<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-22945
THE A CONSULTING TEAM, INC.
---------------------------
(Exact name of Registrant as specified in its charter)
New York 13-3169913
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Park Avenue South
New York, New York 10003
------------------------
(Address of principal executive offices)
(212) 979-8228
--------------
(Registrant's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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
---- ----
As of August 14, 1998 there were 5,485,000 shares
of Common Stock, with $.01 par value per share, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
---- ----
<PAGE>
THE A CONSULTING TEAM, INC.
INDEX
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<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Index 2
Part I. Financial Information
Item 1. Financial Statements 3-7
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Condensed Financial Statements 6-7
Item 2. Management's Discussion and Analysis or Plan of Operations 8-13
Part II. Other Information
Item 1. Legal Proceedings 14
Item 2. Recent Sales of Unregistered Securities;
Use of Proceeds from Registered Securities 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit 27 Financial Data Schedule 16
2
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
THE A CONSULTING TEAM, INC.
BALANCE SHEETS
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------------- ---------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 14,797,431 $ 16,945,010
Accounts receivable 10,146,015 7,237,905
Prepaid expenses and other current assets 233,714 83,320
--------------- ---------------
Total current assets 25,177,160 24,266,235
Property and equipment, at cost, less accumulated
depreciation and amortization 1,787,405 1,124,396
Deposits 84,270 76,692
--------------- ---------------
Total assets $ 27,048,835 $ 25,467,323
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 14,535 $ 13,967
Accounts payable and accrued expenses 2,746,336 2,139,551
Income tax payable 95,593 527,376
Deferred income taxes 517,000 358,000
--------------- ---------------
Total current liabilities 3,373,464 3,038,894
Long-term debt 22,680 30,092
Commitments
Shareholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares
authorized; no shares issued or outstanding - -
Common stock, $.01 par value; 10,000,000 shares authorized;
5,485,000 issued and outstanding 54,850 54,850
Additional paid-in capital 21,051,758 21,051,758
Retained earnings 2,546,083 1,291,729
--------------- ---------------
Total shareholders' equity 23,652,691 22,398,337
--------------- ---------------
Total liabilities and shareholders' equity $ 27,048,835 $ 25,467,323
=============== ===============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
THE A CONSULTING TEAM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
----------------------------- --------------------------------
1998 1997 1998 1997
-------------- ------------- --------------- ---------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Consulting services $ 19,986,388 $ 15,378,395 $ 10,897,245 $ 8,320,157
Software licensing 2,708,426 784,781 1,438,009 486,522
Training services 151,231 110,222 62,670 39,180
-------------- ------------- --------------- ---------------
Total revenues 22,846,045 16,273,398 12,397,924 8,845,859
Cost of revenues 14,914,755 11,216,866 8,080,960 6,110,879
-------------- ------------- --------------- ---------------
Gross profit 7,931,290 5,056,532 4,316,964 2,734,980
Operating expenses:
Selling, general & administrative 6,077,378 3,391,165 3,279,105 1,790,577
Equity in net (income) loss from joint venture,
including loss on disposal of $1,584 for 1997 - (13,253) - -
-------------- ------------- --------------- ---------------
Total operating expenses 6,077,378 3,377,912 3,279,105 1,790,577
-------------- ------------- --------------- ---------------
Income from operations 1,853,912 1,678,620 1,037,859 944,403
Interest income 352,091 171 180,602 1
Interest expense (1,649) (108,178) (791) (58,340)
-------------- ------------- --------------- ---------------
Income before income taxes 2,204,354 1,570,613 1,217,670 886,064
Income taxes 950,000 116,000 530,000 67,000
-------------- ------------- --------------- ---------------
Net income $ 1,254,354 $ 1,454,613 $ 687,670 $ 819,064
============== ============= =============== ===============
Basic earnings per share $ 0.23 $ 0.13
============== ===============
Dilutive earnings per share $ 0.23 $ 0.13
============== ===============
Unaudited pro forma information:
Historical income from operations $ 1,678,620 $ 944,403
Pro forma adjustment for executive compensation (37,500) (25,000)
------------- ---------------
Pro forma income from operations 1,641,120 919,403
Interest (expense) income, net (108,007) (58,339)
------------- ---------------
Pro forma income before income taxes 1,533,113 861,064
Pro forma provision for income taxes 681,000 382,000
------------- ---------------
Pro forma net income $ 852,113 $ 479,064
============= ===============
Pro forma net income per share basic and dilutive $ 0.23 $ 0.13
============= ===============
Weighted average number of common
shares outstanding 3,729,211 3,729,211
============= ===============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
THE A CONSULTING TEAM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
---------------- ----------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,254,354 $ 1,454,613
Adjustments to reconcile net income
to net cash used in operating activites:
Depreciation and amortization 180,181 59,143
Deferred income taxes 159,000 (10,000)
Equity in net income from joint venture - (13,253)
Changes in operating assets and liabilities:
Accounts receivable (2,908,110) (2,364,558)
Prepaid expenses and other (157,972) 23,847
Accounts payable and accrued expenses 606,785 261,171
Income taxes payable (431,783) 83,334
---------------- ----------------
Net cash used in operating activities (1,297,545) (505,703)
Cash flows from investing activities:
Purchase of property and equipment (843,190) (164,873)
Repayment from joint venture - 29,705
---------------- ----------------
Net cash used in investing activities (843,190) (135,168)
Cash flows from financing activities:
Bank overdraft - 181,931
Proceeds from loan payable-bank - 1,215,000
Repayment of loan to shareholder - (1,045,000)
Repayment of long-term debt (6,844) (5,256)
Deferred offering costs - (45,511)
---------------- ----------------
Net cash (used in) provided by financing activities (6,844) 301,164
---------------- ----------------
Net decrease in cash and cash equivalents (2,147,579) (339,707)
Cash and cash equivalents at beginning of period 16,945,010 347,285
---------------- ----------------
Cash and cash equivalents at end of period $ 14,797,431 $ 7,578
================ ================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 1,649 $ 88,819
================ ================
Income taxes $ 1,222,783 $ 42,666
================ ================
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
THE A CONSULTING TEAM, INC.
Notes to Financial Statements
(Unaudited)
1) GENERAL:
These financial statements should be read in conjunction with The A
Consulting Team, Inc.'s (the "Company") Form 10-KSB for the year ended December
31, 1997 filed with the SEC, and the accompanying financial statements and
related notes thereto. All outstanding share amounts included in the
accompanying financial statements have been adjusted to reflect a 355,000-for-1
stock split on August 4, 1997. The accounting policies used in preparing these
financial statements are the same as those described in the Company's Form
10-KSB for the year ended December 31, 1997 filed with the SEC.
2) INTERIM FINANCIAL STATEMENTS:
In the opinion of management, the accompanying unaudited condensed
financial statements contain all the adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial position as of
June 30, 1998 and the results of operations for the six and three months ended
June 30, 1998 and 1997 and cash flows for the six months ended June 30, 1998
and 1997.
The balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date, but does not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. For further information, refer to the
audited financial statements and footnotes thereto included in the Form 10-KSB
filed by the Company for the year ended December 31, 1997.
The results of operations for the six and three months ended June 30,
1998 are not necessarily indicative of the results to be expected for any other
interim period or for the full year.
3) INCOME PER SHARE:
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share" ("SFAS 128"), which was required to be
adopted on December 31, 1997. Under the new requirements for calculating
primary (basic) earnings per share, the dilutive effect of stock options will
be excluded. Options to purchase 374,750 share of common stock at $12 per share
were outstanding during 1998 but were not included in the computation of
diluted earnings per share because the options' exercise price was greater than
the average market price of the common shares and, therefore, the effect would
be antidilutive.
6
<PAGE>
The following table sets forth the computation of basic and diluted earnings
per share for the six and three months ended June 30, 1998.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
------------------- ----------------------
June 30, 1998 June 30, 1998
------------------- ----------------------
<S> <C> <C>
Numerator:
Net income................................... $ 1,254,354 $ 687,670
------------------- ----------------------
Numerator for basic and diluted earnings per
share.................................... $ 1,254,354 $ 687,670
=================== ======================
Denominator:
Denominator for basic earnings per
share - weighted-average shares.......... 5,485,000 5,485,000
Effect of dilutive securities:
Employee stock options.................... 6,711 7,897
------------------- ----------------------
Denominator for diluted earnings per
share - adjusted weighted-average shares.. 5,491,711 5,492,897
=================== ======================
Basic earnings per share....................... $ 0.23 $ 0.13
=================== ======================
Diluted earnings per share..................... $ 0.23 $ 0.13
=================== ======================
</TABLE>
4) INCOME TAXES:
The Company's income taxes on actual pretax income for the six and
three month periods ended June 30, 1998 were calculated on a "C corporation"
basis. The Company's income taxes on actual pretax for the six and three months
ended June 30, 1997 were calculated on an "S corporation" basis. The Company
was an "S Corporation" between January 1, 1995 and August 12, 1997, the day
before the Company completed the Offering. During this period, the Company was
not subject to federal income taxes at the corporate level.
5) CONCENTRATION OF CREDIT RISK:
Sales to three customers represent approximately 40% of the
Company's revenue for the six months ended June 30, 1998. Sales to
three customers for the same period in 1997 represented approximately
40% of the Company's revenue, of which sales to one of those customers
represented approximately 26% of the Company's revenue with sales to
the remaining two customers each representing less than 10% of the
Company's revenue. Sales to four customers represent approximately 51%
of the Company's revenue for the three months ended June 30, 1998.
Sales to four customers for the same period in 1997 represented
approximately 46% of the Company's revenue, of which sales to one of
those customers represented approximately 27% of the Company's
revenue, with sales to the remaining three customers each representing
less than 10% of revenue.
7
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS
The following discussion and analysis of significant factors affecting
the Company's operating results and liquidity and capital resources should be
read in conjunction with the Company's Form 10-KSB for the year ended December
31, 1997, the accompanying financial statements and related notes.
Overview
TACT provides enterprise-wide IT consulting, software and training
services and solutions primarily to Fortune 1000 companies in a wide range of
industries. The Company generates over 87% of its revenues from IT consulting
services. Moreover, over 90% of the Company's consulting services revenues were
generated from the hourly billing of its consultants' services to its clients
under time and materials engagements, with the remainder generated under
fixed-price engagements.
The Company establishes standard billing guidelines for consulting
services based on the type of service offered. Actual billing rates are
established on a project by project basis and may vary from the standard
guidelines. The Company typically bills its clients for time and materials
services on a semi-monthly basis. Arrangements for fixed-price engagements are
made on a case-by-case basis. Consulting services revenues generated under time
and materials engagements are recognized as those services are provided,
whereas consulting services revenues generated under fixed-price engagements
are recognized according to the percentage of completion method.
The Company's most significant operating cost is its personnel cost,
which is included in cost of revenues. As a result, the Company's financial
performance is primarily based upon billing margin (billable hourly rate less
the consultant's hourly cost) and consultant utilization rates (number of days
worked by a consultant during a semi-monthly billing cycle divided by the
number of billing days in that cycle). During the periods presented, the
Company has been able to increase its billing margins by increasing its hourly
billing rates and through higher margin service offerings in new technologies
such as client/server and internet/intranet. These increases, however, were
partially offset by increases in consultants' and employees' salaries and
wages. Because most of the Company's engagements are on a time and materials
basis, the Company generally has been able to pass on to its clients most
increases in cost of services. Accordingly, such increases have historically
not had a significant impact on the Company's financial results. Further, most
of the Company's engagements allow for periodic price adjustments to address,
among other things, increases in consultant costs. TACT also actively manages
its personnel utilization rates by constantly monitoring project requirements
and timetables. As projects are completed, consultants are re-deployed either
to new projects at the current client site or to new projects at another client
site, or are encouraged to participate in TACT's training programs in order to
expand their technical skill sets.
The Company also generates revenues by selling software licenses and
providing training services. In addition to initial software license fees, the
Company derives revenues from the annual renewal of software licenses. Revenues
from the sale of software licenses are recognized upon delivery of the software
to a customer, and training service revenues are recognized as the services are
provided.
The Company's revenue growth has been driven by three primary factors:
increasing the number of consultants, managing the business to attain higher
average billing rates through the delivery of higher value-added services to
the Company's clients, and carefully managing consultant utilization rates.
Additionally, the Company has expanded its Technical Practices into areas such
as Windows NT and Internet/Intranet, which has enabled it to cross-sell
higher-margin services. The Company also has been successful in expanding
existing client relationships as well as establishing new client relationships.
Such relationships are established and maintained through the Company's local
Solution Branch offices located in New York, New Jersey and Connecticut.
8
<PAGE>
The Company opened its Solution Branch in Connecticut in December
1997. The Company plans to open additional Solution Branches in one or two
other select major U.S. markets in 1998. Considering its limited experience
with opening Solution Branches, the Company cannot predict when new Solution
Branches will contribute to the Company's net income. Until such time, the
Company will have incurred the costs associated with opening each new Solution
Branch, including the costs of office equipment, salaries and occupancy.
The Company was an "S Corporation" between January 1, 1995 and August
12, 1997, the day before the Company completed its initial public offering (the
"Offering"). During this period, the Company was not subject to federal income
taxes at the corporate level.
Results of Operations
The following tables set forth the percentage of revenues of certain
items included in the Company's Statements of Operations:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------------ -------------------------
1998 1997 1998 1997
------------------------ -------------------------
<S> <C> <C> <C> <C>
Consulting services............................ 87.5 % 94.5 % 87.9 % 94.1 %
Software licensing............................. 11.8 4.8 11.6 5.5
Training services.............................. 0.7 0.7 0.5 0.4
---------- ----------- ----------- -----------
Total revenues............................ 100.0 100.0 100.0 100.0
Cost of revenues............................... 65.3 68.9 65.2 69.1
---------- ----------- ----------- -----------
Gross profit 34.7 31.1 34.8 30.9
Selling, general and administrative expenses... 26.6 20.8 26.4 20.2
Income from operations......................... 8.1 10.3 8.4 10.7
Net income..................................... 5.5 8.9 5.5 9.3
========== ===========
Pro forma income from operations............... 10.1 10.4
Proforma net income.................................... 5.2 5.4
=========== ===========
</TABLE>
Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June
30, 1997
Revenues. Revenues of the Company increased by approximately $6.6
million, or 40%, from $16.3 million for the six months ended June 30, 1997 to
$22.8 million for the six months ended June 30, 1998. Revenues from consulting
services increased by approximately $4.6 million, or 30%, from $15.4 million
for the six months ended June 30, 1997 to $20.0 million for the same period in
1998. The increase in 1998 period revenues from consulting services was
primarily the result of an increased number of consultants, a slight increase
in the consultant utilization rate, and to a lesser extent, higher hourly
billing rates.
The number of consultants engaged by the Company increased 22% for the
six months ended June 30, 1998, as compared to the six months ended June 30,
1997. The Company obtained significant full life cycle projects involving
networking and system management, client/server development, quality assurance
and testing, and internet/intranet from existing clients, which resulted in
higher billings.
Software licensing revenues increased by approximately $1.9 million,
or 245%, from $0.8 million for the six months ended June 30, 1997 to $2.7
million for the same period in 1998. This increase was primarily due to an
increase in Year 2000 product sales.
Revenues from training services represented less than 1% of the
Company's total revenues for the six months ended June 30, 1998 and 1997
respectively.
9
<PAGE>
Gross Profit. The resulting gross profit for the six months ending
June 30, 1998 increased by approximately $2.9 million, or 57%, from $5.1
million in 1997 to $7.9 million in 1998. As a percentage of total revenues,
gross profit increased from 31% of total revenues for the six months ended June
30, 1997 to 35% for the same period in 1998. This increase directly relates to
the change in revenue mix, with higher software sales during the six months
ended June 30, 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately $2.7 million, or 79%, from
$3.4 million for the six months ended June 30, 1997 to $6.1 million for the
same period in 1998. Expressed as a percentage of sales, selling, general and
administrative expenses increased, representing 27% of total six months ended
June 30, 1998 revenues as compared to 21% of total revenues for the same period
in 1997. The increase in selling, general and administrative expenses for the
six months ended June 30, 1998 was primarily the result of increases in the
number of technical practice personnel hired and not fully utilized, the
addition of sales, recruiting and administration staff, the establishment of
the Stamford, Connecticut Solutions Branch office and increased health care
costs and depreciation expense.
Actual and Pro Forma Net Income. Actual net income decreased by
approximately $0.2 million from $1.5 million for the six months end June 30,
1997 to approximately $1.3 million for the same period in 1998. Pro forma net
income was $0.9 million for the six months ended June 30, 1997 as compared to
$1.3 million for the same period in 1998. Pro forma net income includes an
adjustment for executive compensation to reflect the terms of new contracts
with the Chief Executive Officer and Chief Financial Officer. In addition, it
also includes an adjustment to provide for income taxes as if the Company had
been a C corporation.
Comparison of the Three Months Ended June 30, 1998 to the Three Months Ended
June 30, 1997
Revenues. Revenues of the Company increased by approximately $3.6
million, or 40%, from $8.8 million for the three months ended June 30, 1997
("1997") to $12.4 million for the three months ended June 30, 1998 ("1998").
Revenues from consulting services increased by approximately $2.6 million, or
31%, from $8.3 million for the three months ended June 30,1997 to $10.9 million
for the same period in 1998. The increase in 1998 period revenues from
consulting services was primarily the result of an increased number of
consultants, a slight increase in the consultant utilization rate, and to a
lesser extent, higher hourly billing rates
. The number of consultants engaged by the Company increased 115% for
the three months ended June 30, 1998 to as compared to the three months ended
June 30, 1997. The Company obtained significant full life cycle projects
involving networking and system management, client/server development, quality
assurance and testing, and internet/intranet from existing clients which
resulted in higher billings.
Software licensing revenues increased by approximately $1.0 million,
or 196%, from $0.5 million for the three months ended June 30, 1997 to $1.4
million for the same period in 1998. This increase was primarily due to an
increase in Year 2000 product sales.
Revenues from training services represented less than 1% of the
Company's total revenues for the three months ended June 30, 1998 and 1997
respectively.
Gross Profit. The resulting gross profit for the three months ending
June 30,1998 increased by approximately $1.6 million, or 58%, from $2.7 million
in 1997 to $4.3 million in 1998. As a percentage of total revenues, gross
profit increased from 31% of total revenues for the three months ended June 30,
1997 to 35% for the same period in 1998. This increase directly relates to the
change in revenue mix, with higher software sales during the three months ended
June 30, 1998.
10
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately $1.5 million, or 83%, from
$1.8 million for the three months ended June 30, 1997 to $3.3 million for the
same period in 1998. Expressed as a percentage of sales, selling, general and
administrative expenses increased, representing 26% of total three months ended
June 30, 1998 revenues as compared to 20% of total revenues for the same period
in 1997. The increase in selling, general and administrative expenses for the
three months ended June 30, 1998 was primarily the result of increases in the
number of technical practice personnel hired and not fully utilized, the
addition of sales, recruiting and administration staff, the establishment of
the Stamford, Connecticut Solutions Branch office and increased health care
costs and depreciation expense.
Actual and Pro Forma Net Income. Actual net income decreased by
approximately $0.1million from $0.8 million for the three months ended June 30,
1997 to approximately $0.7million for the same period in 1998. Pro forma net
income was $0.5 million for the three months ended June 30, 1997 as compared to
$0.7 million for the same period in 1998. Pro forma net income includes an
adjustment for executive compensation to reflect the terms of new contracts
with the Chief Executive Officer and Chief Financial Officer. In addition, it
also includes an adjustment to provide for income taxes as if the Company had
been a C corporation.
Liquidity and Capital Resources
The Company's operations and geographic expansion are funded from cash
flow generated from operations, borrowings under the Company's credit line,
borrowing from the principal shareholder and from balances generated from the
Offering. The Company currently has no outstanding borrowings.
The Company's cash balances were approximately $16.9 million at
December 31,1997, and $14.8 million at June 30, 1998. Net cash used in
operating activities was approximately $1.3 million and $0.5 million for the
six months ended June 30, 1998 and 1997, respectively. In accordance with
investment guidelines approved by the Company's Board of Directors, cash
balances in excess of those required to fund operations have been invested in
short-term commercial paper with a credit rating no lower than A1, P1.
The Company currently has a line of credit of $2,100,000 and no
outstanding borrowings. The line of credit is guaranteed by the Company's
principal shareholder. The line of credit bears interest at a variable rate
based on prime plus 1% (8.5% at June 30, 1998).
The Company's accounts receivable at June 30, 1998 and December 31,
1997 was approximately $10.1 million and $7.2 million respectively,
representing 72 and 67 days of sales outstanding ("DSO"), respectively. The
Company does not anticipate any difficulty in collecting amounts due, since
this increase in DSO resulted from increased sales toward the end of the
reporting period and business with a client that has been granted longer
payment terms.
Sales to three customers represent approximately 40% of the Company's
revenue for the six months ended June 30, 1998. Sales to three customers for
the same period in 1997 represented approximately 40% of the Company's revenue,
of which sales to one of those customers represented approximately 26% of the
Company's revenue with sales to the remaining two customers each representing
less than 10% of the Company's revenue. Sales to four customers represent
approximately 51% of the Company's revenue for the three months ended June 30,
1998. Sales to four customers for the same period in 1997 represented
approximately 46% of the Company's revenue, of which sales to one of those
customers represented approximately 27% of the Company's revenue, with sales to
the remaining three customers each representing less than 10% of revenue.
Besides these customers, no other customer represented greater than 10% of the
Company's revenues.
11
<PAGE>
Net cash used in financing activities was approximately $6,800 for the
six months ended June 30, 1998, representing the repayment of long-term debt.
Net cash provided by financing activities for the six months ended June 30,
1997 was approximately $0.3 million, primarily representing proceeds from bank
loans and overdrafts, offset by repayment of a loan from the majority
shareholder and deferred offering costs.
Net cash used in investing activities was approximately $0.8 million
for the six months ended June 30, 1998, representing the purchase of fixed
assets. Net cash used in investing activities for the six months ended June 30,
1997 was approximately $0.1 million representing the purchase of fixed assets
offset by repayment of an advance to a joint venture.
In management's opinion, cash flows from operations and borrowing
capacity combined with proceeds from the Offering will provide adequate
flexibility for funding the Company's working capital obligations and expansion
plans.
New Accounting Pronouncements
In June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"), which the
Company is required to adopt for its year ended December 31, 1998. SFAS No. 131
establishes standards for the way that public business enterprises report
information about operation segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about product and services,
geographic areas, and major customers. The adoption of SFAS No. 131 had no
impact on the Company's consolidated results of operations, financial position
or cash flow.
Impact of Year 2000
Management has initiated a program to prepare the Company's computer
systems to accurately process transactions relating to the year 2000 and
beyond. The Company utilizes third party vendor network equipment,
telecommunication products, and other third party software products. The
failure of any critical components in these products to operate properly in the
year 2000 may have an adverse impact on business operations and require the
Company to incur unanticipated expenses.
The Company has an overall plan and a systematic process in place to
make its internal financial and administrative systems year 2000 ready within
the next twelve to eighteen months. Modification or replacement of portions of
the Company's software may be required so that the computer systems will
function properly with respect to date values for the year 2000 and thereafter.
The Company presently believes that with modifications to existing software and
conversions to new software, year 2000 issues will not pose significant
operational problems for its computer systems. During the execution of the
compliance process the Company will incur certain costs and expenses. Though
the Company has not established a final cost estimate, the expense of the year
2000 compliance process is not expected to have a material effect on the
Company's financial position or results of operations. The Company expects that
its internal year 2000 compliance process will be completed on a timely basis.
If such modifications are not made, however, or are not completed in a timely
manner, the year 2000 issues could have a material impact on the operations and
financial condition of the Company.
12
<PAGE>
Finally, the Company licenses software developed by third parties to
end user clients. The third party developers have designed and tested the
majority of their recent product offerings to be year 2000 compliant. However,
there is currently a small minority of the Company's end user clients utilizing
product offerings that have not been updated to meet the year 2000 compliance
specifications. The Company is making efforts to address this issue and expects
that the third party developers will continue to update older products and test
all new product offerings for year 2000 compliance. The Company is requiring
its third party software developers to represent that the products provided are
or will be year 2000 compliant. There can be no assurance, however, that all of
the Company's products under license and in use by clients will be year 2000
compliant prior to and following January 1, 2000. No assurances can be given
that the Company can completely avoid all costs and uncertainties arising from
non-compliance that might materially affect future financial results.
Forward Looking Statements
Statements included in this Management's Discussion and Analysis and
elsewhere in this document that do not relate to present or historical
conditions are "forward-looking statements" within the meaning of that term in
Section 27A of the Securities Act of 1933, as amended, and in Section 21F of
the Securities Exchange Act of 1934, as amended. Additional oral or written
forward-looking statements may be made by the Company from time to time, and
such statements may be included in documents that are filed with the Securities
and Exchange Commission ("SEC"). Such forward-looking statements involve risk
and uncertainties that could cause results or outcomes to differ materially
from those expressed in such forward-looking statements. Forward-looking
statements may include, without limitation, statements made pursuant to the
safe harbor provision of the Private Securities Litigation Reform Act of 1995.
Words such as "believes," "forecasts," "intends," "possible," "expects,"
"estimates," "anticipates," or "plans" and similar expressions are intended to
identify forward-looking statements. The Company cautions readers that results
predicted by forward-looking statements, including, without limitation, those
relating to the Company's future business prospects, revenues, working capital,
liquidity, capital needs, interest costs, and income are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those indicated in the forward-looking statements, due to the following
factors, among other risks and factors identified from time to time in the
Company's filings with the SEC. Among the important factors on which such
statements are based are assumptions concerning the anticipated growth of the
information technology industry, the continued needs of current and prospective
customers for the Company's services, the availability of qualified
professional staff, and price and wage inflation.
13
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Recent Sales of Unregistered Securities; Use of Proceeds from
Registered Sales
For the six months ended June 30, 1998, the amount of net offering
proceeds used for any purpose for which at least 5% of the issuer's
total offering proceeds has been used was:
Working Capital and General Business Purposes $2,100,000
Such payments referred to above were not direct or indirect payments
to officers, directors, general partners of the issuer or their
associates, affiliates of the issuer or any person owning 10% or more
of any class of equity securities of the issuer, nor were such
payments referred to above were direct or indirect payments to others,
except as indicated.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
- --------
27 Financial Data Schedule: Information Provided Pursuant to
Article 5 of Regulation S-X
No reports on Form 8-K were filed during the quarter for which this report is
filed.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE A CONSULTING TEAM, INC.
August 14, 1998 By: /s/ Shmuel BenTov
- ---------------- -----------------------------------
Date Shmuel BenTov, President
and Chief Executive Officer
August 14, 1998 By: /s/ Frank T Thoelen
- ---------------- -----------------------------------
Date Frank T Thoelen, Secretary-Treasurer
and Chief Financial Officer
15
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
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