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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the three month period ended: March 31, 2003
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
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THE A CONSULTING TEAM, INC.
---------------------------
(Exact name of Registrant as specified in its charter)
New York 13-3169913
-------- ----------
(State or other jurisdiction of (IRS 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, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 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
--- ---
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 126-2 of the Exchange Act) Yes No X
--- ---
As of May 14, 2003, there were 8,386,871 shares
of Common Stock, with $.01 par value per share, outstanding.
THE A CONSULTING TEAM, INC.
INDEX
PART I. FINANCIAL INFORMATION.............................................................................................3
ITEM 1. FINANCIAL STATEMENTS...........................................................................................3
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2003 AND DECEMBER 31, 2002.........................3
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002........4
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002........5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.....................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...................................................21
ITEM 4. CONTROLS AND PROCEDURES......................................................................................21
PART II. OTHER INFORMATION...............................................................................................21
ITEM 1. LEGAL PROCEEDINGS............................................................................................21
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS....................................................................22
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..............................................................................22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........................................................22
ITEM 5. OTHER INFORMATION............................................................................................22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................................................................22
SIGNATURES...............................................................................................................25
Part I. Financial Information
Item 1. Financial Statements
THE A CONSULTING TEAM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2003 2002
---------- -----------
ASSETS (unaudited)
Current Assets:
Cash and cash equivalents $2,054,587 $1,774,828
Accounts receivable-less allowance for doubtful accounts
of $296,886 at March 31, 2003, and $380,471 at December 31, 2002 3,399,575 3,076,888
Prepaid expenses and other current assets 138,835 89,672
---------- ----------
Total current assets 5,592,997 4,941,388
Investments, net 368,059 368,059
Property and equipment,net 1,063,280 1,223,417
Goodwill 1,181,520 1,181,520
Intangibles (net) 234,000 260,000
Deposits 75,151 71,133
---------- ----------
Total assets $8,515,007 $8,045,517
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Loan payable - banks 956,320 -
Accounts payable and accrued expenses 1,374,651 1,698,556
Capital lease obligation 290,517 290,517
Deferred income taxes 67,500 67,500
Current portion of long-term debt 278,820 278,089
---------- ----------
Total current liabilities 2,967,807 2,334,662
Other long-term liabilities 372,368 385,756
Shareholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares authorized; 571,615
shares issued and outstanding as of March 31, 2003 and December 31,
2002. 5,716 5,716
Common stock, $.01 par value; 30,000,000 shares authorized; 8,386,871
issued and outstanding as of March 31, 2003 and December 31, 2002. 83,869 83,869
Paid-in capital 34,080,538 34,080,538
Accumulated deficit (28,995,291) (28,845,025)
---------- ----------
Total shareholders' equity 5,174,832 5,325,099
---------- ----------
Total liabilities and shareholders' equity $8,515,007 $8,045,517
========== ==========
See accompanying notes to condensed consolidated financial statements
3
THE A CONSULTING TEAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
-------------------------------------
2003 2002
----------- ----------
(unaudited) (unaudited)
Revenues $ 5,109,774 $ 6,460,959
Cost of revenues 3,772,737 4,634,312
----------- -----------
Gross profit 1,337,037 1,826,647
Operating expenses:
Selling, general & administrative 1,261,904 1,540,583
Depreciation & amortization 194,727 217,096
----------- -----------
1,456,631 1,757,679
----------- -----------
Income (loss) from operations (119,594) 68,968
Other income (expense):
Gain from extinguishment of debt - 48,715
Interest (expense) net (10,613) (46,013)
----------- -----------
(10,613) 2,702
----------- -----------
Income (loss) before income taxes (130,207) 71,669
Provision (benefit) for income taxes 13,457 (427,229)
----------- -----------
Net income (loss) $ (143,664) $ 498,899
=========== ===========
Net earnings per share of common
stock - Basic and Diluted $ (0.02) $ 0.07
=========== ===========
See accompanying notes to condensed consolidated financial statements
4
THE A CONSULTING TEAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31
--------------------------------------
2003 2002
------------ -----------
(unaudited) (unaudited)
Cash flows from operating activities:
Net income (loss) ($ 143,664) $ 498,899
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities, net of acquired assets:
Depreciation and amortization 194,727 217,096
Gain from extinguishment of debt - (48,715)
Changes in operating assets and liabilities: -
Accounts receivable (322,688) 178,471
Prepaid or refundable income taxes - (439,411)
Prepaid expenses and other current assets (49,163) 7,735
Accounts payable and accrued expenses (320,646) (698,494)
----------- -----------
Net cash used in operating activities (641,434) (284,419)
Cash flows from investing activities:
Purchase of property and equipment (8,590) (19,645)
Deposits (4,018) 1,570
----------- -----------
Net cash used in investing activities (12,608) (18,075)
Cash flows from financing activities:
Loan payable - bank 956,320 63,464
Dividend paid to Preferred Shareholders (9,861) -
Repayment of long-term debt (12,657) (2,835)
Repayment of capital lease obligation - (15,800)
----------- -----------
Net cash provided by financing activities 933,802 44,829
----------- -----------
Net increase (decrease) in cash and cash equivalents 279,760 (257,665)
Cash and cash equivalents at beginning of period 1,774,828 946,586
----------- -----------
Cash and cash equivalents at end of period $ 2,054,587 $ 688,921
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 12,977 $ 47,137
=========== ===========
See accompanying notes to condensed consolidated financial statements
5
THE A CONSULTING TEAM, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1) GENERAL:
These financial statements should be read in conjunction with The A
Consulting Team, Inc. (the "Company") Form 10-K for the year ended December 31,
2002 filed with the SEC, and the accompanying financial statements and related
notes thereto. The accounting policies used in preparing these financial
statements are the same as those described in the Company's Form 10-K for the
year ended December 31, 2002.
2) INTERIM FINANCIAL STATEMENTS:
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all the adjustments (consisting only
of normal recurring accruals) necessary to present fairly the consolidated
financial position as of March 31, 2003 and the consolidated results of
operations for the three months ended March 31, 2003 and 2002, and cash flows
for the three months ended March 31, 2003 and 2002.
The condensed consolidated balance sheet at December 31, 2002 has been
derived from the audited financial statements at that date, but does not include
all the information and footnotes required by accounting principles generally
accepted in the United States of America, for complete financial statements. For
further information, refer to the audited consolidated financial statements and
footnotes thereto included in the Form 10-K filed by the Company for the year
ended December 31, 2002.
The consolidated results of operations for the three months ended March
31, 2003 are not necessarily indicative of the results to be expected for any
other interim period or for the full year.
3) STOCK BASED COMPENSATION:
At March 31, 2003, the Company has a stock based compensation plan,
which is described as follows:
The Company adopted a Stock Option Plan (the "Plan") that provides for
the grant of stock options that are either "incentive" or "non-qualified" for
federal income tax purposes. The Plan provided for the issuance of up to a
maximum of 600,000 shares of common stock. On May 27, 1998, the shareholders
approved and ratified an increase to the Plan from 600,000 to 900,000 shares of
common stock and on May 24,2001, the shareholders approved and ratified an
increase to the Plan from 900,000 to 1,200,000 shares of common stock (subject
to adjustment pursuant to customary anti-dilution provisions).
The exercise price per share of a stock option is established by the
Compensation Committee of the Board of Directors in its discretion, but may not
be less than the fair market value of a share of common stock as of the date of
grant. The aggregate fair market value of the shares of common stock with
respect to which "incentive" stock options are exercisable for the first time by
an individual to whom an "incentive" stock option is granted during any calendar
year may not exceed $100,000.
Stock options, subject to certain restrictions, may be exercisable any
time after full vesting for a period not to exceed ten years from the date of
grant and terminate upon the date of termination of employment. Such period is
to be established by the Company in its discretion on the date of grant.
As permitted by SFAS No. 123, "Accounting for Stock Based
Compensation", the Company accounts for stock-based compensation arrangements
with employees in accordance with provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees". Compensation
expense for stock options issued to employees is based on the difference on the
date of grant, between the fair value of the Company's stock and the exercise
price of the option. No stock based employee compensation cost is reflected in
net income, as all options granted under those plans had an exercise price equal
to the market value of the underlying common stock at the date of grant. The
Company accounts for equity instruments issued to non-employees in accordance
with the provisions of SFAS 123. The Company expects to continue applying
provision of APB 25 for equity issuances to employees.
6
The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition provisions of
SFAS No. 123 to stock based compensation:
Three Months Three Months
Ended March 31, Ended March 31,
2003 2002
------------------- -------------------
Net income (loss), as reported $(144,000) $ 499,000
Deduct:
Total stock based compensation
expense determined under fair
value based method for all awards (24,000) (36,000)
--------- ----------
Pro forma net income (loss) $(168,000) $ 463,000
========= ==========
Earnings per share:
Basic and Diluted - as reported $ (0.02) $ 0.07
========= ==========
Basic and Diluted - pro forma $ (0.02) $ 0.07
========= ==========
4) NET INCOME (LOSS) PER SHARE:
The following table set forth the computation of basic and diluted net
income (loss) per share for the three months ended March 31, 2003 and 2002.
Three Months Ended
March 31,
----------------------------------
2003 2002
-------------- -----------
Numerator for basic and diluted net income (loss) per share:
Net income (loss) (143,664) 498,899
Preferred dividend 6,602 -
----------- -----------
Net income (loss) available to
common stockholders & assumed conversion $ (150,266) $ 498,899
=========== ===========
Denominator:
Denominator for basic income (loss)
and net income (loss)
per share - weighted-average shares 8,386,871 7,116,871
=========== ===========
Effect of dilutive securities:
Employee stock options - 31,877
----------- -----------
Denominator for diluted earnings (loss) per
share - adjusted weighted-average shares 8,386,871 7,148,748
=========== ===========
Basic and diluted earnings income (loss) per share:
----------- -----------
Net income (loss) $ (0.02) $ 0.07
=========== ===========
All Preferred Shares, options and warrants outstanding during March 31,
2003 were not included in the computation of net loss per share because the
effect would be antidilutive. During March 31, 2002 there were 762,555 options
that were excluded from the computation of diluted earnings per share.
7
5) ACCOUNTING PRONOUNCEMENTS:
In April 2002, the FASB issued Statement No. 145 "Rescission of FASB
Statements No 4, 44, and 64, Amendment of FASB 13, and Technical Corrections"
(SFAS 145). Among other provisions, SFAS 145 rescinds FASB Statement 4,
Reporting Gains and Losses from Extinguishment of Debt. Accordingly, gains or
losses from extinguishments of debt should not be reported as extraordinary
items unless the extinguishment qualifies as an extraordinary item under the
criteria of Accounting Principles Board Opinion 30, Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual, and Infrequently Occurring Events and Transactions (APB
30). Gains and losses from extinguishments of debt, which do not meet the
criteria of APB 30, should be reclassified to income from continuing operations
in all prior periods presented. The provisions of SFAS 145 are effective for
fiscal years beginning after May 15, 2002. Upon adoption, in the first quarter
of 2003, the Company reclassified gains on early extinguishment of debt
previously recorded as an extraordinary items to other income.
In June 2002, the FASB issued Statement 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement requires entities to
recognize costs associated with exit or disposal activities when liabilities are
incurred rather than when the entity commits to an exit or disposal plan, as
currently required. Examples of costs covered by this guidance include one-time
employee termination benefits, costs to terminate contracts other than capital
leases, costs to consolidate facilities or relocate employees, and certain other
exit or disposal activities. This statement is effective for fiscal years
beginning after December 31, 2002, and will impact any exit or disposal
activities the Company initiates after that date. The Company has adopted FASB
146 in the first quarter of 2003. Adoption of FASB 146 did not have an effect on
the accompanying financial statements.
In November 2002, FASB Interpretation 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN 45) was issued. FIN 45 requires a guarantor entity,
at the inception of a guarantee covered by the measurement provisions of the
interpretation, to record a liability for the fair value of the obligation
undertaken in issuing the guarantee. The Company previously did not record a
liability when guaranteeing obligations unless it became probable that the
Company would have to perform under the guarantee. FIN 45 applies prospectively
to guarantees the Company issues or modifies subsequent to December 31, 2002,
but has certain disclosure requirements effective for interim and annual periods
ending after December 15, 2002. The Company has historically issued guarantees
only on a limited basis and does not anticipate FIN 45 will have a material
effect on its 2003 financial statements. Disclosures required by FIN 45 are
included in the accompanying financial statements.
On November 4, 2002, the Securities Exchange Commission voted to adopt
new Regulation G, which applies whenever a company publicly discloses or
releases material information that includes a non-GAAP financial measure. This
regulation prohibits material misstatements or omissions that would make the
presentation of the material non-GAAP financial measure, under the circumstances
in which it is made, misleading, and will require a quantitative reconciliation
(by schedule or other clearly understandable method) of the differences between
the non-GAAP financial measure presented and the comparable financial measure or
measures calculated and presented in accordance with GAAP. The Company has
complied with Regulation G in the first quarter of 2003.
6) INCOME TAXES:
The Company accounts for income taxes using the liability method in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109"). Deferred income taxes reflect the net effects of
temporary differences between the carrying amounts of the assets and liabilities
for financial purposes and the amount used for income tax purposes.
In March of 2002, the Company recorded a tax benefit of approximately
$427,000 due to a $439,000 refund resulting from a 2002 change in tax law
allowing the carry-back of net operating losses for five years instead of the
two years previously allowed.
7) CONCENTRATION OF CREDIT RISK:
The revenues of one customer represented approximately 31% of the
revenues for the three months ended March 31, 2003. The revenues of two
customers represented 37% and 19% of revenues for the same period in 2002.
8
8) IMPAIRMENT OF ASSETS AND RESTRUCTURING CHARGES:
The Company began to restructure its operations in 2000 and has
continued to restructure its operations into 2003. The Company had restructuring
charge liabilities of approximately $11,000 at December 31, 2002. During the
three months ended March 31, 2003, the Company recorded no additions to its
restructuring liability and recorded payments of approximately $11,000
consisting of $9,000 related to the reduction of leased office space and $2,000
in leased equipment. The Company has no restructuring charge liability as of
March 31, 2003.
9) CREDIT FACILITY:
The Company has a line of credit of $4.0 million with Keltic Financial
Partners, LP, ("Keltic") based on the Company's eligible accounts receivable
balances. The line of credit has certain financial covenants, which the Company
must meet on a quarterly basis. At March 31, 2003, the Company was not in
compliance with one of the financial covenants, which was waived by Keltic for
the quarter ended March 31, 2003. There was an outstanding balance of $956,000
at March 31, 2003, compared to no outstanding balance at December 31, 2002. The
Company's Chief Executive Officer initially guaranteed $1 million of the line of
credit. The line of credit bears interest at a variable rate based on prime plus
2% and the rate was 6.25% at March 31, 2003. In July 2002, the credit line was
amended to reduce the guarantee of the Company's Chief Executive Officer to
$400,000, and to reflect the Company's acquisition of International Objects
Technology, Inc. The Company's previous line of credit was for $2.1 million and
was fully guaranteed by the Company's Chairman, Chief Executive Officer and
President.
10) ACQUISITION:
On July 19, 2002, the Company consummated the acquisition of all of the
issued and outstanding capital stock of International Object Technology, Inc.
("IOT").
IOT was a privately owned, professional services firm that provides
data management and business intelligence solutions, technology consulting and
project management services. IOT will operate as a wholly owned subsidiary of
TACT.
The acquisition was accounted for under the purchase method of
accounting for business combinations and operations of IOT has been included
from the date of acquisition. The following unaudited pro forma condensed
results of operations reflect the acquisition of International Object
Technology, Inc., as if it had occurred on January 1, 2003 and January 1, 2002
respectively. The revenues and results of operations included in the following
pro forma unaudited condensed statements of operations is not necessarily
considered indicative of the results of operations for the periods specified had
the transaction actually been completed at the beginning of the period.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Three Months Ended
March 31,
-----------------------------
2003 2002
----------- -----------
(unaudited) (unaudited)
Pro forma Net Sales $ 5,109,774 $ 7,884,873
Pro forma Net Income Loss $ (143,664) $ 438,452
Pro forma Net Income (Loss)
Per Share of Common Stock $ (0.02) $ 0.07
11) COMMITMENTS
The Company has the following commitments as of March 31, 2003, which
are comprised of an automobile loan, shareholder loan and note payable for
acquisition. The automobile is payable in monthly installments of $1,262
including interest at 6%. As of March 31, 2003, the loan matures as follows:
2003 - $9,308; 2004 - $13,078; 2005 - $13,885 and 2006 - $13,478. The
shareholder note is payable in monthly installments of $5,000 including interest
at 3.9%. As of March 31, 2003, the loan matures as follows: 2003 - $42,031; 2004
- - $57,985; and 2005 - $20,077. The note payable for acquisition is payable as
follows: 2003 - $210,000; 2004 - $100,000 and 2005 - $200,000.
9
The Company's commitments at March 31, 2003, are comprised of the
following:
Payments Due in
Total 2003 2004 2005 2006
---------- ---------- ---------- ---------- ----------
Automobile Loan $ 49,749 $ 9,308 $ 13,078 $ 13,885 $ 13,478
Shareholder Loan 120,093 42,031 57,985 20,077 -
Acquisition Note 510,000 210,000 100,000 200,000 -
Employment Contracts 693,000 453,000 240,000 - -
---------- ---------- ---------- ---------- ----------
Total $1,372,842 $ 714,339 $ 411,063 $ 233,962 $ 13,478
========== ========== ========== ========== ==========
12) POSSIBLE REMOVAL FROM QUOTATION OF COMMON STOCK ON NASDAQ AND RESULTING
MARKET ILLIQUIDITY
On February 14, 2002, the Company was informed by Nasdaq that it had
failed to maintain a closing bid price of at least $1.00 per share and a market
value of publicly held shares of at least $5,000,000 for 30 consecutive trading
days, and therefore the Company did not comply with the requirements as set
forth in Nasdaq Marketplace Rules 4450(a)(5) and 4450(b)(2), respectively.
Pursuant to Nasdaq rules, the Company was provided with a 90-day grace period,
through May 15, 2002, to regain compliance with the minimum bid price and market
value of public float requirements. The Company did not regain compliance within
the proscribed time period. On May 23, 2002, the Company requested a hearing,
which stayed the de-listing of the Company's common stock. On July 11, 2002, the
Company participated in a hearing before the Nasdaq Listing Qualifications Panel
(the "Nasdaq Panel"). On July 31, 2002, the Nasdaq Panel notified the Company
that the Nasdaq Panel had determined not to grant any further exception to the
minimum bid price and/or market value of publicly held shares requirements. The
Nasdaq Panel further determined to transfer listing of the Company's common
stock to The Nasdaq SmallCap Market, effective with the open of business on
August 5, 2002 and gave the Company an extension of 180 days until February 10,
2003 to meet the minimum requirement of $1.00 per share.
On February 19, 2003, the Company announced that it had been granted a
sixty-day extension to April 14, 2003 to comply with Nasdaq's minimum bid price
requirement necessary to remain listed on the Nasdaq SmallCap Market. The
extension was granted by Nasdaq while it deliberated on the modifications to its
listing requirements proposed by its Board of Directors, which could provide
issuers with additional time to satisfy the minimum bid price requirements.
On April 8, 2003 the Company announced that it had been granted an
additional extension until May 12, 2003 from Nasdaq's Listing Qualifications
Panel to comply with the minimum bid price requirements necessary to remain
listed on the Nasdaq SmallCap Market. The Company has requested an additional
extension to comply with the minimum bid price requirement from Nasdaq. There
can be no assurance that Nasdaq will grant the Company an additional extension.
Moreover, even if Nasdaq grants an additional extension there can be no
assurance that the bid price of the Company's common stock will exceed the $1.00
minimum requirement during the term of such extension.
If the Company's Common Stock were removed from quotation on The Nasdaq
SmallCap Market any trading in the Company's Common Stock would thereafter be
conducted in the over-the-counter market on the OTC Electronic Bulletin Board or
in the "pink sheets." Accordingly, the liquidity of the Company's Common Stock
could be reduced and the coverage of the Company by security analysts and media
could be reduced, which could result in lower prices for the Company's Common
Stock than might otherwise prevail and could also result in spreads between the
bid and asked prices for the Company's Common Stock. Additionally, certain
investors will not purchase securities that are not quoted on The Nasdaq
SmallCap Market, which could materially impair the Company's ability to raise
funds through the issuance of its Common Stock or other securities convertible
into its Common Stock.
In addition, if the Company's Common Stock is removed from quotation on
Nasdaq and the trading price of its Common Stock is less than $5.00 per share,
trading in its Common Stock could also be subject to the requirements of Rule
15g-9 promulgated under the Securities Exchange Act of 1934, as amended. Under
that Rule, broker and dealers who recommend such low priced securities to
persons other than established customers and accredited investors must satisfy
special sales practice requirements, including a requirement that they make an
individualized written suitability determination for the purchaser and receive
the purchaser's written consent prior to transaction. The Securities Enforcement
Remedies and Penny Stock Reform Act of 1990 also requires additional disclosure
in connection with any trades involving a stock defined as a penny stock
(generally, according to regulations adopted by the SEC, any equity security not
traded on an exchange or quoted on Nasdaq that has a market price of less than
$5.00 per share, subject to certain exceptions), including the delivery, prior
to any penny stock transaction, of a disclosure schedule explaining the penny
stock market and the risks associated therewith. Such requirements could
severely limit the market liquidity of the Company's Common Stock. There can be
no assurance that the Company's Common Stock will not be removed from quotation
on Nasdaq or treated as penny stock.
10
13) CONTINGENCY
The Company is involved in a pending lawsuit with Sovereign Bank over
equipment leases related to its investment in Always-On Software, Inc. The
Company does not expect the results of this lawsuit to have a material adverse
effect on its financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of significant factors affecting
the Company's operating results, liquidity and capital resources should be read
in conjunction with the accompanying financial statements and related notes.
Overview
Since 1983, TACT has provided Information Technology services and
solutions to Fortune 1000 companies and other large organizations. In 1997, TACT
became a public company (Nasdaq: TACX), headquartered in New York, NY with an
office in Clark, NJ.
Rapid technological advance, and the wide acceptance and use of the
Internet as a driving force in commerce, accelerated the growth of the IT
industry through 2001. These advances included more powerful and less expensive
computer technology, the transition from predominantly centralized mainframe
computer systems to open and distributed computing environments and the advent
of capabilities such as relational databases, imaging, software development
productivity tools, electronic commerce ("e-commerce") applications and
web-enabled software. These advances expanded the benefits that users can derive
from computer-based information systems and improved the price-to-performance
ratios of such systems. As a result, an increasing number of companies were
employing IT in new ways, often to gain competitive advantages in the
marketplace, and IT services have become an essential component of their
long-term growth strategies. The same advances that have enhanced the benefits
of computer systems rendered the development and implementation of such systems
increasingly complex. In addition, there was a shortage of IT consultants
qualified to support these systems. Accordingly, organizations turned to
external IT services organizations such as TACT to develop, support and enhance
their internal IT systems. However, during 2002 and continuing into 2003 there
has been a slowdown in IT spending coinciding with the general economic
slowdown. This has resulted in revenue decreases at many IT service companies
and is expected to continue during 2003.
TACT is an end-to-end IT solutions and services provider focused on
leveraging existing systems and data. The Company's goal is to empower customers
through the utilization of technology to reduce costs, improve services and
increase revenues. The Company delivers migrations and conversions of legacy
systems, web enablement of existing systems, customer development, strategic
sourcing and enterprise wide IT consulting, software and solutions.
Approximately 95% 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 for 2002. During 2003 the Company expects to decrease
revenue generated from hourly billing by approximately 10 percent and increase
revenue, which is generated under fixed price contracts by a similar amount.
TACT provides clients with enterprise-wide information technology
consulting services and software products. TACT solutions cover the entire
spectrum of IT needs, including applications, data, and infrastructure. TACT
provides complete project life-cycle services from application and system
design, through development and implementation, to documentation and training.
Strategic alliances with leading software vendors ensure that TACT solutions are
dependable and within the mainstream of industry trends. These partnerships
allow TACT to provide a wide variety of business technology solutions such as
enterprise reporting solutions, data warehousing, systems strategies,
application and database conversions, and application development services.
11
When TACT is engaged by its clients to implement IT solutions or
services it uses its Smart Approach. TACT's Smart Approach is a leading edge set
of end-to-end solutions and services that include Strategy, Methodology,
Architecture, Resources and Tools. The Strategy is developed together with the
client to ensure that the client's goals and objectives are met. The Methodology
is a Tried and True TACT Methodology that is followed in order to implement the
Strategy. The solutions and services are built on a robust Architecture. Utilize
highly qualified TACT Resources and Exploits best-of-breed Tools.
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 operating
performance is primarily based upon billing margins (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). Large portions of the Company's engagements are
on a time and materials basis. While most of the Company's engagements allow
periodic price adjustments to address, among other things, increases in
consultant costs, during 2001, 2002 and into 2003 clients have been adverse to
accepting cost increases. TACT also actively manages its personnel utilization
rates by constantly monitoring project requirements and timetables. Through the
Company's cost containment and work force rationalization efforts TACT's
utilization rates have improved throughout 2002 and into 2003. As projects are
completed, consultants either are re-deployed 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. TACT carefully monitors consultants that are not utilized and has
established guidelines for the amount of non-billing time that it allows before
a consultant is terminated.
Historically, the Company has also generated revenues by selling
software licenses. In addition to initial software license fees, the Company
also 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, because future obligations associated with such revenue are
insignificant. Beginning in 1999 and extending through the current period, the
Company has limited its emphasis on software sales. This has resulted in a
significant reduction in software sales starting in the second half of 1999
through the current period. This trend is expected to continue with software
sales only being ancillary to the Company's IT solutions and services.
On October 2, 1998, the Company made an investment in a Web integrator,
T3 Media, Inc., of $3 million of non-voting convertible preferred stock. On June
23, 1999, the Company converted its preferred stock into a 30% common stock
ownership interest and increased its ownership interest in T3 Media to
approximately 51% by an additional investment in T3 Media's common stock of
$370,000. The acquisition of T3 Media was accounted for using the purchase
method of accounting. Accordingly, the results of operations of T3 Media are
included in the Company's consolidated results of operations from the date of
acquisition. The excess of the purchase price over the estimated fair value of
the net identifiable assets acquired totaled $4.0 million and was recorded as
goodwill and was being amortized using the straight-line method over 7 years.
After extensive review of changing market conditions, it was determined that the
carrying value of $3.1 million of the intangibles and certain other fixed assets
could not be supported, resulting in an aggregate write-off of $3.9 million in
the fourth quarter of 2000. Due to the continued deterioration in revenues and
market conditions for T3 Media's services, the operations of T3 Media ceased in
the second quarter of 2001. Accordingly, the Company recorded additional charges
of $1.2 million related to termination costs and the settlement of the various
operating lease obligations, in the second quarter of 2001.
In 1999 and 2000, the Company made a minority investment in LightPC.com
(renamed Always-On Software, Inc.) in the aggregate amount of $2.3 million. At
December 31, 2000, the Company owned approximately 10% of Always-On Software,
Inc. Always-On Software, Inc. was a global provider of ASP based in New York
City. The Company's investment in Always-On was subject to periodic review to
ensure that its market value exceeded its carrying value. The market conditions
for companies operating in this sector became increasingly adverse in 2001. Due
to the deteriorating conditions of the ASP market and deteriorating cash
reserves, Always-On Software, Inc. ceased operations in July 2001. As a result,
the Company recorded a charge of $2.3 million to reflect the impairment in the
value of its investment in the second quarter of 2001. In the fourth quarter of
2001, Always-On Software Inc. merged with Veracicom, Inc. and the Company
received warrants in this transaction. The Company considers these warrants to
have a nominal value, if any. In the third quarter of 2002, the Company wrote
off the balance of its minority investment in Always-On Software Inc.
12
On July 19, 2002, the Company, acquired all of the common stock of
International Object Technology, Inc. (IOT) for a combination of deferred cash
consideration of $650,000 and 1,270,000 shares of TACT unregistered Common Stock
valued at $635,000. The acquisition of IOT was accounted for using the purchase
method of accounting. Accordingly, the results of operations of IOT are included
in the Company's consolidated results of operation from the date of acquisition.
The purchase price of the acquisition exceeded the fair market value of the net
assets acquired, resulting in the recording of goodwill of $1,181,520 and other
identifiable intangibles of $312,000 with the identifiable intangible assets
being amortized over a three year period on a straight line basis. IOT was a
privately owned, professional services firm that provides data management and
business intelligence solutions, technology consulting and project management
services. The acquisition has increased the depth of the Company's services and
solution offerings and provides the Company with significant cross-selling
opportunities.
Certain Critical Accounting Policies
The methods, estimates and judgments we use in applying our most
critical accounting polices have a significant impact on the results we report
in our consolidated financial statements. We evaluate our estimates and
judgments on an on-going basis. We base our estimates on historical experience
and on assumptions that we believe to be reasonable under the circumstances. Our
experience and assumptions form the basis for our judgments about the carrying
value of assets and liabilities that are not readily apparent from other
sources. Actual results may vary from what we anticipate and different
assumptions or estimates about the future could change our reported results. We
believe the following accounting policies are the most critical to us, in that
they are important to the portrayal of our financial statements and they require
our most difficult, subjective or complex judgments in the preparation of our
consolidated financial statements.
Recoverability of Long-Lived Assets
The Company's management is required to estimate the useful lives of
its long-lived assets at the time they are acquired. These estimates are
evaluated on an on-going basis to determine if their carrying value has been
impaired. If it is determined that the remaining useful lives differ from our
original estimates, revisions to the estimated fair values would be required.
Goodwill and Intangible Assets
The Company's goodwill is evaluated and tested on a periodic basis by
an independent third party. If it is determined that goodwill has been impaired
it will be written down at that time.
The Company's useful life of its intangible assets has been evaluated
and it was determined that they will be amortized over a three year period.
Revenue Recognition
Consulting revenues are recognized as services are provided. Revenue
from sales of software licenses is recognized upon delivery of the software to a
customer because future obligations associated with such revenue are
insignificant. Customers for consulting revenues are billed on a weekly,
semi-monthly and monthly basis. Revenues for fixed fee contracts are recognized
as services are provided. Any anticipated contract losses are estimated and
accrued at the time they become known and estimable.
Allowance for Doubtful Accounts
The Company monitors its accounts receivable balances on a monthly
basis to ensure that they are collectible. On a quarterly basis, the Company
uses its historical experience to accurately determine its accounts receivable
reserve. The Company's allowance for doubtful accounts is an estimate based on
specifically identified accounts as well as general reserves. The Company
evaluates specific accounts where it has information that the customer may have
an inability to meet its financial obligations. In these cases, management uses
its judgment, based on the best available facts and circumstances, and records a
specific reserve for that customer against amounts due to reduce the receivable
to the amount that is expected to be collected. These specific reserves are
reevaluated and adjusted as additional information is received that impacts the
amount reserved. The Company also establishes a general reserve for all
customers based on a range of percentages applied to aging categories. These
percentages are based on historical collection and write-off experience. If
circumstances change, the Company's estimate of the recoverability of amounts
due the Company could be reduced or increased by a material amount. Such a
change in estimated recoverability would be accounted for in the period in which
the facts that give rise to the change become known.
13
Results of Operations
The following table sets forth the percentage of revenues of certain
items included in the Company's Statements of Operations:
Three Months Ended
March 31,
-----------------------------------------------
2003 2002
---------------------- ----------------------
Revenues 100.0 % 100.0 %
Cost of revenues 3.8 % 71.7 %
---------------------- ----------------------
Gross profit 26.2 % 28.3 %
Operating expenses 28.5 % 27.2 %
Income/Loss from operations (2.3)% 1.1 %
Gain from extinguishment of debt 0.0 % 0.8 %
---------------------- ----------------------
Net gain(loss) (2.8)% 7.7 %
====================== ======================
Comparison of The Three Months Ended March 31, 2003 to The Three Months
Ended March 31, 2002
Revenues. Revenues of the Company decreased by $1.4 million, or 20.9%,
from $6.5 million for the three months ended March 31, 2002 to $5.1 million for
the three months ended March 31, 2003. The decrease was primarily attributable
to a slowdown in the IT industry and adverse winter weather in the northeast
which caused the Company to miss approximately three billing days ($225,000),
which was partially offset by an increase in revenues of $943,000 as a result of
the acquisition of IOT.
Software licensing revenues increased by $37,000, or 11%, from $342,000
in the first quarter of 2002 to $379,000 in the first quarter of 2003. Software
sales are expected to be ancillary to the Company's total revenues in future
periods.
Gross Profit. The gross profit for the three months ended March 31,
2003 decreased by $490,000, or 26.8%, from $1.8 million in the first quarter of
2002 to $1.3 million in the first quarter of 2003. As a percentage of total
revenues, gross margin for the quarter decreased from 28.3% in 2002 to 26.2% in
2003. The decrease in gross margin percentage was primarily due to the
acquisition of IOT, which has lower gross margins, 18.2%, compared to TACT's
gross margin of 28%.
Operating Expenses. Operating expenses are comprised of Selling,
General and Administrative ("SG&A") expenses, provision for doubtful accounts,
depreciation and amortization and impairment of assets and restructuring
charges. Operating expenses decreased by $301,000, or 17.1%, from $1.8 million
in the first quarter of 2002 to $1.5 million in the first quarter of 2003. The
SG&A expenses decreased by $279,000 or 18.1% from $1.5 million in 2002 to $1.3
million in 2003. The decrease is primarily attributable to a decrease in the
Company's payroll costs of $261,000 due to its restructuring efforts which was
partially offset by an increase in costs due to the acquisition of IOT. In
addition, the Company wrote off approximately $60,000 of T3 Media's accounts
payable from prior years. Depreciation and amortization expenses decreased
$22,000 or 10% from $217,000 to $195,000 in 2002 and 2003.
Taxes. During the first quarter of 2002, the Company recorded a tax
refund of $439,000 resulting from a 2002 change in tax law allowing the Company
to carry-back its net operating losses for five years instead of the two years
previously allowed.
14
Net Income (Loss). As a result of the above, the Company had a net loss
of ($144,000) or ($0.02) per share in the first quarter of 2003 compared to net
income of $499,000 or $0.07 per basic and diluted share in the first quarter
2002.
Liquidity and Capital Resources
The Company has a line of credit of $4.0 million with Keltic Financial
Partners, LP, based on the Company's eligible accounts receivable balances. The
line of credit has certain financial covenants, which the Company must meet on a
quarterly basis. There was an outstanding balance of $956,000 at March 31, 2003,
compared to no outstanding balances at December 31, 2002. The Company's Chief
Executive Officer initially guaranteed $1 million of the line of credit. The
line of credit bears interest at a variable rate based on prime plus 2% and the
rate was 6.25% at March 31, 2003. In July 2002, the credit line was amended to
reduce the guarantee of the Company's Chief Executive Officer to $400,000, and
to reflect the Company's acquisition of International Objects Technology, Inc.
Pursuant to the Company's line of credit agreement, as amended, the Company did
not make its EBITDA covenant at March 31, 2003; however, the Company's lender
waived this EBITDA covenant requirement. The Company's previous line of credit
was for $2.1 million and was fully guaranteed by the Company's Chairman, Chief
Executive Officer and President.
One of the Company's subsidiaries, T3 Media, which ceased operations in
2001, had a demand loan with a bank. The T3 Media demand loan, which was
guaranteed by the Company, was paid down and cancelled in January of 2002.
T3 Media had entered into a series of capital lease obligations, which
the Company had guaranteed to finance its expansion plans, covering leasehold
improvements, furniture and computer-related equipment. The amount outstanding
under such leases was approximately $291,000 at March 31, 2003. The Company
continues the process of negotiating buy-outs on these leases.
The Company's cash balances were approximately $2.1 million at March
31, 2003 and $1.8 million at December 31, 2002. Net cash used in operating
activities for the three months ended March 31, 2003 was approximately
($641,000) compared to ($284,000) for the three months ended March 31, 2002.
The Company's accounts receivable, less allowance for doubtful
accounts, at March 31, 2003 and December 31, 2002 were $3.4 million and $3.1
million, respectively, representing 61 and 49 days of sales outstanding,
respectively. The Company has provided an allowance for doubtful accounts at the
end of each of the periods presented. After giving effect to this allowance, the
Company does not anticipate any difficulty in collecting amounts due because
improved collection techniques and daily monitoring of receivables and cash
balances have been implemented. Collection of receivables is one of the
Company's highest priorities and improved collections was one of the primary
reasons for the improvement in cash provided by operations.
For the three months ended March 31, 2003, the Company had revenues
from one customer, which represented 31% of revenues. For the three months ended
March 31, 2002, the Company had revenues from two customers, which represented
37% and 19% of revenues. No other customer represented greater than 10% of the
Company's revenues for such periods.
The Company has no restructuring charge liability as of March 31, 2003.
During 2002, the Company continued the restructuring of its operations and took
a charge of $150,000. This charge consisted of $18,000 for the write-off of the
remaining balance of the Company's investment in Always-On Software, Inc., and
$132,000 write-down of the Company's investment in Methoda Computer Ltd.
Net cash used in investing activities was approximately ($13,000) and
($18,000) for the three months ended March 31, 2003 and 2002. In each of these
periods additions to property and equipment was ($9,000) and ($20,000).
On July 19, 2002, the Company acquired all of the Common Stock of IOT
for a combination of cash consideration of $650,000 and 1,270,000 shares of TACT
unregistered Common Stock valued at $635,000.
The schedule of payment of the cash consideration of $650,000 is as
follows: $140,000 on September 2, 2002; $210,000 on April 1, 2003; $100,000 on
April 1, 2004 and $200,000 on January 2, 2005. The excess of the purchase price
over the estimated fair value of the net identifiable assets acquired totaled
$1,494,000 and was allocated as follows; $312,000 to intangible assets which is
being amortized on a straight line basis over thirty six months, and $1,182,000
to goodwill. The three majority shareholders of IOT received employment
agreements for a three-year period at an annual salary of $160,000 per year
each. For the three months ended March 31, 2003, the Company recorded revenue
attributable to IOT in the amount of $943,000.
15
Net cash provided by financing activities was approximately $934,000
and $45,000 at March 31, 2003 and 2002.
On August 12, 2002, the Company issued 530,304 shares of Series A
Preferred Stock to Shmuel BenTov in exchange for $350,000.64. On November 12,
2002, the Company issued 41,311 shares of Series B Preferred Stock to Mr. Yosi
Vardi in exchange for $27,265.26. The Company relied upon the exemption from
registration set forth in Section 4(2) of the Securities Act, relating to sales
by an issuer not involving a public offering, in issuing the stock to Shmuel
BenTov and Yosi Vardi. Based upon discussions with and representations made by
the investors, the Company reasonably believed that such investors were
accredited and sophisticated investors. Mr. BenTov and Mr. Vardi had access to
information on the Company necessary to make an informed investment decision.
The shares of Series A and Series B Preferred Stock are convertible into Common
Stock on a 1:1 basis subject to adjustment for stock splits, consolidations and
stock dividends. In addition, the shares of Series A and Series B Preferred
Stock are entitled to a 7% cumulative dividend payable semi-annually. The
Company has also agreed to grant "piggyback" registration rights to Mr. BenTov
and Mr. Vardi for the shares of Common Stock issuable upon conversion of the
Series A and Series B Preferred Stock. The Company will use the proceeds from
the sale of Series A and Series B Preferred Stock for general working capital
purposes.
The Company is involved in a pending lawsuit with Sovereign Bank over
equipment leases related to its investment in Always-On Software, Inc. The
Company does not expect the results of this lawsuit to have a material adverse
effect on its financial statements.
The Company has the following commitments as of March 31, 2003:
Payments Due in
Total 2003 2004 2005 2006
---------- ---------- ---------- ---------- ----------
Automobile Loan $ 49,749 $ 9,308 $ 13,078 $ 13,885 $ 13,478
Shareholder Loan 120,093 42,031 57,985 20,077 -
Acquisition Note 510,000 210,000 100,000 200,000 -
Employment Contracts 693,000 453,000 240,000 - -
---------- ---------- ---------- ---------- ----------
Total $1,372,842 $ 714,339 $ 411,063 $ 233,962 $ 13,478
========== ========== ========== ========== ==========
In management's opinion, cash flows from operations and borrowing
capacity combined with cash on hand will provide adequate flexibility for
funding the Company's working capital obligations for the next twelve months.
There may be circumstances that would accelerate its use of liquidity sources,
including, but not limited to, its ability to implement a profitable business
model, which may include further restructuring charges. If this occurs, the
Company may, from time to time, incur additional indebtedness or issue, in
public or private transactions, equity or debt securities. However, there can be
no assurance that suitable debt or equity financing will be available to the
Company.
Inflation
The Company has not suffered material adverse affects from inflation in
the past. However, a substantial increase in the inflation rate in the future
may adversely affect customers' purchasing decisions, may increase the costs of
borrowing, or may have an adverse impact on the Company's margins and overall
cost structure.
Factors that Could Affect Operating Results
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations 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 21E 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 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.
16
Operating Losses
The Company has incurred operating losses in the three months ended
March 31, 2003 as well as the last two years. In the three months ended March
31, 2003, the Company had an operating loss of $120,000 and a net loss of
$144,000. In the year ended December 31, 2002, the Company had an operating loss
of $130,000 and net income of $204,000. In the year ended in December 31, 2001,
the Company had an operating loss of $13.5 million and a net loss of $13.7
million, of which $1.0 million was attributable to T3 Media (including certain
expenses associated with the close down of T3 Media's operations ($1.6
million)). The remaining net loss for the year was attributable to the Company
and includes certain one-time charges of $7.1 million associated with the
impairment of assets and restructuring charges. There is no guarantee that the
Company can achieve profitability on a quarterly or annual basis in the future.
If revenues grow slower than anticipated, or if operating expenses exceed
expectations or cannot be adjusted accordingly the Company will continue to
experience losses and the results of operations and financial condition will be
materially and adversely affected.
Capital Requirements
The Company may be unable to meet its future capital requirements. The
Company may require additional financing in the future in order to continue to
implement its product and services development, marketing and other corporate
programs. The Company may not be able to obtain such financing or obtain it on
acceptable terms. Without additional financing, the Company may be forced to
delay, scale back or eliminate some or all of its product and services
development, marketing and other corporate programs. If the Company is able to
obtain such financing, the terms may contain restrictive covenants that might
negatively affect its shares of Common Stock, such as limitations on payments of
dividends or, in the case of a debt financing, reduced earnings due to interest
expenses. Any further issuance of equity securities would likely have a dilutive
effect on the holders of its shares of Common Stock. Its business, operating
results and financial condition may be materially harmed if revenues do not
develop or grow slower than the Company anticipates, if operating expenses
exceed its expectations or cannot be reduced accordingly, or if the Company
cannot obtain additional financing.
Dependence on Limited Number of Clients
The Company derives a significant portion of its revenues from a
relatively limited number of clients primarily located in the New York/New
Jersey metropolitan area of the United States. Adverse economic conditions
affecting this region could have an adverse effect on the financial condition of
its clients located there, which in turn could adversely impact its business and
future growth. Revenues from its ten most significant clients accounted for a
majority of its revenues for the three months ended March 31, 2003 as well as
for each of the two years ended December 31, 2002. In each of these periods, the
Company had at least one customer with revenues exceeding 10% of the Company's
revenues. For the three months ended March 31, 2003, the Company had revenues
from one customer, which represented 31% of revenues. For the year ended
December 31, 2002, the Company had revenues from two customers, which
represented 25% and 24% of revenues, respectively. Besides these customers, no
other customer represented greater than 10% of the Company's revenues. In any
given year, its ten most significant customers may vary based upon specific
projects for those clients during that year. There can be no assurance that its
significant clients will continue to engage it for additional projects or do so
at the same revenue levels. Clients engage the Company on an
assignment-by-assignment basis, and a client can generally terminate an
assignment at any time without penalties. The loss of any significant customer
could have a material adverse effect on its business, results of operations and
financial condition. A failure of the Company to develop relationships with new
customers could have a material adverse effect on its business, results of
operations and financial condition.
17
Project Risk
The Company's projects entail significant risks. Many of its
engagements involve projects that are critical to the operations of its clients'
businesses and provide benefits that may be difficult to quantify. The Company's
failure or inability to meet a client's expectations in the performance of the
Company's services could result in a material adverse change to the client's
operations and therefore could give rise to claims against the Company or damage
its reputation, adversely affecting its business, results of operations and
financial condition.
Rapid Technological Change
The Company's business is subject to rapid technological change and is
dependent on new solutions. Its success will depend in part on its ability to
develop information technology solutions to meet client expectations, and offer
software services and solutions that keep pace with continuing changes in
information technology, evolving industry standards, changing client preferences
and a continuing shift to outsourced solutions by clients. The Company cannot
assure you that it will be successful in adequately addressing the outsourcing
market or other information technology developments on a timely basis or that,
if addressed, the Company will be successful in the marketplace. The Company
also cannot assure you that products or technologies developed by others will
not render its services uncompetitive or obsolete. Its failure to address these
developments could have a material adverse effect on its business, results of
operations and financial condition.
e-Business Initiatives
The Company faces difficulties typically encountered by development
stage companies in rapidly evolving markets because of its e-commerce
initiative. The Company provides web enablement services and solutions and other
related e-business services. Revenues from its e-business services constituted
33% of revenues for the three months ended March 31, 2003. Revenues from its
e-business services constituted 40% of revenues for the year ended December 31,
2002. The Company cannot assure you that any products or services developed by
it, or its strategic partners will achieve market acceptance. The risks involved
in these service offering include the Company's and its strategic partners'
abilities to:
o create a customer base;
o respond to changes in a rapidly evolving and unpredictable
business environment;
o maintain current and develop new strategic relationships;
o manage growth;
o continue to develop and upgrade technology; and
o attract, retain and motivate qualified personnel.
Possibility That Customers May Not Do Business With The Company
The Company's existing customers may decide not to continue to do
business with the Company, and potential customers may decide not to engage the
Company, or may conduct business with the Company on terms that are less
favorable than those currently extended, due to the Company's operating losses
in the past two years. In those events, the Company's net revenues would
decrease, and the Company's business would be adversely affected.
Billing Margins
The Company's ability to maintain billing margins is uncertain. It
derives revenues primarily from the hourly billing of consultants' services and,
to a lesser extent, from fixed-price projects. Its most significant cost is
project personnel cost, which consists of consultant salaries and benefits.
Thus, its financial performance is primarily based upon billing margin (billable
hourly rate less the consultant's hourly cost) and personnel utilization rates
(number of days worked by a consultant during a two-week billing cycle divided
by the number of billing days in that cycle). The gross margin increased in 2002
due principally to a higher consultant utilization rate, resulting from the
Company's aggressive cost containment and workforce rationalization efforts.
There can be no assurance, however, that its revenues will continue to be billed
primarily on a time and materials basis or that the Company's cost containment
and workforce rationalization effects will continue to provide positive results.
In addition, during the past two years the Company's clients have been adverse
to increases in any costs of the Company's services.
18
Managing Growth
The Company may have difficulty managing its growth. Its expansion is dependent
upon, among other things,
o its ability to hire and retain consultants as employees or
independent consultants,
o its ability to identify suitable new geographic markets with
sufficient demand for its services, hire and retain skilled
management, marketing, customer service and other personnel, and
successfully manage growth, including monitoring operations,
controlling costs and maintaining effective quality and service
controls, and
o if the Company consummates additional acquisitions, its ability to
successfully and profitably integrate any acquired businesses into
its operations.
If the Company's management is unable to manage growth or new employees
or consultants are unable to achieve anticipated performance levels, its
business, results of operations and financial condition could be materially
adversely affected.
Dependence on Chief Executive Officer
The Company's success is highly dependent upon the efforts and
abilities of Shmuel BenTov, its Chairman, Chief Executive Officer and President.
Mr. BenTov has entered into an employment agreement with the Company, which
terminates on December 31, 2004. Although his employment agreement contains
non-competition, non-disclosure and non-solicitation covenants, this contract
does not guarantee that Mr. BenTov will continue his employment with Company.
The loss of services of Mr. BenTov for any reason could have a material adverse
effect upon the Company's business, results of operations and financial
condition.
Fluctuations in Quarterly Operating Results
The Company's quarterly results of operations are variable. Variations
in revenues and results of operations occur from time to time as a result of a
number of factors, such as the size and significance of client engagements
commenced and completed during a quarter, the number of business days in a
quarter, consultant hiring and utilization rates and the timing of corporate
expenditures. The timing of revenues is difficult to forecast because the sales
cycle can be relatively long and may depend on such factors as the size and
scope of assignments and general economic conditions. A variation in the number
of client assignments or the timing of the initiation or the completion of
client assignments, particularly at or near the end of any quarter, can cause
significant variations in results of operations from quarter to quarter and can
result in losses to it. In addition, its engagements generally are terminable by
the client at any time without penalties. Although the number of consultants can
be adjusted to correspond to the number of active projects, the Company must
maintain a sufficient number of senior consultants to oversee existing client
projects and to assist with its sales force in securing new client assignments.
An unexpected reduction in the number of assignments could result in excess
capacity of consultants and increased selling, general and administrative
expenses as a percentage of revenues. The Company has also experienced, and may
in the future experience, significant fluctuations in the quarterly results of
its software sales as a result of the variable size and timing of individual
license transactions, competitive conditions in the industry, changes in
customer budgets, and the timing of the introduction of new products or product
enhancements. In the event that its results of operations for any period are
below the expectation of market analysts and investors, the market price of its
shares of Common Stock could be adversely affected.
Volatility of Stock Price
The Company's Common Stock may be subject to wide fluctuations in price
in response to variations in quarterly results of operations and other factors,
including acquisitions, technological innovations and general economic or market
conditions. In addition, stock markets have experienced extreme price and volume
trading volatility in recent years. This volatility has had a substantial effect
on the market price of many technology companies and has often been unrelated to
the operating performance of those companies. This volatility may adversely
affect the market price of its Common Stock. Additionally, there can be no
assurance that an active trading market for the Common Stock will be sustained.
19
Possible Removal From Quotation Of Common Stock On Nasdaq And Resulting
Market Illiquidity
On February 14, 2002, the Company was informed by Nasdaq that it had
failed to maintain a closing bid price of at least $1.00 per share and a market
value of publicly held shares of at least $5,000,000 for 30 consecutive trading
days, and therefore the Company did not comply with the requirements as set
forth in Nasdaq Marketplace Rules 4450(a)(5) and 4450(b)(2), respectively.
Pursuant to Nasdaq rules, the Company was provided with a 90-day grace period,
through May 15, 2002, to regain compliance with the minimum bid price and market
value of public float requirements. The Company did not regain compliance within
the proscribed time period. On May 23, 2002, the Company requested a hearing,
which stayed the de-listing of the Company's common stock. On July 11, 2002, the
Company participated in a hearing before the Nasdaq Listing Qualifications Panel
(the "Nasdaq Panel"). On July 31, 2002, the Nasdaq Panel notified the Company
that the Nasdaq Panel had determined not to grant any further exception to the
minimum bid price and/or market value of publicly held shares requirements. The
Nasdaq Panel further determined to transfer listing of the Company's common
stock to The Nasdaq SmallCap Market, effective with the open of business on
August 5, 2002 and gave the Company an extension of 180 days until February 10,
2003 to meet the minimum requirement of $1.00 per share.
On February 19, 2003, the Company announced that it had been granted a
sixty-day extension to April 14, 2003 to comply with Nasdaq's minimum bid price
requirement necessary to remain listed on the Nasdaq SmallCap Market. The
extension was granted by Nasdaq while it deliberates on the modifications to its
listing requirements proposed by its Board of Directors, which could provide
issuers with additional time to satisfy the minimum bid price requirements.
On April 8, 2003 the Company announced that it had been granted an
additional extension until May 12, 2003 from Nasdaq's Listing Qualifications
Panel to comply with the minimum bid price requirements necessary to remain
listed on the Nasdaq SmallCap Market. The Company has requested an additional
extension to comply with the minimum bid price requirement from Nasdaq. There
can be no assurance that Nasdaq will grant the Company an additional extension.
Moreover, even if Nasdaq grants an additional extension there can be no
assurance that the bid price of the Company's common stock will exceed the $1.00
minimum requirement during the term of such extension.
If the Company's Common Stock were removed from quotation on The Nasdaq
SmallCap Market any trading in the Company's Common Stock would thereafter be
conducted in the over-the-counter market on the OTC Electronic Bulletin Board or
in the "pink sheets." Accordingly, the liquidity of the Company's Common Stock
could be reduced and the coverage of the Company by security analysts and media
could be reduced, which could result in lower prices for the Company's Common
Stock than might otherwise prevail and could also result in spreads between the
bid and asked prices for the Company's Common Stock. Additionally, certain
investors will not purchase securities that are not quoted on The Nasdaq
SmallCap Market, which could materially impair the Company's ability to raise
funds through the issuance of its Common Stock or other securities convertible
into its Common Stock.
In addition, if the Company's Common Stock is removed from quotation on
Nasdaq and the trading price of its Common Stock is less than $5.00 per share,
trading in its Common Stock could also be subject to the requirements of Rule
15g-9 promulgated under the Securities Exchange Act of 1934, as amended. Under
that Rule, broker and dealers who recommend such low priced securities to
persons other than established customers and accredited investors must satisfy
special sales practice requirements, including a requirement that they make an
individualized written suitability determination for the purchaser and receive
the purchaser's written consent prior to transaction. The Securities Enforcement
Remedies and Penny Stock Reform Act of 1990 also requires additional disclosure
in connection with any trades involving a stock defined as a penny stock
(generally, according to regulations adopted by the SEC, any equity security not
traded on an exchange or quoted on Nasdaq that has a market price of less than
$5.00 per share, subject to certain exceptions), including the delivery, prior
to any penny stock transaction, of a disclosure schedule explaining the penny
stock market and the risks associated therewith. Such requirements could
severely limit the market liquidity of the Company's Common Stock. There can be
no assurance that the Company's Common Stock will not be removed from quotation
on Nasdaq or treated as penny stock.
Competition
The market for information technology services includes a large number
of competitors, is subject to rapid change and is highly competitive. Its
primary competitors include participants from a variety of market segments,
including the current and former consulting divisions of the "Big Five"
accounting firms, interactive advertising agencies, web development companies,
systems consulting and implementation firms, application software firms and
management consulting firms. Many of these competitors have significantly
greater financial, technical and marketing resources and greater name
recognition than the Company. In addition, the Company competes with its
clients' internal resources, particularly when these resources represent a fixed
cost to the client. In the future, such competition may impose additional
pricing pressures on it. The Company cannot assure you that it will compete
successfully with its existing competitors or with any new competitors.
20
Intellectual Property Rights
The Company's business includes the development of custom software
applications in connection with specific client engagements. Ownership of such
software is generally assigned to the client. The Company relies upon a
combination of nondisclosure and other contractual arrangements and trade
secret, copyright and trademark laws to protect its proprietary rights and the
proprietary rights of third parties from whom the Company license intellectual
property. The Company enters into confidentiality agreements with its employees
and limits distribution of proprietary information. However, the Company cannot
assure you that the steps taken by it in this regard will be adequate to deter
misappropriation of proprietary information or that the Company will be able to
detect unauthorized use and take appropriate steps to enforce its intellectual
property rights. The Company is subject to the risk of litigation alleging
infringement of third-party intellectual property rights. Any such claims could
require it to spend significant sums in litigation, pay damages, develop
non-infringing intellectual property or acquire licenses to the intellectual
property, which is the subject of the asserted infringement. In addition, the
Company is aware of other users of the term "TACT" and combinations including "A
Consulting," which users may be able to restrict its ability to establish or
protect its right to use these terms. The Company has in the past been contacted
by other users of the term "TACT" alleging rights to the term. The Company has
completed filings with the U.S. Patent and Trademark Office in order to protect
certain marks, including "TACT" and "The A Consulting Team." Its inability or
failure to establish rights to these terms or protect its rights may have a
material adverse effect on its business, results of operations and financial
condition.
Going Concern
The Company's financial statements have been presented on the basis
that it is a going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. For the three
months ended March 31, 2003, the Company reported a net loss of $144,000. For
the year ended December 31, 2002, the Company reported net income of $204,000.
Additionally, the Company has an accumulated deficit of $28.8 million at
December 31, 2002. The Company believes that its continuing focus on cost
reductions, together with a number of other operational changes, has resulted in
the attainment of net earnings during 2002. There can be no assurance that the
Company will be profitable in future quarters.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company has not entered into market risk sensitive transactions
required to be disclosed under this item.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Our Chief
Executive Officer and our Chief Financial Officer, after evaluating the
effectiveness of the Company's "disclosure controls and procedures" (as defined
in the Securities and Exchange Act of 1934 Rules 13a-14(c) and 15d-14 (c)) as of
a date (the "Evaluation Date") within 90 days before the filing date of this
quarterly report, have concluded that as of the Evaluation Date, our disclosure
controls and procedures , which are designed to ensure that information required
to be disclosed by us in the periodic reports we file under the Exchange Act is
recorded, processed, summarized and reported in a timely manner, are effective
based on such evaluation.
(b) Changes in internal controls. There were no significant changes in
our internal controls or in other factors that could significantly affect these
controls and procedures subsequent to the Evaluation Date.
Part II. Other Information
Item 1. Legal Proceedings
None material.
21
Item 2. Changes in Securities and Use of Proceeds
Pursuant to a Stock Purchase Agreement dated as of June 28, 2002 among
the Company, International Object Technology, Inc. ("IOT") and the holders of
all the issued and outstanding capital stock of IOT (the "IOT Stockholders"),
the Company sold an aggregate of 1,270,000 shares of unregistered common stock
to the IOT Stockholders and agreed to pay an aggregate of $650,000 in cash in
deferred payments over the next 30 months in exchange for all the issued and
outstanding capital stock of IOT (the "Acquisition"). The Acquisition closed on
July 19, 2002. The Company relied upon the exemption from registration set forth
in Section 4(2) of the Securities Act, relating to sales by an issuer not
involving a public offering, in issuing the stock to the IOT Stockholders. Based
upon discussions with and representations made by the IOT Stockholders, the
Company reasonably believed that such investors were accredited and/or
sophisticated investors. The Company granted to each investor access to
information on the Company necessary to make an informed investment decision.
On August 12, 2002, the Company issued 530,304 shares of Series A
Preferred Stock to Shmuel BenTov in exchange for $350,000.64. On November 12,
2002, the Company issued 41,311 shares of Series B Preferred Stock to Mr. Yossi
Vardi in exchange for $27,265.26. The Company relied upon the exemption from
registration set forth in Section 4(2) of the Securities Act, relating to sales
by an issuer not involving a public offering, in issuing the stock to Shmuel
BenTov and Yossi Vardi. Based upon discussions with and representations made by
the investors, the Company reasonably believed that such investors were
accredited and sophisticated investors. Mr. BenTov and Mr. Vardi had access to
information on the Company necessary to make an informed investment decision.
The shares of Series A and Series B Preferred Stock are convertible into Common
Stock on a 1:1 basis subject to adjustment for stock splits, consolidations and
stock dividends. In addition, the shares of Series A and Series B Preferred
Stock are entitled to a 7% cumulative dividend payable semi-annually. The
Company has also agreed to grant "piggyback" registration rights to Mr. BenTov
and Mr. Vardi for the shares of Common Stock issuable upon conversion of the
Series A and Series B Preferred Stock.
The Company is prohibited from paying dividends on its capital stock
due to restrictions under the Loan and Security Agreement between the Company
and Keltic Financial Partners, L.P., dated June 27, 2001 and amended by the July
2002 Modification Agreement. Keltic has consented to the payment of dividends on
the Series A and Series B Preferred Stock, provided an event of default does not
exist.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Stock Purchase Agreement dated as of June 28, 2002 among the
Registrant, International Object Technology, Inc. and the
Stockholders of International Object Technology, Inc. incorporated
by reference to Exhibit 2.1 to the Form 8-K, as previously filed
with the SEC on July 12, 2002.
3.1 Restated Certificate of Incorporation of the Registrant,
incorporated by reference to Exhibit 3.1 to the Form 10Q for the
period ended June 30, 2001, as previously filed with the SEC on
August 10, 2001.
3.2.1 Certificate of Amendment of the Certificate of Incorporation of
the Registrant dated August 8, 2002 incorporated by reference to
Exhibit 3.2 to the Form 10-Q for the period ended June 30, 2002,
as previously filed with the SEC on August 14, 2002.
22
3.2.2 Certificate of Amendment of the Certificate of Incorporation of
the Registrant dated November 12, 2002, incorporated by reference
to Exhibit 3.2.2 to the Form 10-Q for the period ended September
30, 2002 as previously filed with the SEC on November 11, 2004.
3.3 Amended and Restated By-Laws of the Registrant, incorporated by
reference to Exhibit 3.3 to the Registration Statement on Form
SB-2 as previously filed with the SEC on August 6, 1997.
4.1 Specimen Common Stock Certificate, incorporated by reference to
Exhibit 4 to the Registration Statement on Form SB-2 as previously
filed with the SEC on July 23, 1997.
4.2 Registration Rights Agreement dated as of July 19, 2002 among the
Registrant and those persons listed on Schedule I attached
thereto, incorporated by reference to Exhibit 4.1 to the Form 8-K
dated July 19, 2002, as previously filed by the SEC on July 25,
2002.
10.1.1 Stock Option and Award Plan of the Registrant and Form of
Nonqualified Stock Option Agreement, incorporated by reference to
Exhibit 10.1 to the Registration Statement on Form SB-2 as
previously filed with the SEC on August 6, 1997.
10.1.2 Amendment to the Stock Option and Award Plan of the Registrant,
incorporated by reference to the Registration Statement on Form
S-8 as previously filed with the SEC on December 12, 1997.
10.1.3 Amendment No. 2 to the Stock Option and Award Plan of the
Registrant, incorporated by reference to Exhibit C to the
Registrant's 2001 Proxy Statement on Schedule 14A, as previously
filed with the SEC on April 30, 2001.
10.2 Loan and Security Agreement between the Registrant and Keltic
Financial Partners, LP, dated June 27, 2001, incorporated by
reference to Exhibit 10.1.1 to the Form 10Q for the period ended
June 30, 2001, as previously filed with the SEC on August 10,
2001.
10.3 Guaranty of Payment and Performance between Shmuel BenTov, the
Chairman and Chief Executive Officer of the Registrant, and Keltic
Financial Partners, LP, dated June 27, 2001, incorporated by
reference to Exhibit 10.2 to the Form 10Q for the period ended
June 30, 2001, as previously filed with the SEC on August 10,
2001.
10.4 Employment Agreement, dated January 1, 2002, between the
Registrant and Shmuel BenTov, incorporated by reference to Exhibit
10.5 to the Form 10-K for the fiscal year ended December 31, 2001,
as previously filed with the SEC on April 1, 2002.
10.5 Employment Agreement, dated September 11, 2001, between the
Registrant and Richard Falcone, incorporated by reference to
Exhibit 10.8 to the Form 10-K/A for the fiscal year ended December
31, 2001, as filed with the SEC on April 4, 2002.
10.6 Form of S Corporation Termination, Tax Allocation and
Indemnification Agreement, incorporated by reference to Exhibit
10.4 to the Registration Statement on Form SB-2, as previously
filed with the SEC on August 6, 1997.
10.7 Letter of Undertaking from the Registrant and Shmuel BenTov,
incorporated by reference to Exhibit 10.9 to the Registration
Statement on Form SB-2, as previously filed with the SEC on July
23, 1997.
10.8 Shmuel BenTov Letter Commitment, dated March 29, 2001,
incorporated by reference to Exhibit 10.10 to the Form 10-K for
the fiscal year ended December 31, 2000, as previously filed with
the SEC on April 2, 2001.
10.9 Employment Agreement dated as of July 19, 2002 between the
Registrant and Dr. Piotr Zielczynski, incorporated by reference to
Exhibit 10.1 to the Form 8-K dated July 19, 2002, as previously
filed with the SEC on July 25, 2002.
23
10.10 Employment Agreement dated as of July 19, 2002 between the
Registrant and Ilan Nachmany, incorporated by reference to Exhibit
10.2 to the Form 8-K dated July 19, 2002, as previously filed with
the SEC on July 25, 2002.
10.11 Employment Agreement dated as of July 19, 2002 between the
Registrant and Sanjeev Welling, incorporated by reference to
Exhibit 10.3 to the Form 8-K dated July 19, 2002, as previously
filed with the SEC on July 25, 2002.
99.1 Certification of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The Company filed the following Current Report on Form 8-K during the
three month period ended March 31, 2003:
(i) The Company filed a Current Report on Form 8-K with the SEC dated
February 19, 2003 on March 3, 2003 regarding the Nasdaq Listing
Qualification Panel's grant of an additional extension to comply
with the minimum bid price requirements necessary to remain listed
on Nasdaq SmallCap Market.
24
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.
By: /s/ Shmuel BenTov
-----------------
Date: May 14, 2003 Shmuel BenTov, Chairman,
Chief Executive Officer and President
By: /s/ Richard D. Falcone
----------------------
Date: May 14, 2003 Richard D. Falcone, Treasurer
and Chief Financial Officer
25
CERTIFICATIONS
I, Shmuel BenTov, the principal executive officer of The A Consulting
Team, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of The A Consulting
Team, Inc., the registrant;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003
/s/ Shmuel Bentov
-----------------------------------
Shmuel BenTov
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATIONS
I, Richard D. Falcone, the principal financial officer of The A Consulting
Team, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of The A Consulting
Team, Inc., the registrant;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003
/s/ Richard D. Falcone
---------------------------------------
Richard D. Falcone
Chief Financial Officer
(Principal Financial Officer)