August 1, 1997.
Revenue from telemarketing services is recognized as these services are
performed and is generally based on an hourly rate. Certain telemarketing
service revenues are performance-based. Cost of services includes compensation
and commissions for telephone sales representatives, 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
Revenues for the three months ended September 30, 1998 were $3,574,772
a 4.3% increase over 1997 third quarter revenues of $3,427,756. Billable hours
increased by 12.7% when compared to the prior year period, however, revenue per
billable hour decreased by approximately 7.5% when compared to the third quarter
of 1997. The Company derived 1.4% of its third quarter 1998 revenues from
outsourcing compared to 2% during the same period in 1997. Revenues during the
third quarter 1998 were adversely affected by two of the Company's major
customers canceling programs near the end of the second quarter due to
regulatory changes. During the third quarter the Company operated an average of
454 call stations compared to an average of 435 during the 1997 period.
Telecommunications clients provided approximately 59% of third quarter
1998 revenues compared to approximately 56% of revenues during the third quarter
1997. During the 1998 period the Company's largest client represented
approximately 36% of total revenue. During the prior year period the Company's
largest client represented approximately 56% of total revenue. This decrease in
reliance on any one client is primarily the result of the Company's effort to
diversify its customer base so that no one client represents more than 20% of
volume. Other industry segments in 1998 included publishing (15%), insurance
(9%) and financial services (12%).
Cost of Services in the third quarter of 1998 was $1,920,769 or 53.7%
of revenues compared to $1,986,911 or 58% of revenues in the third quarter of
1997. The 4.3% decrease in cost of services as a percentage of 1998 revenue when
compared to the percentage of 1997 revenue was primarily the result of a 4%
decrease in labor and benefit costs which decreased cost of services by 1.7%.
The decrease in labor and benefit cost was partially offset by the 7.5% decrease
in the average hourly billing rate from 1997 to 1998. The Company also utilized
other telemarketing companies to perform some of its services,
8
<PAGE>
although to a lesser extent than during the same period in 1997. These
outsourced calls had a cost of services of approximately 73% compared to a cost
of services of approximately 53% for internally generated telemarketing. During
the third quarter of 1997 the cost of oursourced services was approximately 82%.
The decrease in cost of outsourced revenue from 1997 to 1998 helped decrease the
overall cost of services during the third quarter of 1998 when compared to 1997.
Selling, general and administrative expenses were $1,919,342 in 1998
compared to $1,853,454 in 1997, a 3.6% increase. As a percentage of revenue,
selling general and administrative expenses were approximately 54% in both the
1998 and 1997 periods. Call center expenses decreased approximately $118,000
during the third quarter of 1998 when compared to the same period in 1997.
Corporate selling, general and administrative expenses increased approximately
$183,000 during the same period related primarily to the effect of personnel
costs added to the client services, operations, information services and sales
departments during the third and fourth quarters of 1997 which have a full
quarter effect in 1998.
As a result, the operating loss for the third quarter 1998 was $265,339
compared to an operating loss of $412,609 in 1997, an improvement of $147,270 or
35.7%.
Other expense was $9,534 in 1998 compared to income of $46,649 in 1997.
The decrease was the direct result of lower interest income as cash investments
declined from last year's balances.
The pretax loss in 1998 was $274,873 compared to pretax loss of
$365,960 in 1997, an improvement of $91,087 or 24.9%. The net loss in 1998 was
$171,673 or $.03 per share compared to net loss of $226,860 or $.04 per share in
1997. In 1998 the Company recorded a $103,200 income tax benefit compared to an
income tax benefit of $139,100 in 1997. The Company expects that it will be able
to utilize the tax benefits in future periods.
NINE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Revenues for the nine months ended September 30, 1998 were $11,433,674
a 7.1% increase over the nine months ended September 30, 1997 of $10,680,423.
Billable telemarketing service representative hours increased by 10.4% when
compared to the 1997 period while revenue per billable telemarketing service
representative hour decreased by 3% during the same period. The Company derived
8.6% of its 1998 revenues from outsourcing compared to 5.2% in 1997. The Company
operated an average of 430 call stations during the nine months ending September
30, 1998 compared to an average of 336 during the 1997 period.
Telecommunications clients provided approximately 49% of the 1998 nine
month revenues compared to approximately 67% of the 1997 nine month revenues as
a result of the Company diversifying its client base. During 1997 the Company's
largest client represented approximately 64% of the nine month revenues. During
the 1998 period the Company's largest client represented only 23% of total
revenue, primarily the result of the Company's effort to diversify its customer
base so that no one client represents more than 20% of volume. Other industry
segments in 1998 included publishing (21%), insurance (10%) and financial
services (17%).
Cost of services for the nine months ended September 30, 1998 were
$6,414,202 or 56.1% of revenues compared to $5,629,825 or 52.7% of revenues for
the nine months ended September 30, 1997. The 3.4% increase in cost of services
as a percentage of 1998 revenue when compared to the percentage of 1997 revenue
was primarily the result of a 6.7% increase in labor and benefit costs which
increased cost of services by 2.3%. The Company also utilized other
telemarketing companies during the period to
9
<PAGE>
perform some of its services. These outsourced calls had a cost of services of
approximately 82% compared to a cost of services of 54% for internally generated
telemarketing.
Selling, general and administrative expenses were $6,171,840 for the
nine months ending September 30, 1998 compared to $4,723,463 in 1997, a 30.7%
increase. As a percentage of revenue, selling general and administrative
expenses increased to 54% in 1998 compared to 44% in 1997. Approximately
$779,000 or 53.8% of the $1,448,000 increase related to call center expenses,
the majority of which was related to call centers opened or acquired since July
1997. The balance relates primarily to the effect of personnel costs added to
the client services, operations, information services and sales departments
during the third and fourth quarters of 1997 which have a full nine month effect
in 1998.
As a result, the operating loss for the nine months ending September
30, 1998 was $1,152,368 compared to an operating profit of $327,135 in 1997. The
Company's closed inbound call center in Lombard, IL accounted for approximately
$356,000 ($221,000 on an after tax basis) of the nine month 1998 operating loss.
Other expense was $1,684 in 1998 compared to income of $171,903 in
1997. The decrease was the direct result of lower interest income as cash
investments declined from last year's balances.
The pretax loss for the nine months ending September 30, 1998 was
$1,154,052 compared to pretax income of $499,038 in 1997. The net loss in 1998
was $715,852 or $.12 per share compared to net income of $309,438 or $.05 per
share in 1997. In 1998 the Company recorded a $438,200 income tax benefit for
which it expects to utilize in future periods.
LIQUIDITY AND CAPITAL RESOURCES
In 1997, the Company financed much of its activities with the proceeds
from the October 1996 IPO, of which $5,005,813 in cash and cash equivalents
remained at December 31, 1996. The Company has historically used operating
activities, bank borrowings, capital leases and public and private sector
financing in connection with the opening of call centers as its primary sources
of liquidity. The public and private sector (grants/financings) included low
interest rate loans, forgivable loan arrangements and reimbursement for certain
expenses and leasehold improvements. In November 1997, the Company's Board of
Directors authorized a $2 million revolving line of credit which became
effective in January 1998. At September 30, 1998 the Company had no outstanding
borrowings under the line of credit.
At September 30, 1998, the Company had cash and cash equivalents of
$687,967 compared to $1,152,387 at December 31, 1997. For the nine month period
ending September 30, 1998 cash used in operating activities was $467,275
compared to cash used in operating activities of $57,519 in the 1997 period. The
net loss accounted for $715,852 of operating uses in 1998. This was partially
offset by $73,747 of cash provided due to changes in working capital components
and by depreciation, amortization and other non cash items of $174,830.
In the nine months ended September 30, 1998, cash provided by investing
activities was $245,416 compared to cash used in investing activities of
$3,054,093 in the 1997 period. The release of $493,000 in restricted investments
in the 1998 period was partially offset by purchases of property and equipment
of $259,849. During the 1997 period the Company had purchases of property and
equipment of $1,109,189, payments made for business acquired of $1,417,780 and
had to place $486,990 of cash in a restricted investment due to the acquisition
of a business (see note 5).
10
<PAGE>
Cash flows from financing activities in the nine months ended September
30, 1998 was $250,784 compared to cash used in financing activities of $24,435
in the prior year period. Cash provided by financing activities was primarily
the result of the Company receiving public sector grants of $250,000. These
funds were received from the City of Valentine in the amount of $200,000 and
$50,000 from the City of Chadron. Approximately $94,000 was provided by proceeds
of a capital lease for equipment the Company purchased in 1997 and sold back to
a financing company in 1998. No gain or loss was recognized in this transaction.
In addition, the Company issued stock from its Employee Stock Purchase Plan for
$27,299 and repaid long term debt and capital leases of $120,437. In the 1997
period the Company received $15,283 from the issuance of stock in the Employee
Stock Purchase Plan and repaid long term debt and capital leases of $39,718.
During the nine month period ending September 30, 1998 the Company also
financed $372,773 of asset purchases through capital leases. During the
comparable 1997 period the Company did not acquire any assets through capital
lease transactions.
As a result, the Company had an increase in cash during the nine month
period in 1998 of $28,925 compared to a decrease of $3,136,047 during the prior
year period. The Company believes that funds available at September 30, 1998
together with funds which should be generated from future operations, equipment
and financing leases and revolving line of credit arrangements will be
sufficient to finance its current operations and planned capital expenditures at
least for twelve months.
In December 1997 the Company received $150,000 of a $300,000 grant
related to the opening of a call center in Chadron, Nebraska. The remaining
$150,000 was structured in the following manner; during the second quarter of
1998 the Company received a 8 1/2%, two year $100,000, note receivable requiring
monthly payments from the City of Chadron and during July 1998 the Company
received the remaining $50,000.
The Company also has due $200,000 in a grant from the city of Ogallala
Nebraska related to the opening of the Company's call center. In October 1998
the Company received $100,000 of the $200,000 due. The $200,000 is not reflected
as a receivable on the September 30, 1998 balance sheet.
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.
11
<PAGE>
YEAR 2000
Many currently installed computer systems and software products are
coded to accept only two-digit entries in the date code field. When year 2000
begins, these computers may interpret "00" as the year 1900 and could either
stop processing date related computations or could process them incorrectly.
Beginning in the year 2000, these date code fields will need to accept
four-digit entries to distinguish 21st century dates from 20th century dates to
be year compliant.
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. The Company has completed an
assessment of its internal information systems and has determined that its
financial and operational systems (1) are year 2000 compliant; (2) can be
upgraded to be year 2000 compliant without significant cost or effort; or (3) do
not pose a significant issue to the Company if left uncorrected. The Company
believes that appropriate actions are being taken, and expects to complete its
overall Year 2000 conversions prior to any impact on its operations. Total costs
to upgrade the Company's internal information systems are not material to the
operations of the Company, and are expected to cost approximately $100,000.
The Year 2000 issue may also affect the systems and applications of the
Company's customers and/or suppliers. The Company is reviewing its systems as it
relates to interfacing with customers and suppliers to determine if the
Company's interface systems may be vulnerable to a third parties failure to
correct their own Year 2000 issues. Although the Company does not currently
anticipate any material adverse impact or costs associated with client or
supplier failure to correct their Year 2000 issues, no assurance can be given
that the failure by one or more of its major clients to become Year 2000
compliant will not have a material adverse impact on the Company's operations.
INFLATION
Inflation has not had a material impact on operating results and the
Company does not expect it to have a significant impact in the future. However,
there can be no assurance that the Company's business will not be affected by
inflation in the future.
12
<PAGE>
PART II OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders.
PART II OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) 27. Financial Data Schedule
13
<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: /s/ November 13, 1998 By: /s/ GARY B. COHEN
----------------------- ------------------------------
Gary B. Cohen
President and Chief
Financial Officer
(Principal Accounting Officer)
Dated: /s/ November 13, 1998 By: /s/ RICK N. DIAMOND
----------------------- ------------------------------
Rick N. Diamond
Chief Executive Officer and
Director
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 687,967
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0
0
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</TABLE>
