-----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, QGXKwrj+8kD9HATstAYvDDvetihS0kSvps5onudZOWDfH56u6ULMVOYeJlHoerqr dB1hX66/WBdmxx2cSZsHPA== 0000928385-98-001709.txt : 19980817 0000928385-98-001709.hdr.sgml : 19980817 ACCESSION NUMBER: 0000928385-98-001709 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: SEC FILE NUMBER: 000-18603 FILM NUMBER: 98690076 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 FORM 10-Q FOR 6/30/98 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 ------- INTEGRAL SYSTEMS, INC. ----------------------------------------------------------------- (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. -------- 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- EX-11 2 EXHIBIT 11 EXHIBIT 11.1: COMPUTATION OF EARNINGS PER SHARE
INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE NINE MONTHS THREE MONTHS ENDED ENDED JUNE 30, JUNE 30, 1998 1997 1998 1997 ---------------- ---------------- ---------------- ----------------- (Unaudited) (Unaudited) Basic: - ---------------------------------- Weighted average number of common shares 5,779,850 5,716,584 5,813,976 5,717,478 ================ ================ ================ ================= Net Income $1,596,058 $ 429,600 $ 804,854 $ 146,503 ================ ================ ================ ================= Earnings per share $ 0.28 $ 0.08 $ 0.14 $ 0.03 ================ ================ ================ ================= Diluted: - -------- Weighted average number of common shares 6,215,933 5,882,128 6,337,445 5,893,295 ================ ================ ================ ================= Net Income $1,596,058 $ 429,600 $ 804,854 $ 146,503 ================ ================ ================ ================= Earnings per share $ 0.26 $ 0.07 $ 0.13 $ 0.02 ================ ================ ================ =================
EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS SEP-30-1998 OCT-1-1997 JUN-30-1998 1,694,387 89,405 11,214,088 0 0 12,997,880 3,067,471 651,807 15,413,544 6,907,075 0 58,157 0 0 8,448,312 0 20,317,973 20,317,973 15,034,428 5,283,645 2,618,419 0 64,822 2,600,304 1,004,246 0 0 0 0 1,596,058 0.28 0.26 Does not represent securities. Includes Prepaid expenses @ $45,081 + Deferred income tax @ $44,324 Includes PP&E @ $1,604,769 + S/W dev.costs @ $1,398,291 + Misc. deposits & deferred charges @ $64,411 Includes Capital Leases Payable/Long-Term @ $535,640
-----END PRIVACY-ENHANCED MESSAGE-----