EXHIBIT 99.4
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The accompanying unaudited pro forma condensed consolidated financial statements
give effect to the acquisition of Real Time Logic, Inc., a Colorado corporation
("RT Logic"), by Integral Systems, Inc., a Maryland corporation ("Integral"), as
described below.
On October 1, 2002, Integral completed the acquisition of RT Logic. Pursuant to
an Agreement and Plan of Reorganization dated October 1, 2002, by and among
Integral, RT Logic, ISI Merger Corp., a Colorado corporation and a wholly owned
subsidiary of Integral ("ISI"), each of the individuals designated as a Major
Shareholder on Exhibit 1 attached thereto and Randal E. Culver, as Shareholders'
Representative (the "Reorganization Agreement"), RT Logic was merged with and
into ISI, with ISI as the surviving corporation. Under the Reorganization
Agreement, the base purchase price payable to the shareholders of RT Logic by
Integral consisted of $13.25 million in cash and 683,870 shares of Integral
common stock, par value $.01 per share (the "Integral Common Stock"), of which
approximately $1.5 million in cash and 77,447 shares of Integral Common Stock
were placed in escrow to secure certain indemnification obligations of the RT
Logic shareholders contained in the Reorganization Agreement. Pursuant to the
terms of the Reorganization Agreement, the shareholders of RT Logic subsequently
received additional aggregate consideration equal to $500,000 in cash and 25,806
shares of Integral Common Stock. The Reorganization Agreement provides that the
shareholders of RT Logic may be entitled to receive additional consideration in
the form of contingent purchase price, which will be payable in the event that
RT Logic's business meets certain earnings performance targets during a period
of up to four (4) years following the acquisition of RT Logic. Fifty percent
(50%) of any contingent purchase price will be payable in cash and fifty percent
(50%) thereof will be payable in shares of Integral Common Stock (valued based
on a 30-trading-day average leading up to the end of each applicable earnout
period). The contingent purchase price is subject to claims by Integral under
the indemnification provisions of the Reorganization Agreement.
The acquisition of RT Logic by Integral has been accounted for as a purchase,
and accordingly, a portion of the purchase price has been allocated to assets
acquired and liabilities assumed and other identified intangible assets based on
estimated fair values on the acquisition date. The excess of the net assets
assumed and the purchase price over the identified intangible assets acquired
was allocated to goodwill. The identified intangible assets relating to
contracts and technology will be amortized on a straight-line basis over an
estimated useful life of 5 years. The customer related identified intangible
assets will be amortized on a straight-line basis over an estimated useful life
of 18 months. Goodwill is not being amortized but will be reviewed annually for
impairment in accordance with FAS 142. The allocation of the aggregate purchase
price reflected in the Pro Forma Financial Information is preliminary. The final
allocation of the purchase price is subject to change, however, that allocation
is not expected to differ materially from the preliminary allocation.
The unaudited pro forma condensed combined balance sheet as of September 30,
2002 has been prepared to reflect the acquisition of RT Logic by Integral as if
it had occurred on September 30, 2002 by combining the consolidated balance
sheet of Integral as of September 30, 2002 with the balance sheet of RT Logic as
of September 30, 2002. The unaudited pro forma condensed consolidated statement
of operations for the year ended September 30, 2002, with appropriate
adjustments, has been prepared by combining the consolidated statements of
operations of Integral for the period ended September 30, 2002 with the
unaudited statements of income of RT Logic for the three months ended December
31, 2001, March 31, 2002, June 30, 2002 and September 30, 2002, to reflect the
acquisition of RT Logic as if it had occurred at the beginning of the period
presented.
The unaudited pro forma condensed consolidated financial statements have been
prepared by Integral's management and should be read in conjunction with, and
are qualified in their entirety by reference to, the historical financial
statements of Integral and RT Logic and the related notes thereto. The unaudited
pro forma condensed consolidated statements of operations are not necessarily
indicative of the results of operations that may have actually occurred had the
acquisition occurred on the dates specified, or of the future results of the
combined companies. The pro forma adjustments are based upon available
information and certain adjustments that the management of Integral believes are
reasonable. In the opinion of Integral's management, all adjustments have been
made that are necessary to present fairly the unaudited pro forma condensed
consolidated financial statements.
Unaudited Pro Forma Condensed Combined
Balance Sheet
September 30, 2002
Pro Forma
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Integral RT
Systems Logic Adjustments Combined
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Assets:
Current Assets
Cash and cash equivalents $16,064,363 $582,932 $16,647,295
Marketable securities 46,885,581 - (13,750,000) (a) 33,135,581
Accounts receivable 17,001,393 5,511,259 22,512,652
Tax receivable - 3,169,350 3,169,350
Other current assets 3,033,517 634,925 3,668,442
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Total current assets 82,984,854 9,898,466 (13,750,000) 79,133,320
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Property, plant and equipment 3,467,907 614,518 4,082,425
Other assets
Notes receivable 288,500 - 288,500
Goodwill and Intangibles 3,047,680 - 17,334,414 (a) 20,382,094
Software development costs 6,490,640 - 6,490,640
Other assets 337,274 - (225,000)(a) 112,274
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Total Long-Term Assets 13,632,001 614,518 17,109,414 31,355,933
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Total Assets $96,616,855 $10,512,984 $ 3,359,414 $110,489,253
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Liabilities and Stockholder' Equity:
Current liabilities
Accounts payable $5,916,194 $1,072,561 $6,988,755
Accrued expenses 3,278,976 1,426,131 4,705,107
Billings in excess of revenue 2,625,602 1,946,096 4,571,698
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Total current liabilities 11,820,772 4,444,788 16,265,560
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Long term liabilities 2,539,903 802,190 3,342,093
Stockholders' equity
Common stock 93,228 465,247 (465,247) (a) 100,325
7,097 (a)
Paid in capital 65,070,787 4,572,838 (4,572,838) (a) 78,813,690
13,742,903 (a)
Retained earnings 17,599,042 5,352,501 (5,352,501) (a) 17,599,042
Notes receivable - stockholders' (5,124,580) (5,124,580)
Accumulated other comprehensive
loss (506,877) - (506,877)
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Total Stockholders' Equity 82,256,180 5,266,006 3,359,414 90,881,600
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Total Liabilities $96,616,855 $10,512,984 $3,359,414 $110,489,253
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Unaudited Pro Forma Condensed Combined
Statement of Income
Year Ended September 30, 2002
Pro Forma
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Integral RT
Systems Logic Adjustments Combined
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Revenue $50,922,741 $15,367,734 ($184,940) (c) $66,105,535
Cost of revenue
Direct labor 13,229,088 2,140,433 (38,556) (c) 15,330,965
Direct materials and other direct
costs 14,850,278 5,627,149 (55,809) (c) 20,421,618
Applied overhead 9,552,535 1,898,671 (30,845) (c) 11,420,361
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Total cost of revenue 37,631,901 9,666,253 (125,210) 47,172,944
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Gross margin 13,290,840 5,701,481 (59,730) 18,932,591
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Selling, general and administrative 8,928,938 2,977,595 1,164,000 (b) 13,070,533
expenses
Research and development costs 361,921 1,199,641 1,561,562
Product amortization 2,182,910 - 2,182,910
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Income from operations 1,817,071 1,524,245 (1,223,730) 2,117,586
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Other income 1,953,132 42,732 1,995,864
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Income from continuing operations before
income taxes 3,770,203 1,566,977 (1,223,730) 4,113,450
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Provision for income taxes 1,146,788 548,000 1,694,788
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Net income $2,623,415 $1,018,977 ($1,223,730) $2,418,662
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Weighted average number of common shares:
Basic 9,174,831 709,676 9,884,507
Diluted 9,232,619 709,676 9,942,295
Basic earnings per share:
Continuing operations $0.29 $0.24
Diluted earnings per share:
Continuing operations $0.28 $0.24
Notes to Pro Forma Condensed Combined Financial Statements
(Unaudited)
(a) Adjustments to (i) record issuance of common stock, (ii) eliminate the
equity of RT Logic, (iii) record the new financing of the RT Logic
acquisition and the additional acquisition related costs and (iv) record
assignment of the purchase price to assets and liabilities in conformance
with Integral Systems accounting policies based upon the preliminary
estimates of their respective fair values.
(b) Adjustment to amortize the preliminary estimate of other purchased
intangible assets arising out of the acquisition of RT Logic. The
identified intangible assets relating to contracts and technology are
amortized on a straight-line basis over an estimated useful life of 5
years. The customer related identified intangible assets are be amortized
on a straight-line basis over an estimated useful life of 18 months.
(c) Adjustment to eliminate intercompany sales and cost of sales transactions
between Integral Systems and RT Logic.