SECURITIES AND EXCHANGE COMMISSION
                         Washington, D.C. 20549
                              FORM 10-KSB

(Mark One):

[X]    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
       1934 For the fiscal year ended December 31, 1997
                                                        OR
[      ] TRANSITION REPORT UNDER 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.
          (Name of Small Business Issuer in Its Charter)

           New York                                     13-3169913
(State or Other Jurisdiction of           (I.R.S. Employer Identification No.)
 Incorporation or Organization)

      200 Park Avenue South                           (212) 979-8228
     New York, New York 10003                     (Issuer's Telephone Number,
 (Address of Principal Executive Offices)            Including Area Code)

          Securities registered under Section 12(b) of the Act:
                                 None

          Securities registered under Section 12(g) of the Act:
                             Common Stock

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for past 90 days. Yes X No ____

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

Issuer's revenues for its most recent fiscal year:  $35,215,911.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant was  $24,783,600  based on the last reported sales price of $12.00 on
The Nasdaq Stock Market(SM) on March 17, 1998 as reported by Nasdaq.

As of March 17, 1998,  there were  5,485,000  shares of Common  Stock,  $.01 par
value per share, outstanding.

Transitional Small Business Disclosure Format: Yes           No     X

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  Registrant's  definitive  Proxy  Statement  for the 1998 Annual
Meeting of  Shareholders,  which will be filed on or before April 15, 1998,  are
incorporated by reference into Part III of this Report.



<PAGE>


                              TABLE OF CONTENTS

                                                                            Page
                                                                            ----
Item 1. Description of Business................................................1

        General ...............................................................1

        Industry Background....................................................1

        Growth Strategy........................................................2

        TACT Operations........................................................3

        Clients ...............................................................5

        TACT Recruiting........................................................5

        TACT Research..........................................................6

        Marketing Activities...................................................6

        Competition............................................................7

        Human Resources........................................................7

        Intellectual Property Rights...........................................7

Item 2. Description of Properties..............................................8

Item 3. Legal Proceedings......................................................8

Item 4. Submission of Matters to a Vote of Security Holders....................8

Item 5. Market for Common Equity and Related Stockholder Matters...............8

        Price Range of Common Stock............................................8

        Dividend Policy........................................................8

        Approximate Number of Stockholders.....................................8

        Recent Sales of Unregistered Securities................................8

Item 6. Management's Discussion and Analysis of Plan of Operation..............8

        Overview...............................................................9

        Results of Operations.................................................10

        Comparison of Year Ended December 31, 1997
         to the Year Ended December 31, 1996..................................10

        Comparison of Year Ended December 31, 1996
         to the Year Ended December 31, 1995..................................11

        Liquidity and Capital Resources.......................................12

        New Accounting Pronouncements.........................................13

        Impact of Year 2000...................................................13

        Factors That Could Affect Operating Results...........................13

Item 7. Financial Statements..................................................16

Item 8. Changes in and Disagreements With Accountants on Accounting and
        Financial Disclosure..................................................16

Item 9. Directors, Executive Officers, Promoters and Control Persons;
        Compliance with Section 16(a) of the Exchange Act.....................16

Item 10. Executive Compensation...............................................16

Item 11. Security Ownership of Certain Beneficial Owners and Management.......16

Item 12. Certain Relationships and Related Transactions.......................16

Item 13. Exhibits List and Reports on Form 8-K................................17

Signatures....................................................................18

<PAGE>

PART I

This  Annual  Report  on  Form  10-KSB  contains   forward-looking   statements.
Additional  written  and  oral  forward-looking  statements  may be  made by the
Company from time to time in Securities and Exchange  Commission ("SEC") filings
and  otherwise.   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 risks and factors identified
from  time  to time in the  Company's  filings  with  the  SEC  including  those
discussed in this Report.

Item 1.  Description of Business

General

         The A Consulting  Team,  Inc., a New York company  incorporated in 1983
(the  "Company"  or "TACT"),  provides  enterprise-wide  information  technology
("IT")  consulting,  software and training  services and solutions  primarily to
Fortune 1000  companies  in a wide range of  industries.  The Company  generally
serves as an outside resource to a client's internal IT staff, providing a broad
range of consulting services including strategic IT consulting, IT solutions and
IT  professional  services to improve  the  client's  productivity,  competitive
position  and   performance.   Strategic  IT  consulting   includes   technology
infrastructure  advisory services and systems  architecture design. IT solutions
include  planning,   designing  and  implementing   enterprise-wide  information
systems,  such as workgroup  solutions  (Microsoft Exchange and Lotus Notes(R));
client/server;   internet/intranet   and  EDI;  database  management   services;
application  design,  development and  implementation;  networking;  imaging and
workflow;  and systems  integration.  IT professional  services  include systems
support,  maintenance  and  contract  programming.  TACT's  ability  to  provide
comprehensive  services and solutions across diverse technology platforms allows
its clients to maintain and enhance  their current  systems while  embracing new
technologies.  Clients of the Company  include  Alamo  Rent-A-Car  Inc.,  Allied
Signal,  Inc., BMW of North America,  Inc.,  Chase Manhattan  Bank,  ChaseMellon
Shareholder Services,  Citibank, N.A., Dreyfus Corporation,  First Chicago Trust
Company,  General  Electric  Company,  Goldman  Sachs & Co., The  Guardian  Life
Insurance  Company of America,  Humana  Inc.,  International  Business  Machines
Corporation,  Metropolitan  Life  Insurance  Co.,  Merrill Lynch Pierce Fenner &
Smith  Incorporated,  National  Broadcasting  Co., Inc., New York Life Insurance
Company,  Norfolk  Southern  Corporation,  Pacific Telecom,  Inc.,  Pfizer Inc.,
Prudential  Insurance Company, St. John's University and Summit Bancorp. For the
year ended December 31, 1997, no client accounted for more than 10% of revenues,
except  for one  client  which  accounted  for 24% of  revenues.  The  Company's
customers  are  primarily   located  in  the  New  York/New   Jersey/Connecticut
metropolitan area.

     On August 8, 1997, the Company  commenced an  underwritten  public offering
(the "Offering")  whereby  1,935,000 shares of Common Stock, $.01 par value (the
"Common Stock"),  were sold by the Company  (including  135,000 shares of Common
Stock sold by the Company pursuant to the underwriters'  over-allotment option).
Mr. Shmuel BenTov,  Chairman of the Board, Chief Executive Officer and President
of TACT,  also sold 135,000 shares of Common Stock as part of the  underwriters'
over-allotment  option.  Net  proceeds to the  Company  from the  Offering  were
approximately $21,071,000.  See "Management's Discussion and Analysis of Plan of
Operation--Liquidity and Capital Resources."

Industry Background

         The IT industry has experienced accelerating growth in recent years due
to rapid technological  advances.  These advances include more powerful and less
expensive computer technology and the transition from predominantly  centralized
mainframe  computer  systems  to open and  distributed  computing  environments.
Additionally,  information  technology  is becoming  more critical to successful
business  operations.  IT services are no longer a peripheral  component of most
organizations  but instead are integral to many key business  processes.  At the
same   time,   managing   information    technology,    especially   distributed
architectures, has become more complex and expensive. Accordingly, organizations
are  increasingly  turning to  external IT  services  organizations  to develop,
support and enhance their internal IT systems.

<PAGE>

By  outsourcing  IT  services,companies  are able to (i)  focus  on  their  core
business, (ii) access specializedtechnical  skills, (iii) implement IT solutions
more rapidly, (iv) benefit fromflexible staffing, providing a variable cost
solution to a fixed cost issue, and(v) reduce the cost of recruiting,  training,
and  adjusting  the number of  employees  as IT  requirements  change.  Based on
industry  sources,  IT outsourcing in the United States is estimated to increase
from  approximately  $50 billion in 1995 to approximately  $100 billion in 2000,
representing a compound annual growth rate of approximately 15%. The Company has
achieved a compound annual revenue growth rate of 52.4% for the four year period
ended December 31, 1997.

         The Company operates in a highly fragmented  segment of the IT services
industry.  In addition to the consulting  divisions of the "Big Six"  accounting
firms,  the  Company's   competitors   include  a  large  number  of  small  and
medium-sized  consulting  firms as well as  divisions  of national  and regional
consulting firms. The Company believes that the industry is experiencing a trend
toward  consolidation  and that  there may be  opportunities  to  expand  TACT's
current business through acquisitions of small local or regional competitors.

Growth Strategy

         The Company's  objective is to be a leading provider of IT services and
solutions  for Fortune 1000  companies and other  organizations  with diverse IT
needs  in  select  geographic  markets  nationwide.  In order  to  achieve  this
objective, the Company is pursuing the following strategies:

         Cross-Sell   Additional  IT  Services  To  Existing  Clients.  TACT  is
         leveraging  its existing  client base by offering  its current  clients
         additional IT consulting, software and training services.

         Expand  Client  Base.  The  Company  is  developing  additional  client
         relationships  in  geographic   markets  where  the  Company  maintains
         Solution   Branches,    through   targeted    marketing    initiatives,
         participation  in local and national  trade shows,  user group meetings
         and conventions, referrals from existing clients and direct mail.

         Expand the Range of Technical  Practices.  The Company has developed an
         array of technical service offerings  organized into specific Technical
         Practices   in   particular   information    technologies,    such   as
         Client/Server,  Windows NT,  Messaging,  and Year 2000 and Conversions.
         The  Company is  committed  to  continuously  expanding  its  Technical
         Practice  expertise and plans to add  additional  Technical  Practices,
         such as PeopleSoft and SAP, in the future.  TACT believes the expansion
         of its service  offerings will allow the Company to continue to address
         its  clients'  needs  throughout  the  life-cycle  of their IT systems,
         thereby providing the opportunity to become a preferred  provider of IT
         solutions for its client base.

         Open Additional Solution Branches. The Company opened a Solution Branch
         in  Connecticut in December of 1997, and expects to increase its client
         base by opening  additional  Solution  Branches in select major markets
         throughout  the country.  The Company plans to target markets where its
         existing  consulting,  software and training  clients have  operations.
         TACT  believes  that  local  Solution  Branches  create  a  competitive
         advantage over competing firms without a local presence by establishing
         greater name  recognition for the Company and increasing  referrals for
         its services within the potential client base in that market.

         Increase  Sales  and  Marketing  of  Software   Products  and  Training
         Services.  The  Company  intends  to  continue  to add to its  software
         product offerings by identifying and marketing  innovative  third-party
         developed  software  products,  particularly  in the area of Windows NT
         add-on products. TACT also intends to increase its marketing efforts of
         its software products through trade shows, direct mail,  telemarketing,
         telesales,  client  presentations and referrals,  as well as expand its
         training services.

         Attract,  Develop,  Motivate and Retain Quality IT  Professionals.  The
         Company's  past and future  success is  dependent  upon its  ability to
         attract,  develop,  motivate and retain highly qualified

                                       2
<PAGE>


         personnel.  The  Company  offers  attractive  compensation  and benefit
         packages,   free  training   opportunities,   and  devotes  significant
         resources to recruiting.

TACT Operations

         The  Company  provides  enterprise-wide  IT  consulting,  software  and
training   services  and   solutions  to  Fortune  1000   companies   and  other
organizations  in a wide range of  industries.  The Company's  services  offered
through TACT  Consulting  include  strategic IT consulting,  IT solutions and IT
professional services designed to improve the client's productivity, competitive
position and performance. TACT Software markets software add-on tools to enhance
database environments,  mainframe and non-mainframe  connectivity and Windows NT
administration.  TACT Training offers a wide selection of technical and end-user
training  courses in  client/server,  internet/intranet,  legacy and  networking
technologies for both clients and consultants.

         TACT Consulting. TACT Consulting provides enterprise-wide IT Consulting
Services  across  diverse  technology  platforms for Fortune 1000  companies and
other organizations.  Strategic IT consulting includes technology infrastructure
advisory  services  and  systems   architecture  design.  IT  solutions  include
planning,  designing and implementing  enterprise-wide information systems, such
as workgroup solutions  (Microsoft Exchange and Lotus Notes);  internet/intranet
and  EDI;  client/server;  database  management  services;  application  design,
development and implementation;  networking;  imaging and workflow;  and systems
integration.  Revenues from consulting services were $32,481,000 (92.2% of total
revenues), $18,981,000 (90.4% of total revenues) and $14,430,000 (90.1% of total
revenues) for the years ended December 31, 1997, 1996 and 1995, respectively.

         By  focusing  on its  technical  expertise,  high level of service  and
business-oriented IT solutions,  the Company has attempted to build a reputation
as a quality  provider  of IT  consulting  services.  The  Company  continuously
identifies and develops additional technical expertise in emerging  technologies
in  anticipation  of the evolving IT needs of its clients.  In order to become a
one stop solution  provider for its client's IT needs, the Company has organized
its  extensive  service  offerings  into  specific  Technical  Practices  having
specialized  expertise in  particular  information  technologies.  The Company's
current  Technical  Practices and other  specialized  areas of expertise include
Internet/Intranet,   Client/Server,   Legacy  Systems,   Networking  and  System
Management, Windows NT, Year 2000 and Conversions, Imaging and Workflow, Quality
Assurance  and  Testing,   Messaging,   Security,  Data  Warehousing  and  Lotus
Notes/Microsoft Exchange.

         Each Technical  Practice is managed by an expert in that  particular IT
field.  Technical  Practice  Managers  architect  and develop  solutions for the
Company's clients as well as interact closely with one another to devise a total
solution  that  spans  multiple   technologies   and  platforms  for  a  client.
Additionally,  the  Technical  Practice  Managers  continually  perform  quality
assurance  reviews  to ensure  that the  proposed  solution  addresses  both the
technical  and  business  needs of the client.  The Company  has  organized  its
services  into  Technical  Practices  in an effort to enable  TACT to deliver IT
services quickly and efficiently to solve the diverse IT needs of its clients.

         TACT markets and delivers its IT solutions  through TACT Solution Teams
composed  of  Project  Managers,   Technical  Practice  Managers  and  Technical
Specialists.   These  professionals   possess  the  project  management  skills,
technical  expertise and industry experience to identify and effectively address
a particular  client's  technical needs in relation to its business  objectives.
TACT's focus on providing highly  qualified IT professionals  allows the Company
to identify  additional areas of the client's  business which could benefit from
the Company's IT solutions, thereby facilitating the cross-marketing of multiple
Company  services.  The Company  keeps its  Solution  Teams at the  forefront of
emerging technologies through close interaction with TACT research personnel who
identify innovative IT tools and technologies with significant  applications for
Fortune 1000 companies and other organizations. As a result, management believes
that TACT  Solution  Teams are  prepared to  anticipate  client  needs,  develop
appropriate  strategies and deliver comprehensive IT services,  thereby allowing
the Company to deliver the highest quality IT services in a timely fashion.

                                       3
<PAGE>



         A Solution Team is typically  deployed from one of the Company's  local
Solution  Branches in order to provide  solutions  to its  clients by  utilizing
local resources.  Currently, the Company maintains three Solution Branches - one
in each of New York,  New Jersey and  Connecticut.  Management's  experience has
been that the local  presence  established  by a Solution  Branch  improves  the
Company's  ability to attract local clients,  as well as its ability to attract,
develop,  motivate and retain  locally-based  IT  professionals.  The  Company's
corporate headquarters supports each Solution Branch and performs many functions
which allow the Solution  Branches to focus on recruiting,  sales and marketing.
Management  has  developed  the TACT  Solution  Teams,  as well as TACT's  local
Solution Branch  structure,  in an effort to advance the Company's  objective of
establishing and maintaining long-term  relationships with its clients.  Sixteen
of the  Company's  top twenty  clients  measured  by revenue  for the year ended
December 31, 1997 had been clients for over three years.

         Solution Branch  Managers are  responsible for recruiting  consultants,
assigning  consultants to fulfill client  requirements,  implementing  sales and
marketing programs, and managing client and employee relations. In employing new
Solution Branch Managers,  the Company seeks candidates who have demonstrated IT
industry and local  client  knowledge,  managerial  and  organizational  skills,
initiative  and  strong  interpersonal  skills.  In  addition,  a portion of the
Solution Branch Managers'  compensation  results from an incentive bonus package
based upon revenue and profit  generated by the  Solution  Branch,  fostering an
entrepreneurial culture throughout the Company.

         TACT has established professional  affiliations that enable the Company
to share technical and industry  knowledge and pursue  marketing  opportunities.
TACT is  currently  an IBM  BESTeam  Member,  Microsoft  Solution  Provider  and
Computer Associates Consulting Partner. These relationships  typically allow the
Company to receive information,  products and product support and participate in
training  programs which may enable the Company's  employees to become certified
in a given technology.

         TACT Software.  TACT markets and distributes over 20 software  products
developed  by  independent  software   developers.   The  Company  believes  its
relationships  with over 150 software  clients  throughout  the country  provide
opportunities  for the delivery of  additional  TACT  consulting  services.  The
software  products offered by TACT Software are developed in England and Finland
and marketed primarily through trade shows, direct mail,  telemarketing,  client
presentations and referrals.  TACT Software  personnel  currently includes sales
and marketing personnel as well as 24-hour technical support.  Revenues from the
sale of software products were approximately $2.5 million, $1.8 million and $1.4
million,  representing 7.2%, 8.5% and 8.6% of total revenues for the years ended
December 31, 1997, 1996 and 1995, respectively.

         TACT's  software  product  offerings  include add-on tools that enhance
functionality,  performance and productivity of IDMS database environments, IDMS
and DB2 connectivity, and mainframe and non-mainframe connectivity. For example,
the  Company's   VEGA-90's   software   allows   coexistence  of  mainframe  and
non-mainframe  clients in a  client/server  environment as well as  connectivity
between IDMS and DB2 database systems.

         The  Company  intends to  continue  to focus on adding to its  software
product offerings by identifying and marketing innovative  third-party developed
software  products and become a leading  provider of Windows NT add-on products.
TACT intends to increase  its  marketing  efforts of new and  existing  software
products through  telemarketing,  telesales,  direct mail, client presentations,
trade shows and referrals.  The Company  intends to leverage  existing  software
client relationships by targeting new Solution Branches in or near markets where
software clients are located to cross-sell consulting services.

         In 1997,  TACT  engaged  in  discussions  with a number of  third-party
software  developers,  and in  particular  the Company  entered into  definitive
agreements  with  Computer  Associates  ("CA").  TACT  Software is an authorized
reseller of CA software products, including Unicenter TNG, an advanced, multiple
component,  multifunctional  system  management  product.  TACT has  also  begun
training  consultants  in-house  to  become  CA-Certified   Unicenter  Engineers
("CUE's"), who will be trained to install,  configure and customize Unicentering
for TACT clients. In keeping with the Company's integrated


                                       4
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 services approach to serving the marketplace,  TACT Consulting  presently plans
to make CUE's available for placement at client sites to implement the Unicenter
TNG applications.

         TACT Training. TACT offers an extensive selection of technical training
courses to Fortune  1000  companies  and other  organizations  at either  TACT's
Training  Center  or at a  client's  site.  These  courses  include  classes  in
client/server and legacy technologies as well as in recent technologies, such as
JAVA, ActiveX,  Active Server Pages and HTML. In addition,  the Company conducts
presentations   on  specific   topics,   such  as  co-existence  of  legacy  and
client/server   systems,   use  of  legacy   mainframe   databases  as  servers,
conversion/migration  of legacy  systems to new  architectures  and  performance
monitoring/tuning.   TACT  offers  end-user  training  for  both   off-the-shelf
software,  such as  Microsoft  Office and Lotus  Notes,  and  customer  specific
applications.  Revenues from training services  represented less than 1% for the
year ended  December  31, 1997 and  approximately  1% of total  revenues for the
years ended December 31, 1996 and 1995 respectively.

         The  Company's  training  services are often  included in total project
solutions for businesses,  in retraining MIS personnel in new technologies,  and
in software vendor product training.  These courses may be customized to address
a client's  specific  needs and are taught at the  client's  site or at the TACT
Training  Center.  TACT utilizes  computer labs to enable  participants  to gain
practical experience in the materials  presented.  TACT's training curriculum is
developed  in-house by technicians with a working experience in the technologies
being taught. In addition,  TACT provides a "Fast Track" program and a series of
"For Consultants  Only" classes on evenings and weekends to  train/re-train  the
consultant  community  in new  technologies.  All classes are free of charge for
TACT employees.  Consultants who are non-TACT  employees pay a nominal fee which
is refunded if the  consultant  joins TACT within three months after  completing
the training.

         Management  believes that TACT's training services are an important and
differentiating  factor in  attracting  and  retaining  IT  professionals.  TACT
training courses  introduce  prospective  consultants to the Company and provide
for technical advancement for the Company's existing consultants.  TACT training
clients  also  represent  an  opportunity  for the Company to market  additional
services  such as  consulting  services.  The  Company  has been  successful  in
generating  consulting  business from its training clients and plans to continue
to identify situations where its knowledge of a training client's needs can lead
to other IT business.

Clients

         The  Company's  clients  consist  primarily of Fortune 1000  companies.
Because  of the  diverse  range of  industries  in which the  Company's  clients
operate,  the Company believes that it is not dependent upon any single industry
or market. The Company seeks to establish and maintain  long-term  relationships
with its  clients.  Sixteen of the  Company's  top twenty  clients  measured  by
revenue for the year ended  December  31,  1997 had been  clients for over three
years.  In each of the last  three  years,  the  Company  has had at  least  one
customer with revenues  exceeding 10% of the Company's  revenues.  In 1997,  the
largest customer represented 24% of revenues, while in 1996 and 1995 the largest
customer  represented 12% and 14% of revenues,  respectively.  In 1995, a second
customer represented 11% of revenues. Besides these customers, no other customer
represented greater than 10% of the Company's revenues.

         The Company  believes the ability to provide  qualified  personnel in a
timely  manner,  to understand  specific  technical  requirements  and to ensure
client satisfaction are the primary factors in attracting and retaining clients.
Although the Company believes it offers its services at competitive  prices,  it
is typically not the lowest priced provider and, instead,  competes on the basis
of technical expertise and quality of service.

TACT Recruiting

         The  Company's  success  depends  in large  part  upon its  ability  to
attract,  develop,  motivate and retain highly  skilled  technical  consultants.
Because  qualified  technical  consultants are in great demand and are likely to
remain a limited  resource for the  foreseeable  future,  the Company  dedicates
significant human

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<PAGE>


and  capital  resources  to  recruit  consultants  with both IT  consulting  and
industry   experience.   The  Company's   corporate   headquarters  has  overall
responsibility  for  national,  international  and internet  recruiting  and for
providing corporate-wide recruiting guidelines and procedures. In addition, each
Solution  Branch  works with  corporate  headquarters  to recruit  locally-based
consultants. TACT conducts ongoing candidate searches and maintains an extensive
central repository of data for candidates and client requirements.

         The Company hires consultants through various recruiting efforts and by
referral from the technical and  administrative  personnel of the Company.  Each
candidate is screened through detailed  interviews by the Company's  recruiting,
technical and management personnel. In addition, the Company's training programs
provide a pool of  experienced  candidates  from which the Company has recruited
and hired qualified  consultants.  Consultants  include management  consultants,
project managers,  team leaders,  system architects,  business analysts,  system
analysts,  database  administrators,   programmer  analysts,  programmers,  data
warehousing   specialists,   systems  administrators,   LAN  administrators  and
messaging  specialists.  The Company seeks to offer its consultants  competitive
pay,  attractive  assignment  opportunities  and state of the art  training  and
retraining courses,  and offers stock options as part of an overall compensation
program to attract and retain certain technical specialists.

TACT Research

         TACT  continuously  researches  new  technologies  developed  by  third
parties to determine  their  viability and  potential  acceptance in the Fortune
1000 marketplace.  TACT research  personnel work closely with Technical Practice
Managers  to  predict  future  tools and  technologies  to be used by  corporate
America so that TACT consultants can be trained in those emerging  technologies.
TACT  research  personnel  also  prepare  technology  demonstrations  and  pilot
projects  used in the  Company's  marketing  and  sales  efforts  and  identify,
evaluate and  recommend  software  products,  including  those to be marketed by
TACT's Software division.  In addition,  TACT research personnel  participate in
short-term  special projects requiring  particular  expertise for certain of the
Company's clients.

Marketing Activities

         TACT markets its services to its clients directly through its marketing
and  relationship  management  personnel  at  its  corporate  headquarters.  The
Company's  relationship  managers focus their marketing  efforts at the level of
chief information  officers and senior executives who determine  corporate level
IT needs and requirements. The Company's customer relationship managers interact
closely with the Company's sales,  recruiting and Technical Practice  personnel.
Sales  representatives  at the Solution Branch level initiate  contacts at lower
levels within an organization,  but target individual's  ranging from actual end
users up through the senior decision makers.

         The  Company  also  markets  its  services   through  various  targeted
marketing initiatives.  One such initiative is The Tactician magazine,  which is
regularly  published  in-house and  distributed by TACT. The Tactician  presents
articles  on a  variety  of  topics  including  current  TACT  projects,  TACT's
accomplishments, industry viewpoints and technology trends, technology "bugs" or
"fixes,"  product  reviews  and  business-related  news  and  developments.  The
magazine  circulates both to existing and potential  clients as well as existing
consultants and candidates.  Another marketing  resource,  which has also served
the  Company  in  its  recruiting   efforts,   is  the  Company's  web  site  at
http://www.tact.com. The web site provides information about TACT consulting and
training services and software products to the IT community.

         The Company's  participation  in local and national user groups,  trade
shows,  conventions  and  expositions  enhances the Company's  visibility,  name
recognition   and  contacts.   TACT   Consulting,   for  example,   exhibited  a
demonstration of its web-enabled database  transaction  capabilities by creating
personalized  web pages for visitors at the DB-Expo and Internet  World shows in
New York City in 1997.  TACT Software  exhibited its products at COMDEX  Chicago
and Las Vegas, the Windows NT/Internet Solutions show in San Francisco, Computer
Associates World `97 in New Orleans and IDUG `97 in Chicago. In addition, TACT's
recruiting personnel regularly participate in IT industry career fairs.

                                       6

<PAGE>

Competition

         The market for IT services is intensely competitive.  It is affected by
rapid technological advances and includes a large number of competitors. Primary
competitors  include the  consulting  divisions of "Big Six"  accounting  firms,
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 an
existing cost to the client.  Such  competition  may impose  additional  pricing
pressures on the Company.

         The Company believes that the principal  competitive  factors in the IT
services  market  include  breadth of  services  offered,  technical  expertise,
knowledge and experience in the industry,  quality of service and responsiveness
to client needs. The Company believes it competes  primarily on the basis of its
in-depth  technical  expertise,  timely  delivery of products  and  services and
quality of service.

         A  critical  component  of the  Company's  ability  to  compete  in the
marketplace  is its ability to attract,  develop,  motivate  and retain  skilled
professionals. Although highly skilled technical employees, particularly project
managers and technical specialists, are in great demand, the Company believes it
can  compete  favorably  in  hiring  such  personnel  by  offering   competitive
compensation packages and attractive assignment opportunities.

Human Resources

         At December 31, 1997,  the Company had 319  employees  and  independent
contractors, of whom 229 were consultants, 12 were recruiting personnel, 28 were
sales and marketing personnel, 11 were technical and customer service personnel,
and 39 were executive and  administrative  personnel.  The Company  utilizes the
services  of  a  significant  number  of  independent   contractors  to  act  as
consultants. These independent contractors are not employees of the Company, and
there can be no  assurance  that the services of these  independent  contractors
will continue to be available to the Company on terms acceptable to the Company.

         The  Company  does not  have any  collective  bargaining,  pension,  or
incentive  compensation  arrangements  with any of its employees or  independent
contractors.  The  Company  considers  its  relations  with  its  employees  and
independent contractors to be good.

Intellectual Property Rights

         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 has entered into
confidentiality  agreements  with  its  employees  and  limits  distribution  of
proprietary  information.  There can be no  assurance,  however,  that the steps
taken by the Company 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. 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 the
Company's  ability to  establish  or protect its right to use these  terms.  The
Company  has in the  past  been  contacted  by other  users  of the term  "TACT"
alleging rights to the term. The Company's  inability or failure to establish or
protect  rights  to  these  terms  may have a  material  adverse  effect  on the
Company's business, results of operations and financial condition.

         Software   developed  by  the  Company  in  connection  with  a  client
engagement  is  typically  assigned to the client.  In limited  situations,  the
Company may retain ownership or obtain a license from its client,  which permits
the Company or a third party to market the software for the joint benefit of the
client and the Company or for the sole benefit of the Company.


                                       7

<PAGE>

Item 2.  Description of Properties

         The Company does not own any real  property.  The  Company's  principal
executive offices are leased and are located at 200 Park Avenue South, New York,
New York and consist of  approximately  11,000 square feet of space. For the New
Jersey  Solutions  branch,  the Company  leases a facility at 67 Walnut  Avenue,
Clark, New Jersey,  consisting of approximately  2,600 square feet of space. The
Company leases a facility consisting of approximately 3,900 square feet of space
for its Stamford, Connecticut Solutions Branch, which opened in December 1997.

Item 3.  Legal Proceedings

         The Company is not involved in any material legal proceedings.

Item 4.  Submission of Matters to a Vote of Security Holders

         No matters were submitted  during the fourth quarter of the fiscal year
covered by this report to a vote of security  holders,  through the solicitation
of proxies or otherwise.

PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

Price Range of Common Stock

         The Company's common stock is currently included in the Nasdaq National
Market system under the symbol TACX.  TACT completed an initial public  offering
in August 1997.  Prior to that date there was no market for the Company's Common
Stock.  The  following  table sets  forth,  on a per share basis for the periods
shown,  the range of high and low sales prices of the Company's  Common Stock as
reported by Nasdaq:

Fiscal Year                             High                     Low
-----------                             -------                  ------
1997
  Third Quarter                         $14.125                  $12.00
  Fourth Quarter                        $12.875                  $ 9.25

Dividend Policy

         The Company has never paid any cash dividends on its Common Stock.  The
Company currently intends to retain future earnings for use in its business and,
therefore,  does not  anticipate  paying any cash  dividends in the  foreseeable
future.

Approximate Number of Stockholders

         As of March 3, 1998, there were approximately 8 shareholders of record.
The Company believes that the number of beneficial shareholders exceeds 400.

Recent Sales of Unregistered Securities

         There have been no sales of unregistered securities by the Company.

Item 6.  Management's Discussion and Analysis of Plan of Operation

         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.

                                       8
<PAGE>


Overview

         TACT  provides  enterprise-wide  IT  consulting,  software and training
services and  solutions  primarily to Fortune 1000  companies in a wide range of
industries.  The Company  generates  over 90% of its revenues from IT consulting
services.  Moreover, over 95% of the Company's consulting services revenues were
generated  from the hourly billing of its  consultants'  services to its clients
under  time and  materials  engagements,  with  the  remainder  generated  under
fixed-price engagements.

         The Company  establishes  standard  billing  guidelines  for consulting
services  based  on the  type of  service  offered.  Actual  billing  rates  are
established  on a  project  by  project  basis  and may vary  from the  standard
guidelines.  The Company  typically  bills its  clients  for time and  materials
services on a semi-monthly basis.  Arrangements for fixed-price  engagements are
made on a case-by-case basis.  Consulting services revenues generated under time
and materials engagements are recognized as those services are provided, whereas
consulting  services  revenues  generated  under  fixed-price   engagements  are
recognized according to the percentage of completion method.

         The Company's most  significant  operating cost is its personnel  cost,
which is included in cost of  revenues.  As a result,  the  Company's  financial
performance is primarily  based upon billing margin  (billable  hourly rate less
the consultant's  hourly cost) and consultant  utilization rates (number of days
worked by a consultant during a semi-monthly billing cycle divided by the number
of billing days in that cycle).  During the periods  presented,  the Company has
been able to increase its billing margins by increasing its hourly billing rates
and  through  higher  margin  service  offerings  in new  technologies  such  as
client/server and  internet/intranet.  These increases,  however, were partially
offset by increases in consultants' and employees'  salaries and wages.  Because
most of the Company's engagements are on a time and materials basis, the Company
generally  has been able to pass on to its  clients  most  increases  in cost of
services.  Accordingly,  such increases have  historically not had a significant
impact  on the  Company's  financial  results.  Further,  most of the  Company's
engagements allow for periodic price adjustments to address, among other things,
increases  in  consultant  costs.  TACT  also  actively  manages  its  personnel
utilization rates by constantly  monitoring project requirements and timetables.
As projects are completed, consultants are re-deployed either to new projects at
the  current  client  site or to new  projects at another  client  site,  or are
encouraged to participate in TACT's  training  programs in order to expand their
technical skill sets.

         The Company also generates  revenues by selling  software  licenses and
providing training  services.  In addition to initial software license fees, the
Company derives revenues from the annual renewal of software licenses.  Revenues
from the sale of software  licenses are recognized upon delivery of the software
to a customer,  and training service revenues are recognized as the services are
provided.

         The Company's  revenue growth has been driven by three primary factors:
increasing the number of technical consultants,  managing the business to attain
higher average billing rates through the delivery of higher value-added services
to the Company's clients,  and carefully managing consultant  utilization rates.
Additionally,  the Company has expanded its Technical  Practices into areas such
as  Windows  NT  and  Internet/Intranet,  which  has  enabled  it to  cross-sell
higher-margin  services.  The  Company  also has been  successful  in  expanding
existing client relationships as well as establishing new client  relationships.
Such  relationships  are established and maintained  through the Company's local
Solution Branch offices located in New York and New Jersey.

         On August  8,  1997,  the  Company  commenced  an  underwritten  public
offering (the "Offering")  whereby  1,935,000  shares of Common Stock,  $.01 par
value (the "Common Stock"),  were sold by the Company  (including 135,000 shares
of Common Stock sold by the Company pursuant to the underwriters' over-allotment
option).  Mr. Shmuel BenTov,  Chairman of the Board, Chief Executive Officer and
President  of TACT,  also sold  135,000  shares  of Common  Stock as part of the
underwriters'  over-allotment  option.  Net  proceeds  to the  Company  from the
Offering  were  approximately  $21,071,000.  See  "Management's  Discussion  and
Analysis of Plan of Operation--Liquidity and Capital Resources."

         The Company  opened an additional  Solution  Branch in  Connecticut  in
December of 1997. The Company plans to open additional  Solution Branches in one
or two  other  select  major  U.S.  markets  in

                                       9
<PAGE>


1998.  Considering its limited  experience with opening Solution  Branches,  the
Company  cannot  predict  when new  Solution  Branches  will  contribute  to the
Company's net income.  Until such time, the Company will have incurred the costs
associated  with  opening  each new  Solution  Branch,  including  the  costs of
salaries and occupancy.

         The Company was an S Corporation between January 1, 1995 and August 12,
1997, the day before the Company completed the Offering. During this period, the
Company was not subject to federal income taxes at the corporate level.

Results of Operations

         The  following  tables set forth the  percentage of revenues of certain
items included in the Company's Statements of Operations:
<TABLE>
<CAPTION>
                                                    Year Ended
                                                    December 31,
                                     --------------------------------------
                                         1997          1996         1995
                                         ----          ----         ----
<S>                                 <C>           <C>            <C>

Consulting services.............         92.2 %        90.4 %       90.1 %
Software licensing..............          7.2           8.5          8.6
Training services...............          0.6           1.1          1.3
                                    ------------  ------------   ----------
     Total revenues.............        100.0         100.0        100.0
Cost of revenues................         68.0          69.2         68.9
                                    ------------  ------------   ----------
     Gross profit...............         32.0          30.8         31.1
Selling, general and
 administrative expense.........         22.6          30.1         29.4
Income (loss) from operations...          9.5           0.5          0.6
Net income......................          7.2             *          1.2
Pro forma income from
 operations.....................          9.4           6.3            -
Pro forma net income............          5.6           3.3            -
</TABLE>
----------
*Represents less than 0.1%.

Comparison of Year Ended December 31, 1997 to Year Ended December 31, 1996

     Revenues.  Revenues of the Company increased by $14.2 million, or 68%, from
$21.0 million for the year ended December 31, 1996 ("1996") to $35.2 million for
the year ended December 31, 1997  ("1997").  Revenues from  consulting  services
increased by $13.5 million,  or 71%, from $19.0 million in 1996 to $32.5 million
in  1997.  As a  percentage  of total  revenues,  consulting  services  remained
relatively  constant at  approximately  90%. The increase in 1997  revenues from
consulting  services  was  primarily  the  result  of  an  increased  number  of
consultants  and, to a lesser  extent,  higher hourly billing rates and a higher
consultant  utilization  rate. The number of consultants  engaged by the Company
increased 52% from December 31, 1996 to December 31, 1997. The Company continued
to receive significant full life cycle projects involving  networking and system
management, Windows NT rollout, client/server development, quality assurance and
testing,  and  internet/intranet  from existing clients which resulted in higher
billings.

         Software  licensing  revenues  increased by $0.7 million,  or 43%, from
$1.8 million in 1996 to $2.5 million in 1997. This increase was primarily due to
an increase in Year 2000 product sales and in license renewals.

         Revenues from training  represented less than 1% of the Company's total
revenues in 1997 and approximately 1% in 1996.

         Gross Profit. The resulting gross profit increased by $4.8 million,  or
74%,  from $6.5 million in 1996 to $11.3  million in 1997.  As a  percentage  of
total revenues,  gross profit  increased  slightly from 31% of total revenues in
1996 to 32% in 1997.

                                       10
<PAGE>



         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses increased by $1.7 million, or 26%, from $6.3 million in
1996 to $8.0  million in 1997.  Expressed  as a  percentage  of sales,  selling,
general and administrative  expenses  decreased,  representing 23% of total 1997
revenues  as compared to 30% of total 1996  revenues.  The  increase in selling,
general  and  administrative  expenses  in 1997  was  primarily  the  result  of
increases  in the number of  technical  practice  personnel  hired and not fully
utilized,  the  addition of sales,  recruiting  and  administration  staff,  the
establishment of the Stamford, Connecticut Solutions Branch office and increased
health costs and depreciation expense.

         Actual  and Pro  Forma Net  Income.  Actual  net  income  increased  by
approximately  $2.5  million,  from $8,000 in 1996 to $2.5 million in 1997.  Pro
forma net income was $2.0  million in 1997 as compared to $692,000 in 1996.  Pro
forma net income  includes an adjustment for executive  compensation  to reflect
the terms of new contracts with the Chief Executive  Officer and Chief Financial
Officer. In addition, it also includes an adjustment to provide for income taxes
as if the Company had been a C corporation for all periods presented.

Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995

         Revenues.  Revenues of the Company  increased by $5.0 million,  or 31%,
from $16.0  million  for the year ended  December  31,  1995  ("1995")  to $21.0
million in 1996. Revenues from consulting services increased by $4.6 million, or
32%,  from $14.4  million in 1995 to $19.0  million in 1996.  As a percentage of
total   revenues,   consulting   services   remained   relatively   constant  at
approximately  90%. The increase in 1996 revenues from  consulting  services was
primarily  the result of an  increased  number of  consultants  and, to a lesser
extent,  higher hourly billing rates.  The number of consultants  engaged by the
Company  increased 34% from December 31, 1995 to December 31, 1996.  The Company
obtained  several large  projects from its existing  client base and new clients
related to higher value-added services such as internet/intranet,  client/server
and networking and system management services.

         Software  licensing  revenues  increased by $0.4 million,  or 28%, from
$1.4 million in 1995 to $1.8 million in 1996. This increase  primarily  resulted
from  increased  sales and marketing  efforts by additional  sales staff and the
marketing of new software products.

         Revenues from training  represented  approximately  1% of the Company's
total revenues in each of 1995 and 1996.

         Gross Profit. The resulting gross profit increased by $1.5 million,  or
30%, from $5.0 million in 1995 to $6.5 million in 1997. As a percentage of total
revenues, gross profit was approximately 31% for each of 1995 and 1996.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses increased by $1.6 million, or 34%, from $4.7 million in
1995 to $6.3  million in 1996.  Expressed  as a  percentage  of total  revenues,
selling,  general and  administrative  expenses  increased,  representing 29% of
total 1995 revenues as compared to 30% of total 1996  revenues.  The increase in
selling, general and administrative expenses in 1996 was primarily the result of
an  expansion  implemented  by  the  Company  to  develop  additional  Technical
Practices.

         Actual Net Income.  Actual net income  decreased  by  approximately
$182,000,  from  $190,000 in 1995 to $8,000 in 1996.

Liquidity and Capital Resources

         The Company's  operations and geographic expansion are funded from cash
flow  generated from  operations,  borrowings  under the Company's  credit line,
borrowing from the principal  shareholder  and from balances  generated from the
Offering.  The Company sold a total of  1,935,000  shares of Common Stock in the
Offering,  generating net proceeds to the Company of approximately  $21,071,000.
As of December 31, 1997, the uses of these funds were as follows: a distribution
of $2.0 million (the


                                       11
<PAGE>

"Distribution")  was paid to the sole  shareholder  of the Company  prior to the
initial public  offering,  $1.9 million was paid to Citibank,  N.A. to repay its
line of credit, and $17.2 million was made available to fund current operations.
The Company currently has no outstanding borrowings.

         The Company's  cash  balances  were $347,000 at December 31, 1996,  and
$16,945,000 at December 31, 1997. Net cash provided by operating  activities was
$944,000  for the year  ended  December  31,  1997.  Net cash used in  operating
activities  was $1,030,000 and $841,000 for the year ended December 31, 1996 and
1995,  respectively.  In accordance with investment  guidelines  approved by the
Company's Board of Directors,  cash balances in excess of those required to fund
operations  have been  invested  in  short-term  commercial  paper with a credit
rating no lower than A1, P1.

         Historically,   the  Company's   primary  cash  requirements  had  been
satisfied  through  periodic use of its line of credit and from  borrowings from
the Company's sole shareholder  prior to the Company's  initial public offering.
During 1996 and into early  1997,  the Company  steadily  increased  its line of
credit with  Citibank,  N.A. from  $200,000 to  $3,100,000 to satisfy  operating
needs and fund the  repayment of certain loans to the sole  shareholder.  At the
time of the  public  offering,  $2,665,000  was  outstanding  under this line of
credit and the Distribution was  outstanding.  Immediately  following the public
offering,  substantially  all of these amounts were paid. The Company  currently
has a line of credit of $2,100,000 and has no outstanding borrowings.

         The line of credit is guaranteed by the Company's shareholder. The line
of credit  bears  interest  at a variable  rate based on prime plus 1% (9.25% at
December 31, 1996, and 8.5% at December 31, 1997).

         The Company's accounts receivable at December 31, 1996 and December 31,
1997 were $4,164,000 and $7,238,000,  respectively,  representing 65 and 67 days
of sales outstanding ("DSO"),  respectively. The Company does not anticipate any
difficulty in collecting  amounts due,  since this increase in DSO resulted from
increased  sales  toward the end of the  reporting  period and  business  with a
client that has been granted  longer  payment  terms.  In each of the last three
years, the Company has had at least one customer with revenues  exceeding 10% of
the  Company's  revenues.  In 1997,  the  largest  customer  represented  24% of
revenues, while in 1996 and 1995 the largest customer represented 12% and 14% of
revenues,  respectively. In 1995, a second customer represented 11% of revenues.
Besides these customers,  no other customer  represented greater than 10% of the
Company's revenues.

         Net cash provided by financing activities was approximately $16,556,000
for the year ended December 31, 1997,  representing the proceeds from the public
offering,  offset by repayment of bank debt and loans and the Distribution.  Net
cash provided by financing  activities  for the year ended December 31, 1996 was
approximately $1,306,000,  primarily representing proceeds from bank borrowings.
Net cash provided by financing  activities  for the year ended December 31, 1995
was approximately  $1,246,000,  primarily  representing proceeds of loans by the
principal shareholder.

         Net cash used in investing  activities was  approximately  $903,000 for
the year ended December 31, 1997, representing the purchase of fixed assets. Net
cash used in  investing  activities  for the year ended  December  31,  1996 was
approximately $349,000 representing the purchase of fixed assets and to a lesser
extent an advance to a joint venture.  Net cash used in investing activities for
the year ended December 31, 1995 was approximately $98,000,  mainly representing
the purchase of fixed assets.

         In  management's  opinion,  cash flows from  operations  and  borrowing
capacity  combined  with  proceeds  from  the  Offering  will  provide  adequate
flexibility for funding the Company's working capital  obligations and expansion
plans.
                                       12
<PAGE>

New Accounting Pronouncements

         In June 1997,  the FASB issued  Statement No. 131.  "Disclosures  about
Segments of an Enterprise and Related  Information"  ("SFAS No. 131"), which the
Company is required to adopt for its year ended December 31, 1998.  SFAS No. 131
establishes  standards  for the way  that  public  business  enterprises  report
information about operation segments in annual financial statements and requires
that those

                                       12
<PAGE>


enterprises  report selected  information  about  operating  segments in interim
financial  reports issued to  shareholders.  It also  establishes  standards for
related  disclosures  about product and services,  geographic  areas,  and major
customers.  The  adoption  of SFAS No. 131 will have no impact on the  Company's
consolidated results of operations, financial position or cash flow.

Impact of Year 2000

     Management  has  initiated  a program to  prepare  the  Company's  computer
systems to accurately process transactions relating to the year 2000 and beyond.
The Company  utilizes  third party vendor network  equipment,  telecommunication
products,  and other third party software products.  The failure of any critical
components  in these  products to operate  properly in the year 2000 may have an
adverse  impact  on  business  operations  and  require  the  Company  to  incur
unanticipated expenses.

     The Company has an overall plan and a  systematic  process in place to make
its internal  financial  and  administrative  systems year 2000 ready within the
next twelve to eighteen  months.  Modification or replacement of portions of the
Company's  software may be required so that the computer  systems will  function
properly  with  respect  to date  values for the year 2000 and  thereafter.  The
Company  presently  believes that with  modifications  to existing  software and
conversions  to new  software,  year  2000  issues  will  not  pose  significant
operational problems for its computer systems.

     During the  execution  of the  compliance  process the  Company  will incur
certain costs and expenses.  Though the Company has not established a final cost
estimate,  the expense of the year 2000  compliance  process is not  expected to
have a  material  effect on the  Company's  financial  position  or  results  of
operations.  The Company expects that its internal year 2000 compliance  process
will be  completed  on a  timely  basis.  If such  modifications  are not  made,
however,  or are not  completed in a timely  manner,  the year 2000 issues could
have a material impact on the operations and financial condition of the Company.

     Finally,  the Company licenses  software  developed by third parties to end
user clients.  The third party  developers have designed and tested the majority
of their recent product offerings to be year 2000 compliant.  However,  there is
currently a small minority of the Company's end user clients  utilizing  product
offerings  that  have  not  been  updated  to  meet  the  year  2000  compliance
specifications.  The Company is making efforts to address this issue and expects
that the third party  developers will continue to update older products and test
all new product offerings for year 2000 compliance. The Company is requiring its
third party software  developers to represent that the products  provided are or
will be year 2000 compliant. There can be no assurance, however, that all of the
Company's  products  under  license  and in use by  clients  will be  year  2000
compliant  prior to and following  January 1, 2000.  No assurances  can be given
that the Company can completely avoid all costs and  uncertainties  arising from
non-compliance that might materially affect future financial results.

Factors That Could Affect Operating Results

     Statements  included  in this  Management's  Discussion  and  Analysis  and
elsewhere  in  this  document  that  do not  relate  to  present  or  historical
conditions are  "forward-looking  statements" within the meaning of that term in
Section 27A of the Securities Act of 1933, as amended, and in Section 21F of the
Securities  Exchange  Act of  1934,  as  amended.  Additional  oral  or  written
forward-looking  statements  may be made by the Company  from time to time,  and
such  statements may be included in documents that are filed with the Securities
and  Exchange  Commission.  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

                                       13
<PAGE>

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.

o The  Company's  expansion  is  dependent  upon,  among other  things,  (i) the
availability  of consultants as employees or independent  contractors,  (ii) the
Company's  ability to identify  suitable new geographic  markets with sufficient
demand  for the  Company's  services;  to hire and  retain  skilled  management,
marketing,  customer  service and other  personnel;  and to successfully  manage
growth,  including  monitoring  operations,  controlling  costs and  maintaining
effective quality and service controls and (iii) if the Company  consummates any
acquisitions, the Company's 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 are unable to achieve anticipated  performance
levels, the Company's  business,  results of operations and financial  condition
could be materially and adversely affected.

o The Company's  business  involves the delivery of professional  services which
depends in large part upon its  ability to  attract  and retain  highly  skilled
project managers,  technical specialists and independent contractor consultants.
The  Company  utilizes  the  services  of a  significant  number of  independent
contractors to act as  consultants.  Since the Company does not have  employment
agreements  with  these  individuals  for any  specific  term,  there  can be no
assurance that the services of these  individuals  will continue to be available
to the Company on terms acceptable to the Company.

o 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.  Revenues  from the Company's ten most
significant  clients accounted for a majority of the Company's revenues in 1997.
In each of the last three years,  the Company has had at least one customer with
revenues exceeding 10% of the Company's revenues.  In 1997, the largest customer
represented  24% of  revenues,  while  in 1996 and  1995  the  largest  customer
represented 12% and 14% of revenues, respectively. Clients engage the Company on
an  assignment-by-assignment  basis,  and a client can  generally  terminate  an
assignment  at any time  without  penalty.  The loss of, or reduction in revenue
from,  any  significant  customer  could have a material  adverse  effect on the
Company's business, results of operations and financial condition.

o The  Company's  success  will  depend in part on its  ability  to meet  client
expectations,  develop IT solutions and offer  software  products,  in each case
that keeps pace with  continuing  changes in IT,  evolving  industry  standards,
changing client  preferences and a continuing  shift to outsourced  solutions by
clients.  There can be no  assurance  that the  Company  will be  successful  in
adequately   addressing  the   outsourcing   market  or  other  IT  or  software
developments  on a timely  basis or that,  if  addressed,  the  Company  will be
successful in the  marketplace.  There can also be no assurance that products or
technologies  developed  by others  will not render the  Company's  services  or
products  uncompetitive  or obsolete.  The  Company's  failure to address  these
developments  could have a material  adverse  effect on the Company's  business,
results of operations and financial condition.

o Variations in the Company's revenues and results of operations occur from time
to time as a result of a number of factors,  such as the timing of new  Solution
Branch openings,  Technical Practice expansion  activities,  the 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 Company's 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 the Company. The Company has
also experienced, and may in the future experience,  significant fluctuations in
the  quarterly  results  of  software  sales.  Software  licensing  activity  is
difficult  to  forecast  because  the number and  amount of  particular  license
transactions can vary significantly, the Company's sales incentive plans have an
unpredictable  impact on the  timing  and size of orders,  client  projects  and
evaluations may be postponed as

                                       14
<PAGE>


the year 2000  approaches,  many clients are  repairing  or  replacing  existing
applications  which  have year 2000  operability  issues.  In the event that the
Company's  results of  operations  for any period are below the  expectation  of
market  analysts  and  investors,  the market price of the Common Stock could be
adversely affected.

o The  Company  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.  There can be no assurance,  however, that the
Company's  revenues will continue to be billed primarily on a time and materials
basis or that the Company  will be able to continue to pass along  increases  in
its cost of services to is clients.

o The market for IT services includes a large number of competitors,  is subject
to rapid  change  and is  highly  competitive.  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 the Company. Such competition may impose additional pricing
pressures on the Company.

o The success of the Company is highly  dependent upon the efforts and abilities
of its executive  officers,  particularly  Shmuel BenTov, the Company's founder,
Chairman  of the Board,  Chief  Executive  Officer  and  President  and Frank T.
Thoelen,  its Chief Financial Officer.  Although Mr. BenTov and Mr. Thoelen have
entered into employment agreements containing noncompetition,  nondisclosure and
nonsolicitation   covenants,   these  contracts  do  not  guarantee  that  these
individuals  will continue their  employment  with the Company.  The loss of the
services of either of these key  executives for any reason could have a material
adverse effect upon the Company's business,  results of operations and financial
condition.

o Ownership of software from the development of custom software  applications in
connection with specific client engagements 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.  There can be no  assurance  that the steps taken by the Company 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 the Company 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 the Company's  ability to establish or protect its right to use
these  terms.  The Company has in the past been  contacted by other users of the
term "TACT" alleging  rights to the term. The Company's  inability or failure to
establish  rights  to these  terms  may have a  material  adverse  effect on the
Company's business, results of operations and financial condition.

o 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 me  Common  Stock.  Additionally,  there can be no
assurance that an active trading market for the Common Stock will be sustained.

                                       15
<PAGE>

Item 7.  Financial Statements

         The financial  statements of the Company are filed as part of this Form
10-KSB  are set forth on pages  F-2 to F-13.  The  report of Ernst & Young  LLP,
independent  auditors,  dated January 30, 1998, is set forth on page F-1 of this
Form 10-KSB.

Item 8.  Changes in and Disagreements With Accountants on Accounting and
 Financial Disclosure

         None.

PART III

Item 9. Directors,  Executive  Officers,  Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.

         The  information  required by this item is incorporated by reference to
the Company's Proxy Statement for the 1998 Annual Meeting of Shareholders  which
will be filed with the Securities and Exchange Commission on or before April 15,
1998.

Item 10.  Executive Compensation.

         The  information  required by this item is incorporated by reference to
the Company's Proxy Statement for the 1998 Annual Meeting of Shareholders  which
will be filed with the Securities and Exchange Commission on or before April 15,
1998.

Item 11.  Security Ownership of Certain Beneficial Owners and Management.

         The  information  required by this item is incorporated by reference to
the Company's Proxy Statement for the 1998 Annual Meeting of Shareholders  which
will be filed with the Securities and Exchange Commission on or before April 15,
1998.

Item 12.  Certain Relationships and Related Transactions.

         The  information  required by this item is incorporated by reference to
the Company's Proxy Statement for the 1998 Annual Meeting of Shareholders  which
will be filed with the Securities and Exchange Commission on or before April 15,
1998.

                                       16

<PAGE>



Item 13.  Exhibits List and Reports on Form 8-K.

(a)  Exhibits

Exhibit
Number         Description of Exhibits

3.1            Certificate of Incorporation of the Registrant.**
3.2            Restated Certificate of Incorporation of the Registrant**
3.3            Amended and Restated By-Laws of the Registrant**
4              Specimen Common Stock Certificate.**
10.1           Stock Option and Award Plan of the Registrant and
               Form of Nonqualified Stock Option Agreement.**
10.2           Form of Employment Agreement, dated as of the Effective Date,
               between the Registrant and Shmuel BenTov**
10.3           Form of Employment Agreement, effective as of June 30, 1997,
               between the Registrant and Frank T. Thoelen**
10.4           Form of S Corporation Termination, Tax Allocation and
               Indemnification Agreement**
10.5           Demand Note (Multiple Advances), issued February 1997, between
               Citibank, N.A. and the Registrant.**
10.6           Promissory  Note and Cross-Receipt in connection with the
               Shareholder Loan**
10.7           Joint Venture Agreement, dated April 11, 1994, between Kalanit
               Center for Marketing Software & Hardware Ltd. and
               the Registrant.**
10.8           Form of Director and Executive Officer Indemnification
               Agreement.**
10.9           Letter of Undertaking from the Registrant and Shmuel BenTov.**
23             Consent of Independent Auditors.
27             Financial Data Schedule.

** Previously filed


(b)  Reports on Form 8-K

No reports on Form 8-K were filed for the quarter ended December 31, 1997.

                                       17
<PAGE>


                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized, on the 31st day of March, 1998.

                                                     THE A CONSULTING TEAM, INC.


                                                      By:  /s/ Shmuel BenTov
                                                      --------------------------
                                                        Shmuel BenTov, President
                                                         Chief Executive Officer

In accordance  with the Securities  Exchange Act, this report has been signed by
the following  persons on behalf of the  registrant in the capacities and on the
dates indicated.


     Signature                       Title                          Date
---------------------     -------------------------------     ------------------


/s/ Shmuel BenTov          President, Chief Executive           March 31, 1998
---------------------        Officer and Director
    Shmuel BenTov         (Principal Executive Officer)


/s/ Frank T. Thoelen       Chief Financial Officer              March 31, 1998
---------------------           and Director
    Frank T. Thoelen       (Principal Financial and
                              Accounting Officer)

/s/ Reuven Battat                  Director                     March 31, 1998
---------------------
    Reuven Battat

/s/ Joseph Imholz                  Director                     March 31, 1998
---------------------
    Joseph Imholz

/s/ Steven Mukamal                 Director                     March 31, 1998
---------------------
    Steven Mukamal

                                       18

<PAGE>

                          THE A CONSULTING TEAM, INC.

                              Financial Statements
                  Years ended December 31, 1997, 1996 and 1995


Contents

Index........................................................................F-1
Report of Independent Auditors...............................................F-2
Balance Sheets...............................................................F-3
Statements of Operations.....................................................F-4
Statements of Shareholders' Equity...........................................F-5
Statements of Cash Flows.....................................................F-6
Notes to Financial Statements................................................F-7

                                      F-1
<PAGE>


                         REPORT OF INDEPENDENT AUDITORS

Board of Directors
The A Consulting Team, Inc.

         We have  audited the  accompanying  balance  sheets of The A Consulting
Team,  Inc. (the  "Company")  as of December 31, 1997 and 1996,  and the related
statements of  operations,  shareholder's  equity and cash flows for each of the
three years in the period ended December 31, 1997.  These  financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly,  in all material  respects,  the financial  position of The A Consulting
Team,  Inc. at December 31, 1997 and 1996, and the results of its operations and
its cash flows for each of the three  years in the  period  ended  December  31,
1997, in conformity with generally accepted accounting principles.

                                                       ERNST & YOUNG LLP


New York, New York
January 30, 1998

                                      F-2
<PAGE>


                           THE A CONSULTING TEAM, INC.
                                 BALANCE SHEETS
<TABLE>

                                                December 31,        December 31,
                                                   1997                 1996
                                               -------------       -------------
<S>                                            <C>                 <C>
ASSETS
Current Assets:
   Cash and cash equivalents.................. $ 16,945,010        $    347,285
   Accounts receivable                            7,237,905           4,163,869
   Prepaid expenses and other current assets..       83,320             162,550
                                               ------------        -------------
      Total current assets....................   24,266,235           4,673,704
Investment in and advances to joint venture...            -              16,452
Property and equipment, at cost,
 less accumulated depreciation................    1,124,396             375,323
Deposits......................................       76,692              34,614
                                               ------------        -------------
      Total assets ........................... $ 25,467,323        $  5,100,093
                                               ============        =============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

   Loan payable - bank.......................  $         -         $  1,450,000
   Loan payable to shareholder...............            -            1,045,000
   Current portion of long-term debt.........       13,967               12,896
   Accounts payable and accrued expenses.....    2,139,551            1,713,347
   Income tax payable........................      527,376                8,107
   Deferred income taxes.....................      358,000               16,000
                                               ------------        -------------
      Total current liabilities..............    3,038,894            4,245,350
Long-term debt...............................       30,092               44,059
Commitments..................................             -                   -
Shareholders' equity:
   Preferred stock, $.01 par value;
    2,000,000 shares authorized; no shares
    issued or outstanding....................             -                   -
   Common stock, $.01 par value;
    10,000,000 shares authorized;
    5,485,000 issued and outstanding in
    1997 and 3,550,000 in 1996...............       54,850               35,500
   Paid-in capital...........................   21,051,758                    -
   Retained earnings.........................    1,291,729              775,184
                                               ------------        -------------
      Total shareholders' equity.............   22,398,337              810,684
                                               ------------        -------------
      Total liabilities
       and shareholders' equity..............  $25,467,323         $  5,100,093
                                               ============        =============
</TABLE>

See accompanying notes to financial statements.

                                      F-3

<PAGE>



                           THE A CONSULTING TEAM, INC.
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                             Year Ended December 31,
                                 1997 1996 1995
                                                -------------    --------------     --------------
<S>                                              <C>               <C>                <C>
Revenues:
   Consulting services......................... $ 32,481,351      $ 18,980,857       $ 14,430,355
   Software licensing..........................    2,540,534         1,776,222          1,382,642
   Training services...........................      194,026           237,975            209,888
                                                -------------    --------------     --------------
      Total revenues...........................   35,215,911        20,995,054         16,022,885
Cost of revenues...............................   23,931,627        14,521,124         11,040,609
                                                -------------    --------------     --------------
Gross profit...................................   11,284,284         6,473,930          4,982,276
Operating expenses:
   Selling, general and administrative.........    7,950,091         6,322,642          4,705,073
   Research and development(Note 7)............            -                 -            185,000
   Equity in net (income)loss from joint
    venture, including loss on disposal of
    $1,584 in 1997.............................      (13,253)           49,575                153
                                                -------------    --------------     --------------
  Total operating expenses.....................    7,936,838         6,372,217          4,890,226
                                                -------------    --------------     --------------
Income from operations.........................    3,347,446           101,713             92,050
Interest income................................      345,296             2,446              3,321
Interest expense...............................     (147,234)          (67,496)           (13,996)
                                                -------------    --------------     --------------
Income before income taxes.....................    3,545,508            36,663             81,375
   Provision (credit) for income taxes.........    1,022,000            28,700           (108,800)
                                                -------------    --------------     --------------
Net income..................................... $  2,523,508     $       7,963      $      190,175
                                                =============    ==============     ==============

Unaudited pro forma information:
Historical income from operations.............. $  3,347,446     $     101,713
Pro forma adjustmentfor executive compensation.      (37,500)        1,222,886
                                                -------------    --------------
Pro forma income from operations...............    3,309,946         1,324,599
Interest (expense)income, net..................      198,062           (65,050)
                                                -------------    --------------
Pro forma income before income taxes...........    3,508,008         1,259,549
Pro forma provision for income taxes...........    1,542,000           568,000
                                                -------------    --------------
Pro forma net income..........................  $  1,966,008     $     691,549
                                                =============    ==============
Pro forma net income per
 share - basic and diluted....................  $       0.45     $        0.19
                                                =============    ==============
Weighted average number of
 common shares outstanding....................     4,409,658         3,729,211
                                                =============    ==============
</TABLE>

See accompanying notes to financial statements.


                                      F-4

<PAGE>



                           THE A CONSULTING TEAM, INC.
                       STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                   Preferred       Stock        Common        Stock        Paid-in       Retained        Total
                                     Shares       Amount        Shares        Amount       Capital       Earnings
                                  -----------   -----------  ------------  -----------   -----------   ------------   ------------
<S>                                  <C>         <C>           <C>         <C>           <C>            <C>          <C>

Balance-December 31, 1994                  -     $      -      3,550,000   $    35,500   $         -    $  577,046   $    612,546
Net income                                 -            -              -             -             -       190,175        190,175
                                  -----------   -----------  ------------  -----------   -----------   ------------   ------------
Balance-December 31, 1995                  -            -      3,550,000        35,500             -       767,221        802,721
Net income                                 -            -              -             -             -         7,963          7,963
                                  -----------   -----------  ------------  -----------   -----------   ------------   ------------
Balance-December 31, 1996                  -            -      3,550,000        35,500             -       775,184        810,684
Issuance of 1,935,000 shares of            -            -      1,935,000        19,350    21,051,758             -     21,071,108
   common stock in an initial
   public offering, net of
   offering cost of $2,148,892
Distribution                               -            -              -            -             -     (2,006,963)    (2,006,963)
                                           -            -                                                2,523,508      2,523,508
                                  -----------   -----------  ------------  -----------   -----------   ------------   ------------
Balance - December 31, 1997                -     $      -      5,485,000   $    54,850   $21,051,758   $ 1,291,729   $ 22,398,337
                                  ============  ===========  ============  ============  ============  ============  =============
---------------------------------
</TABLE>


See accompanying notes to financial statements.


                                      F-5


<PAGE>



                                       THE A CONSULTING TEAM, INC.
                                         STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                               1997                 1996                 1995
                                                         ---------------     -----------------    -----------------
<S>                                                      <C>                  <C>                  <C>
Cash flows from operating activities:
Net income                                               $  2,523,508         $      7,963         $    190,175
Adjustments to reconcile  net income to
 net cash provided by (used in) operating activities:
      Depreciation                                            141,273               96,261               66,588
      Deferred income taxes                                   342,000              (31,000)            (168,000)
      Equity in net (income) loss from joint venture,         (13,253)              49,575                  153
      including, loss on disposal of $1,584 in 1997
      Changes in operating assets and liabilities:
        Accounts receivable                                (3,074,036)          (1,667,509)          (1,181,348)
        Prepaid expenses and other current assets              79,230             (106,309)             (14,206)
        Accounts payable and accrued expenses                 426,204              714,756              213,311
        Due to joint venture                                        -              (43,480)              (6,520)
        Income taxes payable                                  519,269              (50,408)              58,515
                                                        ----------------     -----------------    -----------------
Net cash provided by (used in) operating activities           944,195           (1,030,151)            (841,332)

Cash flows from investing activities:
Purchase of property and equipment                            (890,346)           (301,053)             (95,598)
Repayment from (investment and advances in) joint               29,705             (29,705)                   -
   venture
Deposits                                                       (42,078)            (17,918)              (2,701)
                                                        ----------------     -----------------    -----------------

Net cash used in investing activities                         (902,719)           (348,676)             (98,299)

Cash flows from financing activities:
Net proceeds from public offering                           21,071,108                   -                    -
Proceeds from loan payable-bank                              1,215,000           1,315,000              135,000
Repayment of loan payable-bank                              (2,665,000)                  -                    -
Proceeds from loan by shareholder                                    -             691,000            1,111,000
Repayment of loan to shareholder                            (1,045,000)           (757,000)                   -
Distribution of S Corporation earnings to shareholder       (2,006,963)                  -                    -
Proceeds from long-term debt                                         -              57,984                    -
Repayment of long-term debt                                    (12,896)             (1,029)                   -
                                                        ----------------     -----------------    -----------------
Net cash provided by financing activities                   16,556,249           1,305,955            1,246,000
                                                        ----------------     -----------------    -----------------

Net increase (decrease) in cash and cash equivalents        16,597,725             (72,872)             306,369
Cash and cash equivalents at beginning of period               347,285             420,157              113,788
                                                        ----------------     -----------------    -----------------
Cash and cash equivalents at end of period               $  16,945,010        $    347,285         $    420,157
                                                        ================     =================    =================

Supplemental  disclosure of cash flow  information:  Cash paid during the period
for:
Interest                                                 $      211,591       $     13,921         $      3,214
                                                        ================     =================    =================
Income taxes                                             $      160,731       $    110,108         $        685
                                                        ================     =================    =================
</TABLE>

See accompanying notes to financial statements.

                                      F-6

<PAGE>

Notes to Financial Statements


1.  SIGNIFICANT ACCOUNTING POLICIES

     Organization and Description of Business

         The A  Consulting  Team,  Inc.  (the  "Company")  was  incorporated  on
February  16,  1983,  in the State of New York,  for the  purpose  of  providing
various  computer  consulting  and  training  services  and  marketing  software
products.  The Company's  customers  are  primarily  located in the New York/New
Jersey metropolitan area.

         In August 1997, the Company  completed its initial public offering (the
"Offering")  of 1,800,000  shares of Common Stock at an offering price of $12.00
per share,  resulting  in net  proceeds  to the Company of  approximately  $19.6
million. In September 1997, an over-allotment option of 135,000 shares of Common
Stock was  exercised,  generating an additional  $1.5 million of net proceeds to
the Company.

     Use of Estimates

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

     Share Information

         All outstanding  share amounts included in the  accompanying  financial
statements have been adjusted to reflect a  355,000-for-1  stock split on August
4, 1997.

     Cash Equivalents

         The Company  considers all highly liquid  financial  instruments with a
maturity of three months or less when purchased to be cash equivalents.

     Property and Equipment

         Property and equipment acquired after December 31, 1994 are depreciated
using the  straight-line  method over the estimated  useful lives of the assets,
which range from five to ten years.  Property and  equipment  acquired  prior to
January 1, 1995 are depreciated  using an accelerated  method over the estimated
useful lives of the assets, which range from five to seven years.

     Revenue and Accounts Receivable

         Consulting  and  training  revenues  are  recognized  as  services  are
provided. Revenue from sales of software licenses is recognized upon delivery of
the  software to a customer  because  future  obligations  associated  with such
revenue are insignificant.

         The Company  performs  periodic  credit  evaluations  of its customers'
financial  condition and generally does not require  collateral.  Provisions for
doubtful  accounts,  which  have  not  been  material  for  any of  the  periods
presented,  are  recorded  when  such  losses  are  determined.   Credit  losses
historically have been consistent with management's expectations.

     Research and Development Expenses

         Research and development costs are charged to expense as incurred.

                                      F-7

<PAGE>
2.  PROPERTY AND EQUIPMENT

    Property and equipment, at cost, consists of the following:

                                                             December 31,
                                                        1997            1996
                                                      ----------     ----------

Equipment and leasehold improvements................. $1,255,176       $450,056
Software.............................................     17,143          8,518
Furniture and fixtures...............................    201,316        124,715
Automobiles..........................................    102,355        102,355
                                                      ----------     ----------
   Subtotal..........................................  1,575,990        685,644
Less accumulated depreciation........................    451,594        310,321
                                                      ----------     ----------
   Total............................................. $1,124,396       $375,323
                                                      ==========       ========

3. LOANS PAYABLE AND CREDIT ARRANGEMENT

        The Company has a line of credit of $2,100,000. As of December 31, 1996,
$1,450,000 was  outstanding  under the line of credit.  All loans were repaid in
1997.The line of credit is guaranteed by the principal shareholder. The interest
rate is variable  based on prime plus 1% (8.5% at December 31, 1997 and 9.25% at
December 31, 1996).

         The Company had outstanding borrowings of $1,045,000 from the principal
shareholder  as of December 31, 1996.  The loan bore interest at a variable rate
based on prime (8.25% at December  31, 1996 and 8.5% at June 13, 1997,  the date
of  repayment)  and was due on demand.  At December  31,  1996,  $500,000 of the
shareholder loan was subordinated to the above mentioned bank loan.

         Long-term  debt is  comprised of an  automobile  loan and is payable in
monthly  installments  of $1,415  including  interest at 8%. As of December  31,
1997,   the  loan   matures  as  follows:   1998--$13,967,   1999--$15,126   and
2000--$14,966.


4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

         Accounts payable and accrued expenses consists of the following:

                                                     December 31,
                                                 1997            1996
                                               --------        --------
Accounts payable..........................   $  787,962      $  680,805
Commissions...............................      120,418          74,227
Payroll...................................    1,034,662         716,280
Interest..................................           -           64,357
Other accrued expenses....................      196,509         177,678
                                             ----------      ----------
                                             $2,139,551      $1,713,347
                                             ==========      ==========

5. 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."

         Effective  January  1,  1993,  the  Company  elected  to change its tax
accounting  method from cash to accrual basis. The cumulative tax effect of this
change as of January 1, 1993 is being recognized over four years on the
Company's  tax  returns.  The  federal  income tax  provision  for 1995 and 1996
consists of the tax effect of this change.


                                      F-8

<PAGE>

         Effective  January 1, 1995,  the Company  elected to be treated as an S
Corporation  under  Subchapter S of the Internal Revenue Code for federal income
tax purposes. In addition, the Company elected to be treated as an S Corporation
for New  Jersey  and New York state  income  tax  purposes.  In New York and New
Jersey,  S Corporations  are subject to a minimum  income tax.  Because the sole
shareholder  of the Company  included the  Company's  income in his own personal
income tax return for years  ended  December  31,  1995 and 1996 and part of the
fiscal year ending  December  31,  1997,  the Company was not subject to federal
income taxes during that time. However, the Company was liable for New York City
income  taxes for those  periods  because  New York  City does not  recognize  S
Corporation status.

         Deferred  income  taxes  reflect  the  net  tax  effects  of  temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. At December 31,
1997 and 1996,  the deferred  income tax liability  relates  solely to licensing
revenue.

         Significant  components of the provision  (credit) for income taxes are
as follows:

                                                      Year Ended
                                                      December 31,
                                                     -------------
                                          1997           1996           1995
                                          ----           ----           ----
Current:
   Federal.......................    $    338,000    $   28,300     $    28,000
   State and local...............         342,000        31,400          30,900
                                     ------------    -----------    ------------
     Total current...............         680,000        59,700          59,200
                                     ------------    -----------    ------------
Deferred:
   Federal.......................         302,000       (28,500)       (117,400)
   State and local...............          40,000        (2,500)        (50,600)
                                     ------------    -----------    ------------
     Total deferred..............         342,000       (31,000)       (168,000)
                                     ------------    -----------    ------------
Total Current and Deferred.......    $  1,022,000    $   28,700     $  (108,800)
                                     ============    ===========    ============

         As a result of the  change in tax  status  effective  January  1, 1995,
approximately  $110,000 of the December  31, 1994  deferred  tax  liability  was
reversed and reflected as a 1995 deferred tax benefit.

         Effective  August 12, 1997,  the day before the Company  completed  its
Offering,  the Company changed from S Corporation to C Corporation  status. Upon
the change in status,  under the provisions of SFAS 109, the Company recorded an
additional  deferred  income tax  liability of $163,000 due to federal and state
income taxes being payable on the temporary differences.

         A reconciliation  between the federal  statutory rate and the effective
unaudited  pro forma  income tax rate for the years ended  December 31, 1997 and
1996 is as follows:

                                                          1997           1996
                                                          ----           ----
Federal statutory rate.................................   34.0%          34.0%
State and local taxes net of federal tax benefit.......    9.6           10.0
Non deductible expenses................................    0.4            1.1
                                                       ----------     ----------
      Total............................................   44.0%          45.1%
                                                       ==========     ==========


6. RETIREMENT PLAN


         The Company sponsors a defined  contribution  plan under Section 401(k)
of the Internal  Revenue Code for its employees.  Participants can make elective
contributions  subject to certain  limitations.  Under the plan, the Company can
make matching contributions on behalf of all participants. No such contributions
were made by the Company in 1997, 1996 and 1995.

                                       F-9
<PAGE>

7. JOINT VENTURE

         The Company owned a 50% interest in Vianet, Inc.  ("Vianet"),  which is
located  in  New  York  and  is  engaged  in  the  recruiting  of  international
consultants  and software  development  for resale.  The Company's  research and
development expenses of $185,000 for the years ended December 31, 1995 consisted
of amounts paid to Vianet for software development.  These amounts were included
in Vianet's revenues in 1995. In addition,  the Company paid Vianet $139,565 and
$36,595  for  recruiting  services in 1995 and 1996,  respectively.  The Company
accounts for this investment under the equity method of accounting.

         The following is summarized financial information of Vianet:


                                                     December 31,
                                                     ------------
                                                  1996           1995
                                                  ----           ----
Cash ......................................     $  4,036      $  24,757
Due from related party.....................            -         43,480
Other assets...............................        3,140          4,406
                                             ------------   -----------
     Total assets..........................     $  7,176      $  72,643
                                             ============   ===========

Due to related party.......................     $ 29,705              -
Other liabilities..........................        3,978              -
Shareholders' equity (deficit).............      (26,507)        72,643
                                             ------------   -----------
                                                $  7,176      $  72,643
                                             ============   ===========

                                                     Year Ended
                                                     December 31,
                                                     ------------
                                                 1996            1995
                                                 ----            ----
Revenues.................................    $  36,595       $ 324,565
Costs and expenses.......................     (135,745)       (324,871)
                                             ----------     -----------
Net income (loss)........................    $ (99,150)      $    (306)
                                             ==========     ===========


         Vianet had limited  activity  during the three  months  ended March 31,
1997.  On March 31,  1997,  the Company  sold its 50%  interest in Vianet to its
joint venture partner for a nominal amount. Vianet repaid the $29,705 advance to
the Company during March 1997.


8. CONCENTRATION OF CREDIT RISK

         Financial   instruments  which  potentially   subject  the  Company  to
concentrations of credit risk consist primarily of cash and accounts receivable.
The Company  maintains  its cash  balances on deposit  with a limited  number of
financial institutions.

         In each of the last  three  years,  the  Company  has had at least  one
customer with revenues  exceeding 10% of the Company's  revenues.  In 1997,  the
largest customer represented 24% of revenues, while in 1996 and 1995 the largest
customer  represented 12% and 14% of revenues,  respectively.  In 1995, a second
customer represented 11% of revenues. Besides these customers, no other customer
represented greater than 10% of the Company's revenues.

         Receivables  from two  customers  with the largest  balances  represent
approximately  44%, 28% and 18% of accounts  receivable as of December 31, 1997,
1996, and 1995, respectively.

                                      F-10
<PAGE>

9. LEASES

         The Company leases office space under non-cancellable operating leases.
Future base rental payments are as follows:

1998........................................................$  383,000
1999........................................................   380,000
2000........................................................   347,000
2001........................................................   331,000
2002........................................................   289,000
                                                            ----------
                                                            $1,730,000
                                                            ==========

         Rent expense for the years ended  December 31, 1997,  1996 and 1995 was
approximately $157,000, $119,000 and $101,000, respectively.

         In addition,  in 1996 and 1995 the Company leased,  on a month-to-month
basis,  office space from the Company's sole shareholder.  Rent paid to the sole
shareholder was $12,000 in 1996 and $30,000 in 1995.

10. STOCK OPTION PLAN

         The Company adopted a Stock Option Plan which provides for the grant of
stock options that are either "incentive" or "non-qualified"  for federal income
tax  purposes.  The Plan provides for the issuance of up to a maximum of 600,000
shares  of  common   stock   (subject  to   adjustment   pursuant  to  customary
anti-dilution provisions).

         The exercise  price per share of a stock option is to be established by
the  Executive   Compensation  Committee  of  the  Board  of  Directors  in  its
discretion,  but may not be less than the fair market value of a share of common
stock as of the date of grant.  The aggregate fair market value of the shares of
common stock with respect to which "incentive" stock options are exercisable for
the first time by an individual to whom an  "incentive"  stock option is granted
during any calendar year may not exceed $100,000.

         Stock options, subject to certain restrictions,  may be exercisable any
time after full  vesting  for a period not to exceed five years from the date of
grant and terminate upon the date of  termination of employment.  Such period is
to be established by the Company in its discretion on the date of grant.

         In October  1995,  the  Financial  Accounting  Standards  Board  issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation"  ("SFAS  123").  SFAS  123  requires  compensation  expense  to be
recorded (i) using the new fair value method or (ii) using  existing  accounting
rules prescribed by Accounting  Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and related interpretations with pro forma
disclosure  of what net income and  earnings  per share  would have been had the
Company adopted the new fair value method.

                                      F-11

<PAGE>

The Company has elected to account  for its  stock-based  compensation  plans in
accordance with the provisions of APB 25.

         Information with respect to options under the plan is as follows:

                                                Number          Weighted Average
                                               of Shares         Exercise Price
                                             ------------      -----------------
Granted during 1997.........................    561,200               $11.65
Forfeitures during 1997.....................    (28,750)              $12.00
                                             ------------      -----------------
Balance - December 31,1997..................    532,450               $11.63
                                             ------------      -----------------

          No options were exercisable at December 31, 1997. Options  outstanding
at December 31, 1997 have exercise prices ranging from $10.25 to $12.00.

          At December 31, 1997,  the Company had 600,000  shares of Common Stock
reserved in connection with the Stock Option Plan.


         The Company has adopted  the  disclosure-only  provisions  of SFAS 123.
Accordingly,  no  compensation  expense has been recognized for the stock option
plan. Had compensation  cost for the Company's stock option plan been determined
based on the fair value as of the grant date for awards in 1997  consistent with
the provision of SFAS No. 123, the Company's net income and pro forma net income
per share  (see Note 11) would  have been  reduced  to the pro forma  amounts as
indicated below:

                                                                 1997
                                                             -------------

         Pro forma net income...............................  $ 2,392,000

         Pro forma net income per share.....................  $ 0.42

         The fair  value of  options  at date of grant was  estimated  using the
Black-Scholes model with the following assumptions:

                                                                 1997
                                                             -------------

         Expected life (years).............................      4.00
         Risk free interest rate...........................      5.67%
         Expected volatility...............................      0.70
         Expected dividend yield...........................      0.00%

         The weighted  average fair value of options  granted in 1997 was $6.68.
The  weighted  average  remaining  contractual  life of options  outstanding  at
December 31, 1997 is 4.7 years.


11. PRO FORMA ADJUSTMENTS (UNAUDITED)

         Pro Forma Statement of Operations

         Pro forma net income includes and adjustment for executive compensation
to reflect the terms of new contracts with the chief executive officer and Chief
Financial  Officer.  In addition,  it also includes an adjustment to provide for
income  taxes  as if the  Company  had  been a C  corporation  for  all  periods
presented.

         Pro Forma Net Income Per Share

         Pro forma net income per share for the years  ended  December  31, 1997
and 1996 has been  computed  by  dividing  pro forma net income by the  weighted
average number of common shares  outstanding plus the estimated number of shares
assumed to be sold by the Company to pay the S Corporation  distribution  to the
shareholder,  for the period  prior to the  Offering.  The  impact of  including
outstanding stock options (see Note 10) was anti-dilutive.


                                      F-12