-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HfnupP/MQ8TyFbknjz2x5ZY/6FkBVdhfD/5hHwmGdwAb9kss+gAXTKQMnJTk5LKt VQD5hSiCF1L7ATEoXidUpg== 0000950128-96-000611.txt : 19961118 0000950128-96-000611.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950128-96-000611 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARNEGIE GROUP INC CENTRAL INDEX KEY: 0001001188 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 251435252 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26964 FILM NUMBER: 96665864 BUSINESS ADDRESS: STREET 1: FIVE PPG PLACE CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4126426900 MAIL ADDRESS: STREET 1: FIVE PPG PLACE CITY: PITTSBURGH STATE: PA ZIP: 15222 10-Q 1 CARNEGIE GROUP 10-Q 1 - -------------------------------------------------------------------------------- FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (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 0-26964 Carnegie Group, Inc. Delaware 25-1435252 ------------------------------- -------------------------------------- (State or other Jurisdiction of (I.R.S Employer Identification Number) Incorporation or Organization) Five PPG Place, Pittsburgh, Pennsylvania 15222 ---------------------------------------- --------- (Address of principal executive offices) (Zip Code) (412) 642-6900 ---------------------------------------------------- (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 such shorter period that the registrant was required to files such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock as of the latest practicable date: Class Outstanding at October 31, 1996 ----- ------------------------------- Common Stock, $.01 par value 6,261,235 - -------------------------------------------------------------------------------- 2 FORM 10-Q CARNEGIE GROUP, INC. TABLE OF CONTENTS
Page Number PART 1 FINANCIAL INFORMATION Item 1. Financial Statements Carnegie Group, Inc. and Subsidiaries 3 Consolidated Statements of Operations for the three months and nine months ended September 30, 1996 and 1995 Carnegie Group, Inc. and Subsidiaries 4 Consolidated Balance Sheets Carnegie Group, Inc. and Subsidiaries 5 Consolidated Statements of Cash Flows Note to Unaudited Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of 7-10 Financial Condition and Results of Operations PART 2 OTHER INFORMATION 11 Signatures 12 Exhibit Index 13
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CARNEGIE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended Nine months ended September 30, September 30, 1996 1995 1996 1995 ----------------------- ---------------------- Revenue Software services--Unrelated parties $5,317,571 $5,489,125 $18,396,585 $15,245,338 Software services--Related parties 793,347 537,165 $2,038,273 2,693,631 ---------- ---------- ----------- ----------- Total software services 6,110,918 6,026,290 20,434,858 17,938,969 Software licenses 398,351 361,391 1,061,112 1,121,997 ---------- ---------- ----------- ----------- Total revenue 6,509,269 6,387,681 21,495,970 19,060,966 ---------- ---------- ----------- ----------- Costs and expenses: Cost of revenue - Unrelated parties 3,454,845 3,303,375 12,064,410 9,869,843 Cost of revenue - Related parties 507,078 353,060 1,282,354 1,396,620 ---------- ---------- ----------- ----------- Total cost of revenue 3,961,923 3,656,435 13,346,764 11,266,463 Research and development 346,868 146,590 814,158 471,779 Selling, general and administrative 1,671,435 1,908,493 5,822,321 5,262,094 ---------- ---------- ----------- ----------- Total costs and expenses 5,980,226 5,711,518 19,983,243 17,000,336 ---------- ---------- ----------- ----------- Income from operations 529,043 676,163 1,512,727 2,060,630 Other income (expense): Interest income 153,011 2,086 451,701 8,922 Other income 7,931 7,099 20,729 17,547 Interest expense (4,262) (18,496) (13,683) (49,613) ---------- ---------- ----------- ----------- Total other income (expense) 156,680 (9,311) 458,747 (23,144) ---------- ---------- ----------- ----------- Income before income taxes 685,723 666,852 1,971,474 2,037,486 Income tax provision (276,215) (117,266) (757,958) (358,361) ---------- ---------- ----------- ----------- Net income $ 409,508 $ 549,586 $ 1,213,516 $ 1,679,125 ---------- ---------- ----------- ----------- Earnings per share of common stock $ 0.06 $ 0.10 $ 0.17 $ 0.30 ========== ========== =========== =========== Weighted average number of common shares outstanding 6,971,076 5,591,687 7,120,084 5,591,687 ========== ========== =========== ===========
The accompanying note is an integral part of these financial statements. 3 4 CARNEGIE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Unaudited) September 30, December 31, 1996 1995 ------------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $14,195,872 $12,394,588 Accounts receivable 2,380,699 5,131,922 Accounts receivable from related parties 786,837 76,296 Accounts receivable--unbilled 3,268,229 2,048,609 Accounts receivable related parties--unbilled 370,269 87,690 Deferred income taxes 952,517 1,222,061 Other current assets 262,899 397,883 ----------- ----------- Total current assets 22,217,322 21,359,049 ----------- ----------- Property and equipment, net of accumulated depreciation and amortization 2,054,367 1,812,894 Deferred income taxes 1,387,384 1,779,792 Other assets 27,731 36,900 ----------- ----------- Total assets $25,686,804 $24,988,635 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Trade accounts payable $ 539,068 $ 1,107,592 Payables to related parties 929,901 967,673 Accrued compensation 918,669 1,130,479 Advance billings and deferred revenue 613,522 537,541 Accrued rent 573,398 626,253 Other accrued liabilities 692,144 801,544 Obligations under capital leases--current portion 47,452 48,691 ----------- ----------- Total current liabilities 4,314,154 5,219,773 ----------- ----------- Obligations under capital leases--noncurrent portion - 39,671 ----------- ----------- Total liabilities 4,314,154 5,259,444 ----------- ----------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value; 20,000,000 shares authorized, 6,489,315 and 6,386,200 shares issued at September 30, 1996 and December 31, 1995 respectively 64,893 63,862 Capital in excess of par value 31,265,229 30,836,317 Accumulated deficit (9,482,472) (10,695,988) Treasury stock, 190,000 shares at September 30, 1996 and December 31, 1995 (at cost) (475,000) (475,000) ----------- ----------- Total stockholders' equity 21,372,650 19,729,191 ----------- ----------- Total liabilities and stockholders' equity $25,686,804 $24,988,635 =========== ===========
The accompanying note is an integral part of these financial statements. 4 5 CARNEGIE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended --------------------------------------- September 30, September 30, 1996 1995 ---- ---- Cash flows from operating activities: Net income $ 1,213,516 $ 1,679,125 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 698,989 501,539 Deferred income taxes 661,952 229,731 Changes in working capital component: Accounts receivable 1,531,603 (4,554,426) Accounts receivable - Related parties (993,120) 1,193,549 Other assets 144,153 (257,352) Trade accounts payable (568,524) (223,881) Payables to related parties (37,772) 509,244 Accrued compensation (211,810) (1,609) Accrued rent (52,855) (132,525) Other accrued liabilities 68,927 375,507 Advance billings and deferred revenue 75,981 (499,466) ----------- ----------- Net cash (used in) provided by operating activities 2,531,040 (1,180,564) Cash flows from investing activities: Proceeds from the sale of fixed assets, net -- -- Capital expenditures (940,464) (857,423) ----------- ----------- Net cash used in investing activities (940,464) (857,423) Cash flows from financing activities: Borrowings on line of credit -- 2,750,271 Repayments on line of credit -- (1,795,917) Principal payments under capital lease obligations (40,909) (37,418) Proceeds from sales of common stock, net 251,617 231,647 ----------- ----------- Net cash provided by financing activities 210,708 1,148,583 ----------- ----------- Net change in cash and cash equivalents 1,801,284 (889,404) Cash and cash equivalents: Beginning of period 12,394,588 915,237 ----------- ----------- End of period $14,195,872 $ 25,833 =========== ===========
The accompanying note is an integral part of these financial statements. 5 6 NOTE TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION In the opinion of the management of Carnegie Group, Inc. (the "Company"), these unaudited interim consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of operating results for the three month and nine month periods ended September 30, 1996. Results for the interim periods are not necessarily indicative of results for the full year. The accompanying statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission and therefore do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. Accordingly, the information contained in this Form 10-Q should be read in conjunction with the financial statements and notes thereto contained in the Company's Form 10-K for the year ended December 31, 1995 as filed with the Securities and Exchange Commission 6 7 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. General Carnegie Group, Inc. ("Carnegie Group" or the "Company") provides user-centered software solutions in two business areas: customer interaction and logistics, planning, and scheduling. The Company's client/server systems integrate advanced software technologies with clients' existing computing infrastructures to automate and enhance complex business processes. The Company targets its services to clients in the telecommunications, financial services, manufacturing, government and healthcare industries. The Company's expertise encompasses a wide range of advanced software technologies, including knowledge-based systems, object-oriented technology, advanced graphical user interfaces, constraint-directed search and distributed computing. The Company captures certain aspects of its business area experience and advanced technology expertise in a portfolio of reusable software templates that can be used as building blocks to create software solutions quickly and effectively. In addition, Carnegie Group employs an iterative or "spiral" approach to software design that begins with the construction of a prototype and continues through testing of successive versions of the software against project requirements. This iterative design facilitates rapid software development, encourages client feedback and leads to greater congruence with client needs and expectations. Since inception, Carnegie Group has emphasized relationships with leading corporations in its targeted industries. These relationships have provided the Company with opportunities for growth through the provision of additional services to existing clients and through references to other companies within the Company's targeted industries. Carnegie Group's clients include U S WEST Communications, Inc., the United States Transportation Command, Caterpillar Inc., the U.S. Army, BellSouth Telecommunications, Inc., First USA Bank, Ford Motor Company and Blue Cross of Western Pennsylvania. Backlog at September 30, 1996 decreased to $11.6 million, compared to $15.1 million at June 30, 1996 and $10.3 million at September 30, 1995. The Company only includes in backlog signed contracts that either have milestones yet to be attained or for which the Company can make a reasonable estimate of work yet to be performed. As most of the contracts in backlog are terminable by the Company or the client upon short notice, there can be no assurance that contracts reflected in backlog are a reliable measure of future revenue. 7 8 COMPARISON OF QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995. Revenue. Total revenue for the quarter ended September 30, 1996 was $6.5 million compared to $6.4 million for the quarter ended September 30, 1995, an increase of $.1 million or 1.9%. For the nine months ended September 30, 1996 revenue was $21.5 million compared to $19.1 million for the nine months ended September 30, 1995, an increase of $2.4 million or 12.8%. This growth resulted principally from volume increases in sales of software services. Total software services revenue for the quarter ended September 30, 1996 was $6.1 million compared to $6.0 million for the quarter ended September 30, 1995, an increase of $.1 million or 1.4%. Software services revenue was $20.4 million for the nine months ended September 30, 1996 compared to $17.9 million for the nine months ended September 30, 1995, an increase of $2.5 million or 13.9% These increases were primarily due to an extension of a logistics, planning and scheduling engagement for a defense industry client. This engagement was the primary reason that revenue from software services-unrelated parties was $18.4 million for the nine months ended September 30, 1996 compared to $15.2 million for the nine months ended September 30, 1995. Revenue from software services-related parties was $2.0 million for the nine months ended September 30, 1996 compared to $2.7 million for the nine months ended September 30, 1995, a decrease of $.7 million or 24.3%. This decrease was primarily due to the completion of customer contact engagements for a telecommunications industry client. Also, results for the third quarter and the first nine months of 1996 were affected by the renegotiation of a fixed-price contract, which resulted in engineers related to that contract being underutilized. Revenue from software licenses was $398,000 for the three month period ended September 30, 1996, compared to $361,000 for the same three month period in 1995, an increase of $37,000 or 10.2%. Revenue from software licenses was $1,061,000 for the nine months ended September 30, 1996 compared to $1,122,000 for the nine months ended September 30, 1995, a decrease of $61,000 or 5.4%. The decrease was due to the fact that the sales of reusable software templates to a telecommunications industry client in 1995 did not reoccur in the first nine months of 1996. Cost of Revenue. Cost of revenue consists primarily of salaries and related benefits for personnel, and also includes an allocated portion of rent, building services and expenses. For the third quarter of 1996, total cost of revenue was $4.0 million compared to $3.7 million for the third quarter of 1995, an increase of $.3 million or 8.4%. For the nine months ended September 30, 1996, total cost of revenue was $13.4 million compared to $11.3 million for the nine months ended September 30, 1995, an increase of $2.1 million or 18.5%. These increases were primarily attributable to the additional hiring of professional staff to perform the increased volume of software services. Cost of revenue-related parties was $1.3 million for the nine months ended September 30, 1996 compared to $1.4 million for the nine months ended September 30, 1995, a decrease of $.1 million or 8.2%. Cost of revenue-unrelated parties during the same nine month period was $12.1 million compared to $9.9 million for the nine month period ended September 30, 1995, an increase of $2.2 million or 22.2%. The increase was primarily attributable to the reallocation of professional staff to provide additional software services to unrelated parties following the completion of customer contact engagements for a telecommunications industry client. Also, as mentioned earlier, the increased revenue from software services-unrelated parties for the extension of a logistics planning and scheduling engagement for a defense industry client required an increase in associated costs. Research and Development. Research and development expenses for the quarter ended September 30, 1996 were $347,000 compared to $147,000 for the third quarter of 1995, an increase of $200,000 or 136.6%. For the nine months ended September 30, 1996 research and development expenses were $814,000 compared to $472,000 for the nine months ended September 30, 1995, an increase of $342,000 or 72.6%. These increases were primarily due to development of various templates for the services areas of the business. 8 9 Selling, General and Administrative. Selling, general and administrative expenses include costs of proposal development and proposal writing, marketing communications and advertising, sales and management staff, and corporate services functions including accounting, human resources and legal services, along with corporate executive staff. For the third quarter of 1996, selling, general and administrative expenses were $1.6 million compared to $1.9 million for the third quarter of 1995, a decrease of $.3 million or 12.4%. This decrease was primarily due to lower expense accruals for performance-based incentive compensation. Selling, general and administrative expenses for the nine months ended September 30, 1996 were $5.8 million compared to $5.3 million for the nine months ended September 30, 1995, an increase of $.5 million or 10.7%. These increases resulted primarily from increased sales and marketing expenses needed to support the Company's total revenue growth along with increased insurance and professional services expenses related to being a newly public company. As a percentage of total revenue, these expenses decreased slightly from 27.6% for the nine months ended September 30, 1995 to 27.1% in 1996. Other Income (Expense). Total other income for the third quarter of 1996 was $157,000 compared to total other expense of $10,000 in 1995, an increase of $167,000 or 1,682.7%. For the nine months ended September 30, 1996, total other income was $459,000 compared to total other expense of $23,000 in 1995 an increase of $482,000 or 1,982.2%. These increases were due primarily to interest income earned on the net proceeds received in December, 1995 from the Company's initial public offering, which were invested in an interest-bearing account. Income Tax Provision. An income tax provision of $276,000 was recorded for the third quarter of 1996 and $758,000 for the nine months ended September 30, 1996 compared to $118,000 and $359,000 respectively for the quarter and nine months ended September 30, 1995. The effective tax rates for 1996 are higher than the effective rates for the comparable periods of 1995, due principally to changes in estimates of the realization of deferred tax assets related to the Company's net operating loss carryforwards in accordance with Accounting Standard No. 109. SFAS No. 109, "Accounting for Income Taxes," requires a valuation allowance when it is "more likely than not that some portion or all of the deferred tax assets will not be realized." It further states that "forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years." The ultimate realization of its deferred income tax asset depends on the Company's ability to generate sufficient taxable income in the future. The Company has weighed the negative objective evidence of recent results and dependence upon limited number of customers, as well as other risk factors on the one hand, and the positive subjective evidence of future expectations, on the other hand, and has concluded that retaining a portion of the valuation allowance is appropriate. In estimating the amount of its realizable deferred tax asset, the Company gives substantial weight to recent historical results. Significant changes in circumstances or in enacted tax laws which affect the valuation allowance are recorded when they occur. The Company's annual strategic business planning process takes place in the fourth quarter of the year, and the valuation allowance is adjusted for future years' income expectations resulting from that process. When preparing subsequent interim and annual financial statements, the Company reevaluates whether there has been any significant change in the assumptions underlying its plan and adjusts the valuation allowance as necessary. Liquidity and Capital Resources The Company has funded its operations in recent years primarily through cash generated from operations and the use of cash reserves. In 1995 the Company also funded its operations in 9 10 part through borrowing under available lines of credit and through the net proceeds of the initial public offering of its Common Stock consummated in December 1995. During the first nine months of 1996 the Company had a net cash increase of $1,801,000 on increases in cash from operating activities. The Company experienced growth in revenue earned but not yet billed for the quarter ended September 30, 1996. Due to strong collection efforts, receivables billed and collected have decreased. The net change of all accounts receivable was a decrease of $538,000 for the quarter. Invoicing of amounts to clients generally occurs within 45 days of time and materials cost incurrence, unless a specific schedule is agreed upon, and payment follows invoicing in accordance with customary terms. The Company has not experienced any significant write-downs of receivables, nor does the Company expect that payments are doubtful; accordingly, the Company has not made any allowance for doubtful accounts. Advance billings and deferred revenue at September 30, 1996 increased $76,000 when compared to December 31, 1995. Advanced billings and deferred revenue balances normally will change from period to period. Any increase would reflect billings in advance of revenue earned, but which were billed in accordance with established or agreed billings schedules. These amounts are recorded as deferred revenue until earned. The timing and magnitude of such advance billings vary from contract to contract and from client to client. The Company has a committed line of credit agreement in the amount of $3.5 million in place with PNC Bank, N.A. (the "Bank"). No borrowings were outstanding against the committed line of credit at September 30, 1996 and December 31, 1995. Borrowings under this agreement are collateralized by accounts receivable. This line of credit bears interest at the Bank's prime interest rate and the Bank charges a 0.15% fee per annum on the unused portion of that line of credit. The Bank's prime interest rate at September 30, 1996 was 8 1/4% compared to 8 1/2% at December 31, 1995. The Company believes that the net proceeds from the sale of Common Stock in the Company's initial public offering, together with cash balances, cash generated from operations and borrowing available under its line of credit, will satisfy the Company's working capital and capital expenditure requirements during fiscal year 1996 and the foreseeable period thereafter. In the longer term, the Company may require additional sources of liquidity to fund future growth. Such sources of liquidity may include additional equity offerings or debt financings. Capital expenditures are typically made for computing equipment, software, physical plant, and furniture and fixtures in order to seek enhancements in the productivity of the Company's employees and to support growth. In the normal course of business, the Company evaluates acquisitions of businesses, products and technologies that complement the Company's business. The Company has no present plans, intentions, understandings, commitments or agreements, nor is it currently engaged in any negotiations, with respect to any such transaction. However, the Company may acquire businesses, products or technologies in the future. To the extent that any written or oral statement made by the Company, including statements made herein, are deemed to be forward looking statements, reference is made to the factors beginning on page 27 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995, as filed with the Securities and Exchange Commission, as important factors that could cause actual results to differ materially from those in any such forward looking statements. 10 11 PART II - OTHER INFORMATION ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The exhibits listed below are filed or incorporated by reference as part of this quarterly report on Form 10-Q: 3.1 Restricted Certificate of Incorporation of Carnegie Group, Inc. (Incorporated by reference to Exhibit 3.01 to the Company's Registration Statement on Form S-1, File No. 33-97118). 3.2 Amended and restated By-Laws of Carnegie Group, Inc. (Incorporated by reference to Exhibit 3.02 to the Company's Registration Statement on Form S-1, File No. 33-97118). 10.1 Development Agreement, dated as of July 1, 1996, by and between US WEST Business Resources, Inc., US WEST Communications, Inc. and Carnegie Group, Inc. Confidential treatment with respect to certified information in this Exhibit has been requested of the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. 11.1 Statement regarding computation of Per Share Earnings. 27.1 Financial Data Schedule (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the quarter ended September 30, 1996. 11 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 13, 1996 CARNEGIE GROUP, INC. /s/ DENNIS YABLONSKY -------------------------- Dennis Yablonsky President, and Chief Executive Officer /s/ JOHN W. MANZETTI -------------------------- John W. Manzetti Executive Vice President, Chief Financial Officer and Treasurer 12 13 EXHIBIT INDEX
Sequential Exhibit No. Description page number - ----------- ----------- ----------- 3.1 Restricted Certificate of Incorporation of Carnegie Group, Inc. (Incorporated by reference to Exhibit 3.01 to the Company's Registration Statement on Form S-1, File No. 33-97118). 3.2 Amended and restated By-Laws of Carnegie Group, Inc. (Incorporated by reference to Exhibit 3.02 to the Company's Registration Statement on Form S-1, File No. 33-97118). 10.1 Development Agreement, dated as of July 1, 1996, by and between US WEST Business Resources, Inc., US WEST Communications, Inc. and Carnegie Group, Inc. Confidential treatment with respect to certified information in this Exhibit has been requested of the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. 11.1 Statement regarding computation of Per Share Earnings. 27.1 Financial Data Schedule
EX-10.1 2 CARNEGIE GROUP 10-Q 1 EXHIBIT 10.1 Confidential treatment with respect to certain information in this Exhibit has been requested of the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. The bracketed portions of this Exhibit have been omitted from the material filed in accordance with Rule 24b-2 and have been filed separately with the Commission. 2 Exhibit 10.1 DEVELOPMENT AGREEMENT NO. 35-003-96 CALL HANDLING This Development Agreement is entered into on the 1ST day of JULY, 1996 by and between U S WEST Business Resources, Inc. as agent for U S WEST Advanced Technologies, Inc., a Colorado corporation ("USW-Technologies"), U S WEST Communications, Inc., a Colorado corporation ("USW-Communications"), (hereinafter USW-Technologies, USW-Communications and their Affiliates will be collectively referred to as "Licensee"), and Carnegie Group, Inc., a Delaware corporation with a principal place of business at Five PPG Place, Pittsburgh, PA 15222 ("CGI"). ARTICLE 1 - RECITALS 1.1 Licensee and CGI entered into a General License Agreement (the "GLA") on December 17, 1992 in which the parties committed to enter into a series of Artificial Intelligence ("AI") technology research, experimentation and development agreements ("Development Agreements") over a period beginning on the Effective Date, as defined in the GLA, and ending on the fourth anniversary of the Effective Date. 1.2 Licenses and CGI now desire to enter into this Development Agreement pursuant to which the parties, as contemplated by the GLA, will commit to a project of specific research, experimentation and development as stated herein. NOW, THEREFORE, in consideration of the mutual covenants set forth in this Development Agreement, Licensee and CGI agree as follows: ARTICLE 2 - DEFINITIONS 2.1 Defined terms used in this Development Agreement shall have the meanings set forth in Article 2 of the GLA, unless different meanings are specifically set forth in this Development Agreement. 2.2 "Project" means the specific research, experimentation and development which CGI will perform for Licensee under this Development Agreement. 1 3 2.3 "Project Description" means a detailed written description of the Project, including but not limited to: (a) any Deliverable Performance Specifications; and (b) a listing which identifies and describes, as to the Project: (i) any Deliverables intended to be created in the course of the Project; and (ii) any Licensee Specific Technology intended to be created in the course of the Project; and (iii) any Licensee Proprietary Information or Licensee Confidential Information to be made available to CGI in the course of the Project; and (iv) any Generic Research Technology intended to be created in the course of the Project. 2.4 "Projected Cost" means that projected cost referred to in Article 9 of the GLA and set forth in Article 5 hereof. 2.5 "Projected Date" means the projected date for completion of the Project agreed upon by the parties and set forth in Article 6 hereof, including any Agreed Completion Date. ARTICLE 3 - EFFECT OF THE GLA This Development Agreement is subject in all respects to the terms and conditions of the GLA. Ownership of Generic Research Technology developed hereunder is vested in US WEST, in accordance with Article 3.3 of the GLA and the payment of ALLIANCE rates by Licensee to CGI as provided in Exhibit 2, attached hereto. ARTICLE 4 - PROJECT DESCRIPTION 4.1 The Project Description is set forth in Exhibit 1 attached hereto. 4.2 CGI shall use its best efforts to complete the Project in accordance with the Project Description. Except for the warranties set forth in Article 8 of the GLA regarding any Deliverable Performance Specifications set forth in 2 4 Exhibit 1 of this Development Agreement, CGI hereby disclaims any express or implied warranty that all or any portion of the Project intended to be created or developed pursuant to this Development Agreement will perform in accordance with the Project Description or any other criteria. ARTICLE 5 - PROJECTED COST; PAYMENT 5.1 CGI's Projected Cost for the Project is $[ ]. An itemized account of the Projected Cost including person-year rates applied as Alliance, Technology and/or Co-Development Rates as defined in the GLA is set forth in Exhibit 2 attached hereto. Modifications to the Projected Cost (and any payments under Section 5.2) shall be governed by Sections 9.4 and 14.7 of the GLA. 5.2 Licensee shall pay to CGI, in consideration for CGI's performance of its obligations under this Development Agreement, the sum of $ * in accordance with the payment schedule set forth in Article 5 of the GLA. "*" REPRESENTS TIME AND MATERIAL COSTS IN ACCORDANCE WITH EXHIBIT 2 OF THIS DEVELOPMENT AGREEMENT ARTICLE 6 - PROJECTED DATE 6.1 The Projected Date for completion of the Project is DECEMBER 31, 1996. A time schedule listing projected dates for completion of interim stages of the Project is set forth in Exhibit 3 attached hereto. 6.2 CGI shall use its best efforts to complete the Project by the Projected Date. Except for the obligations set forth in Article 9 of the GLA regarding any Agreed Completion Date set forth in Exhibit 3 of this Development Agreement, CGI hereby disclaims any express or implied warranty that all or any portion of the Project intended to be created or developed pursuant to this Development Agreement will be completed on any date certain, including the Projected Date. ARTICLE 7 - TERMS OF DELIVERY AND RISK OF LOSS 7.1 CGI will deliver, at its expense, to Licensee any Deliverables and Licensee Specific Technology in accordance with the Exhibits hereto. 3 5 7.2 CGI will bear the risk of loss or destruction of such Deliverables and Licensee Specific Technology until the delivery of such items to Licensee at the location designated by Licensee. For the purposes hereof, "delivery" shall mean physical delivery to a facility and shall not include installation. ARTICLE 8 - INSTALLATION 8.1 CGI will provide, at Licensee's request and expense, technical assistance to Licensee sufficient for the proper installation of Deliverables and Licensee Specific Technology in Licensee facilities. Such assistance may include, if deemed necessary by Licensee, the presence of one or more CGI employees at Licensee facilities to assist in such installation. Licensee will pay, in accordance with the GLA, travel, room and board expense incurred by such employees of CGI. 8.2 Licensee will bear the risk of loss or destruction of the Deliverables, Licensee Specific Technology or any other items delivered to Licensee facilities during and after installation. ARTICLE 9 - OPERATIONAL TRAINING CGI will provide, in accordance with Article 6 of the GLA, adequate training to no more than 0 Licensee employees regarding the proper operation and use of Deliverables, Licensee Specific Technology and Generic Research Technology created in the course of the Project. ARTICLE 10 - MAINTENANCE CGI will perform maintenance and repair services on Deliverables, Licensee Specific Technology and Generic Research Technology in accordance with the GLA. ARTICLE 11 - MODIFICATIONS AND AMENDMENTS Any modifications to the Project or to this Development Agreement, including but not limited to modifications to the Project Description, the Projected Costs, or the Projected Date, to which the parties agree after the date of execution of the Development Agreement, will be evidenced by a written supplement to this Development Agreement executed by both parties. 4 6 ARTICLE 12 - INTEGRATION This Development Agreement, the Exhibits attached hereto and the terms of the GLA set forth the entire and exclusive agreement and understanding of the parties relating to the subject matter contained herein, and supersede all prior and contemporary discussions. Neither party will be bound by any definition, condition, warranty or representation except as expressly set forth in this Development Agreement or the GLA or as subsequently set forth in writing signed by authorized representatives of each party. IN WITNESS WHEREOF, Licensee and CGI have executed this Development Agreement in duplicate by their respective authorized representatives. CARNEGIE GROUP, INC. LICENSEE By: /s/ Dennis Yablonsky By: /s/ Dennis R. Dempsey --------------------- --------------------- Title: President/CEO Title: VP/IAP ----------------- ---------------------- Date: 9/5/96 Date: 9/3/96 ------------------- ---------------------- U S WEST Business Resources, Inc. Acting as Agent for: LICENSEE By: ------------------------------ Title: --------------------------- Date: ---------------------------- 5 7 EXHIBIT 1 PROJECT DESCRIPTION INTRODUCTION This agreement covers efforts to be performed by CGI from July 1, 1996 through December 31, 1996 for U S WEST in support of the Call Handling / Front End Screen & Route (FES&R) project. The overall Call Handling project is being undertaken by U S WEST to deliver several system deployments: Phase I in February 1996 (which has been delivered), the Summer Maintenance Release in July 1996, the Load Balance Release in October 1996, and the Voice Over Data (Screen Pop) Pilot in 1996. The deliverables covered by this agreement are in support of the Summer Maintenance Release, the Load Balance Release and the Voice Over Data Pilot, however because of the time period covered, most of the deliverables are in support of the Load Balance and Voice Over Data Releases. CGI ROLES AND RESPONSIBILITIES Based on the defined scope and deliverables, and the architecture design and detailed design work that has been accomplished through June of 1996 by CGI and U S WEST (reference U S WEST/CGI Development Agreements 35-002-95, 35-002-96, 35-001-96 and Change Order 35-001-96-A), the following roles and responsibilities can be defined for the Call Handling / FES&R project: o CGI will be responsible for Project Management and the functional specification, detail design, development, test (unit test and component integration test), documentation, and delivery of the following: LOAD BALANCE o LOAD BALANCE I: The Load Balance I release will provide equitable routing for queued and non-queued Call Handing situations for resource groups. It will balance the queues to equal and different teams and performing ratio routing. It also provides for a direct data feed from the 5ESS to capture additional parameters required for equitable resource routing. For a subset of the toolset screens, a sharper GUI that is more efficient with a quick and easy update capability will also be provided. The GUI will also provide field level validation, consistency checking, and rule validation. o LOAD BALANCE II: The Load Balance II release will provide for a direct data feed from the DMS 100 to capture additional 6 8 parameters required for equitable resource routing. Provide possible enhancements to Load Balance I release. VOICE OVER DATA o Voice Over Data is a client project to pilot multiple new features for the Call Handling system. CGI is responsible for the functional specification and project plan for Voice Over Data pilot. o CGI will be responsible for the Functional Specification and Project Plan for the Voice Over Data Prototype o CGI will be responsible for contacting Lucent and Northern Telecom to obtain the required information o The purpose of Voice Over Data Pilot is to: o Demonstrate the viability of adding Voice Over Data to the Call Handling application for existing infrastructure of Automatic Call Distributors. i.e., Group Based Routing (GBR) o Demonstrate the feasibility of adding Individual Skills Based Routing (ISBR) with Voice Over Data Prototype to the Call Handling application. o Simulate dynamic load balancing using the ISBR capability for various call load conditions and Channel Functional Need distributions to a geographically distributed multi-functional resource base. o Demonstrate the capability to add Single Point Of Contact (SPOC) routing. With SPOC an individual is designated at the preferred contact for a customer. Calls from the customer will be routed to the specified individual. o Demonstrate the viability of user work location portability. User work location portability allows a user to work from any location with an IWS workstation served off ISDN and a business line telephone. o Estimate at [ ] accuracy level, the cost for deployment of these capabilities by per [ ] costs with [ ] considerations and for full deployment across the [ ]. It is not anticipated that the ISBR will be utilized beyond the [ ] individuals level for any given channel or function. ROUTING ENGINE o Specific Routing Engine modules that CGI is responsible for include: 7 9 o FES&R INTERFACE SERVER MODULE - this module handles FES&R Server call routing requests from the VRU Interface Client Module. o CALL CONTROL MANAGER (ROUTING ENGINE) - this module handles an individual call, from the receipt of the new call request until a routing message is returned for the call. Enhanced routing capabilities will [ ], [ ], [ ] and [ ] requests. o ACD DATA FEED MANAGER - this module receives periodic ACD queue status data feeds from the MIS nodes. o MARKET PROFILE LOADER - this module accepts the extract file from the [ ] Database, parses the [ ] associated with each [ ] into the appropriate [ ], applies the [ ] to [ ] and [ ] the [ ] to a [ ] [ ] and a particular [ ] for [ ], and loads the [ ] table which associates each [ ] with the appropriate [ ] functional group for every possible [ ] [ ] per application. This module may also load the [ ] data associated with each [ ] into the FES&R database if required for reporting. o * ACCOUNT ACTIVITY LOADER (AA): [ ], identified by a [ ] number, at times have activities associated with them. These activities include [ ], and [ ]. The [ ] Engine will access and utilize [ ] activity in determining a [ ] for a call. o * [ ] CONDITIONS LOADER (PC): [ ] conditions are associated with individual [ ] [ ]. These originate when a customer initiates multiple transactions (calls) of the same type in a given time period. The routing engine will use business rules that will indicate the routing for a call when a [ ] condition for a customer exists. "*" THESE ROLES AND RESPONSIBILITIES WILL BE ADDRESSED IF TIME PERMITS IN ACCORDANCE WITH THE PROJECT SCHEDULE AND IF ALL REQUIRED RESOURCES ARE AVAILABLE. ALTHOUGH IT IS ASSUMED THE LOAD BALANCE AND VOICE OVER DATA DELIVERABLES ARE THE PRIMARY RESPONSIBILITY, IF TIME AND RESOURCES ARE AVAILABLE DURING THE CONTRACT PERIOD, THESE AREAS WILL BE PRIORITIZED BY U S WEST AND CGI EFFORTS WILL BE DIRECTED TOWARD THEM. 8 10 o CGI will be responsible for the detailed design, development, test (unit test and component integration test), documentation, and delivery of the Verification / Validation Utilities. The five specific utilities that CGI will be responsible for include: o * RULE VALIDATION - this utility will validate both the [ ] rules and the [ ] rules to test for validity, prioritization, exclusiveness, and execution hit rate. The valid range, relational operators, and combinations of all attributes found in if-condition [ ] will be checked. o * [ ] ([ ]) ANALYSIS - this utility will provide a summary picture to the [ ] that combines data from several database tables into one report that lists the [ ] used and their selection criteria. This will provide the end user with a [ ] from result to [ ]. o * ACD GROUP VALIDATION - this utility will perform an analysis of ACD Group-related data; and provide checks for ACD Group definition completeness and provide reports on ACD Group utilization. This utility will also validate routing alternative lists in several ways. o * DATA COMPLETENESS CHECKS - this utility will be built to run as a part of the installation or maintenance of the database. The scripts will run completeness checks for such items as required minimal data in reference tables and required minimal data in end-user populated tables. More complicated completeness checks could include: verification that each routing [ ] has a routing alternative list defined for each reference location, verification that each non-remote ACD group have a primary and alternate resource selection rule, verification that each channel functional need assignment map to a valid (effective) [ ], and verification that each call reason map to a valid default [ ]. o * INFORMATION REQUEST (PING-PONG) VALIDATION - this utility will ensure that there is no possibility of looping back with the same voice script being played multiple times to the calling customer. This utility will also monitor the call logs for ping-pong requests and provide a report to the end-users. "*" THESE ROLES AND RESPONSIBILITIES WILL BE ADDRESSED IF TIME PERMITS IN ACCORDANCE WITH THE PROJECT SCHEDULE AND IF ALL REQUIRED RESOURCES ARE AVAILABLE. ALTHOUGH IT IS ASSUMED THE LOAD BALANCE AND VOICE OVER DATA DELIVERABLES ARE THE 9 11 PRIMARY RESPONSIBILITY, IF TIME AND RESOURCES ARE AVAILABLE DURING THE CONTRACT PERIOD, THESE AREAS WILL BE PRIORITIZED BY U S WEST AND CGI EFFORTS WILL BE DIRECTED TOWARD THEM. o CGI will be responsible for transferring the technology for the Routing Engine and the Verification/Validation Utilities over to US WEST. o CGI will be responsible for the engineering management of the CGI resources and delivery management of the CGI Deliverables. o CGI will be responsible for status reporting to U S WEST and participating in status meetings. o CGI will be responsible for system support (problem tracking and resolution) during the integration testing, the system testing, the production and user acceptance testing, and the deployment tasks. U S WEST ROLES AND RESPONSIBILITIES(1) o U S WEST will be responsible either directly or indirectly if required (from outside vendors) for the design, development, testing, integration, documentation and deployment of all other modules, including but not limited to: o AT&T ACD/MIS Feed o VRU Hardware Upgrades o Data Models - Logical and Physical o Data Extract Programs for: o [ ] o [ ] o Promotions o [ ] o Repair o Data Batch Load Programs/Conversion Programs for: o [ ] o Promotions o [ ] o Repair o Setup and population of the databases including: o the system test database - -------- (1) Some of the tasks involved in delivering the U S WEST Responsibilities may be assigned to CGI in other Development Agreements, but are listed here to clearly indicate that they are not in the scope of this Agreement. 10 12 o the production test database o the production database o U S WEST will be responsible for ordering, installing, and making available the Development Environment (including HP and Sequent File Servers), the Test Environments ( unit, integration, system, and production test environments), and the Production Environment in a timely manner. o U S WEST will assume overall project management responsibility. o U S WEST will be responsible for the Deployment Strategy and Deployment Plan. o U S WEST will be responsible for the Operational Impact Analysis. o U S WEST will be responsible for defining the Change Control Methodology. o U S WEST will be responsible for defining the Call Flow Definitions and the Current/New Process Definitions. o U S WEST will be responsible for porting the existing VRU Applications to the new platforms. o U S WEST will be responsible for developing the Communications Plan. o U S WEST will be responsible for developing the Technical Trial Plan. o U S WEST will be responsible for scope and expectation setting with the Clients. o U S WEST will provide Subject Matter Experts (SMEs) for the CGI design and development efforts, including expertise on tuning and programming on the Sequent Platform, as well as Call Routing Expertise. o U S WEST will be responsible for the move of the Development Code to the Test and Production Hosts. o U S WEST will be responsible for the management and implementation of the System and Production Testing Processes. o U S WEST will be responsible for the management and implementation of the Training Program for Call Handling, including both end-user and SYAD training. o U S WEST will be responsible for establishing the development, test, and demonstration environment(s), including a VRU, a Lucent ACD, a Northern Telecom ACD, a FES&R Server, a Voice Over Data Prototype Server, an IWS Server, and several CCE terminals and phone sets. o U S WEST will facilitate Carnegie Group's access to technical experts from Lucent and Northern Telecom. 11 13 o U S WEST will facilitate Carnegie Group's access to the internal IWS group, for integration of the Voice Over Data Pilot with the IWS Server or reasonable facsimile. o U S WEST will provide realistic test data and test cases for demonstrating the Voice Over Data Pilot. o U S WEST will arrange and coordinate the necessary demonstration sessions within U S WEST. o U S WEST will facilitate CGI Access to legacy system experts. JOINT CGI AND U S WEST ROLES AND RESPONSIBILITIES o U S WEST will provide engineering resources per the project plan. CGI will manage the assigned resources. o CGI will share the responsibility of managing the Clients expectations in all meetings by presenting perceived changes in direction or scope to the Call Handling Project Manager. o CGI will share the responsibility of establishing Acceptance Criteria and Acceptance Test Plans for the Routing Engine and the overall system. o CGI will share the responsibility for developing the System and Production Test Plans. o CGI will share the responsibility for producing the System Administration Procedures and Documentation, specifically for the Routing Engine. o CGI will share the responsibility of installing all hardware and software for the Routing Engine in all Environments. o CGI will share the responsibility of training the "trainers" on the System Administration Functions for the Routing Engine. o CGI will share the responsibility of performance modeling and tuning of the Routing Engine. o CGI will share the responsibility of managing the Clients expectations in all meetings by presenting perceived changes in direction or scope to the Call Handling Project Manager. o CGI will share the responsibility for developing the prototype test and demonstration plan. o CGI will share the responsibility for detailed design, code, test and demonstration of Voice Over Data Pilot. o CGI will share the responsibility for the design, development, testing, integration, documentation and deployment of additional modules, including but not limited to: o AT&T VRU Interface 12 14 o AT&T ACD Upgrades-TN to ACD Set o VRU Scripting o CGI will share the responsibility of setup and population of the databases including: o the development database o the unit test database o the integration test database o CGI will share the responsibility for maintenance and support of the Routing Engine and the Verification / Validation Utilities. 13 15 EXHIBIT 2 PROJECTED COST The total cost of the work to be performed will be $[ ] based on estimated time and materials. No travel is anticipated. Should travel become a necessity for the project, U S WEST agrees to pay CGI travel expenses for all pre-approved trips. It is planned that U S WEST will provide the majority of the platforms and software for the project work environment and CGI will work at the U S WEST site. Because this reflects a cost savings benefit to CGI, a []% Computer & Facilities discount is included in the project costs. Work requiring platforms and software outside of this environment will be requested by U S WEST. It is planned that U S WEST will provide availability to the nonstandard items to CGI for the duration of the project should any be required. U S WEST may, at its discretion, close the project or the involvement of CGI resources by providing a written notice to the CGI Program Manager. If such an eventuality occurs, the respective resources will be given a ramp down period of [ ] weeks to find other work. Upon completion of the [ ] week ramp down period, US WEST will be obligated to CGI for the time and materials expended up to and including the [ ] week ramp down. Estimated costs for the project are provided below. Note that the Alliance, Volume, and Facilities discounts are subtracted from the standard time and material costs. The Volume discount for this Agreement considers the project as a whole and applies the costs from previously signed Development Agreement(s) with this Agreement when calculating Volume discount. Total Time and Materials Costs $[ ] Less []% Alliance Discount -[ ] Less []% Volume Discount -[ ] Less []% Computer Facilities Discount -[ ] Total Contract Engineering $[ ]
14 16 Additionally, we are providing the estimated hours by category:
CATEGORY EST. 96 HOURS Director [ ] Manager [ ] Sr. Engineer 2 [ ] Sr. Engineer 1 [ ] Engineer [ ] Associate Engineer [ ] - ----------------------------------------------------- CGI Total Hours [ ]
15 17 EXHIBIT 3 SCHEDULE AND STATEMENT OF WORK The following table summarizes the CGI Tasks, Schedule and Deliverables that are covered under this agreement.
- -------------------------------------------------- ------------- ---------------- ----------------------------------- CGI TASKS: Start Finish CGI Deliverables - -------------------------------------------------- ------------- ---------------- ----------------------------------- SUMMER MAINT. RELEASE - -------------------------------------------------- ------------- ---------------- ----------------------------------- User Acceptance Testing and Deployment Support 07/1/96 07/12/96 Support includes Production Est. Cost Builds, Install Software, $[ ] Training, Load Balance Rollout and support for Load Balance Deployment. - -------------------------------------------------- ------------- ---------------- ----------------------------------- LOAD BALANCE - -------------------------------------------------- ------------- ---------------- ----------------------------------- Design/prototype 7/01/96 7/26/96 Design activities will include Est. Cost prototyping to minimize risks, $[ ] validate design concepts, test performance - -------------------------------------------------- ------------- ---------------- ----------------------------------- Construction 7/29/96 9/6/96 Software development Est. Cost $[ ] - -------------------------------------------------- ------------- ---------------- ----------------------------------- Integration Testing 9/9/96 9/27/96 Testing Support Est. Cost $[ ] - -------------------------------------------------- ------------- ---------------- ----------------------------------- System Testing 9/30/96 10/25/96 Testing Support Est. Cost $[ ] - -------------------------------------------------- ------------- ---------------- ----------------------------------- User Acceptance Testing and Deployment Support 10/28/96 12/31/96 Support includes Production Builds, Install Software, Est. Cost Training, Load Balance Rollout $[ ] and support for Load Balance Deployment. - -------------------------------------------------- ------------- ---------------- ----------------------------------- Production Maintenance and On-going Support 7/1/96 12/31/96 Maintenance & Support includes: Est. Cost Bug Tracking and Resolution, $[ ] Emergency Builds, Installation Support - -------------------------------------------------- ------------- ---------------- -----------------------------------
16 18
- -------------------------------------------------- ------------- ---------------- ----------------------------------- CGI TASKS: Start Finish CGI Deliverables - -------------------------------------------------- ------------- ---------------- ----------------------------------- VOICE OVER DATA - -------------------------------------------------- ------------- ---------------- ----------------------------------- Develop Functional Specification 7/1/96 7/19/96 Functional Specification Est. Cost $[ ] - -------------------------------------------------- ------------- ---------------- ----------------------------------- Develop Project Plan 7/22/96 7/26/96 Project Plan Est. Cost $[ ] - -------------------------------------------------- ------------- ---------------- ----------------------------------- Project Management/Software Engineering 7/1/96 12/31/96 Voice Over Data project Est. Cost management and dedicated software $[ ] engineering support - -------------------------------------------------- ------------- ---------------- ----------------------------------- Project End - -------------------------------------------------- ------------- ---------------- -----------------------------------
17 19 The following assumptions/dependencies were assumed in creating the above Work Plans/Schedules and changes in the assumptions/dependencies may effect the schedule, costs and deliverables listed in this agreement. CGI, when providing their monthly project status reports, will identify issues and jeopardies that are being caused by any of the following assumption/dependencies being violated, and jeopardies will indicate that, unless the situation is resolved, a change order to this agreement will have to be issued because of the schedule/cost impacts. ASSUMPTIONS/DEPENDENCIES - LOAD BALANCE 1. The Development Environment: Sequent & HP machines, user ids, directory structure, SCM tools, database structures and DDL, some data population, desks, terminals, etc., must remain stable and available through out the development process. 2. Other modules/components not being developed/purchased by CGI must be in place and configured by September 9, 1996, for the start date for the Integration Testing. These include, but are not limited to: U S WEST VRU Scripting, the Physical Integration U S WEST Test Database with the Routing tables populated integration with all SYAD tool sets, and new voice scripts. It is assumed that Integration Testing will be done using the Development Environment. 3. The system can not be released to System Test until it passes the Integration Test (with zero critical problems) and it can not be released to Production without first passing System Test and the User Acceptance Testing. 4. User Acceptance Testing takes place in the System Test Environment. The development of the User Acceptance Test Plan and Criteria are the responsibility of U S WEST and the Clients. 5. The System Test Environment must be established and made available by U S WEST by September 27, 1996. Establishment of the Environment is the responsibility of the U S WEST System Test Group. 18 20 6. Test Plans, Environments, Scenarios and Test Data must be identified by U S WEST and in place by the start of the Integration (9/9/96), User Acceptance (10/28/96), and System Test (9/30/96) Phases. The Test Data and Scenarios are the responsibility of the U S WEST Clients but will be shared by CGI. The System Test Plan is the responsibility of the U S WEST System Test Group. 7. The dates for the final production builds for Load Balance is dependent on the dates that the U S WEST Project Manager sets for the start of each phases deployment, which may be sometime after the software has been accepted. CGI assumes that this date will be within two weeks after the software is accepted. 8. Additional, specific CGI assumptions include: a) The detailed design and prototyping tasks need to be completed before the programming and unit testing tasks can begin. b) Formal technology transfer from CGI to U S WEST will be done in parallel to system and user acceptance testing and production support for the Releases. 9. The Customer Access Experience Scripts, if applicable, and associating routing data need to be specified for integration with the routing engine modules. 10. * The Account Activity Module is dependent upon extracts from Legacy Systems. [ ] "*" THESE ROLES AND RESPONSIBILITIES WILL BE ADDRESSED IF TIME PERMITS IN ACCORDANCE WITH THE PROJECT SCHEDULE AND IF ALL REQUIRED RESOURCES ARE AVAILABLE. ALTHOUGH IT IS ASSUMED THE LOAD BALANCE AND VOICE OVER DATA DELIVERABLES ARE THE PRIMARY RESPONSIBILITY, IF TIME AND RESOURCES ARE AVAILABLE DURING THE CONTRACT PERIOD, THESE AREAS WILL BE PRIORITIZED BY U S WEST AND CGI EFFORTS WILL BE DIRECTED TOWARD THEM. ASSUMPTIONS/DEPENDENCIES - VOICE OVER DATA 1. The existing prototype runs under the assumption that only one window is required that gets refreshed when the CCE goes into the ready state on their phone set and receives a new call. Upon receiving a new call, the window refreshes and displays the customer contact information. For the purposes of the Voice Over Data pilot, these same assumptions will remain the same. 2. Lucent (AT&T) must provide technical expertise on how the LINK II & III log stream can be passed to the Sun Sparc 1000 and what it contains. 19 21 3. Northern Telecom must provide technical expertise on how the Compucall log stream can be passed to the Sun Sparc 1000 and what it contains. 4. U S WEST must provide the development, test, and demonstration environment to build the Voice Over Data pilot. CGI assumes that only one environment will be needed. 5. U S WEST must provide the existing prototype software, so that it can be ported (if necessary) and extended to demonstrate more complete functionality. 20 22 EXHIBIT 4 DELIVERABLES The deliverables covered under this agreement are classified as Licensee Specific Technology. It is not intended that any new Generic Research Technology will be created in the course of this project. The following are the deliverables covered under this agreement: LOAD BALANCE SOFTWARE o Routing Engine & SYAD Toolset Software - System Test Build o Routing Engine & SYAD Toolset Software - User Acceptance Build o Routing Engine & SYAD Toolset Software - Production Build o Routing Engine & SYAD Toolset Software - Emergency Builds (if required) SERVICES AND SUPPORT o Client Demonstration o Unit Testing o Integration Testing o Integration Testing Support o System Testing Support o User Acceptance Testing Support o Installation Support o System Administration Training Support o System Support (Problem Tracking & Resolution - Bug Fixes) o Technology Transfer to U S WEST o Operational Support DOCUMENTATION o Functional Specification o Input/Review of System Admin Guide for Routing Engine o Unit/Component Integration Test Plan for Routing Engine o Input/Review to User Acceptance Test Plan o Input/Review to System Test Plan VOICE OVER DATA 21 23 SERVICES AND SUPPORT o Project Management/Software Engineering DOCUMENTATION o Functional Specification o Project Plan CGI will deliver one copy of each Deliverable to the appropriate U S WEST Project Manager along with a letter to be mutually signed by the parties, acknowledging delivery, receipt and acceptance of the Deliverable. If U S WEST does not sign and return the letter or provide a written list of the items that are not in compliance with the project specifications within ten (10) business days after delivery, then the Deliverable shall be deemed accepted. In addition, CGI will provide U S WEST with status reports including tasks completed/delivered, issues (yellow status), and jeopardies (red status), as well as the hours expended by month and to date on specific task breakdowns. A monthly meeting between CGI and U S WEST will be held to review the project status and discuss any proposed changes, including functionality/scope changes that would necessitate a change order being written against this agreement. 22 EX-11.1 3 CARNEGIE GROUP 10-Q 1 Exhibit 11.1 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS PRIMARY EARNINGS PER SHARE
Three months ended Nine months ended September 30, September 30, 1996 1995 1996 1995 ------------------------ ----------------------- Weighted Average Common and Common Equivalent Shares: Weighted Average Common Stock Outstanding During the Period 6,206,242 4,798,150 6,231,328 4,798,150 Weighted Average Common Equivalent: Shares 764,834 793,537 888,756 793,537 ---------- ---------- ---------- ---------- 6,971,076 5,591,687 7,120,084 5,591,687 ---------- ---------- ---------- ---------- Net Income $ 409,508 $ 549,586 $1,213,516 $1,679,125 ========== ========== ========== ========== Net Income Per Common Share $ 0.06 $ 0.10 $ 0.17 $ 0.30 ========== ========== ========== ==========
FULLY DILUTED EARNINGS PER SHARE
Three months ended Nine months ended September 30, September 30, 1996 1995 1996 1995 ------------------------ ----------------------- Weighted Average Common and Common Equivalent Shares: Weighted Average Common Stock Outstanding During the Period 6,206,242 4,798,150 6,231,328 4,798,150 Weighted Average Common Equivalent: Shares 854,512 793,537 883,533 793,537 ---------- ---------- ---------- ---------- 7,060,754 5,591,687 7,114,861 5,591,687 ---------- ---------- ---------- ---------- Net Income $ 409,508 $ 549,586 $1,213,516 $1,679,125 ========== ========== ========== ========== Net Income Per Common Share $ 0.06 $ 0.10 $ 0.17 $ 0.30 ========== ========== ========== ==========
14 EX-27.1 4 CARNEGIE GROUP 10-Q
5 0001001188 CARNEGIE GROUP, INC. 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 14,195,872 0 6,806,034 0 0 22,217,322 2,054,367 0 25,686,804 4,314,154 0 0 0 64,893 21,307,757 25,686,804 1,061,112 21,495,970 13,346,764 6,636,479 0 0 13,683 1,971,474 757,958 1,213,516 0 0 0 1,213,516 0.17 0
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