<PAGE>
INTEGRAL SYSTEMS, INC.
10-QSB
FOR QUARTER ENDING
DECEMBER 31, 1998
<PAGE>
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 December 31, 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 registrant as specified in its chapter)
Maryland 52-1267968
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5000 Philadelphia Way, Suite A, Lanham, MD 20706
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
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 December 31, 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
$91,490,175.
Registrant had 5,868,856 shares of common stock outstanding as of December 31,
1998
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
<PAGE>
INTEGRAL SYSTEMS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Balance Sheets - December 31, 1998 and September 30, 1998........... 1
Statements of Operations Three Months
Ended December 31, 1998 and December 31, 1997................... 3
Statement of Stockholders' Equity Three Months
Ended December 31, 1998.......................................... 4
Statement of Cash Flow Three Months Ended December 31, 1998
and December 31, 1997............................................ 5
Notes to Financial Statements....................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 8
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K.............................. 13
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and September 30, 1998
<TABLE>
<CAPTION>
ASSETS
December 31, September 30,
1998 1998
------------------ -----------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,736,337 $ 3,055,144
Accounts Receivable 10,059,464 10,915,059
Prepaid Expenses 48,703 52,472
Deferred Income Taxes 182,691 182,691
------------------ -----------------
TOTAL CURRENT ASSETS 13,027,195 14,205,366
FIXED ASSETS
Electronic Equipment 359,703 560,509
Furniture & Fixtures 38,166 43,743
Leasehold Improvements 7,863 7,863
Software Purchases 43,457 55,040
Equip. Under Capital Lease 1,531,997 1,331,968
------------------ -----------------
SUBTOTAL 1,981,186 1,999,123
Less: Accumulated Depreciation 739,929 818,698
------------------ -----------------
TOTAL FIXED ASSETS 1,241,257 1,180,425
OTHER ASSETS
Software Development Costs 1,590,703 1,485,551
Deposits 11,671 11,671
------------------ -----------------
TOTAL OTHER ASSETS 1,602,374 1,497,222
TOTAL ASSETS $15,870,826 $16,883,013
================== =================
</TABLE>
See Notes to Financial Statements
-1-
<PAGE>
INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and September 30, 1998
<TABLE>
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY
December 31, September 30,
1998 1998
----------------- -----------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable $ 2,433,795 $ 3,083,964
Accrued Expenses 1,961,171 2,263,688
Capital Leases Payable 362,202 401,386
Billings in Excess of Cost 259,865 518,720
Income Taxes Payable 287,248 747,777
----------------- -----------------
TOTAL CURRENT LIABILITIES 5,304,281 7,015,535
----------------- -----------------
LONG TERM LIABILITIES
Capital Leases Payable 888,685 748,446
----------------- -----------------
TOTAL LONG TERM LIABILITIES 888,685 748,446
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value,
10,000,000 shares authorized, and
5,868,856 and 5,839,984 shares issued
and outstanding at December 31, 1998
and September 30, 1998, respectively 58,689 58,399
Additional Paid-in Capital 1,500,579 1,398,982
Retained Earnings 8,118,592 7,661,651
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 9,677,860 9,119,032
----------------- -----------------
TOTAL LIABILITIES & $15,870,826 $16,883,013
================= =================
STOCKHOLDERS' EQUITY
</TABLE>
See Notes to Financial Statements
-2-
<PAGE>
INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1998 1997
------------ ------------
<S> <C> <C>
Revenue $7,676,486 $6,558,978
Cost of Revenue
Direct Labor 2,071,440 1,278,654
Overhead Costs 1,661,728 1,061,090
Travel and Other Direct Costs 259,946 115,810
Direct Equipment & Subcontracts 1,658,672 2,739,849
------------ ------------
Total Cost of Revenue 5,651,786 5,195,403
------------ ------------
Gross Margin 2,024,700 1,363,575
------------ ------------
Selling, General & Administrative 1,046,658 686,419
Product Amortization 165,000 165,000
------------ ------------
Income From Operations 813,042 512,156
Other Income (Expense)
Interest Income 38,148 10,494
Interest Expense (30,409) (24,931)
Miscellaneous, net (76,340) (51,896)
------------ ------------
Total Other Income (Expense) (68,601) (66,333)
Income Before Income Taxes 744,441 445,823
Provision for Income Taxes 287,500 172,200
------------ ------------
Net Income $ 456,941 $ 273,623
============ ============
Weighted Average Number of Common Shares:
Basic 5,857,499 5,740,238
Diluted 6,647,766 5,907,613
Earnings per share:
Basic $0.08 $0.05
----- -----
Diluted $0.07 $0.05
----- -----
</TABLE>
See Notes to Financial Statements
-3-
<PAGE>
INTEGRAL SYSTEMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common
Number Stock Additional
of at Par Paid-in Retained
Shares Value Capital Earnings Total
----------- ----------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance September 30, 1998 5,839,984 $58,399 $1,398,982 $7,661,651 $9,119,032
Stock Options exercised 28,872 290 101,597 - 101,887
Net income - - - 456,941 456,941
------------- ------------- --------------- --------------- ---------------
Balance December 31, 1998 5,868,856 $58,689 $1,500,579 $8,118,592 $9,677,860
============= ============= =============== =============== ===============
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
INTEGRAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
December 31,
1998 1997
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 456,941 $ 273,623
---------------- ---------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 308,189 262,334
(Increase) decrease in:
Accounts receivable 855,595 484,430
Prepaid expenses 3,769 (243,033)
(Decrease) increase in:
Accounts payable (650,169) (635,691)
Accrued expenses (302,517) (136,442)
Billings in excess of cost (258,855) (407,498)
Income taxes payable (460,529) (6,340)
---------------- ---------------
Total adjustments (504,517) (682,240)
---------------- ---------------
Net cash provided (used) by operations (47,576) (408,617)
---------------- ---------------
Cash flow from investing activities:
Acquisition of fixed assets (3,992) (98,560)
Increase in software development costs (270,152) (116,275)
Increase in other assets 0 (2,400)
---------------- ---------------
Net cash provided (used) in investing activities (274,144) (217,235)
---------------- ---------------
Cash flow from financing activities:
Proceeds from issuance of common stock 101,887 78,042
Payments on capital lease obligations (98,974) 487,737
---------------- ---------------
Net cash provided by financing activities 2,913 565,779
---------------- ---------------
Net increase (decrease) in cash (318,807) (60,073)
Cash - beginning of year 3,055,144 1,006,614
---------------- ---------------
Cash - end of period $2,736,337 $ 946,541
================ ===============
</TABLE>
-5-
<PAGE>
INTEGRAL SYSTEMS, INC.
NOTES TO CONSOLIDATED 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, 1998.
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 December 31, 1998 and September 30, 1998 consist of
the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
--------------- ---------------
<S> <C> <C>
Billed $ 5,702,432 $ 6,928,894
Unbilled 4,353,277 3,983,479
Other 3,755 2,686
--------------- ---------------
Total $10,059,464 $10,915,059
=============== ===============
</TABLE>
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. The line of credit is secured by the
Company's billed and unbilled accounts receivable and has certain financial
covenants, including minimum net worth and liquidity ratios. The line
expires February 28, 1999. At December 31, 1998 and September 30, 1998,
the Company had no outstanding balance under the line of credit.
4. Capital Lease
-------------
The Company has access to a $2.0 million equipment lease line of credit
that had a balance of $1,250,887 at December 31, 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.
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.
-6-
<PAGE>
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.
6. Business Segment Information
----------------------------
During the periods ended December 31, 1998 and December 31, 1997, the
Company's operations included two reportable segments: Satellite ground
systems and electronic test instrumentation and equipment marketing.
The Company builds satellite ground systems for command and control,
integration and test, data processing, and simulation. Customers for these
systems include U.S. Government organizations such as National Aeronautics
and Space Administration (NASA), the National Oceanic and Atmospheric
Administration (NOAA), and the U.S. Air Force, as well as commercial
satellite operators, both domestic and foreign.
Through its wholly-owned subsidiary, IMI, the Company acts as a
manufacturer's representative, selling electronic test instrumentation and
equipment to customers primarily in Maryland, Virginia and the District of
Columbia. (The Company's other wholly-owned subsidiary, InterSys, provides
consulting services for satellite design and procurement, but is presently
inactive.) Summarized financial information is as follows:
<TABLE>
<CAPTION>
Net Sales December 31, 1998 December 31, 1997
------------------ --------------------
<S> <C> <C>
Satellite ground systems $7,344,112 $6,248,467
Equipment marketing $ 332,374 $ 310,511
Income before taxes
Satellite ground systems $ 639,856 $ 340,967
Equipment marketing $ 104,585 $ 104,856
</TABLE>
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Comparison of the Three Months Ended December 31, 1998 and 1997
---------------------------------------------------------------
Overview
The Company 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 100 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
The components of the Company's income statement as a percentage of revenue are
depicted in the following table:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
December 31 December 31
% of % of
1998 Revenue 1997 Revenue
-------------- ------- -------------- -------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Revenue $7,676 100.0 $6,559 100.0
Cost of Revenue 5,651 73.6 5,195 79.2
------ ----- ------ -----
Gross Margin 2,025 26.4 1,364 20.8
Operating Expenses
SG&A 1,047 13.6 687 10.5
Prod. Amortization 165 2.2 165 2.5
------ ----- ------ -----
Income from Operations 813 10.6 512 7.8
Other (net) -69 -.9 -66 -1.0
------ ----- ------ -----
Pretax Income 744 9.7 446 6.8
Income Taxes 287 3.7 172 2.6
------ ----- ------ -----
Net Income $ 457 6.0 $ 274 4.2
====== ===== ====== =====
</TABLE>
-8-
<PAGE>
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 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 contracts' procurement and development requirements: (i) contracts
which require compliance with Government procurement and development standards
("Government Services") are classified as government revenue, and (ii) contracts
conducted according to commercial practices ("Commercial Products and Services")
are classified as commercial revenue, 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.
For the three months ended December 31, 1998 and 1997 the Company's revenues
were generated from the following sources:
<TABLE>
<CAPTION>
Three Months Ended December 31
------------------------------
Revenue Type 1998 1997
------------ ---- ----
<S> <C> <C>
Commercial Products & Services
Commercial Users 22% 35%
U.S. Government Users 5 18
---- ----
Subtotal 27 53
Government Services
NOAA 54 35
NASA 9 5
Other U.S. Government Users 10 7
---- ----
Subtotal 73 47
Total 100% 100%
==== ====
</TABLE>
Based on the Company's revenue categorization system, the Company classified 27%
and 53% of its revenue as Commercial Products and Services revenue with the
remaining 73% and 47% classified as Government Services revenue for the three
months ended December 31, 1998 and 1997, respectively. 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 78% and 65% of the total revenues for the three months ended
December 31, 1998 and 1997, respectively.
On a consolidated basis, revenue increased 17%, or $1.1 million, to $7.7 million
for the three months ended December 31, 1998, from $6.6 million for the three
months ended December 31, 1997. This increase in revenue was due to increases
in the Company's Government Services revenues as U.S. Government customers
increased their purchases of the Company's EPOCH product line and related
services. Commercial Products and Services revenues declined approximately
$1.4 for the three months ended December 31, 1998, compared to the three months
ended December 31, 1997. This decline was attributable to a reduction in
purchases by commercial customers of low margin equipment pass-throughs of
approximately $1.6 million in the current quarter from last year's first
quarter. Despite the declines in commercial equipment pass-through revenues,
commercial license and service revenues increased 14% between the periods being
compared.
-9-
<PAGE>
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.
Cost of revenue increased to $5.7 million for the three months ended
December 31, 1998, from $5.2 million for the three months ended December 31,
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 73.6% for the three
months ended December 31, 1998 from 79.2% for the three months ended
December 31, 1997 primarily due to a lower percentage of equipment and
subcontract costs in the fiscal year 1999 cost of revenue mix.
The Company's gross margin increased 48%, or $660,000 to $2.0 million for the
three months ended December 31, 1998, from $1.4 million for the three months
ended December 31, 1997. This increase was principally due to margin percentage
improvements in most of the Company's revenue components (i.e. licenses,
engineering services and pass-throughs) coupled with revenue growth. Margins
for IMI declined slightly between the periods being compared. As a result of
the foregoing factors, gross margin as a percentage of revenue was 26.4% during
the three months ended December 31, 1998, compared to 20.8% for the three months
ended December 31, 1997.
Operating Expenses/Income from Operations
Selling, General & Administrative expenses ("SG&A") increased to approximately
$1.0 million during the three months ended December 31, 1998, from $700,000 in
the three months ended December 31, 1997. The change was primarily due to
increases in the Company's selling and marketing infrastructure costs combined
with increased management labor costs and expenses associated with the
implementation of a new accounting and management information system. As a
percentage of revenue, SG&A accounted for 13.6% of revenue the three months
ended December 31, 1998 compared to 10.5% in the three months ended December 31,
1997. Product amortization was $165,000 for each of the three months ended
December 31, 1998 and 1997.
Income from operations increased 59% to $800,000 for the three months ended
December 31, 1998, from $500,000 for the three months ended December 31, 1997,
primarily due to increases in gross margin dollars described above. As a
percentage of revenue, income from operations increased to 10.6% for the three
months ended December 31, 1998, from 7.8% for the prior year's first quarter.
This increase was principally the result of improved gross margin rates combined
with a lower percentage of product amortization as a function of revenue, but
partially offset by a higher percentage of SG&A against revenue.
The Company's effective tax rate was 38.6% for both the three months ended
December 31, 1998 and 1997.
-10-
<PAGE>
Outlook
The Company's strong first quarter represents a continued trend from prior
fiscal years 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
potential contract awards that 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 assumptions:
. Demand for satellite technology and 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 with a commercial bank and the proceeds from the Company's initial public
offering in 1988.
For the three months ended December 31, 1998, the Company used approximately
$50,000 of cash from operating activities and used approximately $275,000 for
investing activities, including approximately $270,000 for newly capitalized
software development costs. The Company anticipates that it will spend more
cash on software development in fiscal year 1999 than in fiscal year 1998, as it
completes NT versions of its software products. During the three months ended
December 31, 1998, the Company also purchased approximately $200,000 of
electronic equipment under its capital lease.
The Company has access to a general line of credit 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
December 31, 1998, the Company had no amounts outstanding under the line of
credit.
The Company also has access to a $2.0 million equipment lease line of credit
under which it had $1,250,000 outstanding as of December 31, 1998. The balance
is payable over 36 months and bears interest at a rate of 8.8% per annum. The
unused portion of the 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 during the quarter ended December 31, 1998 or in past
fiscal years.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. To distinguish 21st
century dates from 20th century dates, these date code fields must be able to
accept four digit entries. The Company has evaluated its information technology
infrastructure and its software products for Year 2000 compliance. The Company
does not expect that the cost to modify its information technology
infrastructure or its software products to be Year 2000 compliant will be
material to its business, financial condition or results of operations. The
Company does not anticipate any material disruption in its operations as a
result of any failure by the Company to be in compliance. No assurance can be
given, however, that unanticipated or undiscovered Year 2000 compliance problems
would not have a material adverse effect on the Company's business, financial
condition or results of operations.
-11-
<PAGE>
In addition, the Company has limited information concerning the compliance
status of its suppliers. Although the Company is not dependent on any one
supplier or any group of suppliers, in the event that any of the Company's
significant suppliers do not successfully and timely achieve Year 2000
compliance, the Company's business, financial condition or results of operations
could be materially adversely affected.
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.
. Changes in activity levels in the Company's core markets.
-12-
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
6. Exhibits and Reports on Form 8-K
a. Exhibits
--------
3.1 Amended and Restated Articles of Incorporation of the Company
(Incorporated by reference to the Company's Annual Report on Form
10-KSB filed by the Company with the Commission on December 29,
1998).
3.2 Amended and Restated By-Laws of the Company (Incorporated by
reference to the Company's Annual Report on Form 10-KSB filed by
the Company with the Commission on December 29, 1998).
4.1 Specimen Common Stock Certificate (Incorporated by reference to
the Registration Statement on Form S-1 (File No. 333-58453) filed
by the Company with the Commission on July 2, 1998).
10.1 1988 Stock Plan (Incorporated by reference to the Registration
Statement on Form S-8 (File No. 333-61559) filed by the Company
with the Commission on August 14, 1998).
10.2 Contract effective May 17, 1996 between Integral Systems Inc. and
the U.S. National Oceanic and Atmospheric Administration
(Incorporated by reference to the Company's Annual Report on
Form 10-KSBA filed by the Company with the Commission on July 10,
1997). (Portions of this exhibit have been omitted pursuant to an
order for confidential treatment granted by the Commission).
10.3 Lease dated April 1, 1987, as amended, between Integral Systems
Inc. and Washington Business Park Associates. (Incorporated by
reference to the Company's Annual Report on Form 10-KSB filed by
the Company with the Commission on December 29, 1998).
10.4 Master Equipment Lease Agreement dated December 3, 1997 between
Integral Systems Inc. and NationsBanc Leasing Corporation
Certificate (Incorporated by reference to the Registration
Statement on Form S-1 (File No. 333-58453) filed by the Company
with the Commission on July 2, 1998).
10.5 Loan Agreement dated November 14, 1997 between Integral Systems
Inc. and NationsBank N.A. and Promissory Note dated November 14,
1997 by Integral Systems Inc. in favor of NationsBank N.A.
(Incorporated by reference to the Registration Statement on
Form S-1 (File No. 333-58453) filed by the Company with the
Commission on July 2, 1998).
11.1 Computation of Per Share Earnings
23.1 Consent of Rubino & McGeehin, Chartered. (Incorporated by
reference to the Company's Annual Report on Form 10-KSB filed by
the Company with the Commission on December 29, 1998).
27.1 Financial Data Schedule
b. Reports on Form 8-K
-------------------
None.
-13-
<PAGE>
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: February 12, 1999 By: /s/
----------------- ---------------------------------
Thomas L. Gough
President & Chief Operating Officer
Date: February 12, 1999 By: /s/
----------------- ---------------------------------
Elaine M. Parfitt
Vice President & Chief Financial Officer
-14-
<PAGE>
Exhibit 11.1
INTEGRAL SYSTEMS INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
December 31,
Basic: 1998 1997
---------- ----------
<S> <C> <C>
Weighted average number
Of common shares 5,857,499 5,740,238
Net income $ 456,941 $ 273,623
Earnings per share $ 0.08 $ 0.05
Diluted:
Weighted average number of
Common shares 6,647,766 5,907,613
Net income $ 456,941 $ 273,623
Earnings per share $ 0.07 $ 0.05
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-1-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,736,337
<SECURITIES> 231,394<F1>
<RECEIVABLES> 10,059,464
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,027,195
<PP&E> 3,583,560<F2>
<DEPRECIATION> 739,929
<TOTAL-ASSETS> 15,870,826
<CURRENT-LIABILITIES> 6,192,966<F3>
<BONDS> 0
0
0
<COMMON> 58,689
<OTHER-SE> 9,169,171
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 7,676,486
<TOTAL-REVENUES> 7,676,486
<CGS> 5,651,786
<TOTAL-COSTS> 2,024,700
<OTHER-EXPENSES> 1,249,850
<INTEREST-EXPENSE> 30,409
<LOSS-PROVISION> 0
<INCOME-PRETAX> 744,441
<INCOME-TAX> 287,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 456,941
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.07
<FN>
<F1>Does not represent securities. Includes Prepaid expenses @ $48,703 +
Deferred income tax @ $182,691
<F2>Includes PP&E @ $1,981,186 + S/W dev. costs @ $1,590,703 + Misc. deposits @
$11,671
<F3>Includes Capital Leases Payable/Long-Term @ $888,685
</FN>
</TABLE>
