SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 {Fee Required}
For the fiscal year ended September 30, 1995
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 {No Fee Required}
For the transition period from to
Commission file number 0-18603
Integral Systems, Inc.
(Name of small business issuer in its charter)
Maryland
(State or other jurisdiction of incorporation of organization)
52-1267968
(I.R.S. Employer Identification No.)
5000 Philadelphia Way, Suite A, Lanham, MD 20706
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (301) 731-4233
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
Securities registered under Section 12(g) of the Exchange Act:
Common
(Title of class)
(Title of class)
<PAGE>
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 to file such reports),
and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
As of October 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 $22,420,245.
As of October 31, 1995, 946,646 shares of the Common Stock of the
Registrant were outstanding.
<PAGE>
PART 1
Item 1. Business
General
Integral Systems, Inc. (the "Company") is a leading provider
of satellite ground systems: computer systems for satellite
command and control, data processing, simulation, and flight
software validation. Customers for these systems include US
Government organizations such as National Aeronautics and Space
Administration (NASA), the National Oceanic and Atmospheric
Administration (NOAA), and the US Air Force, as well as commercial
satellite operators, both domestic and foreign. Integral Systems
supports satellite missions for scientific research, remote
sensing, meteorology, and communications applications. In
addition, the Company offers products explicitly for real-time
environmental monitoring via satellite. These systems are used by
federal, state, and local governments, as well as private
industry, for applications such as erosion control and
restoration, pollution monitoring, water control, seismic
analysis, forest management, and geomagnetic field modeling.
Satellite Ground Systems
The Company offers off-the-shelf products as well as custom
development services for satellite ground systems. The customers
for the Company's products are primarily commercial satellite
operators, spacecraft manufacturers, and systems integrators.
Government organizations generally purchase a combination of off-
the-shelf products together with custom development services for
mission specific requirements.
The Company's flagship commercial product is the EPOCH 2000
software which includes real-time command and control functions as
well as off-line orbit analysis and mission planning functions.
This product has gained international recognition and is currently
used as a solution on a number of Government and commercial
satellite programs. EPOCH 2000 components and turnkey systems
(software and hardware) have been sold to a number of customers,
including ChinaSat in the Peoples Republic of China, the National
Space Program Office in Taiwan (ROCSAT), EOSAT, Earthwatch, Johns
Hopkins University Applied Physics Laboratory, AT&T, GE Americom,
APT Satellite Company, Loral, TRW, Orbital Sciences Corporation,
the US Air Force, and the US Navy.
<PAGE>
Integral Systems has ongoing systems engineering work under
contracts to NASA at Goddard Space Flight Center. This work is in
support of NASA's science satellites and includes development
projects for telemetry and command systems and simulation as well
as software verification and validation. The Company developed
the first workstation-based satellite command and control system
for NASA Goddard and has supported over a dozen different NASA
space missions.
For NOAA, Integral Systems builds command and control systems
as well as payload and image data processing systems for
meteorological satellites. The Company has had extensive
involvement in both the TIROS and GOES satellite programs.
The current Air Force contracts are under the Defense
Meteorological Satellite Program (DMSP). Integral Systems has
built several generations of the DMSP hardware-in-the-loop
simulator and provided the satellite manufacturer with a
workstation-based flight software test facility. The Company also
provides the Air Force with ongoing services for independent
verification and validation of the DMSP flight software.
<PAGE>
Environmental Monitoring Systems
Integral Systems provides a family of products and services
to facilitate the collection, storage, and analysis of
environmental data. The Company's primary commercial product is
called the DOMSAT Receive Station (DRS). The DRS is a PC-based
system which includes an antenna, receiver, and processing
software which allows customers to take advantage of the complete
NOAA GOES Data Collection System. The central processing facility
for this system was also built by Integral Systems and is located
in Wallops Island, Virginia.
DRS customers include the Army Corps of Engineers, the US
Geological Survey, and a variety of state and local governments.
The applications include meteorology, water control, and pollution
monitoring, as well as research in geomagnetism and hydrology.
There are now over 50 DRS installations in the United States
and Canada enabling government and private organizations to
receive environmental data from thousands of remote stations
located throughout the western hemisphere. The Company had
expanded its product line to include decoding/translation
software, real-time database interfaces, and the integration of
complete data analysis and response systems using off-the-shelf
networking and application products.
Integral Marketing, Inc.
Through its wholly-owned subsidiary, Integral Marketing,
Inc. (IMI), the Company acts as a manufacturer's representative,
selling electronic test instrumentation and equipment to customers
in Maryland, D.C., and Virginia. IMI currently represents 12
manufacturers.
Contract Revenue
Commercial revenue as a percentage of total revenue increased
from 24% to 42% between fiscal year 1994 and fiscal year 1995.
The Company is continuing to focus its marketing efforts on
commercial enterprises. The Company's revenue for fiscal years
1995 and 1994 was generated from the following sources:
<TABLE>
Fiscal Year
<S> <C> <C>
Customer 1995 1994
Commercial 42% 24%
NOAA 30% 36%
Air Force 12% 19%
NASA 16% 21%
</TABLE>
<PAGE>
ISI's services are principally performed under cost-plus-
fixed-fee contracts, fixed price, and time-and-material contracts
and subcontracts. Under cost-plus-fixed-fee contracts, the
Company is reimbursed for allowable costs within the contractual
terms and conditions and is paid a negotiated fee. Under fixed-
price contracts, ISI is paid a stipulated price for services or
products and bears the risk of increased or unexpected costs.
Under time-and-materials contracts, the Company receives fixed
hourly rates intended to cover salary costs attributable to work
performed on the contract and related overhead expenses,
reimbursement for other direct costs, and a stipulated profit.
All contracts include specified objectives and performance periods
ranging from a few weeks to several years, with most of the
contracts providing for terms of 4 years or less.
The percentage of revenues derived by the Company under these
different types of contracts for the fiscal years ended September
30, 1995 and 1994 is as follows:
<TABLE>
Fiscal Year
<S> <C> <C>
Contract Type 1995 1994
Cost Plus 43% 64%
Fixed Price 53% 33%
Time and Materials 4% 3%
</TABLE>
Government Contracts
Company revenues from the US Government are derived from a
combination of contracts with the US Government and subcontracts
with other companies that have prime contracts with the US
Government. The percentage of revenues received by the Company
from prime contracts and subcontracts with the Government for
fiscal years 1995 and 1994 are as follows:
<TABLE>
Fiscal Year
<S> <C> <C>
Contract Source 1995 1994
Prime Contract 46% 30%
Subcontract 54% 70%
</TABLE>
<PAGE>
US Government contracting procedures may be categorized by
formal advertising or procurement by negotiation. Negotiated
procurements may, but do not necessarily, involve the solicitation
of competitive proposals. If competitive proposals are solicited,
the US Government selects the proposal most advantageous to it and
then conducts negotiations with the selected bidder. Virtually
all contracts awarded during fiscal years 1987 through 1995 to the
Company or to other prime contractors for whom the Company served
as a subcontractor were awarded on the basis of competitive
procurements.
Many of the programs in which ISI participates as a
contractor or subcontractor extend for several years, but are
funded only on an annual basis. Accordingly, the Company's
contracts and subcontracts are subject to termination, reduction
or modification in the event of changes in the Government's
requirements or budgetary constraints. Additionally, when ISI
participates in a project as a subcontractor, it is subject to the
risk that the prime contractor may fail or be unable to perform
the prime contract.
All of the Company's US Government contracts and subcontracts
are also subject to termination for "convenience". Should a
contract be so terminated, the Company would be reimbursed for
allowable costs to the date of termination and would be paid a
proportionate amount of the stipulated profits or fees
attributable to the work actually performed. To date, no ISI
contract has been terminated for convenience.
The Company expects that 33% of revenue for the current
fiscal year (fiscal year 1996) will be derived from three major US
Government contracts and subcontracts. It is estimated that the
largest single contract will represent approximately 14% of the
Company's revenue and the smallest approximately 1%. The loss or
termination of any one of these contracts due to funding cuts or
contract termination could significantly affect the Company's
performance. Similarly, the expiration of any major contract
could significantly affect the Company's performance if not
renewed or replaced by contracts of similar value. In addition,
since a significant portion of revenue for the current fiscal year
is derived from subcontracts, loss of those subcontracts due to
termination of the subcontract or of the direct prime contract
could also affect the Company's performance. During fiscal year
1995, approximately 53% of ISI's revenue was performed under
fixed-price contracts and subcontracts. Under those contracts, an
unanticipated increase in the Company's cost or expenses may
reduce or eliminate the profitability of those contracts, thereby
adversely affecting the Company's financial performance.
<PAGE>
ISI's books and records are subject to audit by the Defense
Contract Audit Agency. Such audits can result in adjustments to
contract costs and fees. No audits are currently in process.
Although the Company thus far has not been required to make any
material audit adjustments, the possibility that such adjustments
will be required always exists. Management is of the opinion that
any such audit adjustments would not have a material effect on the
financial position or results of operations of the Company.
Employees
As of October 31, 1995, the Company employed 79 individuals,
69 of whom are considered professionals in engineering related
disciplines. Of the engineering professionals, 96% have
undergraduate degrees in a scientific discipline, and 32% of those
have advanced degrees in scientific discipline. Approximately 89%
of the engineering staff have at least seven years experience, and
11% have three to eight years experience. Approximately 16% of
the engineering staff specialize in digital hardware development,
although many of these individuals have analytic and software
development expertise as well. The remaining 84% of the
engineering staff are analysts and software developers.
Employees are not represented by any union or collective
bargaining group, and employee relations are considered good.
Since inception, ISI has experienced minimal turnover in
engineering staff.
Marketing
The Company relies upon senior corporate management, project
managers and senior technical staff to carry out its marketing
program. These individuals collect information concerning
requirements of current and potential customers in the course of
contract performance, formal and informal briefings, from
published literature, and through participation in professional
and industry organizations. Senior management evaluates this
information, identifies potential business opportunities and
coordinates proposal efforts. As sources of business within
existing markets are exhausted, new markets are explored. The
Company seeks business believed to be of long term benefit based
on considerations such as technical sophistication required,
favorable market positioning and potential product spin-offs.
<PAGE>
Backlog
The Company's estimated backlog as of September 30, 1995 and
September 30, 1994 is as follows:
<TABLE>
Sept. 30,1995 Sept. 30,1994
<S> <C> <C>
Outstanding Contract.......$ 9,596,273 $15,250,373
General Commitments....... $14,784,770 $ 3,731,820
Total $24,381,043 $18,982,193
</TABLE>
Under outstanding contracts, the Company commits to provide
specific services, frequently over an extended period of time,
with continued performance of those services contingent upon the
customer's year-to-year decision to fund the contract. General
commitments consist of contract options and sole source business
that management believes likely to be exercised or awarded in
connection with existing contracts. Contract options are the
Company's contractual agreement to perform specifically defined
services only in the event the customer thereafter requests the
Company to do so. Sole source business refers to contract work
which the Company reasonable expects to be awarded based on its
unique expertise in a specific area or because it has previously
done all such work in that area for the customer or prime
contractor who will award the contract. The Company estimates
that 33% of backlog as of September 30, 1995 will be completed
during fiscal year 1996. Estimated backlog includes contract
options through September 30, 2000, including general commitments.
Competition
The Company principally obtains contracts and subcontracts
through competitive procurements offered by the US Government or
commercial enterprises awarded on a competitive basis. ISI
competes with numerous companies having similar capabilities, some
of which are larger and have considerably greater financial
resources. In addition, many smaller companies have specialized
capabilities in similar areas.
<PAGE>
Because of its size, ISI often joins with a larger company in
pursuing major procurements. It is not unusual for ISI to compete
with a company for a contract while simultaneously joining with
the same company in pursuit of another contract. The Company has
entered into such joint bidding relations with Martin Marietta,
Space Systems/Loral Corporation; Computer Sciences Corporation,
and AlliedSignal Aerospace/Bendix Field Engineering Corporation.
It is not possible to predict how ISI's competitive position
may be affected by changing economic or competitive conditions,
customer requirements or technological developments. The
principal competitive factors for the Company's business are
reputation and relationship with customers and competitors,
quality of services and products, pricing, responsiveness, and a
demonstrable record of delivering work on time and within budget.
Software Products and Development
In the second quarter of 1991, ISI undertook several internal
software development efforts, which have resulted in products
which the Company is offering commercially. The DOMSAT Receive
Station (DRS) product is a hardware/software system that allows
users to gather environmental telemetry data via a commercial
communications satellite. In fiscal year 1995, Integral Systems
recognized approximately $230,000 in revenue on the DRS product.
The EPOCH 2000 product is a hardware/software system that
allows users to command and control satellites. The product was
formally announced in the second quarter of 1992. As of October
31, 1992, Integral Systems sold its first EPOCH 2000 to the
Chinese Government, under a subcontract with a US corporation,
resulting in a $2.4 million dollar award. The Company delivered
it's first EPOCH 2000 software license to the Chinese Government
in July, 1994. At that time the Company first recorded EPOCH
license revenue and began to amortize associated software
development costs. In fiscal year 1995, Integral Systems was
awarded another major subcontract for an EPOCH 2000 system in the
amount of $3.7 million dollars. This new subcontract is for
delivery of the company's products to the National Space Program
Office in Taiwan.
EPOCH related revenue (license fees and associated services)
amounted to $3.5 million in fiscal year 1995.
The Company has also developed other software intensive
products. OASYS, a spacecraft orbit determination product, can be
sold as a stand-alone package or as a subsystem under the EPOCH
2000 product. OASYS related revenue for fiscal year 1995 was
$400,000.
<PAGE>
The Company continues to develop new versions of EPOCH and
OASYS and plans to capitalize development costs as appropriate in
fiscal year 1996.
Environment
No material effects on the Company's expenditures, earnings,
or competitive position are anticipated as a result of compliance
with federal, state, and local provisions which have been enacted
or adopted regulating the discharge of material into the
environment, or otherwise related to the protection of the
environment.
Financing
On July 28, 1988, ISI sold 110,000 of its common shares (par
value $.01) in its initial public offering for $5.00 per share.
ISI also has a line of credit agreement with NationsBank for
$1,200,000. Borrowings under the line of credit bear interest at
the bank's prime rate plus one-quarter (1/4) percentage point per
annum. Any accrued interest is payable monthly. At September
30, 1995 the Company had no amounts outstanding under the line of
credit.
Financial Information in Industry Segments
ISI operates as one operating segment and, therefore, does
not report financial information in industry segments.
Item 2. Properties
As of March, 1994, ISI renegotiated its lease which obligated
the Company for an additional five years, for an aggregate of
25,600 square feet of office space at its principal location at
5000 Philadelphia Way, Suite A, Lanham, Maryland 20706-4417. The
annual lease cost, including operating expenses, for the facility,
is approximately $249,076.
Item 3. Legal Proceeding
The Company is not engaged in any material legal proceedings
that could have an adverse effect on its business, nor is it aware
of any pending or threatened material litigation against it.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
On July 20, 1995, Integral Systems held their annual
shareholders meeting. A Board of Directors was elected, including
the re-election of Steven R. Chamberlain, Robert P. Sadler, and
Bonnie K. Wachtel. New board members elected include Louis Brown,
Thomas L. Gough, Dominic A. Laiti, and R. Doss McComas.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder's Matters
Effective May, 1990, Integral Systems' over-the-counter stock
began trading on NASDAQ. The Company's NASDAQ trading symbol is
ISYS. The range of high and low transaction prices as reported by
NASDAQ and the market makers for each quarterly period during the
fiscal years ended September 30, 1995 and 1994, are shown below:
<TABLE>
<S> <C> <C>
1995 Fiscal Year High Low
First Quarter 17 3/4 16 3/4
Second Quarter 23 1/2 17 1/2
Third Quarter 28 25 3/4
Fourth Quarter 31 26 1/2
1994 Fiscal Year High Low
First Quarter 16 15 3/4
Second Quarter 15 3/4 15 3/4
Third Quarter 16 1/4 15 3/4
Fourth Quarter 17 3/4 16 3/4
</TABLE>
As of September 30, 1995, there were approximately 423
holders of record of the Company's Common Stock.
No cash dividends were paid during the past four fiscal
years, and none are expected to be declared during the forthcoming
1996 fiscal year.
<PAGE>
Item 6. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations
COMPARISON OF FISCAL YEAR 1995
TO FISCAL YEAR 1994
The components of the Company's income statement as a
percentage of revenue are depicted in the following table for
fiscal years 1995 and 1994:
<TABLE>
% of % of
1994 Revenue 1995 Revenue
(000's ommitted) (000's ommitted)
<S> <C> <C> <C> <C>
Revenue $10,771 100.0 $8,905 100.0
Expenses
Cost of Revenue 9,171 85.1 7,583 85.1
General & Admin. 1,062 9.9 1,166 13.1
Other (38) (-0.3) (31) (.3)
Income Taxes 195 1.8 56 .6
Total Expenses $10,390 96.5 8,774 98.5
Net Income $381 3.5 $131 1.5
</TABLE>
Revenue
Revenue increased by approximately $1.9 million between the
fiscal year ended September 30, 1995, and the fiscal year ended
September 30, 1994, principally because of new contract awards
related to the sale of the Company's EPOCH product along with
associated integration services. Such new contracts also included
approximately $1,100,000 of incremental equipment that was
delivered in the current period.
During the current period, the Company derived approximately
42% of its revenues from the sale of its commercial products and
related services as opposed to 24% of such revenue during the
prior fiscal year. The increase correlates to the Company's
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.
<PAGE>
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. Specifically, the Company has
incurred and capitalized approximately $1,360,000 of costs
(inception to date) relating to this 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.
During fiscal year 1995, the Company recorded approximately
$3.5 million of revenue (inclusive of approximately $1,140,000 of
delivered equipment) for services associated with its EPOCH
product compared to $1,100,000 of revenue during fiscal year 1994.
Fiscal year 1995 EPOCH revenues included approximately $345,000 of
license fees, while $150,000 of license fee revenues were recorded
during fiscal year 1994.
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 fiscal year 1995, the Company recorded
approximately $750,000 of revenue related to the sale of products
and services under these programs compared to approximately
$900,000 last fiscal year.
The Company's subsidiary, Integral Marketing, Inc., (IMI)
accounted for an additional $270,000 of commercial revenue during
the current period. IMI contributed approximately $150,000 of
revenue to the Company's consolidated revenue total last fiscal
year.
Expenses
Cost of revenue as a percentage of revenue for both fiscal
year 1995 and fiscal year 1994 was 85.1%. The Company believes
that these figures are typical and representative of the Company's
current operating cost structure.
G&A expense decreased approximately $100,000 between fiscal
year 1995 and fiscal year 1994. The decreased expenses during the
current period principally relate to the absence of start-up costs
associated with InterSys, Inc. (InterSys), a wholly-owned
subsidiary of the Company which is presently inactive.
Income taxes as a percentage of revenue were higher in the
current year due to the loss of surtax exemptions that benefited
fiscal year 1994 results.
<PAGE>
General
Overall, net income as a percentage of revenue was 3.5% in
fiscal year 1995 compared to 1.5% in fiscal year 1994.
Essentially, fiscal year 1995 income to date resulted from
increased revenues from new contracts, while early fiscal year
1994 losses have been eliminated because start-up costs associated
with IMI and InterSys are no longer an issue. It should be noted
that fiscal year 1995 results would have been approximately
$110,000 greater on a pretax basis except for reserves taken by
the Company to account for certain contract cost disallowances for
the Company's fiscal years 1992 to 1994 inclusive proposed by the
Defense Contract Audit Agency (DCAA) and reserves taken on revenue
recorded by IMI.
Liquidity and Capital Resources
With the exception of the Company's 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 5 of
the Notes to Financial Statements).
During fiscal year 1995, the Company used approximately
$315,000 for new software development and invested another
$220,000 to acquire new equipment. These capital additions were
offset by the sale of approximately $400,000 of marketable
securities, providing for a net $130,000 of cash used for
investing activities in fiscal year 1995.
Although operating activities consumed significant sums of
cash during the first half of fiscal year 1995 due to the
financing required to fund the Company's new contracts described
above, third and fourth quarter collections under these same
contracts put the Company in a position of generating cash flow
from operations on a year to date basis. Specifically, $390,000
was generated from operations in fiscal year 1995.
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 fiscal year 1996, the Company believes it will have adequate
cash resources to meet its obligations for the foreseeable future.
<PAGE>
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 of its software products, especially EPOCH and OASYS.
Item 7. Financial Statements and Supplementary Data
The information required by this item is set forth under item
13(a), which information is incorporated herein by reference.
Item 8. Disagreements on Accounting and Financial Disclosure
Not Applicable.
<PAGE>
PART III
Item 9. Directors and Executive Officers, Promoters and Control
Persons, Compliance With Section 16(a) of the Exchange Act.
Name Position with the Company
Steven R. Chamberlain Chairman of the Board
and Chief Executive Officer
Thomas L. Gough President, Chief Operating Officer
and Director
Robert P. Sadler Vice President, Quality Control,
Secretary; Treasurer; and Director
Steven K. Kowal Vice President, Engineering
Manufacturing
Steven A. Carchedi Vice President of Commercial Systems
Donald F. Mack, Jr. Vice President of Engineering
Kimberly A. Chamberlain Vice President, Chief Financial Officer
William I. Tittley Vice President, Asia Pacific Operations
Bonnie K. Wachtel Outside Director
Louis M. Brown, Jr. Outside Director
Dominic A. Laiti Outside Director
R. Doss McComas Outside Director
Directors serve until the next annual meeting of stockholders
or until successors have been elected and qualified. Officers
serve at the discretion of the Board of Directors.
Steven R. Chamberlain, 40, a Company founder, has been
Chairman of the Board since June, 1992, President since May 1988
and a Director since 1982. He served as Vice President from 1982
until he became President. From 1978 to 1982, Mr. Chamberlain was
employed by OAO Corporation where he progressed from Systems
Analyst to Manager of the Offutt Air Force Base field support
office. Mr. Chamberlain holds a B.S. degree in Physics from
Memphis State University and has done graduate work in Physics and
Mathematics at Memphis State and the University of Maryland.
Thomas L. Gough, 47, became a member of ISI's staff in
January, 1984. In June, 1992, he was appointed President of
Integral Systems, Inc., in July of 1989 he was named Vice
President of Finance. Prior to joining ISI he was employed by
Business and Technology Systems, Inc., serving initially as a
Project leader and later as the Software Systems Division Manager.
From 1972 to 1977 he was employed by Computer Sciences Corporation
where he progressed from programmer/analyst to section manager.
Mr. Gough earned a B.S. degree from the University of Maryland
where he majored in Information Systems Management in the School
of Business and Public Administration.
<PAGE>
Robert P. Sadler, 45, a Company founder, has been a Director,
Secretary, and Treasurer since 1982. In May 1988, he was
appointed Vice President of Administration, in June, 1992, he was
appointed Vice President, Quality Control. From 1976 to 1982, Mr.
Sadler was employed at OAO Corporation where he progressed from
Computer Analyst to Project Manager. Mr. Sadler obtained a B.S.
in Mathematics and a B.S. in Computer Sciences from Pennsylvania
State University and a M.S. in Management of Information Systems
Technology from George Washington University.
Steve K. Kowal, 42, a Company founder, has been with ISI
since 1982. In May 1988 he was appointed Vice President of
Engineering Manufacturing. From 1979 to 1982, Mr. Kowal was
employed by OAO Corporation where he was a manager of hardware
development on several of OAO's major systems. Mr. Kowal holds a
B.S. degree in Electrical Engineering from the University of
Delaware.
Steven A. Carchedi, 44, joined the Company in 1991 and is
Vice President of Commercial Systems. Before joining Integral
Systems as a full-time employee in 1991, Mr. Carchedi worked with
the company for two years as an independent business development
consultant. Previously, he worked for Computational Engineering,
Inc., where he held positions as a Mathematician, Program Manager,
Corporate Director, and Vice President of Business Development.
Mr. Carchedi holds a B.S. Degree in Mathematics from Wake Forest
University and a M.A. Degree in Mathematics from the University of
Maryland.
Donald F. Mack, Jr., 42, joined the company in 1986. In July
of 1989, he was appointed Vice President of Engineering. From
1979 to 1986, Mr. Mack was employed by General Electric
Corporation's Space Systems Division where he progressed from
design engineer to a Senior Project Supervisor for systems
development. Mr. Mack holds a B.S. degree in Electrical
Engineering from Northeastern University and a M.S. degree in
Electrical Engineering from Johns Hopkins University.
Kimberly A. Chamberlain, 39, was appointed Vice President and
Chief Financial Officer in April, 1995 and has been with the
company since 1983. Ms. Chamberlain graduated from the University
of Maryland, with a B.S. degree in Business Management in 1985.
Before coming to Integral Systems, Ms. Chamberlain worked at OAO
Corporation.
William I. Tittley, 52, joined the company in 1992,
performing as Project Manager on the first EPOCH 2000 sale to the
Chinese Government. In March, 1995, Mr. Tittley was made Vice
President, Asia Pacific, to oversee the Company's operations in
the Asian region. Formerly, Mr. Tittley was with the OAO
Corporation (from 1977 through 1992), where he performed duties as
Director, Space System Programs, in charge of the technical and
financial direction of aerospace systems programs. Mr. Tittley
holds a B.S. in Aerospace Vehicle Design from the State University
of New York, and a M.S. in Engineering from the California Coast
University.
Bonnie K. Wachtel, 40, has served as a Director since May
1988. Since 1984 she has been Vice President, General Counsel and
a Director of Wachtel & Co., Inc., an investment banking firm in
Washington, D.C. Ms. Wachtel serves as a Director of several
corporations including SSE Telecom, Inc. and VSE Corporation. She
holds a B.A. and M.B.A. from the University of Chicago and a J.D.
from the University of Virginia, and is a Certified Financial
Analyst.
Louis M. Brown, Jr., 51, was elected in July, 1995 as one of
four Integral Systems outside directors. Mr. Brown was the
founding Chairman of Autometric, Inc. and has served on the Board
of Directors since the entity was acquired from Raytheon
Corporation (Autometric Division of Raytheon) and incorporated in
1977. Mr. Brown assumed the position of President/CEO of
Autometric, in April, 1990. From 1970 to 1990, Mr. Brown was the
founding president/CEO of IDEAS, Inc., Columbia, MD, and currently
serves as a Director and Chairman of the Board of IDEAS. He
obtained a B.S.E.E. from the Johns Hopkins University and has done
course work in Operations Research at West Virginia University and
in Business Administration at George Washington University.
Dominic A. Laiti, 63, was elected director of the Company in
July, 1995. Mr. Laiti is presently employed as an independent
consultant and was President and Director of Globalink, Inc. from
January 1990 to December 1994. He has over twenty-five (25) years
of experience in starting, building, and managing high-technology
private and public companies with annual revenues from two million
to over 120 million dollars. Mr. Laiti was President of Hadron,
Inc. from 1979 to 1989, Vice President of Xonics Inc. from 1972 to
1979 and Vice President of KMS Industries from 1968 to 1972. He
is a former Director of United Press International, Saturn
Chemicals Company, Hadron, Inc., Telecommunications Industries,
Inc., MAXXAM Technology, Inc., and Jupiter Technology, Inc.
R. Doss McComas, 41, joined the Board in July, 1995. Since
1982 he has had various positions with COMSAT RSI, a business unit
of COMSAT supplying products and services to the wireless,
satellite, air traffic control and other specialized markets
worldwide. These positions included General Counsel, Vice
President of Acquisitions, Strategic Planning and International
Marketing, as well as Group Vice President, responsible for the
company's international operations. Currently he is Chairman and
Chief Executive Officer of Plexsys International, a COMSAT RSI
equity investment, and Vice President, Business Development, for
COMSAT RSI. He holds a B.A. degree from Virginia Polytechnic
Institute, an M.B.A. from Mt. Saint Mary's, and a J.D. from
Gonzaga University.
<PAGE>
Item 10. Executive Compensation
a. Summary Compensation Table
The following table sets forth compensation received by the
Company's highest paid executive officers who earned over $100,000
during the fiscal year ended September 30, 1995:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards Payouts
Other
Name Annual Restricted All other
and Compen- Stock LTIP Compen-
Principal sation Award(s) Options Payouts sation
Position Year Salary($) Bonus($) ($) ($) SARs(#) ($) ($) (1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CEO
S. R.
Chamberlain 1995 $112,278 $14,000 7,500 $12,351
1994 $107,266 $13,975 $11,208
1993 $103,147 $15,026 $10,060
PRESIDENT
Thomas L.
Gough 1995 $99,507 $11,000 $10,946
1994 $94,765 $10,980 $9,650
1993 $91,125 $12,000 $8,874
VP,Commercial
Systems
Steven A.
Carchedi 1995 $95,784 $12,000 2,000 $10,536
1994 $92,997 $9,479 $9,490
1993 $88,090 $10,016 6,500 $8,787
VP,
Engineering
Donald F.
Mack, Jr. 1995 $95,784 $9,500 2,000 $10,536
1994 $92,977 $9,479 $9,900
1993 $89,419 $8,500 $8,761
VP, Asia Pacific
Operations
William I.
Tittley 1995 $96,907 $7,000 5,000 $10,660
1994 $94,120 $6,018 $10,353
1993 $90,501 $5,526 200 $9,955
</TABLE>
<PAGE>
Note (1) Profit Sharing/Money Purchase Plan
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
Percent of Total
Number of Options/SARs
Options/ Granted to
SARs Employees in Exercise/Base Expiration
Name Granted Fiscal Year Price ($) Date
CEO
S.R. Chamberlain 7,500 36% $17.75 10/1999
PRESIDENT
Thomas L. Gough 0
VP,
COMMERCIAL SYSTEMS
Steven A. Carchedi 2,000 9% $17.75 10/1999
VP, ENGINEERING
Donald F. Mack 2,000 9% $17.75 10/1999
VP, ENGINEERING
MANUFACTURING
Steven K. Kowal 0
VP, ASIA PACIFIC
OPERATIONS
William I. Tittley 5,000 24% $17.75 10/1999
b. Compensation Pursuant to Plans
ISI's Board of Directors awards annual bonuses to officers
and employees on a discretionary basis. Currently no formal plan
exists for determining bonus amounts.
Effective October 1, 1987, the Company established a 401K
pension and profit sharing plan under Section 401 of the Internal
Revenue Code. Under the plan the Company contributes annually an
amount equal to 5% of an eligible employee's salary, and may make
additional contributions of up to 7.5% of an eligible employee's
salary. The employee may contribute up to an additional 10% as
salary deferral. In fiscal years 1994 and 1995, the Company
contributed a total of 11% of eligible employees salaries to both
plans.
c. Stock Option Plan
<PAGE>
Effective May 25, 1988, ISI established a stock option plan
to create additional incentives for the Company's employees,
consultants and directors to promote the financial success of the
Company. ISI's Board of Directors has sole authority to select
full-time employees, directors, or consultants to receive awards
of options for the purchase of stock under this plan. The maximum
number of shares of ISI Common Stock which may be issued pursuant
to the stock plan was increased from 50,000 to 200,000 during
fiscal year 1994.
A total of 21,100 options were issued and 5,726 options were
exercised during fiscal year 1995, making it a total of 46,174
options issued and outstanding as of September, 1995.
Compensation of Directors
Presently outside directors who are not employees of the
Company receive $5,000 per year for their services.
e. Termination of Employment and Change of Control
Termination
The Company has no compensatory plan nor arrangement with
respect to any individual named in the Cash Compensation Table
(Item 11(a)) which results or will result from the resignation,
retirement or any other termination of such individual's
employment with the Company or its subsidiaries or from a change
in control of the Company or a change in the individual's
responsibilities following a change in control.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
a. Security Ownership of Certain Beneficial Owners (as of
9/30/95)
None
Name of Owner Shares Percentage of Total Shares
Owned
<PAGE>
b. Security Ownership of Management (as of 9/30/95)
Name of Owner Shares Percentage of Total Shares Owned
Steven R. Chamberlain 73,040 7.6%
Thomas L. Gough 27,850 2.9%
Robert P. Sadler 51,840 5.3%
Kimberly A. Chamberlain 8,480 .9%
Donald F. Mack, Jr. 8,600 .9%
William I. Tittley 5,200 .5%
Steven K. Kowal 39,346 4.1%
Steven A. Carchedi 16,500 1.7%
Bonnie K. Wachtel 4,500 .5%
Item 12. Certain Relationships and Related Transactions
Bonnie K. Wachtel is Vice President, General Counsel and
Director of Wachtel & Co., Inc., one of the Underwriters of ISI's
initial public offering.
Item 13. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) (1) Financial Statements
Independent Auditors' Report - page 1
Balance Sheets as of September 30, 1995 - page 2
Statements of Operations for the Years Ended September 30, 1995,
and 1994 - page 3
Statement of Stockholders' Equity for Years Ended September 30,
1995 and 1994 - page 4
Statements of Cash Flows for the Years Ended September 30, 1995
and 1994 - page 5
Notes to Financial Statements - pages 6 - 13
All other schedules are omitted since the required information is
not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required is
included in the financial statements and notes thereto.
(b) Reports on Form 8-K
There were no Form 8-Ks filed during fiscal year 1995.
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INTEGRAL SYSTEMS, INC.
BY:
Steven R. Chamberlain
Chairman of the Board and
Chief Executive Officer
DATE:
BY:
Kimberly A. Chamberlain
Vice President,
Chief Financial Officer
DATE:
<PAGE>
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the
registrant and in the capacities and on the dates
indicated.
Signature Titles Date
Chairman of the Board, Director 12/27/95
Steven R. Chamberlain Chief Executive Officer
President, Chief Operating 12/27/95
Thomas L. Gough Director
Vice President of Quality Control, 12/27/95
Robert P. Sadler Secretary & Treasurer, Director
Director 12/27/95
Bonnie K. Wachtel
Director 12/27/95
Dominic A. Laiti
Director 12/27/95
R. Doss McComas
Director 12/27/95
Louis M. Brown, Jr.
<PAGE>
INTEGRAL SYSTEMS, INC., AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended September 30, 1995 and 1994
AND
INDEPENDENT AUDITORS' REPORT
<PAGE>
TABLE OF CONTENTS
DESCRIPTION PAGES
Independent Auditors' Report--1
Consolidated Balance Sheets as of September 30, 1995--2
Consolidated Statements of Operations for the Years
Ended September 30, 1995 and 1994--3
Consolidated Statements of Stockholders' Equity for
the Years Ended September 30, 1995 and 1994--4
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1995 and 1994--5
Notes to Financial Statements--6-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Integral Systems, Inc.
We have audited the accompanying consolidated balance sheet of
Integral Systems, Inc. and its subsidiaries as of September 30, 1995
and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years ended September 30, 1995 and 1994.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Integral Systems, Inc. and its subsidiaries as of September 30, 1995,
and the consolidated results of their operations and their consolidated
cash flows for the years ended September 30, 1995 and 1994 in conformity
with generally accepted accounting principles.
November 27, 1995
Bethesda, Maryland
<PAGE>
<TABLE>
<CAPTION>
INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1995
_____________
ASSETS
<S> <C>
Current Assets
Cash and cash equivalents $2,125,553
Accounts receivable 3,483,777
Prepaid expenses 71,537
Deferred income taxes 60,719
Total current assets 5,741,586
Property and equipment, at cost,
net of accumulated
depreciation and amortization of $426,248 288,624
Other assets
Deposits 150
Software development costs,
net of accumulated amortization of $954,302 1,373,219
Total assets $7,403,579
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current liabilities
Accounts payable - trade $ 351,995
Accrued expenses 875,248
Billings in excess of
revenue for contracts in progress 561,202
Income tax payable 108,481
Total current liabilities 1,896,926
Commitments and contingencies
Common stock, $.01 par value, 2,000,000
shares authorized, 943,746 stock
issued and outstanding 9,437
Additional paid-in capital 696,437
Retained earnings 4,800,779
Total stockholders' equity 5,506,653
Total liabilities and
stockholders' equity $7,403,579
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended September 30, 1995 and 1994
1995 1994
<S> <C> <C>
Contract revenues $10,770,661 $8,905,233
Contract costs
Direct labor 3,689,396 3,545,593
Direct equipment and subcontracts 2,230,002 1,100,877
Travel and other direct costs 752,444 573,102
Overhead costs 2,499,408 2,363,580
Total contract costs 9,171,250 7,583,152
Gross margin 1,599,411 1,322,081
General and administrative expenses 1,061,779 1,165,747
Income from operations 537,632 156,334
Other income (expense)
Interest income 76,222 54,420
Interest expense (2,529) (68)
Other expense (35,139) (23,550)
Total other income 38,554 30,802
Income before income taxes 576,186 187,136
Provision for taxes on income 195,483 56,148
Net income $ 380,703 $130,988
Weighted average number
of common shares 942,155 932,357
Earnings per share
Net Income $ .40 $ .14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended September 30, 1995 and 1994
Common
Stock atAdditional
Number of Par Paid-in Retained
Shares Value Capital Earnings Total
<S> <C> <C> <C> <C> <C>
Balance,
September 30, 1993 927,970 $9,280 $552,005 $4,289,088 $4,850,373
Stock options
exercised 10,050 100 83,536 - 83,636
Warrants exercised - - - - -
Net Income - - - 130,988 130,988
Balance,
September 30, 1994 938,020 $9,380 $ 635,541 $ 4,420,076 $5,064,997
Stock options
exercised 5,726 57 60,896 - 60,953
Warrants exercised - - - - -
Net income - - - 380,703 380,703
Balance,
September 30, 1995 943,746 $9,437 $ 696,437 $ 4,800,779 $5,506,653
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
INTEGRAL SYSTEMS, INC.
CONSOLIDATED STATESMENTS OF CASH FLOWS
For the Years Ended September 30, 1995 and 1994
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 380,703 $ 130,988
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 677,207 438,641
Change in deferred taxes 20,805 (8,600)
(Increase) decrease in:
Accounts receivable (1,090,207) (212,935)
Interest receivable 10,333 3,575
Prepaid expenses and deposits (46,815) 163
Income tax receivable 6,361 (60,361)
(Decrease) increase in:
Accounts payable - trade 145,031 58,593
Accrued expenses (157,414) 213,405
Billings in excess of revenue for
contracts in progress 337,288 (339,163)
Income tax payable 108,481 -
Total adjustments 11,070 93,318
Net cash provided by operating activities 391,773 224,306
Cash flows from investing activities:
Acquisition of property and equipment (217,642) (153,165)
Software development costs (315,470) (695,817)
Sale of marketable securities 403,100 380,678
Net cash used in investing activities (130,012) (468,304)
Cash flows from financing activities:
Proceeds from issuance of common stock 60,953 83,636
Net increase (decrease) in cash 322,714 (160,362)
Cash and cash equivalents, beginning of year 1,802,839 1,963,201
Cash and cash equivalents, end of year $ 2,125,553 $ 1,802,839
</TABLE
<PAGE>
INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended September 30, 1995 and 1994
1. Summary of Significant Accounting Policies
Integral Systems, Inc. (the Company) provides commercial
software products as well as custom system development and
systems integration services for a variety of domestic and
international clients in the public and private sectors.
During the fiscal year ended September 30, 1994, the Company
formed two wholly owned subsidiaries. Integral Marketing,
Inc. (IMI), specializes in the sales and marketing of
electronic test instrumentation for the telemetry, data
acquisition and test communities. InterSys, Inc. (InterSys)
provides consulting services in the area of satellite design
and procurement, but is presently inactive.
Accounting policies which affect significant aspects of the
Company's consolidated financial position and results of
operations are summarized below. The preparation of
financial statements in conformity with generally accepted
accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from
those estimates.
Principles of Consolidation
The accompanying financial statements include the accounts of
the Company and its wholly owned subsidiaries, IMI and
InterSys. All significant intercompany transactions have
been eliminated in consolidation.
Revenue Recognition
Revenue under cost-plus-fixed fee contracts is recorded on
the basis of direct costs plus indirect costs incurred and an
allocable portion of the fixed fee. Revenue from fixed-price
contracts is recognized on the percentage-of-completion
method, measured by the cost-to-cost method for each
contract. Revenue from time and materials contracts is
recognized based on fixed hourly rates for direct labor
expended. The fixed rate includes direct labor, indirect
expenses and profits. Material or other specified direct
costs are recorded at actual cost.
Contract costs include all direct material and labor costs
and those indirect costs related to contract performance.
General and administrative costs are charged to expense as
incurred. Provisions for estimated losses on contracts in
progress are made in the period in which such losses are
determined. Changes in job performance, job conditions, and
estimated profitability, including final contract
settlements, may result in revisions to costs and income and
are recognized in the period in which the revisions are
determined. The Company's contracts vary in length from one
to four years.
<PAGE>
INTEGRAL SYSTEMS, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended September 30, 1995 and 1994
1. Summary of Significant Accounting Policies (continued)
The fees under certain government contracts may be increased or
decreased in accordance with cost or performance incentive
provisions which measure actual performance against established
targets or other criteria. Such incentive fee awards or
penalties are included in revenue at the time the amounts can
be reasonably determined.
Unbilled accounts receivable represents revenue recognized in
excess of amounts billed. The liability, billings in excess of
revenue for contracts in progress, represents billings in
excess of revenue recognized.
Depreciation and Amortization
Property and equipment are stated at cost. The Company follows
the policy of providing depreciation and amortization by
charges, on the straight-line method, to operating expenses at
rates based on estimated useful lives as follows:
Classification Estimated Useful Lives
Electronic equipment 3 Years
Furniture and fixtures 5 Years
Leasehold improvements Life of lease
Software 3 Years
Maintenance and repair costs are charged to expense as
incurred. Replacements and betterments are capitalized. At
the time properties are retired or otherwise disposed of, the
property and related accumulated depreciation or amortization
accounts are relieved of the applicable amounts and any gain or
loss is credited or charged to income.
Software Development Costs
The Company has capitalized costs related to the development of
certain software products. In accordance with Statement of
Financial Accounting Standards No. 86, capitalization of costs
begins when technological feasibility has been established and
ends when the product is available for general release to
customers. Amortization is computed on an individual product
basis and has been recognized for those products available for
market based on the products' estimated economic lives.
<PAGE>
INTEGRAL SYSTEMS, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended September 30, 1995 and 1994
1. Summary of Significant Accounting Policies (continued)
Earnings Per Share
Earnings per share computations are based on the weighted
average number of common shares outstanding during each year
and have been adjusted where appropriate for stock splits. The
exercise of outstanding stock options would not
result in a material dilution of earnings per share.
Cash Concentrations and Cash Equivalents
The Company considers all highly-liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents. Cash accounts are maintained primarily with one
federally insured financial institution. Balances usually
exceed insured limits. Included in the cash balance is
$96,329 held in a foreign bank account.
2. Accounts Receivable and Revenue
Accounts receivable at September 30, 1995 consists of the
following:
Billed
Government - prime contracts $ 177,807
Government - subcontractors 601,077
Commercial customers 874,893
Subtotal 1,653,777
Unbilled
Government - prime contracts 826,129
Government - subcontractors 57,008
Commercial customers 946,863
Subtotal 1,830,000
Total $ 3,483,777
Unbilled accounts receivable include amounts arising from the
use of the percentage-of-completion or other methods of
recognizing revenue that differ from contractual billing
terms. Substantially all unbilled receivables are expected
to be collected in one year.
<PAGE>
INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended September 30, 1995 and 1994
2. Accounts Receivable and Revenue (continued)
During the years ended September 30, 1995 and 1994,
approximately 58% and 76%, respectively, of the Company's
revenue was from prime contracts and subcontracts with
departments and agencies of the U. S. Government. The
remaining revenue consists of commercial contracts and sales
of commercial products. For each of the years ended
September 30, 1995 and 1994, commercial revenue included one
customer which provided revenue in excess of 10% of total
revenue.
3. Property and Equipment
Property and equipment as of September 30, 1995 are as
follows:
Electronic equipment $ 624,706
Furniture and fixtures 41,716
Leasehold improvements 11,364
Software 37,086
Total property and equipment 714,872
Less: accumulated depreciation
and amortization ( 426,248)
$ 288,624
4. Software Development
Software development costs consist of the following at
September 30, 1995 are as follows:
Costs incurred $2,327,519
Accumulated amortization (954,302)
$1,373,217
The total amortization expense for the year ended September
30, 1995 is $508,556.
<PAGE>
INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended September 30, 1995 and 1994
5. Line of Credit
The Company has a line of credit agreement with a bank at
September 30, 1995 for $1,200,000. Borrowings under the line
of credit bear interest at the bank's base lending rate plus
one-quarter of one percentage point per annum. Any accrued
interest is payable monthly. The line of credit is secured
by the Company's billed accounts receivable. The line of
credit also has certain financial covenants including minimum
net worth and liquidity ratios. At September 30, 1995, the
Company had no outstanding balance under the line of credit
6. Accrued expenses
Accrued expenses at September 30, 1995 consist of the
following:
Accrued payroll $ 346,037
Accrued vacation 216,291
Payroll taxes 152,196
Retirement plan payable 149,254
Other 11,470
$ 875,248
7. Commitments and Contingencies
Leases
The Company is leasing office space for a five year period that
commenced March 15, 1994. Future minimum lease payments as
of March 14, 1999 are as follows:
Years ending September 30, 1996 $ 213,120
1997 219,520
1998 226,048
1999 105,131
$ 763,819
Lease payments do not include operating expenses which are
adjusted annually or utilities. Rental expense was $248,944
and $237,515 for the years ended September 30, 1995, and 1994,
respectively.
<PAGE>
INTEGRAL SYSTEMS, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended September 30, 1995 and 1994
Government Contracts
A significant portion of the revenues of the Company represent
payments made by the U.S. Government and by contractors that
have prime contracts with the U.S. Government. These revenues
are subject to adjustment upon audit by the Defense Contract
Audit Agency (DCAA). Audits by the DCAA have been completed
on the Company's contracts and subcontracts through the year
ended September 30, 1994. Management is of the opinion that
any disallowances by the Government auditors, other than
amounts already provided, will not materially affect the
Company's financial statements.
8. Income Taxes
For the years ended September 30, 1995 and 1994, the provision
for income taxes consisted of the following:
</TABLE>
<TABLE>
1995 1994
<S> <C> <C>
Current tax expense
Federal $ 142,972 $ 53,012
State 31,706 11,736
$ 174,678 $ 64,748
Deferred tax expense (benefit) 20,805 (8,600)
Total provision $ 195,483 $ 56,148
</TABLE>
At September 30, 1995, the deferred income tax asset results
from accrued vacation and depreciation and amortization from
product development. The sources and tax effect of temporary
differences between financial statement and tax income, for
the years ended September 30, 1995 and 1994, are summarized
below:
1995 1994
Depreciation and amortization $23,634 $ -
Vacation accrual (2,829) (8,600)
Deferred tax expense (benefit) $20,805 $ (8,600)
<PAGE>
The effective income tax rates differ from the statutory
United States income tax rate due principally to the
following:
1995 1994
Federal statutory rate 34.0% 34.0%
State tax, net of federal
income tax benefit 4.6 4.6
Tax exempt interest (0.8) (5.5)
Tax deductible stock option compensation (4.1) -
Benefit of lower tax brackets - (5.0)
Other, primarily change in estimate 0.2 1.9
Effective rate 33.9% 30.0%
9. Profit Sharing and Employee Benefits Plans
The Company has a profit sharing plan and 401(k) plan for the
benefit of substantially all employees. Profit sharing
contributions consist of discretionary
amounts determined each year by the Board of Directors
of the Company based upon net profits
for the year and total compensation
paid. The 401(k) feature allows employees to make elective
deferrals not to exceed 10% of compensation. Effective
January 1, 1995, the separate profit sharing and 40l(k) plans
were combined into one plan.
The Company also has a money purchase plan. For the years
ended September 30, 1995 and 1994, the money purchase plan
obligated the Company to contribute 5% of eligible salaries
under the plan
For the years ended September 30, 1995 and 1994,
contributions to the plans were $455,269, and $511,609,
respectively.
10. Stock Option Plan
Effective May 25, 1989, as amended on January 1, 1994, the
Company established a Stock Option Plan to create additional
incentives for the Company's employees, consultants and
directors to promote the financial success of the Company.
The Board of Directors has sole authority to select full-time
employees, directors or consultants to receive awards of
options for the purchase of stock under this plan. The
maximum number of shares of common stock which may be issued
pursuant to the stock option plan is 200,000. The price of
the options is set at the stock's bid price on the date of
the Board of Directors meeting at which the option is
granted.
Stock option transactions under the plan for the years ended
September 30, 1995 and 1994 are summarized as follows:
1995 1994
Options outstanding at beginning of year 30,800 39,700
Granted 21,100 3,100
Exercised (5,726) (10,050)
Canceled - (1,950)
Options outstanding at end of year 46,174 30,800
Option price range $17.75 to $15.00 to
$26.00 $15.50
Options exercisable at September 30 15,714 27,700
Options available for grant at September 30 135,200 156,300
11. Supplemental Cash Flow Information
For the years ended September 30, 1995 and 1994, income taxes
paid, net of refunds, were $81,012, and $125,080,
respectively. For the years ended September 30, 1995 and
1994, interest expense incurred and paid was $2,529 and $68,
respectively.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,257,809<F1>
<SECURITIES> 0
<RECEIVABLES> 3,483,777
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,741,586
<PP&E> 1,661,993<F2>
<DEPRECIATION> 1,380,550
<TOTAL-ASSETS> 7,403,579
<CURRENT-LIABILITIES> 1,896,926
<BONDS> 0
<COMMON> 9,437
0
0
<OTHER-SE> 5,497,216<F3>
<TOTAL-LIABILITY-AND-EQUITY> 7,403,579
<SALES> 10,770,661
<TOTAL-REVENUES> 10,770,661
<CGS> 9,171,250
<TOTAL-COSTS> 9,171,250
<OTHER-EXPENSES> 1,061,779
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,554
<INCOME-PRETAX> 576,186
<INCOME-TAX> 195,483
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 380,703
<EPS-PRIMARY> .40
<EPS-DILUTED> 0
<FN>
<F1>Includes $71,537 Prepaid Expenses; 60,719 Deferred Income Taxes
<F2>Property & Equipment net of amoritization of $426,248 equals $288,624;
Software Development costs, net of accumulated amortization of $954,302
equals 1,373,219; $150 miscellaneous deposits.
<F3>Includes $696,437 Additional paid-in capital and $4,800,779 Retained
Earnings.
</FN>
</TABLE>
