SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(mark one)
X Quarterly report pursuant to Section 13 or 15 (d) of the Securities
- --- Exchange Act of 1934
For the quarterly period ended JUNE 30, 1998 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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INTEGRAL SYSTEMS, INC.
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(Exact name of small business issuer 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, 1998 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
$72,353,400.
Registrant had 5,815,776 shares of common stock outstanding as of JUNE 30, 1998.
INTEGRAL SYSTEMS, INC.
TABLE OF CONTENTS
Page No.
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Part I Financial Information:
Item 1. Financial Statements
Balance Sheets June 30, 1998, September 30, 1997............ 1
Statements of Operations - Three and Nine Months
Ended June 30, 1998 and June 30, 1997...................... 3
Statement of Cash Flow - Nine Months Ended
June 30, 1998 and June 30, 1997............................ 4
Statement of Stockholders' Equity Nine Months
Ended June 30, 1998.......................................... 5
Notes to Financial Statements................................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 7
Part II Other Information:
Item 6. Exhibits and Reports on Form 8-K........................ 13
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
- -----------------------------
INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND SEPTEMBER 30, 1997
ASSETS
June 30, September 30,
1998 1997
----------- -------------
CURRENT ASSETS
Cash $ 1,694,387 $ 1,006,614
Accounts Receivable 11,214,088 9,069,607
Prepaid Expenses 45,081 106,230
Deferred Income Taxes 44,324 44,324
----------- -----------
TOTAL CURRENT ASSETS 12,997,880 10,226,775
FIXED ASSETS
Electronic Equipment 562,752 1,163,083
Furniture & Fixtures 43,743 80,618
Leasehold Improvements 7,863 11,364
Software Purchases 54,283 156,946
Equip. under Capital Lease 936,128 0
----------- -----------
SUBTOTAL 1,604,769 1,412,011
Less: Accum. Deprec. 651,807 610,206
----------- -----------
TOTAL FIXED ASSETS 952,962 801,805
OTHER ASSETS
Software Development Costs 1,398,291 1,452,242
Deposits and Deferred Charges 64,411 10,142
----------- -----------
TOTAL OTHER ASSETS 1,462,702 1,462,384
TOTAL ASSETS $15,413,544 $12,490,964
=========== ===========
-1-
INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND SEPTEMBER 30, 1997
LIABILITIES & STOCKHOLDERS' EQUITY
June 30, September 30,
1998 1997
------------ -------------
CURRENT LIABILITIES
Accounts Payable $ 2,479,807 $ 2,887,419
Accrued Expenses 1,779,049 1,503,321
Notes Payable 0 500,000
Capital Leases Payable 281,817 0
Billings in Excess of Cost 1,099,447 803,181
Income Taxes Payable 731,315 175,010
----------- -----------
TOTAL CURRENT LIABILITIES 6,371,435 5,868,931
----------- -----------
LONG TERM LIABILITIES
Capital Leases Payable 535,640 0
----------- -----------
TOTAL LONG TERM LIABILITIES 535,640 0
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value,
10,000,000 shares authorized, and
5,815,776 and 5,724,904 shares issued
and outstanding at June 30, 1998
and September 30, 1997, respectively 58,157 57,249
Additional Paid-in Capital 1,099,629 812,159
Retained Earnings 7,348,683 5,752,625
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 8,506,469 6,622,033
----------- -----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $15,413,544 $12,490,964
=========== ===========
-2-
INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
------------ ------------ ----------- ------------
Revenue $20,317,973 $14,175,577 $7,932,242 $4,907,617
Cost of Revenue
Direct Labor 4,707,881 3,293,562 1,905,808 1,187,122
Overhead Costs 3,677,122 2,354,863 1,347,915 845,371
Travel and Other 611,476 561,739 284,141 315,446
Direct Costs
Direct Equipment &
Subcontracts 6,037,949 5,093,314 2,207,975 1,441,197
------------ ------------ ----------- ------------
Total Cost of Revenue 15,034,428 11,303,478 5,745,839 3,789,136
------------ ------------ ----------- ------------
Gross Margin 5,283,545 2,872,099 2,186,403 1,118,481
------------ ------------ ----------- ------------
Selling, General & 2,022,544 1,657,284 661,527 716,519
Administrative
Product Amortization 495,000 495,000 165,000 165,000
------------ ------------ ----------- ------------
Income From Operations 2,766,001 719,815 1,359,876 236,962
Other Income (Expense)
Interest Income 34,061 36,699 14,142 12,121
Interest Expense (64,822) (7,594) (16,908) (1,498)
Miscellaneous, net (134,936) (74,245) (45,810) (21,507)
------------ ------------ ----------- ------------
Total Other Income (165,697) (45,140) (48,576) (10,884)
(Expense)
Income Before Income Taxes 2,600,304 674,675 1,311,300 226,078
------------ ------------ ----------- ------------
Provision for Income Taxes 1,004,246 245,075 506,446 79,575
------------ ------------ ----------- ------------
Net Income $ 1,596,058 $ 429,600 $ 804,854 $ 146,503
============ ============ =========== ============
Weighted Average Number of
Common Shares Outstanding
During Period 5,779,850 5,716,584 5,813,976 5,717,478
============ ============ =========== ============
Earnings per Common share $ 0.28 $ 0.08 $ 0.14 $ 0.03
============ ============ =========== ============
Earnings per Common Share
Assuming Dilution $ 0.26 $ 0.07 $ 0.13 $ 0.02
============ ============ =========== ===========
-3-
INTEGRAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
JUNE 30,
1998 1997
----------------- ------------------
Cash flows from operating activities:
Net income $ 1,596,058 $ 429,600
----------------- ------------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 857,103 712,525
(Increase) decrease in:
Accounts receivable (2,144,481) (3,102,176)
Prepaid expenses 61,149 (347,123)
(Decrease) increase in:
Accounts payable (407,612) 1,335,833
Accrued expenses 275,729 270,396
Billings in excess of cost 296,266 919,795
Income taxes payable 556,305 72,040
----------------- ------------------
Total adjustments (505,541) (138,710)
----------------- ------------------
Net cash provided (used) by operations 1,090,517 290,890
----------------- ------------------
Cash flow from investing activities:
Acquisition of fixed assets (513,261) (545,525)
Increase in software development costs (441,049) (604,606)
Increase in other assets (54,269) (2,960)
----------------- ------------------
Net cash provided (used) in investing activities (1,008,579) (1,153,091)
----------------- ------------------
Cash flow from financing activities:
Proceeds from issuance of common stock 288,378 10,156
Proceeds from Line of Credit (500,000) 0
Proceeds from capital lease 817,457 0
----------------- ------------------
Net cash provided by financing activities 605,835 10,156
----------------- ------------------
Net increase (decrease) in cash 687,773 (852,045)
Cash - beginning of year 1,006,614 1,369,915
----------------- ------------------
Cash - end of period $ 1,694,387 $ 517,870
================= ==================
-4-
INTEGRAL SYSTEMS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED
JUNE 30, 1998
COMMON
NUMBER STOCK ADDITIONAL
OF AT PAR PAID-IN RETAINED
SHARES VALUE CAPITAL EARNINGS TOTAL
Balance September 30, 1997 5,724,904 $57,249 $ 812,159 $5,752,625 $6,622,033
Exercise of Stock Options 90,872 908 287,470 - 288,378
Net income - - - 1,596,058 1,596,058
--------- ------- ---------- ---------- ----------
Balance June 30, 1998 5,815,776 $58,157 $1,099,629 $7,348,683 $8,506,469
========= ======= ========== ========== ==========
-5-
INTEGRAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
The interim financial statements include the accounts of Integral Systems,
Inc. (ISI or the Company) 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, 1997.
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 June 30, 1998 and September 30, 1997 consist of the
following:
June. 30, 1998 Sept. 30, 1997
------------------ -------------------
Billed 5,973,659 4,127,460
Unbilled 5,225,556 4,940,947
Other 14,873 1,200
Total 11,214,088 9,069,607
================== ===================
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 or
when milestones 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
$3,000,000. Borrowings under the line of credit bear interest at the
Eurodollar Rate plus 1.9% per annum. Any accrued interest is payable
monthly. The line of credit is secured by the Company's billed and
unbilled accounts receivable. The line also has certain financial
covenants, including minimum net worth and liquidity ratios. The line
expires February 28, 1999. At June 30, 1998 and September 30, 1997, the
Company had zero and $500,000 outstanding respectively, under the line of
credit.
4. Capital Lease
-------------
The Company has access to a $1.0 million equipment lease line of credit
that had a balance of $817,000 at June 30, 1998. The balance is payable
over 36 months and bears interest at a rate of 8.89% per annum. The unused
portion of the line of credit will be used to finance future equipment
purchases under substantially similar terms.
-6-
5. Stock Splits
------------
On June 4, 1997, the Company's shareholders approved an increase to the
Company's authorized shares from 2.0 million to 10.0 million and also
authorized a three-for-one stock split which became effective in July 1997.
On May 29, 1998, the Company's board of directors declared a two-for-one
stock split in the form of a 100% stock dividend for stockholders of record
as of June 9, 1998.
Stockholders' equity has been restated to give retroactive recognition to
the stock splits for all periods presented by reclassifying from additional
paid-in capital to common stock the par value of the additional shares
arising from the splits. In addition, all references to number of shares,
per share amounts, stock option data, and market prices of common stock
have been restated.
-7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 90 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.
RESULTS OF OPERATIONS
- ---------------------
COMPARISON OF THE NINE MONTHS ENDED JUNE 30, 1998
-------------------------------------------------
TO THE NINE MONTHS ENDED JUNE 30, 1997
--------------------------------------
The components of the Company's income statement in dollars and as a percentage
of revenue are depicted in the following table for the nine months ended June
30, 1998 and June 30, 1997:
% of % of
1998 REVENUE 1997 REVENUE
------------------- --------------- ------------------- ------------------
(in thousands) (in thousands)
Revenue $20,318 100.0 $14,176 100.0
Cost of revenue 15,034 74.0 11,304 79.7
------- ----- ------- -----
Gross margin 5,284 26.0 2,872 20.3
Selling, General, and
Administrative 2,023 10.0 1,657 11.7
Product Amortization 495 2.4 495 3.5
------- ----- ------- -----
Income from operations 2,766 13.6 720 5.1
Other income (expense) net (166) (0.8) (45) (0.3)
------- ----- ------- -----
Income before taxes 2,600 12.8 675 4.8
Income taxes 1,004 4.9 245 1.7
------- ----- ------- -----
Net income $ 1,596 7.9 $ 430 3.1
======= ===== ======= =====
-8-
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. The
Company, through its wholly-owned subsidiary, Integral Marketing, Inc. (IMI),
earns commission revenue by representing a number of electronic product
manufacturers in Maryland, Virginia and the District of Columbia, principally in
space-related markets.
Internally, the Company classifies revenues in two separate categories on the
basis of the contract's procurement and development requirements: (i) contracts
which require compliance with government procurement and development standards
are classified as government revenue ("Government Services"), and (ii) contracts
conducted according to commercial practices are classified as commercial revenue
("Commercial Products and Services"), 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. IMI sales of third-
party hardware and software are also classified as Commercial Products and
Services revenue.
The Company's revenues were generated from the following sources for the
indicated periods:
NINE MONTHS ENDED NINE MONTHS ENDED
------------------ --------------------
JUNE 30, 1998 JUNE 30, 1997
------------------ --------------------
Revenue Type
Commercial Products & Services
- -------------------------------------
Commercial Users 33% 31%
U.S. Government Users 12% 7%
--- ---
Subtotal 45% 38%
--- ---
Government Services
- -------------------------------------
NOAA 36% 46%
NASA 14% 9%
Other U.S. Government Users 5% 7%
--- ---
Subtotal 55% 62%
--- ---
Total 100% 100%
=== ===
Based on the Company's revenue categorization system, the Company classified 45%
of its revenue as Commercial Products and Services revenue with the remaining
55% classified as Government Services revenue for the nine months ended June 30,
1998. The percentage of Commercial Products and Services Revenues for the nine
months ended June 30, 1997 was 38% with Government Services revenue comprising
62% of total fiscal year 1997 total revenue.
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 67%
-9-
and 69% of the total revenues for the nine months ended June 30, 1998 and June
30, 1997 respectively.
On a consolidated basis, revenue increased 43.3%, or $6.1 million to $20.3
million for the nine months ended June 30, 1998, from $14.2 million for the same
period in 1997. The increase was principally due to increases in both the
Company's Government Services revenues and the Company's Commercial Products and
Services revenues, the latter reflecting an expanding market acceptance for and
sales of the Company's EPOCH product line and related services.
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 30% while gross margins for IMI
vary considerably depending on sales volume achieved.
During the nine months ended June 30, 1998, cost of revenue increased to $15.0
million from $11.3 million for the same period in 1997 due primarily to
increases in direct labor and related overhead costs necessary to staff the
Company's new contracts and revenue growth. Cost of revenue expressed as a
percentage of revenues, declined to 74.0% for the nine months ended June 30,
1998 from 79.7% for the same period in 1997 primarily due to a lower percentage
of equipment and subcontract costs in the fiscal year 1998 cost of revenue mix.
The Company's gross margin increased 83.9%, or $2.4 million to $5.3 million for
the nine months ended June 30, 1998 from $2.9 million for the same period in
1997. The increase was principally due to margin percentage improvements in all
of the Company's revenue components (i.e. licenses, engineering services, pass-
throughs and IMI) coupled with revenue growth. Most notably, engineering
services margins increased considerably due to the substantial reduction of
project overruns that adversely affected margins during fiscal year 1997. As a
result of the above, gross margin as a percentage of revenue was 26.0% during
the nine months ended June 30, 1998 compared to 20.3% for the nine months ended
June 30, 1997.
OPERATING EXPENSES/ INCOME FROM OPERATIONS
- ------------------------------------------
Selling, General & Administrative expenses (SG&A) increased to approximately
$2.0 million from $1.7 million between the periods compared. The change was
primarily due to increases in the Company's selling and marketing infrastructure
costs combined with increased bid and proposal expenses. As a percentage of
revenue, however, SG&A accounted for only 10.0% of revenue in the current period
compared to 11.7% last fiscal year. Product amortization was $495,000 for both
the nine months ended June 30, 1998 and June 30, 1997.
-10-
Income from operations increased 284.2% to $2.8 million for the nine months
ended June 30, 1998 from $.7 million for the same period in 1997 primarily due
to increases in gross margin dollars described above. As a percentage of
revenue, income from operations increased to 13.6% for the nine months ended
June 30, 1998 from 5.1% for the comparable period in the prior year. The
increase was principally the result of improved gross margin rates and lower
percentages of SG&A and product amortization as a function of revenue.
The Company's effective tax rate was 38.6% and 36.3% for the nine months ended
June 30, 1998 and June 30, 1997 respectively.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1998
--------------------------------------------------
TO THE THREE MONTHS ENDED JUNE 30, 1997
---------------------------------------
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, 1998 and
June 30, 1997:
% of % of
1998 REVENUE 1997 REVENUE
------------------ --------------- ------------------- ------------------
(in thousands) (in thousands)
Revenue $7,932 100.0 $4,908 100.0
Cost of revenue 5,746 72.4 3,789 77.2
------ ----- ------ -----
Gross margin 2,186 27.6 1,119 22.8
Selling, general and
administrative 661 8.3 717 14.6
Product amortization 165 2.1 165 3.5
------ ----- ------ -----
Income from operations 1,360 17.1 237 4.8
Other income (expense) net (49) (0.6) (11) (0.2)
------ ----- ------ -----
Income before taxes 1,311 16.5 226 4.6
Income taxes 506 6.4 80 1.6
------ ----- ------ -----
Net income $ 805 10.1 $ 146 3.0
====== ===== ====== =====
REVENUE
- -------
On a consolidated basis, revenue increased 61.6%, or $3.0 million to $7.9
million for the three months ended June 30, 1998, from $4.9 million for the same
period in 1997. The increase was principally due to increases in both the
Company's Government Services revenues and the Company's Commercial Products and
Services revenues, the latter reflecting an expanding market acceptance for and
sales of the Company's EPOCH product line and related services.
COST OF REVENUE/ GROSS MARGIN
- -----------------------------
During the three months ended June 30, 1998, cost of revenue increased to $5.7
million from $3.8 million for the same period in 1997 due primarily to increases
in direct labor and related overhead costs necessary to staff the Company's new
contracts and revenue growth. Cost of revenue expressed as a percentage of
revenues, declined to 72.4% for the three months ended June 30, 1998 from 77.2%
-11-
for the same period in 1997 primarily due to a lower percentage of equipment and
subcontract costs in the fiscal year 1998 cost of revenue mix.
The Company's gross margin increased 95.5%, or $1.1 million to $2.2 million for
the three months ended June 30, 1998 from $1.1 million for the same period in
1997. The increase was principally due to improvements in the Company's
engineering service margins, coupled with overall revenue growth. Specifically,
engineering services margins increased considerably due to the substantial
reduction of project overruns that adversely affected margins during the third
quarter of fiscal year 1997. As a result of the above, gross margin as a
percentage of revenue was 27.6% during the three months ended June 30, 1998
compared to 22.8% for the three months ended June 30, 1997.
OPERATING EXPENSES/ INCOME FROM OPERATIONS
- ------------------------------------------
Selling, General & Administrative expenses (SG&A) decreased to approximately
$662,000 from $717,000 between the periods compared. The change was primarily
due to unusually high bid and proposal expenses incurred during the third
quarter of fiscal year 1997. As a percentage of revenue, SG&A accounted for
only 8.3% of revenue in the current period compared to 14.6% for the same period
last fiscal year. Product amortization was $165,000 for both the three months
ended June 30, 1998 and June 30, 1997.
Income from operations increased 473.8% to $1.4 million for the three months
ended June 30, 1998 from $.2 million for the same period in 1997 primarily due
to increases in gross margin dollars described above and lower SG&A expenses.
As a percentage of revenue, income from operations increased to 17.1% for the
three months ended June 30, 1998 from 4.8% for the comparable period in the
prior year. The increase was principally the result of improved gross margin
rates and lower percentages of SG&A and product amortization as a function of
revenue.
The Company's effective tax rates were 38.6% and 35.4% for the three months
ended June 30, 1998 and June 30, 1997, respectively.
-12-
OUTLOOK
- -------
The Company's strong third quarter and first nine months results continue a
trend of increased sales and profitability on those sales. At this time the
Company has a significant backlog of work to be performed, as well as contract
awards it believes are probable based on proposals in the pipeline. Management
believes that operating results for future periods will continue to improve
based on the following assumption:
. Demand for satellite technology and its related products and services will
continue to expand
. Sales of its software products and engineering services will continue to
increase
. Sales from its IMI subsidiary will continue to grow
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.
For the nine months ended June 30, 1998, the Company provided approximately $1.1
million of cash from operating activities and used approximately $1.0 million
for investing activities, including approximately $440,000 for newly capitalized
software development costs. During the nine months ended June 30, 1998, the
Company also purchased approximately $510,000 of fixed assets (principally new
computers and equipment).
The Company has access to a general line of credit facility through which it can
borrow up to $3.0 million. Borrowings under the line of credit bear interest at
the Eurodollar Rate plus 1.9% per annum. Any accrued interest is payable
monthly. The line of credit is secured by the Company's billed and unbilled
accounts receivable. The line also has certain financial covenants, including
minimum net worth and liquidity ratios. The line expires February 28, 1999. At
June 30, 1998 the Company had no amounts outstanding under the line of credit.
The Company also has access to a $1.0 million equipment lease line of credit
under which it had borrowed approximately $817,000 as of June 30, 1998. The
balance is payable over 36 months and bears interest at a rate of 8.8% per
annum. The unused portion of the equipment line of credit will be used to
finance future equipment purchases under substantially similar terms.
The Company currently anticipates that its current cash balances, amounts
available under its credit facilities 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 have a material impact on the Company's revenues
or income from operations in fiscal years 1995, 1996, 1997 and 1998 to date.
FORWARD LOOKING STATEMENTS
Certain of the statements contained 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. 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 including the following:
. 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.
. Activity levels in the Company's core markets.
PART II. OTHER INFORMATION
- ---------------------------
6. Exhibits and Reports on Form 8-K
a. Exhibits
--------
11.1 Computation of Earnings per Share
27.1 Financial Data Schedule
b. Reports on Form 8-K
- --- -------------------
None
-14-
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: August 14, 1998 By: /s/ THOMAS L. GOUGH
--------------- -----------------------
Thomas L. Gough
President & Chief Operating Officer
Date: August 14, 1998 By: /s/ ELAINE M. PARFITT
--------------- ------- -----------------
Elaine M. Parfitt
Vice President and
Chief Financial Officer
- -15-