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 March 31, 1999
___ 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 5,742,812 shares of common stock, no par value per share,
outstanding as of May 7, 1999.
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)
Balance Sheets 3
Statements of Operations 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 12
Item 6 Exhibits and Reports on Form 8-K 13
Signature Page 14
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
ACI TELECENTRICS, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 571,160 $ 1,300,681
Trade receivables, less allowance for doubtful
accounts of $126,944 and $140,000, respectively 3,795,918 1,456,431
Deferred income taxes 290,200 365,000
Prepaid expenses 108,695 111,117
Other current assets 53,927 131,667
------------ ------------
Total Current Assets 4,819,900 3,364,896
Property and equipment, net of accumulated depreciation 2,663,943 2,824,381
OTHER ASSETS:
Goodwill, less accumulated amortization of
$116,437 and $99,000, respectively 934,339 951,858
Deferred income taxes 137,000 137,000
Other assets 38,806 63,676
------------ ------------
Total other assets 1,110,145 1,152,534
------------ ------------
TOTAL ASSETS $ 8,593,988 $ 7,341,811
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 600,000 $ --
Trade accounts payable 830,500 482,628
Accrued expenses 486,640 204,728
Income taxes payable 5,713 15,713
Current portion of long-term debt and capital lease obligations 350,928 356,980
------------ ------------
Total current liabilities 2,273,781 1,060,049
LONG TERM LIABILITIES:
Long-term debt and capital lease obligations, less current portion 26,872 257,711
Deferred capital lease liabilities 616,751 473,201
------------ ------------
Total long-term liabilities 643,623 730,912
SHAREHOLDERS' EQUITY:
Common stock, no par value;
Authorized - 15,000,000
Issued and outstanding shares - 5,742,812
and 5,731,471, respectively 6,623,761 6,620,145
Accumulated deficit (947,177) (1,069,295)
------------ ------------
Total shareholders' equity 5,676,584 5,550,850
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,593,988 $ 7,341,811
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
ACI TELECENTRICS, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
TELEMARKETING REVENUES $ 4,688,767 $ 3,528,911
COST OF SERVICES 2,678,013 2,000,723
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,809,314 1,922,154
------------ ------------
OPERATING INCOME (LOSS) 201,440 (393,966)
OTHER INCOME (EXPENSE)
Interest income 6,597 14,583
Interest expense (11,119) (8,520)
Other, net -- (195)
------------ ------------
Total other income (expense) (4,522) 5,868
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 196,918 (388,098)
INCOME TAX EXPENSE (BENEFIT) 74,800 (144,000)
------------ ------------
NET INCOME (LOSS) $ 122,118 $ (244,098)
============ ============
Basic and diluted net income (loss) per share $ .02 $ (.04)
============ ============
Basic shares used in computing net income (loss) per share 5,742,434 5,714,778
============ ============
Diluted shares used in computing net income (loss) per share 5,756,921 5,714,778
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
ACI TELECENTRICS, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 122,118 $ (244,098)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 251,080 220,576
Provision for losses on accounts receivable (13,056) --
Amortization of deferred capital lease liabilities (47,850) (20,349)
Deferred income taxes 74,800 (7,886)
Changes in operating assets and liabilities:
Trade receivables (2,326,431) (912,184)
Prepaid expenses 2,422 --
Other current assets 77,740 (24,763)
Checks written in excess of bank balance -- 168,281
Accounts payable and accrued expenses 629,784 (117,793)
Income taxes (10,000) 219,479
------------ ------------
Net cash used in operating activities (1,239,393) (718,737)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (73,123) (65,616)
Decrease (increase) in other assets 24,870 (48,961)
Decrease (increase) in restricted investments -- (6,655)
------------ ------------
Net cash used in investing activities (48,253) (121,232)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 600,000 100,000
Net proceeds from issuance of common stock 3,616 18,504
Proceeds from sale and leaseback of equipment -- 93,922
Repayments of long-term debt and capital leases (45,491) (31,499)
------------ ------------
Net cash provided by financing activities 558,125 180,927
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (729,521) (659,042)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 1,300,681 659,042
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 571,160 $ --
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
NON CASH TRANSACTIONS:
Equipment acquired through capital leases $ -- $ 184,589
CASH PAID FOR INTEREST AND TAXES:
Income taxes paid (refunds received) $ 10,000 $ (355,531)
Cash paid for interest $ 9,241 $ 8,520
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
ACI TELECENTRICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
(1) BASIS OF PRESENTATION
The balance sheet of ACI Telecentrics, Incorporated and subsidiary (the
"Company") as of March 31, 1999 and the related statements of
operations and cash flows for the three months ended March 31, 1999 and
1998, 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 March 31, 1999 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 1998 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.
Effective January 1999, the Company dissolved its only subsidiary ACI
Telecentrics of Illinois, Inc., and merged its operations into ACI
Telecentrics, Inc. These financial statements include the consolidated
balance sheet as of December 31, 1998 and the related consolidated
statements of operations and cash flows for the three month period of
January 1, 1998 through March 31, 1998. The balance sheet at March 31,
1999 and the related statements of operations and cash flows for the
three months ended March 31, 1999 are for the merged entity.
(2) EARNINGS (LOSS) PER SHARE (SFAS 128)
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share" was issued in February 1997 and requires the presentation of
earnings per share on a basic and diluted basis. Basic earnings per
share are computed by dividing earnings available to common
shareholders by the weighted average number of common shares
outstanding during each period. Diluted earnings per share are computed
after giving effect to the exercise of all dilutive outstanding options
and warrants. The Company adopted SFAS No. 128 in 1997. Both basic and
diluted earnings per share for the three months ending March 31, 1999
were the same. Both basic and diluted earnings per share for the three
months ended March 31, 1998 were the same due to net losses; the impact
of the potential common shares outstanding would have been
anti-dilutive. The following table reconciles the denominators used in
computing basic and diluted earnings per share:
Three Months Ended
March 31,
1999 1998
---- ----
Weighted average common shares outstanding 5,742,434 5,714,778
Effect of dilutive stock options 14,487 --
-----------------------
5,756,921 5,714,778
=======================
(3) DISCONTINUED OPERATIONS
During May 1998 the Company closed its inbound call center operations
in Lombard, IL. As a result, the Company exited the inbound call center
business. The net loss, on an after tax basis, accounted for $79,000
($.01 per share) of the loss for the three months ending March 31,
1998.
6
<PAGE>
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Furniture 985,915
Equipment 4,166,517
Leasehold Improvements 129,122
----------
5,281,554
Less accumulated depreciation and amortization 2,617,611
----------
Net property and equipment $2,663,943
==========
The Company has equipment under capitalized leases totaling $513,615.
(5) LINE OF CREDIT
At March 31, 1999, the Company had outstanding borrowings of $600,000
under its $2 million revolving line of credit. The loan agreement
contains provisions requiring compliance with certain financial
covenants. As of March 31, 1999, the Company failed to comply with
certain loan covenants. The Company expects to obtain a waiver to the
loan covenant violations for March 31, 1999. Additionally, the Company
and its lending institution are in the process of amending the
appropriate covenants and management believes that it will be able to
maintain compliance with the expected debt covenants during 1999.
(6) SUBSEQUENT EVENT
On April 15, 1999 the Company announced that it would close its Devils
Lake, North Dakota call center effective May 28, 1999 and move the work
being done in this facility to the Company's other eight call centers.
A number of factors led to this decision, including the recent decision
by the City of Devils Lake to facilitate the opening of a call center
by a competing teleservices firm.
7
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
ACI Telecentrics, Incorporated (ACI) provides telephone-based sales and
marketing services primarily to the telecommunications, insurance, publishing
and financial services industries. ACI was established in 1987 in Minneapolis,
Minnesota. The Company operates nine outbound call centers in five Midwest
states, which, as of March 31, 1999 had 454 calling stations. The Company had
960 full and part-time employees as of March 31, 1999.
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 MARCH 31, 1999, COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
REVENUE. Revenues for the three months ended March 31, 1999 increased
$1,159,856, or 32.9% to a record $4,688,767, compared to first quarter 1998
revenues of $3,528,911. Billable hours increased by 41.9% when compared to the
prior year period, however, revenue per billable hour decreased by approximately
6.1% when compared to the first quarter of 1998. During the period the Company
also utilized other telemarketing companies to perform some of its services,
although to a lesser extent than during the same period in 1998. The Company
derived 5.6% of its first quarter 1999 revenues from outsourcing compared to
10.8% during the same period in 1998. The Company operated 454 call stations at
March 31, 1999 compared to 411 at March 31, 1998.
Telecommunications clients provided approximately 50% of first quarter
1999 revenues compared to approximately 53% of revenues during the first quarter
of 1998. During the 1999 period the Company's largest client represented
approximately 35% of total revenue. During the prior year period the Company's
largest client represented approximately 35% of total revenue. Other industry
segments and their percentages of revenue in 1999 include publishing (22%),
insurance (6%) and financial services (22%).
COST OF SERVICES. Cost of services in the first quarter of 1999
increased $677,290, or 33.9% to $2,678,013, compared to $2,000,723 in the first
quarter of 1998. First quarter 1999 labor and benefit costs increased by
$613,423, or 48.4% when compared to the first quarter of 1998. Long distance
telephone costs for telemarketing operations increased by $123,248, or 30.5% in
the first quarter of 1999 when compared to the 1998 period. These expense
increases were partially offset by a decrease in outsourced telemarketing
service costs of $103,262, or 34.1% when compared to the first quarter of 1998.
As a percentage of revenue, cost of services for the 1999 first quarter
increased slightly to 57.1% compared to 56.7% in the first quarter of 1998. The
0.4% increase in cost of services was the result of a 4.2% increase in labor and
benefit costs and a 0.5% increase in other cost of services expenses. These
increases were partially offset by the 4.3% decrease in outsourced services
expenses. Outsourcing services are costs associated with the Company's
utilization of other telemarketing companies for telemarketing some of its
client's programs. During the first quarter of 1999 the outsourced services had
a cost of 75.8% compared to 79.3% during the 1998 period. First quarter cost of
services for internally generated telemarketing was 56% in 1999 and 54% in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Total selling, general
and administrative expenses for the first quarter of 1999 decreased $112,840, or
5.9% to $1,809,314, from $1,922,154 during the first quarter of 1998. As a
percentage of revenue, first quarter 1999 selling general and administrative
expenses decreased by 15.9% to
8
<PAGE>
38.6% compared to 54.5% during the first quarter of 1998. Selling, general and
administrative expenses for call center operations decreased $121,256 during the
first quarter of 1999 when compared to the same period in 1998. The entire
decrease can be attributed to the closing of the Lombard, Illinois inbound call
center in May of 1998 which has a full quarter effect in 1999. Corporate
selling, general and administrative expenses increased $8,416 during the same
period. Salary and related benefits, for call center and corporate operations,
accounted for $60,427, or 53.6% of the first quarter 1999 expense decrease.
OPERATING INCOME (LOSS). As a result of the factors discussed above,
the Company experienced first quarter operating income of $201,440, a $595,406
increase compared to the first quarter 1998 operating loss of $393,966. As a
percentage of revenue, operating income during the quarter was 4.3% compared to
a loss of 11.2% during the first quarter of 1998. The Company's closed inbound
call center in Lombard, Illinois accounted for approximately $125,000 ($79,000
on an after tax basis) of the 1998 operating loss.
OTHER INCOME AND EXPENSES, NET. Other expenses were $4,522 in 1999
compared to an income of $5,868 in 1998. Interest was a net expense amount of
$4,522 compared to a net income amount of $6,063 in 1998. The decrease in net
interest income was the result of lower cash investment balances producing lower
interest income and an increase in interest expense resulting from the full
quarter effect of $513,615 of leased equipment.
NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE. Pretax income for
the first quarter of 1999 was $196,918, a $585,016 increase compared to a pretax
loss of $388,098 loss in the first quarter of 1998. The Company recorded income
tax expense of $74,800, an effective tax rate of 38%, for the first quarter of
1999 compared to an income tax benefit of $144,000, an effective tax rate of
37%, in the first quarter of 1998. Net income for the first quarter 1999 was
$122,118, or $.02 per share on a basic and fully diluted basis compared to a net
loss of $244,098, or $.04 per share in the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically used cash from operating activities, bank
borrowings, capital leases and public and private sector financing received 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 March 31, 1999, the Company had outstanding borrowings of
$600,000 under the line of credit.
At March 31, 1999, the Company had cash and cash equivalents of
$571,160 compared to $1,300,681 at December 31, 1998. For the three months ended
March 31, 1999 cash used by operating activities was $1,239,393 compared to cash
used by operating activities of $718,737 in the 1998 period. Cash used in 1999
first quarter operating activities was primarily the result of an increase of
$2,326,431 in Accounts Receivable balances which resulted from the 32.9%
increase in first quarter revenue. This increase was partially offset by cash
provided by first quarter net income of $122,118, depreciation and amortization
of $251,080, changes in working capital components of $699,946 and non-cash
items of $13,894. Cash flows used by operating activities in the 1998 period
included the net loss of $244,098, changes in working capital components of
$666,980 and non-cash items of $28,235. These uses were partially offset by cash
provided by depreciation and amortization of $220,576.
Net cash used by investing activities in the three months ended March
31, 1999 was $48,253 compared to net cash used by investing activities of
$121,232 in 1998. The purchase of $73,122 of property and equipment was
partially offset by a decrease of $24,869 in other assets. During the 1998
period the Company had net purchases of property and equipment of $65,616.
Increases in other assets accounted for the remaining $55,616 used by investing
activities in the 1998 period.
Net cash provided by financing activities during the first quarter of
1999 was $558,125 compared to $180,927 during the first quarter of 1998. The
primary source of this cash was $600,000 borrowed under the Company's revolving
line of credit. In addition, the Company issued stock from its Employee Stock
Purchase Plan
9
<PAGE>
for $3,616. Proceeds for the first quarter of 1999 were partially offset by
repayments of long-term debt and capital leases in the amount of $45,491. Cash
flows from financing activities during the first quarter of 1998 included
$100,000 borrowed under the Company's revolving line of credit, $93,922 received
from the sale and leaseback of capital equipment leases for equipment purchased
in 1997 and proceeds of $18,504 from the issuance of common stock under the
Company's Employee Stock Purchase Plan. These cash proceeds were partially
offset by repayment of long-term debt and capital leases in the amount of
$31,499.
During the three months ending March 31, 1999 the Company did not
acquire any assets through capital leases. During the comparable 1998 period the
Company financed $184,589 of asset purchases through capital leases.
As a result, net cash and cash equivalents decreased by $729,521 during
the first quarter of 1999 compared to a decrease of $659,042 in 1998. The
Company believes that funds available at March 31, 1999, together with funds
which should be generated from future operations and amounts available under its
revolving line of credit arrangement, will be sufficient to finance its current
and future business operations including working capital requirements. Should
the Company be unable to obtain a waiver of the loan covenant violations from
its lending institution the Company would likely need to obtain replacement
financing or raise additional capital within 45 days. The Company has no
material commitments for capital expenditures for 1999.
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.
As of March 31, 1999 and December 31, 1998, the Company failed to
comply with certain loan covenants. The Company expects to obtain a waiver to
the loan covenant violations for January, February and March 31, 1999 as well as
December 31, 1998. While the Company expects to obtain a waiver from the loan
covenant violations, no assurance can be given that the lending institution will
grant these waivers. Additionally, the Company and its lending institution are
currently in the process of amending the appropriate covenants and management
believes that it will be able to maintain compliance with the expected debt
covenants during 1999. In the event that the Company would not maintain
compliance with the amended covenants it expects that cash flows from operations
will be sufficient to continue funding ongoing operations.
Management believes that total marketing expenditures by US companies
directed towards telemarketing will continue to grow and that the trend for
these companies will be towards outsourcing their telemarketing programs to
companies like ACI, which should result in an increase in the Company's calling
revenue in 1999. There is no assurance that the Company's marketing efforts will
generate new business or that businesses will continue to outsource their
telemarketing needs. Client demand is extremely volatile in the Company's
business and may decrease notwithstanding the Company's efforts to diversify and
stabilize its client base. There is no assurance that client demand will fulfill
expectations based on current and anticipated customer orders and that business
will be generated from new customers at anticipated levels. As is common in the
telemarketing industry, the Company's projects are often not subject to formal
contracts, the agreements with its clients do not assure that ACI will generate
a specific level of revenue, do not designate ACI as the client's exclusive
service provider, and are terminable by the client on relatively short notice
and without penalty. In addition, the amount of revenues ACI generates from a
10
<PAGE>
particular client generally is dependent upon their customers' interest in, and
use of, the client's products or services.
The Company believes that it has enough capacity in its existing call
centers, even after it closes its Devils Lake, North Dakota call center as
discussed in footnote 6 to the financial statements, to handle the anticipated
increases in calling hours from existing and new clients. While the Company has
not finalized this transaction the Company does not anticipate the costs
associated with the closing of this facility to be material. There also is no
assurance that all of the work being performed at the Devils Lake call center
will be successfully absorbed by other call centers.
While the Company anticipates an increase in demand for its services
during the remainder of 1999, there is no assurance that the Company, due to the
current low unemployment levels, will be able to hire and train all of the
necessary personnel in the most cost-efficient manner to fully utilize the
currently existing capacity to meet this increased demand.
During the first quarter of 1999, the Company reduced its selling,
general and administrative expenses by over $100,000, when compared to the
fourth quarter of 1998 and to the lowest total expense of any quarter since the
second quarter of 1997. These reductions are a result of the Company's effort to
improve its processes to reduce costs and increase the efficiency of the
organization. However, if the Company's growth continues, the Company may not be
able to maintain its lower level of SG&A expenses if client demand continues to
grow. There is no assurance that further cost reductions will continue to be
realized or that these costs can be contained.
During the first quarter of 1999 the Company returned to profitability
for the first time since the second quarter of 1997; a time span of seven
quarters. There is no assurance that the Company will be able to maintain
profitability in 1999.
YEAR 2000 COMPLIANCE
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 may 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 has
already begun necessary software conversion and programming modifications to
comply with the Year 2000 issues and believes that all other appropriate actions
are being taken. Total costs to upgrade the Company's internal information
systems are not material to the operations of the Company and are not expected
to materially impact earnings. During the fourth quarter of 1998 and the first
quarter of 1999 the Company, as part of equipment and software enhancements to
its call processing technology and capabilities, also upgraded its call
processing software to be year 2000 compliant in all nine (9) of its call
centers. Total costs for the equipment and software enhancements, including year
2000 compliance, was approximately $147,500. These costs were capitalized.
Additional costs to upgrade the Company's internal information systems are
expected to cost approximately $125,000.
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 in a timely manner, no
assurance can be given that
11
<PAGE>
the failure by one or more of the Company's major clients to become Year 2000
compliant, will not have a material adverse impact on the Company's operations.
The Company expects to complete its overall Year 2000 conversions prior
to any impact on its operations. However, should the Company not be able to
complete its Year 2000 conversions prior to an impact on its operations, the
Company has not developed a contingency plan to deal with any issues that may
arise as a result of systems that stop processing date related computations or
processes them incorrectly. In addition, the Company has not yet developed a
contingency plan for any failure of the Company's customers and/or suppliers
systems and applications to be Year 2000 compliant.
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/May 13, 1999 By: /s/GARY B. COHEN
----------------- -------------------------------
Gary B. Cohen
President and Chief
Financial Officer
(Principal Accounting Officer)
Dated: /s/May 13, 1999 By: /s/RICK N. DIAMOND
----------------- -------------------------------
Rick N. Diamond
Chief Executive Officer and
Director
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 571,160
<SECURITIES> 0
<RECEIVABLES> 3,922,862
<ALLOWANCES> 126,944
<INVENTORY> 0
<CURRENT-ASSETS> 4,819,900
<PP&E> 5,281,554
<DEPRECIATION> 2,617,611
<TOTAL-ASSETS> 8,593,988
<CURRENT-LIABILITIES> 2,273,781
<BONDS> 0
0
0
<COMMON> 6,623,761
<OTHER-SE> (947,177)
<TOTAL-LIABILITY-AND-EQUITY> 8,593,988
<SALES> 4,688,767
<TOTAL-REVENUES> 4,668,767
<CGS> 2,678,013
<TOTAL-COSTS> 4,487,327
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,522
<INCOME-PRETAX> 196,918
<INCOME-TAX> 74,800
<INCOME-CONTINUING> 122,118
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 122,118
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
