SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                            ------------------------

                                   FORM 10-KSB

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                         Commission File No.: 000-21557

                             ACI TELECENTRICS, INC.
           (Name of Small Business Issuer as specified in its charter)

         MINNESOTA                                               41-1572571
(State or other jurisdiction of                               (IRS Employer
incorporation or organization)                          Identification Number)

         3100 WEST LAKE STREET, SUITE 300, MINNEAPOLIS, MINNESOTA, 55416
               (Address of principal executive offices)(Zip Code)

         Issuer's telephone number, including area code: (612) 928-4700

    Securities registered pursuant to Section 12(b) of the Exchange Act: None

      Securities registered pursuant to Section 12(g) of the Exchange Act:
                      Common Stock, no par value per share

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 [ ]

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

Issuer's revenues for its most recent fiscal year:  $15,035,522.

The aggregate market value of the Common Stock held by nonaffiliates of the
Registrant as of March 9, 1999 was approximately $1,350,000 based upon the
average of the closing bid and asked prices of the Registrant's Common Stock on
such date.

There were 5,742,812 shares of Common Stock, no par value, outstanding as of
March 9, 1999.
                            ------------------------

                       DOCUMENTS INCORPORATED BY REFERENCE

Documents incorporated by reference pursuant to Rule 12b-23: Portions of the
Registrant's Proxy Statement for its 1999 Annual Meeting of Shareholders are
incorporated by reference into Items 9, 10, 11 and 12 of Part III, respectively.

Transitional Small Business Disclosure Format (check one).  Yes [ ]     No [ X ]


<PAGE>

                                    I N D E X




Description




<TABLE>
<S>      <C>
PART I
         ITEM 1. DESCRIPTION OF BUSINESS...........................................................................1
         ITEM 2. DESCRIPTION OF PROPERTY...........................................................................3
         ITEM 3. LEGAL PROCEEDINGS.................................................................................3
         ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............................................4


PART II
         ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..........................................4
         ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............5
         ITEM 7. FINANCIAL STATEMENTS..............................................................................6
         ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.............27


PART III
         ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF
                  THE EXCHANGE ACT................................................................................27
         ITEM 10. EXECUTIVE COMPENSATION..........................................................................27
         ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT.................................27
         ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................................27
         ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K................................................................27

</TABLE>

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<PAGE>

                                     PART I



ITEM 1.           DESCRIPTION OF BUSINESS

GENERAL

         ACI Telecentrics, Inc. (the "Company") was incorporated under the name
Automated Communications, Incorporated under Minnesota law on January 13, 1987
and changed its name to ACI Telecentrics, Inc. on July 26, 1996. The Company
provides telephone based sales and marketing services, broadly defined as
teleservices. As of December 31, 1998, the Company operated 482 outbound
workstations in nine call centers located in Minnesota, North Dakota, South
Dakota, Nebraska and Indiana.

         Prior to August 1, 1997, the Company had focused primarily on the
telecommunications, publishing and financial services industries. On August 1,
1997, the Company acquired all of the outstanding common stock of Encyclopaedia
Britannica Communications Corporation ("EBCC"), which operated call centers in
Lombard, Illinois and Merrillville, Indiana. With the acquisition of EBCC, the
Company began to offer services to the insurance industry. In the
telecommunications industry, the Company markets caller ID services to the
customers of Regional Bell Operating Companies. In the publishing industry, the
Company's telemarketing programs assist newspaper, magazine, and book publishers
in acquiring new subscribers, soliciting subscription renewals, and
cross-selling products. In the financial services industry, the Company conducts
telemarketing projects for banks and financial services companies in the areas
of insurance; credit card customer acquisition, retention and renewal; credit
card enhancement services; account generation and retention; and customer
service. In the insurance industry, the Company markets specified insurance
products for its insurance company clients.

INDUSTRY AND MARKET

The Company believes that the telemarketing sector of marketing expenditures
will continue to grow and that the trend towards outsourcing telemarketing
programs will continue. Many companies are choosing to use telemarketing for
customer retention, customer service and customer care programs in addition to
the traditional sales programs. The telecommunications and financial services
industries, which ACI already serves, are undergoing deregulation or
consolidation, which provides the Company with additional growth opportunities
as these businesses search for low cost solutions for their marketing, sales and
customer support needs. In 1998, businesses within the telecommunications,
publishing, financial services and insurance industries accounted for most of
the Company's revenues. The industries targeted by the Company and the principal
services provided are described below.

TELECOMMUNICATIONS. The Company entered the telecommunications segment of the
market in 1987. ACI has leveraged its expertise in this market to secure
programs in 1998 with US West and GTE. The Company's principal
telecommunications customer in 1998 was GTE.

PUBLISHING. ACI provides telemarketing services to publishers, including
subscription renewals, subscription sales, and customer services. The Company's
program managers work closely with publishing clients to develop individually
tailored programs to enhance their marketing and sales efforts. The Company has
conducted telemarketing services for such companies as Cahners Publishing
Company, Intertec Publishing and Cowles Creative Media, Incorporated.

FINANCIAL SERVICES. The Company entered the financial services segment of the
market in 1988. ACI provides telemarketing services for the credit card and non
credit card financial segments as well as fee-based segments such as membership
clubs. Types of telemarketing services performed for these clients include
customer acquisition, activation and retention, selling of discounted travel and
shopping clubs, debit card acquisition or upgrade, home equity loan lead
generation and pre-approved lines of credit. The Company has conducted
telemarketing services for such companies as Novus Services, Cendant and
Comcepts Group.

INSURANCE. ACI provides insurance companies with a wide range of telemarketing
services, including upgrading current policies, acquiring new customers and
retaining current customers. The Company has conducted telemarketing 


                                       1
<PAGE>

services for such companies as Providian and Union Fidelity.


SALES AND MARKETING

         ACI's marketing strategy emphasizes customized marketing solutions
tailored to meet the individual client's needs. The Company currently has three
sales directors. The Company attracts clients through its sales force by (i)
encouraging referrals from existing clients who are satisfied with the Company's
quality service, (ii) attending trade shows, (iii) advertising in trade
publications, and (iv) direct prospecting by our sales force.

PRINCIPAL CUSTOMERS

         In 1998, the Company's three largest clients and the percentage of 1998
revenues attributable to such clients were GTE, one of the nations largest
telephone operating companies (19.1%), Cahners Publishing, a publisher of trade
publications (15.2%) and Kipany Productions, a marketer of caller ID systems and
other services for Regional Bell Operating Companies (11%).

COMPETITION

         The telemarketing industry is highly competitive, but also continues to
be highly fragmented. The Company competes with both in-house telemarketing
organizations as well as other independent out-source telemarketing operations.
In-house telemarketing organizations provide a variety of services to their
organizations and comprise the majority of the telemarketing industry.
Independent telemarketing organizations range from numerous small,
single-facility operations to large, multi-facility operations such as MATRIXX
Marketing Inc., SITEL Corporation, APAC Teleservices Inc., Aegis Communications
Group and West Telemarketing Corporation. The Company also competes with other
forms of marketing such as direct mail, television and radio. The Company
believes that the primary competitive factors in the telephone-based marketing
industry are reputation for quality service, marketing results, technological
expertise, price, and the ability to design customized marketing programs which
address the needs of clients. The Company believes that most of its competitors
are, like ACI, highly dependent on a small number of clients for a large
percentage of their business.

GOVERNMENT REGULATION

         The telemarketing industry is subject to a significant amount of
federal and state regulation. The federal Telephone Consumer Protection Act of
1991 (the "TCPA") prohibits telemarketers from using automated telephone dialing
equipment to call certain types of telephone numbers such as hospital emergency
room telephone numbers. In addition, the TCPA prohibits the initiation of
telephone calls to any residential telephone line using an artificial or
prerecorded voice to deliver a message without the prior consent of the called
party. The federal Telemarketing and Consumer Fraud and Abuse Prevention Act of
1994 (the "TCFAPA") broadly authorizes the Federal Trade Commission (the "FTC")
to issue regulations prohibiting misrepresentation in telemarketing sales. In
August 1995, the FTC issued regulations under the TCFAPA which, among other
things, prohibit initiating an outbound telephone call to a person that has
stated that he or she does not wish to receive an outbound call on behalf of the
seller whose goods or services are being offered, prohibit calls at any time
other than between 8:00 a.m. and 9:00 p.m. local time, require a telemarketer to
make certain disclosures to the person receiving the call, and prohibit
misrepresentations regarding the cost, terms, restrictions, or performance of
products or services offered by phone. To the best of the Company's knowledge,
its telemarketing procedures comply with all state and federal rules.

         A number of states have enacted or are considering legislation to
regulate telemarketing. For example, telephone sales in certain states cannot be
final unless a written contract is delivered to and signed by the buyer and may
be cancelled within three business days. At least one state provides that
telemarketers may not require payment by credit card, and several other states
impose license or bond requirements upon telemarketers. From time to time bills
are introduced in the U.S. Congress or state legislatures which could further
regulate certain aspects of the telemarketing business. The Company cannot
predict whether any such proposed legislation will become law or what effect
such laws would have on the business of the Company.



                                       2
<PAGE>

         Several of the industries served by the Company are subject to varying
degrees of government regulation, particularly the financial services industry.
Clients in these industries are obligated to provide the Company with scripts
for the Company's telemarketers which comply with applicable industry
regulations. Although compliance with these regulations is generally the
responsibility of the Company's clients, the Company could be subject to a
variety of enforcement or private actions for its failure or the failure of its
clients to comply with such regulations as the same relate to telemarketing
operations. In addition, the Company is required to employ licensed insurance
agents to make sales of insurance products in the states where such employees
are licensed, and the Company is required to be licensed as an insurance agency
in certain states.

PERSONNEL

         The Company had approximately 463 full and part time employees as of
December 31, 1998. None of the Company's employees are subject to a collective
bargaining agreement and the Company believes its relationship with its
employees is good.


ITEM 2.           DESCRIPTION OF PROPERTY

FACILITIES

         The Company's corporate headquarters is located in Minneapolis,
Minnesota in a leased facility consisting of approximately 12,000 square feet of
office space. The lease expires on July 31, 2000.

         The Company also leases nine call center facilities in the Midwest.
Information related to those call centers is as follows:

                 YEAR OPENED/                                         NUMBER OF
LOCATION          ACQUIRED             TERM          EXPIRES        WORKSTATIONS
--------          ---------            ----          -------        ------------

Twin Valley, MN      1993               5 yr          8/03             40

Valley City, ND      1995               5 yr          6/00             48

Devils Lake, ND      1996               5 yr          4/01             60

Redfield, SD         1997               5 yr          8/01             48

Pierre, SD           1997               5 yr          4/02             40

Chadron, NE          1997              10 yr          7/07             60

Valentine, NE        1998              10 yr          11/07            48

Ogallala, NE         1998              10 yr          1/08             48

Merrillville, IN     1997           Month to Month     N/A             90
                                                                     ------- 
Total outbound workstations at December 31, 1998                      482
                                                                     =======


ITEM 3.           LEGAL PROCEEDINGS

         The Company is not a party to, nor is its property the subject of, any
material pending legal proceeding.



                                       3
<PAGE>



ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         There were no matters submitted to a vote of the shareholders of the
Company during the fourth quarter of 1998.


EXECUTIVE OFFICERS OF THE COMPANY

         The name and ages of all of the Company's executive officers and the
positions held by them are listed below.

       Name          Age      Position
       ----          ---      --------

Rick N. Diamond      36       Chairman of the Board, Chief Executive Officer,
                              Secretary, and Director

Gary B. Cohen        37       President, Chief Financial Officer and Director

Dana A. Olson        37       Chief Operating Officer

Lois J. Dirksen      43       Vice President - Sales


         RICK N. DIAMOND is co-founder of the Company and has served as the
Chief Executive Officer and a director of the Company since its inception in
1987. Mr. Diamond holds a B.A. degree from the University of Wisconsin and J.D.
degree from Washington University in St. Louis, Missouri. Prior to and since
founding the Company, he has been active in community and business affairs.

         GARY B. COHEN is co-founder of the Company and has served as the
Company's President and as a director since its inception in 1987. Mr. Cohen has
held the position of Chief Financial Officer since November 1998. Mr. Cohen
holds a B.S. degree from the University of Minnesota. Prior to and since
founding the Company, he has been active in community and business affairs.

         DANA A. OLSON joined ACI in September 1990, serving as shift manager
before becoming Operations Manager in April 1991 and Vice President of
Operations in March 1994. Mr. Olson was named Chief Operating Officer June 1,
1998. Mr. Olson attended Mankato State University, majoring in Business
Administration.

         LOIS J. DIRKSEN joined ACI as a Vice President in May 1995 and became
Vice President of Sales in August 1996. Prior to joining the Company, Ms.
Dirksen was Vice President of Sales for Rezound International, a publisher of
audio books, from April 1994 to May 1995 and Director of Direct Response for
Minnesota Mutual from March 1990 to April 1994. Ms. Dirksen holds a B.S. degree
in Political Science from Arizona State University.


                                     PART II


ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company's Common Stock has been traded on the Nasdaq SmallCap
Market under the symbol ACIT since October 21, 1996. Prior to that date, the
Company's Common Stock was not publicly traded. The following table 



                                       4
<PAGE>

sets forth the high and low bid prices for the Company's Common Stock as
reported by Nasdaq. The bid quotations represent interdealer prices without
retail mark-ups, mark-downs or commissions and may not necessarily represent
actual transactions.


Year Ended December 31, 1998                  High                     Low
----------------------------                  ----                     ---
First Quarter                               $ 3.125                  $ 2.063
Second Quarter                                2.375                    0.500
Third Quarter                                 1.375                    0.250
Fourth Quarter                                0.594                    0.250


Year Ended December 31, 1997                  High                     Low
----------------------------                  ----                     ---
First Quarter                               $ 6.500                  $ 5.500
Second Quarter                                6.500                    5.750
Third Quarter                                 6.000                    5.000
Fourth Quarter                                5.375                    3.000

         On March 9, 1999, the fair market value of the Company's Common Stock
was $6,563,214 based on the average of the closing bid and asked prices on that
date. As of March 9, 1999, the Company had approximately 142 shareholders of
record. The Company estimates that an additional 380 stockholders own stock held
for their accounts at brokerage firms and financial institutions (commonly known
as "in street name").

         The Company has not paid cash dividends on its Common Stock since its
initial public offering of stock. The Board of Directors presently intends to
retain earnings for use in the Company's business and does not anticipate paying
cash dividends on Common Stock in the foreseeable future. Any future
determinations as to the payment of dividends will depend on the financial
condition of the Company and such other factors as are deemed relevant by the
Board of Directors.

The effective date of the Company's Registration Statement, Commission file
number 3-33053-70, was October 21, 1996. On January 1, 1998, the Company had a
balance of $493,345 remaining from this offering invested in short term
securities. During 1998, the Company used these funds in operating activities.
All of the proceeds from this offering have now been used. 


ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
                  AND RESULTS OF OPERATIONS



         OVERVIEW


         ACI provides telephone-based sales and marketing services primarily to
the telecommunications, publishing, insurance and financial services industries.
The Company operates nine call centers in five Midwest states, which as of
December 31, 1998 had 482 outbound calling workstations. The Company had 463
full and part-time employees as of December 31, 1998.

         On August 1, 1997, the Company acquired all of the outstanding common
stock of Encyclopaedia Britannica Communications Corporation ("EBCC"), which had
call centers in Lombard, Illinois and Merrillville, Indiana. Operations of EBCC
are included from August 1, 1997.

         Revenues from telemarketing services are recognized as these services
are performed and are 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, 



                                       5
<PAGE>

general and administrative expenses include administrative, sales, marketing,
occupancy, depreciation and other indirect costs.

         RESULTS OF OPERATIONS


         The following table sets forth items from the Company's Statements of
Operations as percentages of net revenue:

YEARS ENDED DECEMBER 31,                           1998      1997       1996    
--------------------------------------------------------------------------------
Net telemarketing revenue                         100.0%     100.0%    100.0%
Cost of services                                   55.8       55.0      53.1
Selling, general and administrative expenses       53.3       47.3      38.6
Restructuring costs                                 0.4        2.5      ----
Operating income (loss)                            (9.5)      (4.8)      8.3
Other income (expense)                             (0.2)       1.1       0.2
Income (loss) before income taxes                  (9.7)      (3.7)      8.5
Income tax expense (benefit)                       (3.7)      (1.4)      3.5
Net income (loss)                                  (6.0)      (2.3)      5.0

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997


         REVENUE. Revenues for the year ended December 31, 1998, were
$15,035,522, a decrease of $218,371 or 1.4% when compared to 1997 revenue of
$15,253,893. The Company derived 7.2% of its 1998 revenues from outsourcing
compared to 4.2% in 1997. Revenues for 1998 were adversely impacted by a loss in
volume from the Company's largest client from the prior year. During 1997 this
client represented over $9 million in revenue compared to less than $1 million
in 1998.

         Telecommunications clients provided 43.2% of total 1998 revenue
compared to 65.2% of revenues during 1997. Other industry segments for 1998
included publishing (22.2%), insurance (11.2%) and financial services (16.5%).
During 1998, the Company's largest client represented 19.1% of total revenue
compared to 60.8% of total revenues in 1997. This decrease in reliance on any
one client is primarily the result of the Company's effort to diversify its
customer base so that no one client represents more than 20% of total revenue.

         In 1998, billable telemarketing hours decreased 7.3% when compared to
1997, however, net revenue per billable telemarketing hour increased by 6.3%
from 1997. During 1998, the Company opened call centers in Valentine and
Ogallala, Nebraska and closed its Lombard, Illinois inbound call center. As of
December 31, 1998, the Company operated 482 outbound call center workstations
compared to 361 outbound and 27 inbound call center workstations at December 31,
1997.

         COST OF SERVICES. Cost of services increased 0.1% to $8,395,597 in 1998
from $8,388,921 in 1997. The increase in the cost of services percentage is
primarily attributable to the increase in use of outsourcing services during
1998. Outsourcing costs, which are primarily costs associated with the
utilization of other telemarketing companies for telemarketing, increased by
78.1% to $883,762 from $496,298 and were 5.9% of revenue in 1998 compared to
3.3% in 1997. Outsourced telemarketing services had a cost of 81.5% compared to
53.8% for internally generated telemarketing. Long distance telephone costs for
telemarketing operations in 1998 increased by 4.9% to $1,782,713 from
$1,699,819. These increased costs were partially offset by an 8.2% decline in
telemarketing service representative ("TSR") labor and benefit costs. As a
percentage of revenue, TSR labor and benefit cost decreased from 40.2% of
revenue in 1997 to 37.4% in 1998.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling general and
administrative expenses for 1998 increased by $798,092, or 11.1% to $8,009,380,
compared to $7,211,288 in 1997. As a percentage of revenue, selling, general,
and administrative expenses increased to 53.3% in 1998 compared to 47.3% in
1997. 



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<PAGE>

Approximately $408,000 or 51.1% of the increase is related to call center
expenses, the majority of which was related to two new call centers opened in
1998 and the full year effect of the Company's Indiana call center acquired in
August 1997. The balance relates primarily to the effect of increased personnel
costs added during the third and fourth quarters of 1997 which had full year
effect in 1998.

         OPERATING LOSS. As a result of the factors discussed above, the Company
experienced an operating loss of $1,434,455 compared to an operating loss of
$734,879 in 1997. The Company's closed inbound call center in Lombard, IL
accounted for approximately $356,000 ($221,000 on an after tax basis) of the
1998 operating loss.

         OTHER INCOME AND EXPENSES, NET. Other expenses were $21,516 in 1998
compared to an income of $167,834 in 1997. Interest was a net expense amount of
$20,264 compared to a net income amount of $167,834 in 1997. 1997 net interest
income was the result of the earnings from cash raised in the company's initial
public offering ("IPO") in October 1996.

         INCOME TAX BENEFIT. The Company recorded an income tax benefit of
$550,210 in 1998 compared to an income tax benefit of $215,500 in 1997. The 1998
benefit was recorded at 38.1%, which is estimated to be the effective rate for
federal and state taxes verses 38% in 1997.

         NET LOSS. The net loss for 1998 was $905,761, or $.16 per share
compared to $351,545 or $.06 per share in 1997.


YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996


         REVENUE. Revenues for the year were $15,253,893, an increase of
$5,262,466 or 52.7% over 1996 and represented the seventh consecutive year of
record revenues for the Company. The acquisition of EBCC clients contributed
$1,824,901 to the increase.

         Client revenues for the year were heavily weighted to the
telecommunications industry, which represented 65.2% of total revenues in 1997
compared to 42.6% in 1996. One telecommunications client represented 60.8% of
the total revenues. Other industry groups such as publishing, insurance and
financial services accounted for 18.8%, 7.9% and 5.8% of revenue respectively in
1997.

         In 1997, billable telemarketing service representative hours increased
58.7%. During 1997, the Company opened call centers in Pierre, South Dakota and
Chadron, Nebraska, acquired centers through the acquisition of EBCC in Lombard,
Illinois and Merrillville, Indiana and closed a call center in Minneapolis,
Minnesota. As of December 31, 1997, the Company operated 361 outbound and 27
inbound call center workstations compared with 289 outbound at December 31,
1996.

         COST OF SERVICES. Cost of services increased 58% to $8,388,921 in 1997
from $5,309,753 in 1996. Cost of services was 55% in 1997 compared to 53% in
1996. The increase in the cost of services percentage is primarily attributable
to the call centers acquired from EBCC, which had higher labor and operating
costs than existing ACI call centers. A decline of 3.8% in the average hourly
billing rate from 1996 to 1997 also contributed to the cost of services
percentage increase.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling general and
administrative expenses were $7,211,288, which is a $3,362,558 or 87.4% increase
over 1996. As a percentage of revenues, selling, general, and administrative
expenses increased to 47.3% in 1997 compared to 38.5% in 1996. The full year
effect of personnel and facilities added in 1996 and the personnel and
facilities added in 1997 were primarily responsible for this increase.

         In December 1997, in connection with management's plans to reduce costs
and improve operating efficiencies, the Company transferred the outbound calling
services performed at its Lombard call center to various other call centers. As
a result, the company recorded a restructuring charge of $388,563. The principal
actions in 



                                       7
<PAGE>


the plan involve the consolidation of the outbound call center operation in
Lombard, Illinois into existing ACI call centers in Merrillville, Indiana and
Pierre, South Dakota. The major components of the restructuring charges are
occupancy costs of $178,700, write down of furniture and equipment costs of
$128,200, severance and related costs of $41,700 and other costs of $39,963.

         OPERATING INCOME (LOSS). As a result of the factors discussed above,
the Company experienced an operating loss of $734,879 compared to operating
income of $832,944 in 1996.

         OTHER INCOME AND EXPENSES, NET. Other income and expenses were $167,834
in 1997 compared to $21,121 in 1996. Interest was a net income amount of
$167,834 in 1997 compared to an expense of $88,841 in 1996. Interest income was
the result of the earnings from excess cash raised in the company's initial
public offering ("IPO") in October 1996. In addition, 1996 included income of
approximately $101,000 related to the settlement of a contract dispute.

         INCOME TAX (BENEFIT). The Company recorded an income tax benefit of
$215,500 compared to a pro forma expense in 1996 of $354,300. The 1997 benefit
was recorded at 38%, which is estimated to be the effective rate for federal and
state taxes verses 40% in 1996.

         NET INCOME (LOSS). As a result, the net loss was $351,545 or $.06 per
share compared to pro forma net income of $504,665 or $.11 per share in 1996.


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<PAGE>


         LIQUIDITY AND CAPITAL RESOURCES

         The Company has historically used cash from operating activities, bank
borrowings, capital leases and public and private sector financing in connection
with the opening of call centers as its primary sources of liquidity. The public
and private sector (grants/financings) included low interest rate loans,
forgivable loan arrangements, and reimbursement for certain expenses and
leasehold improvements. In 1998, the Company financed its activities with the
remaining proceeds of $493,345 from the October, 1996, IPO, $450,000 in public
sector grants received from the City of Chadron, Valentine and Ogallala,
Nebraska and the financing of $372,773 of asset purchases through capital
leases. In November 1997 the Company's Board of Directors authorized a $2
million revolving line of credit which became effective in January 1998. At
December 31, 1998, the Company had no outstanding borrowings under the line of
credit.

         At December 31, 1998, the Company had cash and cash equivalents of
$1,300,681 compared to $659,042 and $5,005,813 at December 31, 1997 and 1996,
respectively. Cash generated by operating activities was $88,010 in 1998,
compared to cash used by operating activities of $730,130 in 1997 and cash
generated by operating activities of $1,121,698 in 1996. Cash used by 1998
operating activities include the net loss of $905,761 and other non-cash items
of $775,061. In 1998 cash provided by depreciation and amortization of $940,911
and cash provided by changes in working capital components of $907,023 offset
cash used by the net loss and non-cash items. Cash flows used in operating
activities in 1997 were accounted for by the net loss of $351,545 and changes in
working capital components of $1,269,483. These were offset by depreciation and
amortization of $696,937 and other non-cash items of $193,961.

         Net cash provided by investing activities in 1998 was $160,514 compared
to net cash used by investing activities of $3,578,914 and $308,768 in 1997 and
1996, respectively. The primary source of cash from investing activities in 1998
was $493,345 in proceeds from previously restricted investments. During 1998,
the proceeds from previously restricted investments were partially offset by
purchases of property and equipment of $355,264. The primary uses of cash in
1997 were expenditures for property and equipment of $1,626,180 related to new
call centers, upgrading the technology in current call centers, and the
acquisition of fixed assets in the EBCC acquisition totaling $1,429,845. In
addition, $493,345 was escrowed as restricted cash related to the EBCC
acquisition. Cash utilized in investing activities in 1996 was $308,768.
Expenditures for property and equipment of $623,155 were partially offset by
proceeds from restricted investments of $300,000 and a decrease in other assets
of $14,387.

         Net cash provided by financing activities in 1998 was $393,115,
compared to cash used by financing activities of $37,727 in 1997 and cash
provided by financing activities of $4,125,400 in 1996. Sources of cash provided
by financing activities during 1998 were the receipt of $450,000 of public
sector grants, $80,952 proceeds from the sale and leaseback of property and
equipment and $27,299 related to the issuance of common stock in the Employee
Stock Purchase Plan. Proceeds for 1998 were partially offset by repayments of
long-term debt and capital leases of $165,136. Financing activities in 1997 were
limited to $53,010 in repayments of long-term debt 



                                       9
<PAGE>

partially offset by $15,283 related to the issuance of common stock in the
Employee Stock Purchase Plan. Cash from financing activities in 1996 were
$4,125,400. Proceeds from the IPO of $6,378,258 and increases in long-term debt
of $200,000 were offset by $1,818,422 of various debt instrument reductions and
the payment of $634,436 of dividends in conjunction with the change from Sub S
to C Corporation. As a result, net cash and cash equivalents increased $641,639
in 1998, decreased $4,346,771 in 1997 and increased $4,938,330 in 1996.

         The Company believes that funds available at December 31, 1998 together
with funds which should be generated from future operations and amounts
available under its revolving line of credit arrangement will be sufficient to
finance its current and future business operations including working capital
requirements. The Company has no material commitments for capital expenditures
for 1999.


         OUTLOOK

         Certain of the statements contained in the Letter to Shareholders and
repeated in this section are "forward-looking statements" within the meaning of
the federal securities laws. The following forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those expressed or implied by such statements.

         As of December 31, 1998, the Company failed to comply with certain loan
covenants. The Company expects to obtain a waiver to the loan convenant
violations for December 31, 1998. While the Company expects to obtain a waiver
from the loan covenant violations, no assurance can be given that the lending
institution will grant these waivers. Additionally, the Company and its lending
institution are currently in the process of amending the appropriate convenants
and management believes that it will be able to maintain compliance with the
expected debt covenants during 1999. In the event that the Company would not
maintain compliance with the amended covenants it expects that cash flows from
operations will be sufficient to continue funding ongoing operations.

         Management believes that total marketing expenditures by US companies
directed towards telemarketing will continue to grow and that the trend for
these companies will be towards outsourcing their telemarketing programs to
companies like ACI, which should result in an increase in the Company's calling
revenue in 1999. Management further believes that it will continue to diversify
its client base so that no one client represents more than 20% of its overall
business. 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 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 their customers' interest in, and use of, the client's products or
services.

         The Company believes that it has enough capacity in its nine existing
call centers to handle the anticipated increases in calling hours from existing
and new clients. While the Company anticipates an increase in demand for its
services in 1999, there is no assurance that the Company, due to the current low
unemployment levels, will be able to hire and train sufficient telemarketing
sales representatives to fully utilize the currently existing capacity to meet
this increased demand.

         During the fourth quarter of 1998, the Company reduced its selling,
general and administrative expenses by over $500,000, when compared to the
fourth quarter of 1997 and to the lowest total expense of any quarter in 1998.
These reductions are a result of the Company's effort to improve its processes
to reduce costs and increase the efficiency of the organization. The Company
believes that it will be able to contain the growth of its selling, general and
expenses in 1999. However, there can be no assurance that these costs can be
contained or that further cost reductions will be realized.


         YEAR 2000 COMPLIANCE

         Many currently installed computer systems and software products are
coded to accept only two-digit entries in the date code field. When year 2000
begins, these computers may interpret "00" as the year 1900 and could either
stop processing date related computations or could process them incorrectly.
Beginning in the year 2000, these date code fields may need to accept four-digit
entries to distinguish 21st century dates from 20th century dates to be year
compliant.



                                       10
<PAGE>


         The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. The Company has completed an
assessment of its internal information systems and has determined that its
financial and operational systems (1) are year 2000 compliant; (2) can be
upgraded to be year 2000 compliant without significant cost or effort; or (3) do
not pose a significant issue to the Company if left uncorrected. The Company has
already begun necessary software conversion and programming modifications to
comply with the Year 2000 issues and believes that all other appropriate actions
are being taken. The Company expects to complete its overall Year 2000
conversions prior to any impact on its operations. Total costs to upgrade the
Company's internal information systems are not material to the operations of the
Company and are not expected to materially impact earnings. During the fourth
quarter of 1998 the Company, as part of equipment and software enhancements to
its call processing technology and capabilities, also upgraded its call
processing software to be year 2000 compliant in six (6) of its nine (9) call
centers. Total costs for the equipment and software enhancements, including year
2000 compliance, was approximately $87,300. During the first quarter of 1999 the
remaining three (3) call centers will receive equipment and enhanced software,
including year 2000 compliance, with a total cost of approximately $52,000.
These costs, totaling approximately $139,300 were or will be capitalized.
Additional costs to upgrade the Company's internal information systems are
expected to cost approximately $125,000.

         The Year 2000 issue may also affect the systems and applications of the
Company's customers and/or suppliers. The Company is reviewing its systems as it
relates to interfacing with customers and suppliers to determine if the
Company's interface systems may be vulnerable to a third parties failure to
correct their own Year 2000 issues. Although the Company does not currently
anticipate any material adverse impact or costs associated with client or
supplier failure to correct their Year 2000 issues in a timely manner, no
assurance can be given that the failure by one or more of the Company's major
clients to become Year 2000 compliant, will not have a material adverse impact
on the Company's operations.


         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.


         QUARTERLY RESULTS

         The telemarketing industry tends to be slower in the first and third
quarters of the year because client marketing and customer service programs are
typically slower in the post-holiday and summer months. The Company has
experienced and expects to continue to experience quarterly variations in
revenues and operating income principally as a result of the timing of clients'
telemarketing campaigns, the commencement of new contracts, changes in the
Company's revenue mix and the additional selling, general and administrative
expenses to acquire and support such new business.


ITEM 7.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


         The following financial statements of the Company are included herein:

         Independent Auditors' Report
         Consolidated Balance Sheets -December 31, 1998 and 1997
         Consolidated Statements of Operations - December 31, 1998, 1997 
              and 1996
         Consolidated Statements of Cash Flows - December 31, 1998, 1997 
              and 1996
         Consolidated Statements of Shareholders' Equity - December 31, 1998, 
              1997 and 1996
         Notes to Consolidated Financial Statements - December 31, 1998, 1997
              and 1996



                                       11
<PAGE>



INDEPENDENT AUDITORS' REPORT



Board of Directors and Shareholders of ACI Telecentrics, Inc.



We have audited the accompanying consolidated balance sheets of ACI
Telecentrics, Inc. and subsidiary as of December 31, 1998 and 1997 and the
related consolidated statements of operations, shareholders' equity and cash
flow for each of the three years in the period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1998 and 1997 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.



/s/ Deloitte & Touche LLP
Deloitte & Touche LLP

Minneapolis, MN
February 12, 1999





                                       12
<PAGE>

                      ACI TELECENTRICS, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

DECEMBER 31,                                                                                  1998            1997   
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>            <C>        
ASSETS

CURRENT ASSETS:
   Cash and cash equivalents                                                               $ 1,300,681    $   659,042
   Restricted investment (Note 2)                                                                   --        493,345
   Trade receivables, less allowance for doubtful accounts of
     $140,000 and $195,000, respectively                                                     1,456,431      2,369,323
   Income tax receivable (Note 11)                                                                  --        586,498
   Deferred income taxes                                                                       365,000         32,000
   Prepaid expenses                                                                            111,117         21,778
   Other current assets                                                                        131,667         67,374
                                                                                           -----------    -----------
           TOTAL CURRENT ASSETS                                                              3,364,896      4,229,360

Property and equipment, net of accumulated depreciation (Note 3)                             2,824,381      3,243,205

OTHER ASSETS:
   Goodwill, less accumulated amortization of $99,000
     and $29,000, respectively (Note 2)                                                        951,858      1,016,726
   Deferred Taxes                                                                              137,000             --
   Other                                                                                        63,676         38,993
                                                                                           -----------    -----------
           TOTAL OTHER ASSETS                                                                1,152,534      1,055,719
                                                                                           -----------    -----------
TOTAL ASSETS                                                                               $ 7,341,811    $ 8,528,284
                                                                                           ===========    ===========


LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Trade accounts payable                                                                  $   482,628    $   811,568
   Accrued expenses                                                                            204,728        764,463
   Income taxes payable (Note 11)                                                               15,713             --
   Current portion of long-term debt and capital lease obligations (Notes 4, 5 and 6)          356,980        138,481
                                                                                           -----------    -----------
           TOTAL CURRENT LIABILITIES                                                         1,060,049      1,714,512

LONG-TERM LIABILITIES:
   Long-term debt and capital lease obligations, less current portion (Notes 4, 5 and 6)       257,711         64,650
   Deferred capital lease liabilities, less current portion (Note 6)                           473,201        214,600
   Deferred income taxes (Note 11)                                                                  --        105,210
                                                                                           -----------    -----------
           TOTAL LONG-TERM LIABILITIES                                                         730,912        384,460
COMMITMENTS AND CONTINGENCIES (NOTES 2, 5 AND 9)

SHAREHOLDERS' EQUITY (NOTE 8):
   Common stock, no par value; 15,000,000 shares authorized;
     5,731,471 and 5,708,583 shares issued and outstanding, respectively                     6,620,145      6,592,846
   Undesignated stock, no par value; 5,000,000 shares authorized;
     none issued and outstanding                                                                    --             --
   Accumulated deficit                                                                      (1,069,295)      (163,534)
                                                                                           -----------    -----------
           TOTAL SHAREHOLDERS' EQUITY                                                        5,550,850      6,429,312
                                                                                           -----------    -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                 $ 7,341,811    $ 8,528,284
                                                                                           ===========    ===========

</TABLE>



SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.



                                       13
<PAGE>

                      ACI TELECENTRICS, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

YEARS ENDED DECEMBER 31,                                              1998             1997            1996    
--------------------------------------------------------------------------------------------------------------
<S>                                                               <C>             <C>             <C>         
TELEMARKETING REVENUES                                            $ 15,035,522    $ 15,253,893    $  9,991,427

COST OF SERVICES                                                     8,395,597       8,388,921       5,309,753

SELLING, GENERAL, AND
      ADMINISTRATIVE EXPENSES                                        8,009,380       7,211,288       3,848,730

RESTRUCTURING COSTS (Note 12)                                           65,000         388,563              --
                                                                  ------------    ------------    ------------
           Total costs                                              16,469,977      15,988,772       9,158,483
                                                                  ------------    ------------    ------------

OPERATING INCOME (LOSS)                                             (1,434,455)       (734,879)        832,944

OTHER INCOME (EXPENSE):
   Interest income                                                      39,012         181,604          62,090
   Interest expense                                                    (59,276)        (13,770)       (150,931)
   Other, net (Note 10)                                                 (1,252)             --         109,962
                                                                  ------------    ------------    ------------
           Total other income (expense)                                (21,516)        167,834          21,121
                                                                  ------------    ------------    ------------

INCOME (LOSS) BEFORE INCOME TAXES                                   (1,455,971)       (567,045)        854,065


INCOME TAX EXPENSE (BENEFIT):
   Income taxes - C Corp                                              (550,210)       (215,500)        132,600
   Income taxes - S Corp to C Corp conversion                               --              --         221,700
                                                                  ------------    ------------    ------------
           Total income taxes (benefit)                               (550,210)       (215,500)        354,300
                                                                  ------------    ------------    ------------

NET INCOME (LOSS)                                                 $   (905,761)   $   (351,545)   $    499,765
                                                                  ============    ============    ============


PRO FORMA DATA (Note 1):
   Historical income (loss) before income tax expense (benefit)             --              --    $    854,065
   Pro forma income tax expense (benefit)                                   --              --         349,400
                                                                  ------------    ------------    ------------

PRO FORMA NET INCOME (LOSS)                                                 --              --    $    504,665
                                                                  ============    ============    ============

BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
   (PRO FORMA AMOUNTS FOR 1996)                                   $       (.16)   $       (.06)   $        .11
                                                                  ============    ============    ============

SHARES USED IN COMPUTING
   NET INCOME (LOSS) PER SHARE                                       5,723,176       5,707,500       4,566,600
                                                                  ============    ============    ============

</TABLE>




SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       14

<PAGE>

                      ACI TELECENTRICS, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,                                                 1998            1997            1996  
--------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>            <C>            <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                                 $  (905,761)   $  (351,545)   $   499,765

   Adjustments to reconcile net income (loss) to net cash provided
       by (used in) operating activities:
     Depreciation and amortization                                       940,911        696,937        365,904
     Provision for losses on accounts receivable                         (54,964)       121,964          3,000
     Amortization of deferred capital lease liabilities                 (181,400)       (61,400)       (49,600)
     Deferred income taxes                                              (575,210)      (133,202)       206,412
     Restructuring costs                                                      --        388,563             --
     Loss on disposal of assets                                           36,513             --         12,970
     Changes in operating assets and liabilities:
       Trade receivables                                                 967,856     (1,210,836)      (160,663)
       Prepaid expenses                                                  (89,339)        67,001        (69,244)
       Other current assets                                               (3,439)        (7,089)        (5,002)
       Accounts payable and accrued expenses                            (649,368)       490,175        173,956
       Income taxes                                                      602,211       (730,698)       144,200
                                                                     -----------    -----------    -----------
           Net cash provided by (used in) operating activities            88,010       (730,130)     1,121,698

CASH FLOWS UTILIZED IN INVESTING ACTIVITIES:
   Purchases of property and equipment                                  (355,264)    (1,626,180)      (623,155)
   Decrease (increase) in other assets                                    22,433        (29,544)        14,387
   Proceeds from (purchase of) restricted investments                    493,345       (493,345)       300,000
   Payments for business acquired                                             --     (1,429,845)            --
                                                                     -----------    -----------    -----------
           Net cash provided by (used in) investing activities           160,514     (3,578,914)      (308,768)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net proceeds from issuance of common stock                             27,299         15,283      6,378,258
   Proceeds from revolving line of credit                              2,100,000             --             --
   Payments on revolving line of credit                               (2,100,000)            --       (300,000)
   Proceeds from deferred grants                                         450,000             --             --
   Proceeds from issuance of long-term debt                                   --             --        200,000
   Repayments on long-term debt and capital leases                      (165,136)       (53,010)    (1,218,422)
   Proceeds from sale and leaseback of equipment                          80,952             --             --
   Payments to officers                                                       --             --       (300,000)
   Dividends (Note 8)                                                         --             --       (634,436)
                                                                     -----------    -----------    -----------
           Net cash provided by (used in) financing activities           393,115        (37,727)     4,125,400
                                                                     -----------    -----------    -----------

NET INCREASE (DECREASE) CASH AND
    CASH EQUIVALENTS                                                     641,639     (4,346,771)     4,938,330

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                           659,042      5,005,813         67,483
                                                                     -----------    -----------    -----------

CASH AND CASH EQUIVALENTS AT END OF YEAR                             $ 1,300,681    $   659,042    $ 5,005,813
                                                                     ===========    ===========    ===========

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       15
<PAGE>

                      ACI TELECENTRICS, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY



<TABLE>
<CAPTION>
                                                                            ADDITIONAL
                                                       COMMON STOCK           PAID-IN        RETAINED
                                                   SHARES       AMOUNT        CAPITAL        EARNINGS       TOTAL 
---------------------------------------------------------------------------------------------------------------------
<S>                                               <C>         <C>           <C>            <C>            <C>        
BALANCES AT DECEMBER 31, 1995                     4,200,000   $     1,000   $    25,567    $   495,420    $   521,987

   Recapitalization                                      --        25,567       (25,567)            --             --
   Proceeds from sale of common stock,
     net of offering costs of $1,146,742          1,505,000     6,378,258            --             --      6,378,258
   Net income prior to conversion to C Corp.,
     net of cumulative deferred income
     taxes of $221,700 (Note 11)                         --            --            --        311,754        311,754
   Capitalization of retained earnings in
     conjunction with conversion to C Corp.              --       172,738            --       (172,738)            --
   Net income subsequent to conversion
     to  C Corp.                                         --            --            --        188,011        188,011
   Dividends paid (Note 8)                               --            --            --       (634,436)      (634,436)
                                                -----------   -----------   -----------    -----------    -----------

BALANCES AT DECEMBER 31, 1996                     5,705,000     6,577,563            --        188,011      6,765,574

   Issuance of common stock under the
     Employee Stock Purchase Plan                     3,583        15,283            --             --         15,283
   Net loss                                              --            --            --       (351,545)      (351,545)
                                                -----------   -----------   -----------    -----------    -----------

BALANCES AT DECEMBER 31, 1997                     5,708,583     6,592,846            --       (163,534)     6,429,312


   Issuance of common stock under the
     Employee Stock Purchase Plan                    22,888        27,299            --             --         27,299
   Net loss                                              --            --            --       (905,761)      (905,761)
                                                -----------   -----------   -----------    -----------    -----------

BALANCES AT DECEMBER 31, 1998                     5,731,471   $ 6,620,145            --    $(1,069,295)   $ 5,550,850
                                                ===========   ===========   ===========    ===========    ===========

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       16
<PAGE>

ACI TELECENTRICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998

1.      DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        ORGANIZATION AND NATURE OF BUSINESS - ACI Telecentrics, Incorporated
        (ACI) provides telephone-based sales and marketing services primarily to
        the telecommunications, publishing, insurance, and financial services
        industries. ACI was established in 1987 in Minneapolis, Minnesota. Since
        that time, the Company has opened additional call center locations in
        Twin Valley, Minnesota; Valley City and Devils Lake, North Dakota;
        Redfield and Pierre, South Dakota and Chadron, Valentine and Ogallala,
        Nebraska. Prior to June 1996, all of the call centers were operated as
        affiliated corporations through common ownership. Effective June 28,
        1996, Automated Communications Incorporated and its affiliated companies
        were merged to form ACI Telecentrics, Incorporated. These financial
        statements include the results of operations of all companies for all
        periods presented. As described in Note 2, on August 1, 1997, the
        Company acquired all of the outstanding common stock of Encyclopaedia
        Britannica Communications Corporation (EBCC), which had call centers in
        Lombard, Illinois and Merrillville, Indiana. As described in Note 12,
        the Lombard, Illinois operations have subsequently been closed.
        Operations of EBCC are included from August 1, 1997. The acquisition was
        accounted for as a purchase.

        PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
        include the accounts of the Company and its wholly owned subsidiary, ACI
        Telecentrics of Illinois, Inc. (formerly EBCC) after elimination of
        intercompany transactions.

        REVENUE RECOGNITION - Revenues from telemarketing services are
        recognized as services are provided, primarily based on hours incurred.

        USE OF ESTIMATES - The preparation of financial statements in conformity
        with generally accepted accounting principles requires management to
        make estimates and assumptions that affect the reported amounts of
        assets and liabilities and disclosure of contingent 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.

        CASH EQUIVALENTS - Short-term investments generally with a maturity of
        three months or less from the date of purchase are classified as cash
        equivalents.

        GOODWILL - Goodwill is amortized on a straight-line basis over 15 years.
        The Company periodically assesses the recoverability of the cost of its
        goodwill based on a review of projected undiscounted cash flows of the
        related assets acquired.

        PROPERTY AND EQUIPMENT - Property and equipment are carried at cost.
        Depreciation is based on the straight-line method over estimated useful
        lives of the assets ranging from three to ten years.

        RESTRICTED INVESTMENTS - Restricted investments at December 31, 1997,
        consisted of U.S. Treasury Bills carried at amortized cost. The carrying
        value approximated fair value due to the short-term maturities and the
        market rate of interest. (See Note 2)

        FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS - The estimated fair
        value of long-term debt and capital lease obligations approximates its
        carrying value due to variable rates of interest or fixed rates which
        approximate current market rates. The fair value of all other financial
        instruments, other than investments as discussed above, approximates the
        carrying value due to the short-term nature of the financial
        instruments.

        EARNINGS (LOSS) PER COMMON SHARE - Statement of Financial Accounting
        Standards ("SFAS") No. 128, "Earnings per Share" was issued in February
        1997 and requires the presentation of earnings per share on a 

                                       17

<PAGE>

        basic and diluted basis. Basic earnings per share are computed by
        dividing earnings available to common shareholders by the weighted
        average number of shares outstanding during the year. Diluted earnings
        per share are computed after giving effect to the exercise of all
        dilutive outstanding options and warrants. The Company adopted SFAS No.
        128 in 1997. Both basic and diluted 1996 earnings per share were the
        same as there was no material common equivalent shares outstanding at
        December 31, 1996. Both basic and diluted earnings per share for 1998
        and 1997 were the same due to net losses; the impact of the potential
        common shares outstanding would have been anti-dilutive.

        Pro forma net income per common share for the year ended December 31,
        1996 is computed using the weighted average number of shares of common
        stock outstanding during the periods presented after giving effect to
        the application of Securities and Exchange Commission ("SEC") Staff
        Accounting Bulletin ("SAB") No. 83. Pursuant to SAB No. 83, common stock
        issued by the Company at prices less than the initial public offering
        price during the 12 months immediately preceding the initial public
        offering, plus stock options granted at exercise prices less than the
        initial public offering price during the same period, have been included
        in the calculation of shares used in the calculation of net income per
        share as if they were outstanding for all periods prior to the initial
        public offering, using the treasury stock method. In addition, shares
        which would have been issued to generate proceeds for the payment of
        distributions to S Corporation shareholders (using the $5.00 per share
        initial public offering price), were deemed to be outstanding for all of
        1996.

        INCOME TAXES - Prior to October 21, 1996, the effective date of the
        initial public offering, the Company was a Subchapter S Corporation. As
        a result, any income tax liability was the sole responsibility of the
        individual stockholders, and no provision for income taxes or income tax
        liability was recorded in the financial statements.

        Deferred income tax assets and liabilities are recognized for the future
        tax consequences attributable to differences between the financial
        statement carrying amounts of existing assets and liabilities and their
        respective tax bases. Deferred tax assets and liabilities are measured
        using enacted tax rates expected to apply to taxable income in the years
        in which those temporary differences are expected to be recovered or
        settled. Income tax expense (benefit) is the tax payable (receivable)
        for the period and the change in deferred income tax assets and
        liabilities during the period.

        SEGMENT INFORMATION - In 1998, the Company adopted Statement of
        Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
        Segments of an Enterprise and Related Information." SFAS No. 131
        establishes standards for reporting operating segment information based
        upon how the Company manages its operations. The Company manages its
        business as one operating segment.

        COMPREHENSIVE INCOME - In 1998, the Company also adopted Statement of
        Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive
        Income", which establishes standards for the reporting of comprehensive
        income and its components. Comprehensive income is defined as the change
        in equity during the period of a business enterprise resulting from
        transactions and other events and circumstances from non-owner sources.
        Implementation of SFAS 130 did not have an effect on the Company's
        financial statements because comprehensive income (loss) is the same as
        the Company's net income (loss).

        ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS - In accordance with
        Statement of Financial Accounting Standards ("SFAS") No. 121,
        "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
        Assets to Be Disposed Of", the Company periodically reviews its
        intangibles and property and equipment to determine potential impairment
        by comparing the carrying value of the assets with estimated future cash
        flows expected to result from the use of assets. Should the sum of the
        expected future cash flows be less than the carrying value, the Company
        would recognize an impairment loss. To date, management has determined
        that no impairment of long-lived assets exists.

        PRO FORMA DATA - Effective October 21, 1996, the Company terminated its
        status as an S Corporation and was subject to federal and state income
        taxes thereafter. Accordingly, for informational purposes, the
        accompanying consolidated statements of operations for the year ended
        December 31, 1996 include 


                                       18
<PAGE>

        unaudited pro forma information for income taxes which would have been
        recorded if the Company had been a C Corporation for all of 1996, based
        on the tax laws in effect during the respective periods.


2.      BRITCOM ACQUISITION

        On August 1, 1997, the Company acquired all of the outstanding common
        stock of EBCC, a provider of inbound and outbound telemarketing
        services. The acquisition was accounted for using the purchase method of
        accounting, and accordingly, the consolidated financial statements
        include results of operations from the date of acquisition. The initial
        purchase price consisted of (i) $1,250,000 cash paid at closing; and
        (ii) four quarterly payments (each an "Earn-Out Payment," cumulatively
        the "Total Earn-Out Payment"). The total amount of the "Earn-Out
        Payment" depended on the amount of revenues generated by certain EBCC
        clients and prospective clients during the period from January 1, 1998
        through December 31, 1998 (the "Earn-Out Revenues"). In accordance with
        the purchase agreement, the Company placed in escrow, and provided the
        seller with a $500,000 security interest in, a Treasury Bill owned by
        the Company as a guaranty of payment for any "Earn-Out Payment"
        installments required pursuant to the original purchase agreement.
        Revenues generated by certain EBCC clients did not reach the minimum
        threshold in 1998, and no additional payments under the Stock Purchase
        Agreement were made. The aggregate purchase price and related costs was
        approximately $1,430,000. The excess of purchase price over net assets
        acquired is being amortized over 15 years using the straightline method.

        The following unaudited pro forma financial information for the Company
        gives effect to the EBCC acquisition as if it had occurred at the
        beginning of 1997. This pro forma summary does not necessarily reflect
        the results of operations that would have been achieved if the
        businesses had constituted a single entity during such periods and is
        not necessarily indicative of results which may be obtained in the
        future.

        YEAR ENDED DECEMBER 31,                                        1997  
        ---------------------------------------------------------------------
        Net revenues                                             $ 18,639,272
        Net income (loss)                                            (772,485)
        Basic and diluted income (loss) per share                $       (.14)
        Shares used in computing
                  pro forma net income (loss) per share             5,707,500
                                                                 ============


3.      PROPERTY AND EQUIPMENT

        Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                     1998                   1997 
                                                              -------------------------------------
<S>                                                           <C>                   <C>             
          Furniture                                                    985,915               912,062
          Equipment                                                  4,093,395             3,787,565
          Leasehold Improvements                                       129,122               129,295
                                                              ----------------      ----------------
                                                                     5,208,432             4,828,922
          Less accumulated depreciation and amortization             2,384,051             1,585,717
                                                              ----------------      ----------------
          Net property and equipment                          $      2,824,381      $      3,243,205
                                                              ================      ================
</TABLE>

        For the years ended December 31, 1998 and 1997, the Company had
        equipment under capitalized leases totaling $513,615 and $46,920,
        respectively.


                                       19

<PAGE>

4.      LONG-TERM DEBT, CAPITAL LEASE OBLIGATIONS AND REVOLVING LINE OF CREDIT

        Long-term debt and capitalized lease obligations consists of the
        following at December 31:

<TABLE>
<CAPTION>
                                                                             1998           1997 
                                                                           ----------------------
<S>                                                                        <C>            <C>     
          Promissory Notes - monthly payments of $3,345, including 
             interest at 6%, due June 15, 1999; secured by assets of the
             Company and guaranteed by the two majority stockholders       $  19,718      $ 57,433
          Promissory Note (Note 6) - monthly payments of
             $967, including interest at 6%, due May 1, 2001                  25,198        34,987
          Capitalized leases                                                 378,375        29,311
                                                                           ---------      --------
                                                                             423,291        21,731
          Less current portion                                               165,580        57,081
                                                                           ---------      --------
          Long-term debt and capitalized lease obligations                 $ 257,711      $ 64,650
                                                                           =========      ========
</TABLE>

        Maturities of long-term debt and capitalized lease obligations are as
        follows:

<TABLE>
<CAPTION>

        YEAR ENDING DECEMBER 31:            LONG-TERM DEBT      CAPITALIZED LEASE OBLIGATIONS
        -------------------------------------------------------------------------------------
<S>                                       <C>                           <C>         
                1999                      $      29,200                 $    136,380
                2000                             10,955                      141,620
                2001                              4,762                       49,944
                2002                               ----                       44,924
                Thereafter                         ----                        5,506
                                          -------------                 ------------
        Total                             $      44,917                 $    378,374
                                          =============                 ============
</TABLE>

         On January 30, 1998, the Company entered into a $2,000,000 revolving 
         line of credit agreement, which accrues interest at the prime rate or 
         LIBOR rate plus 2 3/4% on outstanding borrowings and expires in
         January, 2000. The borrowing base includes certain accounts receivable
         and furniture and equipment. The loan agreement also contains
         provisions requiring compliance with certain financial covenants. As of
         December 31, 1998, the Company failed to comply with certain loan
         covenants. The Company expects to obtain a waiver to the loan covenant
         violations for December 31, 1998. Additionally, the Company and its
         lending institution are currently in the process of amending the
         appropriate covenants and management believes that it will be able to
         maintain compliance with the expected debt covenants during 1999. No
         amounts were outstanding under the revolving line of credit at December
         31, 1998.


5.     LEASES

        The Company has various operating leases for its corporate office and
        nine call centers. The Company also leases, under capital lease
        arrangements, certain computer equipment and office fixtures utilized in
        its corporate office and call centers. Several of the operating leases
        contain renewal provisions.

        At December 31, 1998, future minimum lease payments under operating and
        capital lease's that have initial noncancelable lease terms in excess of
        one year, not including shared operating costs, are as follows:

<TABLE>
<CAPTION>
        YEAR ENDING DECEMBER 31:                               OPERATING LEASES       CAPITALIZED LEASE OBLIGATIONS
        -----------------------------------------------------------------------------------------------------------
<S>                                                              <C>                          <C>         
                1999                                             $    399,889                 $    161,666
                2000                                                  332,524                      156,486
                2001                                                  219,171                       57,010
                2002                                                  160,695                       47,896
                2003                                                  143,200                        5,603
                Thereafter                                            478,100                         ----
                                                                 ------------                 ------------
        Total                                                    $  1,733,579                      428,663
        Less amounts representing interest                                                          50,289
                                                                                              ------------
        Present value of net minimum lease payments                                           $    378,374
                                                                                               ===========
</TABLE>

        Rent expense incurred on all operating leases was approximately
        $541,000, $454,000 and $280,000 for the years ended December 31, 1998,
        1997and 1996, respectively.


                                       20
<PAGE>

6.      GRANT AGREEMENTS

        One of the Company's strategies is to locate its call centers in small,
        rural communities in the Midwest. These communities often provide
        advantageous economic incentives for locating facilities in these areas.
        These incentives include grants, low interest loans, favorable facility
        leases, funds for employee training and equipment subsidies.

        In July 1995, in connection with the opening of the Valley City, North
        Dakota facility, the Company received assistance from Valley City
        Development Corporation, including $25,000 to reimburse start-up costs,
        approximately $150,000 in leasehold improvements, and a $107,000
        equipment lease for which the lease payments will be forgiven on a
        monthly basis over the life of the lease if the Company continues
        operating in Valley City.

        In April 1996, the Company opened a call center in Devils Lake, North
        Dakota. The Company received assistance from Devils Lake Community
        Development Corporation, including $25,000 for reimbursement of start-up
        costs, $150,000 in equipment leases which will be forgiven over five
        years, $150,000 in leasehold improvements, and a 6%, $50,000 loan.

        In September 1996, the Company opened a call center in Redfield, South
        Dakota. The Company received a $500,000 assistance grant from the
        Redfield Industrial Development Corporation including $200,000 of
        leasehold improvements and $300,000 for equipment.

        During 1997, the Company executed three Memoranda of Understandings with
        the Nebraska Department of Economic Development and three Nebraska
        communities. Under the agreements, the Company agreed to open call
        centers in the three communities (Chadron, Valentine and Ogallala) in
        1997 and 1998. The aggregate amount of the grants received from the
        three communities and state was $700,000. All grants are forgivable over
        a five year period from the date of the grant. Grant amounts received
        are as follows: Valentine $200,000, Ogallala $200,000 and Chadron
        $300,000 of which the Company received $200,000 cash ($150,000 in 1997
        and $50,000 in 1998) and received a 8 1/2%, two year $100,000 note
        receivable that requires the City of Chadron to make monthly principal
        and interest payments.

        Reimbursement of start-up costs for the Valley City and Devils Lake call
        centers was offset against the corresponding expense. Payments received
        by the Valley City, Devils Lake call centers for leasehold improvements
        and by the Redfield call center for equipment reduced the values of the
        recorded assets. The Devils Lake and Valley City equipment leases and
        the $700,000 Nebraska grants are recorded as deferred liabilities in the
        consolidated balance sheets, and are being amortized as a reduction of
        administrative expenses when amounts are forgiven. Amortization of
        deferred grant liabilities was approximately $181,000, $61,000 and
        $50,000 for the years ended December 31, 1998, 1997 and 1996,
        respectively.

        The schedule of future grant forgiveness amounts are as follows:

                1999                                  $    191,400
                2000                                       180,700
                2001                                       152,500
                2002                                       120,000
                2003                                        20,001

        In most cases, the Company is obligated to continue operating the call
        center for a period of five years from when the call center was opened.
        Certain loans and leases are guaranteed by the two majority shareholders
        of the Company.

                                       21

<PAGE>

7.      SIGNIFICANT CUSTOMERS AND CREDIT CONCERTRATIONS

       The Company earned the following percentages of its total revenue from
       major customers during the years ended December 31:

<TABLE>
<CAPTION>
                                       1998                       1997                      1996
                              ----------------------     ---------------------     --------------------
                              Revenue     Receivable     Revenue    Receivable     Revenue   Receivable
                              -------     ----------     -------    ----------     -------   ----------
<S>                             <C>            <C>          <C>          <C>          <C>          <C>
         Customer A             19%            0%           1%           0%           0%           0%
         Customer B             15%           20%           7%           1%          10%           3%
         Customer C              5%            2%          61%          42%          39%          45%
         Customer D             11%            0%           0%           0%           0%           0%
         Customer E              0%            1%           7%           1%          15%          19%

</TABLE>

        The Company does not require collateral to support customer receivables.
        Historically, the Company has not experienced write-offs related to
        these major customers.

8.     SHAREHOLDER'S EQUITY

        DIVIDENDS: No dividends were paid in 1998 or 1997. During 1996,
        dividends of $634,436 were paid to the two majority shareholders related
        to operations of the Company prior to its conversion to a C Corporation.

        EMPLOYEE STOCK PURCHASE PLAN: Effective June 30, 1996, the Company
        adopted the 1996 Employee Stock Purchase Plan (the Stock Purchase Plan),
        which allows participants to purchase common stock at 85% of the common
        stock's fair market value at the commencement or termination of two
        six-month phases each year. Employees must have six months of service to
        be eligible to participate in the Stock Purchase Plan. The Board of
        Directors has reserved 100,000 shares of common stock for issuance under
        the Stock Purchase Plan. During 1998, the Company issued 22,888 shares
        under the plan. During 1997, the Company issued 3,583 shares under the
        plan. As of December 31, 1998, the total number of shares issued under
        the plan, since the date of inception, is 27,324 shares.

        STOCK OPTIONS: Effective June 30, 1996, the Company adopted the 1996
        Stock Option Plan (the Stock Option Plan), which authorized the grant of
        up to 280,000 shares of the Company's common stock in the form of
        incentive stock options and nonqualified stock options to employees and
        investors. On April 30, 1997, the shareholders approved an increase to
        430,000 shares available for grant under the Stock Option Plan. The
        Stock Option Plan requires that the exercise price of all options
        granted be the fair market value of the Company's common stock on the
        date of grant.

        The following table summarizes stock option activity:

<TABLE>
<CAPTION>
                                                                  SHARES UNDER      WEIGHTED AVERAGE
                                                                     OPTION          PRICE PER SHARE     
                -------------------------------------------------------------------------------------
                <S>                                               <C>                   <C>          
                Balance at December 31, 1995                                  --                   --

                Granted in 1996                                          266,000        $        4.67
                                                                  --------------        -------------
                Balance at December 31, 1996                             266,000                 4.67

                Granted in 1997                                           51,250                 5.31
                Canceled in 1997                                         (37,375)                5.05
                                                                  ---------------       -------------
                Balance December 31, 1997                                279,875                 4.74

                Granted in 1998                                          332,500                 1.53
                Canceled in 1998                                        (338,125)                4.26
                                                                  --------------        -------------
                Balance at December 31, 1998                             274,250        $        1.45
                                                                  ==============        =============

</TABLE>


                                       22

<PAGE>
<TABLE>
<CAPTION>

              <S>                                                 <C>                  <C>          
                Shares exercisable at December 31, 1996                  123,500        $        4.24
                                                                  ==============        =============

                Shares exercisable at December 31, 1997                  166,475        $        4.46
                                                                  ==============        =============

                Shares exercisable at December 31, 1998                   12,500        $        0.31
                                                                  ==============        =============
</TABLE>


        On May 12, 1998, the Company's Board of Directors approved the repricing
        of all outstanding incentive and nonqualified stock options, totaling
        300,000 shares, to the then current fair market value of $1.50.

        The following table summarizes information about stock options
        outstanding at December 31, 1998:

<TABLE>
<CAPTION>

         RANGE OF       NUMBER          WEIGHTED          WEIGHTED AVERAGE           NUMBER           WEIGHTED
         EXERCISE      OF SHARES         AVERAGE              REMAINING             OF SHARES          AVERAGE
         PRICES       OUTSTANDING    EXERCISE PRICE       CONTRACTUAL LIFE         EXERCISABLE     EXERCISE PRICE  
-----------------------------------------------------------------------------------------------------------------
<S>         <C>         <C>             <C>                       <C>                <C>               <C>         
            $1.50       261,750         $    1.50                 10                     --                --
             0.31        12,500              0.3125                3                 12,500            0.3125
                       --------------------------------------------------------------------------------------
                        274,250         $    1.45                9.1                 12,500            0.3125
                        =====================================================================================

</TABLE>

        In 1996, the Company adopted Statement of Financial Accounting Standards
        (SFAS) No. 123, "Accounting for Stock-Based Compensation." The Company
        has elected to continue following the accounting guidance of Accounting
        Principles Board Opinion No. 25, "Accounting for Stock Issued to
        Employees" for measurement and recognition of stock-based transactions
        with employees. No compensation cost has been recognized for options
        issued under the Stock Option Plan because the exercise price of all
        options granted was at least equal to the fair value of the common stock
        on the date of grant. Had compensation cost for the stock options been
        determined based on the fair value at the grant date, consistent with
        the provisions of SFAS No. 123, the Company's 1998, 1997 and 1996 pro
        forma net (loss) income and per share amounts would have been as
        indicated below:

<TABLE>
<CAPTION>
                                                                1998               1997             1996   
       -------------------------------------------------------------------------------------------------------
<S>                                                       <C>                <C>               <C>            
       Net income (loss) (pro forma in 1996) applicable
         to Common Stock, as reported                     $      (905,761)   $      (351,545)  $       499,765
                                                          ===============    ===============   ===============
       
       Net income (loss) applicable to Common
         Stock, pro forma                                 $    (1,025,974)   $      (406,770)  $       366,107
                                                          ===============    ===============   ===============
       
       Basic and diluted earnings (loss) (pro forma
          in 1996) per share, as reported                 $          (.16)   $          (.06)  $           .11
                                                          ===============    ===============   ===============
       
       Basic and diluted earnings (loss) per share,
          pro forma                                       $          (.18)   $          (.07)  $           .08
                                                          ===============    ===============   ===============
</TABLE>


        The fair value of each option grant is estimated on the date of grant
        using the Black-Scholes option-pricing model with the following
        weighted-average assumptions and results:

<TABLE>
<CAPTION>
                                                                       1998              1997              1996    
       ------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>             <C>              <C>
         Dividend yield                                                0%                0%               0%
         Expected volatility                                         102%               39%               5%
         Risk free interest rate                                       4.7%              5.8%             6%
         Expected life of options                                      9.1 Years        10 Years         10 Years
         Fair value of options on grant dates                         $1.30             $3.27            $2.06
</TABLE>

         STOCK WARRANTS: On October 21, 1996, warrants to purchase 140,000
         shares of Common Stock (the "Underwriter's Warrants") were issued in
         connection with the initial public offering. The Underwriter's Warrants
         may be exercised in whole or in part through October 20, 2001, at an
         exercise price of $6.00 per share. No warrants were exercised in 1998,
         1997 or 1996.


                                       23
<PAGE>

9.      COMMITMENTS AND CONTINGENCIES

        EMPLOYMENT AGREEMENTS Each of the two majority shareholders has entered
        into an employment agreement dated June 30, 1996, with the Company
        providing for a minimum annual base salary of $175,000. The agreements
        require the Company to pay premiums for life insurance intended to fund
        the buy/sell agreements to which the two majority shareholders are
        parties, as described below. If employment is terminated by either party
        the two majority shareholders will receive 12 months' salary and health
        benefits. These agreements require each of the two majority shareholders
        to vote his shares for election of the other to serve on the Company's
        Board of Directors. Each of these agreements include confidentiality
        protections and prohibits each of the two majority shareholders from
        competing with the Company for a period equal to the period during which
        the Company is obligated to make severance payments.

        BUY/SELL AGREEMENTS Each of the two majority shareholders has entered
        into a Buy/Sell Agreement (the Agreement) with the Company and each
        other. Under this agreement, the Company may have the option to purchase
        shares from the two shareholders.


10.    OTHER INCOME

       Included in the other income for the year ended December 31, 1996 is a
       gain of approximately $101,000 relating to the settlement of a contract
       with a former client.


11.    INCOME TAXES

        Prior to October 21, 1996, the effective date of the Initial Public
        Offering ("IPO"), the Company had been treated for federal and state
        income tax purposes as an S Corporation under Subchapter S of the
        Internal Revenue Code of 1986, as amended (the "Code"), and comparable
        state tax laws. As a result, earnings of the Company had been taxed for
        federal and state income tax purposes directly to the shareholders of
        the Company, rather than to the Company. In connection with the IPO, the
        Company was converted from an S Corporation to a C Corporation under the
        Code. In addition, as a result of the termination of its S Corporation
        status, in accordance with SFAS No. 109, "Accounting for Income Taxes,"
        the Company recorded a net deferred income tax liability and
        corresponding deferred income tax expense of $221,700.

        The provision (benefit) for income taxes for the years ended December
        31, 1998, 1997 and 1996 consists of the following:

<TABLE>
<CAPTION>
                                                                  1998         1997         1996   
       -------------------------------------------------------------------------------------------
<S>                                                            <C>          <C>          <C>      
              Current:
                Federal                                        $      --    $ (82,298)   $ 116,500
                State                                             25,000           --       31,400
                                                               ---------    ---------    ---------
                                                                  25,000      (82,298)     147,900
              Deferred                                          (575,210)    (133,202)     (15,300)
                                                               ---------    ---------    ---------
              Income tax expense (benefit) C Corporation        (550,210)    (215,500)     132,600
              Conversion from S Corporation to C Corporation          --           --      221,700
                                                               ---------    ---------    ---------
              Total income tax expense (benefit)               $(550,210)   $(215,500)   $ 354,300
                                                               =========    =========    =========
</TABLE>

                                       24
<PAGE>


         Differences between the provisions for income taxes at the federal
         statutory rate and the recorded provision are summarized as follows:

<TABLE>
<CAPTION>
                                                                1998      1997     1996   
         -------------------------------------------------------------------------------
<S>                                                             <C>      <C>       <C>  
             Income tax expense (benefit) at federal
               statutory rate                                (34.0%)  (34.0%)   34.0%
             State income tax (benefit), net of
               federal benefit (cost)                         (4.5%)   (4.4%)    5.0%
             S Corporation tax (benefit)                        --       --    (25.4%)
             Conversion from S Corporation to C Corporation     --       --     26.0%
             Other                                             0.7%     0.4%     1.9%
                                                              ----     ----     ----
             Effective income tax expense (benefit)          (37.8%)  (38.0%)   41.5%
                                                              ====     ====     ====
</TABLE>

         Net deferred tax assets (liabilities) at December 31, 1998, 1997 and
         1996 are comprised of the following:

<TABLE>
<CAPTION>
                                                                 1998          1997         1996   
         -----------------------------------------------------------------------------------------
<S>                                                            <C>          <C>          <C>      
              Current deferred tax assets (liabilities):
                Allowance for doubtful accounts                $  55,000    $  59,000    $  29,200
                Contributions carryover                            8,000           --           --
                Benefit of NOL carryforwards                     336,000           --           --
                Other, net                                       (34,000)     (27,000)     (56,612)
                                                               ---------    ---------    ---------
              Income tax expense (benefit) C Corporation         365,000       32,000      (27,412)

              Non-current deferred tax assets (liabilities):
                Excess of tax over book depreciation            (341,000)    (282,000)    (179,000)
                Benefit of NOL carryforwards                     478,000      130,000           --
                Other, net                                            --       46,790           --
                                                               ---------    ---------    ---------
              Total income tax expense (benefit)                 137,000     (105,210)    (179,000)
                                                               ---------    ---------    ---------
              Total deferred tax assets (liabilities)          $ 502,000    $ (73,210)   $(206,412)
                                                               =========    =========    =========
</TABLE>

        Realization of deferred tax assets associated with the net operating
        loss carryforwards is dependent upon generating sufficient taxable
        income prior to their expiration. Management believes that it is more
        likely than not that all of these net operating loss carryforwards will
        be used, thus no valuation allowance has been established.

        As of December 31, 1998 and 1997, the Company had federal net operating
        loss carryforwards of approximately $1,581,000 and $290,000,
        respectively. The net operating loss carryforwards will expire beginning
        in 2012.


12.    RESTRUCTURING COSTS

        In December 1997, in connection with management's plans to reduce costs
        and improve operating efficiencies, the Company transferred the outbound
        calling services performed at its Lombard call center to various other
        call centers. As a result, the Company recorded a restructuring charge
        of $388,563, as detailed below, all charges of which remained in accrued
        liabilities at December 31, 1997. During 1998, $379,281 of these amounts
        were paid and $9,282 remained in accrued liabilities at December 31,
        1998. The principal actions in the plan involve the consolidation of the
        outbound call center operations in Lombard, Illinois into existing ACI
        call centers in Merrillville, Indiana and Pierre, South Dakota.



                                       25
<PAGE>

           The major components of the restructuring charges are as follows:

                Occupancy costs                                   $      178,700
                Write down of furniture and equipment                    128,200
                Severance and related costs                               41,700
                Other                                                     39,963
                                                                  --------------
                                                                  $      388,563
                                                                  ==============

        In June 1998, the Company recorded an additional restructuring charge of
        $65,000, all of which has been paid at December 31, 1998, to cover
        various expenses associated with the closing of its Lombard inbound call
        center operations.


13.    RETIREMENT PLAN

        Effective January 1, 1998, the Company established a 401(k) pension plan
        covering substantially all of its employees who are at least 21 years of
        age, have completed at least six months continuous employment and work
        more than 1,000 hours per year. Participants may elect to defer from 1%
        to 15% of their salary and are 100% vested in their own contributions.
        The plan allows for the Company to make discretionary matched
        contributions. These contributions, if any, vest to the employee at the
        rate of 20% per year of employment so that the employee would be fully
        vested in the Company's discretionary contribution upon attaining five
        years of employment of greater than 1000 hours per year. The Company's
        discretionary contributions to the plan are determined annually by the
        Board of Directors. Total discretionary contributions contributed by the
        Company were $0 for the year ended December 31, 1998.


14.    SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                       1998               1997              1996   
       ------------------------------------------------------------------------------------------------------------
<S>                                                               <C>               <C>              <C>           
        The Company paid cash for interest and income taxes as follows:

           Interest                                               $       59,300    $      13,800    $      151,000

           Income taxes (refunds received)                              (575,301)         648,400             3,700

        Non-cash investing and financing activities included:

           Equipment acquired through capital leases                     372,774               --           546,551

           Deferred grants receivable                             $      100,000    $     150,000    $           --


</TABLE>



                                       26
<PAGE>

ITEM 8.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING 
                  AND FINANCIAL DISCLOSURE

         None.

                                    PART III


ITEM 9.           DIRECTORS, EXECUTIVE  OFFICERS, PROMOTERS AND CONTROL PERSONS;
                  COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         The information required by Item 9 regarding the Company's executive
officers is set forth in Part I of this report. The information required by Item
9 concerning the directors of the Company is incorporated by reference from the
Company's definitive proxy statement for its 1999 Annual Meeting of Shareholders
under the caption "Election of Directors." The Company's proxy statement will be
filed pursuant to Rule 14a within 120 days after the close of the fiscal year
for which this report is filed.

         The information required by Item 9 relating to compliance with Section
16(a) of the Exchange Act is incorporated herein by reference from the Company's
definitive proxy statement for its 1999 Annual Meeting of Shareholders under the
caption "Compliance with Section 16(a)of the Exchange Act". The Company's proxy
statement will be filed pursuant to Rule 14a within 120 days after the close of
the fiscal year for which this report is filed.


ITEM 10.          EXECUTIVE COMPENSATION

         The information required by Item 10 is incorporated herein by reference
to the section labeled "Executive Compensation" which appears in the
Registrant's definitive Proxy Statement for its 1999 Annual Meeting of
Shareholders. The Company's proxy statement will be filed pursuant to Rule 14a
within 120 days after the close of the fiscal year for which this report is
filed.


ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by Item 11 is incorporated herein by reference
to the section labeled "Principal Shareholders and Management Shareholdings"
which appears in the Registrant's definitive Proxy Statement for its 1999 Annual
Meeting of Shareholders. The Company's proxy statement will be filed pursuant to
Rule 14a within 120 days after the close of the fiscal year for which this
report is filed.


ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by Item 12 is incorporated by reference to the
section labeled "Certain Transactions" which appears in the Registrant's
definitive Proxy Statement for its 1999 Annual Meeting of Shareholders. The
Company's proxy statement will be filed pursuant to Rule 14a within 120 days
after the close of the fiscal year for which this report is filed.


ITEM 13.          EXHIBITS AND REPORTS ON FORM 8-K

 (a)     Exhibits. Exhibits are numbered in accordance with Item 601 of
         Regulation S-B. See "Exhibit Index" immediately following the signature
         page of this Form 10-KSB.


                                       27

<PAGE>

(b)      Reports on Form 8-K. The Company filed no reports on Form 8-K during
         the fourth quarter of the year ending December 31, 1998.


                                       28

<PAGE>

                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                 ACI TELECENTRICS, INC.

Dated:  March 30, 1999           By:  /s/ RICK N. DIAMOND
                                      -----------------------------------------
                                      Rick N. Diamond, Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act 1934, this
Report has been signed by the following persons on behalf of the Company, in the
capacities, and on the dates, indicated.

                                POWER OF ATTORNEY

         Each person whose signature appears below constitutes and appoints RICK
N. DIAMOND and GARY B. COHEN as true and lawful attorneys-in-fact and agents,
each acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments to this Annual Report on Form 10-KSB and to file the same, with all
exhibits thereto, and other documents in connection thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, each acting alone, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.

SIGNATURE AND TITLE                                                   DATE
-------------------                                                   ----

/s/ RICK N. DIAMOND                                              March 30, 1999
---------------------------------------------
Rick N. Diamond, Chief Executive Officer
and Director......(principal executive officer)

/s/ GARY B. COHEN.                                               March 30, 1999
--------------------------------------------
Gary B. Cohen, President, Chief Financial Officer
and Director (principal financial and accounting officer)

/s/ DOUGLAS W. FRANCHOT                                          March 30, 1999
--------------------------------------------
Douglas W. Franchot, Director

/s/ PHILLIP T. LEVIN                                             March 30, 1999
--------------------------------------------
Phillip T. Levin, Director

/s/ SEYMOUR LEVY                                                 March 30, 1999
--------------------------------------------
Seymour Levy, Director

/s/ JAMES W. LUPIENT                                             March 30, 1999
--------------------------------------------
James W. Lupient, Director

/s/ THOMAS F. MADISON                                            March 30, 1999
--------------------------------------------
Thomas F. Madison, Director


                                       29

<PAGE>

                             ACI TELECENTRICS, INC.

                          EXHIBIT INDEX TO FORM 10-KSB


Exhibit
Number         Description
------         -----------

3.1     Restated Articles of Incorporation (Incorporated by reference to Exhibit
        3.1 to Registration Statement on Form SB-2, SEC File No. 333-05370)

3.2     Restated Bylaws (Incorporated by reference to Exhibit 3.2 to
        Registration Statement on Form SB-2, SEC File No. 333-05370)

4.1     Form of Stock Certificate (Incorporated by reference to Exhibit 4.1 to
        Registration Statement on Form SB-2, SEC File No. 333-05370)

4.2     Articles of Incorporation (filed as Exhibit 3.1)

4.3     Bylaws (filed as Exhibit 3.2)

10.1    1996 Stock Option Plan (Incorporated by reference to Exhibit 10.1 to
        Registration Statement on Form SB-2, SEC File No. 333-05370)**

10.2    1996 Employee Stock Purchase Plan (Incorporated by reference to Exhibit
        10.2 to Registration Statement on Form SB-2, SEC File No. 333-05370)**

10.3    Employment Agreement with Rick N. Diamond, dated June 30, 1996
        (Incorporated by reference to Exhibit 10.3 to Registration Statement on
        Form SB-2, SEC File No. 333-05370)**

10.4    Employment Agreement with Gary B. Cohen, dated June 30, 1996
        (Incorporated by reference to Exhibit 10.4 to Registration Statement on
        Form SB-2, SEC File No. 333-05370)**

10.5    Buy/Sell Agreement by and among Automated Communications, Incorporated,
        Rick N. Diamond and Gary B. Cohen, dated June 30, 1996 (Incorporated by
        reference to Exhibit 10.5 to Registration Statement on Form SB-2, SEC
        File No. 333-05370)**

10.6    Installment Note by Twin Valley Communications, Incorporated in favor of
        Northwest Minnesota Initiative Fund, dated June 15, 1994 (including
        documents related thereto) (Incorporated by reference to Exhibit 10.7 to
        Registration Statement on Form SB-2, SEC File No. 333-05370)

10.7    Promissory Note by Twin Valley Communications, Incorporated in favor of
        City of Twin Valley, dated June 15, 1994 (including documents related
        thereto) (Incorporated by reference to Exhibit 10.8 to Registration
        Statement on Form SB-2, SEC File No. 333-05370)

10.8    Note by Automated Communications, Incorporated in favor of Twin Valley
        State Bank, dated September 13, 1993 (including documents related
        thereto) (Incorporated by reference to Exhibit 10.10 to Registration
        Statement on Form SB-2, SEC File No. 333-05370)

10.9    Loan Commitment Agreement by and between Twin Valley Communications,
        Incorporated and Northwest Regional Development Commission, dated June
        15, 1994 (including documents related thereto) (Incorporated by
        reference to Exhibit 10.11 to Registration Statement on Form SB-2, SEC
        File No. 333-05370)

10.10   Lease Agreement by and between ACKY-3100 Lake Limited Partnership and
        Automated Communications, Incorporated, dated June 13, 1995
        (Incorporated by reference to Exhibit 10.12 to Registration Statement on
        Form SB-2, SEC File No. 333-05370)



<PAGE>

10.11   Sublease by and between Valley City-Barnes County Development
        Corporation and Valley City Communications, Incorporated, dated April
        24, 1995 (Incorporated by reference to Exhibit 10.13 to Registration
        Statement on Form SB-2, SEC File No. 333-05370)

10.12   Sublease by and between Forward Devils Lake Corporation and Devils Lake
        Communications, Incorporated, dated January 2, 1996 (Incorporated by
        reference to Exhibit 10.14 to Registration Statement on Form SB-2, SEC
        File No. 333-05370)

10.13   Lease by and between Twin Valley-Ulen Telephone Company, Inc. and Twin
        Valley Communications, Incorporated, dated September 1, 1993
        (Incorporated by reference to Exhibit 10.15 to Registration Statement on
        Form SB-2, SEC File No. 333-05370)

10.14   Amended and Restated Equipment Lease (with Purchase Option) by and
        between Valley City-Barnes County Development Corporation and Valley
        City Communications, Incorporated, dated June 15, 1995

10.15   Vehicle Lease Agreement by and between Lupient Leasing and Automated
        Communications, Incorporated, dated December 15, 1995 (Incorporated by
        reference to Exhibit 10.22 to Registration Statement on Form SB-2, SEC
        File No. 333-05370)**

10.16   Equipment Lease by and between Forward Devils Lake Corporation and
        Devils Lake Communications, Incorporated, dated May 1, 1996
        (Incorporated by reference to Exhibit 10.24 to Registration Statement on
        Form SB-2, SEC File No. 333-05370)

10.17   Lease Agreement by and between Sanwa Leasing Corporation and Automated
        Communications, Incorporated, dated July 20, 1995 (Incorporated by
        reference to Exhibit 10.25 to Registration Statement on Form SB-2, SEC
        File No. 333-05370)

10.18   Agreement for telemarketing services with Cy DeCosse, Inc. (Incorporated
        by reference to Exhibit 10.27 to Registration Statement on Form SB-2,
        SEC File No. 333-05370)

10.19   Agreement for telemarketing services with CIDCO, Inc. (Incorporated by
        reference to Exhibit 10.28 to Registration Statement on Form SB-2, SEC
        File No. 333-05370)

10.20   Lease Agreement by and between Redfield Industrial Development
        Corporation and ACI Telecentrics, Incorporated, dated November 26, 1996

10.21   Stock Purchase Agreement dated August 1, 1997, by and among ACI
        Telecentrics Incorporated and Encyclopaedia Britannica, Inc.
        (Incorporated by reference to Exhibit 2.1 to Form 8-K, SEC File No.
        000-21557)

10.22   Lease Agreement by and between Kay Barth and ACI Telecentrics,
        Incorporated dated April 13, 1997. (Incorporated by reference to Exhibit
        10.31 to Form 10-KSB for the year ended December 31, 1998)

10.23   Lease Agreement by and between C. H. Young, Trustee, and Mary M. Young,
        Trustee and ACI Telecentrics dated September 5, l997. (Incorporated by
        reference to Exhibit 10.32 to Form 10-KSB for the year ended December
        31, 1998)

10.24   Lease Agreement by and between Wilkinson Development, Inc. and ACI
        Telecentrics, Incorporated dated September 9, 1997. (Incorporated by
        reference to Exhibit 10.33 to Form 10-KSB for the year ended December
        31, 1998)

10.25   Memorandum of Understanding for Project #97-ED-008 between the Nebraska
        Department of Economic Development, the City of Chadron Nebraska, Dawes
        County Nebraska and ACI Telecentrics, Incorporated. (Incorporated by
        reference to Exhibit 10.34 to Form 10-KSB for the year ended December
        31, 1998)


<PAGE>

10.26   Memorandum of Understanding for Project # 97-ED-014 between Nebraska
        Department of Economic Development, the City of Ogallala Nebraska and
        ACI Telecentrics, Incorporated. (Incorporated by reference to Exhibit
        10.35 to Form 10-KSB for the year ended December 31, 1998)

10.27   Memorandum of Understanding for project # 97-ED-015 between Nebraska
        Department of Economic Development, the City of Valentine Nebraska and
        ACI Telecentrics, Incorporated. (Incorporated by reference to Exhibit
        10.36 to Form 10-KSB for the year ended December 31, 1998)

10.28   Lease Agreement by and between Pierre Economic Development Corporation
        and ACI Telecentrics, Incorporated originally dated May 5, 1997 and
        amended March 4, 1998. (Incorporated by reference to Exhibit 10.37 to
        Form 10-KSB for the year ended December 31, 1998)

10.29   $2 million revolving line of credit loan between National City Bank and
        ACI Telecentrics, Inc. (Incorporated by reference to Exhibit 10.38 to
        Form 10-QSB for the quarter ended March 31, 1998)

23*     Consent of Deloitte & Touche LLP, independent public accountants

24*     Power of Attorney (included on signature page of this Report)

27*     Financial Data Schedule


---------------------


*       Filed herewith
**      Indicates a management contract or compensatory plan or arrangement 
        required to be filed as an exhibit to the Form 10-KSB