[DOCUMENT-COUNT] 02
[SROS] NASD
[PERIOD] 12/31/95
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 December 31, 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)
Registrants telephone number, including area (301) 731-4233
(Former name, address and fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of December 31, 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 $19,325,513.
Registrant has 946,846 shares of common stock outstanding as
of December 31, 1995.
INTEGRAL SYSTEMS, INC.
TABLE OF CONTENTS
Part I Financial Information:
Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1995, September 30, 1995 1
Consolidated Statements of Operations for the Three Months
Ended December 31, 1995 and December 31, 1994 3
Consolidated Statement of Cash Flows for the
Three Months Ended December 31, 1995 and December 31, 1994 4
Consolidated Statement of Shareholders Equity for the
Three Months Ended December 31, 1995 5
Notes to Financial Statements 6
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operation 7
Part II Other Information:
Item 6. Exhibits and Reports on Form 8-K 9
Item 1. Financial Statements
[CAPTION]
INTEGRAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 & SEPTEMBER 30, 1995
ASSETS
December 31, September 30,
1995 1995
CURRENT ASSETS
Cash $1,450,703 $2,125,553
Accounts Receivable 3,993,417 3,483,777
Prepaid Expenses 49,787 71,537
Deferred Income Taxes 60,719 60,719
TOTAL CURRENT ASSETS 5,554,626 5,741,586
FIXED ASSETS
Electronic Equipment 585,137 624,708
Furniture & Fixtures 34,243 41,716
Leasehold Improvements 11,364 11,364
Software Purchases 27,592 37,085
SUBTOTAL 658,336 714,873
Less: Accum. Deprec. 290,263 426,249
TOTAL FIXED ASSETS 368,073 288,624
OTHER ASSETS
Software Development Costs 1,347,743 1,373,219
Deposits 150 150
TOTAL OTHER ASSETS 1,347,893 1,373,369
TOTAL ASSETS $7,270,592 $7,403,579
[CAPTION]
INTEGRAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 & SEPTEMBER 30, 1995
LIABILITIES & STOCKHOLDERS' EQUITY
December 31, September 30,
1995 1995
CURRENT LIABILITIES
Accounts Payable 366,379 $ 351,995
Accrued Expenses 621,745 875,248
Billings in Excess of Cost 625,611 561,202
Income Taxes Payable 39,000 108,481
TOTAL CURRENT LIABILITIES 1,652,735 1,896,926
LONG TERM LIABILITIES ----- ------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value,
2,000,000 shares authorized, and
946,846 and 943,746 shares issued
and outstanding at December 31, 1995
and September 30, 1995, respectively 9,468 9,437
Addl Paid in Capital 745,681 696,437
Retained Earnings 4,862,708 4,800,779
TOTAL STOCKHOLDERS' EQUITY 5,617,857 5,506,653
TOTAL LIABILITIES &
STOCKHOLDERS EQUITY $7,270,592 7,403,579
[CAPTION]
INTEGRAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
December 31
1995 1994
Contract Revenue $2,435,015 $3,327,681
Cost of Revenue
Direct Labor 855,165 871,803
Overhead 683,944 610,346
Travel & Other Direct Costs 262,046 186,112
Equipment & Subcontractors 276,617 1,198,573
Total Cost of Revenue 2,077,772 2,866,834
Gross Profit 357,243 460,847
Operating Expenses
General & Administrative 233,501 306,082
Total Operating Expenses 233,501 306,082
Income From Operations 123,742 154,765
Other Income (Expense)
Interest Income 20,454 12,163
Interest Expense 8 (1)
Other Income (Expense) (43,275) (4,781)
Total Other Income (Expense) (22,813) 7,381
Income Before Income Taxes 100,929 162,146
Income Taxes 39,000 59,700
Net Income $61,929 $102,446
Weighted Average Number of Common
Shares Outstanding During Period 944,913 939,937
Earnings per share $0.07 $0.11
[CAPTION]
INTEGRAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
December 31,
1995 1994
Cash Flows from Operating Actiivties:
Net Income $61,929 $102,446
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 166,949 166,823
(Increase) decrease in:
Accounts Receivable (509,640) (1,378,474)
Prepaid Expenses 21,750 (4,082)
Deferred Income Taxes 0 52,623
(Decrease) increase in:
Accounts Payable 14,384 455,202
Accrued Expenses (253,503) (477,937)
Billings in Excess of Cost 64,409 (82,429)
Income Taxes Payable (69,481) 7,077
Total Adjustments (565,132) (1,261,197)
Net Cash provided (used) by operations (503,203) (1,158,751)
Cash Flow from investing activities:
Acquisition of fixed assets (119,258) (54,018)
Increase in software development (101,664) (90,623)
Sale of Marketable Securities 0 403,100
Net cash provided (used)
in investing activities (220,922) 258,459
Cash flow from financing activities:
Proceeds from issuance of common stock 49,275 40,462
Net cash provided by
financing activities 49,275 40,462
Net increase (decrease) in cash (674,850) (859,830)
Cash - beginning of year 2,125,553 1,802,840
Cash - end of period $1,450,703 $943,010
[CAPTION]
INTEGRAL SYSTEMS, INC
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED
DECEMBER 31, 1995
Number Additional
of Common Paid-in Retained
Shares Stock Capital Earnings Total
Balance September 30, 1995 943,746 $9,437 $696,437 $4,800,779 $5,506,653
Exercise of Stock Options 3,100 31 49,244 -- 49,275
Net income - - - 61,929 61,929
Balance December 31, 1995 946,846 $9,468 $745,681 $4,862,708 $5,617,857
INTEGRAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The interim financial statements include the accounts of
Integral Systems, Inc. (ISI) and its two wholly-owned
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, 1995.
The results of operations for any interim period are not
necessarily indicative of results for the full year.
2. Accounts Receivable
Accounts receivable at December 31, 1995 and September 30,
1995 consist of the following:
Dec. 31, Sept. 30,
1995 1995
Billed $1,783,948 $1,653,777
Unbilled 2,209,469 1,830,000
$3,993,417 $3,483,777
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 December 31, 1995 and September 30, 1995 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 QUARTER ENDED DECEMBER 31, 1995
TO THE QUARTER ENDED DECEMBER 31, 1994
The components of the Company's income statement as a
percentage of revenue are depicted in the following table for the
quarters ended December 31, 1995 and December 31, 1994:
[CAPTION]
% of % of
1995 Revenue 1994 Revenue
(000's ommitted) (000's ommitted)
Revenue $2,435 100.0 $3,328 100.0
Expenses
Cost of Revenue 2,078 85.3 2,867 86.1
General & Admin. 233 9.6 306 9.2
Other 23 1.0 -7 -.2
Income Taxes 39 1.6 60 1.8
Total Expenses 2,373 97.5 3,226 96.9
Net Income $62 2.5 $131 3.1
Revenue
Revenue decreased by approximately $900,000 between the
quarter ended December 31, 1995 and the quarter ended December
31, 1994. The decrease is attributable to the delivery of
$900,000 less equipment during the current quarter than what was
delivered in the first quarter last fiscal year.
During the current period, the Company derived approximately
45% of its revenues from the sale of its commercial products and
related services which is a comparable percentage to what the
Company realized during the first quarter in the prior fiscal
year. The percentage for both periods is significant, and
correlates to the Companys 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-the-
shelf product for satellite command and control. During the
first quarter of fiscal year 1996, the Company recorded
approximately $770,000 of revenue for services associated with
its EPOCH product compared to $1,220,000 of revenue during the
first quarter of fiscal year 1995. The decrease relates to the
delivery of only $50,000 of equipment in the current period
compared to $700,000 of equipment delivered in the first quarter
last fiscal year. Fiscal year 1996 EPOCH revenues included
approximately $135,000 of license fees, while no license fee
revenues were recorded during the first quarter of fiscal year
1995.
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 quarter of fiscal year 1996, the
Company recorded approximately $90,000 of revenue related to the
sale of products and services under these programs compared to
approximately $235,000 of revenue recorded during the first
quarter last fiscal year.
The decrease principally relates to DRS shipments scheduled
for delivery in the first quarter this fiscal year that have been
delayed to the second quarter, and a deliberate recent phase down
of the Companys database and information systems marketing and
promotion efforts.
The Companys subsidiary, Integral Marketing, Inc., (IMI)
accounted for an additional $100,000 of commercial revenue during
the current period. IMI contributed approximately $55,000 of
revenue to the Companys consolidated revenue total last fiscal
year during the first quarter.
Expenses
Cost of revenue as a percentage of revenue for the first
quarter of fiscal year 1996 was 85.3% compared to 86.1% for the
first quarter in fiscal year 1995. The Company believes that
there are no material differences between the two percentages and
that these figures are typical and representative of the
Companys current operating cost structure.
G&A expense decreased approximately $70,000 between the
periods being compared, principally because the Company incurred
less international marketing expenses during the first quarter
this fiscal year compared to the first quarter last fiscal year.
The Company believes that for fiscal year 1996, overall, that G&A
expenses will be at least as great as the expenses incurred
during fiscal year 1995.
Other expenses were $23,000 during the current period
compared to $7,000 of other income recorded during the first
quarter last fiscal year. This reversal is principally due to
expenses incurred by the Company that were previously classified
as reimbursable overhead costs that are currently considered
unallowable by the Defense Contract Audit Agency (DCAA) under
cost reimbursable type contracts with the Federal Government.
Income taxes as a percentage of revenue were comparable
during the first quarters of fiscal years 1996 and 1995.
General
Overall, net income as a percentage of revenue was 2.5% in
the first quarter of fiscal year 1996 compared to 3.1% in the
first quarter of fiscal year 1995. Essentially fiscal year 1996
income to date was lower than income generated through the first
quarter of fiscal year 1995 due to lower revenue totals and in
particular lower equipment deliveries to both commercial and
Government customers. Notwithstanding, the Company believes that
based on contracts in hand and contracts to be imminently
awarded, that both revenue and income totals for the entire
fiscal year 1996 period will exceed amounts recorded for fiscal
year 1995.
Liquidity and Capital Resources
With the exception of the Companys 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 3 of the Notes to Financial Statements). During the first
quarter of fiscal year 1996, the Company used approximately
$500,000 from operating activities and used approximately
$220,000 for investing activities, including approximately
$100,000 for software development.
Although operating activities consumed significant sums of
cash during the first quarter of fiscal year 1996 due to the
financing required to fund certain of the Companys fixed price
milestone based contracts, the Company believes that collections
under these same contracts later in the fiscal year will put the
Company in a position of generating cash flow from operations on
a year to date basis.
In terms of software development, the Company has incurred
and capitalized approximately $1,410,000 of costs (inception to
date) relating to its EPOCH 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.
As of December 31, 1995, the Companys balance sheet
included approximately $960,000 of unamortized software
development costs related to the EPOCH product. Most of the
Companys remaining software development costs pertain to the
Companys OASYS product, which can be sold as a standalone
product or in conjunction with EPOCH.
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 1996, 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
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: 2/15/96 By: Thomas L. Gough
Thomas L. Gough
President