In case you guys have not seen this yet!
One thing you can say about this BB, is at least they are Fully reporting! They will not have any problem with the new OTC/BB requirements coming this year!
January 15, 1999
DELSOFT CONSULTING INC (DSFT)
Quarterly Report (SEC form 10QSB)
- MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report.
OVERVIEW
DelSoft Consulting, Inc. is a professional services staffing firm that was incorporated in Georgia on July 1, 1996. The Company offers its clients value added
services, including professional services staffing, solutions and services for the Year 2000 problem, and application maintenance outsourcing (collectively referred to
as "solutions"). DelSoft markets solutions to both existing and potential clients with the objective of becoming one of such client's preferred providers of
comprehensive information technology ("IT") services and solutions.
DelSoft's revenues are derived from fees paid by clients for professional services. Historically, a substantial majority of the Company's projects have been
client-managed. On client-managed projects, DelSoft provides professional services as a member of the project team on a time-and-materials basis. The Company
recognizes revenues on such projects as the services are performed.
DelSoft's most significant cost item is its personnel expense, which consists primarily of salaries and benefits for the Company's billable personnel. The number of IT
professionals assigned to projects may vary depending on the size and duration of each engagement. Moreover, project terminations and completion and scheduling
delays may result in short periods when personnel are not assigned to active projects. DelSoft manages its personnel costs by closely monitoring client needs and
basing personnel increases on specific project engagements. While the number of IT professionals may be adjusted to reflect active projects, the Company continues
to process H1-B visas and maintain a database of available professionals to respond to increased demand for the Company's services on both existing projects and
new engagements.
The Company provides its services and solutions primarily to Fortune 1,000 companies with significant IT budgets and recurring staffing or software development
needs. Substantially all of the Company's clients are large companies, major systems integrators or governmental agencies.
The solutions offered by the Company include the following:
(a) PROFESSIONAL SERVICES STAFFING: Providing highly-skilled software professionals to augment the internal information management staffs of major
corporations remains the Company's primary business. The Company supplies clients' staffing needs from among its diverse supply of software professionals. The
Company is committed to expanding its professional services staffing operations in conjunction with its solutions business in the mainframe and client/server
development environments and enterprise resource planning software market.
(b) SERVICES AND SOLUTIONS FOR THE YEAR 2000 PROBLEM: The Company offers NYE2000(TM), a proprietary software toolset, which facilitates
the analysis and conversion of NATURAL(TM) source code to make it Year 2000 compliant. NYE2000(TM) allows a user to choose between
full field expansion, windowing, or a combination of both. Customers may license the toolset and use it in their environment, or DelSoft will provide the toolset in
conjunction with proven methodologies, experienced project management, and skilled resources with significant Year 2000 project experience.
(c) APPLICATION MAINTENANCE OUTSOURCING: Spurred by global competition and rapid technological change, large companies, in particular, are
downsizing and turning to outside service providers to perform their IT functions. The reasons for such outsourcing range from cost reduction to capital asset
improvement and from improved technology introduction to better strategic focus. In response to this trend, the Company, has at its disposal a complete staff that
includes experienced project managers, technicians and operators. These professionals provide essential data functions including, applications development, systems
maintenance, data network management, voice network administration and help desk operations.
During 1998, the Company redirected its focus to expanding its professional services staffing operations through direct and/or end- user client placements that
generate higher revenues and higher gross margins than subcontractor placements. As a result, DelSoft released any consultants not meeting this general profile. In
the first quarter, this process continued. New placements during this period will generate an average of approximately $220,000 in gross revenues per placement (on
an annualized basis) at an average gross margin of approximately 44%. This compares to an average of approximately $137,000 in gross revenues per placement
(on an annualized basis) at an average gross margin of approximately 37% during the three-month period ending September 30, 1997.
During the first quarter, the Company signed a letter of intent to acquire a computer-consulting firm, providing a variety of computer programming services with an
emphasis on client-server ("Acquisition"). The target company, which is headquartered in New York City, has approximately one hundred IT professionals
throughout the tri-state area and Europe. Management of the target company estimates revenues of approximately $9.6 million and profits (prior to taxes,
compensation and distributions to shareholders) of approximately $1 million in 1998. The companies are in the process of completing their respective due diligence.
The terms of the Acquisition, including the purchase price, have not been finalized. The Acquisition will be paid for with a combination of cash and stock. The target
company has agreed to a payout over three years. In addition, the purchase price is subject to reduction in the event the revenues and/or profits of the target
company decline.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1997
REVENUES. The Company's revenue increased slightly to approximately $2,345,000 million for the first quarter of 1999 from $2,319,000 for the first quarter of
1998. This increase in revenues in spite of a decrease in the total number of consultants is primarily attributable to significantly higher billable rates for services
provided to existing clients and engagements with new clients as compared to the billable rates for the same period last year.
DIRECT PROJECT COSTS. Direct project costs consist primarily of salaries and employee benefits for billable IT professionals and the associated travel and
relocation costs of these professionals, as well as the cost of the independent contractors used by the Company.
Direct project costs increased slightly to approximately $1,704,000 for the first quarter of 1999 from $1,693,000 for the first quarter of 1998. The increase in direct
project costs in spite of a decrease in the total number of consultants is primarily attributable to the increase in professional salaries to attract and retain qualified IT
professionals to staff existing and additional projects due to increased competition in the marketplace.
NET REVENUE. Net revenue consists of revenues less direct project costs. Net revenue increased slightly from approximately $626,000 during the three-month
period ended September 30, 1997 to approximately $642,000 during the three-month period ended September 30, 1998. This increase in spite of a decrease in the
total number of consultants is primarily attributable to billing rates increasing at higher levels than professional salaries and engagements with new clients being more
profitable than those with existing clients. The increase in net revenue was offset by higher personnel expenses resulting from the hiring of additional IT professionals
at higher salaries to support existing and additional client engagements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses consist of costs associated with the Company's sales
and marketing efforts, executive management, finance and human resource functions, facilities and telecommunications costs and other general overhead expenses.
Selling, general and administrative expenses increased to approximately $676,000 in the first quarter of 1999 from approximately $481,000 in the first quarter of
1998. In addition, the Company recognized charges relating to the amortization of intangible assets and unearned compensation of approximately $73,000 and
$33,000, respectively during the three months ended September 30, 1998, with no corresponding charges in the comparable prior period. The increase in selling,
general, and administrative expenses is primarily attributable to the Company's continued investment in infrastructure and in the initiatives required to implement the
Company's marketing strategies. These costs include the development of additional services offerings, the expansion of its recruiting capabilities, and the opening of
additional offices. The most significant of these costs consisted of the sales and marketing efforts associated with the Company's proprietary Year 2000 software
toolset, NYE2000 .
NET INCOME (LOSS). The Company's net income for the three months ended September 30, 1997, of approximately $71,000 decreased by approximately
$112,000 to a net loss of approximately $41,000 for the comparable period in 1998. The primary reason for this decrease is attributable to the non-cash charges of
$73,000 and $33,000, respectively, relating to amortization of the intangibles and unearned compensation plus the efforts associated with marketing and selling the
Company's proprietary Year 2000 software toolset, NYE2000(TM).
LIQUIDITY AND CAPITAL RESOURCES.
Historically, the Company has financed its working capital requirements through internally generated funds, the sale of shares of its common stock, and proceeds
from short-term bank borrowings.
The Company currently has a $1.25 million revolving credit facility with Emergent Financial Group. The credit facility bears interest at the higher of 1.5% over the
prime rate or 7%. Borrowings under the revolving credit facility are secured by substantially all of the Company's assets. In addition, certain of the Company's
directors have executed a limited personal guaranty. The facility contains certain restrictive covenants, including, the maintenance of certain
financial ratios and limitations on payment of dividends and additional borrowings. As of September 30, 1998 and November 10, 1998, the Company had
outstanding borrowings of approximately $548,000 and $590,000, respectively.
Except for additional cash that may be required to close the Acquisition, the Company currently anticipates existing sources of liquidity and cash generated from
operations are sufficient to satisfy its cash needs through the next twelve months. To close the Acquisition or in the future, the Company may seek to increase the
amount of its credit facilities, negotiate additional credit facilities or issue corporate debt or equity securities. Any debt incurred or issued by the Company may be
secured or unsecured, fixed or variable rate interest and may be subject to such terms as the board of directors of the Company deem prudent. The Company
expects any proceeds from such additional credit or sales of securities to be used primarily in the hiring of further IT professionals and/or the acquisition of other
consulting companies.
The Company does not believe that its business is subject to seasonal trends.
The Company does not believe that inflation had a significant impact on the Company's results of operations for the periods presented. On an ongoing basis, the
Company attempts to minimize any effects of inflation on its operating results by controlling operating costs, and, whenever possible, seeking to insure that billing
rates reflect increases in costs due to inflation.
YEAR 2000. The "Year 2000" issue concerns the potential exposures related to the automated generation of business and financial misinformation resulting from the
use of computer programs which have been written using two digits, rather than four, to define the applicable year of business transactions. The Company has
evaluated, and is continuing to evaluate, the potential cost associated with becoming Year 2000 compliant. The Company believes that the principal staffing and
financial systems it intends on using as of January 1, 1999, which are licensed from and maintained by third-party software development companies, are Year 2000
compliant. Management does not anticipate that the remaining costs associated with assuring that its internal systems will be Year 2000 compliant will be material to
its business, operations or financial condition.
The Company intends on conducting a risk evaluation and assessment study to determine the preparedness level of customers, vendors, and other service providers
for the Year 2000 and the subsequent impact on the Company. The Company will take such actions as management deems appropriate based on the results of the
review. The Company expects to incur only minimal internal staff costs and other miscellaneous expenses related to the risk evaluation and assessment project.
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in the section captioned Management's Discussion and Analysis of Financial Condition and Results of Operations which are not historical
are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. These forward-looking statements represent the Company's present expectations or beliefs concerning future events. The Company cautions that
such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the uncertainty as to
the Company's future profitability; the uncertainty as to the demand for information technology services and solutions; industry trends towards outsourcing
information technology services; increasing competition in the information technology services market; the ability to hire, train and retain sufficient qualified personnel;
the ability to obtain financing on acceptable terms to finance the Company's growth strategy; and the ability to develop and implement operational and financial
systems to manage the Company's growth. |
