<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
March 31, 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.
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(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. (1) Yes X No (2) Yes No X
----- ----- ---- -----
There were 8,507,853 shares of the registrant's common stock, par value $.005
per share, outstanding at May 31, 1996.
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Integrated Systems Consulting Group, Inc.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 1996 (unaudited)
and December 31, 1995
Consolidated Statements of Operations for the three months
ended March 31, 1996 and 1995 (unaudited)
Consolidated Statements of Cash Flows for the three months
ended March 31, 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
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Integrated Systems Consulting Group, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
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<TABLE>
<CAPTION>
March 31,
1996 December 31,
(Unaudited) 1995
------------ --------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 517 $ 2,479
Accounts receivable:
Trade, net of reserves of $215 and $200 5,230 3,139
Unbilled 187 133
Prepaid expenses 640 204
Other current assets 52 112
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Total current assets 6,626 6,067
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Property and equipment, net 1,540 1,412
Other assets 392 107
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$ 8,558 $ 7,586
============ ============
Liabilities and stockholders equity
Current liabilities:
Accounts payable and accrued expenses $ 1,304 $ 970
Accrued compensation payable 606 746
Current portion of long-term debt 10 10
Income taxes payable 587 400
Deferred income taxes 370 600
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Total current liabilities 2,877 2,726
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Long-term debt, net of current portion 11 14
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Commitments
Stockholders equity:
Preferred stock, $1.00 par value, 500,000 shares authorized; - -
Common stock, $.005 par value, 25,000,000 shares
authorized; 7,037,113 and 7,017,541 shares issued 35 35
Additional paid-in capital 2,715 2,711
Retained earnings 3,618 2,772
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6,368 5,518
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Treasury stock, at cost, 1,419,660 and 1,411,860
common share (698) (672)
------------ ------------
5,670 4,846
------------ ------------
$ 8,558 $ 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
March 31
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1996 1995
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<S> <C> <C>
Revenues $ 7,065 $ 4,670
Operating expenses:
Direct costs 3,905 2,781
Selling expenses 393 235
General and administrative expenses 1,305 940
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Total operating expenses 5,603 3,956
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Income from operations 1,462 714
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Interest income 24 10
Interest expense (2) (38)
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Income before income taxes 1,484 686
Provision for income taxes 638 295
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Net income $ 846 $ 391
============ ============
Net income per common share $ .13 $ .07
============ ============
Shares used in computing net income per common share 6,274 5,734
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Integrated Systems Consulting Group, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Unaudited
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<TABLE>
<CAPTION>
Three Months Ended
March 31
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 846 $ 391
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 132 53
Deferred income tax provision (benefit) (230) (247)
Changes in assets and liabilities:
Accounts receivable (2,145) (874)
Prepaid expenses (436) 65
Other assets (225) (117)
Accounts payable and accrued expenses 334 (24)
Accrued compensation payable (140) 125
Income taxes payable 187 415
------------ ------------
Net cash used in operating activities (1,677) (213)
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Cash flows from investing activities:
Purchases of property and equipment (260) (190)
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Cash flows from financing activities:
Repayment of capital lease obligations (3) (3)
Repayments on bank debt - (47)
Purchase of treasury stock (26) (7)
Proceeds from issuance of common stock 4 3
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Net cash used in financing activities (25) (54)
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Net decrease in cash and cash equivalents (1,962) (457)
Cash and cash equivalents, beginning 2,479 757
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Cash and cash equivalents, ending $ 517 $ 300
============ ============
Supplemental disclosure of cash flow information:
Interest paid $ - $ 37
Income taxes paid $ 681 $ 138
</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 month period ended March 31, 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, although the Company is not currently engaged in any
acquisition negotiations.
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 for all periods presented (using the treasury stock
method and assuming an initial public offering price of $5.00 per share).
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
First Quarter 1996 as compared to First Quarter 1995
Revenue. The Company's revenues for the quarter ended March 31, 1996 increased
by $2.4 million or 51.3% to $7.1 million from $4.7 million in 1995.
Approximately 61% of this increase resulted from an increase in the volume of
technical employee hours billed and approximately 39% of the increase resulted
from an increase in aggregate average billing rates during the first quarter of
1996 as compared with the corresponding period in 1995. For the quarter, the
percentage of revenue from clients in the pharmaceutical industry was 57.8%
compared to 62.4% in 1995 and the percentage of revenues from clients in the
software development industry was 11.9% compared to 9.0% in 1995.
Direct costs. Direct costs for the quarter ended March 31, 1996 increased by
$1.1 million or 40.4% to $3.9 million from $2.8 million in 1995. This increase
is principally due to an increase in the number of professional staff to 273
technical personnel at March 31, 1996 from 204 at March 31, 1995. As a
percentage of revenues, direct costs declined to 55.3% for the first quarter of
1996 from 59.6% for the first quarter of 1995. This decline results from the
fact that revenues increased by 51.3% while direct costs increased at a lesser
rate of 40.4%. Due to competition for information services professionals the
Company anticipates that it will experience higher payroll and payroll related
costs and, therefore, direct costs as a percentage of revenue may be higher
during the balance of 1996.
Selling expenses. Selling expenses for the quarter ended March 31, 1996
increased by $158,000 to $393,000 from $235,000 in the corresponding period in
1995. This increase is principally due to the increase in the number of sales
and marketing personnel to nine at March 31, 1996 from six at March 31, 1995 and
to the addition of a Vice President of Sales in November of 1995.
General and administrative expenses. General and administrative expenses for the
quarter ended March 31, 1996 increased by $365,000 or 38.5% to $1.3 million from
$940,000 in the corresponding period 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 declined to 18.5% for the first quarter of
1996 from 20.1% for the first quarter of 1995. The Company anticipates that this
trend may not continue for the balance of the year principally due to expected
increases in leased office space, incremental administrative costs to support
public company compliance, reporting and other requirements and increases in
depreciation expense.
<PAGE>
Liquidity and Capital Resources:
Cash and cash equivalents were approximately $517,000 at March 31, 1996.
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, although the Company is not currently
engaged in any acquisition negotiations.
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 believes that its existing and additional
bank 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: June 3, 1996 By: /s/DAVID S. LIPSON
----------------------------
David S. Lipson
Chairman, Chief Executive Officer,
President and Treasurer
Date: June 3, 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.
Exhibit 11 - Computation of Net Income Per Share
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<TABLE>
<CAPTION>
Three Months Ended
March 31
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
Shares used in computing net income per common share:
Shares outstanding, beginning of period 5,605,681 4,608,871
Common shares issued during the year ended
December 31, 1995 presented as if outstanding
for all periods, net of treasury stock effect thereof(1) - 404,223
Stock options issued during the year ended December 31,
1995 presented as if outstanding for all periods, net
of treasury stock effect thereof (1) - 278,849
Warrants issued during the year ended December 31, 1995
presented as if outstanding for all periods, net of
treasury stock effect thereof (1) - 179,447
Net incremental shares resulting from assumed exercise
of stock options and warrants using the treasury
stock method 666,155 255,464
Weighted impact of common shares issued
during the year 9,674 10,910
Weighted impact of common shares repurchased
during the year (7,800) (3,281)
---------- ----------
Total shares used in computing income per
common share 6,273,710 5,734,483
========== ==========
Net income $ 846,000 $ 391,000
========== ==========
Net income per common share $ .13 $ .07
========== ==========
</TABLE>
(1) Treasury effect calculated using an assumed market price of $5.00 per share.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 517
<SECURITIES> 0
<RECEIVABLES> 5,230
<ALLOWANCES> 215
<INVENTORY> 0
<CURRENT-ASSETS> 6,626
<PP&E> 1,540
<DEPRECIATION> 853
<TOTAL-ASSETS> 8,558
<CURRENT-LIABILITIES> 2,877
<BONDS> 0
35
0
<COMMON> 0
<OTHER-SE> 6,333
<TOTAL-LIABILITY-AND-EQUITY> 8,558
<SALES> 0
<TOTAL-REVENUES> 7,065
<CGS> 0
<TOTAL-COSTS> 3,905
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 1,484
<INCOME-TAX> 683
<INCOME-CONTINUING> 846
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 846
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
