<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended
June 30, 1996 or
-------------
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
_________ to _________
Commission file number 0-28206
Integrated Systems Consulting Group, Inc.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2528944
- ----------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
575 East Swedesford Road, Suite 200, Wayne, Pennsylvania 19087
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(Address of principal executive offices, including zip code)
(610) 989-7000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _
---
There were 7,831,703 shares of the registrant's common stock, par value
$.005 per share, outstanding at August 7, 1996.
<PAGE>
Integrated Systems Consulting Group, Inc.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 1996 (unaudited)
and December 31, 1995
Consolidated Statements of Operations for the three and
six months ended June 30, 1996 and 1995 (unaudited)
Consolidated Statements of Cash Flows for the six
months ended June 30, 1996 and 1995 (unaudited)
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
Integrated Systems Consulting Group, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
==================================================================================================================================
June 30,
1996 December 31,
(Unaudited) 1995
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 9,528 2,479
Accounts receivable:
Trade, net of reserves of $215 and $200 5,901 3,139
Unbilled 89 133
Prepaid expenses 475 204
Other current assets 349 112
------------ ------------
Total current assets 16,342 6,067
Property and equipment, net 2,111 1,412
Other assets 206 107
------------ ------------
$ 18,659 $ 7,586
============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 1,257 $ 970
Accrued compensation payable 710 746
Current portion of long-term debt 10 10
Income taxes payable 293 400
Deferred income taxes 370 600
============ ============
Total current liabilities 2,640 2,726
------------ ------------
Long-term debt, net of current portion 9 14
=========== ============
Commitments
Stockholders' equity:
Preferred stock, $1.00 par value, 500,000 shares authorized; none issued -- --
Common stock, $.005 par value, 25,000,000 shares
authorized; 9,246,383 and 7,017,541 shares issued 46 35
Additional paid-in capital 12,320 2,711
Retained earnings 4,342 2,772
============ ============
16,708 5,518
Treasury stock, at cost, 1,419,660 and 1,411,860 common shares (698) (672)
------------ ------------
16,010 4,846
------------ ------------
$ 18,659 $ 7,586
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Integrated Systems Consulting Group, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
===================================================================================================================================
1996 1995 1996 1995
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Revenues $ 7,444 $ 4,959 $ 14,509 $ 9,629
Operating expenses:
Direct Costs 4,249 2,901 8,154 5,682
Selling expenses 368 252 761 487
General and administrative expenses 1,610 1,009 2,915 1,949
========= ========= ========= ========
Total operating expenses 6,227 4,162 11,830 8,118
========= ========= ========= ========
Income from operations 1,217 797 2,679 1,511
Interest income 53 7 75 17
Interest expense -- (38) -- (76)
========= ========= ========= ========
Income before income taxes 1,270 766 2,754 1,452
Provision for income taxes 546 329 1,184 624
--------- --------- --------- --------
Net income $ 724 $ 437 $ 1,570 $ 828
========= ========= ========= ========
Net income per common share:
Primary $ .10 $ .07 $ .23 $ .14
========= ========= ========= ========
Fully diluted $ .10 $ .07 $ .22 $ .14
========= ========= ========= ========
Shares used in computing
net income per common share:
Primary 7,584 5,844 6,930 5,789
========= ========= ========= ========
Fully diluted 7,589 5,844 7,231 5,789
========= ========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Integrated Systems Consulting Group, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Unaudited
<TABLE>
<CAPTION>
Six Months Ended
June 30
=========================================================================================================
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,570 $ 828
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 291 119
Deferred income tax benefit (230) (247)
Changes in assets and liabilities:
Accounts receivable (2,718) (1,173)
Prepaid expenses (271) (122)
Other assets (336) 63
Accounts payable and accrued expenses 207 45
Accrued compensation payable (36) 252
Income taxes payable (107) 471
-------- --------
Net cash (used in) provided by operating activities (1,630) 236
-------- --------
Cash flows from investing activities:
Purhases of property and equipment (990) (514)
-------- --------
Cash flows from financing activities:
Repayment of capital lease obligations (5) (5)
Repayments on bank debt -- (95)
Purchase of treasury stock (26) (7)
Proceeds from issuance of common stock 9,700 990
-------- --------
Net cash provided by financing activities 9,669 883
-------- --------
Net increase in cash and cash equivalents 7,049 605
Cash and cash equivalents, beginning 2,479 757
-------- --------
Cash and cash equivalents, ending $ 9,528 $ 1,362
======== ========
Supplemental disclosure of cash flow information:
Interest paid $ -- $ 74
Income taxes paid $ 1,827 $ 427
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Integrated Systems Consulting Group, Inc.
Notes to Consolidated Financial Statements (Unaudited)
1. The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three and six month periods ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1996. For further information, refer to the consolidated financial
statements and footnotes thereto for the year ended December 31, 1995
included in the Company's registration statement on Form S-1.
2. On May 31, 1996, the Company completed its initial public offering
("Offering"). The Company issued 2,175,000 shares of the Company's common
stock and received net proceeds of approximately $9.7 million. The proceeds
will be used for working capital, general corporate purposes and capital
expenditures. A portion of the net proceeds may be used for acquisitions.
3. Net income per share is computed using the weighted average number of
shares of common and common equivalent shares (stock options and warrants)
outstanding. As required by a Staff Accounting Bulletin issued by the
Securities and Exchange Commission, common and common equivalent shares
issued by the Company during the twelve-month period preceding the
Offering, discussed above, have been included in the calculation as if they
were outstanding on January 1, 1995. Fully diluted net income per common
share for the six-month periods is computed separately from, and
differently than, each of the individual quarters that comprise the six
months. As a result, for 1996, fully diluted net income per common share
for the six-month period does not equal the sum of fully diluted net income
per common share for each of the quarters.
4. Effective January 1, 1996, the Company adopted SFAS 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of." SFAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The adoption of SFAS
121 did not have a material impact on the Company's results of operations
or financial position.
Effective January 1, 1996, the Company adopted SFAS 123, "Accounting for
Stock-Based Compensation." SFAS 123 gives companies the option to adopt
the fair value method for expense recognition of employee stock options and
stock based awards or to continue to account for such items using the
intrinsic value method as outlined under APB 25 "Accounting for Stock
Issued to Employees" with pro forma disclosures of net income and net
income per share as if the fair value method had been applied. The Company
will continue to apply APB 25 for future stock options and stock based
awards, and accordingly, the adoption of SFAS 123 did not have an impact on
the Company's results of operations or financial position.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Revenue. The Company's revenues for the quarter and six month periods ended June
30, 1996 increased by $2.5 million, or 50.1%, and $4.9 million, or 50.7%,
compared to the corresponding periods in 1995. Approximately 66% and 64% of this
increase resulted from an increase in the volume of technical employee hours
billed and approximately 34% and 36% of the increase resulted from an increase
in aggregate average rates for hours billed during the quarter and six month.
For the quarter ended June 30, 1996, the percentage of revenue from clients in
the pharmaceutical industry was 59.2% compared to 63.6% in 1995 and the
percentage of revenues from clients in the software development industry was
12.0% compared to 5.7% in 1995. For the six month period ended June 30, 1996,
the percentage of revenue from clients in the pharmaceutical industry was 58.5%
compared to 63.0% in 1995 and the percentage of revenues from clients in the
software development industry was 12.0% compared to 7.3% in 1995.
Direct costs. Direct costs for the quarter and six month periods ended June 30,
1996 increased by $1.3 million, or 46.5%, and $2.5 million, or 43.5%, compared
to the corresponding periods in 1995. These increases are principally due to an
increase in the number of professional staff to 299, technical personnel at June
30, 1996 from 224 at June 30, 1995. The Company increased its professional staff
by 45 technical personnel at June 30, 1996 from 254 at December 31, 1995 and 75
technical personnel from June 30, 1995. As a percentage of revenues, direct
costs declined to 57.1% and 56.2% for the quarter and six month periods ended
June 30, 1996 from 58.5% and 59.1% for the corresponding periods in 1995. These
declines result primarily from increases in aggregate average billing rates
during the first half of 1996 that exceeded increases in payroll and related
expenses for the Company's technical personnel. In response to such billing rate
increases and to competition for information services professionals in general,
during the second quarter the Company increased the compensation levels for a
number of its technical professionals. As a result, the Company anticipates that
direct costs as a percentage of revenues will be higher during the balance of
1996 than in the quarter ended June 30, 1996.
Selling expenses. Selling expenses for the quarter and six month periods ended
June 30, 1996 increased by $116,000 to $368,000 from $252,000 and by $274,000 to
$761,000 from $487,000 in the corresponding periods in 1995. This increase is
principally due to the increase in the number of sales and marketing personnel
to 11 at June 30, 1996 from six at June 30, 1995 and to the addition of a Vice
President of Sales in November of 1995. As a percentage of revenues, selling
expenses were 4.9% and 5.3% for the quarter and six month periods ended June 30,
1996 compared to 5.1% and 5.1% for the corresponding periods in 1995.
General and administrative expenses. General and administrative expenses for the
quarter and six month periods ended June 30, 1996 increased by $601,000 to $1.6
million from $1.0 million and by $966,000 to $2.9 million from $1.9 million in
the corresponding periods in 1995. This increase is primarily due to increases
in office rent and related facility costs, administrative payroll and payroll
related costs, and depreciation expense. As a percentage of revenues, general
and administrative expenses were 21.6% and 20.1% for the quarter and six month
periods ended June 30, 1996 compared to 20.4% and 20.2% for the quarter and six
month periods of 1995. The Company anticipates that for the balance of 1996
general and administrative expenses, as a percentage of revenue, will
approximate the percentage for the quarter ended June 30, 1996.
<PAGE>
Liquidity and Capital Resources:
Cash and cash equivalents increased $7.0 million to $9.5 million at June 30,
1996 from $2.5 million at December 31, 1995. The increase resulted primarily
from the offering proceeds, offset by working capital requirements, payments for
income taxes and capital expenditures. At June 30, 1996 cash equivalents were
invested in institutional money-market funds and master repurchase agreements.
By policy, the Company places its investments in high credit-quality
instruments.
On May 31, 1996, the Company completed its Offering. The Company issued
2,175,000 shares of the Company's common stock and received net proceeds of
approximately $9.7 million. The proceeds will be used for working capital,
general corporate purposes and capital expenditures. A portion of the net
proceeds may be used for acquisitions.
The Company currently anticipates that the net proceeds received from the
Offering together with cash generated from operations and existing cash balances
will be sufficient to satisfy its operating requirements and ordinary capital
spending for the foreseeable future. Should the Company's business expand more
rapidly than expected, the Company's $1.0 million bank line of credit would be
available to fund such operating and capital requirements. In addition, the
Company could consider seeking additional public or private debt or equity
financing to fund growth opportunities, including acquisitions.
Statements made in this filing other than historical facts are forward-looking
statements that involve risk and uncertainties and are subject to change at any
time. The Company has derived such forward-looking statements from its operating
budgets and forecasts, which are based upon detailed assumptions about many
important factors such as client demand, economic and market conditions,
competitive activities, dependence on the pharmaceutical industry, attraction
and retention of technical employees, concentration and mix of revenues, and
other factors. While the Company believes that its assumptions are reasonable,
it cautions that there are inherent difficulties in predicting the likelihood of
the occurrence of and the impact of these factors. Accordingly, actual results
may differ materially from predicted results. These factors, as and when
applicable, are discussed in the Company's filing with the Securities and
Exchange Commission, in particular its recent Form S-1.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings: None
Item 2. Changes in Securities: None
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
11 Computation of Net Income Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K: None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Integrated Systems Consulting Group, Inc.
Date: August 13, 1996 By: /s/DAVID S. LIPSON
------------------------------------
David S. Lipson
Chairman, Chief Executive Officer,
President and Treasurer
Date: August 13, 1996 By: /s/DAVID D. GATHMAN
------------------------------------
David D. Gathman
Chief Operating Officer, Vice President,
Secretary and Assistant Treasurer
(Principal Financial and Accounting
Officer)
<PAGE>
EXHIBIT INDEX
NUMBER DESCRIPTION
11 Computation of Net Income Per Share
27.1 Financial Data Schedule
<PAGE>
Integrated Systems Consulting Group, Inc.
(in thousands, except per share data)
Exhibit 11 - Computation of Net Income Per Share
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ -----------------------
1996 1995 1996 1995
------------- ------------ ------------ --------
<S> <C> <C> <C> <C>
Shares used in computing primary net income per common share:
Shares outstanding, beginning of period 5,617 4,625 5,606 4,609
Common shares issued during the year ended
December 31, 1995 presented as if outstanding
for all periods, net of treasury stock effect thereof -- 404 -- 404
Stock options issued during the year ended December 31,
1995 presented as if outstanding for all periods, net
of treasury stock effect thereof -- 279 -- 279
Warrants issued during the year ended December 31, 1995
presented as if outstanding for all periods, net of
treasury stock effect thereof -- 179 -- 179
Net incremental shares resulting from assumed exercise
of stock options and warrants using the treasury stock method 1,220 240 944 247
Weighted impact of common shares issued during the period 747 120 388 74
Weighted impact of common shares repurchased during the period -- (3) (8) (3)
------------- ------------ ----------- ------------
Total shares used in computing primary net income per
common share 7,584 5,844 6,930 5,789
============= ============ ============ ============
Net income $ 724 $ 437 $ 1,570 $ 828
============= ============ ============ ============
Primary net income per common share $ .10 $ .07 $ .23 $ .14
============= ============ ============ ============
Shares used in computing fully diluted net income per common share:
. Shares outstanding, beginning of period 5,617 4,625 5,606 4,609
Common shares issued during the year ended
December 31, 1995 presented as if outstanding
for all periods, net of treasury stock effect thereof -- 404 -- 404
Stock options issued during the year ended December 31,
1995 presented as if outstanding for all periods, net
of treasury stock effect thereof -- 279 -- 279
Warrants issued during the year ended December 31, 1995
presented as if outstanding for all periods, net of
treasury stock effect thereof -- 179 -- 179
Net incremental shares resulting from assumed exercise
of stock options and warrants using the treasury stock method 1,225 240 1,245 247
Weighted impact of common shares issued during the period 747 120 388 74
Weighted impact of common shares repurchased during the period -- (3) (8) (3)
------------- ------------ ----------- ------------
Total shares used in computing fully diluted net income per
common share 7,589 5,844 7,231 5,789
============= ============ ============ ============
Net income $ 724 $ 437 $ 1,570 $ 828
============= ============ ============ ============
Fully diluted net income per common share $ .10 $ .07 $ .22 $ .14
============= ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001007020
<NAME> INTEGRATED SYSTEMS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,528
<SECURITIES> 0
<RECEIVABLES> 6,116
<ALLOWANCES> 215
<INVENTORY> 0
<CURRENT-ASSETS> 16,342
<PP&E> 3,122
<DEPRECIATION> 1,011
<TOTAL-ASSETS> 18,659
<CURRENT-LIABILITIES> 2,640
<BONDS> 0
0
0
<COMMON> 46
<OTHER-SE> 15,964
<TOTAL-LIABILITY-AND-EQUITY> 16,010
<SALES> 14,509
<TOTAL-REVENUES> 14,509
<CGS> 0
<TOTAL-COSTS> 11,830
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,754
<INCOME-TAX> 1,184
<INCOME-CONTINUING> 1,570
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,570
<EPS-PRIMARY> .23
<EPS-DILUTED> .22
</TABLE>
