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 period ended: June 30, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-22945
THE A CONSULTING TEAM, INC.
(Exact name of Registrant as specified in its charter)
New York 13-3169913
-------- ----------
(State or other jurisdiction of (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
--- ---
As of August 10, 2001, there were 7,116,871
shares of Common Stock, with $.01 par value per
share, outstanding.
THE A CONSULTING TEAM, INC.
INDEX
Page Number
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Part I. Financial Information
Item 1. Financial Statements 1
Condensed Consolidated Balance Sheets as of June 30, 2001 and
December 31, 2000 1
Condensed Consolidated Statements of Operations for the three months and
six months ended June 30, 2001 and 2000 2
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 2001 and 2000 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis 5
of Financial Condition and Results of Operation
Item 3. Quantitative and Qualitative Disclosure of Market Risk 16
Part II. Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Part I. Financial Information
Item 1. Financial Statements
THE A CONSULTING TEAM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2001 2000
------------ ------------
(unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 610,690 $ 837,946
Accounts receivable, less allowance for doubtful accounts of
$692,098 at June 30, 2001 and $948,397 at December 31, 2000 7,328,105 13,596,875
Prepaid software licenses - 2,000,000
Prepaid or refundable income taxes - 1,575,510
Prepaid expenses and other current assets 106,159 132,423
------------ ------------
Total current assets 8,044,954 18,142,754
Investments, at cost 500,000 2,820,638
Property and equipment, at cost, less accumulated
depreciation and amortization 2,369,402 5,847,092
Deposits 126,011 227,055
------------ ------------
Total assets $ 11,040,367 $ 27,037,539
============ ============
Liabilities and Shareholders' Equity
Current Liabilities:
Loans payable - banks $ 2,173,823 $ 2,170,000
Accounts payable and accrued expenses 4,613,700 6,098,951
Deferred revenue - 166,015
Current portion of capital lease obligation 301,742 376,288
------------ ------------
Total current liabilities 7,089,265 8,811,254
Capital lease obligation 257,198 394,379
Other long-term liabilities - 62,139
Commitments
Shareholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares
authorized; no shares issued or outstanding - -
Common stock, $.01 par value; 30,000,000 shares authorized;
7,116,871 issued and outstanding 71,169 71,169
Additional paid-in capital 33,086,689 33,086,689
Accumulated deficit (29,463,954) (15,388,091)
------------ ------------
Total shareholders' equity 3,693,904 17,769,767
------------ ------------
Total liabilities and shareholders' equity $ 11,040,367 $ 27,037,539
============ ============
See accompanying notes to condensed consolidated financial statements.
1
THE A CONSULTING TEAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended Three Months Ended
June 30, June 30,
------------------------------------ ----------------------------------
2001 2000 2001 2000
------------------ ---------------- --------------- ----------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues $ 21,541,481 $ 28,177,422 $ 9,393,396 $ 15,026,760
Cost of revenues 17,334,465 19,273,280 7,481,099 10,042,180
------------ ------------ ------------ ------------
Gross profit 4,207,016 8,904,142 1,912,297 4,984,580
Operating expenses:
Selling, general & administrative 7,920,843 12,945,940 3,073,956 7,070,910
Provision for doubtful accounts 672,507 78,156 450,066 70,681
Depreciation & amortization 693,017 1,152,736 264,597 582,908
Impairment of assets &
restructuring charges 8,728,748 - 7,190,748 -
------------ ------------ ------------ ------------
18,015,115 14,176,832 10,979,367 7,724,499
------------ ------------ ------------ ------------
Loss from operations (13,808,099) (5,272,690) (9,067,070) (2,739,919)
Interest expense, net (267,764) (44,677) (120,086) (51,296)
------------ ------------ ------------ ------------
Loss before benefit for income taxes (14,075,863) (5,317,367) (9,187,156) (2,791,215)
Benefit for Income taxes - (2,071,728) - (996,728)
------------ ------------ ------------ ------------
Net loss $(14,075,863) $ (3,245,639) $ (9,187,156) $ (1,794,487)
============ ============ ============ ============
Net loss per share - basic
and dilutive $ (1.98) $ (0.56) $ (1.29) $ (0.30)
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
2
THE A CONSULTING TEAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
2001 2000
-------------- ----------------
Cash flows from operating activities:
Net loss ($14,075,863) ($ 3,245,639)
Adjustments to reconcile net loss to net cash
used in operating activities, net of acquired assets:
Depreciation and amortization 693,017 1,152,736
Impairment of assets & restructuring charges 8,728,748 -
Provision for doubtful accounts 672,507 78,156
Changes in operating assets and liabilities:
Accounts receivable 5,596,263 (2,424,689)
Unbilled receivables - (480,622)
Prepaid or refundable income taxes 1,393,238 (2,105,866)
Prepaid expenses and other current assets 26,264 (247,067)
Accounts payable and accrued expenses (2,819,124) 512,309
Deferred revenue (166,015) 59,011
Other long-term liabilities (62,139) (13,595)
------------ ------------
Net cash used in operating activities (13,104) (6,715,266)
Cash flows from investing activities:
Purchase of property and equipment (107,292) (948,330)
Investments and advances - (540,638)
Deposits 101,044 (3,991)
------------ ------------
Net cash used in investing activities (6,248) (1,492,959)
Cash flows from financing activities:
Proceeds from sale of common stock - 8,000,000
Proceeds from loan payable 2,400,000 1,000,000
Repayment of loan payable (2,285,131) (33,000)
Short-term credit from bank, net (111,046) -
Repayment of long-term debt - (9,397)
Repayment of capital lease obligation (211,727) (100,626)
------------ ------------
Net cash (used in) provided by financing activities (207,904) 8,856,977
------------ ------------
Net (decrease)/increase in cash and cash equivalents (227,256) 648,752
Cash and cash equivalents at beginning of period 837,946 5,082,519
------------ ------------
Cash and cash equivalents at end of period $ 610,690 $ 5,731,271
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 260,066 $ 87,700
============ ============
Cash paid during the period for income taxes $ - $ -
============ ============
Supplemental disclosure of non-cash investing
and financing activity:
Capital lease obligation $ - $ 26,661
============ ============
See accompanying notes to condensed consolidated financial statements.
3
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,
2000 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, 2000.
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 June 30, 2001 and the consolidated results of
operations for the three months and six months ended June 30, 2001 and 2000, and
cash flows for the six months ended June 30, 2001 and 2000.
The condensed consolidated balance sheet at December 31, 2000 has been
derived from the audited financial statements at that date, but does not include
all the information and footnotes required by generally accepted accounting
principles for complete financial statements. For further information, refer to
the audited consolidated financial statements and footnotes thereto included in
the Form 10-K filed by the Company for the year ended December 31, 2000.
The consolidated results of operations for the three months and six
months ended June 30, 2001 are not necessarily indicative of the results to be
expected for any other interim period or for the full year.
3) NET LOSS PER SHARE:
The following table set forth the computation of basic and diluted net loss per
share for the six months and three months ended June 30, 2001 and 2000.
Six Months Ended Three Months Ended
June 30, June 30,
----------------------------- ----------------------------
2001 2000 2001 2000
----------------------------- ----------------------------
Numerator:
Net (loss) $(14,075,863) $ (3,245,639) $ (9,187,156) $ (1,794,487)
------------ ------------ ------------ ------------
Numerator for basic and diluted
net (loss) per share $(14,075,863) $ (3,245,639) $ (9,187,156) $ (1,794,487)
============ ============ ============ ============
Denominator:
Denominator for basic and diluted net loss per
share - weighted-average shares 7,116,871 5,753,035 7,116,871 5,999,879
============ ============ ============ ============
Basic and diluted loss per share $ (1.98) $ (0.56) $ (1.29) $ (0.30)
============ ============ ============ ============
All options and warrants outstanding during 2001 and 2000 were not
included in the computation of net loss per share because the effect would be
antidilutive.
4
4) 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.
5) CONCENTRATION OF CREDIT RISK:
Revenues to three customers represented approximately 24%, 16% and 10%
of revenues for the six months ended June 30, 2001. Revenues to one customer
represented 14% of revenues for the same period in 2000.
6) IMPAIRMENT OF ASSETS AND RESTRUCTURING CHARGES:
The Company began to restructure its operation in 2000 and has
continued in 2001 and has taken a charge of approximately $8,729,000 for the six
months ended June 30, 2001 consisting of $2,321,000 for the write off of the
Company's investment in Always-On Software, Inc., $2,000,000 for the write off
of prepaid software licenses, $1,617,000 for the write off of leaseholds and
other fixed assets due to the closing of the operations and liquidation of T3
Media, Inc., $979,000 for the closing of three of its Solution Branches,
$834,000 for the write off of leaseholds and other fixed assets related to the
reduction of office space in its New York headquarters, $616,000 for severance
costs and $362,000 for other associated costs. The Company had restructuring
charge liabilities of approximately $860,000 and $240,000 at June 30, 2001 and
December 31, 2000, respectively. During the six months ended June 30, 2001 the
Company recorded additions to its restructuring liability of approximately
$1,153,000 and payments of approximately $532,000.
7) CREDIT FACILITY
In June 2001 the Company entered into a new revolving credit facility
with Keltic Financial Partners, LP for a line of credit up to $4 million based
on the Company's accounts receivable balances. Loans under the credit line bear
interest at a rate of prime plus 2%, which rate was 9% at June 30, 2001. The
credit line has certain financial covenants, which the Company must meet on a
quarterly basis. The Company's Chief Executive Officer has guaranteed $1 million
of the line of credit.
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 and liquidity and capital resources should be
read in conjunction with the accompanying financial statements and related
notes.
Overview
Since 1983, TACT has provided IT 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. In addition to its New York
office, TACT has Solution Branches(SM) in Clark, NJ, and Chicago, IL. During the
six months ended June 30, 2001, the Company closed its Stamford, CT, Atlanta, GA
and Boston, MA branches. The Company is also continuing to review its other
Solution Branches in an effort to effectuate the most cost efficient and
effective operating structure for the Company and its clients and
5
anticipates the potential closing of an additional Solution Branch in the third
quarter.
TACT is an end-to-end e-Services provider. The Company delivers
e-Services solutions from web strategy and design through web development and
integration, to web application hosting. Its clients predominantly include a
broad range of Fortune 1000 companies and other large organizations. TACT also
provides the same markets with enterprise-wide Information Technology
consulting, software and training services and solutions. Over 90% of the
Company's consulting services revenues during the six months ended June 30, 2001
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.
TACT's primary focus is helping clients support their business
objectives by assisting them in the transition of their information technologies
from traditional mainframe and client/server environments to the Internet and
the Web. TACT offers its clients the full scope of the web-enabling process.
TACT provides solutions ranging from strategy and design, to development,
through conversions and integration. TACT expertise leverages clients' existing
systems and data stores to significant business advantage.
When TACT is engaged by its clients to implement e-commerce or
web-based initiatives, TACT uses a comprehensive methodology to analyze the
client's current IT assets. The analysis reveals how much of the IT asset
portfolio is ready for the Web, and what is required to web-enable selected
portfolio elements. With this information, TACT devises and executes a
customized web solution strategy that will ultimately enable the client to reach
their business objectives of reduced costs, increased sales and profits, and
improved customer services.
TACT also provides clients with enterprise-wide information technology
consulting, training 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 alliances 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.
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 margin (billable hourly rate less
the consultant's hourly cost) and consultant utilization rates (number of days
worked by a consultant during a semi-monthly billing cycle divided by the number
of billing days in that cycle). During 2000 and the first six months of 2001,
the Company's margins were adversely affected by a decrease in billing rates, an
increase in consultant wages and a reduction in consultant utilization rate.
Large portions of the Company's engagements are on a time and materials basis.
The Company historically had been able to pass on to its clients most of the
increases in cost of services; however, the Company was not able to do so in
2000 and the first six months of 2001. Accordingly, such increases have had a
significant impact on the Company's financial results. While most of the
Company's engagements allow periodic price adjustments to address, among other
things, increases in consultant costs, there can be no guarantee that clients
will continue to accept cost increases. TACT also actively manages its personnel
utilization rates by constantly monitoring project requirements and timetables;
however utilization rates in the first six months of 2001were lower due to a
trend in the Company's markets to delay IT projects and slowing of growth rate
in demand in e-commerce and web-based initiatives.
Historically, the Company has also generated revenues by selling
software licenses and providing
6
training services. 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. Training service revenues are recognized as the services are
provided. Beginning in 1999 and extending through June 30, 2001, the Company has
limited its emphasis on software sales. This has resulted in a significant
reduction in software sales in the second half of 1999 through June 30, 2001.
This trend is expected to continue for the remainder of 2001 and beyond with
software sales only being ancillary to providing IT and e-Services solutions to
customers. In the second quarter, the Company wrote off prepaid software
licenses of $2.0 million due the economic downturn particularly in the area of
software resales.
On October 2, 1998, the Company made an investment in a Web integrator,
T3 Media, of $3 million for 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 the intangibles and certain other fixed assets was not
recoverable, resulting in a write-off of $3.9 million in the fourth quarter of
2000 and $371,000 in the first quarter of 2001. Due to the continued
deterioration in revenues and market conditions for T3 Media's services, the
operations of T3 Media were terminated in the second quarter 2001 and T3 Media
is in process of being liquidated. Accordingly, the Company recorded additional
charges of $1.2 million related to the termination of operations and
liquidation, in the second quarter of 2001.
In 1999, the Company made a minority investment in LightPC.com (renamed
Always-On Software, Inc.). In 2000, the Company invested an additional $2.0
million in Always-On. At June 30, 2001, the Company owns approximately 10% of
Always-On Software, Inc. Always-On Software, Inc. is a global provider of
software application services ("ASP") based in New York's Silicon Alley. Due to
the deteriorating conditions of the ASP market and deteriorating cash reserves,
Always-On Software ceased operations in July 2001 and is in the process of
determining future plans, if any. As a result, the Company recorded a charge of
$2.3 million to reflect the impairment in value of its investment in the second
quarter of 2001.
Results of Operations
The following tables set forth the percentage of revenues of certain
items included in the Company's Statements of Operations:
Six Months Ended Three Months Ended
June 30, June 30,
---------------------------- ---------------------------
2001 2000 2001 2000
------------- ------------- ------------ ------------
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 80.5% 68.4% 79.6% 66.8%
------------- ------------- ------------ ------------
Gross profit 19.5% 31.6% 20.4% 33.2%
Operating expenses 83.6% 50.3% 116.9% 51.4%
------------- ------------- ------------ ------------
Loss from operations -64.1% -18.7% -96.5% -18.2%
Net loss -65.3% -11.5% -97.8% -11.9%
============= ============= ============ ============
7
Comparison of Six Months Ended June 30, 2001 to Six Months Ended June 30, 2000
Revenues. Revenues for the Company decreased by $6.6 million from $28.2 million
for the six months ended June 30, 2000 to $21.5 million for the six months ended
June 30, 2001. The decrease was primarily attributable to a slowdown in the
e-commerce industry, which resulted in the closing of T3 Media ($4.8 million)
and bringing the Company back to its core IT Services and e-Services businesses
($1.2 million) and, a reduction of software revenues ($630,000).
Revenues from software licensing and training represent less than 5% of total
revenues and are expected to remain at this level or lower in the future.
Gross Profit. Gross profit for the first six months decreased 52.8% from $8.9
million in 2000 to $4.2 million in 2001. As a percentage of total revenues,
gross profit was 19.5% versus 31.6% for the six months ended June 30, 2001 and
2000, respectively. Gross margin was adversely affected primarily by the closing
of T3 Media, a different mix of consulting projects, a decrease in software
revenues and lower consultant utilization and higher average consultant costs.
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 increased by $3.8 million or 26.8% from $14.2 million in 2000 to $18.0
million in 2001.
SG&A expenses decreased by $5.0 million from $ 12.9 million in 2000 to $7.9
million in 2001. The decrease is primarily attributable to the closing of T3
Media ($2.2 million) and a decrease in the Company's payroll costs ($2.1
million). The provision for doubtful accounts increased by approximately
$595,000 from $78,000 in 2000 to $673,000 in 2001. The increase was attributable
to the uncollectibilty of some of the Company's accounts receivable resulting
from the economic downturn. Depreciation and amortization expenses decreased by
$460,000 from $1,153,000 in 2000 to $693,000 in 2001 as a result of the closing
of T3 Media, the closing of several of the Company's solution branches and the
reduction in office space in its New York headquarters.
For the six months ended June 30, 2001, the Company recorded impairment of
assets and restructuring charges of approximately $8.7 million. Theses charges
related to the following; the Company closing three of it's Solution Branches
($1.0 million), reducing its office space in its New York headquarters by
approximately 50% ($834,000), closing T3 Media ($1.6 million), the write down of
its investment in Always-On Software, Inc. due to the termination of Always-On's
operations ($2.3 million), the write off of prepaid software licenses resulting
from lack of sales due to the economic down turn ($2.0 million), severance costs
due to staff reductions ($616,000) and other associated costs ($362,000).
Income Taxes. The Company has a net loss for the six months ended June 30, 2001,
therefore, it did not record a provision for income taxes.
Net Loss. As a result of the above, the Company had a net loss of $14.1 million
in 2001 compared to a net loss of $3.2 million for 2000.
Comparison of Three Months Ended June 30, 2001 to Three Months Ended June 30,
2000
Revenues. Revenues of the Company decreased by $5.6 million, or 37.3% from $15.0
million for the three months ended June 30, 2000 to $9.4 million for the three
months ended June 30, 2001. The decrease is primarily attributable to a slowdown
in the e-commerce industry, which resulted in the closing of T3 Media ($3.1
million) and bringing the Company back to its core IT Services and e-Services
businesses ($2.0 million) and a decrease in software revenues ($595,000).
Revenues from software licensing and training represent less than 5% of the
Company's total revenues in 2001 and are expected to remain at this level or
lower in the future.
Gross Profit. Gross profit for the second quarter ended June 30, 2001 decreased
by approximately $3.1
8
million from $5.0 million in 2000 to $1.9 million in 2001. As a percentage of
revenues, gross profit was 20.4% compared to 33.2% for the three months ended
June 30, 2001 and 2000, respectively. Gross margin was adversely affected
primarily by the closing of T3 Media, Inc., a different mix of consulting
projects, a decrease in software revenues and lower consultant utilization and
higher average consultant costs.
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 increased by $3.3 million or 42.1% from $7.7 million in 2000 to $11.0
million in 2001.
SG&A expenses decreased by $4.0 million or 56.5% from $7.1 million in 2000 to
$3.1 million in 2001. The decrease is primarily attributable to the closing of
T3 Media ($1.4 million) and a decrease in the Company's payroll related costs
($1.7 million). The provision for doubtful accounts increased by approximately
$379,000 from $71,000 in 2000 to $450,000 in 2001. The increase was primarily
attributable to the uncollectibilty of some of the Company's accounts receivable
resulting from the economic downturn. Depreciation and amortization expenses for
the quarter decreased by approximately $318,000 as a result of the closing of T3
Media and the reduction in office space in the Company's New York headquarters
by approximately 50%.
For the quarter ended June 30, 2001, the Company recorded impairment of assets
and restructuring charges of $7.2 million. Theses charges related to the
following; a reduction of office space in its New York headquarters by
approximately 50% ($834,000), closing T3 Media ($1.2 million), the write down of
its investment in Always-On Software, Inc. due to the termination of Always-On's
operations ($2.3 million), the write off of prepaid software licenses resulting
from lack of sales due to the economic down turn ($2.0 million), severance costs
due to staff reductions ($428,000) and other associated costs ($362,000).
Income Taxes. The Company has a net loss for the three months ended June 30,
2001, therefore, it did not record a provision for income taxes.
Net Loss. As a result of the above-mentioned factors, the Company had a net loss
of approximately $9.2 million in 2001 compared to a net loss of $1.8 million in
2000.
Liquidity and Capital Resources
The Company negotiated a new line of credit of $4.0 million in June
2001 and has $2.1 million outstanding at June 30, 2001. The Company repaid the
$2.0 million that was outstanding at December 31, 2000 under its previous credit
line. The Company's principal shareholder has 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 9.0% at June 30, 2001. In addition, the Company's
closed subsidiary, T3 Media has a demand loan with a bank, which the Company has
guaranteed. The amounts outstanding on the T3 Media demand loan are $51,000 and
$170,000 at June 30, 2001 and December 31, 2000, respectively. This loan bears
interest at the bank's prime rate plus 3%. The interest rate was 10.0% at June
30, 2001. T3 Media had entered into a series of capital lease obligations to
finance its expansion plans, covering leasehold improvements, furniture and
computer-related equipment. The amount outstanding under such leases was
approximately $559,000 at June 30, 2001. The Company is in the process of
negotiating buy-outs on all of these leases.
The Company's cash balances were approximately $611,000 at June 30,
2001 and approximately $838,000 at December 31, 2000. Net cash used by operating
activities in 2001 were approximately $13,000 and $6.7 million for the six
months ended June 30, 2001 and 2000, respectively.
The Company's accounts receivable, less allowance for doubtful
accounts, at June 30, 2001 and December 31, 2000 were $7.3 million and $13.6
million, respectively, representing 74 and 89 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
9
difficulty in collecting amounts due.
For the six months ended June 30, 2001, the Company had revenues from
three customers, which represented 24%, 16% and 10% of revenues. For the same
period in 2000, the Company had revenues from one customer, which represented
14% of revenues. No other customer represented greater than 10% of the Company's
revenues.
Net cash used in investing activities was approximately $6,000 and $1.5
million for the six months ended June 30, 2001 and 2000, respectively. The net
cash used in investing activities for the first six months of 2000 was primarily
attributable to additions to property and equipment and a minority investment in
Methoda Computers Ltd.
Net cash (used in) provided by financing activities was $208,000 and
$8.9 million for the six months ended June 30, 2001 and 2000 respectively. The
cash provided by financing activities during 2000 was primarily attributable to
the purchase of an aggregate of 1,124,997 shares of common stock by a group of
investors for $8.0 million (see below for a more detailed description of the
investment transactions).
On March 19, 2000, Yosi Vardi, Rita Folger, DS Polaris Group, SFK Group
and Arison Investments Ltd. invested an aggregate of approximately $2.75 million
by purchasing an aggregate of 392,855 shares of common stock at $7.00 per share
with 60 day warrants (subsequently extended by an additional 14 days) to
purchase an aggregate of 607,142 additional shares of common stock at an
exercise price of $7.00 per share (one of which warrants was exercised in part
by Arison Investments on June 5, 2000 to purchase 142,857 shares of common stock
for an aggregate exercise price of approximately $1.0 million) and two-year
warrants to purchase an aggregate of 1,000,000 additional shares of common stock
at an exercise price of $13.00 per share.
On June 5, 2000, Koonras Technologies, Eurocom Communications and
Poalim Capital Markets Technologies invested an aggregate of approximately $3.25
million by purchasing an aggregate of 464,284 shares of common stock at $7.00
per share with two-year warrants to purchase an aggregate of 464,284 additional
shares of common stock at an exercise price of $13.00 per share.
On June 14, 2000, two investment trusts controlled by Michael G.
Jesselson invested $1 million by purchasing an aggregate of 125,000 shares of
common stock at $8.00 per share with two-year warrants to purchase an aggregate
of 125,000 additional shares of common stock at an exercise price of $13.00 per
share.
On September 29, 2000, Level 8 Systems, Inc. invested $4 million by
purchasing 500,000 shares of common stock at $8.00 per share with two-year
warrants to purchase an aggregate of 500,000 additional shares of common stock
at an exercise price of $13.00 per share.
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 us.
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 and
elsewhere in this document
10
that do not relate to present or historical conditions are "forward-looking
statements" within the meaning of that term in Section 27A of the Securities Act
of 1933, as amended, and in Section 21F of the Securities Exchange Act of 1934,
as amended. Additional oral or written forward-looking statements may be made by
the Company from time to time, and such statements may be included in documents
that are filed with the Securities and Exchange Commission. 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.
Operating Losses
The Company has incurred operating losses for the last two years and
continued to incur losses for the six months ended June 30, 2001 and may
continue to incur net losses and negative cash flow for the remainder of 2001.
The Company has a net loss of $14.1 million for the six months ended June 30,
2001. Approximately $3.4 million of this loss 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 six months is
attributable to the Company and includes certain one time charges of $7.1
million associated with the impairment of assets and restructuring charges. In
2000, the Company had a net loss of $16.8 million of which $5.5 million was
attributable to T3 Media (including certain one-time charges ($3.9 million). The
remaining loss of $11.3 million was attributable to the Company's continuing
investment in its end-to-end e-Services business and higher expenses associated
with its Solution Branches and the expenses of closing certain operations and
streamlining others. The Company may incur further operating losses and continue
to make capital expenditures and, as a result, may need to generate significant
revenues to achieve profitability. The Company cannot guarantee that the Company
will achieve sufficient cost reductions or revenues to achieve profitability.
Even if it does achieve profitability, there is no guarantee that the Company
can sustain or increase 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 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.
11
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 each of the three years ended December 31, 2000 and
the six months ended June 30, 2001. In each of these periods, the Company has
had at least one customer with revenues exceeding 10% of the Company's revenues.
For the period ended June 30, 2001, the Company had revenues from three
customers, which represented 24%, 16% and 10% of revenues. For the six months
ended June 30, 2000, the Company had revenues from one customer, which
represented 14% of revenues. 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 us 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.
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, including
e-commerce solutions, and offer software 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. The
Company's failure to address these developments could have a material adverse
effect on our business, results of operations and financial condition.
e-Business Initiatives
The Company faces difficulties typically encountered by development
state companies in rapidly evolving markets because of its e-commerce
initiative. The Company provides e-commerce Web design and Web business
planning, strategic planning and marketing strategy-consulting services and
other related e-business services. Revenues from its e-commerce services
constituted 47% of revenues for the six months ended June 30, 2001, 51% of its
revenues for the year ended December 31, 2000 and 21% for the year ended
December 31, 1999. 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 offerings 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;
12
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 its consultants' services
and, to a lesser extent, from fixed-price projects. The Company's 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
billing margin decreased for the six months ended June 30, 2001 and for the year
ended December 31, 2000 due principally to lower billing rates and lower
utilization rates and higher consultants wages. 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 will be able to pass along additional
increases in its cost of services to its clients.
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 our 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 Chief Executive Officer and President. Mr.
BenTov has entered into an employment agreement with the Company, which
terminates on December 31, 2001. Although his employment agreement contains
non-competition, nondisclosure 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.
13
Fluctuations in Quarterly Operating Results
The Company's quarterly results of operations are variable. Variations
in its revenues and results of operations occur from time to time as a result of
a number of factors, such as the timing of closing of Solution Branch offices,
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 its 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. 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 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 our common stock. Additionally, there can be no
assurance that an active trading market for the Common Stock will be sustained.
Possible Removal From Quotation Of Common Stock On NASDAQ And Resulting Market
Illiquidity
The Company's common stock is quoted on the NASDAQ National Market.
Continued quotation of its common stock on the NASDAQ National Market will
require, among other criteria, that (i) the minimum bid price for its common
stock be at least $1.00 per share and (ii) the public float, not including
shares held by affiliates of the Company, consists of at least 750,000 shares of
common stock and have an aggregate value of at least $5,000,000. On August 3,
2001, the minimum bid price for the Company's common stock was $.42, and the
aggregate value of the Company's public float, not including common stock held
by affiliates of the Company, was approximately $1,522,000, based on the
average of the bid and asked prices of the Company's common stock on such date.
The Company has received notice from the NASDAQ National Market that it has 90
days from May 3, 2000 to cure a deficiency in its public float or be removed
from quotation on the NASDAQ National Market. In addition, the Company stock
price is trading below $1.00 per share. While the Company intends to request a
conference with NASDAQ officials to describe what it intends to do to rectify
the situation, there can be no assurances that NASDAQ officials will concur.
If the Company's common stock is removed from quotation on the NASDAQ
National Market or the NASDAQ Small-Cap Market, 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
larger spreads between the bid and asked prices for the Company's common stock.
Additionally, certain investors will not
14
purchase securities that are not quoted on the NASDAQ National 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 would 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 the 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 recent regulations adopted by the Securities and
Exchange Commission, any equity security not traded on an exchange or quoted on
NASDAQ or the OTC Bulletin Board 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 us. The Company cannot assure you that it will compete
successfully with its existing competitors or with any new competitors.
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 licenses 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 us 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 our ability to establish or
protect our 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." Our inability or
failure to establish rights to these terms or protect its rights may have a
material adverse effect on our 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,
15
which contemplates the realization of assets and satisfaction of liabilities in
the normal course of business. For the six months ended June 30, 2001 and the
years ended December 31, 2000 and 1999, the Company reported net losses of $14.1
million, $16.8 million and $2.7 million, respectively. Additionally, the Company
has an accumulated deficit of 29.5 million as of June 30, 2001. The Company
believes that its continuing focus on cost reductions, together with a number of
other operational changes, including the closing of certain branch offices and
the closing and liquidation of T3 Media in the second quarter of 2001
potentially could result in the attainment of profitable operations.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
The Company has not entered into market risk sensitive transactions
required to be disclosed under this item.
Part II. Other Information
Item 1. Legal proceedings
None material.
Item 2. Changes in Securities and Use of Proceeds
The Company restated and amended its Certificate of Incorporation to
increase the number of authorized shares of common stock from 10,000,000 shares
to 30,000,000 shares and authorize of actions by written consent of shareholders
of less than all outstanding shares in lieu of a meeting, on June 14, 2001. A
copy of the Restated Certificate of Incorporation is attached hereto as Exhibit
3.1.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On May 24, 2001, the Company held its annual meeting of shareholders.
The shareholders approved by a majority of votes the election of directors of
the Company; votes for the directors were 5,078,050 for, 88,500 authority
withheld. In addition, the Company's shareholders voted on the following items:
(a) the ratification by a majority of votes present of the appointment of Ernst
& Young LLP as independent public accountants for the year ending December 31,
2001; votes for this matter were 5,157,364 for, 8,986 against, 1,000 abstained;
(b) the approval of the amendment and restatement of the Company's Certificate
of Incorporation to increase the number of authorized shares of common stock
from 10,000,000 shares to 30,000,000 shares and authorize of actions by written
consent of shareholders of less than all outstanding shares in lieu of a
meeting; votes for this matter were 5,038,764 for, 126,636 against and 1,700
abstained; and (c) the approval of an amendment to the 1997 Stock Option and
Award Plan to (i) increase the number shares of common stock reserved for
issuance to 1,200,000 shares, (ii) allow the Board of Directors of the Company
to appoint a separate committee to administer the 1997 Stock Option and Award
Plan with respect to certain persons and (iii) prohibit any employee or
subsidiary of the Company from being granted options or share appreciation
rights to purchase more than 250,000 shares of Common Stock in any calendar
year; votes for this matter were 5,027,838 for, 138,562 against, 700 abstained.
16
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Restated Certificate of Incorporation of the Registrant.
3.2 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 Commission on August 6, 1997.
10.1.1 Loan and Security Agreement between The A Consulting Team, Inc. and
Keltic Financial Partners, LP, dated June 27, 2001.
10.2 Guaranty of Payment and Performance, June 27, 2001, between Shmuel
Bentov, Chairman and Chief Executive Officer of The A Consulting Team
and Keltic Financial Partners, LP.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended June 30, 2001.
17
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 August 10, 2001 Shmuel BenTov, President
and Chief Executive Officer
By: /s/ Richard D. Falcone
----------------------------------------
Date August 10, 2001 Richard D. Falcone, Treasurer
and Chief Financial Officer
18