EX-99.4 6 dex994.txt UNAUDITIED PRO FORMA FINANCIALS 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 -------------------------------------- Integral RT Systems Logic Adjustments Combined ------------------------------------------------------------------------------------------------------------- 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 ------------------------------------------------------------------------------------------------------------- Total current assets 82,984,854 9,898,466 (13,750,000) 79,133,320 ------------------------------------------------------------------------------------------------------------- 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 ------------------------------------------------------------------------------------------------------------- Total Long-Term Assets 13,632,001 614,518 17,109,414 31,355,933 ------------------------------------------------------------------------------------------------------------- Total Assets $96,616,855 $10,512,984 $ 3,359,414 $110,489,253 ------------------------------------------------------------------------------------------------------------- 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 ------------------------------------------------------------------------------------------------------------- Total current liabilities 11,820,772 4,444,788 16,265,560 ------------------------------------------------------------------------------------------------------------- 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) ------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 82,256,180 5,266,006 3,359,414 90,881,600 ------------------------------------------------------------------------------------------------------------- Total Liabilities $96,616,855 $10,512,984 $3,359,414 $110,489,253 -------------------------------------------------------------------------------------------------------------
Unaudited Pro Forma Condensed Combined Statement of Income Year Ended September 30, 2002
Pro Forma -------------------------------------- Integral RT Systems Logic Adjustments Combined --------------------------------------------------------------------------------------------------------------- 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 --------------------------------------------------------------------------------------------------------------- Total cost of revenue 37,631,901 9,666,253 (125,210) 47,172,944 --------------------------------------------------------------------------------------------------------------- Gross margin 13,290,840 5,701,481 (59,730) 18,932,591 --------------------------------------------------------------------------------------------------------------- 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 --------------------------------------------------------------------------------------------------------------- Income from operations 1,817,071 1,524,245 (1,223,730) 2,117,586 --------------------------------------------------------------------------------------------------------------- Other income 1,953,132 42,732 1,995,864 --------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes 3,770,203 1,566,977 (1,223,730) 4,113,450 --------------------------------------------------------------------------------------------------------------- Provision for income taxes 1,146,788 548,000 1,694,788 --------------------------------------------------------------------------------------------------------------- Net income $2,623,415 $1,018,977 ($1,223,730) $2,418,662 --------------------------------------------------------------------------------------------------------------- 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.