-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RPG+Vp8CwqgHES7BOXmfcG5MxVMDpOPGOyLxNqQalnLaXUfllQoZiriLCoCSw5md 7VRB0ADoLN+wTPCaqJWvFw== 0000718130-96-000006.txt : 19960216 0000718130-96-000006.hdr.sgml : 19960216 ACCESSION NUMBER: 0000718130-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960215 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTEGRAL SYSTEMS INC /MD/ CENTRAL INDEX KEY: 0000718130 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 521267968 STATE OF INCORPORATION: MD FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18603 FILM NUMBER: 96521371 BUSINESS ADDRESS: STREET 1: 5000 PHILADELPHIA WAY STREET 2: STE A CITY: LANHAM STATE: MD ZIP: 20706 BUSINESS PHONE: 3017314233 MAIL ADDRESS: STREET 1: 5000 PHILADELPHIA WAY STREET 2: STE A CITY: LANHAM STATE: MD ZIP: 20706 10-Q 1 [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 -----END PRIVACY-ENHANCED MESSAGE-----