<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
the Securities Act of 1934
Date of Report (Date of earliest event reported): February 27, 1998
Integrated Systems Consulting Group, Inc.
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(Exact name of registrant as specified in its charter)
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<CAPTION>
<S> <C> <C>
Pennsylvania 0-28206 23-2528944
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(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
575 East Swedesford Road, Suite 200, Wayne, PA 19087
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(Address of Principal Executive Offices) (Zip Code)
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Registrant's Telephone Number, including Area Code: (610) 989-7000
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This Form 8-K/A is being filed to amend Item 7 in order to provide the
financial statements and pro forma financial information required by that item.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of WaveFront Consulting, Inc., attached hereto
as Appendix I.
(1) Independent Auditors' Report.
(2) Balance Sheet as of December 31, 1997.
(3) Statement of Earnings for the year ended December 31, 1997.
(4) Statement of Stockholders' Equity for the year ended December
31, 1997.
(5) Statement of Cash Flows for the year ended December 31, 1997.
(6) Notes to Financial Statements.
(b) Unaudited Pro Forma Condensed Combined Financial Information of
Integrated Systems Consulting Group, Inc. and WaveFront Consulting, Inc.,
attached hereto as Appendix II.
(1) Unaudited Pro Forma Condensed Combined Balance Sheets as of
December 31, 1997.
(2) Unaudited Pro Forma Condensed Combined Statements of
Earnings for the year ended December 31, 1997.
(3) Notes to Unaudited Pro Forma Condensed Combined Financial
Information.
(c) Exhibits.
2. Stock Purchase Agreement between Integrated Systems
Consulting Group, Inc. and Reed Wellman, Douglas J. Stinson,
Nitin Malhotra, Michael Spitalney and Robert A. Wenger,
dated February 27, 1998 (Incorporated by reference to
Exhibit 2. filed with ISCG's Current Report on Form 8-K
dated February 27, 1998.)
10.1 Form of Employment Agreement among WaveFront Consulting,
Inc., Integrated Systems Consulting Group, Inc. and each of
the WaveFront shareholders, dated February 27, 1998
(Incorporated by reference to Exhibit 10.1 filed with ISCG's
Current Report on Form 8-K dated February 27, 1998.)
23.1 Consent of KPMG Peat Marwick LLP
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APPENDIX I
Independent Auditors' Report
The Board of Directors
WaveFront Consulting, Inc.:
We have audited the accompanying balance sheet of WaveFront Consulting, Inc. as
of December 31, 1997, and the related statements of earnings, stockholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of WaveFront Consulting, Inc. as
of December 31, 1997, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
McLean, Virginia
February 6, 1998, except as to Note 8
which is as of February 27, 1998
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WAVEFRONT CONSULTING, INC.
Balance Sheet
(in thousands, except share data)
December 31, 1997
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Assets
Current assets:
Cash and cash equivalents $ 97
Trade accounts receivable 710
Other current asset 7
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Total current assets 814
Property plant and equipment, net 34
Deposits 5
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$ 853
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Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 121
Accrued compensation payable 120
Deferred income taxes 158
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Total liabilities 399
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Stockholders' equity:
Common stock, par value $1; 25,000 shares
authorized; 430 shares issued and outstanding -
Additional paid-in capital 10
Retained earnings 444
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Total stockholders' equity 454
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$ 853
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See accompanying notes to financial statements.
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WAVEFRONT CONSULTING, INC.
Statement of Earnings
(in thousands)
Year ended December 31, 1997
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Revenues $ 2,818
Cost of revenue 1,794
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Gross profit 1,024
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Operating expenses:
Marketing and selling expenses 205
General and administrative expenses 699
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Total operating expenses 904
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Income from operations 120
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Interest income 3
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Income before provision for income taxes 123
Provision for income taxes 42
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Net income $ 81
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See accompanying notes to financial statements.
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WAVEFRONT CONSULTING, INC.
Statement of Stockholders' Equity
(in thousands, except share data)
Year ended December 31, 1997
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Common stock Additional
------------------------- paid-in Retained
Shares Amount capital earnings Total
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Balance at December 31, 1996 430 $ -- $ 10 $363 $373
Net income -- -- -- 81 81
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Balance at December 31, 1997 430 $ -- $ 10 $444 $454
---- --------- ---- ---- ----
</TABLE>
See accompanying notes to financial statements.
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WAVEFRONT CONSULTING, INC.
Statement of Cash Flows
(in thousands)
Year ended December 31, 1997
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Cash flows from operating activities:
Net income $ 81
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 25
Deferred income taxes 33
Changes in assets and liabilities:
Increase in receivables (226)
Decrease in prepaid expenses 4
Increase in other assets (12)
Increase in accounts payable and accrued expenses 125
-------
Net cash flows provided by operating activities 30
Cash flows from investing activities - capital expenditures (19)
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Net increase in cash and cash equivalents 11
Cash, beginning of year 86
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Cash, end of year $ 97
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See accompanying notes to financial statements.
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WAVEFRONT CONSULTING, INC.
Notes to Financial Statements
December 31, 1997
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(1) Summary of Significant Accounting Policies
Organization
WaveFront Consulting, Inc. ("WaveFront"), provides computer consulting
services to a variety of customers. WaveFront was incorporated in
Virginia on June 22, 1994.
Basis of Presentation
The accompanying financial statements include all of the accounts and
balances of WaveFront and are prepared under the accrual method of
accounting whereby revenues are recognized as services are performed
and expenses are recognized as they are incurred. Deferred revenues are
recorded when payment is received in advance of performance of
services.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Depreciation, Amortization and Recoverability of Long-Lived Assets
Depreciation and amortization are provided using the straight-line
method as follows:
Furniture, equipment, and software 3 years
WaveFront's policy is to review its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. WaveFront recognizes an
impairment loss when the sum of expected future cash flows is less than
the carrying amount of the asset. WaveFront operates in computer
consulting services which is highly competitive and is marked by
inherent technological obsolescence and commercial market risks. Given
these risks, it is reasonably possible that WaveFront's current
estimate that it will recover the carrying amount of its long-lived
assets from future operations may change.
Continued)
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WAVEFRONT CONSULTING, INC.
Notes to Financial Statements
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(1) Continued
Income Taxes
WaveFront recognizes income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized as income in the period that includes the enactment date.
Cash and Cash Equivalents
WaveFront considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Fair Value of Financial Instruments
The amounts reported for cash equivalents, accounts receivable,
accounts payable and accrued liabilities are considered to approximate
fair values due to the relatively short duration of these instruments.
(2) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following (in
thousands):
Trade accounts payable $ 67
Deferred revenue 18
Professional services 15
Accrued 401(k) 10
Other accrued expenses 11
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Total $ 121
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(3) Property, Plant and Equipment
Property, plant and equipment consists of the following (in thousands):
Computer equipment $ 77
Furniture and fixtures 6
Accumulated depreciation and amortization (49)
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Total $ 34
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(Continued)
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WAVEFRONT CONSULTING, INC.
Notes to Financial Statements
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(4) Lease Commitments
Aggregate minimum rental commitments under noncancelable operating
leases (primarily for office space and equipment) at December 31, 1997
are as follows (in thousands):
1998 $ 60
1999 60
2000 3
2001 2
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Total $ 125
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Rent expense under operating leases for 1997 was approximately $43,000.
(5) Income Taxes
The provision for income taxes for the year ended December 31, 1997
consists of the following (in thousands):
Current provision:
Federal $ 6
State 3
Deferred provision:
Federal 26
State 7
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Total $ 42
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The income tax provision is different from the expected provision
computed using the statutory U.S. federal income tax rate as set forth
below:
U.S. federal statutory rate 34%
State income taxes, net of federal benefit 6
Effect of graduated tax rates (6)
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Total 34%
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(Continued)
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WAVEFRONT CONSULTING, INC.
Notes to Financial Statements
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(5) Continued
The tax effects of significant temporary differences at December 31,
1997 are as follows (in thousands):
Tax assets:
Financial statement accruals $ 28
Accrued vacation 19
Accrued bonuses 18
Deferred revenue 6
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Total deferred tax assets 71
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Tax liabilities:
Accounts receivable 220
Excess tax depreciation 9
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Total deferred tax liabilities 229
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Net deferred tax liabilities $ 158
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(6) Defined Contribution Plan
At December 31, 1997, WaveFront had a defined contribution plan (the
"401(k) plan") in accordance with Section 401(k) of the Internal
Revenue Code of 1986, as amended. Generally, all full-time employees
are eligible for participation in the 401(k) plan. WaveFront's
contributions to the 401(k) plan are made based on certain plan
provisions, and were approximately $34,000 during 1997.
(7) Supplemental Information - Cash Flows
Cash payments for interest and income taxes during the year ended
December 31, 1997 were as follows (in thousands):
Taxes paid $ 28
Interest paid -
(8) Subsequent Event
On February 27, 1998, Integrated Systems Consulting Group ("ISCG")
purchased all of the common stock of WaveFront for $3,650,000 in cash.
The purchase price is subject to certain adjustments. In addition, the
former shareholders of WaveFront are entitled to receive additional
consideration if WaveFront exceeds certain income thresholds in 1998 or
1999. WaveFront will operate as a wholly owned subsidiary of ISCG.
<PAGE>
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APPENDIX II
Unaudited Pro Forma Condensed Combined Financial Information
The Unaudited Pro Forma Condensed Combined Statement of Earnings assumes
that the acquisition of WaveFront Consulting, Inc. ("WaveFront") had occurred on
January 1, 1997, combining the results of Integrated Systems Consulting Group,
Inc. ("ISCG" or the "Company") and WaveFront for the year ended December 31,
1997. The Unaudited Pro Forma Condensed Combined Balance Sheet as of December
31, 1997 reflects the acquisition as if it had occurred on December 31, 1997.
The pro forma information is based on the historical financial statements of the
Company and WaveFront, after giving effect to the acquisition using the purchase
method of accounting and assumptions and adjustments considered appropriate by
the Company, certain of which are described in the accompanying Notes to
Unaudited Pro Forma Condensed Combined Financial Information. The pro forma
information is provided for illustrative purposes only and is not necessarily
indicative of the results of earnings or financial condition that actually would
have been obtained if the acquisition had occurred on the dates indicated or of
the results that may be obtained in the future.
The Unaudited Pro Forma Condensed Combined Financial Information should be
read in conjunction with the historical financial statements and the related
notes thereto of ISCG and WaveFront. The historical financial statements of
WaveFront and the related notes thereto are included herein. The historical
financial statements of ISCG and the related notes thereto have been previously
filed with the Securities and Exchange Commission and are available from ISCG
upon written request.
<PAGE>
Integrated Systems Consulting Group, Inc.
Pro Forma Condensed Combined Balance Sheets
(in thousands, except share data)
December 31, 1997
Unaudited
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Pro Forma Pro Forma
ISCG WaveFront Adjustments Combined
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Assets
Current assets:
Cash and cash equivalents
and short-term investments $ 9,443 $ 97 $ (3,650)(1) $ 5,890
Accounts receivable 8,937 710 9,647
Prepaid expenses
and other current assets 491 7 498
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Total current assets 18,871 814 (3,650) 16,035
Property and equipment, net 3,507 34 3,541
Goodwill, net 1,413 3,263(2)
4,676
Other assets 107 5
112
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$ 23,898 $ 853 $ (387) $ 24,364
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Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 1,107 $ 121 $ 30(3) $ 1,258
Accrued compensation payable 909 120 1,029
Income taxes payable
and deferred income taxes 525 158 37(4) 720
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Total current liabilities 2,541 399 67 3,007
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Stockholders' equity 21,357 454 (454)(5) 21,357
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$ 23,898 $ 853 $ (387) $ 24,364
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</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
<PAGE>
Integrated Systems Consulting Group, Inc.
Pro Forma Condensed Combined Statements of Earnings
(in thousands, except per share data)
December 31, 1997
Unaudited
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Pro Forma Pro Forma
ISCG WaveFront Adjustments Combined
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Revenues $ 43,178 $ 2,818 $ (15) (6) $ 45,981
Operating expenses:
Direct costs 25,402 1,794 27,196
Selling expenses 3,054 205 3,259
General and (15) (6)
administrative expenses 9,179 699 326 (7) 10,189
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Total operating expenses 37,635 2,698 311 40,644
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Income from operations 5,543 120 (326) 5,337
Interest income, net 418 3 (202) (8) 219
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Income before income taxes 5,961 123 (528) 5,556
10 (4)
Provision for income taxes 2,448 42 (85) (9) 2,415
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Net income $ 3,513 $ 81 $ (453) $ 3,141
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Net income per common share:
Basic $ .44 $ .40
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Diluted $ .40 $ .35
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Shares used in computing net income per common share:
Basic 7,921 7,921
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Diluted 8,881 8,881
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</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
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Integrated Systems Consulting Group, Inc.
Notes to Unaudited Pro Forma Condensed Combined Financial Information
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(1) Represents cash purchase price of $3.65 million.
(2) To record goodwill arising in the transaction.
(3) Costs directly associated with the acquisition.
(4) Assumed income tax effect from the elimination of WaveFront's benefit of
lower graduated rates as a result of becoming part of the federal
consolidated group. As a result, income taxes that were previously
provided at 34% are now provided at 42%.
(5) Elimination of historical equity accounts of WaveFront.
(6) Eliminate intercompany transactions.
(7) Amortization of goodwill resulting from the purchase of WaveFront (using a
10 year life).
(8) Estimated reduction in interest income resulting from the use of $3.65
million cash to acquire WaveFront.
(9) Assumed income tax effect of the pro forma adjustments, using an effective
income tax rate of 42%.
<PAGE>
SIGNATURE
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 hereunto duly authorized.
INTEGRATED SYSTEMS CONSULTING GROUP, INC.
By: /s/ DAVID D. GATHMAN
-----------------------------------
David D. Gathman
Executive Vice President and
Chief Financial Officer
Date: May 11, 1998
<PAGE>
EXHIBITS
2. Stock Purchase Agreement between Integrated Systems Consulting Group, Inc.
and Reed Wellman, Douglas J. Stinson, Nitin Malhotra, Michael Spitalney
and Robert A. Wenger, dated February 27, 1998 (Incorporated by reference
to Exhibit 2. filed with ISCG's Current Report on Form 8-K dated February
27, 1998.)
10.1 Form of Employment Agreement among WaveFront Consulting, Inc., Integrated
Systems Consulting Group, Inc. and each of the WaveFront shareholders,
dated February 27, 1998 (Incorporated by reference to Exhibit filed with
ISCG's Current Report on Form 8-K dated February 27, 1998.)
23.1 Consent of KPMG Peat Marwick LLP
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors'
The Board of Directors
Integrated Systems Consulting Group, Inc.:
We consent to incorporation by reference in the registration statement No.
333-05473 on Form S-8 of Integrated Systems Consulting Group, Inc. of our report
dated February 6, 1998, except as to Note 8, which is as of February 27, 1998,
with respect to the balance sheet of WaveFront Consulting, Inc. as of December
31, 1997, and the related statements of earnings, stockholders' equity, and cash
flows for the year ended December 31, 1997, which report appears in the Form
8-K-A of Integrated Systems Consulting Group, Inc. dated February 27, 1998.
KPMG Peat Marwick LLP
McLean, Virginia
May 7, 1998
