| A CONSULTING TEAM INC Item 1A Risk Factors |
| 4 ITEM 1A RISK FACTORS FACTORS THAT COULD AFFECT OPERATING RESULTS Statements included in Item 7 Managementapstas 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 "e forward-looking statements "e 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 "e believes, "e "e forecasts, "e "e intends, "e "e possible, "e "e expects, "e "e estimates, "e "e anticipates, "e or "e plans "e 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 Companyapstas 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 Companyapstas 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 Companyapstas services, the availability of qualified professional staff, and price and wage inflation |
| In the year ended December 31, 2005, the Company had an operating loss of dlra461cmam000 and net loss of dlra484cmam000 |
| In the year ended December 31, 2003, the Company had an operating loss of dlra42cmam000 and net loss of dlra123cmam000 |
| There is no guarantee that the Company can achieve or sustain 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 could experience losses and the results of operations and financial condition would 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 4 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 the Companyapstas 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 each of the three years ended December 31, 2005 |
| In each of the last three years, the Company had at least one customer with revenues exceeding 10prca of the Companyapstas revenues |
| For the year ended December 31, 2005, the Company had three customers which accounted for 21prca, 20prca and 15prca of revenues, respectively |
| For the year ended December 31, 2004, the Company had two customers which accounted for 20prca and 19prca of revenues, respectively |
| For the year ended December 31, 2003, the Company had one customer which represented 28prca of revenues |
| Besides these customers, no other customer represented greater than 10prca of the Companyapstas 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 the Companyapstas 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 the Companyapstas 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 the Companyapstas business, results of operations and financial condition |
| PROJECT RISK The Companyapstas projects entail significant risks |
| Many of its engagements involve projects that are critical to the operations of its clients &apos businesses and provide benefits that may be difficult to quantify |
| The Companyapstas failure or inability to meet a clientapstas expectations in the performance of the Companyapstas services could result in a material adverse change to the clientapstas 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 Companyapstas 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 |
| POSSIBILITY THAT CUSTOMERS MAY NOT DO BUSINESS WITH THE COMPANY The Companyapstas 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 Companyapstas operating losses in two of the past three years |
| In those events, the Companyapstas net revenues would decrease, and the Companyapstas business would be adversely affected |
| BILLING MARGINS The Companyapstas ability to maintain billing margins is uncertain |
| It derives revenues primarily from the hourly billing of consultants &apos 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 consultantapstas 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 decreased slightly in 2005 due to the mix of time and material work compared to fixed price projects, and was not affected by the 5 consultant utilization rate, which remained at the same level (89prca in 2005 and 89prca in 2004) |
| The gross margin increased in 2004 due to a higher consultant utilization rate (89prca in 2004 compared to 79prca in 2003), and higher margin on fixed price contracts |
| The gross margin decreased in 2003 due to a lower consultant utilization rate (79prca in 2003 compared to 81prca in 2002) |
| There can be no assurance, however, that the Companyapstas revenues will continue to be billed primarily on a time and materials basis or that the Companyapstas cost containment and workforce rationalization effects will continue to provide positive results |
| In addition, during the past three years the Companyapstas clients have been adverse to increases in any costs of the Companyapstas services |
| 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 Companyapstas 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 |
| FLUCTUATIONS IN QUARTERLY OPERATING RESULTS The Companyapstas 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, 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 Companyapstas 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 a trading market for the Common Stock will be sustained |
| 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 6 current and former consulting divisions of the "e Big Four "e 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 &apos internal resources, particularly when these resources represent a fixed cost to the client |
| In the future, such competition may impose additional pricing pressures on the Company |
| The Company cannot assure you that it will compete successfully with its existing competitors or with any new competitors |
| INTELLECTUAL PROPERTY RIGHTS The Companyapstas 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 "e TACT "e and combinations including "e A Consulting, "e which users may be able to restrict the Companyapstas 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 "e TACT "e alleging rights to the term |
| The Company has completed filings with the US Patent and Trademark Office in order to protect certain marks, including "e TACT "e and "e The A Consulting Team "e |
| Our inability or failure to establish rights to these terms or protect our rights may have a material adverse effect on our business, results of operations and financial condition |
| GOING CONCERN The Companyapstas 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 year ended December 31, 2005 the Company reported a net loss of dlra484cmam000 |
| For the year ended December 31, 2004 the Company reported net income of dlra1dtta2 million |
| For the year ended December 31, 2003, the Company reported a net loss of dlra123cmam000 |
| Additionally, the Company has an accumulated deficit of dlra28 million at December 31, 2005 |
| The Company believes that its continuing focus on cost reductions, together with a number of other operational changes, has resulted in an improved financial condition |
| There can be no assurance that the Company will be profitable in future years |