SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- - ACT OF 1934
For the quarterly period ended September 30, 2002
__ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______ to ______
Commission File No.: 000-21557
ACI TELECENTRICS, INC.
(Name of Registrant 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 5,781,485 shares of common stock, no par value per
share, outstanding as of November 6, 2002.
ACI TELECENTRICS, INCORPORATED
FORM 10-Q
TABLE OF CONTENTS
PAGE #
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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 11
Item 3 Qualitative and Quantitative Disclosures on Market Risk 17
Item 4 Controls and Procedures 17
Item 5 Resignation of Officer 17
PART II OTHER INFORMATION
Items 1 through Item 5 have been omitted since all items are
inapplicable or answers negative.
Item 6 Exhibits and reports on Form 8-K 18
Signature Page 19
2
PART 1 FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
ACI TELECENTRICS, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
2002 2001
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,714,352 $ 1,459,214
Trade receivables, less allowance for doubtful
accounts of $243,874 and $199,000, respectively 4,440,990 3,691,111
Deferred income taxes
911,000
Prepaid expenses 191,376 141,120
Grant receivable 778,085 677,341
Other current assets 762 1,110
------------ ------------
Total current assets 7,125,565 6,880,896
Property and equipment, net of accumulated depreciation 4,766,457 6,094,392
Other assets 205,482 140,360
------------ ------------
TOTAL ASSETS $ 12,097,504 $ 13,115,648
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 1,957,704
Trade accounts payable 1,318,658 $ 1,481,408
Accrued compensation 1,173,796 746,630
Accrued expenses 351,756 281,266
Restructuring costs reserve 11,025
Income taxes payable 151,335 92,282
Current portion capital lease obligations 630,567 669,731
Current portion deferred grants 1,395,344 1,070,530
------------ ------------
Total current liabilities 6,990,185 4,341,847
LONG-TERM LIABILITIES:
Capital lease obligations, less current portion 672,459 774,217
Deferred grants, less current portion 20,000
Deferred income taxes 148,000 1,059,000
------------ ------------
Total long-term liabilities 820,459 1,853,217
SHAREHOLDERS' EQUITY:
Common stock, no par value;
Authorized - 15,000,000
Issued and outstanding shares - 5,781,485 6,659,989 6,659,989
Retained earnings (deficit) (2,373,129) 260,595
------------ ------------
Total shareholders' equity 4,286,860 6,920,584
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 12,097,504 $ 13,115,648
============ ============
See accompanying notes to consolidated financial statements.
3
ACI TELECENTRICS, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
TELEMARKETING REVENUES
Outbound revenue $ 5,971,699 $ 7,981,858 $ 19,302,676 $ 25,095,214
Inbound revenue 1,076,045 285,145 2,718,996 639,365
------------ ------------ ------------ ------------
Total revenue 7,047,744 8,267,003 22,021,672 25,734,579
------------ ------------ ------------ ------------
COST OF SERVICES 4,388,525 4,389,984 13,248,259 13,154,444
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,788,162 3,945,551 11,008,517 11,406,916
IMPAIRMENT CHARGE (Note 2) 49,975 49,975
RESTRUCTURING COSTS (Note 7) 11,025 11,025
------------ ------------ ------------ ------------
OPERATING (LOSS) INCOME (1,189,943) (68,532) (2,296,104) 1,173,219
OTHER INCOME (EXPENSE)
Interest income 570 3,280 5,767 18,507
Interest expense (58,431) (59,405) (148,892) (229,735)
Other, net 57,841 (63,770) 505 (135,967)
------------ ------------ ------------ ------------
Total other expense (20) (119,895) (142,620) (347,195)
------------ ------------ ------------ ------------
(LOSS) INCOME BEFORE TAXES (1,189,963) (188,427) (2,438,724) 826,024
INCOME TAX EXPENSE (BENEFIT) 677,000 (72,000) 195,000 324,000
------------ ------------ ------------ ------------
NET (LOSS) INCOME $ (1,866,963) $ (116,427) $ (2,633,724) $ 502,024
============ ============ ============ ============
(LOSS) EARNINGS PER SHARE:
Basic $ (.32) $ (.02) $ (.46) $ .09
============ ============ ============ ============
Diluted $ (.32) $ (.02) $ (.46) $ .08
============ ============ ============ ============
WEIGHTED AVERAGE COMMOM
SHARES OUTSTANDING:
Basic 5,781,485 5,781,485 5,781,485 5,781,462
============ ============ ============ ============
Diluted 5,781,485 5,781,485 5,781,485 5,918,099
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
4
ACI TELECENTRICS, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended Sept 30,
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (2,633,724) $ 502,024
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 1,815,195 1,667,071
Impairment charge 49,975
Provision for losses on accounts receivable 45,000 41,668
Amortization of deferred grant revenue (100,000) (105,000)
Loss on disposal of equipment 36,641 39,080
Changes in operating assets and liabilities:
Trade receivables (800,879) 2,355,029
Prepaid expenses (50,256) (22,292)
Grant receivable (100,744) (747,229)
Other current assets 348 429,702
Deferred grants 404,814 1,016,762
Trade accounts payable, accrued compensation
and accrued expenses 334,906 (114,939)
Restructuring costs payable 11,025
Customer advances 6,000 974,000
Income tax (receivable) payable 59,053 325,144
------------ ------------
Net cash (used in) provided by operating activities (922,646) 6,361,020
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (573,876) (2,971,805)
(Increase) decrease in deposits (65,122) 556,395
------------ ------------
Net cash used in investing activities (638,998) (2,415,410)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 13,074,425 13,869,221
Payments on revolving line of credit (11,116,721) (16,370,838)
Net proceeds from issuance of common stock -- 6,634
Proceeds from equipment acquired through capital leases 414,783 202,634
Repayments of capital leases (555,705) (458,744)
------------ ------------
Net cash provided by (used in) financing activities 1,816,782 (2,751,093)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 255,138 1,194,517
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 1,459,214 100,607
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,714,352 $ 1,295,124
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
NON CASH INVESTING AND FINANCING TRANSACTIONS:
Equipment acquired through capital lease $ 443,100 $ 826,193
CASH PAID FOR INTEREST AND TAXES:
Income taxes paid net of refunds received $ 26,050 $ 27,108
Cash paid for interest $ 141,273 $ 229,735
See accompanying notes to consolidated financial statements.
5
ACI TELECENTRICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
(1) BASIS OF PRESENTATION AND RESPONSIBILITY OF INTERIM FINANCIAL STATEMENTS
ACI Telecentrics, Incorporated and subsidiary (the Company) prepared
the unaudited consolidated financial statements for the three and nine
months ended September 30, 2002 and 2001 following the requirements of
the Securities and Exchange Commission (SEC) for interim reporting. As
permitted under those rules, certain footnotes or other financial
information that are normally required by accounting principles
generally accepted in the United States can be condensed or omitted.
Therefore, these financial statements should be read in conjunction
with the Company's 2001 Form 10-KSB.
The Company is responsible for the unaudited financial statements
included in this document. The financial statements include all normal
recurring adjustments that are considered necessary for the fair
presentation of the Company's financial position and operating results.
Revenues, expenses, cash flows, assets and liabilities can and do vary
during each quarter of the year. Therefore, the results and trends in
these interim financial statements may not be the same as those for the
full year.
(2) NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 142 (SFAS142), GOODWILL
AND OTHER INTANGIBLE ASSETs. This statement requires that goodwill and
intangible assets deemed to have an indefinite life not be amortized.
Instead of amortizing goodwill and intangible assets deemed to have an
indefinite life, the statement requires a test for impairment to be
performed annually, or immediately if conditions indicate that such an
impairment could exist. We adopted the provisions of SFAS 142 effective
January 1, 2002, which did not have an effect on our historical
consolidated results of operations, financial position, and cash flow.
In August 2001, the FASB issued SFAS No. 143 (SFAS 143), ACCOUNTING FOR
ASSET RETIREMENT OBLIGATIONs, which is effective January 1, 2003. SFAS
143 requires entities to record the fair value of a liability for an
asset retirement obligation in the period in which it is incurred. We
are currently in the process of evaluating the effect the adoption of
this standard will have on our consolidated results of operations,
financial position and cash flows.
In September 2001, the FASB issued SFAS No. 144 (SFAS 144), ACCOUNTING
FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETs, which addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. While SFAS 144 supersedes SFAS No. 121, ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE
DISPOSED OF, it retains many of the fundamental provisions of that
statement. SFAS No. 144 was effective for the Company on January 1,
2002. During the third quarter of 2002, the Company recognized an
impairment charge of $49,975 related to the closing of two small
Midwest call centers.
6
In July 2002, the FASB issued SFAS No. 146 (SFAS 146), ACCOUNTING FOR
COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES, which addresses
financial accounting and reporting for costs associated with exit or
disposal activities. SFAS 146 requires costs associated with the
following restructuring activities to be recognized and measured at
fair value (except for one-time termination benefits) and recorded when
such changes occur: one-time termination benefits, costs to terminate
contracts other than capital leases, and costs to consolidate
facilities and/or relocate employees. The provisions of SFAS 146 are
effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. The Company
adopted SFAS 146 during the third quarter of 2002 concurrent with the
closing of two of its small Midwest call centers. As a result, upon
adoption the Company recorded a restructuring charge of $11,025
representing a liability for future remaining lease rentals on the
properties, reduced by estimated sublease rentals that could be
reasonably obtained for the properties. All charges remained as accrued
liabilities as of September 30, 2002.
(3) EARNINGS PER SHARE (SFAS 128)
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 following table reconciles the denominators used in
computing basic and diluted earnings per share:
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Weighted average common shares outstanding 5,781,485 5,781,485 5,781,485 5,781,462
Effect of dilutive stock options -- -- -- 136,637
--------- --------- --------- ---------
5,781,485 5,781,485 5,781,485 5,918,099
========= ========= ========= =========
A total of 852,000 stock options have been excluded from the
calculation of diluted earnings per share for the three and nine months
ended September 30, 2002, respectively, because to do so would have
been antidilutive for the periods presented. In addition, a total of
225,750 stock options were excluded from the calculation of diluted
earnings per share for the three months ended September 30, 2001,
because to do so would have been antidilutive.
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
September 30, 2002 December 31, 2001
------------------ -----------------
Furniture $ 1,920,570 $ 1,862,921
Equipment 8,261,187 8,364,599
Capitalized software costs 622,800 623,807
Leasehold improvements 424,396 415,340
----------- -----------
11,228,953 11,266,667
Less accumulated depreciation and amortization 6,462,496 5,172,275
----------- -----------
Net property and equipment $ 4,766,457 $ 6,094,392
=========== ===========
At September 30, 2002 and December 31, 2001, the Company had furniture
and equipment under capitalized leases totaling $2,911,917 and
$2,534,748, with accumulated depreciation of $1,361,080 and $936,093,
respectively, which are included in the table above.
7
(5) LINE OF CREDIT
The Company operated under a $4,000,000 Revolving Credit Loan Agreement
dated June 2002. The loan accrued interest at the prime rate on
outstanding borrowings. The borrowing base is secured by certain
accounts receivable. The Revolving Credit Loan Agreement requires the
Company to meet certain financial covenants, which are calculated based
upon total debt levels, tangible net worth, debt service, capital
expenditures, and working capital. As of September 30, 2002, the
Company was in violation of several of these covenants. As a result,
the Company is in default on the $4,000,000 Revolving Credit Loan
Agreement.
The Company's lender has notified the Company that it was willing to
consider delaying the exercise of its rights under the Revolving Credit
Loan Agreement. In consideration, while a permanent agreement is being
negotiated, the Company is currently operating under a temporary
$2,500,000 amended Revolving Credit and Forbearance Loan Agreement
dated November 2002, which expires on April 30, 2003. The loan accrues
interest at the Prime rate plus 2% on outstanding borrowings. The Prime
rate was 4.75% at September 30, 2002. The borrowing base of this
temporary agreement is secured by certain accounts receivable. In
addition, the temporary loan agreement contains provisions requiring
the Company to comply with certain financial covenants, which are
calculated based upon total debt levels, tangible net worth, debt
service, capital expenditures, and working capital including
prohibiting of the payment of cash dividends without the bank's
consent. The company was in violation of several of these covenants. At
September 30, 2002, the Company had outstanding borrowings of
$1,957,704 under the Revolving Credit and Forbearance Loan Agreement
with an available credit line of $542,296 pursuant to the proposed
terms of the forbearance agreement. The Company is seeking an
alternative lender to replace its current credit facility, and provide
the company with additional capital to meet its current liquidity
needs; however, there is no assurance that the Company can reach an
agreement with a lender.
(6) GRANT AGREEMENTS
During the second quarter of 2002, the Company entered into a financial
contribution agreement with the Government of Quebec, Canada. Under the
agreement the Company agreed to open a contact center in Caplan,
Quebec, Canada for certain financial incentives. These incentives are
based on maintaining certain eligibility requirements for two years
from the date that the jobs are created. The Company must create a
minimum of 50 jobs by April 30, 2004, but can create up to 500 for
which it will receive financial contributions. If there is a decrease
in cumulative jobs created, future reimbursement is limited until the
Company exceeds previously reimbursed employment levels. As of
September 30, 2002, the Company created 138 jobs for which it has
applied for financial reimbursement. For the third quarter and nine
months ending September 30, 2002, the Company recorded $40,747 in
financial assistance from the Government of Quebec. At September 30,
2002, $487,328 was receivable under this agreement. As of September 30,
2002, the Company had, under the Caplan agreement, current deferred
recognition of grant income totaling $398,073 as required to conform to
the terms of the grant. Payment for jobs created during the third
quarter of this agreement is due within 30 days after submission and
acceptance of claim.
During the second quarter of 2002, the Company entered into a financial
contribution agreement with Emploi Quebec. Under the terms of the
agreement, Emploi Quebec agreed to subsidize wages, training and Human
Resources management costs for two years. The financial contribution is
linked to the creation of up to 500 jobs at the Company's new customer
contact
8
center located in Caplan, Quebec. During the three and nine month
period ending the Company recorded $48,754 and $62,480, respectively,
in assistance from Emploi Quebec. At September 30, 2002, $79,416 was
receivable under this agreement. Payment for jobs created during the
third quarter of this agreement is due within 30 days after submission
and acceptance of claim.
During the first quarter of 2001, the Company entered into a financial
contribution agreement with the Government of Quebec, Canada. Under the
agreement the Company agreed to open a contact center in Vaudreuil,
Quebec, Canada for certain financial incentives. These incentives are
based upon providing sustained employment for three years and are
awarded based on each job created. The Company must maintain a minimum
of 50 ongoing jobs but can create up to 626 for which it will receive
financial contributions. If there is a decrease in cumulative jobs
created, future reimbursement is limited until the Company exceeds
previously reimbursed employment levels. As of September 30, 2002, the
Company had applied for financial reimbursement for 389 jobs. The
actual number of jobs at September 30, 2002 was 331. No assistance from
the Government of Quebec was recorded in the third quarter of 2002. The
Company recorded $205,938 in assistance during the third quarter ending
September 30, 2001. At September 30, 2002, $154,371 was receivable
under this agreement compared to $153,710 at December 31, 2001. As of
September 30, 2002, the Company had, under the Vaudreuil agreement,
current deferred recognition of grant income totaling $497,250 compared
to $493,799 as of December 31, 2001, as required to conform to the
terms of the grant. Payment of the grants receivable as of September
30, 2002, were 30 days past due.
During the first quarter of 2001, the Company entered into a financial
contribution agreement with the Federal Government of Canada. Under the
agreement, the Company agreed to create 437 fulltime equivalent jobs by
the end of March 31, 2002 at its Sherbrooke, Quebec contact center. No
assistance from the Government of Canada was recorded in the third
quarter of 2002. For the nine months ending September 30, 2002, the
Company recorded $32 in assistance from the Government of Canada. The
Company recorded $131,402 in assistance in the third quarter of 2001.
At September 30, 2002, $40,575 was receivable under this agreement
compared to $180,798 at December 31, 2001. Payments of the grants
receivable as of September 30, 2002, will be received within 60 days.
During the year ended December 2000, the Company entered into a
financial contribution agreement with the Government of Quebec, Canada
to open a contact center in Sherbrooke, Quebec, Canada. These
incentives are based upon providing sustained employment for two years
and are awarded based on each job created. The Company must maintain a
minimum of 50 ongoing jobs but can create up to 600 for which it will
receive financial contributions. If there is a decrease in cumulative
jobs created, future reimbursement is limited until the Company exceeds
previously reimbursed employment levels. As of September 30, 2002, the
Company had applied for financial reimbursement for 546 jobs. The
actual number of jobs at September 30, 2002 was 424. During the third
quarter ended September 30, 2002, there was no assistance recorded from
the Government of Canada. During the third quarter of 2001, $22,180 in
total assistance was recorded. At September 30, 2002, $16,396 was
receivable under this agreement compared to $342,833 at December 31,
2001. As of September 30, 2002, the Company had, under the Sherbrooke
agreement, current deferred recognition of grant income totaling
$460,022 compared to $456,731 at December 31, 2001, as required to
conform to the terms of the grant. Payments of the grants receivable as
of September 30, 2002, will be received within 60 days.
Repayment of the above discussed grants may be required if the Company
does not meet certain minimum job creation requirements. However, the
Company continues to monitor this situation and believes that grants
actually received are consistent with the Company's ability to meet
applicable minimum requirements for such grants. Therefore the Company
does not believe that any grant assistance received will be refunded.
9
(7) RESTRUCTURING COSTS
During the third quarter of 2002, the Company closed two of its small
Midwest call centers and shifted the workflow to its larger facilities
in order to maximize operating efficiencies. As a result, the Company
recorded a restructuring charge of $11,025 related to occupancy costs.
All charges remained as accrued liabilities as of September 30, 2002.
(8) INCOME TAXES
The Company evaluates a variety of factors in determining the amount of
the deferred income tax assets to be recognized pursuant to SFAS No.
109, "Accounting for Income Taxes," including the Company's earnings
history, the number of years the Company's operating loss and tax
credits can be carried forward, the existence of taxable temporary
differences, and near-term earnings expectations. In assessing the
Company's ability to utilize deferred tax assets, management considers
whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Management considers the
scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment.
A valuation allowance of approximately $966,665, of which $482,000 was
for year 2002 prior periods, was recorded at September 30, 2002,
primarily due to the uncertainty of whether a significant portion of
the Company's net operating loss carry forwards may ultimately be
realized. During the third quarter of 2002, the Company also recorded
an additional $195,000 in income tax expense related to its Canadian
operations. Included in non-current deferred income tax liabilities at
September 30, 2002, are previously generated federal tax loss carry
forwards of $210,000, which expire in 2018. The Company also has
previously generated state tax loss carry forwards of $729,000, which
expire in 2012 through 2016. In addition, as of September 30, 2002, the
Company also had general business tax credit carry forwards of
approximately $555,000, which expire in 2012 through 2021 and
alternative minimum tax credit carry forwards of $23,000, which are
available to reduce future federal regular income taxes over an
indefinite period.
10
PART 1 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, and internet-based customer servicing, primarily to the
telecommunications, financial services and publishing industries. ACI was
established in 1987 in Minneapolis, Minnesota. The Company currently operates
eight outbound contact centers and two inbound/outbound/internet services
contact centers; six of which are located in five Midwest states, one in the
state of California and three in the province of Quebec, Canada. The Company's
corporate, administrative and sales functions are headquartered in Minneapolis,
Minnesota. As of September 30, 2002, these 10 contact centers had 834 contacting
stations, and the Company had approximately 1,600 full and part-time employees.
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.
CRITICAL ACCOUNTING POLICIES
The Company's significant accounting policies are described in Note 1
to the Consolidated Financial Statements included in the 2001 Form 10-KSB. The
accounting policies used in preparing the interim 2002 consolidated financial
statements are the same as those described in the 2001 Form 10-KSB, except as
described in Note 2 of this report "New Accounting Pronouncements."
In preparing the financial statements, the Company follows accounting
principles generally accepted in the United States of America, which in many
cases requires assumptions, estimates and judgments that affect the amounts
reported. Many of these policies are relatively straightforward. There are,
however, a few policies that are critical because they are important in
determining the financial condition and results of operations and they can be
difficult to apply. The most critical accounting policies applied in the
preparation of the Company's financial statements relate to:
o accounting for contingencies, under which the Company accrues
an expense when it is probable that a liability has been
incurred and the amount can be reasonably estimated;
o measuring impairment of long-lived assets
o accounting for economic development grants
The difficulty in applying these policies arises from the assumptions,
estimates and judgments that have to be made currently about matters that are
inherently uncertain, such as future economic conditions, operating results and
valuations as well as management intentions. As the difficulty increases, the
level of precision decreases, meaning that actual results can and probably will
be different from those currently estimated. The Company bases its assumptions,
estimates and judgments on a combination of historical experiences and other
reasonable factors.
Contingencies, by their nature, relate to uncertainties that require
management to exercise judgment both in assessing the likelihood that a
liability has been incurred as well as in estimating the amount of potential
expense.
We review our long-lived assets, such as fixed assets and goodwill for
impairment whenever
11
events or changes in circumstances indicate the carrying value amount of an
asset or group of assets may not be recoverable. We consider a history of
operating losses to be a primary indicator of potential asset impairment. Assets
are grouped and evaluated for impairment at the lowest level for which there are
identifiable cash flows. Fixed assets are deemed to be impaired if a forecast of
undiscounted future operating cash flows directly related to such assets are
less than its carrying amount.
As discussed in Note 6 of Notes to Consolidated Financial Statements,
the Company has many grant agreements, which have various terms and
requirements. Most of the agreements require the Company to maintain a minimum
number of ongoing jobs and salary levels for a specific time period. The Company
believes that it has conformed with such agreements to date, however,
significant economic changes or the availability of labor in a call center
market could adversely affect the Company's ability to meet the agreement terms
and requirements in the future.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002, COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2001
REVENUE. Revenues for the third quarter ended September 30, 2002
decreased $1,219,259, or 15% to $7,047,744 compared to third quarter 2001
revenues of $8,267,003. Billable hours decreased by 9% when compared to the
prior year period. The decreases in revenues and billable hours can primarily be
attributed to the Company's financial services clients scaling back their
marketing campaigns due to the general instability of the economy. The Company
operated an average of 834 contact stations during the third quarter of 2002
compared to an average of 840 for the same period in 2001.
Telecommunications clients provided the largest portion of revenues
during the third quarter 2002, providing approximately 54% of revenues compared
to approximately 25% of revenues during the third quarter of 2001. In the third
quarter of 2001, financial services clients provided approximately 64% of
revenues compared to approximately 39% of revenues during the third quarter of
2002. During the third quarter of 2002 and 2001, the Company's largest client
represented approximately 24% and 19%, respectively, of total revenue. Other
industry segments and their percentages of third quarter revenue in 2002 and
2001 included publishing (2% and 5%) and other miscellaneous (5% and 6%),
respectively.
COST OF SERVICES. Cost of services decreased by $1,459 for the third
quarter of 2002, to $4,388,525, when compared to $4,389,984 in the third quarter
of 2001. As a percentage of revenue, cost of services for the third quarter of
2002 increased by 9% to 62% compared to 53% in the third quarter of 2001. This
increase, as a percentage of revenue, was primarily the result of the effect of
the reduction of economic development grants reducing cost of services in the
third quarter of 2002 versus the third quarter of 2001. During the third quarter
of 2002 and 2001 economic development grants reduced cost of services by $89,501
and $359,520. respectively. In addition, as a percentage of revenue, long
distance telephone costs increased by 2% when comparing the third quarters of
2002 and 2001.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Total selling, general
and administrative expenses for the three months ended September 30, 2002
decreased $157,389, or 4% to $3,788,162 from $3,945,551 during the same period
of 2001. As a percentage of revenue, selling, general and administrative
expenses increased 6% to 54% in 2002 compared to 48% during the third quarter of
2001. The increase in expenses, as a percentage of revenue, is primarily the
result of salary and related costs decreasing slower than revenue and an
increase in depreciation and repairs and maintenance expenses associated with
the Caplan contact center opened in June 2002.
OPERATING LOSS. Due to the factors listed above, the Company incurred a
third quarter 2002 operating loss of $1,189,943, a $1,121,411 increase compared
to the third quarter 2001 operating loss of $68,532. As a percentage of revenue,
the operating loss was 17% during the 2002 quarter and 1% during
12
the 2001 quarter. Operating loss for the third quarter of 2002 and 2001 would
have been $1,279,444 and $428,052, respectively, if the effect of economic
development grants is not considered.
OTHER INCOME AND EXPENSES, NET. Net interest expense was $57,861 in the
third quarter of 2002 compared to $56,125 in the same period of 2001. Other
income, consisting of foreign currency translation income, was $57,841 in the
third quarter of 2002. Other expense, consisting of foreign currency translation
expense, was $63,770 in the same period of 2001.
NET LOSS AND NET LOSS PER SHARE. Pretax loss for the three months ended
September 30, 2002 was $1,189,963, a $1,001,536 increase compared to pretax
losses of $188,427 in the same period of 2001. The Company recorded income tax
expense of $677,000 for the third quarter of 2002 compared to an income tax
benefit of $72,000 in the third quarter of 2001. Included in the third quarter
2002 income tax expense is a $482,000 valuation allowance for year 2002 prior
periods and $195,000 for income tax expense related to its Canadian operations.
The valuation allowance was primarily due to the uncertainty of whether a
significant portion of the Company's net operating loss carry forwards may
ultimately be realized. During the third quarters of 2002 and 2001, economic
development grants of $89,501 and $359,520, respectively, were recorded as a
reduction in expenses. The pretax loss for the third quarter of 2002 and 2001
would have been $1,279,464 and $547,947 respectively, if the economic
development grants were not considered. The net loss for the third quarter of
2002 was $1,866,963, or $.32 per share on a basic and diluted basis compared to
a net loss of $116,427, or $.02 per share on a basic and diluted basis in the
third quarter of 2001. When the effect of the economic development grants is not
considered, the net loss for the third quarter of 2002 and 2001 would have been
$1,918,464 and $338,947, or $.33 and $.06 per share on a basic and diluted
basis, respectively.
NINE MONTHS ENDED SEPTEMBER 30, 2002, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 2001
REVENUE. Revenues for the nine months ended September 30, 2002
decreased $3,712,907 or 14% to $22,021,672, compared to 2001 revenues of
$25,734,579. Billable hours decreased 10% when compared to the prior year
period. The decreases in revenues and billable hours can primarily be attributed
to the Company's financial services clients scaling back their marketing
campaigns and competitive selling price due to the general instability of the
economy. The Company operated an average of 807 contact stations during the
first nine months of 2002 compared to 832 during the first nine months of 2001.
Telecommunications clients provided the largest portion of revenues
during the first nine months of 2002, providing approximately 46% of revenues.
During the first nine months of 2001, telecommunications clients provided
approximately 26% of revenues. During the nine months ended September 30, 2002
and 2001, the Company's largest client represented approximately 16% and 17%,
respectively, of total revenue. Other industry segments and their percentages of
revenue in 2002 include financial services (43%), publishing (5%), and other
miscellaneous (6%). Other industry segments and their percentages of revenue in
2001 include financial services (43%), publishing (7%), and other miscellaneous
(3%).
COST OF SERVICES. Cost of services for the nine months ended September
30, 2002 increased $93,815, or 1% to $13,248,259 compared to $13,154,444 during
the 2001 period. As a percentage of revenue, cost of services for the nine
months ended September 30, 2002 increased by 9% to 60% compared to 51% in the
nine month period ended September 30, 2001. This increase, as a percentage of
revenue, was primarily the result of the effect of the reduction of economic
development grants reducing cost of services for the nine months of 2001 versus
the nine months of 2002. During the nine months ended 2002 and 2001 economic
development grants reduced cost of services by $103,259 and $1,630,087,
respectively. In addition, as a percentage of revenue, long distance telephone
costs were increased by 1% compared to the nine months ended 2001.
13
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Total selling, general
and administrative expenses for the first nine months of 2002 decreased by
$398,399, or 3% to $11,008,517, from $11,406,916 during 2001. During the nine
months ended 2001 economic development grants reduced selling, general, and
administrative expenses by $254,753. Without taking into effect the reduction of
expenses by economic development grants comparing the nine months of 2002 to
2001, selling general, and administrative expenses were reduced by $653,152 or
6%. This reduction in expenses resulted primarily from reduced personnel costs.
As a percentage of revenue, selling, general and administrative expenses without
the reduced effect of $254,753 in economic development grants in 2001, increased
by 5% to 50% in 2002 compared to 45% during the same period of 2001. The
increase in selling, general and administrative expenses, as a percentage of
revenue when comparing 2002 to 2001, also reflect reduced revenues for the nine
months of 2002.
OPERATING (LOSS) INCOME. As a result of the factors listed above, the
operating loss for the first nine months of 2002 was $2,296,104, a $3,469,323
decrease compared to 2001 operating income of $1,173,219. As a percentage of
revenue, the operating loss was 10% for the nine months ended September 30, 2002
compared to operating income of 5% for the nine months ended September 30, 2001.
The Company would have had an operating loss for 2002 and 2001 of $2,399,363 and
$711,611, respectively, if the effect of the economic development grants were
not considered.
OTHER INCOME AND EXPENSES, NET. Net interest expense was $143,125 in
2002 compared to $211,228 in 2001. The decrease in net interest expense was the
result of decreased borrowing activity under the Company's line of credit and
equipment lease financing. Other income, consisting of foreign currency
translation income, was $505 for the nine months ended September 30, 2002. Other
expense, consisting of foreign currency translation expense, was $135,967 for
the nine months ended September 30, 2001.
NET (LOSS) INCOME AND NET (LOSS) INCOME PER SHARE. Pretax loss for the
first nine months of 2002 was $2,438,724, a $3,264,748 decrease compared to
pretax income of $826,024 in the same period of 2001. The Company recorded
income tax expense of $195,000 and $324,000 in 2002 and 2001, respectively. The
pretax loss for the first nine months of 2002 and 2001 would have been
$2,541,983 and $1,058,806, respectively, if the effect of the economic
development grants were not considered. Income tax expense for 2002 would have
been $151,000 when the effect of the economic development grants is not
considered. Income tax benefit for 2001 would have been $413,000, when the
effect of the economic development grants is not considered. Net loss for the
first nine months of 2002 was $2,633,724 or $.46 per share on a basic and
diluted basis compared to net income of $502,024, or $.09 per basic share basis
and $.08 per diluted share basis in 2001. When the effect of the economic
development grants is not considered, the net loss for 2002 would have been
$2,692,983 or $.47 per share on a basic and diluted basis. When the effect of
the economic development grants is not considered, the net loss for 2001 would
have been $645,806, or $.11 per share on a basic and diluted share basis.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically used cash from operating activities, bank
borrowings, capital leases, public sector economic development grants, and
private sector financing received in connection with the opening of contact
centers as its primary sources of liquidity. Over the last three years, the
Company has not generated sufficient cash from operating activities; therefore,
it has utilized cash generated from public grants to help support liquidity
requirements. The public and private sector (grants/financings) have included
outright grants, low interest rate loans, forgivable loan arrangements, and
reimbursement for certain expenses and leasehold improvements. The Company
operated under a $4,000,000 Revolving Credit Loan Agreement dated June 2002. The
loan accrued interest at the prime rate on outstanding borrowings. The borrowing
base is secured by certain accounts receivable. The Revolving Credit Loan
Agreement requires the Company to meet certain financial covenants, which are
calculated based upon total debt levels, tangible net worth, debt service,
capital expenditures, and working capital.
14
As of September 30, 2002, the Company was in violation of several of these
covenants. As a result, the Company is in default on the $4,000,000 Revolving
Credit Loan Agreement.
The Company's lender has notified the Company that it was willing to
consider delaying the exercise of its rights under the Revolving Credit Loan
Agreement. In consideration, while a permanent agreement is being negotiated,
the Company is currently operating under a temporary $2,500,000 amended
Revolving Credit and Forbearance Loan Agreement dated November 2002, which
expires on April 30, 2003. The loan accrues interest at the Prime rate plus 2%
on outstanding borrowings. The Prime rate was 4.75% at September 30, 2002. The
borrowing base of this temporary agreement is secured by certain accounts
receivable. In addition, the temporary loan agreement contains provisions
requiring the Company to comply with certain financial covenants, which are
calculated based upon total debt levels, tangible net worth, debt service,
capital expenditures, and working capital including prohibiting of the payment
of cash dividends without the bank's consent. At September 30, 2002, the Company
had outstanding borrowings of $1,957,704 under the Revolving Credit Loan
Agreement with an available credit line of $542,296 pursuant to the proposed
terms of the forbearance agreement. The Company anticipates that it will
continue to be in violation of debt service covenants through the revolving loan
agreement expiration date of April 30, 2003. As a result, the Company is seeking
alternative lenders; however, there is no assurance that the Company can reach
an agreement.
At September 30, 2002, the Company had cash and cash equivalents of
$1,714,352 compared to $1,459,214 at December 31, 2001. For the nine months
ended September 30, 2002, cash used by operating activities was $922,646
compared to cash provided by operating activities of $6,361,020 in the 2001
period. Included in cash used by operating activities in the 2002 period is
$135,733 of net changes in working capital components (primarily an increase in
trade receivables and income tax receivables), non-cash net charges of $31,616
and a net loss of $2,633,724. Depreciation of $1,815,195 partially offsets this
decrease in cash. For the nine months ended September 30, 2001, cash provided by
operating activities was $6,361,020. Included in cash provided by operating
activities was $4,216,177 of changes in working capital components related to
the growth of the Company, depreciation of $1,667,071 and net income of
$502,024. Cash used by non-cash net charges of $24,252 partially offset this
increase in cash.
Net cash used by investing activities in the nine months of 2002 and
2001 was $638,998 and $2,415,410, respectively. The primary use of cash by
investing activities during 2002 was purchases of property and equipment related
to the Caplan contact center opened in June 2002. During the 2001 period, the
primary uses of cash by investing activities included expenditures for property
and equipment of $2,971,805, which was offset by a decrease of $556,395 in
deposits on equipment and technology.
Net cash provided by financing activities during the nine months ended
September 30, 2002 was $1,816,782. During the nine months ended September 30,
2001, the net cash used by financing activities was $2,751,093. Cash from
financing activities during the first nine months of 2002 consisted primarily of
$1,957,704 of net borrowings under the Company's revolving line of credit. Cash
provided by financing activities in 2002 was offset by net repayment of $140,922
of capital leases. The primary uses of cash during the first nine months of 2001
were $2,501,617 of net repayments under the Company's revolving line of credit
and term note and repayments of $458,744 of capital leases. Cash used by
financing activities in 2001 was partially offset by proceeds of $202,634 from
equipment acquired through capital leases and proceeds of $6,634 from the
issuance of common stock under the Company's Employee Stock Purchase Plan.
During the nine months ending September 30, 2002 and 2001, the Company
acquired assets, at a cost of $443,100 and $826,193, through capital leases.
As a result, net cash and cash equivalents increased by $255,138 and
1,194,517 during the nine months ended September 30 of 2002 and 2001,
respectively. The Company believes that funds which should be generated from
future operations, amounts available under the revolving line of credit
15
agreement, amounts receivable from economic development grants for new jobs
created and funds obtained through equipment financing leases mat not be
sufficient to finance its current and future business operations, including
working capital requirements.
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 contact centers, and the additional
selling, general and administrative expenses to acquire and support such new
business.
OUTLOOK
Certain statements made in this Form 10-Q, including those made in the
second paragraph of this "Outlook" section are "forward-looking statements" made
under the safe harbor provision of the Securities Litigation Reform Act. Such
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.
The Company's ability to continue to operate its business depends on
its ability to generate revenues from future operations, which depend in part on
economic, competitive and regulatory conditions and on its ability to operate
the business in compliance with its loan covenants. During the past three years,
the Company has not generated sufficient cash from operations to support
liquidity requirements, and therefore, has utilized economic development grants
and its revolving line of credit to meet cash requirements. Due to its violation
of debt covenants, the Company is negotiating and tentatively reached an amended
revolving line of credit forbearance agreement of $2,5000,000, which had a
remaining credit line availability of $542,296 as of September 30, 2002. The
Company is also attempting to determine when it can expect to receive payment of
$778,085 on certain economic development grants submitted to the Government of
Canada of which $138,800 is thirty days past due. Receipt of such grant payments
will have a critical impact on the Company's cash flow resources. The Company
will face a cash flow shortage if the Company's lender does not agree to
forbearance on terms that give the Company access to its working capital line,
and/or if the foregoing anticipated grant proceeds are not received during the
fourth quarter of 2002. Based on the Company's inability to meet future debt
covenants discussed in footnote # 5 to the Consolidated Financial Statements
(Line of Credit), and in the Liquidity and Capital Resources section, the
Company is seeking alternative financing to meet the current liquidity and
capital resources for future cash flow requirements; however, there is no
assurance that the Company can reach an agreement with a lender. In the event
that a lender is not available, the Company is presently negotiating with asset
lenders to meet future cash flow requirements.
Management's believes that any grant assistance received will not be
refundable. This belief depends on the Company's ability to continue to meet
designated job creation and other requirements, which in turn depends on general
business, economic and competitive conditions largely out of the Company's
control. In June 2002, the Company opened and initiated future expansion plans
for a new 110-seat contact center in Caplan, Quebec, Canada for which it expects
to receive $551,245 in cash in the fourth quarter of 2002, which is discussed
above and in note #6 of the Consolidated Financial Statements. In the second
quarter of 2003, the company has agreed to expand this facility and is expected
to require additional capital expenditures.
There is no assurance that the Company's marketing efforts will
generate new business or that businesses will continue to outsource their
telemarketing needs. As is common in the telemarketing industry, the Company's
projects are often not subject to formal contracts, the agreements with its
clients
16
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 particular client generally is dependent
upon the interest of the client's customer in, and use of, the client's products
or services. While the Company anticipates an increase in demand for its
services in 2003, there is no assurance that the Company will be able to hire
and train sufficient telemarketing sales representatives to fully utilize the
capacity to meet anticipated increased demands for the Company's services. In
addition, a number of states have enacted or are considering legislation to
regulate telemarketing. For example, several states impose license or bond
requirements upon telemarketers. There are also several states that publish and
maintain a state run "Do Not Call List." The Company subscribes to these lists.
All telephone numbers to be called by ACI are cross referenced against the "Do
Not Call" lists. "Do Not Call" numbers are then stricken from the lists of
telephone numbers to be called by ACI. From time to time bills are introduced in
the U.S. Congress or state legislatures that could further regulate certain
aspects of the telemarketing business. The Company cannot predict whether any
such proposed legislation will become law or what affect such laws would have on
the business of the Company.
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.
ITEM 3 QUALITATIVE AND QUANTITATIVE DISCLOSURES ON MARKET RISK
The Company has no history of, and does not anticipate in the future,
investing in derivative financial instruments, derivative commodity instruments
or other such financial instruments. Transactions with international customers
are entered into in U.S. dollars, precluding the need for foreign currency
hedges. As a result, the exposure to market risk is not material.
ITEM 4 CONTROLS AND PROCEDURES
Our management, including Chief Executive Officer Rick N. Diamond and
Chief Financial Officer William Nolte, have evaluated our disclosure controls
and procedures within the 90 days proceeding the date of this filing. Under
rules promulgated by the SEC, disclosure controls and procedures are defined as
those "controls or other procedures of an issuer that are designed to ensure
that information required to be disclosed by the issuer in the reports filed or
submitted by it under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Commission's rules and
forms." Based on the evaluation of our disclosure controls and procedures,
management determined that such controls and procedures were effective as of
November 6, 2002, the date of the conclusion of the evaluation.
Further, there were no significant changes in the internal controls or
in other factors that could significantly affect these controls after November
6, 2002, the date of the conclusion of the evaluation of disclosure controls and
procedures.
ITEM 5 RESIGNATION OF CHIEF OPERATING OFFICER
Subsequent to September 30, 2002, Dana Olson, Chief Operating Officer
resigned from the Company. Dana Olson has been retained on a part time basis for
six months.
17
PART II OTHER INFORMATION
ITEM 1 - 5 NOT APPLICABLE
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the
quarter for which this report is filed.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACI TELECENTRICS, INCORPORATED
Registrant
Dated: /s/ November 20, 2002 By: /s/ WILLIAM NOLTE
--------------------- -------------------------------
William Nolte
Chief Financial Officer
(Principal Accounting Officer)
Dated: /s/ November 20, 2002 By: /s/ RICK N. DIAMOND
--------------------- -------------------------------
Rick N. Diamond
Chief Executive Officer and Director
19
CERTIFICATION
- -------------
I, Rick N. Diamond, the Chief Executive Officer of ACI Telecentrics, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of ACI Telecentrics, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: /s/ November 20, 2002 By: /s/ RICK N. DIAMOND
--------------------- ------------------------------
Rick N. Diamond
Chief Executive Officer
20
CERTIFICATION
- -------------
I, William Nolte, Chief Financial Officer of ACI Telecentrics, Inc., certify
that:
1. I have reviewed this quarterly report on Form 10-Q of ACI Telecentrics, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: /s/ November 20, 2002 By: /s/ William Nolte
--------------------- ------------------------------
William Nolte
Chief Financial Officer
21
EXHIBIT INDEX
-------------
ACI TELECENTRICS, INC.
FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2002
EXHIBIT NO. DESCRIPTION
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
22