<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ------------ to -----------
Commission File Number 001-13875
ADVANCED COMMUNICATIONS GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0549396
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
390 S. WOODS MILL RD, SUITE 150 63017
ST. LOUIS, MISSOURI (Zip Code)
(Address of principal executive offices)
(314) 205-8668
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months, and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
------- ------
As of November 13, 1998, the registrant had 19,615,865 shares of
common stock, $.0001 par value, outstanding.
<PAGE> 2
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
--------------------
Advanced Communications Group, Inc. and Subsidiaries
----------------------------------------------------
Consolidated Statements of Operations for the Three Months Ended
----------------------------------------------------------------
September 30, 1998 and 1997
---------------------------
(Unaudited)
<CAPTION>
Three Months Ended
-------------------------------------------
Actual Pro Forma Actual
(In thousands, except per share data) Sept. 30, 1998 <F1> Sept. 30,
Sept. 30, 1997
1997
-------------- ----------- ---------
<S> <C> <C> <C>
REVENUES:
Telecommunications $ 16,904 $ 10,009 $ --
Directory 8,255 8,258 --
----------- ----------- ----------
Total revenue 25,159 18,267 --
OPERATING COSTS:
Cost of services 16,399 10,945 --
Selling, general and administrative
Expenses 9,736 6,785 796
Depreciation and amortization 2,921 2,313 1
----------- ----------- ----------
Income (loss) from operations (3,897) (1,776) (797)
OTHER INCOME (EXPENSE):
Interest expense (361) 71 (72)
Equity in loss of KINNET (171) (164) --
Other 222 82 --
----------- ----------- ----------
Loss before income taxes (4,207) (1,787) (869)
Income tax benefit (expense) 516 (359) --
----------- ----------- ----------
Net loss $ (3,691) $ (2,146) $ (869)
=========== =========== ==========
Basic and diluted earnings (loss) per share $ (.19) $ (.11) $ (.11)
=========== =========== ==========
Weighted average shares outstanding 19,615,865 19,615,865 8,223,222
=========== =========== ==========
See accompanying notes to consolidated financial statements.
<FN>
(1) The Company completed its initial public offering on February 18,
1998, concurrently with the acquisition of nine operating companies
and a 49% interest in another company. The pro forma results were
prepared giving effect to the offering and the acquisitions as if
they had occurred on January 1, 1997.
</TABLE>
2
<PAGE> 3
<TABLE>
Advanced Communications Group, Inc. and Subsidiaries
----------------------------------------------------
Consolidated Statements of Operations for the Nine Months Ended
---------------------------------------------------------------
September 30, 1998 and 1997
---------------------------
(Unaudited)
<CAPTION>
Nine Months Ended
----------------------------------------------------------------
Pro Forma <F1> Pro Forma Actual <F2> Actual <F2>
(In thousands, except per share data) Sept. 30, 1998 <F1> Sept. 30, Sept. 30, Sept. 30,
1997 1998 1997
-------------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Telecommunications $ 45,876 $ 33,455 $ 38,661 $ --
Directory 39,493 35,624 30,247 --
----------- ----------- ----------- ----------
Total revenue 85,369 69,079 68,908 --
OPERATING COSTS:
Cost of services 50,631 37,637 41,327 --
Selling, general and administrative
expenses 28,671 23,172 24,330 1,462
Depreciation and amortization 7,828 6,876 6,686 2
Stock-based compensation 1,760 -- 1,760 --
----------- ----------- ----------- ----------
Income (loss) from operations (3,521) 1,394 (5,195) (1,464)
OTHER INCOME (EXPENSE):
Interest expense (1,029) (581) (919) (140)
Equity in loss of KINNET (446) (658) (360) --
Other 597 253 568 --
----------- ----------- ----------- ----------
Income (loss) before income taxes (4,399) 408 (5,906) (1,604)
Income tax benefit (expense) (538) (2,778) 60 --
----------- ----------- ----------- ----------
Net loss $ (4,937) $ (2,370) $ (5,846) $ (1,604)
=========== =========== =========== ==========
Basic and diluted earnings (loss) per share $ (.25) $ (.12) $ (.32) $ (.19)
=========== =========== =========== ==========
Weighted average shares outstanding 19,615,865 19,615,865 18,179,968 8,232,276
=========== =========== =========== ==========
See accompanying notes to consolidated financial statements.
<FN>
(1) The Company completed its initial public offering on February
18, 1998, concurrently with the acquisition of nine operating
companies and a 49% interest in another company. The pro forma
results were prepared giving effect to the offering and the
acquisitions as if they had occurred on January 1, 1997.
(2) Actual results include the operations of the parent company for
the entire nine month period and the results of the acquired
operating companies only for the period February 18, 1998 to
September 30, 1998.
</TABLE>
3
<PAGE> 4
<TABLE>
Advanced Communications Group, Inc. and Subsidiaries
----------------------------------------------------
Consolidated Balance Sheets
---------------------------
<CAPTION>
(In thousands, except share data) (Unaudited)
Sept. 30, Dec. 31,
1998 1997
---------- ---------
<S> <C> <C>
Assets
- - ------
Current assets:
Cash and cash equivalents $ 5,911 $ --
Accounts receivable, net 26,967 --
Deferred costs 2,641 --
Prepaid expenses and other current assets 1,598 --
-------- -------
Total current assets 37,117 --
-------- -------
Property, plant and equipment, net 12,951 6
Intangible assets, net 106,353 --
Equity investment in KINNET 17,681 --
Other noncurrent assets 5,757 2,689
-------- -------
Total other assets 142,742 2,695
-------- -------
$179,859 $ 2,695
======== =======
Liabilities and Stockholders' Equity
- - ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 18,038 $ 2,098
Borrowings under revolving credit facility 10,000 --
Current maturities of long-term debt 120 3,141
Other current liabilities 2,353 --
-------- -------
Total current liabilities 30,511 5,239
Long-term obligations:
Long-term debt (related party) 17,233 --
Other non-current liabilities 314 --
-------- -------
Total liabilities 48,058 5,239
-------- -------
Stockholders' equity:
Preferred Stock, Series A Redeemable Convertible: 20,000,000
authorized; 142,857 shares issued; $2,000 liquidation preference 1,122 --
Common stock, $.0001 par value: 180,000,000 authorized;
19,615,865 and 11,624,920 shares issued, respectively 2 --
Additional paid-in capital 140,371 1,315
Retained earnings (accumulated deficit) (9,694) (3,859)
-------- -------
Total stockholders' equity 131,801 (2,544)
-------- -------
$179,859 $ 2,695
======== =======
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE> 5
<TABLE>
Advanced Communications Group, Inc. and Subsidiaries
----------------------------------------------------
Consolidated Statements of Cash Flows
-------------------------------------
(Unaudited)
<CAPTION>
Nine months Ended
September 30,
--------------------------
(In thousands) 1998 1997
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (5,846) $(1,604)
Adjustments to reconcile net earnings to net cash:
Depreciation and amortization 6,290 2
Stock-based compensation expense 1,760 20
Equity in loss of KINNET 360 --
Change in assets and liabilities:
Decrease (increase) in:
Accounts receivable, net (7,536) (1)
Deferred costs 1,985 --
Prepaid expenses and other current assets (156) (1,136)
Other assets, net (5,252) 3
Increase (decrease) in:
Accounts payable and accrued liabilities 2,460 1,402
-------- -------
Net cash used in operating activities (5,935) (1,314)
-------- -------
Cash flows from investing activities:
Cash paid for businesses acquired, net of $828 cash acquired (83,277) --
Additions to property, plant and equipment, net (9,882) --
-------- -------
Net cash used in investing activities (93,159) --
-------- -------
Cash flows from financing activities:
Borrowings under revolving credit facility 10,000 1,281
Repayment of long-term debt (4,895) --
Proceeds from common stock offering, net of offering costs 99,900 --
-------- -------
Net cash provided by financing activities 105,005 1,281
-------- -------
Net increase (decrease) in cash and cash equivalents 5,911 (33)
Cash and cash equivalents-beginning of period -- 33
-------- -------
Cash and cash equivalents-end of period $ 5,911 $ --
======== =======
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE> 6
Advanced Communications Group, Inc. and Subsidiaries
----------------------------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
Nine Months Ended September 30, 1998 and 1997
---------------------------------------------
(Unaudited)
1. INTERIM RESULTS
The financial statements contained herein are unaudited. In the
opinion of management, these financial statements reflect all adjustments,
consisting only of normal recurring adjustments, which are necessary for fair
presentation of the results of the interim periods presented. Reference is
made to the footnotes to the consolidated financial statements contained in
the Company's Annual Report on Form 10-K/A for the year ended December 31,
1997, filed with the Securities and Exchange Commission.
2. BASIS OF PRESENTATION
Advanced Communications Group, Inc. ("ADG" or "Company"), a Delaware
corporation, is a regional competitive local exchange carrier ("CLEC") that
provides a portfolio of telecommunications services to business and residential
customers primarily in seven mid-America states and publishes yellow page
directories in selected markets in California, Oklahoma and Texas.
ADG completed its initial public offering ("IPO") of its common stock,
par value $.0001 per share ("Common Stock") on February 18, 1998. Cash
proceeds from the offering, net of offering costs, were $99.9 million. Of
this amount, $84.1 million was used to pay the cash portion of the purchase
price of the Acquired Companies, $3.6 million was used to retire debt of the
Company and the Acquired Companies, and $1.75 million was paid to a
stockholder for a five-year non-compete agreement. In connection with the
IPO, the Company simultaneously acquired all of the outstanding capital stock
of Great Western Directories, Inc. ("Great Western"), Valu-Line of Longview,
Inc. ("Valu-Line"), Feist Long Distance Service, Inc. ("Feist"), FirsTel,
Inc. ("FirsTel") and Tele-Systems, Inc. ("Tele-Systems"), substantially all
of the assets of Long Distance Management II, Inc. ("LDM II"), Long Distance
Management of Kansas, Inc. ("LDM of Kansas"), The Switchboard of Oklahoma
City, Inc. ("Switchboard"), and National Telecom, a proprietorship, and 49%
of the outstanding capital stock of KIN Network, Inc. ("KINNET")
(collectively "Acquisitions" or "Acquired Companies").
Prior to February 1998, ADG had not conducted any operations other than
those relating to the IPO and the Acquisitions. Consequently, the actual
financial statements included herein relate only to the parent company prior
to February 18, 1998, but include the results of the Acquired Companies for
the period February 18, 1998 to September 30, 1998. Certain pro forma
operating information is presented for comparative purposes as if the IPO and
the Acquisitions had occurred on January 1, 1997. The pro forma financial
information does not purport to represent the Company's results of operations
that would have actually occurred if the IPO and the Acquisitions had in fact
occurred on the date stated above. Since the Acquired Companies were not
under common control or management, historical combined results of operations
may not be comparable to, or indicative of, future performance. The pro forma
Consolidated Statements of Operations reflect the historical results of
operations of the Acquired Companies and were derived from the respective
Acquired Companies' financial statements. All intercompany accounts have been
eliminated in consolidation.
6
<PAGE> 7
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents -- For purposes of reporting cash flows, cash
equivalents include highly-liquid investments purchased with a maturity of
three months or less.
Property, plant and equipment -- Property, plant and equipment are
stated at cost, less accumulated depreciation. Depreciation is computed using
the straight-line or an accelerated method over the respective lives of the
assets. The estimated useful lives of the assets range from 3 to 31 years.
Intangible assets from business acquisitions -- Intangible assets
resulting from the cost of businesses acquired exceeding the fair value of
net assets acquired consist principally of the customer lists and goodwill.
The value of customer lists and their estimated useful lives were determined
using independent appraisals. Customer lists and goodwill are amortized on a
straight-line basis over their estimated useful lives ranging from 5 to 10
years and 25 to 40 years, respectively. For the three months and nine months
ended September 30, 1998, amortization expense relating to intangible assets
was $2,141,000 and $5,352,000, respectively.
Deferred costs -- At December 31, 1997, the Company had deferred
certain legal, accounting, appraisal and other costs incurred in connection
with the Acquisitions and the IPO. At December 31, 1997, deferred acquisition
costs amounted to $929,000 and deferred offering costs amounted to
$1,756,800. When the Acquisitions were completed, deferred acquisition costs
were included in the determination of excess purchase price. Deferred
offering costs were charged to additional paid-in capital upon the closing of
the IPO.
Deferred line acquisition costs include the direct costs incurred in
connection with establishing local access line service for customers and are
being amortized on a straight-line basis over the estimated life of the
average customer local service contract. Deferred line costs are included in
other assets.
Income taxes -- Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the carrying
amounts of existing assets and liabilities for financial reporting purposes
and for income tax purposes. The Company's effective tax rate is
substantially higher than statutory tax rates principally because
amortization of certain intangible assets is not deductible for tax purposes.
Revenue recognition -- Directory revenues are derived from the sale of
advertising space in telephone directories and are recognized on the date
that the directory is published and substantially delivered. If the estimate
of total directory costs exceeds advertising revenues for a specific region's
telephone directory, a provision is made for the entire amount of such
estimated loss. Directory costs are deferred until the date that the
directory is published and substantially delivered. Directory costs include
all direct costs related to the publishing of a region's telephone directory,
such as publishing and distribution expenses and commissions on sales, other
sales expenses and depreciation and amortization. General and administrative
costs are charged to expense as incurred.
7
<PAGE> 8
Costs incurred with the expansion into new markets include all direct
costs related to the publishing of a first-year telephone directory
(prototype directory). Advertising space in prototype directories is
generally provided to advertisers at no cost; therefore, no advertising
revenues are derived from prototype directories. Because the future economic
benefit of the direct costs related to prototype directories cannot be
determined, such direct costs are charged to expense as incurred. The Company
had no prototype directories for the periods ended September 30, 1998 and
1997.
Telecommunications revenues are recognized when long-distance, local
and 800 services are provided. Billings made in advance for local services
are deferred until earned.
Net earnings (loss) per share -- The Company has adopted the provisions
of Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share", which replaces the presentation of primary earnings per share and
fully diluted earnings per share with a presentation of basic earnings per
share ("Basic EPS") and diluted earnings per share ("Diluted EPS"). Basic EPS
excludes dilution and is determined by dividing income available to common
stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS reflects the potential dilution that could
occur if securities and other contracts to issue common stock were exercised
or converted into common stock. In periods of net loss the dilutive impact
of outstanding stock options, stock warrants and other common stock
equivalents are anti-dilutive and are therefore not considered in calculating
Diluted EPS.
Use of estimates -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Fair value of financial instruments -- The Company's only financial
instruments are cash, short-term trade receivables and payables, notes
payable and capital lease obligations. Management believes the carrying
amounts of the financial instruments classified as current assets and
liabilities approximate their fair values because of their short-term nature.
Management believes the interest rates on its notes payable and capital lease
obligations represent fair market rates, and therefore their carrying value
approximates fair value.
Comprehensive Income -- The Company has adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," as
of the first quarter of 1998. SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components, however, it
has no impact on the Company's net income or stockholders' equity. For the
quarters ended September 30,1998 and 1997, the Company did not incur items to
be reported in comprehensive income that were not already included in the
reported net earnings; therefore, comprehensive income (loss) and net income
(loss) were the same for these periods.
8
<PAGE> 9
4. ACQUISITIONS
Concurrent with and as a condition to the closing of the IPO, the
Company acquired all of the outstanding capital stock of Great Western,
Valu-Line, Feist Long Distance, FirsTel and Tele-Systems, substantially all
of the assets of LDM II and LDM of Kansas, Switchboard and National Telecom,
and 49% of the outstanding capital stock of KINNET pursuant to the terms of
the Acquisitions. The Acquisitions are accounted for using the purchase
method of accounting with the parent company being treated as the accounting
acquirer. The interest in KINNET is accounted for under the equity method of
accounting.
The consideration paid for the Acquisitions included (i) cash, (ii)
Common Stock, (iii) promissory notes, and (iv) options and warrants to
purchase shares of Common Stock. For accounting purposes, in determining the
amount to be recorded as the purchase price attributable to the shares of
Common Stock issued for the Acquisitions, the value of such shares was
determined to be $38.0 million, which represents a discount of twenty percent
due to restrictions on the sale and transferability of the shares issued.
The following table sets forth for accounting purposes the fair value of
consideration paid with respect to the Acquisitions and the assets acquired.
The purchase price allocation has not been finalized due to the effect of
certain tax considerations of the Acquired Companies and the final valuation
of consideration paid in the form of options and warrants.
<TABLE>
(In thousands)
Consideration Paid for Acquired Companies:
<S> <C>
Cash $ 84,135
Common Stock 37,896
Notes Payable 17,350
Options and Warrants 361
--------
Total Purchase Price $139,742
========
Assets Acquired:
Net working capital $ 9,829
Property and equipment 3,941
Customer Lists 44,900
Goodwill 81,072
--------
Total Assets Acquired $139,742
========
</TABLE>
The promissory notes issued in the Acquisitions consist of (i) $15.0
million in notes payable two years from the closing of the Acquisitions and
bearing an annual rate of interest of five percent (5%), which notes may be
prepaid at any time and are subordinated to the Company's senior debt, (ii)
$2.0 million in notes convertible into shares of Common Stock at $14.00 per
share, payable two years from the closing of the Acquisitions and bearing an
annual rate of interest of ten percent (10%), which notes may be prepaid at
any time and are subordinated to the Company's senior debt, and (iii) a
$350,000 promissory note payable in three equal annual installments on each
anniversary and bearing an annual interest rate of seven percent (7%), which
note may be prepaid at any time.
9
<PAGE> 10
The following pro forma information presents results of operations as
if the Acquisitions had occurred at the beginning of the periods presented.
This pro forma information is based on historical information and does not
necessarily reflect the actual results that would have occurred nor is it
necessarily indicative of future results of the combined companies.
Pro forma information (In Thousands, except per share data):
<TABLE>
<CAPTION>
Nine Months ended Sept. 30,
---------------------------
1997 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Total revenues $89,292 $69,079 $85,369
Net income (loss) $(5,577) $(2,370) $(4,937)
Earnings (loss) per share $ (.28) $ (.12) $ (.25)
</TABLE>
5. SUBSEQUENT EVENT
In November 1998, the Company named Mr. Richard O'Neal, the acting Chief
Executive Officer and Mr. James F. Cragg the acting President and Chief
Operating Officer. Mr. O'Neal continues to serve as the President and Chief
Operating Officer of the Company's yellow pages publishing subsidiary and is
also a director. Mr. Cragg continues to serve as Executive Vice President of
Sales and Marketing and a director of the Company, positions he has held since
December 1997. The Company's former Chief Executive Officer, Richard P. Anthony,
remains Chairman of the Board and will focus on strategic planning and local
network installation.
6. NEW ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
establishes standards for reporting information about operating segments in
annual financial statements and requires that enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. The Company will adopt the statement for its year end 1998
financial statements. The Company is currently evaluating the impact that the
statement will have on its reportable segments. Adoption of this statement
will have no impact on the Company's net income, financial position or cash
flows.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits", ("SFAS 132"). This statement requires additional
pension related disclosures. Adoption of this statement will have no impact
on the Company's net income, financial position or cash flows.
10
<PAGE> 11
In March 1998, the American Institute of Certified Public Accountants
(AICPA), issued Statement of Position 98-1 (SOP 98-1), "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." This SOP
is effective for financial statements for fiscal years beginning after
December 15, 1998, with earlier application encouraged. The Company currently
accounts for its software costs generally in accordance with this SOP.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." This SOP provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. The Company is
in compliance with this SOP.
Item 2. - Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
The statements contained in this Report that are not historical facts
(including statements as to the Company's plans, beliefs or expectations) are
forward-looking statements within the meaning of the federal securities laws
that involve certain risks and uncertainties. Management wishes to caution
the reader that these forward-looking statements such as the Company's plans
to transition its resale customers to its own switch-based facilities, the
Company's belief that it will be able to achieve higher margins on its own
facilities-based local telecommunications services, the Company's
expectations that it will be able to meet its short-term working capital and
capital requirements from cash provided by operations and its existing credit
facilities, and the potential effects of the year 2000 issues, are plans and
predictions regarding future events and circumstances. Actual events or
results may differ materially as a result of risks facing the Company. For a
detailed discussion of those risks, reference is made to the statement under
"Risk Factors", in the Company's Registration Statement on Form S-1,
Securities Act File Number 333-37671 filed with the Securities and Exchange
Commission on February 12, 1998.
RESULTS OF OPERATIONS
General
The following table sets forth, for the periods presented, certain
actual and pro forma information relating to the operations of the Company,
expressed as a percentage of revenues, excluding stock-based compensation
expense:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------- ----------------------
Actual Pro Forma Pro Forma Pro Forma
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Telecommunications revenues 67.2% 54.8% 53.7% 48.4%
Directory revenues 32.8 45.2 46.3 51.6
------- ------- ------- -------
Total revenues 100.0 100.0 100.0 100.0
Cost of services 65.2 59.9 59.3 54.5
Selling, general and administrative
expenses 38.7 37.1 33.6 33.5
Depreciation and amortization 11.6 12.7 9.2 10.0
------- ------- ------- -------
Income (loss) from operations (15.5)% (9.7)% (2.1)% 2.0%
======= ======= ======= =======
</TABLE>
11
<PAGE> 12
Prior to February 1998, ADG had not conducted any operations other than
those relating to the IPO and the Acquisitions. Consequently, the actual
financial statements included herein relate only to the parent company prior
to February 18, 1998, but include the results of the Acquired Companies for
the period February 18, 1998 to September 30, 1998. Certain pro forma
operating information is presented for comparative purposes as if the IPO and
the Acquisitions had occurred on January 1, 1997. The pro forma operating
information does not purport to represent the results of operations of the
Company that would have actually occurred if the IPO and the Acquisitions had
in fact occurred on the date stated above. Since the Acquired Companies were
not under common control or management, historical combined results of
operations may not be comparable to, or indicative of, future performance.
The pro forma Consolidated Statements of Operations reflect the historical
results of operations of the Acquired Companies and were derived from the
respective Acquired Companies' financial statements.
Results of operations for the three months ended September 30, 1998, compared
to the pro forma results for the three months ended September 30, 1997
Revenues for the three months ended September 30, 1998, increased 37.7%
to $25.2 million from $18.3 million in the third quarter of 1997. Revenues
from telecommunication services were $16.9 million, or 67.2% of total
revenues, compared to $10.0 million and 54.8% of pro forma total revenue in
1997. Revenues from the telecommunications segment increased 41.8% over the
comparable quarter of 1997 and 11.2% over the sequential quarter of 1998. The
increase in telecommunications revenue is due to increased local service
revenue as the Company implemented aggressive sales and marketing of local
services in addition to long-distance services. The Company's local service
revenue in the third quarter of 1998 was $5.4 million compared to third
quarter 1997 local service revenue of $.2 million. Local service revenue for
the third quarter of 1998, increased 60.8% sequentially over second quarter
1998 pro forma local service revenue of $3.4 million. In the three months
ended September 30, 1998, the Company installed approximately 32,000 local
access lines. At September 30, 1998, the Company had approximately 77,000
local access lines in service.
Directory revenues were $8.3 million in both the 1998 and 1997 third
quarter. Directory revenues were 32.8% of total revenue in the third quarter
of 1998, compared to 45.2% of total revenue in the 1997 pro forma third
quarter. The Company distributed seven directories in both the third quarter
of 1998 and 1997. The results for the quarter include an increase in
revenues of $.2 million on recurring directories which was offset by the net
impact of the timing of the distribution of certain directories. The Company
does not recognize revenue from a directory until a directory is
substantially delivered.
12
<PAGE> 13
Cost of services for the three months ended September 30, 1998,
increased to $16.4 million from pro forma $10.9 million in the third quarter
of 1997, an increase of 50.5%. Cost of services as a percentage of total
revenues was 65.2% in 1998 compared to 59.9% in 1997. The increase in the
cost of service rate is due primarily to the increased costs of providing
local and long distance services. Telecommunications cost of service was
$12.3 million, or 72.6% of telecommunications revenues for the three months
ended September 30, 1998, compared to pro forma cost of telecommunications
services of $7.7 million, or 64.5% of pro forma telecommunication revenues,
in the third quarter of 1997. The higher cost of providing
telecommunications service in gross dollars is due to the increase in local
service revenue. The increase in operating costs of the telecommunication
segment as a percentage of telecommunication revenues in 1998 is due to
higher volume of lower margin local service and also due to lower gross
margins from long distance. In response to competition for long distance
service, the Company reduced prices thereby lowering gross margin on long
distance service. When the Company deploys its own local switching
facilities, the Company expects to transition its resale customers to its own
switch-based facilities. The Company believes that it will be able to
achieve higher gross margins by providing telecommunications services on its
own network than it can currently obtain by reselling the services of the
incumbent providers. The lower gross margin in the third quarter of 1998 is
also due to lower gross margins of the directory publications segment. The
cost of directory publishing in the third quarter of 1998 was $4.1 million,
or 50.0% of directory revenue, compared to pro forma directory costs of $4.5
million, or 54.7% of directory revenue, in the third quarter of 1997. The
lower cost of directory services as a percentage of sales is due to higher
advertising revenues from recurring directories exceeding the incremental costs
of publishing and distribution.
Selling, general and administrative expenses for the third quarter
ended September 30, 1998, increased to $9.7 million from pro forma $6.8
million in 1997. The increase is due primarily to the direct costs
associated with the higher sales volume. As a percentage of total revenues,
selling and administrative expenses were 38.7% in the third quarter of 1998,
and 37.1% in the same period of 1997. The increase in the expense rate is
due to increased general and administrative costs as a result of the
company's new organization structure, higher costs of order processing and
also due to a $.4 million nonrecurring expense related to a prototype
directory. The Company expects that its selling, general and administrative
costs will continue to increase in absolute terms as the Company undertakes
more aggressive sales, promotional and marketing programs to develop its
businesses.
Depreciation and amortization was approximately $2.9 million in the
third quarter of 1998, an increase of $.6 million from pro forma depreciation
and amortization of $2.3 million in 1997. Depreciation and amortization
includes approximately $2.0 million of amortization in both periods relating
to intangible assets resulting from the Acquisitions. The Company expects
that its depreciation and amortization will continue to increase as the
Company implements its strategy of installing its own network and facilities.
Interest expense for the third quarter was approximately $.4 million in
the third quarter of 1998, a decrease from pro forma interest income of $.1
million in the third quarter of 1997. The increase in interest expense is due
to the additional borrowings under the Company's revolving credit facility.
Other interest is primarily on debt to related parties issued as consideration
for certain of the Acquired Companies.
13
<PAGE> 14
Income tax benefit of $.5 million was recognized in the third quarter
of 1998 compared to pro forma income tax expense of $.4 million in 1997.
The decrease is due to lower taxable income in 1998 than in 1997. The
Company's effective tax rate is substantially higher than statutory tax rates
principally because amortization of certain intangible assets is not
deductible for tax purposes.
Net loss was $3.7 million, or $.19 per share, in the three months ended
September 30, 1998, compared to pro forma net loss of $2.1 million, or $.11
per share in 1997 third quarter. The increase in net loss was primarily due
to higher volume of lower margin local service and lower margins from long
distance service discussed above.
Earnings before interest, taxes, depreciation, amortization, equity
interest in KINNET and stock-based compensation expense (EBITDA) decreased
to negative $.7 million for the three months ended September 30, 1998, from
positive pro forma EBITDA of $.6 million in the third quarter of 1997. EBITDA
is a measure commonly used in the telecommunications industry and is
presented to assist in an understanding of the Company's operating results
and is not intended to represent cash flow or results of operations in
accordance with generally accepted accounting principles. EBITDA is not
necessarily comparable to other similarly titled measures of other companies.
Pro forma results of operations for the nine months ended September 30, 1998,
compared to the nine months ended September 30, 1997
Pro forma revenues for the nine months ended September 30, 1998,
increased 23.6% to $85.4 million from $60.1 million in the first nine months
of 1997. Pro forma revenues from telecommunication services were $45.9
million, or 53.7 % of pro forma total revenues, compared to $33.5 million and
48.4% of total revenues in 1997. The increase in telecommunications revenues
is due to increased local service revenue as the Company implemented
aggressive sales and marketing of local services in addition to long distance
services. Pro forma local service revenue in the first nine months of 1998
was $8.8 million compared to $.2 million in 1997. At September 30, 1998 the
Company had approximately 77,000 local access lines in service.
Pro forma directory revenues for the nine months ended September 30,
1998, increased 10.9% to $39.5 million from $35.6 million in the first nine
months of 1997. The Company distributed eighteen directories in both the
first nine months of 1998 and 1997. Approximately $1.9 million of the
increase is due to higher advertising revenue from recurring directories, and
approximately $2.0 million of the increase is due to the net impact of the
timing of the distribution of certain directories. The Company does not
recognize revenue from a directory until a directory is substantially
delivered.
Pro forma cost of services for the nine months ended September 30,
1998, increased to $50.6 million from $37.6 million in 1997, an increase of
34.5%. Pro forma cost of services as a percentage of pro forma total
revenues was 59.3% in 1998 compared to 54.5% in 1997. The higher cost
percentage in the first nine months of 1998 is due to the telecommunications
segment. Telecommunication cost of
14
<PAGE> 15
service was $39.6 million, or 79.1% of telecommunications revenues for the
nine months ended September 30, 1998, compared to pro forma cost of
telecommunications services of $20.9 million, or 62.6% of pro forma
telecommunication revenues, in the first nine months of 1997. The higher cost
of providing telecommunications service in gross dollars is due to the
increase in local service revenue and increased long distance usage. The
increase in operating costs of the telecommunication segment as a percentage
of telecommunication revenues in 1998 is due to higher volume of lower margin
local service and also due to lower gross margins from long distance. When the
Company deploys its own local switching facilities, the Company expects to
transition its resale customers to its own switch-based facilities. The
Company believes that it will be able to achieve higher gross margins by
providing telecommunications services on its own network than it can currently
obtain by reselling the services of the incumbent providers. The lower gross
margin of the telecommunications segment in the first nine months of 1998 is
partially offset by higher gross margins of the directory segment. The cost
of directory services in the nine months ended September 30, 1998 was $16.0
million, or 44.6% of directory revenue, compared to directory costs of $16.7
million, or 46.9% of directory revenue, in the comparable period of 1997. The
lower cost of directory services as a percentage of sales is due to
incremental advertising revenues from recurring directories exceeding the
incremental cost associated with those revenues.
Pro forma selling, general and administrative expenses for the nine
month period ended September 30, 1998, increased to $28.7 million from $23.2
million in the same period of 1997. The increase is due primarily to the
direct costs associated with the higher sales volume. As a percentage of
total revenues, pro forma selling and administrative costs were 33.6% in
1998, and 33.5% in 1997. The expense rate was relatively flat as the
increased spending was offset by economies of scale realized from the
Company's higher sales volume. The Company expects that its selling, general
and administrative costs will increase as the Company undertakes more
aggressive sales and marketing programs to develop its businesses.
Pro forma depreciation and amortization was approximately $7.8 million
in the nine months ended September 30, 1998, compared to $6.9 million in the
first nine months of 1997. Pro forma depreciation and amortization includes
approximately $6.0 million of amortization in both periods relating to
intangible assets resulting from the Acquisitions. The Company expects that
its depreciation and amortization will continue to increase as the Company
implements its strategy of installing its own network and facilities.
Stock-based compensation of $1.8 million was recognized in the nine
months ended September 30, 1998, relating to 300,000 stock options issued in
December 1997. The options vested equally over a three-month period
beginning on the date of the grant. This amount represents the remaining two
thirds of the total compensation expense expected to be realized based on the
estimated fair market value of the options on the date of the grant.
Stock-based compensation expense of $.8 million was recognized in the fourth
quarter of 1997.
Pro forma interest expense was approximately $1.0 million in the first
nine months of 1998 compared to $.6 million in the first nine months of 1997.
The interest is primarily on debt to related parties issued as consideration
for certain of the Acquired Companies.
15
<PAGE> 16
Pro forma income tax expense was $.5 million in the first nine months
of 1998 compared to $2.8 million in 1997. The decrease is due to lower
taxable income in the first nine months of 1998 than in the first nine months
of 1997. The Company's effective tax rate is substantially higher than
statutory tax rates principally because amortization of certain intangible
assets is not deductible for tax purposes.
Pro forma net loss was $4.9 million, or $.25 per share, in the nine
months ended September 30, 1998, compared to pro forma net loss of $2.4
million, or $.12 per share in the first nine months of 1997. The increase in
net loss is due primarily to the stock-based compensation expense of $1.8
million. Excluding this item, net loss for the nine months ended September
30, 1998, would have been $3.8 million, or $.19 per share. The increase in
net loss excluding the stock-based compensation expense is due to the higher
cost of providing local service and lower margins from the Company's long
distance service.
Pro forma earnings before interest, taxes, depreciation, amortization,
equity interest in KINNET and stock-based compensation expense (EBITDA) was
$4.9 million for the nine months ended September 30, 1998, a decrease from
$8.5 million for the nine months ended September 30, 1997. The decrease is
primarily due to lower earnings from the telecommunications operations in
1998, offset partially by higher earnings from the Company directory
publishing segment. EBITDA is a measure commonly used in the
telecommunications industry and is presented to assist in an understanding of
the Company's operating results and is not intended to represent cash flow or
results of operations in accordance with generally accepted accounting
principles.
Actual period ended September 30, 1998
The Company did not complete the Acquisitions until February 18, 1998,
therefore, actual results include only the activity of the Acquired Companies
from February 18, 1998 to September 30, 1998. For the period ended September
30, 1998, actual loss from operations was $5.2 million and net loss was $5.8
million. Excluding the stock-based compensation of $1.8 million, the Company
had a loss from operations of $3.4 million and a net loss of $4.8 million.
The Company had no operating revenue in 1997 and was engaged principally in
activities relating to the IPO.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at September 30, 1998 was $6.6 million
and its ratio of current assets to current liabilities was 1.2 to 1.0.
On February 18, 1998, the Company completed its initial public offering
and simultaneously acquired nine operating companies and a 49% interest in
another company. Cash proceeds from the offering, net of offering costs,
were $99.9 million. Of this amount, $84.1 million was used to pay the cash
portion of the purchase price of the acquired companies, $3.6 million was
used to retire debt of the
16
<PAGE> 17
Company and the Acquired Companies, and $1.75 million was paid to a
stockholder of the Company for a five-year non-compete agreement.
Stockholders of the Acquired Companies that became executive officers or
directors of the Company upon the consummation of the Acquisitions received
approximately $35.6 million of the cash purchase price paid for the
Acquisitions.
On August 6, 1998, the Company entered into a $25.0 million revolving
credit facility with a bank. The credit facility will be used for working
capital, capital expenditures and general corporate purposes. Borrowings
under the facility are limited to 85% of eligible accounts receivable and
interest is due at LIBOR plus 1.5% or the bank's base rate plus .5%. The
credit facility expires on August 6, 1999. At September 30, 1998, the
Company had outstanding borrowings of $10.0 million under this facility.
The Company expects that it will be able to meet its short-term working
capital and capital requirements from cash provided by operations and funds
available under its revolving credit facility. The Company continues to
evaluate other financing alternatives in order to finance its investment in
network facilities and other growth strategies.
Year 2000 Issue
This year 2000 issue is a matter of worldwide concern for carriers and
affects many aspects of telecommunications technology, including the computer
systems and software applications that are essential for network
administration and operations. A significant portion of the voice and data
networking and network management devices have date-sensitive processing in
them which affect network administration and operations functions such as
service activation, service assurance and billing processes.
The Company and its vendors have evaluated the year 2000 readiness of
the Company's computer systems and software applications. Certain of the
Company's key processing systems have recently been implemented and the
vendors of such systems have represented to the Company that the systems are
compliant with the year 2000 issues without any modification and the Company
will require confirmation of year 2000 compliance in its future requests for
proposals from equipment and software vendors. Other legacy computer systems
and software that are currently in use are not currently compliant with the
year 2000 issues; however, the Company had previously planned on replacing
such systems in late 1998 for general business reasons other than the year
2000 issue. The failure of the Company's computer systems and software
applications to accommodate the year 2000 could have a material adverse
effect on the Company's business, financial condition, results of operation
and cash flow.
Further, if the networks, and systems of the ILECs, IXCs and others on
whose services the Company depends and with whom the Company's networks and
systems must interface are not year 2000 functional, it could have a material
adverse effect on the operation of the Company's networks and, as a result,
have a material adverse effect on the Company. Most major domestic carriers
have announced that they expect all of their network and support systems to
be year 2000 functional by mid 1999. However, other domestic and
international carriers may not be year 2000 functional. The
17
<PAGE> 18
Company plans to participate in the interoperability testing processes being
put in place by industry organizations and the Company intends to continue to
monitor the performance of its accounting, information and processing systems
and software applications and those of its third-party constituents to
identify and resolve any year 2000 issues. To the extent necessary, the
Company may need to replace, upgrade or reprogram certain systems and software
applications to ensure that all of the Company's computer systems and
software applications and all of its interoperability applications are year
2000 functional. However, based on current information, the Company does not
believe that it will incur costs for any replacement, upgrade or
reprogramming of its existing computer systems and software applications to
resolve any year 2000 issues that will be materially in excess of those
currently budgeted.
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
-----------------
Prior to the closing of ADG's initial public offering ("IPO") and ADG's
acquisition of Great Western Directories, Inc. ("Great Western"), Richard
O'Neal, the principal shareholder of Great Western and a current director of
ADG, expressed disagreement with the effect of the reverse stock split
involving ADG's predecessor (to be effected in connection with the
consummation of the IPO) on certain warrants that had been issued to the
stockholders of Great Western at the time of the execution of the initial
acquisition agreement between ADG and Great Western (the "Warrants").
Consolidated Partners Founding Fund L.L.C. ("CPFF"), a stockholder of ADG's
predecessor (as well as a stockholder of ADG after the consummation of the
IPO) and Mr. O'Neal executed a written agreement dated February 11, 1998
agreeing to engage in good faith negotiations after the Offering to determine
the type and amount of any consideration appropriately payable by CPFF to the
holders of the Warrants. The written agreement further provided that if CFPP
and Mr. O'Neal could not reach a negotiated settlement within forty-five days
after the closing of the IPO, the matter would be referred to binding
arbitration and the cost of such arbitration would be borne by CPFF. The
resolution of these matters is solely between CPFF and the principal
shareholder of Great Western and ADG shall have no liability with respect to
the resolutions of such matter.
While any payment will be made solely by CPFF and will not involve the
assets of ADG or the issuance of additional ADG common stock or common stock
equivalents, such a payment may be construed for accounting purposes as a
capital contribution by CPFF and deemed a payment by ADG of additional
consideration for the Great Western acquisition. This would increase the
goodwill associated with the Great Western Acquisition and the related
amortization charges.
No resolution was reached between Mr. O'Neal and CPFF within 45 days
following the consummation of the IPO,and this matter was referred to
arbitration in accordance with the above referenced agreement between Mr.
O'Neal and CPFF. CPFF filed suit in the district court of Harris County,
Texas in May 1988, seeking, among other things, an order staying arbitration.
On August 26, the court granted CPFF's motion to stay the arbitration, and ruled
that the February 11 agreement was unenforceable. A hearing on plaintiff's
motion for summary judgment was held on November 13, 1998, at which
CPFF's motion for summary judgement sustaining CPFF's position that O'Neal was
not entitled to any further considertaion was granted.
18
<PAGE> 19
On May 14, 1998, Plaintiff Brenda A. Baldwin ("Plaintiff") filed a
three count Complaint against Great Western Directories, Inc. ("Great
Western") and Richard O'Neal ("O'Neal"), President of Great Western.
Plaintiff alleges that, pursuant to a decree of divorce, she received 31.25
shares of common stock of Great Western, representing 2.5% of the issued and
outstanding stock of Great Western prior to January 10, 1997. Plaintiff
alleges that she sold her stock to Great Western on January 10, 1997, for
$225,000 as a result of certain misrepresentations and omissions by O'Neal,
including a representation that Great Western was struggling financially and
its prospects for the future were poor. Plaintiff also alleges that prior to
the sale of her shares, Mr. O'Neal was aware of negotiations between Great
Western and Advanced Communications Corp. regarding the sale of all of the
shares of Great Western to Advanced Communications Corp. and that he failed
to disclose this information.
Shortly after the sale by Plaintiff, Great Western reissued the
Plaintiff's shares to Plaintiff's former husband, Ron Baldwin. Mr. Baldwin,
who already had an ownership interest in the company, paid $225,000 for the
shares.
On June 16, 1997, the shareholders of Great Western entered into a
stock purchase agreement with Advanced Communications Corp. pursuant to which
they agreed to sell all of the issued and outstanding shares of Great
Western. The stock purchase agreement was restated on October 6, 1997. On
February 12, 1998, Advanced Communications Group, Inc., successor to Advanced
Communications Corp., completed an initial public offering and subsequently
acquired all of the issued and outstanding shares of Great Western pursuant
to the restated stock purchase agreement. Plaintiff alleges that had she not
sold her shares, she would have received consideration of approximately
$2,350,000.
Count I of the Complaint alleges that Great Western and O'Neal violated
Section 10b of the Securities Act of 1934 and Rule 10b-5 by reason of the
alleged misrepresentations and omissions described above. Count II of the
Complaint is a claim under the Texas securities laws based upon the alleged
misrepresentations and omissions described above. Count III of the Complaint
is a common law fraud claim also based on the alleged misrepresentations and
omissions described above. Plaintiff seeks actual and punitive damages in an
unspecified amount, as well as costs and attorneys' fees.
Great Western and O'Neal have filed an answer denying the substantive
allegations of Plaintiff's Complaint and denying any liability to Plaintiff.
Preliminary discovery has taken place in the form of a production of
documents by the parties.
Item 4. Submission of Matters to a Vote of Securities Holders
-----------------------------------------------------
At the Company's Annual Meeting of Stockholders on July 29, 1998, the
following matter was submitted to a vote of the Company's stockholders.
The following directors were elected, each to hold office until the
Annual Meeting to be held in 2001 or until a successor is elected and has
qualified or until his or her earlier death, resignation or removal. Votes
were cast as follows:
<TABLE>
<CAPTION>
Names Votes "For" Votes Withheld
----- ----------- --------------
<S> <C> <C>
Robert F. Benton 17,027,509 20,310
James F. Craig 17,027,909 19,910
David M. Mitchell 16,999,909 47,910
Marvin C. Moses 17,027,509 20,310
</TABLE>
Brokers were permitted to vote on the election of directors in the
absence of instructions from street-name holders; broker non-votes did not
occur in those matters.
19
<PAGE> 20
The following directors are continuing current terms expiring at the
1999 Annual Meeting of Stockholders: Messrs. Todd J. Feist, E. Clarke
Garnett, Richard O'Neal and William H. Zimmer III. The following directors
are continuing current terms expiring at the 2000 Annual Meeting of
Stockholders: Messrs. Richard P. Anthony, Fred L. Thurman and Reginald J.
Hollinger. Mr. Rod Cutsinger was appointed a director of the Company
effective November 9, 1998 to serve a term expiring at the 2000 Annual
Meeting of Stockholders.
Item 5. - Other Information
-----------------
On October 22, 1998, the Company issued a press release reporting
certain financial results for the third quarter of 1998 and for the nine
months ended September 30, 1998. Due to inadvertence, certain pro forma
financial information for the nine months ended September 30, 1998 was not
reported accurately. The table below sets for the pro forma information
mistakenly reported in the press release and the pro forma as it should have
been reported, and as it is reported on the Company's Consolidated Statement
of Operations for the nine months ended September 30, 1998 contained in Item 1
or Part I of this Form 10-Q (except for EBITDA which is discussed in Item 2 of
Part I).
<TABLE>
Pro Forma Financial Information
for the Nine Months Ended September 30, 1998
<CAPTION>
(In thousands, except per share data) As Reported Actual
----------- ------
<S> <C> <C>
Selling, general and
administrative expenses $27,566 $28,671
Income (loss) from operations (2,415) (3,521)
Income (loss) before income taxes (3,293) (4,399)
Income tax expense (981) (538)
Net loss (4,274) (4,937)
Basic and diluted earnings (loss)
per share $(.22) $(.25)
EBITDA $ 6,009 $ 4,903
</TABLE>
Item 6. - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule (filed with the
Securities and Exchange Commission only)
(b) Reports on Form 8-K
During the quarter ended September 30, 1998, the company filed a
Current Report on Form 8-K dated July 9, 1998 - Item 5 Other Events which
contained the following financial statements:
ADVANCED COMMUNICATIONS GROUP, INC. UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS
Unaudited Pro Forma Combined Statements of Operations for the year ended
December 31, 1997 and the three months ended March 31, 1997 and 1998
Unaudited Pro Forma Combining Statement of Operations for the year ended
December 31, 1997
Unaudited Pro Forma Combining Statement of Operations for the three months
ended March 31, 1998
Notes to Unaudited Pro Forma Combined Statements of Operations
ADVANCED COMMUNICATIONS GROUP, INC.
Report of Independent Auditors
Consolidated Statements of Operations for the Period from Inception (June 6,
1996) to December 31, 1996, the year ended December 31, 1997 and the
three months ended March 31, 1997 and 1998 (unaudited)
Consolidated Balance Sheets as of December 31, 1996 and 1997 and March 31,
1998 (unaudited)
Consolidated Statements of Changes in Stockholders' Deficit for the Period
from Inception (June 6, 1996) to March 31, 1998 (unaudited)
Consolidated Statements of Cash Flows for the Period from Inception (June 6,
1996) to December 31, 1996, the year ended December 31, 1997 and the
three months ended March 31, 1997 and 1998 (unaudited)
Notes to Consolidated Financial Statements
20
<PAGE> 21
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.
Advanced Communications Group, Inc.
(Registrant)
Date: November 13, 1998 /s/ James F. Cragg
------------------
James F. Cragg
President and Chief Operating Officer
Date: November 13, 1998 /s/ William H. Zimmer III
-------------------------
William H. Zimmer
Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
21
<PAGE> 1
<TABLE>
Advanced Communications Group, Inc. and Subsidiaries
----------------------------------------------------
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<CAPTION>
Three Months Ended Nine months Ended
---------------------- ------------------------------------
(In thousands, except per share amounts) Actual Pro Forma Pro Forma Actual
--------- --------- ----------------------- ---------
Sept. 30, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1998 1997 1998 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Earnings Per Share:
- - ------------------
Average number of common shares
outstanding for basic and diluted
computation (See Note) 19,616 19,616 19,616 19,616 18,179
======= ======= ======= ======= =======
Net income (loss) earnings $(3,691) $(2,146) $(4,937) $(2,370) $(5,835)
======= ======= ======= ======= =======
Basic earnings per share $ (.19) $ (.11) $ (.25) $ (.12) $(.32)
======= ======= ======= ======= =======
Diluted earnings per share $ (.19) $ (.11) $ (.25) $ (.12) $(.32)
======= ======= ======= ======= =======
</TABLE>
Note: The effect of the assumed exercise of stock options and the assumed
conversion of the note payable and preferred stock have not been included
in the computation of diluted earnings per share for the period after
issuance because to do so would have been anti-dilutive for the periods
presented.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information on extracted from SEC
Form 10-Q for the quarterly period ended September 30, 1998, and is qualified
in its entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,911
<SECURITIES> 0
<RECEIVABLES> 36,213
<ALLOWANCES> 9,246
<INVENTORY> 0
<CURRENT-ASSETS> 37,117
<PP&E> 19,755
<DEPRECIATION> 6,804
<TOTAL-ASSETS> 179,859
<CURRENT-LIABILITIES> 30,511
<BONDS> 0
<COMMON> 2
1,122
0
<OTHER-SE> 130,677
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 68,908
<TOTAL-REVENUES> 68,908
<CGS> 74,103
<TOTAL-COSTS> 74,103
<OTHER-EXPENSES> (208)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 919
<INCOME-PRETAX> (5,906)
<INCOME-TAX> (60)
<INCOME-CONTINUING> (5,846)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,846)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.32)
</TABLE>
