<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, 1997 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 7,922,467 shares of the registrant's common stock, par value $.005
per share, outstanding at August 11, 1997.
<PAGE>
Integrated Systems Consulting Group, Inc.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 1997 (unaudited)
and December 31, 1996
Consolidated Statements of Operations for the three and six
months ended June 30, 1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1996 (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)
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<TABLE>
<CAPTION>
June 30
1997 December 31
(Unaudited) 1996
--------------- ----------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 6,505 $ 8,730
Short-term investments, at cost, which approximates market 97 2,537
Accounts receivable:
Trade, net of reserves of $307 and $196 8,454 5,643
Unbilled 301 144
Prepaid expenses 524 562
Other current assets 549 196
-------- --------
Total current assets 16,430 17,812
Property and equipment, net 3,389 2,935
Goodwill, net 1,487 --
Other assets 126 97
-------- --------
$ 21,432 $ 20,844
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 1,319 $ 1,590
Accrued compensation payable 725 1,104
Income taxes payable 40 27
Deferred income taxes 146 363
-------- --------
Total current liabilities 2,230 3,084
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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, 9,227,513 and 9,227,513 shares issued 46 46
Additional paid-in capital 12,620 12,612
Retained earnings 7,177 5,776
-------- --------
19,843 18,434
Treasury stock, at cost, 1,307,176 and 1,370,840 common shares (641) (674)
-------- --------
19,202 17,760
-------- --------
$ 21,432 $ 20,844
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Integrated Systems Consulting Group, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
Unaudited
Three Months Ended Six Months Ended
June 30 June 30
- ------------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $10,209 $ 7,444 $19,098 $14,509
Operating expenses:
Direct costs 5,928 4,249 11,116 8,154
Selling expenses 631 368 1,233 761
General and administrative expenses 2,365 1,610 4,563 2,915
------- ------- ------- -------
Total operating expenses 8,924 6,227 16,912 11,830
------- ------- ------- -------
Income from operations 1,285 1,217 2,186 2,679
Interest income, net 94 53 229 75
------- ------- ------- -------
Income before income taxes 1,379 1,270 2,415 2,754
Provision for income taxes 579 546 1,014 1,184
------- ------- ------- -------
Net income $ 800 $ 724 $ 1,401 $ 1,570
======= ======= ======= =======
Net income per common share:
Primary $ .09 $ .10 $ .16 $ .23
======= ======= ======= =======
Fully diluted $ .09 $ .10 $ .16 $ .22
======= ======= ======= =======
Shares used in computing
net income per common share:
Primary 8,856 7,584 8,876 6,930
======= ======= ======= =======
Fully diluted 8,876 7,589 8,886 7,231
======= ======= ======= =======
</TABLE>
<PAGE>
Integrated Systems Consulting Group, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Unaudited
Six Months Ended
June 30
- ---------------------------------------------------------------------------
1997 1996
------- -------
Cash flows from operating activities:
Net income $ 1,401 $ 1,570
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 634 291
Deferred income tax provision (benefit) (217) (230)
Changes in assets and liabilities:
Accounts receivable (2,968) (2,718)
Prepaid expenses 47 (271)
Other assets 38 (336)
Accounts payable and accrued expenses (351) 202
Accrued compensation payable (379) (36)
Income taxes payable 13 (107)
------- -------
Net cash used in operating activities (1,782) (1,635)
------- -------
Cash flows from investing activities:
Purchases of property and equipment (1,031) (990)
Purchases of short-term investments (4,260) --
Maturity and sale of short-term investments 6,700 --
Acquisition of business, net of cash acquired (1,893) --
------- -------
Net cash used in investing activities (484) (990)
------- -------
Cash flows from financing activities:
Purchase of treasury stock -- (26)
Proceeds from issuance of common stock 41 9,700
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Net cash provided by financing activities 41 9,674
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Net change in cash and cash equivalents (2,225) 7,049
Cash and cash equivalents, beginning 8,730 2,479
------- -------
Cash and cash equivalents, ending $ 6,505 $ 9,528
======= =======
Supplemental disclosure of cash flow information:
Income taxes paid $ 1,219 $ 1,827
Acquisition of business
Assets acquired 480 --
Liabilities assumed 80 --
<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 six month period ended June 30, 1997 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1997. For
further information, refer to the consolidated financial statements and
footnotes thereto for the year ended December 31, 1996 included in the
Company's Annual Report on Form 10-K.
2. In April 1997 the Company completed the acquisition of the assets and
certain liabilities of Cutting Edge Computer Solutions, Inc. (Cutting Edge)
for cash. Cutting Edge is an information services consulting firm with
primary offices in Malvern, PA, and Alexandria, VA, that specializes in the
design and development of business software using client-server, relational
database, and internet and intranet technologies. Cutting Edge had 26
employees and reported revenues of $2.2 million in calendar year 1996. This
acquisition is accounted for using the purchase method of accounting.
3. On May 31, 1996, the Company completed its initial public offering. The
Company issued 2,175,000 shares of the Company's common stock and received
net proceeds of approximately $9.7 million. The remaining net proceeds will
be used for working capital, general corporate purposes and capital
expenditures. A portion of the remaining net proceeds may be used for
acquisitions.
4. 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).
5. In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share,"
which requires the dual presentation of basic and diluted earnings per
share. The Company will adopt this standard as of December 31, 1997, as
required. Early adoption is not permitted.
<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, 1997 increased by $2.8 million, or 37.1%, and $4.6 million, or 31.6%,
compared to the corresponding periods in 1996. Approximately 63% and 65% of this
increase resulted from an increase in the volume of hours billed and
approximately 37% and 35% of the increase resulted from an increase in aggregate
average rates for hours billed during the quarter and six months. For the
quarter and six month periods ended June 30, 1997, the percentage of revenue
from clients in the pharmaceutical industry was 60.5% and 63.7% compared to
59.2% and 58.5% for the corresponding periods in 1996.
Direct costs. Direct costs for the quarter and six month periods ended June 30,
1997 increased by $1.7 million, or 39.5%, and $3.0 million, or 36.3%, compared
to the corresponding periods in 1996. These increases are principally due to an
increase in the number of professional staff to 401 at June 30, 1997 from 299 at
June 30, 1996. The Company increased its professional staff by 71 at June 30,
1997 from 330 at December 31, 1996 and 102 professional staff from June 30,
1996. As a percentage of revenues, direct costs were 58.1% and 58.2% for the
quarter and six month periods ended June 30, 1997 compared to 57.1% and 56.2%
for the corresponding periods in 1996. These increases resulted principally from
a lower utilization rate (i.e. the ratio of hours billed to total available
hours) during the first six months of 1997 compared to the corresponding period
in 1996. During 1997 the Company performed more project engagements than staff
augmentation assignments compared to the first half of 1996. As a result, the
Company has experienced greater non-billable time prior to the start of project
engagements, and greater non-billable time between project engagements. Also,
during 1997, a greater portion of the Company's newly hired professional staff
have been less experienced professionals than in the first half of 1996. The
Company has experienced longer periods of non-billable time for these new hires,
after the completion of their training, before their first assignment. The
Company believes its direct costs as a percentage of revenue for the balance of
1997 will continue to be higher than in the corresponding periods in 1996.
Selling expenses. Selling expenses for the quarter and six month periods ended
June 30, 1997 increased by $263,000, or 71.5%, and $472,000, or 62.0%, compared
to the corresponding periods in 1996. As a percentage of revenues, selling
expenses were 6.2% and 6.5% for the quarter and six month periods ended June 30,
1997 compared to 4.9% and 5.2% for the corresponding periods in 1996. These
increases are principally due to the increase in the number of sales and
marketing personnel to 19 at June 30, 1997 from 11 at June 30, 1996.
General and administrative expenses. General and administrative expenses for the
quarter and six month periods ended June 30, 1997 increased by $755,000, or
46.9%, and $1.6 million, or 56.5%, compared to the corresponding periods in
1996. As a percentage of revenues, general and administrative expenses were
23.2% and 23.9% for the quarter and six month periods ended June 30, 1997
compared to 21.6% and 20.1% for the quarter and six month periods of 1996. These
increases are principally due to increases in facilities costs (office rent and
utilities) and facility related costs (such as depreciation of computer
equipment, amortization of software and leasehold improvements, expansion of
computer networks, additional software costs and the costs of related support
personnel) relating to an increase in the number of professional and supervisory
personnel, performing client engagements in the Company's offices rather than at
client locations. Also, during the first half of 1997, the Company incurred six
months of certain expenses associated with public company filings, compliance
requirements, and investor and shareholder relations. The Company incurred only
two months of these expenses in the first half of 1996. The Company believes its
general and administrative expenses as a percentage of revenue will be lower for
the balance of 1997 than in the first half of 1997.
Interest income. Interest income for the quarter and six month periods ended
June 30, 1997 increased to $94,000 from $53,000 and $229,000 from $75,000 in the
corresponding periods in 1996. These increases are principally due to higher
average cash equivalents and short-term investments balances.
Effective income tax rate. The Company's effective income tax rate in 1997
decreased to 42.0% from 43.0% in 1996.
<PAGE>
Liquidity and Capital Resources:
Cash and cash equivalents and short-term investments decreased $4.7 million to
$6.6 million at June 30, 1997 from $11.3 million at December 31, 1996. The
decrease resulted principally from the acquisition of Cutting Edge, working
capital requirements, payments for income taxes and capital expenditures. At
June 30, 1997 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 initial public offering. The Company
issued 2,175,000 shares of the Company's common stock and received net proceeds
of approximately $9.7 million. The remaining net proceeds will be used for
working capital, general corporate purposes and capital expenditures. A portion
of the remaining net proceeds may be used for acquisitions.
The Company currently anticipates that 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.
Safe Harbor Statement:
Statements made in this filing that are forward-looking involve risk and
uncertainties and are subject to change at any time. The Company derives its
forward-looking statements from its operating budgets and forecasts which are
based upon detailed assumptions about many important factors. While the Company
believes that its assumptions are reasonable, it cautions that there are
inherent difficulties in predicting the impact of certain factors, including
client demand, dependence on the pharmaceutical industry, the attraction and
retention of technical employees, concentration and mix of revenues, and other
factors, which could cause actual results to differ materially from predicted
results. These factors, as and when applicable, are disclosed previously and
from time to time in the Company's filing with the Securities and Exchange
Commission.
<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
The Company held its Annual Meeting of Stockholders on May 23, 1997. At the
meeting, the shareholders voted in favor of (1) electing as directors the eleven
nominees named in the Proxy Statement dated April 11, 1997, (2) authorized the
amendments to the Company's Amended and Restated 1989 Incentive Stock Option
Plan to increase the number of shares authorized under such Plan to 1,650,000
shares of common stock from 1,250,000 shares, and (3) ratified the appointment
of KPMG Peat Marwick LLP as the independent accountants to audit the Company's
accounts for the fiscal year ending December 31, 1997. The number of votes cast
were as follows:
<TABLE>
<CAPTION>
Broker
Votes Votes Votes Votes Non-
For Against Withheld Abstained Votes
--------------- ----------- -------------- -------------- ---------------
<C> <C> <C> <C> <C> <C>
(1) David S. Lipson 7,000,818 N/A 37,055 N/A -
David D. Gathman 7,000,952 N/A 36,921 N/A -
Frank Baldino, Jr., Ph.D. 7,004,052 N/A 33,821 N/A -
Melvyn E. Bergstein 7,001,018 N/A 36,855 N/A -
Donald R. Caldwell 7,003,268 N/A 34,605 N/A -
Mark J. Denino 7,002,768 N/A 35,105 N/A -
David S. Fehr 7,002,383 N/A 35,490 N/A -
James L. Mann 7,003,302 N/A 34,571 N/A -
Donna J. Pedrick 7,002,884 N/A 34,989 N/A -
Michael D. Stern 7,001,052 N/A 36,821 N/A -
Edward S. J. Tomezsko, Ph.D. 7,004,052 N/A 33,821 N/A -
(2) 1989 Incentive Stock
Option Plan 5,781,719 171,436 N/A 19,623 1,065,095
(3) KPMG Peat Marwick LLP 7,007,995 10,255 N/A 19,623 -
</TABLE>
<PAGE>
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
3.1 Articles of Incorporation*
3.2 By-laws*
10.1 Stock Option Plan, as Amended
11.1 Computation of Net Income Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K: None
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* Filed as an exhibit to the Company's registration statement on Form S-1
(File No. 333-00790) and incorporated herein by reference.
<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 14, 1997 By: /s/ DAVID S. LIPSON
-------------------------------------
David S. Lipson
Chairman, Chief Executive Officer,
President and Treasurer
Date: August 14, 1997 By /s/ DAVID D. GATHMAN
--------------------------------------
David D. Gathman
Executive Vice President, Finance and
Administration, Chief Financial
Officer and Secretary (Principal
Financial and Accounting Officer)
<PAGE>
EXHIBIT INDEX
Number Description
3.1 Articles of Incorporation*
3.2 By-laws*
10.1 Stock Option Plan, as Amended
11.1 Computation of Net Income Per Share
27.1 Financial Data Schedule
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* Filed as an exhibit to the Company's registration statement on Form S-1
(File No. 333-00790) and incorporated herein by reference.
<PAGE>
EXHIBIT 10.1
INTEGRATED SYSTEMS CONSULTING GROUP, INC.
AMENDED AND RESTATED 1997 INCENTIVE STOCK OPTION PLAN(1)
1. Purpose of the Plan
The purposes of this plan are to foster and promote the long-term financial
success of the Company by (a) attracting and retaining key personnel of
outstanding ability by the granting of stock options; (b) strengthening the
Company's capacity to develop and maintain a competent management team; (c)
providing incentive compensation opportunities which are competitive with those
of other businesses; and (d) enabling key personnel to participate in the
financial success of the Company through the ownership of stock in the Company.
It is intended that stock options granted under this Plan shall be "incentive
stock options," as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). All requirements of Code Section 422 and the
regulations issued thereunder are deemed a part of this Plan and any provision
hereof which is contrary to those requirements shall be null and void.
2. Definitions
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means a Committee appointed by the Board
to administer the Plan. The Committee shall consist
of not less than two persons who shall serve at the
pleasure of the Board.
(c) "Company" means Integrated Systems Consulting Group,
Inc., a Pennsylvania corporation, and its
Subsidiaries, if any.
(d) "Employee" means any person (including any officer of
the Company), who is employed on a full-time basis by
the Company, and any member of the Board or the Board
of Directors of any Subsidiary. For purposes of the
Plan, employment on a full-time basis means
employment for 40 or more hours per week.
(e) "Exercise Period" means the period during which a
Participant is entitled to exercise a Stock Option
granted to such Participant under the Plan; which
period shall neither begin prior to two (2) years,
nor end later than ten (10) years from the date of
the grant of such Option. Options granted to any
Employee under this Plan shall continue to be
exercisable only so long as the Participant continues
to be an Employee, except as provided in Section 7
hereof.
- --------
(1) On May 23, 1997 the Company's Shareholders approved an amendment to the
Company's Amended and Restated 1989 Incentive Stock Option Plan to extend its
expiration date to May 22, 2007. Subsequent to such amendment, the Plan will be
referred to as the Amended and Restated 1997 Incentive Stock Option Plan.
<PAGE>
(f) "Fair Market Value" means the value of the Shares
determined in good faith by the Plan Administrator.
If shares of the Stock are listed on a stock
exchange, such determination shall be made on the
basis of the closing sale price of such Shares on any
stock exchange on which such shares are listed. If
shares of the Stock are not listed on a stock
exchange, but are traded on the over-the-counter
market, such determination shall be made on the basis
of the mean between the bid and offer prices for such
shares on the over-the-counter market. In no case
shall such Fair Market Value be less than the par
value of such Shares. Fair Market Value of the Shares
shall be determined without regard to any
restrictions other than a restriction which, by its
terms, will never lapse.
(g) "Offer" means a tender or exchange offer, other than
one made by the Company, for shares of Stock in the
Company.
(h) "Participant" means any Employee who is selected by
the Plan Administrator to receive a Stock Option.
(i) "Plan" means the Amended and Restated 1997 Incentive
Stock Option Plan(2) of the Company, including any
amendments thereto.
(j) "Plan Administrator" means either the Board or a
Board-appointed Committee, whichever is designated
from time to time to administer the Plan under
Section 3(a) hereof.
(k) "Reorganization Transaction" means a merger,
consolidation or combination of the Company with
another corporation or entity or any similar
reorganization of the Company, the complete
liquidation of the Company, or the sale of all or
substantially all of the assets of the Company.
(l) "Shares" means the shares of Stock reserved for
issuance or transfer by the Company under the Plan as
set forth in Section 4(a) hereof. The term "Shares"
shall also include all shares of Stock received with
respect to Shares by a Participant pursuant to a
stock dividend, stock split, recapitalization or
other similar transaction.
(m) "Stock" means the Common Stock, par value $.005 per
share, of the Company.
(n) "Stock Option" or "Option" means an option to
purchase Shares granted under Section 6 hereof.
- --------
(2) Amended as of May 23, 1997. See note 1.
2
<PAGE>
(o) "Subsidiary" means any corporation the majority of
the outstanding voting stock of which is owned,
directly or indirectly, by the Company.
(p) "Termination of Employment" means the time when the
employee-employer relationship between the
Participant and the Company is terminated for any
reason, including, but not limited to, a termination
by resignation, discharge, death, disability, or
retirement, but excluding such termination where
there is a simultaneous reemployment by either the
Company or a Subsidiary.
(q) "Vesting Schedule" means the dates when a Participant
can exercise the Options granted under this Plan, as
set forth in Section 6(c) hereof.
3. Administration of the Plan
(a) The Plan shall be administered under the direction of
the Board. The Board may at any time, in its sole
discretion, appoint a Committee of the Company which
shall have all of the powers, duties, and
responsibilities of the Board of Directors under this
Plan and shall be subject to all of the terms and
conditions of this Plan applicable to the Board of
Directors. The Committee, if appointed, shall consist
of two or more persons who shall serve at the
pleasure of the Board of Directors. Such persons may
or may not be Directors of the Company. The Board
shall determine, from time to time, whether the Plan
shall be administered by the Board or the Committee,
and whichever body is so designated shall be the Plan
Administrator hereunder.
(b) Subject to the provisions of the Plan, the Plan
Administrator shall have exclusive power to select
the Employees who are to be Participants under the
Plan as set forth in Section 5 hereof and to
determine the Options to be granted to the
Participants selected and the time or times when, and
terms, conditions and restrictions subject to which,
such Options will be granted.
(c) Decisions and determinations by the Plan
Administrator shall be final and binding upon all
persons, including, but not limited to, the Company
and its shareholders, Participants and their personal
representatives, heirs and assigns, and other
Employees. The Plan Administrator shall have the
authority to interpret the Plan, establish and revise
rules and regulations relating to the Plan, and make
any other determinations that it believes necessary
or advisable for the administration of the Plan;
provided, however, that no such rules, regulations or
determinations are inconsistent with the terms of
this Plan.
3
<PAGE>
(d) The provisions of the By-laws of the Company
governing the number of Directors of the Board
required for action to be taken by the Board at a
meeting and the requirements for voting by Directors
at a meeting at which a quorum is present, or for
acting by their written consent, shall be complied
with by the Board in order to take valid actions
under the Plan. Notwithstanding anything in the
By-laws to the contrary, a majority of the Committee
shall constitute a quorum, and the acts of a majority
of the members of the Committee present at any
meeting at which a quorum is present, or acts
approved in writing by a majority of the Committee
without a meeting, shall be the acts of the
Committee.
(e) All expenses and liabilities incurred by the Plan
Administrator in the administration of the Plan shall
be borne by the Company. The Plan Administrator may
employ attorneys, consultants, accountants, or other
persons to render services in connection with the
Plan, and the Company, the Board, the Committee, and
the members of the Board and Committee shall be
entitled to rely upon the advice, opinions, or
valuations of any such persons. Neither the Company,
the Board, the Committee, nor any member of the Board
or Committee shall be personally liable for any
action, determination, or interpretation taken or
made in good faith with respect to the Plan, and all
members of the Board and Committee shall be
indemnified by the Company with respect to any such
liability to the fullest extent permitted by the
By-laws of the Company.
4. Stock Subject to the Plan
(a) The maximum number of shares of Stock which may be
issued or transferred by the Company under the Plan
and which shall be reserved for such issuance shall
be 1,650,000(3) Shares.
(b) The Board may reserve authorized but unissued shares
of Stock, or treasury shares of Stock, not otherwise
reserved or restricted, for issuance under this Plan.
Shares reserved for issuance or transfer under
outstanding Stock Options under this Plan which
expire unexercised or which are cancelled shall again
become reserved for issuance under this Plan.
(c) The approval of this Plan by the Board shall
constitute the Board's conclusive judgment and
determination that, when Shares have been issued to a
Participant in accordance with the terms and
conditions of the Plan, such Shares shall be
considered to be issued for full and adequate
consideration and shall be fully paid and
nonassessable Stock, and that such consideration
shall be accounted for in accordance with the
Company's standard accounting practice.
- --------
(3) Amended as of May 23, 1997 (formerly
the total number of shares covered by the Plan was 1,250,000). See note 1.
4
<PAGE>
5. Eligibility
The Plan Administrator shall from time to time, in its absolute discretion,
select Participants to whom Stock Options shall be granted from among those
Employees who are key personnel of the Company. No Stock options shall be
granted to any individual who, at the time the Stock Option is granted, owns
(after application of the ownership attribution rules contained in Code Section
424(d)) stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company, unless the purchase price
per Share under such Option is at least 110% of the Fair Market Value of such
Share on the date the Option is granted, and such Option is not exercisable
until after the expiration of five (5) years from the date on which such Option
is granted. Moreover, the aggregate fair market value (determined as of the time
the Option is granted) of the shares of stock of the Company with respect to
which incentive stock options (as defined in Code Section 422) are exercisable
for the first time by any Participant during any calendar year (pursuant to all
incentive stock option plans of the Company) shall not exceed $100,000.
6. Grant of Stock Option; Agreement
At the time an Option is granted pursuant to this Plan, each Participant granted
an Option shall enter into an agreement with the Company (an "Incentive Stock
Option Agreement"), in a form approved by the Plan Administrator, which shall
set forth the general terms and conditions of the Options granted to the
Participant, and such other terms and conditions as the Plan Administrator
shall, in its sole discretion, determine. A copy of a form of Incentive Stock
Option Agreement is attached hereto as Exhibit A. The Incentive Stock Option
Agreement shall specify the following terms and conditions with respect to the
Option:
(a) Number of Shares. The number of Shares issuable or
transferable to the Participant upon the exercise of
the Option.
(b) Price. The purchase price per Share deliverable upon
the exercise of the Option, which shall not be less
than the Fair Market Value of the Shares on the date
the Option is granted. The purchase price may be paid
in cash, by check or in any other form as may be
deemed acceptable by the Plan Administrator.
(c) Exercise Period and Vesting Schedule. The Stock
Options granted under this Plan shall be exercisable
by the Participant in accordance with the following
schedule (the "Vesting Schedule"):
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
For Options granted before July 25th, 1996:
2 years from date of grant: 20% of Shares
3 years from date of grant: 40% of Shares
4 years from date of grant: 60% of Shares
5 years from date of grant: 80% of Shares
6 years from date of grant: 100% of Shares
For Options granted on or after July 25th, 1996:
1 year from date of grant: 20% of Shares
2 years from date of grant: 40% of Shares
3 years from date of grant: 60% of Shares
4 years from date of grant: 80% of Shares
5 years from date of grant: 100% of Shares
</TABLE>
(d) Discretion of Plan Administrator. Notwithstanding
anything to the contrary in this Section 6(d), the
Plan Administrator, at any time and in its sole
discretion, may establish the Vesting Schedule for
any Stock Options granted under this Plan and may
also provide for the acceleration of the Vesting
Schedule with respect to Stock Options previously
granted under the Plan to any Participant and the
acceleration of the right to exercise Stock Options
prior to vesting (provided such Stock is subject to
the Company's right, but not the obligation, to
repurchase such Stock if vesting does not
subsequently occur), provided that such grant or
acceleration shall not impair the qualification of
such Stock Option under Code Section 422.
(e) Voluntary. The Participant shall expressly
acknowledge and agree that participation in this Plan
is voluntary, and that the Participant will be solely
responsible for all taxes to which he or she may
become subject as a consequence of participation in
the Plan, the exercise of an Option or the ownership,
sale, transfer or other disposition of Shares
acquired pursuant to the exercise of an Option issued
hereunder.
(f) 30-Day Waiting Period With Respect to Options Granted
Prior to July 25, 1996. With respect only to Options
granted hereunder prior to July 25, 1996, there shall
be a 30-day period between the date on which the
Participant exercises the Option pursuant to this
Plan, and the issuance or transfer of the Shares
covered by such Option to the Participant, and the
Participant must remain an Employee at all times
during such 30-day period in order to receive the
Shares.
(g) Share Certificates Held by Company. The original of
any Share certificates that are issued to a
Participant upon exercise of a Stock Option granted
under the Plan may be held by the Plan Administrator
as custodian for the Participant, in the Plan
Administrator's sole discretion. The issuance of such
certificates shall be recorded on the Company's stock
ledger book and other records so that the Participant
is accorded all rights of a holder of Shares. At a
Participant's request, the Plan Administrator shall
furnish to the Participant a copy of the Share
certificate(s) held by the Plan Administrator as
custodian for the Participant.
6
<PAGE>
(h) Other. Such other terms and conditions not
inconsistent with the Plan as the Plan Administrator
shall specify.
7. Termination of Employment
(a) Death. If the Participant dies while an Employee, any
Option which was exercisable, in accordance with the
Vesting Schedule, by such Participant on the date of
such Participant's death shall be exercisable by such
Participant's estate, heirs or legatees at any time
prior to the expiration of one year after the date of
the Participant's death, but in no event after the
expiration of the Exercise Period applicable to such
Option.
(b) Total Disability. If any Participant becomes
permanently and totally disabled within the meaning
of Code Section 22(e)(3) while he or she is an
Employee, any Option held by the Participant which
was exercisable, in accordance with the Vesting
Schedule, by the Participant on the date of such
disability shall be exercisable for a period of one
year from the date such Participant ceases
Employment, but in no event after the expiration of
the Exercise Period applicable to such Option. If the
Participant dies during such one-year period, the
executor, personal representative, distributee or
legatee of the Participant's estate shall have the
right to exercise such Option during the remainder of
such period.
(c) Other. If there is a Termination of Employment of a
Participant for any reason not specified in Sections
7(a) or 7(b) hereof, any Option which was
exercisable, in accordance with the Vesting Schedule,
by such Participant on the date of such Termination
shall be exercisable at any time prior to 30 days
from the date of such Termination, but in no event
after the termination of the Exercise Period
applicable to such Option. If the Participant dies
during such 30-day period, the executor, personal
representative, legatee or distributee of the
Participant's estate shall have the right to exercise
such Option during the remainder of such period. The
Plan Administrator shall have discretion with respect
to applying this Section 7(c) to members of the Board
of Directors who are Participants under the Plan.
7
<PAGE>
8. Leave of Absence
If a Participant is granted a leave of absence (as defined in Regulations
Section 1.421-7(b)(2)) by the Company, the Plan Administrator may make such
provision respecting continuance of any Stock Option held by such Participant
while such Participant continues as an Employee as it may deem advisable, except
that in no event shall any Option become exercisable after the expiration of the
Exercise Period applicable to such Option.
9. Compliance with Applicable Laws
No Stock Options shall be granted, and no Shares shall be issued or transferred
by the Company to a Participant pursuant to the Plan unless the Plan
Administrator, in its sole discretion, shall have first determined that all
registrations, approvals, exemptions, and any other action required by law to be
taken with respect to the Plan shall have been accomplished, including, but not
limited to, such action, if any, as is then required to comply with the
provisions of the Securities Act of 1933, the Securities Exchange Act of 1934,
any applicable state laws, and the requirements of any exchange on which the
Stock may, at the time, be listed.
10. Employment
No employee or other person shall have any claim or right to be granted a Stock
Option under the Plan. Nothing herein contained shall at any time be deemed to
give any Employee the right to be retained in the employ of the Company,
interfere with the right of the Company to discharge any Employee, give to the
Company the right to require any Employee to remain in its employ, or interfere
with any Employee's right to terminate employment.
11. Corporate Changes
(a) If any change in the number, class, rights or
designation of outstanding shares of Stock occurs by
reason of a stock split, recapitalization, stock
dividend, reclassification, or other similar
transaction, the maximum aggregate number and class
of Shares reserved under the Plan or the exercise
price of all outstanding Stock Options may be
appropriately adjusted by the Board whose
determination in such regard shall be conclusive.
When such adjustment is made, the number of Shares
issuable or transferable to Participants upon the
exercise of outstanding Stock Options, or the
exercise price of such Options, as the case may be,
shall likewise be appropriately adjusted by the
Board.
(b) If the Company becomes a party or subject to a
Reorganization Transaction, or if there is an Offer
for shares of the Stock, the Board may: (1) determine
what Participants shall be entitled to receive, in
substitution for Shares issuable or transferable to
them upon the exercise of outstanding Stock Options,
in the form of stock, securities, cash or other
property to be received by owners of Stock of the
Company as a result of such Reorganization
Transaction or Offer; provided, however, that the
aggregate fair market value of the stock, securities,
cash or other property subject to the Options
immediately after such substitution shall be no
greater than the aggregate Fair Market Value of the
Shares subject to such Options immediately before
such substitution; (2) upon written notice to
Participants, provide that the Participant's Options
shall be terminated unless exercised in accordance
with the Plan within thirty (30) days after the date
of such notice; or (3) take any other action with
respect to any outstanding Stock Options which it
deems to be appropriate; provided that under no
circumstances shall any such Board determination
increase the length of the Exercise Periods
applicable to the Options.
8
<PAGE>
12. Transferability of Shares
(a) If a Participant acquires Shares pursuant to the
terms of this Plan and there is, subsequently, a
Termination of Employment with the Company, either
voluntarily or involuntarily, such Employee shall be
obligated to offer to sell within fifteen (15) days
to the Company and the Company shall be obligated to
purchase from the Participant the Shares so acquired
(other than Shares of the Company for which there
shall be a public market). If the termination is by
reason of the death of the Participant, the
obligation to offer the Shares shall pass with the
Shares to the Participant's executor, legal
representative, distributee, or legatee. At the
discretion of the Plan Administrator this Section 12
shall not apply to members of the Board of Directors
who are Participants under the Plan.
Closing with respect to the repurchase of the Shares
described in the prior paragraph shall take place at
the offices of the Company within thirty (30) days of
the date of Termination of Employment (or, in the
case of the death of the Participant, within thirty
(30) days of the exercise of the Option pursuant to
Section 7(a) hereof). At the sole discretion of the
Company, however, the date of Closing may be
postponed until the first business day following the
date which is the one year anniversary of the date
the Shares were transferred to the Participant
pursuant to the Option.
The purchase price for the Shares to be purchased
hereunder, other than in the event the Participant is
dismissed from Employment with the Company for cause,
shall be the Fair Market Value of such Shares
(determined in accordance with Section 2(f) hereof)
as of the date of Termination of Employment. If a
Participant is dismissed from Employment with the
Company for cause, the purchase price of those Shares
acquired by the Employee pursuant to the exercise of
Stock Options shall be equal to their Fair Market
Value as determined above or the Participant's
exercise price for those Shares, whichever is less.
9
<PAGE>
(b) The Shares acquired pursuant to the Plan shall and
all share certificates representing Shares so
acquired shall contain a legend stating that transfer
of such Shares is restricted in accordance with the
terms of this Plan.
13. Miscellaneous
(a) Effective Date and Duration of the Plan. This Plan
shall become effective upon the approval thereof by
the holders of a majority of the outstanding shares
of stock of the Company entitled to vote thereon
within twelve months after the Plan is adopted by the
Board of Directors. Unless sooner terminated, the
Plan shall terminate ten years from the date of
shareholder approval, or the date the Plan is
adopted, whichever is earlier.
(b) Effect Upon Other Plans. The adoption of the Plan
shall not affect any stock option or other
compensation or incentive plan in effect for the
Company or any Subsidiary, and the Plan shall not
preclude the Board from establishing any other forms
of incentive, bonus or other compensation for
Employees.
(c) Termination. The right to grant Stock Options under
the Plan shall terminate automatically at the close
of business on the tenth anniversary of the effective
date of the Plan, and thereafter, the function of the
Plan Administrator shall be limited to the
administration of Options previously granted. The
Board shall have the right to suspend or terminate
the Plan at any time provided that no action shall,
without the consent of the Participant, adversely
affect any rights or obligations under any Options
previously granted to the Participant. The Plan may
be terminated at any time by the shareholders of the
Company in the manner provided by law.
(d) Amendment of the Plan. The Board may modify or amend
the Plan in any respect, except that without
shareholder approval the Board may not, unless
otherwise provided specifically herein, (1) increase
the maximum number of Shares set forth in Section
4(a) hereof; (2) withdraw administration of the Plan
from the Plan Administrator constituted in the manner
provided in Section 3(a) hereof; (3) materially
increase the benefits accruing to Participants; or
(4) materially modify the requirements as to
eligibility for participation in the Plan as set
forth in Section 5 hereof. Any modification or
amendment of the Plan shall not, without the consent
of the Participant, adversely affect any rights or
obligations under Options previously granted to the
Participant. Subject to the foregoing, the Plan may
be amended at any time by the shareholders of the
Company in the manner provided by law. The Plan
Administrator may, with the consent of a Participant,
amend an outstanding Option held by a Participant, in
a manner not inconsistent with the Plan.
10
<PAGE>
(e) Assignability of Options. No Stock Options shall be
assignable or transferable by a Participant except by
will or by the laws of descent and distribution.
During the life of the Participant, Options shall be
exercisable only by such Participant. No Participant
shall have any rights as a shareholder with respect
to any Shares subject to an Option until the date of
issuance of stock certificates to such Participant
for such Shares. Except as otherwise expressly
provided herein, no adjustment shall be made for
dividends or other shareholder rights for which the
record date is prior to the date such stock
certificates are issued.
(f) Binding Effect. Any delivery of Shares upon the
exercise of Stock Options and any delivery of cash in
settlement of an Option to any Participant or former
Participant or such Participant's legal
representative or to any beneficiary of such
Participant in accordance with the provisions of this
Plan shall be in full satisfaction of all claims with
respect to such Options which such Participant,
representative or beneficiary may have against the
Company, Plan Administrator or any member of the Plan
Administrator. This Plan shall be binding upon the
beneficiaries, heirs, executors, administrators,
distributees and assigns of the Participants and the
successors and assigns of the Company.
(g) Governing Law. This Plan shall be construed and
enforced in accordance with the laws of the
Commonwealth of Pennsylvania.
(h) Compliance with Securities and Exchange Commission
Rule 16b-3. Notwithstanding anything contained in
this Plan to the contrary, commencing July 25, 1996,
no Options shall be granted to any person who is the
beneficial owner of more than 10% of any class of
equity security of the Company which is registered
pursuant to Section 12 of the Securities Exchange Act
of 1934 or who is a director or officer of the
Company (hereinafter referred to as an "insider"),
except as follows:
(i) Formula Plan for Outside Directors. Each
outside member of the Board of Directors (i.e., a
director who is not employed by the Company) shall
automatically be granted an Option for 10,000 Shares
upon initial election to the Board of Directors, and
each outside member of the Board of Directors shall
automatically be granted an Option for 2,000 Shares
every two years thereafter following re-election to
the Company's Board of Directors.
(ii) Other Insiders. All other "insiders"
shall be granted Options only upon recommendation of
the Committee and approval by the Board of Directors.
11
<PAGE>
(iii) It is the intent of this subsection
13(h) that profits resulting from the exercise of
Options granted to "insiders" shall not be subject to
the short-swing profit recovery provisions of section
16 of the Securities Exchange Act but shall instead
be exempt from such provisions pursuant to Rule 16b-3
or otherwise. Accordingly, this subsection 13(h)
shall be construed and administered in such a manner
as to result in the foregoing.
12
<PAGE>
Integrated Systems Consulting Group, Inc.
(in thousands, except per share data)
Exhibit 11.1 - Computation of Net Income Per Share
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------- -----------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Shares used in computing primary net income
per common share:
Shares outstanding, beginning of period 7,915 5,617 7,857 5,606
Net incremental shares resulting from assumed
exercise of stock options and warrants using
the treasury stock method 938 1,220 966 944
Weighted impact of common shares issued
during the period 3 747 53 388
Weighted impact of common shares -- -- -- (8)
repurchased during the period
Total shares used in computing primary
net income per common share 8,856 7,584 8,876 6,930
======= ======= ======= =======
Net income $ 800 $ 724 $ 1,401 $ 1,570
======= ======= ======= =======
Primary net income per common share $ .09 $ .10 $ .16 $ .23
======= ======= ======= =======
Shares used in computing fully diluted net income
per common share:
Shares outstanding, beginning of period 7,915 5,617 7,857 5,606
Net incremental shares resulting from assumed
exercise of stock options and warrants using
the treasury stock method 958 1,225 976 1,245
Weighted impact of common shares issued
during the period 3 747 53 388
Weighted impact of common shares
repurchased during the period -- -- -- (8)
------- ------- ------- -------
Total shares used in computing fully diluted
net income per common share 8,876 7,589 8,886 7,231
======= ======= ======= =======
Net income $ 800 $ 724 $ 1,401 $ 1,570
======= ======= ======= =======
Fully diluted net income per common share $ .09 $ .10 $ .16 $ .22
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001007020
<NAME> INTEGRATED SYSTEMS
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,505
<SECURITIES> 97
<RECEIVABLES> 8,761
<ALLOWANCES> 307
<INVENTORY> 0
<CURRENT-ASSETS> 16,430
<PP&E> 5,409
<DEPRECIATION> 2,020
<TOTAL-ASSETS> 21,432
<CURRENT-LIABILITIES> 2,230
<BONDS> 0
0
0
<COMMON> 46
<OTHER-SE> 19,156
<TOTAL-LIABILITY-AND-EQUITY> 21,432
<SALES> 19,098
<TOTAL-REVENUES> 19,098
<CGS> 0
<TOTAL-COSTS> 16,912
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,415
<INCOME-TAX> 1,014
<INCOME-CONTINUING> 1,401
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,401
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
