<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
September 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.
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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. Yes X No _
There were 7,842,193 shares of the registrant's common stock, par value $.005
per share, outstanding at November 11, 1996.
<PAGE>
Integrated Systems Consulting Group, Inc.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 1996
(unaudited) and December 31, 1995
Consolidated Statements of Operations for the three and
nine months ended September 30, 1996 and 1995 (unaudited)
Consolidated Statements of Cash Flows for the nine months
ended September 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>
- -------------------------------------------------------------------------------------------------------------------------
September 30,
1996 December 31,
(Unaudited) 1995
--------------- ---------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 9,517 $ 2,479
Short-term investments, at cost, which approximates market 391 -
Accounts receivable:
Trade, net of reserves of $194 and $200 5,907 3,139
Unbilled 139 133
Prepaid expenses 742 204
Other current assets 58 112
--------------- ---------------
Total current assets 16,754 6,067
Property and equipment, net 2,486 1,412
Other assets 150 107
--------------- ---------------
$ 19,390 $ 7,586
=============== ===============
Liabilities and stockholders equity
Current liabilities:
Accounts payable and accrued expenses $ 1,066 $ 970
Accrued compensation payable 810 746
Current portion of long-term debt 10 10
Income taxes payable 145 400
Deferred income taxes 370 600
--------------- ---------------
Total current liabilities 2,401 2,726
--------------- ---------------
Long-term debt, net of current portion 6 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; 9,257,521 and 7,017,541 shares issued 46 35
Additional paid-in capital 12,610 2,711
Retained earnings 5,025 2,772
--------------- ---------------
17,681 5,518
Treasury stock, at cost, 1,419,660 and 1,411,860 common shares (698) (672)
--------------- ---------------
16,983 4,846
--------------- ---------------
$ 19,390 $ 7,586
=============== ===============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Integrated Systems Consulting Group, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
--------------- --------------- ---------------- ----------------
Revenues $ 7,538 $ 5,470 $ 22,047 $ 15,099
Operating expenses:
Direct costs 4,451 3,230 12,605 8,912
Selling expenses 458 261 1,219 748
General and administrative expenses 1,567 1,013 4,482 2,962
--------------- --------------- ---------------- ----------------
Total operating expenses 6,476 4,504 18,306 12,622
--------------- --------------- ---------------- ----------------
Income from operations 1,062 966 3,741 2,477
Interest income 138 28 213 45
Interest expense - (18) - (94)
--------------- --------------- ---------------- ----------------
Income before income taxes 1,200 976 3,954 2,428
Provision for income taxes 517 420 1,701 1,044
--------------- --------------- ---------------- ----------------
Net income $ 683 $ 556 $ 2,253 $ 1,384
=============== =============== ================ ================
Net income per common share:
Primary $ .08 $ .09 $ .30 $ .23
=============== =============== ================ ================
Fully diluted $ .08 $ .09 $ .29 $ .23
=============== =============== ================ ================
Shares used in computing
net income per common share:
Primary 9,000 6,156 7,620 5,911
=============== =============== ================ ================
Fully diluted 9,041 6,156 7,839 5,911
=============== =============== ================ ================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Integrated Systems Consulting Group, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended
September 30
- ------------------------------------------------------------------------------------------------------------------------
1996 1995
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,253 $ 1,384
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
Depreciation and amortization 489 203
Deferred income tax benefit (230) (247)
Changes in assets and liabilities:
Accounts receivable (2,774) (1,314)
Prepaid expenses (538) (88)
Other assets 11 64
Accounts payable and accrued expenses 96 96
Accrued compensation payable 64 458
Income taxes payable (255) 130
---------------- ----------------
Net cash (used in) provided by operating activities (884) 686
---------------- ----------------
Cash flows from investing activities:
Purchases of property and equipment (1,563) (767)
Purchase of short-term investments (391) -
---------------- ----------------
Net cash used in investing activities (1,954) (767)
---------------- ----------------
Cash flows from financing activities:
Repayment of capital lease obligations (8) (7)
Repayment of note payable to stockholder - (1,350)
Repayments on bank debt - (216)
Purchase of treasury stock (26) (7)
Proceeds from issuance of common stock 9,910 2,710
---------------- ----------------
Net cash provided by financing activities 9,876 1,130
---------------- ----------------
Net increase in cash and cash equivalents 7,038 1,049
Cash and cash equivalents, beginning 2,479 757
---------------- ----------------
Cash and cash equivalents, ending $ 9,517 $ 1,806
================ ================
Supplemental disclosure of cash flow information:
Interest paid $ 1 $ 91
Income taxes paid $ 2,185 $ 1,188
Noncash investing and financing transactions:
Conversion of accounts receivable to note receivable $ 94 $ 100
See accompanying notes to consolidated financial statements.
</TABLE>
<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 nine month periods ended September
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 $9.9 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 nine-month periods is computed separately from, and
differently than, each of the individual quarters that comprise the nine
months. As a result, for 1996, fully diluted net income per common share
for the nine-month periods do 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 nine month periods ended
September 30, 1996 increased by $2.1 million, or 37.8%, and $6.9 million, or
46.0%, compared to the corresponding periods in 1995. Approximately 63% and
64% of this increase resulted from an increase in the volume of technical
employee hours billed and approximately 37% and 36% of the increase resulted
from an increase in aggregate average rates for hours billed during the
quarter and nine months. For the quarter ended September 30, 1996, the
percentage of revenue from clients in the pharmaceutical industry was 59.7%
compared to 68.1% in 1995 and the percentage of revenues from clients in the
software development industry was 12.1% compared to 3.9% in 1995. For the nine
month period ended September 30, 1996, the percentage of revenue from clients
in the pharmaceutical industry was 58.9% compared to 64.9% in 1995 and the
percentage of revenues from clients in the software development industry was
12.0% compared to 6.0% in 1995.
Direct costs. Direct costs for the quarter and nine month periods ended
September 30, 1996 increased by $1.2 million, or 37.8%, and $3.7 million, or
41.4%, compared to the corresponding periods in 1995. These increases are
principally due to an increase in the number of professional staff to 329,
technical personnel at September 30, 1996 from 231 at September 30, 1995. The
Company increased its professional staff by 75 technical personnel at
September 30, 1996 from 254 at December 31, 1995 and 98 technical personnel
from September 30, 1995. As a percentage of revenues, direct costs were 59.1%
and 57.2% for the quarter and nine month periods ended September 30, 1996
compared to 59.1% and 59.0% for the corresponding periods in 1995. The decline
for the nine month period ended September 30, 1996 resulted 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 of 1996 the Company increased the compensation levels for a
number of its technical professionals. The Company anticipates that direct
costs as a percentage of revenues will be higher during the balance of 1996
than in the first nine months of 1996.
Selling expenses. Selling expenses for the quarter and nine month periods
ended September 30, 1996 increased by $197,000 to $458,000 from $261,000 and
by $471,000 to $1.2 million from $748,000 in the corresponding periods in
1995. This increase is principally due to the increase in the number of sales
and marketing personnel to 14 at September 30, 1996 from six at September 30,
1995 and to the addition of a Vice President of Sales in November of 1995. As
a percentage of revenues, selling expenses were 6.1% and 5.5% for the quarter
and nine month periods ended September 30, 1996 compared to 4.8% and 5.0% for
the corresponding periods in 1995. These increases resulted from the August
1996 addition of two account executives (one in the Company's new Chicago
sales office) and the dedication of additional technical sales support to
assist in the increased focus on project-oriented consulting. As a result, the
Company anticipates that selling expenses as a percentage of revenues will be
higher during the balance of 1996 than in the first nine months of 1996.
General and administrative expenses. General and administrative expenses for
the quarter and nine month periods ended September 30, 1996 increased by
$554,000 to $1.6 million from $1.0 million and by $1.5 million to $4.5 million
from $3.0 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 20.8% and
20.3% for the quarter and nine month periods ended September 30, 1996 compared
to 18.5% and 19.6% for the quarter and nine 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 September 30, 1996.
<PAGE>
Liquidity and Capital Resources:
Cash and cash equivalents and short-term investments increased $7.4 million to
$9.9 million at September 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
September 30, 1996 cash equivalents were invested in short-term U. S.
governmental agency issues, institutional money-market funds and a master
repurchase agreement. 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 $9.9 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 filings
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: November 14, 1996 By:_/s/DAVID S. LIPSON
------------------
David S. Lipson
Chairman, Chief Executive Officer,
President and Treasurer
Date: November 14, 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 Nine Months Ended
September 30 September 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 7,827 4,973 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 1,165 228 1,018 241
Weighted impact of common shares issued during the period 8 93 1,004 204
Weighted impact of common shares repurchased during the period - - (8) (5)
----------- ---------- ---------- ----------
Total shares used in computing primary net income per
common share 9,000 6,156 7,620 5,911
----------- ---------- ---------- ----------
Net income $ 683 $ 556 $ 2,253 $ 1,384
----------- ---------- ---------- ----------
Primary net income per common share $ .08 $ .09 $ .30 $ .23
----------- ---------- ---------- ----------
Shares used in computing fully diluted net income per common share:
Shares outstanding, beginning of period 7,827 4,973 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 1,206 228 1,237 241
Weighted impact of common shares issued during the period 8 93 1,004 204
Weighted impact of common shares repurchased during the period - - (8) (5)
----------- ---------- ---------- ----------
Total shares used in computing fully diluted net income per
common share 9,041 6,156 7,839 5,911
----------- ---------- ---------- ----------
Net income $ 683 $ 556 $ 2,253 $ 1,384
----------- ---------- ---------- ----------
Fully diluted net income per common share $ .08 $ .09 $ .29 $ .23
----------- ---------- ---------- ----------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001007020
<NAME> INTEGRATED SYSTEMS CONSULTING GROUP, INC.
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 9,517
<SECURITIES> 391
<RECEIVABLES> 6,101
<ALLOWANCES> 194
<INVENTORY> 0
<CURRENT-ASSETS> 16,754
<PP&E> 3,696
<DEPRECIATION> 1,210
<TOTAL-ASSETS> 19,390
<CURRENT-LIABILITIES> 2,401
<BONDS> 0
0
0
<COMMON> 46
<OTHER-SE> 16,937
<TOTAL-LIABILITY-AND-EQUITY> 19,390
<SALES> 22,047
<TOTAL-REVENUES> 22,047
<CGS> 0
<TOTAL-COSTS> 18,306
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,954
<INCOME-TAX> 1,701
<INCOME-CONTINUING> 2,253
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,253
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.29
</TABLE>
