SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(mark one)
X Quarterly report pursuant to Section 13 or 15 (d) of the Securities
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Exchange Act of 1934
For the quarterly period ended December 31, 2001 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
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50X INTEGRAL SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Maryland 52-1267968
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5000 Philadelphia Way, Lanham, MD 20706
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301) 731-4233
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(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
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Registrant had 9,104,913 shares of common stock outstanding as of January 31,
2002
INTEGRAL SYSTEMS, INC.
TABLE OF CONTENTS
Page No.
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Balance Sheets - December 31, 2001 (unaudited) and September 30, 2001 ........................ 1
Unaudited Statements of Operations - Three Months Ended
December 31, 2001 and December 31, 2000 ................................................... 3
Unaudited Statement of Stockholders' Equity - Three Months
Ended December 31, 2001 ................................................................... 4
Unaudited Statements of Cash Flow - Three Months Ended
December 31, 2001 and December 31, 2000 ................................................... 5
Notes to Financial Statements ................................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk ............................... 14
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K ........................................................ 14
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
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INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2001 (Unaudited) and September 30, 2001
ASSETS December 31, September 30,
2001 2001
(Unaudited)
---------------- -----------------
CURRENT ASSETS
Cash $ 12,504,408 $ 2,379,503
Marketable Securities 49,625,975 57,890,170
Accounts Receivable, Net 14,905,275 18,384,883
Notes Receivable 113,901 112,495
Prepaid Expenses 748,710 340,677
Deferred Income Tax - Current Portion 447,078 611,395
Income Taxes Receivable 985,943 1,940,573
---------------- -----------------
TOTAL CURRENT ASSETS 79,331,290 81,659,696
PROPERTY AND EQUIPMENT 5,500,897 5,853,334
Less: Accum. Depreciation and Amortization 2,032,974 2,659,644
---------------- -----------------
TOTAL PROPERTY AND EQUIPMENT 3,467,923 3,193,690
OTHER ASSETS
Notes Receivable - Non-current 739,719 406,727
Software Development Costs, Net 5,677,798 5,080,629
Deposits and Deferred Charges 167,241 72,702
---------------- -----------------
TOTAL OTHER ASSETS 6,584,758 5,560,058
TOTAL ASSETS $ 89,383,971 $ 90,413,444
================ =================
The accompanying notes are an integral part of these consolidated financial
statements.
-1-
INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2001 (Unaudited) and September 30, 2001
LIABILITIES & STOCKHOLDERS' EQUITY December 31, September 30,
- ----------------------------------
2001 2001
(Unaudited)
---------------- ----------------
CURRENT LIABILITIES
Accounts Payable $ 3,636,356 $ 5,131,229
Accrued Expenses 2,495,836 2,926,443
Capital Leases Payable 74,258 137,791
Billings in Excess of Cost 1,866,639 2,036,795
---------------- ----------------
TOTAL CURRENT LIABILITIES 8,073,089 10,232,258
---------------- ----------------
LONG TERM LIABILITIES
Capital Leases Payable 112,554 122,161
Deferred Income Taxes 1,997,270 1,882,384
---------------- ----------------
TOTAL LONG TERM LIABILITIES 2,109,824 2,004,545
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value,
40,000,000 shares authorized, and
9,083,363 and 9,071,113 shares issued and
outstanding at December 31, 2001
and September 30, 2001, respectively 90,834 90,711
Additional Paid-in Capital 63,286,242 63,246,985
Retained Earnings 15,644,288 15,095,953
Accumulated other comprehensive income 179,694 (257,008)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 79,201,058 78,176,641
---------------- ----------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 89,383,971 $ 90,413,444
================ ================
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
December 31,
2001 2000
------------- -------------
Revenue $ 10,257,457 $ 8,468,676
Cost of Revenue
Direct Labor 2,580,362 2,193,993
Overhead Costs 1,955,220 1,779,590
Travel and Other Direct Costs 384,835 395,499
Direct Equipment & Subcontracts 2,223,267 1,228,412
------------ ------------
Total Cost of Revenue 7,143,684 5,597,494
------------ ------------
Gross Margin 3,113,773 2,871,182
------------ ------------
Selling, General & Administrative 1,908,041 1,893,286
Product Amortization 547,250 342,500
------------ ------------
Income From Operations 658,482 635,396
Other Income (Expense)
Interest Income 286,477 815,719
Interest Expense (17,743) (16,172)
Miscellaneous, net (58,624) (97,503)
------------ ------------
Total Other Income 210,110 702,044
Income Before Income Taxes 868,592 1,337,440
Provision for Income Taxes 252,487 285,200
------------ ------------
Net Income 616,105 1,052,240
============ ============
Weighted Average Number of Common Shares
Outstanding During Period 9,073,196 9,441,118
============ ============
Earnings Per Share - Basic $ 0.07 $ 0.11
============ ============
Diluted Shares Outstanding 9,315,690 9,564,362
============ ============
Earnings Per Share - Diluted $ 0.07 $ 0.11
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 2001
(Unaudited)
Common Accumulated
Number Stock Additional Other
of at Par Paid-in Retained Comprehensive
Shares Value Capital Earnings Income Total
Balance September 30, 2001 9,071,113 90,711 63,246,985 15,095,953 (257,008) 78,176,641
Comprehensive income
Net income - - - 616,105 - 616,105
Unrealized gain on marketable
securities
(Net of taxes of $279,203) 436,702 436,702
------------ ---------- ------------- ---------- ---------- ----------
Comprehensive Income 1,052,807
Repurchased Shares (6,000) (60) (41,820) (67,770) (109,650)
Stock Options Exercised 18,250 183 81,077 81,260
------------ ---------- ------------ ---------- ---------- ----------
Balance December 31, 2001 9,083,363 90,834 63,286,242 15,644,288 179,694 79,201,058
============ ========== ============ ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
INTEGRAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
December 31,
2001 2000
-------------- --------------
Cash flows from operating activities:
Net income $ 616,105 $ 1,052,240
-------------- --------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 838,483 645,904
Deferred Income taxes, net - (24,747)
(Increase) decrease in:
Accounts receivable and other receivables 3,479,608 (872,775)
Prepaid expenses and deposits (502,571) (26,787)
(Decrease) increase in:
Accounts payable (1,494,873) 631,306
Accrued expenses (430,607) (134,491)
Billings in excess of cost (170,156) (135,213)
Income taxes payable, net 954,630 (173,341)
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Total adjustments 2,674,514 (90,144)
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Net cash provided by operating activities 3,290,619 962,096
-------------- --------------
Cash flows from investing activities:
Sale of marketable securities 9,000,000 -
Purchase of marketable securities (19,900) -
Notes receivable, net (334,398) -
Acquisition of fixed assets (565,467) (669,388)
Software development costs (1,144,419) (609,637)
-------------- --------------
Net cash provided by (used in) investing activities 6,935,816 (1,279,025)
-------------- --------------
Cash flows from financing activities:
Proceeds from issuance of common stock 81,260 96,973
Payments on stock repurchase (109,650) -
Payments on capital lease obligations (73,140) (156,612)
-------------- --------------
Net cash used in financing activities (101,530) (59,639)
-------------- --------------
Net increase (decrease) in cash 10,124,905 (376,568)
Cash - beginning of year 2,379,503 17,558,331
-------------- --------------
Cash - end of period $12,504,408 $17,181,763
============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
INTEGRAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The interim financial statements include the accounts of Integral
Systems, Inc. (ISI or the Company) and its wholly-owned subsidiaries,
SAT Corporation (SAT), Integral Systems Europe (ISI Europe), and
InterSys, Inc. (INTSYS). All significant intercompany accounts and
transactions have been eliminated in consolidation.
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, 2001. The results of operations
for any interim period are not necessarily indicative of results for
the full year.
Certain accounts in the prior period financial statements have been
reclassified for comparative purposes to conform with the presentation
in the current year financial statements.
2. Accounts Receivable
-------------------
Accounts receivable at December 31, 2001 and September 30, 2001 consist
of the following:
December 31, Sept. 30, 2001
2001
----------------- ------------------
Billed $ 8,507,361 $ 10,081,489
Unbilled 6,318,669 8,163,934
Other 79,245 139,460
----------------- ------------------
Total $ 14,905,275 $ 18,384,883
================= ==================
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, amounts related to indirect cost variances on cost
reimbursable type contracts or amounts related to milestones that are
delivered under fixed price contracts. 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 $9.0
million for operating purposes and an additional line of credit with
the bank amounting to $6.0 million, to be used for corporate
acquisitions. Borrowings under the line are due on demand with interest
at the London Inter-Bank Offering Rate (LIBOR), plus a spread of 1.5 to
2.4% based on the ratio of funded debt to earnings before interest,
taxes and depreciation (EBITDA). The lines of credit are secured by the
Company's billed and unbilled accounts receivable and have certain
financial covenants, including minimum net worth and liquidity ratios.
The lines expire February 28, 2002. The Company is in the process of
consolidating its lines of credit with its bank into one line of credit
agreement.
The Company had no balance outstanding at December 31, 2001, under
either of its lines of credit.
-6-
INTEGRAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Subsequent Event
----------------
On January 30, 2002, the Company acquired Newpoint Technologies, Inc.
(Newpoint) of Salem, New Hampshire. The Company intends to account for
this transaction as a purchase consistent with Statement of Financial
Accounting Standards No. 141 "Business Combinations" ("SFAS 141") and
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142") issued by the Financial Accounting
Standards Board (FASB).
-7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 2001 AND 2000
---------------------------------------------------------------
Overview
Integral Systems, Inc. builds satellite ground systems for command and control,
integration and test, data processing, and simulation. Since its inception in
1982, the Company has provided ground systems for over 120 different satellite
missions for communications, science, meteorology, and earth resource
applications. The Company has an established domestic and international customer
base that includes government and commercial satellite operators, spacecraft and
payload manufacturers, and aerospace systems integrators.
The Company has developed innovative software products that reduce the cost and
minimize the development risk associated with traditional custom-built systems.
The Company believes that it was the first to offer a comprehensive COTS
(Commercial-Off-the-Shelf) software product line for command and control. As a
systems integrator, the Company leverages these products to provide turnkey
satellite control facilities that can operate multiple satellites from any
manufacturer. These systems offer significant cost savings for customers that
have traditionally purchased a separate custom control center for each of their
satellites.
Through its wholly-owned subsidiary SAT Corporation ("SAT"), acquired in August
2000, the Company also offers turnkey systems and software for satellite and
terrestrial communications signal monitoring.
In March 2001 the Company formed a wholly-owned subsidiary, Integral Systems'
Europe S.A.S. ("ISI Europe") with headquarters in Toulouse, France. The new
subsidiary serves as the focal point for the support of all of Integral's
European business.
-8-
Results of Operations
The components of the Company's income statement as a percentage of revenue are
depicted in the following table for the three months ended December 31, 2001 and
December 31, 2000:
Three Months Ended December 31,
% of % of
2001 Revenue 2000 Revenue
---- ------- ---- -------
(in thousands) (in thousands)
Revenue $10,258 100.0 $ 8,469 100.0
Cost of Revenue 7,144 69.6 5,598 66.1
------- ----- ------- -----
Gross Margin 3,114 30.4 2,871 33.9
Operating Expenses
SG&A 1,908 18.6 1,893 22.4
Prod. Amortization 547 5.3 343 4.0
------- ----- ------- -----
Income from Operations 659 6.5 635 7.5
Other Income (Expense) (net) 210 2.0 702 8.3
------- ----- ------- -----
Income Before Income Taxes 869 8.5 1,337 15.8
Income Taxes 253 2.5 285 3.4
------- ----- ------- -----
Net Income $ 616 6.0 $ 1,052 12.4
======= ===== ======= =====
Revenue
The Company earns revenue from sales of its products and services through
contracts that are funded by the U.S. Government, both as a prime contractor or
a subcontractor, as well as commercial and international organizations.
Internally, the Company classifies revenues in two separate categories on the
basis of the contracts' procurement and development requirements: (i) contracts
which require compliance with Government procurement and development standards
("Government Services") are classified as government revenue, and (ii) contracts
conducted according to commercial practices ("Commercial Products and Services")
are classified as commercial revenue, regardless of whether the end customer is
a commercial or government entity. Sales of the Company's COTS products are
classified as Commercial Products and Services revenue. SAT's and ISI Europe's
revenue is also classified as Commercial Products and Services revenue.
-9-
For the three months ended December 31, 2001 and 2000, the Company's revenues
were generated from the following sources:
Three Months Ended December 31,
Revenue Type 2001 2000
------------ ---- ----
Commercial Products & Services
Commercial Users 48% 47%
U.S. Government Users - 1
--- ---
Subtotal 48 48
Government Services
NOAA 39 41
Air Force 6 4
Other U.S. Government Users 7 7
--- ---
Subtotal 52 52
Total 100% 100%
=== ===
Based on the Company's revenue categorization system, the Company classified 48%
of its revenue as Commercial Products and Services revenue with the remaining
52% classified as Government Services revenue for both the three months ended
December 31, 2001 and 2000, respectively. By way of comparison, if the revenues
were classified strictly according to end-user (independent of the Company's
internal revenue categorization system), the U.S. Government would account for
52% and 53% of the total revenues for the three months ended December 31, 2001
and 2000, respectively.
On a consolidated basis, revenue increased 21%, or $1.8 million, to $10.3
million for the three months ended December 31, 2001, from $8.5 million for the
three months ended December 31, 2000. The increase was principally due to a $1.0
million increase in the Company's revenue from pass-through equipment, which
increased from approximately $1.2 million in the first quarter last year to $2.2
million in the current quarter. In addition, revenue from SAT (which is
classified entirely as Commercial Products and Services Revenue) increased by
approximately $300,000 from $800,000 during the first quarter last fiscal year
to approximately $1.1 million during the first quarter this fiscal year. The
remaining $500,000 increase resulted from increased commercial service revenue.
Cost of Revenue/Gross Margin
The Company computes gross margin by subtracting cost of revenue from revenue.
Included in cost of revenue are direct labor expenses, overhead charges
associated with the Company's direct labor base and other costs that can be
directly related to specific contract cost objectives, such as travel,
consultants, equipment, subcontracts and other direct costs.
Gross margins on contract revenues vary depending on the type of product or
service provided. Generally, license revenues related to the sale of the
Company's COTS products have the greatest gross margins because of the minimal
associated marginal costs to produce. By contrast, gross margins rates for
equipment and subcontract pass-throughs seldom exceed 15%. Engineering service
gross margins typically range between 20% and 35%.
During the three months ended December 31, 2001, cost of revenue increased by
27.6%, or $1.5 million, from $5.6 million during the three months ended December
31, 2000 to $7.1 million during the three months ended December 31, 2001. The
increase was due primarily to increases in equipment and subcontract
pass-throughs. Cost of revenue expressed as a percentage of revenue increased to
approximately 69.6% during the three months ended December 31, 2001 compared to
66.1% during the three months ended December 31, 2000, which increase was
primarily due to a higher percentage of equipment and subcontract costs in the
fiscal year 2002 cost of revenue mix.
-10-
The Company's gross margin increased $243,000, or 8.5% to $3.1 million for the
three months ended December 31, 2001 from $2.9 million for the three months
ended December 31, 2000. The increase was principally due to the $1.5 million
revenue increase discussed above. Gross margin as a percentage of revenue was
30.4% during the three months ended December 31, 2001 compared to 33.9% for the
three months ended December 31, 2000. This decrease is primarily attributable to
an increase in lower margin equipment and subcontract pass-through revenue
during the current quarter.
Operating Expenses/Income from Operations
Selling, General & Administrative expenses (SG&A) remained flat at $1.9 million
during the three months ended December 31, 2001 compared to the three months
ended December 31, 2000. As a percentage of revenue, SG&A accounted for 18.6% of
revenue for the three months ended December 31, 2001 compared to 22.4% in the
quarter ended December 31, 2000.
Product amortization increased from $340,000 for the three months ended December
31, 2000 to $550,000 for the three months ended December 31, 2001 due to
increases in capitalized software development costs.
Income from operations increased $20,000 to $660,000 for the three months ended
December 31, 2001 from $640,000 for the three months ended December 31, 2000.
The increase is primarily due to the increase in gross margin dollars largely
offset by increases in product amortization expenses. As a percentage of
revenue, income from operations decreased to 6.5% for the three months ended
December 31, 2001 from 7.5% for the prior year's first quarter. The decrease is
the result of the a lower gross margin coupled with an increased percentage of
product amortization expenses against revenue during the three months ended
December 31, 2001 compared to the three months ended December 31, 2000.
During the three months ended December 31, 2001, the Company recorded $290,000
of interest income compared to $820,000 of interest income recorded for the
three months ended December 31, 2000. The decrease is due to the general decline
in interest rates in response to recent cuts by the Federal Reserve Board and
due to the Company's reduction in interest generating capital resulting from the
repurchase of approximately $8.0 million of Company stock in September and
October of 2001.
Income before income taxes decreased by almost $500,000 to $900,000 from $1.3
million between the two periods being compared principally due to the decrease
in interest income discussed above.
The Company's effective tax rate increased from 21.3% for the three months ended
December 31, 2000 to 29.1% for the three months ended December 31, 2001. The
increase was primarily a result of a lower percentage of tax-free interest
income compared to operating income recorded in the current quarter compared to
the prior year's first quarter.
As a result of the above, net income decreased to approximately $600,000 during
the three months ended December 31, 2001 from approximately $1.1 million during
the three months ended December 31, 2000.
-11-
OUTLOOK
-------
This outlook section contains forward-looking statements, including but not
necessarily limited to projections, all of which are based on current
expectations. There is no assurance that the Company's projections will in fact
be achieved and these projections do not reflect any acquisitions or
divestitures subsequent to the end of the quarterly reporting period covered by
this Form 10-Q. Reference should be made to the various important factors listed
under the heading "Forward Looking Statements" that could cause actual future
results to differ materially.
At this time, the Company has a backlog of work to be performed and it may
receive additional contract awards based on proposals in the pipeline.
Management believes that operating results for future periods will improve based
on the following assumptions:
. Demand for satellite technology and related products and services
will continue to expand; and
. Sales of its software products and engineering services will
continue to increase.
Looking forward to fiscal year 2002 in its entirety, the Company is anticipating
growth in revenue, operating income, net income, and fully diluted earnings per
common and equivalent share, of 15%, 25%, 20%, and 20% respectively over results
posted for fiscal year 2001 in its entirety.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Since the Company's inception in 1982, it has been profitable on an annual basis
and has generally financed its working capital needs through internally
generated funds, supplemented by borrowings under the Company's general line of
credit facility with a commercial bank and the proceeds from the Company's
initial public offering in 1988. In June 1999, the Company supplemented its
working capital position by raising approximately $19.7 million (net) through
the private placement of approximately 1.2 million shares of its common stock.
In February 2000, the Company raised an additional $40.9 million (net) for use
in connection with potential acquisitions and other general corporate purposes
through the private placement of 1.4 million additional shares of its common
stock.
For the three months ended December 31, 2001, the Company generated
approximately $3.3 million of cash from operating activities, and $6.9 million
from investing activities, net of approximately $1.1 million used for newly
capitalized software development costs and $600,000 for the purchase of fixed
assets.
The Company has access to a general line of credit facility through which it
could borrow up to $9.0 million for operating purposes and has an additional
line of credit with the bank amounting to $6.0 million, which can be used for
corporate acquisitions. Borrowings under the line are due on demand with
interest at the London Inter-Bank Offering Rate (LIBOR), plus a spread of 1.5 to
2.4% based on the ratio of funded debt to earnings before interest, taxes and
depreciation (EBITDA). The lines of credit are secured by the Company's billed
and unbilled accounts receivable and have certain financial covenants, including
minimum net worth and liquidity ratios. The lines expire February 28, 2002. The
Company had no balance outstanding at December 31, 2001 under any of its lines.
The Company is in the process of consolidating its lines of credit with its bank
into one line of credit.
The Company also has access to a $2.0 million equipment lease line of credit
that had a balance of approximately $190,000 at December 31, 2001.
The Company currently anticipates that its current cash balances, amounts
available under its lines of credit and net cash provided by operating
activities will be sufficient to meet its working capital and capital
expenditure requirements for at least the next twelve months. The Company
believes that inflation did not
-12-
have a material impact on the Company's revenues or income from operations
during the three months ended December 31, 2001 or in past fiscal years.
FORWARD LOOKING STATEMENTS
--------------------------
Certain of the statements contained in the Management's Discussion and
Analysis of Financial Condition and Results of Operations section, in other
parts of this 10-Q, and in this section, including those under the headings
"Outlook" and "Liquidity and Capital Resources," are forward looking. In
addition, from time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters. Forward-looking statements can be identified by
the use of forward-looking terminology such as "may", "will", "believe",
"expect", "anticipate", "estimate", "continue", or other similar words,
including statements as to the intent, belief, or current expectations of the
Company and its directors, officers, and management with respect to the
Company's future operations, performance, or positions or which contain other
forward-looking information. These forward-looking statements are predictions.
No assurances can be given that the future results indicated, whether expressed
or implied, will be achieved. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
While the Company believes that these statements are and will be accurate, a
variety of factors could cause the Company's actual results and experience to
differ materially from the anticipated results or other expectations expressed
in the Company's statements. The Company's business is dependent upon general
economic conditions and upon various conditions specific to its industry, and
future trends cannot be predicted with certainty. Particular risks and
uncertainties that may effect the Company's business, other than those described
elsewhere herein, include the following:
. A significant portion of the Company's revenue is derived from
contracts or subcontracts funded by the U.S. Government, which
are subject to termination without cause, government regulations
and audits, competitive bidding, and the budget and funding
process of the U.S. Government.
. The presence of competitors with greater financial resources and
their strategic response to the Company's new services.
. The potential obsolescence of the Company's services due to the
introduction of new technologies.
. The response of customers to the Company's marketing strategies
and services.
. The Company's commercial contracts are subject to strict
performance and other requirements.
. The intense competition in the satellite ground system industry
could harm our financial performance.
. Risks related to the Company's acquisition strategy. In
particular, the Company may not be able to find any attractive
candidates or it may find that the acquisition terms proposed by
potential acquisition candidates are not favorable to the
Company. In addition, the Company may compete with other
companies for these acquisition candidates, which competition may
make an acquisition more expensive for the Company. If the
Company is unable to identify and acquire any suitable
candidates, the Company may not be able to find alternative uses
for the cash proceeds of its previous private placements that
improve the Company's business, financial conditions, or results
of operations to the extent that an acquisition could. In
addition, the integration of the acquired business or businesses
may be costly and may result in a decrease in the value of the
Company's common stock for the following reasons, among others:
-13-
. the Company may not adequately assess the risks inherent in
a particular acquisition candidate or correctly assess the
candidate's potential contribution to the Company's
financial performance;
. the Company may need to divert more management resources to
integration than it planned, which may adversely affect its
ability to pursue other more profitable activities;
. the difficulties of integration may be increased by the
necessity of coordinating geographically separated
organizations, integrating personnel with disparate
backgrounds and combining different corporate cultures;
. the Company may not eliminate as many redundant costs as it
anticipated in selecting acquisition candidates; and an
acquisition candidate may have liabilities or adverse
operating issues that the Company failed to discover through
its due diligence prior to the acquisition.
. Changes in activity levels in the Company's core markets.
While sometimes presented with numerical specificity, these forward-looking
statements are based upon a variety of assumptions relating to the business of
the Company, which although considered reasonable by the Company, may not be
realized. Because of the number and range of the assumptions underlying the
Company's forward-looking statements, many of which are subject to significant
uncertainties and contingencies beyond the reasonable control of the Company,
some of the assumptions inevitably will not materialize and unanticipated events
and circumstances may occur subsequent to the date of this document. These
forward-looking statements are based on current information and expectation, and
the Company assumes no obligation to update. Therefore, the actual experience of
the Company and the results achieved during the period covered by any particular
forward-looking statement should not be regarded as a representation by the
Company or any other person that these estimates will be realized, and actual
results may vary materially. There can be no assurance that any of these
expectations will be realized or that any of the forward-looking statements
contained herein will prove to be accurate.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
--------
4.1 Articles of Restatement of the Company (Incorporated by reference
to the Registration Statement on Form S-3 (File No. 333-82499)
filed with the Commission on July 8, 1999).
4.2 Amended and Restated Bylaws of the Company (Incorporated by
reference to the Company's Annual Report on Form 10-K for the
Fiscal Year ended September 30, 2000 filed with the Commission on
December 21, 2000).
11.1 Computation of Per Share Earnings.
b. Reports on Form 8-K
-------------------
None.
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SIGNATURES
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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: February 14, 2002 By: /s/
------------------------- -----------------------------------------
Thomas L. Gough
President & Chief Operating Officer
Date: February 14, 2002 By: /s/
------------------------- -----------------------------------------
Elaine M. Parfitt
Vice President & Chief Financial Officer
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