SECURITIES AND EXCHANGE
COMMISSION WASHINGTON, DC
20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15 (d) of
the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1995 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 0-18603
INTEGRAL SYSTEMS, INC.
(Exact name of registrant as specified in its chapter)
Maryland 52-1267968
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
5000 Philadelphia Way, Suite A, Lanham, MD 20706
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 301) 731
4233
(Former name, address and fiscal year, if changed since
last report)
Indicate by checkmark 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
As of June 30, 1995 the aggregate market value of the
Common Stock of the Registrant (based upon the average
bid and ask prices of the Common Stock as reported by the
market makers) held by non-affiliates of the Registrant was
$20,110,720.
Registrant has 943,046 shares of common stock
outstanding as of June 30, 1995.
INTEGRAL SYSTEMS, INC.
TABLE OF CONTENTS
Part I Financial Information:
Page No.
Item 1. Financial Statements
Balance Sheets - June 30, 1995, September
30, 1994 1
Statements of Operations Nine Months
and Three
Months Ended June 30, 1995 and June
30,
1994....... 3
Statement of Cash Flow Nine Months Ended June 30,
1995
and June 30, 1994
4
Statement of Shareholders Equity Nine Months
Ended June 30, 1995
5
Notes to Financial Statements
6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation
7
Part II Other Information:
Item 6. Exhibits and Reports on Form 8-
K
12
INTEGRAL SYSTEMS, INC.
Item 1. Financial Statements
INTEGRAL SYSTEMS,
INC. BALANCE SHEETS
JUNE 30, 1995 &
SEPTEMBER 30, 1994
ASSETS
June 30 Sep. 30,
1995 1994
CURRENT ASSETS
Cash
$2,514,578 $1,802,839
Marketable Securities
0 403,100
Accounts Receivable
2,319,755 2,414,146
Prepaid Expenses
108,178 20,840
Deferred Income Taxes
88,227 81,524
TOTAL CURRENT ASSETS
5,030,738 4,722,449
FIXED ASSETS
Electronic Equipment
573,122 525,873
Furniture & Fixtures
40,997 49,323
Leasehold Improvements
10,820 10,820
Software Purchases
32,109 42,011
SUBTOTAL
657,048 628,027
Less: Accum. Deprec.
377,459 388,394
TOTAL FIXED ASSETS
279,589 239,634
OTHER ASSETS
Software Development Costs
1,429,935 1,566,303
Deposits
150 150
TOTAL OTHER ASSETS
1,430,085 1,566,453
TOTAL ASSETS
$6,740,412 $6,528,536
INTEGRAL SYSTEMS,
INC. BALANCE SHEETS
JUNE 30, 1995 &
SEPTEMBER 30, 1994
LIABILITIES & STOCKHOLDERS' EQUITY
June 30 Sep. 30,
1995 1994
CURRENT LIABILITIES
Accounts Payable
$217,719 $206,964
Accrued Expenses
751,843 1,032,661
Billings in Excess of Cost
318,756 223,914
Income Taxes Payable
100,863 0
TOTAL CURRENT LIABILITIES
1,389,181 1,463,539
LONG TERM LIABILITIES
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value,
2,000,000 shares authorized,
and 943,046 and 938,020 shares
issued and outstanding at June
30, 1995
and September 30, 1994, respectively
9,431 9,380
Addl Paid in Capital
687,295 635,541
Retained Earnings
4,654,505 4,420,076
TOTAL STOCKHOLDERS' EQUITY
5,351,231 5,064,997
TOTAL LIABILITIES &
$6,740,412 $6,528,536
STOCKHOLDERS' EQUITY
INTEGRAL SYSTEMS, INC.
STATEMENTS OF OPERATIONS
Nine
Months Ended Three
Months
Ended
June 30
June 30
1995
1994
1995 1994
Contract Revenue $8,093,367
$6,572,126 $2,286,601
$2,262,407
Cost of Revenue
Direct Labor 2,766,162
2,608,627 955,622
896,051
Overhead 1,846,922
1,726,736 600,896
568,814
Travel & Other Direct Co 564,215
395,754 192,596 103,853
Equipment & Subcontracto
1,750,135
829,366 219,583
203,610
Total Cost of Revenue
6,927,434
5,560,483 1,968,697
1,772,328
Gross Profit
1,165,933
1,011,643 317,904
490,079
Operating Expenses
General & Administrative
811,990
896,463 266,523
323,246
Total Operating Expenses
811,990
896,463 266,523
323,246
Income (Loss) From Operations
353,943
115,180 51,381
166,833
Other Income (Expense)
Interest Income
45,922
41,320 24,602
12,827
Interest Expense
(2,129)
(7,304) 307
(7,299)
Other Income (Expense)
(12,772)
(14,930) (1,280)
1,416
Total Other Income (Expense)
31,021
19,086 23,629
6,944
Income (Loss) Before Income Ta
384,964 134,266 75,010
173,777
Income Taxes
150,535
40,625 31,300
37,100
Net Income (loss)
$234,429
$93,641 $43,710
$136,677
Weighted Average Number of Common
Shares Outstanding During Perio
941,921 930,320 942,979
933,503
Earnings per share
$0.25
$0.10 $0.05
$0.15
Integral Systems, Inc. Consolidated Statements of
Cash Flows
For the Six Months Ended
March 31,
1995 1994
Cash Flows from Operating Actiivties:
Net Income
190,719 (43,035)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization
55,697 166,965
(Increase) decrease in:
Accounts Receivable
(1,566,030)
Prepaid Expenses (95,555)
Income Tax Receivable
22,623 (Decrease) increase in:
Accounts Payable
51,486
Accrued Expenses (178,424)
Billings in Excess of Cost
(33,936)
Income Taxes Payable
53,674 (124,058)
Total Adjustments
(1,690,465) (381,328)
Net Cash provided (used) by operations
(1,499,746) (424,363)
Cash Flow from investing activities:
Acquisition of fixed assets
(32,542) (107,910)
Increase in software
development (63,066)
(389,511)
Decrease in other assets
0 105
Sale (purchase) of marketable
securities 403,100 90,120
Net cash provided (used) in investing
activities 307,492 (407,196)
Cash flow from financing activities:
Proceeds from issuance of common stock
49,879 24,262
Net cash provided by financing
activities 49,879
24,262
Net increase (decrease) in cash
(1,142,375) (807,297)
Cash - beginning of year
1,802,840 1,963,201
Cash - end of period
660,465 1,155,904
INTEGRAL SYSTEMS, INC.
STATEMENTS OF OPERATIONS
Nine
Months Ended
Three
Months Ended
June
30 June 30
1995
1994
1995 1994
Contract Revenue $8,093,367
$6,572,126 $2,286,601
$2,262,407
Cost of Revenue
Direct Labor 2,766,162
2,608,627 955,622
896,051
Overhead
1,846,922
1,726,736 600,896
568,814
Travel & Other Direct Co
564,215
395,754 192,596
103,853
Equipment & Subcontracto
1,750,135 829,366 219,583
203,610
Total Cost of Revenue
6,927,434 5,560,483
1,968,697
1,772,328
Gross Profit
1,165,933
1,011,643 317,904
490,079
Operating Expenses
General & Administrative
811,990
896,463 266,523
323,246
Total Operating Expenses
811,990
896,463 266,523
323,246
Income (Loss) From Operations
353,943
115,180 51,381
166,833
Other Income (Expense)
Interest Income
45,922
41,320 24,602
12,827
Interest Expense
(2,129)
(7,304) 307
(7,299)
Other Income (Expense)
(12,772)
(14,930) (1,280)
1,416
Total Other Income (Expense)
31,021
19,086 23,629
6,944
Income (Loss) Before Income Ta
384,964
134,266 75,010
173,777
Income Taxes
150,535
40,625 31,300
37,100
Net Income (loss)
$234,429
$93,641 $43,710
$136,677
Weighted Average Number of Common
Shares Outstanding During Perio
941,921 930,320
942,979 933,503
Earnings per share
$0.25
$0.10 $0.05
$0.15
INTEGRAL SYSTEMS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED
JUNE 30, 1995
Number Additional
of
Common Paid-in Retained
Shares Stock
Capital Earnings
Total
Balance September 30, 1994
938,020 $9,380 $635,541
$4,420,076 $5,064,997
Exercise of Stock Options
5,026 51 51,754 -
51,805
Net income -
- - 234,429
234,429
Balance June 30, 1995
943,046 $9,431 $687,295
$4,654,505 $5,351,231
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The interim financial statements include the
accounts of Integral Systems, Inc. (ISI) and
its two whollyowned subsidiaries, Integral
Marketing, Inc. (IMI) and InterSys, Inc. (INTSYS).
In the opinion of management, the financial
statements reflect all adjustments consisting only
of normal recurring accruals necessary for a fair
presentation of results for such periods. The
financial statements, which are condensed and do not
include all disclosures included in the annual
financial statements, should
be read in conjunction with the consolidated
financial statements of the Company for the fiscal
year ended September 30, 1994. The results of
operations for any interim period are not necessarily
indicative of results for the full year.
2. Accounts Receivable
Accounts receivable at June 30, 1995 and September 30,
1994 consist of the following:
Jun. 30, Sept. 30,
1995 1994
Billed $1,203,039 $1,623,540
Unbilled 1,116,716
773,912
$2,319,755 $2,397,452
The Company uses the direct write-off method for bad
debts.
The Company's accounts receivable consist of
amounts due on prime contracts and subcontracts
with the U.S. Government and contracts with
various private organizations. Unbilled accounts
receivable consist principally of amounts that are
billed in the month following the incurrence of
cost. All unbilled receivables are expected to be
billed and collected within one year.
3. Line-of-Credit
The Company has a line of credit agreement with a
local bank for $1,200,000. Borrowing under the
line
of credit bears interest at the bank's lending rate
plus one-quarter of one percentage point per
annum. Any accrued interest is payable monthly.
At June 30, 1995 and September 30, 1994 the
Company had no outstanding balance under the line of
credit.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED
JUNE 30, 1995 TO THE NINE MONTHS
ENDED JUNE 30, 1994
The components of the Company's income
statement as a percentage of revenue are depicted in the
following table for
the nine months ended June 30, 1995 and June 30, 1994:
% of %
of 1995 Revenue 1994
Revenue
(000's (000's
omitted) omitted)
Revenue $8,093 100.0 $6,572
100.0
Expenses
Cost of 6,927 85.6 5,560
84.6
Revenue
General & 812 10.0 896
13.6
Admin.
Other -31 -.4 -19
-
.3
Income 151 1.9 41
.6
Taxes
Total 7,859 97.1 6,478
98.5
Expenses
Net income $234 2.9 $94
1.5
Revenue
Revenue increased by approximately $1.5 million
between the nine months ended June 30, 1995 and the nine
months
ended June
30, 1994, principally because of new contract awards
related to the sale of the Company's EPOCH
product along with
associated integration services. Such new
contracts
also included
approximately $900,000 of incremental equipment
that
was
delivered in the current period.
During the current period, the Company derived
approximately 43% of its revenues from the sale of its
commercial products and related services as opposed to
24% of such revenue during the prior nine month fiscal
year period. The increase correlates to the Company's
conscious effort to reduce its reliance on the Federal
Government, and to utilize its recently developed
software products to gain access to organizations in
order to sell
both its products and associated integration and
support services.
Although the Company believes that its full
cadre of software products is important for its
future growth and
prosperity, to date the Company's largest product
investment relates to the development of its EPOCH
software, an off-theshelf
product for satellite command and control.
Specifically, the Company has incurred and capitalized
approximately $1,325,000 of costs (inception to date)
relating to this product. During July,
1994,
the Company delivered its first EPOCH licenses to
customers previously booked. Consequently the Company
commenced amortization of the capitalized costs under
this program during the fourth quarter of fiscal 1994.
During the first nine months of fiscal year
1995, the Company recorded approximately $2.8 million of
revenue (inclusive of approximately $1,040,000 of
delivered equipment) for services associated with its
EPOCH product compared to $880,000 of revenue during the
first nine months of fiscal year 1994. Fiscal year 1995
EPOCH revenues included approximately $200,000 of
license fees, while fiscal year 1994 had no license fee
revenues through
June 30.
The principal balance of the Company's commercial
revenues pertain to other proprietary products as
follows: OASYS (Orbital Analysis System); DRS (DOMSAT
Receive Station); and a collection of
software pertaining to database and information
system applications. During the first nine months of
fiscal year 1995, the Company recorded approximately
$570,000 of revenue related to the sale of products and
services under these programs compared to approximately
$610,000 last fiscal year. The Company's subsidiary,
Integral Marketing, Inc., (IMI) accounted for an
additional $130,000 of commercial revenue during the
current period. IMI was not formed until after the
first quarter of fiscal year 1994 and therefore only
recorded $70,000 of revenue at this point last fiscal
year.
Expenses
Cost of revenue as a percentage of revenue for the
first nine
months of fiscal year 1995 was 85.6% compared to 84.6%
for the comparable period in fiscal year 1994. The
Company believes that
there are no material differences between the two
percentages and that these figures are typical and
representative of the Company's current operating cost
structure.
G&A expense decreased approximately $80,000
between the first
nine months of fiscal year 1995 and the first nine
months of fiscal year 1994. The decreased expenses
during the current period principally relate to the
absence of expenses associated with InterSys, Inc.
(InterSys), a wholly-owned subsidiary of the Company
which is presently inactive.
Income taxes as a percentage of revenue were
higher in the current year due to the loss of surtax
exemptions that benefited fiscal year 1994 results.
General
Overall, net income as a percentage of revenue was
2.9% in
fiscal year 1995 to date compared to 1.5% in fiscal
year 1994. Essentially fiscal year 1995 income to
date resulted from increased revenues from new
contracts, while early fiscal year 1994
losses have been eliminated because start-up
costs associated with IMI and InterSys are no longer an
issue. On
the other
hand,
IMI
has yet to reach profitability and in fact
incurred losses of approximately $90,000 year
to date. Such losses have been included with
the consolidated figures referred
to in the preceding paragraphs.
COMPARISON OF THE QUARTER ENDED JUNE
30, 1995 TO THE QUARTER ENDED JUNE
30,
1994
The components of the Company's income
statement as a percentage of revenue are depicted in the
following table for
the three months ended June 30, 1995 and June 30, 1994:
% of %
of
1995 Revenue 1994
Revenue (000's (000's
omitted omitted)
)
Revenue $2,287 100.0 $2,262
100.0
Expenses
Cost of Revenue 1,969 86.1 1,772
78.3
General & Admin. 267 11.7 323
14.3
Other -24 -1.0 -7
-
.3
Income Taxes 31 1.3 37
1.6
Total Expenses 2,243 98.1 2,125
93.9
Net income $44 1.9 $137
6.1
Revenue
Revenue was essentially unchanged between the
quarters being compared. During the current period,
the Company derived
approximately 40% of its revenues from the sale of its
commercial products and related services as opposed to
25% of such revenue during the prior fiscal year
quarter.
The
increase correlates to the Company's conscious effort
to reduce its reliance on the Federal
Government, and to utilize its recently developed
software products to gain access to organizations in
order to sell both its products and associated
integration
and support
services.
During the third quarter of fiscal year 1995, the
Company recorded approximately $600,000 of revenue
(inclusive of approximately $100,000 of delivered
equipment) for services associated with its EPOCH
product compared to $250,000 of revenue during the
third quarter of fiscal year 1994. Neither quarter
included license fee revenue derived from EPOCH sales.
The principal balance of the Company's commercial
revenues pertain to other proprietary products as
follows: OASYS (Orbital Analysis System); DRS (DOMSAT
Receive Station); and a collection of software
pertaining to database and
information system
applications. During the third quarter of fiscal year
1995, the Company recorded approximately $260,000 of
revenue related to the sale of products and services
under these
programs compared to
approximately $250,000 last fiscal year. The
Company's subsidiary, Integral Marketing, Inc., (IMI)
accounted for an additional $40,000 of commercial
revenue during the current period compared to $60,000
last fiscal year.
Expenses
Cost of revenue as a percentage of revenue for
the third quarter of fiscal year 1995 was 86.1% compared
to 78.3% for the comparable period in fiscal year 1994.
The Company believes that the percentage for fiscal
year 1995 is more typical and
representative of the Company's current operating cost
structure
than the lower percentage realized in fiscal year
1994.
Furthermore, the Company believes that the fiscal year
1994 third quarter cost of revenue percentage was
somewhat of an anomaly, inasmuch as the cost of revenue
percentage for the entire 1994 fiscal year was 85.1%.
G&A expense decreased approximately $60,000
between the third quarter of fiscal year 1995 and the
third quarter of fiscal year 1994. The decreased
expenses during the current period
principally relate to the absence of expenses
associated with InterSys, which is presently inactive.
Income taxes as a percentage of revenue were
comparable during the respective quarters.
General
Overall, net income as a percentage of revenue was
1.9% in fiscal year 1995 to date compared to 6.1% in
fiscal year 1994. The principal difference between the
two periods related to a favorable cost of revenue
percentage in fiscal year 1994 that was not repeated in
fiscal year 1995.
Liquidity and Capital Resources
With the exception of the Company's second quarter of
fiscal year 1994, the Company has been
profitable since inception and
has been able to generate adequate cash flow from
operations to fund its operating and capital expenses.
To supplement operating cash flows, the Company has
access to a line of credit facility
in the amount of $1.2 million which is currently
unused. (See Note 2 of the Notes to Financial
Statements). During the first
nine months of fiscal year 1995, the Company
generated
approximately $660,000 from operating activities
and used approximately $2,000 for investing
activities, including approximately $245,000 for newly
capitalized software development costs.
Although operating activities consumed significant
sums of cash during the first half of fiscal
year 1995
due to the
financing required to fund the Company's new contracts
described above, third quarter collections under these
same
contracts put the Company in a position of generating
cash flow from operations on a year to date basis.
In July, 1988 the Company raised approximately
$400,000 (net) through the sale of 110,000 common shares
in its initial public offering.
As a result of its current cash reserves, its unused
line of credit, its current profitability and its
projected profitability for the balance of fiscal year
1995, the Company believes it will have
adequate cash resources to meet
its obligations for the
foreseeable future.
In terms of capital purchases, historically the
Company has funded such items through operating cash
flow or capital lease. The Company currently has no plans
for major capital purchases in the ensuing twelve month
period, although the Company plans to continue to
invest (albeit at lower levels) in the continued
development and improvement of its software products,
especially EPOCH and OASYS.
Part II. Other Information
6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Form 8-K
No reports on Form 8-K have been filed during the
quarter ended June 30, 1995
SIGNATURES
Pursuant to the requirements of the Securities and
Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf
by the
undersigned thereunto duly authorized.
INTEGRAL SYSTEMS,
INC.
(Registrant)
Date: 8/5/95 By Kimberly A.
Chamberlain
Kimberly A.
Chamberlain Vice
President & Chief
Financial
Officer