SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended August 31, 1997
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: 0-18268
------------------------------
INTEGRATED SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
California 94-2658153
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
------------------------------
201 Moffett Park Drive
Sunnyvale, CA 94089
(408) 542-1500
(Address, including zip code, of Registrant's
principal executive offices and telephone
number, including area code)
------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ___X___ No ______
The number of shares outstanding of the Registrant's Common Stock on September
30, 1997 was 23,252,586 shares.
The Exhibit Index is located on page 14. Page 1 of 22 pages.
<PAGE>
INTEGRATED SYSTEMS, INC.
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets as of August 31, 1997
and February 28, 1997 4
Condensed Consolidated Statements of Income for the Three
and Six Months Ended August 31, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended August 31, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II - OTHER INFORMATION
Item 4. Submission of matters to a vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
pRISM+, MATRIXx and SNiFF+ are either registered trademarks or trademarks of
Integrated Systems, Inc.
================================================================================
This Form 10-Q contains forward-looking statements (as defined in the
Private Securities Litigation Reform Act of 1995), including but not
limited to statements regarding the Company's expectations, hopes or
intentions regarding the future. Actual results and trends could differ
materially from those discussed in the forward-looking statements. In
addition, past trends should not be perceived as indicators of future
performance. Among the factors that could cause actual results to
differ from the forward-looking statements are those detailed elsewhere
in this Report in Management's Discussion and Analysis of Financial
Condition and Results of Operations and in the Company's Securities and
Exchange Commission reports.
================================================================================
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The condensed consolidated interim financial statements included herein have
been prepared by Integrated Systems, Inc. ("the Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Although certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, the Company believes that the disclosures made are adequate to make
the information presented not misleading. It is suggested that the condensed
consolidated interim financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended February 28, 1997. The
February 28, 1997 condensed consolidated balance sheet data was derived from the
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles.
The accompanying condensed consolidated interim financial statements have been
prepared in all material respects in conformity with the standards of accounting
measurements set forth in Accounting Principles Board Opinion No. 28 and, in the
opinion of management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary to summarize fairly the financial position,
results of operations, and cash flows for the periods indicated. The results of
operations for the interim periods presented are not necessarily indicative of
the results to be expected for the full year.
-3-
<PAGE>
<TABLE>
INTEGRATED SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
August 31, February 28,
1997 1997
----------- -------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 20,868 $ 25,585
Marketable securities 4,813 4,483
Accounts receivable, net 26,843 28,266
Deferred income taxes 1,385 1,676
Prepaid expenses and other 4,542 4,136
-------- --------
Total current assets 58,451 64,146
Marketable securities 36,840 24,627
Property and equipment, net 18,771 17,956
Intangible assets, net 2,504 3,136
Deferred income taxes 1,293 1,293
Other assets 1,073 1,344
-------- --------
Total assets $118,932 $112,502
======== ========
LIABILITIES
Current liabilities:
Accounts payable $ 5,766 $ 4,143
Accrued payroll and related expenses 4,207 3,407
Other accrued liabilities 6,047 4,514
Income taxes payable 738 1,442
Deferred revenue 13,501 12,621
-------- --------
Total current liabilities 30,259 26,127
Other liabilities 249 203
-------- --------
Total liabilities 30,508 26,330
-------- --------
SHAREHOLDERS' EQUITY
Common Stock, no par value, 50,000 shares authorized:
23,230 and 23,039 shares issued and outstanding at
August 31, 1997 and February 28, 1997, respectively 62,488 61,158
Unrealized holding gain on marketable securities, net 267 148
Translation adjustment (1,483) (1,130)
Retained earnings 27,152 25,996
--------- ---------
Total shareholders' equity 88,424 86,172
--------- ---------
Total liabilities and shareholders' equity $ 118,932 $ 112,502
========= =========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
</TABLE>
-4-
<PAGE>
<TABLE>
INTEGRATED SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31,
------------------------- ---------------------------
1997 1996 1997 1996
------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Product $ 17,182 $ 17,107 $ 32,194 $ 30,825
Services 14,988 8,998 24,564 18,431
------- -------- -------- --------
Total revenue 32,170 26,105 56,758 49,256
------- -------- -------- --------
Costs and expenses:
Cost of product revenue 3,512 2,086 6,385 4,097
Cost of services revenue 8,961 3,892 13,817 8,066
Marketing and sales 11,242 9,842 21,302 18,663
Research and development 4,747 4,409 9,549 8,121
General and administrative 3,281 2,041 5,727 4,155
Acquisition-related and other -- 926 -- 926
------- -------- -------- --------
Total costs and expenses 31,743 23,196 56,780 44,028
------- -------- -------- --------
Income (loss) from operations 427 2,909 (22) 5,228
Interest and other income 979 798 1,774 2,192
------- -------- -------- --------
Income before income taxes 1,406 3,707 1,752 7,420
Provision for income taxes 471 1,335 596 2,597
------- -------- -------- --------
Net income $ 935 $ 2,372 $ 1,156 $ 4,823
======= ======== ======== ========
Earnings per share $ 0.04 $ 0.10 $ 0.05 $ 0.21
======= ======== ======== ========
Shares used in per share calculations 23,969 23,511 23,910 23,110
======= ======== ======== ========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
<TABLE>
INTEGRATED SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
Six Months Ended
August 31,
-----------------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,156 $ 4,823
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,934 2,067
Write-down of intangible assets -- 616
Deferred income taxes 212 395
Net income from unconsolidated subsidiary -- (267)
Changes in assets and liabilities:
Accounts receivable 1,265 (1,564)
Prepaid expenses and other (406) (222)
Accounts payable, accrued payroll and
other accrued liabilities 3,956 (2,783)
Income taxes payable (704) (3,978)
Deferred revenue 880 186
Other assets and liabilities 265 (1,112)
-------- --------
Net cash provided by (used in) operating activities 9,558 (1,839)
-------- --------
Cash flows from investing activities:
Purchases of marketable securities (12,345) (12,631)
Additions to property and equipment (2,815) (14,771)
Capitalized software development costs (250) (735)
Other -- 956
-------- --------
Net cash used in investing activities (15,410) (27,181)
-------- --------
Cash flows from financing activities:
Repurchase of common stock (187) --
Proceeds from issuance of common stock -- 12,790
Proceeds from exercise of common stock options and
purchases under the Employee Stock Purchase Plan 1,517 1,928
Tax benefit from disqualifying dispositions of common stock -- 3,708
-------- --------
Net cash provided by financing activities 1,330 18,426
-------- --------
Effect of exchange rate fluctuations on cash and cash equivalents (195) (30)
Net decrease in cash and cash equivalents (4,717) (10,624)
Cash and cash equivalents at beginning of period 25,585 21,822
-------- --------
Cash and cash equivalents at end of period $ 20,868 $ 11,198
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 986 $ 2,355
Supplemental schedule of noncash investing activities:
Unrealized gain (loss) on marketable securities $ 198 $ (469)
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
</TABLE>
-6-
<PAGE>
INTEGRATED SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three and six months ended August 31,
1997 and 1996 is unaudited)
1. Summary of Significant Accounting Policies
The condensed consolidated financial statements include the accounts of
Integrated Systems, Inc. and its wholly owned subsidiaries, after elimination of
all significant intercompany accounts and transactions, and should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
February 28, 1997. These condensed consolidated financial statements do not
include all disclosures normally required by generally accepted accounting
principles.
2. Earnings Per Share
Earnings per share is computed using the weighted average number of common and
common equivalent shares outstanding during the period. Common equivalent shares
result from the assumed exercise of outstanding stock options that have a
dilutive effect when applying the treasury stock method.
<TABLE>
The following table sets forth the calculation of earnings per share for
purposes of this report:
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31,
------------------ ----------------
(in thousands, except per share data) 1997 1996 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Primary:
Net income $ 935 $ 2,372 $ 1,156 $ 4,823
======= ======== ======== ========
Number of shares:
Weighted average number of common shares outstanding 23,182 22,335 23,151 21,921
Dilutive effect of stock options, net 787 1,176 759 1,189
------- -------- -------- --------
23,969 23,511 23,910 23,110
======= ======== ======== ========
Earnings per share $ 0.04 $ 0.10 $ 0.05 $ 0.21
======= ======== ======== ========
</TABLE>
Fully diluted earnings per share, for all periods presented, were not materially
different from the amounts shown above.
3. Contingencies
In January 1997, a former employee filed a complaint against the Company and
certain of its officers, alleging claims for, among other things, breach of
contract, fraud, negligent misrepresentation and labor code violations. The
complaint seeks general and specific damages of no less than $1.5 million plus
exemplary damages, attorney's fees and costs of suit. The Company has filed
answers to the complaint denying all of the allegations and asserting various
affirmative defenses. The Company believes it has meritorious defenses to the
claims and intends to defend the suit vigorously.
In fiscal 1997, a distributor for the Company's sales and service subsidiary in
Paris, France filed a complaint against the subsidiary alleging breach of
contract. The complaint seeks damages of approximately $850,000. An answer to
the complaint has been filed denying the allegations. The Company believes it
has meritorious defenses to the claim and intends to defend the suit vigorously.
The Company is involved in a contract dispute with a customer. Management
believes it has meritorious defenses in relation to this dispute.
The litigation and dispute are subject to inherent uncertainties and thus, there
can be no assurance that the litigation or dispute will be resolved favorably to
the Company or that they will not have a material adverse effect on the
Company's financial position or results of operations.
The Company is subject to various other legal proceedings and claims, either
asserted or unasserted, which arise in the ordinary course of business. While
management does not believe that the outcome of any of the legal matters will
have a material adverse effect on the Company's consolidated financial position,
there can be no assurance that these matters will be resolved favorably to the
Company.
-7-
<PAGE>
4. Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings per Share,"
which specifies the computation, presentation and disclosure requirements for
earnings per share. SFAS No. 128 supersedes Accounting Principles Board Opinion
No. 15, is effective for financial statements issued for periods ending after
December 15, 1997, and requires that prior periods be restated.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting
Comprehensive Income," which establishes standards of disclosure and financial
statement presentation for reporting total comprehensive income in individual
components. SFAS No, 130 is effective for fiscal years beginning after December
15, 1997, and will require earlier periods to be restated to reflect application
of the provisions of SFAS No. 130.
In June 1997, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures About
Segments of an Enterprise and Related Information," which specifies disclosure
requirements for segment reporting. The above statements supersedes SFAS No. 14
and SFAS No. 18 and is effective for fiscal years beginning after December 15,
1997, and requires earlier years to be restated if practicable.
The impact of the adoption of the above statements on the financial statements
of the Company has not yet been determined.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information should be read in conjunction with the condensed
consolidated interim financial statements and the notes thereto included in Item
1 of this Quarterly Report and with Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the Company's Annual
Report on Form 10-K for the year ended February 28, 1997, as filed with the
Securities and Exchange Commission on May 29, 1997.
Overview
Integrated Systems, Inc. ("the Company") designs, develops, markets and supports
software products and provides related engineering services principally for
embedded microprocessor-based applications. The Company currently derives
substantially all of its revenues from licensing these products and providing
related maintenance and engineering and consulting services. In July 1996, the
Company acquired Epilogue Technology Corporation ("Epilogue"), a New Mexico
corporation in the business of developing network management and embedded
Internet software for telecommunications and data communications equipment
manufacturers, embedded software suppliers and networking related integrated
circuit manufacturers. The combination was accounted for as a pooling of
interests. The results of operations for Epilogue have been included only since
the date of acquisition, as previous results were not significant. In November
1996, the Company amended the terms of the acquisition of Diab Data, Inc. ("Diab
Data") which was acquired in fiscal year 1996 in a transaction accounted for
under the equity method of accounting. Revising the terms of the original
acquisition agreement requires the Company to consolidate the results of Diab
Data from the fourth quarter of fiscal year 1997 forward.
Forward-Looking Information is Subject to Risk and Uncertainty; Additional Risks
and Uncertainties
Except for the historical information contained in this Quarterly Report, the
matters herein contain "forward-looking" statements and information (as defined
in the Private Securities Litigation Reform Act of 1995) that involve risk and
uncertainty. These forward-looking statements include, but are not limited to,
the Company's liquidity and capital needs and various business environment and
trend information. Actual future results and trends may differ materially
depending on a variety of factors, including the volume and timing of orders
received during the quarter, the mix of and changes in distribution channels
through which the Company's products are sold, the timing and acceptance of new
products and product enhancements by the Company or its competitors, changes in
pricing, buyouts of run-time licenses, product life cycles, the level of the
Company's sales of third party products, purchasing patterns of distributors and
customers, competitive conditions in the industry, business cycles affecting the
markets in which the Company's products are sold, extraordinary events, such as
litigation or acquisitions, including related charges, and economic conditions
generally or in various geographic areas. All of the foregoing factors are
difficult to forecast. The future operating results of the Company may fluctuate
as a result of these and the other risk factors detailed in the Company's Annual
Report on Form 10-K for the year ended February 28, 1997, and other documents
filed by the Company with the Securities and Exchange Commission.
Due to all of the foregoing factors, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as an indication of future performance. During the
previous fiscal year, the Company's actual performance did not meet market
expectations. It is likely that, in some future quarters, the Company's
operating results will be below the expectations of stock market analysts and
investors. Consequently, the purchase or holding of the Company's Common Stock
involves an extremely high degree of risk.
-9-
<PAGE>
Results of Operations
<TABLE>
The following table sets forth for the periods presented the percentage of total
revenue represented by each line item in the Company's condensed consolidated
statements of income and the percentage change in each line item from the prior
year period:
<CAPTION>
Percentage of Period-to-Period
Total Revenue Percentage Change
-------------------- ---------------------
Three Months Ended Three Months Ended
August 31, August 31,
1997 1996 1997 compared to 1996
------ ------ ---------------------
<S> <C> <C> <C>
Revenue:
Product 53% 66% - %
Services 47 34 67
--- ---
Total revenue 100 100 23
--- ---
Costs and expenses:
Cost of product revenue 11 8 68
Cost of services revenue 28 15 130
Marketing and sales 35 38 14
Research and development 15 17 8
General and administrative 10 7 61
Acquisition-related and other - 4 N/M
--- ---
Total costs and expenses 99 89 37
--- ---
Income from operations 1 11 (85)
Interest and other income 3 3 23
--- ---
Income before income taxes 4 14 (62)
Provision for income taxes 1 5 (65)
--- ---
Net income 3% 9% (61)%
=== ===
<FN>
N/M = Not Meaningful
</FN>
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
Percentage of Period-to-Period
Total Revenue Percentage Change
---------------- ---------------------
Six Months Ended Six Months Ended
August 31, August 31,
1997 1996 1997 compared to 1996
------ ------ ---------------------
<S> <C> <C> <C>
Revenue:
Product 57 % 63 % 4 %
Services 43 37 33
--- ---
Total revenue 100 100 15
--- ---
Costs and expenses:
Cost of product revenue 11 8 56
Cost of services revenue 24 16 71
Marketing and sales 38 38 14
Research and development 17 17 18
General and administrative 10 8 38
Acquisition-related and other - 2 N/M
--- ---
Total costs and expenses 100 89 29
--- ---
Income from operations - 11 N/M
Interest and other income 3 4 (19)
--- ---
Income before income taxes 3 15 (76)
Provision for income taxes 1 5 (77)
--- ---
Net income 2 % 10 % (76)%
=== ===
<FN>
N/M = Not Meaningful
</FN>
</TABLE>
Revenue
The Company's total revenue increased 23% to $32.2 million in the second quarter
of fiscal year 1998 from $26.1 million in the second quarter of fiscal year 1997
and 15% to $56.8 million in the first six months of fiscal year 1998 from $49.3
million in the first six months of fiscal year 1997. Product revenue increased
marginally to $17.2 million in the second quarter of fiscal year 1998 from $17.1
million in the second quarter of fiscal year 1997, and 4% to $32.2 million in
the first six months of fiscal year 1998 from $30.8 million in the first six
months of fiscal year 1997. The dollar increases in product revenue are
primarily due to the inclusion of product revenue from Diab Data and Epilogue in
fiscal year 1998, plus increased unit shipments of SNiFF+(TM). Services revenue
increased 67% to $15.0 million in the second quarter of fiscal year 1998 from
$9.0 million in the second quarter of fiscal year 1997, and 33% to $24.6 million
in the first six months of fiscal year 1998 from $18.4 million in the first six
months of fiscal year 1997. These dollar increases are the result of both an
increase in maintenance revenue from a growing installed base of customers, and
from an increase in engineering services and consulting activities at Doctor
Design, Inc. ("Doctor Design"), an engineering services subsidiary specializing
in multimedia hardware, software and application specific integrated circuit
technology.
The percentage of the Company's total revenue from customers located
internationally was 31% and 37% in the second quarters of fiscal years 1998 and
1997, respectively, and 31% and 38% in the first six months of fiscal years 1998
and 1997, respectively. These percentage decreases are primarily due to growth
at Doctor Design, which has a predominately domestic customer base.
-11-
<PAGE>
Costs and Expenses
The Company's cost of product revenue as a percentage of product revenue
increased from 12% in the second quarter of fiscal year 1997 to 20% in the
second quarter of fiscal year 1998, and from 13% in the first six months of
fiscal year 1997 to 20% in the first six months of fiscal year 1998. These
percentage increases were due to increases in the proportion of product revenue
subject to third party royalty costs, the write-off of certain prepaid
royalties, and increased amortization of capitalized software development costs.
The Company's cost of services revenue as a percentage of services revenue
increased from 43% in the second quarter of fiscal year 1997 to 60% in the
second quarter of fiscal year 1998, and from 44% in the first six months of
fiscal year 1997 to 56% in the first six months of fiscal year 1998. These
percentage increases were due to an increase in lower margin fixed price
contracts. In particular, during the second quarter of fiscal year 1998, the
Company was required to procure a significant amount of materials with no
associated margin, under the terms of a large engineering services contract.
Excluding this anomaly, cost of services revenue as a percentage of services was
51% for the second quarter and the first six months of fiscal year 1998.
Marketing and sales expenses were $11.2 million and $9.8 million in the second
quarters of fiscal years 1998 and 1997, respectively, representing 35% and 38%
of total revenue, respectively, and $21.3 million and $18.7 million in the first
six months of fiscal years 1998 and 1997, respectively, representing 38% of
total revenue in both six month periods. The dollar increases for all periods
presented were primarily due to the Company's continued investment in it's
domestic and international sales and support infrastructure. In addition, the
Company incurred employee terminations related costs in Europe in the second
quarter of fiscal year 1998.
Research and development expenses were $4.7 million and $4.4 million in the
second quarters of fiscal years 1998 and 1997, respectively, representing 15%
and 17%, respectively, of total revenue, and $9.5 million and $8.1 million in
the first six months of fiscal years 1998 and 1997, respectively, representing
17% of total revenue in both six month periods. The dollar increases for all
periods presented were primarily the result of increased personnel and
consulting expenses associated with the development of the Company's pRISM+(TM)
development environment, MATRIXxR version 6.0 and other new products, and
enhancing existing products. Costs that are required to be capitalized under
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed" ("SFAS No. 86") were
$150,000 in the second quarter of fiscal year 1998 compared to $450,000 in the
second quarter of fiscal year 1997, and $250,000 in the first six months of
fiscal year 1998 compared to $735,000 in the first six months of fiscal year
1997. The amounts capitalized represent approximately 3% of total research and
development expenditures for the second quarter of fiscal year 1998 compared to
9% in the second quarter of the previous fiscal year, and 3% in the first six
months of fiscal year 1998 compared to 8% in the first six months of fiscal year
1997. The amount of research and development expenditures capitalized in a given
time period depends upon the nature of the development performed and,
accordingly, amounts capitalized may vary from period to period. Capitalized
costs are being amortized using the greater of the amount computed using the
ratio that current gross revenues for a product bear to the total of current and
anticipated future gross revenues for that product, or on a straight line basis
over three years. Amortization for the second quarter of fiscal year 1998 was
$232,000 compared to $206,000 for the second quarter of fiscal year 1997, and
$513,000 in the first six months of fiscal year 1998 compared to $435,000 in the
first six months of fiscal year 1997.
General and administrative expenses were $3.3 million and $2.0 million in the
second quarters of fiscal years 1998 and 1997, respectively, representing 10%
and 8% of total revenue, respectively, and $5.7 million and $4.2 million in the
first six months of fiscal years 1998 and 1997, respectively, representing 10%
and 8% of total revenue, respectively. The dollar increases for all periods
presented were primarily the result of increased headcount, related in part to
the acquisition of Epilogue and the consolidation of Diab Data, combined with
significant growth at Doctor Design.
Acquisition-related and other costs in the second quarter and six month period
of fiscal year 1997 comprised the write-off of intangible assets related to a
prior acquisition and direct costs related to the acquisition of Epilogue.
Interest and other income was $1.0 million in the second quarter of fiscal 1998
compared to $0.8 million in the second quarter of fiscal year 1997. The increase
is primarily due to higher interest earned from increased holdings of cash and
marketable securities in fiscal year 1998. Interest and other income was $1.8
million in the first six months of fiscal year 1998 compared to $2.2 million in
the first six months of fiscal year 1997. This decrease is due to the inclusion
in fiscal year 1997 of net operating income of $480,000 from Diab Data which was
required to be accounted for under the equity method of accounting until the
fourth quarter of fiscal year 1997, offset, in part, by increased interest
income in fiscal year 1998.
-12-
<PAGE>
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings per Share,"
which specifies the computation, presentation and disclosure requirements for
earnings per share. SFAS No. 128 supersedes Accounting Principles Board Opinion
No. 15, is effective for financial statements issued for periods ending after
December 15, 1997, and requires that prior periods be restated.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting
Comprehensive Income," which establishes standards of disclosure and financial
statement presentation for reporting total comprehensive income in individual
components. SFAS No, 130 is effective for fiscal years beginning after December
15, 1997, and will require earlier periods to be restated to reflect application
of the provisions of SFAS No. 130.
In June 1997, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures About
Segments of an Enterprise and Related Information," which specifies disclosure
requirements for segment reporting. The above statements supersedes SFAS No. 14
and SFAS No. 18 and is effective for fiscal years beginning after December 15,
1997, and requires earlier years to be restated if practicable.
The impact of the adoption of the above statements on the financial statements
of the Company has not yet been determined.
Liquidity and Capital Resources
The Company funds its operations principally through cash flows from operations.
As of August 31, 1997, the Company had $62.5 million of cash, cash equivalents
and marketable securities. This represents an increase of $7.8 million from
February 28, 1997. In April 1997, the Company announced that the Board of
Directors had authorized a new common stock repurchase program allowing the
Company to repurchase up to 1,000,000 shares of common stock for cash, from
time-to-time at market prices. No time limit was set for the completion of the
program. In April 1997, the Company repurchased 20,000 shares of common stock
for $187,500.
Net cash provided by operating activities during the first six months of fiscal
year 1998 totaled $9.6 million, as compared to net cash used of $1.8 million in
the first six months of fiscal year 1997. Net cash provided by operating
activities increased, in spite of a decrease in net income, due mainly to
changes in accounts receivable, accounts payable, accrued payroll and other
accrued liabilities, income taxes payable, and deferred revenue.
Net cash used in investing activities totaled $15.4 million in the first six
months of fiscal year 1998 compared to $27.2 million in fiscal year 1997. Net
cash used in investing activities was higher in fiscal year 1997 due primarily
to the purchase of a building in March 1996.
Net cash provided by financing activities totaled $1.3 million in the first six
months of fiscal year 1998 compared to $18.4 million in the first six months of
fiscal year 1997. Net cash provided by financing activities was significantly
higher in the first six months of fiscal 1997 due to the issuance of common
stock in May 1996. In addition the proceeds from the exercise of options to
purchase common stock and purchases under the Employee Stock Purchase Plan were
lower in the first six months of fiscal year 1998. The first six months of
fiscal year 1997 also benefited from a large tax benefit from disqualifying
dispositions of common stock.
The Company believes that cash flows from operations, together with existing
cash balances, will be adequate to meet the Company's cash requirements for
working capital, stock repurchase and capital expenditures for the next 12
months and the foreseeable future.
-13-
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held July 15, 1997, the
shareholders elected directors of the Company with the following
nominees receiving the votes indicated:
Name For Withheld
---- --- --------
John C. Bolger 19,191,456 126,719
Narendra K. Gupta 19,195,350 122,825
Vinita Gupta 19,186,168 132,007
Thomas Kailath 19,191,400 126,775
Richard C. Murphy 19,191,456 126,719
David P. St. Charles 19,153,398 164,777
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
<TABLE>
The following exhibit is filed herewith:
<CAPTION>
Exhibit Page
Number Title Number
------- ----- ------
<S> <C> <C>
10.03 Registrant's 1988 Stock Option Plan, as amended to date 16
27.00 Financial Data Schedule 22
</TABLE>
(b) Reports on Form 8-K. No reports on Form 8-K were filed by
Registrant during the three months ended August 31, 1997.
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: October 14, 1997 INTEGRATED SYSTEMS, INC.
(Registrant)
/S/ DAVID P. ST. CHARLES
--------------------------------
DAVID P. ST. CHARLES
President and Chief Executive Officer
/S/ WILLIAM C. SMITH
--------------------------------
WILLIAM C. SMITH
Vice President, Finance and
Chief Financial Officer
-15-
INTEGRATED SYSTEMS, INC.
1988 Stock Option Plan
As Adopted September 26, 1988
As Amended through March 28, 1997
1. PURPOSE. This Stock Option Plan ("Plan") is established to provide
incentive for selected persons to promote the financial success and progress of
Integrated Systems, Inc. (the "Company") by granting such persons options to
purchase shares of common stock of the Company.
2. ADOPTION AND SHAREHOLDER APPROVAL. This Plan shall be approved by
the shareholders of the Company, in any manner permitted by applicable corporate
law, within twelve (12) months before or after the date this Plan is adopted by
the Board of Directors of the Company (the "Board") and after the date of
certain amendments to the Plan. In addition, no later than twelve (12) months
after the Company becomes subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") the Company will comply with the
requirements of Rule 16b-3 with respect to shareholder approval.
3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan (the
"Options") may be either (a) incentive stock options ("ISOs") within the meaning
of Section 422 of the Internal Revenue Code of 1986 (the "Code"), or (b)
nonqualified stock options ("NQSOs"), as designated at the time of grant. The
shares of stock that may be purchased upon exercise of Options granted under
this Plan (the "Shares") are shares of the common stock of the Company.
4. NUMBER OF SHARES. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan is Seven Million (7,000,000) Shares,
subject to adjustment as provided in this Plan. If any Option is terminated for
any reason without being exercised in whole or in part, the Shares thereby
released from such Option shall be available for purchase under other Options
subsequently granted under this Plan. At all times during the term of this Plan,
the Company shall reserve and keep available such number of Shares as shall be
required to satisfy the requirements of outstanding Options under this Plan.
5. ADMINISTRATION. This Plan may be administered by the Board or a
Committee appointed by the Board (the "Committee"). If, at the time the Company
registers under the Exchange Act, a majority of the Board is not comprised of
Disinterested Persons, the Board shall appoint a Committee consisting of not
less than three persons (who need not be members of the Board), each of whom is
a "Disinterested Person" (as defined in Section 6(b)(iv) of the Plan) and an
"Outside Director" (as defined in Section 6(b)(vi) of the Plan) or qualifies
under transition rules as an Outside Director. As used in this Plan, references
to the "Committee" shall mean either such Committee or the Board if no Committee
has been established. After registration of the Company under the Exchange Act,
Board members who are not Disinterested Persons may not vote on any matters
affecting the administration of this Plan or on the grant of any Options
pursuant to this Plan to any officer or director of the Company or other person
(in each case, an "Insider") whose transactions in the Company's common stock
are subject to Section 16(b) of the Exchange Act, but any such member may be
counted for determining the existence of a quorum at any meeting of the Board
during which action is taken with respect to Options or administration of this
Plan and may vote on the grant of any Options pursuant to this Plan other than
to Insiders. The interpretation by the Committee of any of the provisions of
this Plan or any Option granted under this Plan shall be final and binding upon
the Company and all persons having an interest in any Option or any Shares
purchased pursuant to an Option. The Committee may delegate the authority to
officers of the Company to grant Options under this Plan to Optionees who are
not Insiders of the Company. No Optionee shall be eligible to receive more than
500,000 Shares at any time during the term of this Plan pursuant to the grant of
Options hereunder.
-16-
<PAGE>
6. ELIGIBILITY. Options may be granted only to such employees,
officers, directors and consultants of the Company or any Parent, Subsidiary or
Affiliate of the Company (as defined below) as the Committee shall select from
time to time in its sole discretion ("Optionees"), provided that only employees
of the Company or a Parent or Subsidiary of the Company shall be eligible to
receive ISOs. An Optionee may be granted more than one Option under this Plan.
(a) Assumption of Options. The Company may, from time to time,
assume outstanding options granted by another company, whether in connection
with an acquisition of such other company or otherwise, by either (i) granting
an option under this Plan in replacement of the option assumed by the Company,
or (ii) treating the assumed option as if it had been granted under this Plan if
the terms of such assumed option could be applied to an option granted under
this Plan. Such assumption shall be permissible if the holder of the assumed
option would have been eligible to be granted an option hereunder if the other
Company had applied the rules of this Plan to such grant.
(b) Definitions. As used in the Plan, the following terms
shall have the following meanings:
(i) "Parent" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the granting of the Option, each of such corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
(ii) "Subsidiary" means any corporation (other than
the Company) in an unbroken chain of corporations beginning with the Company if,
at the time of granting of the Option, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
(iii) "Affiliate" means any corporation that
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with another corporation, where
"control" (including the terms "controlled by" and "under common control with")
means the possession, direct or indirect, of the power to cause the direction of
the management and policies of the corporation, whether through the ownership of
voting securities, by contract or otherwise.
(iv) "Disinterested Person" shall have the meaning
set forth in Rule 16b-3(d)(3) as promulgated by the Securities and Exchange
Commission ("SEC") under Section 16(b) of the Exchange Act, as such rule is
amended from time to time and as interpreted by the SEC.
(v) "Fair Market Value" shall mean the fair market
value of the Shares as determined by the Committee from time to time in good
faith. If a public market exists for the Shares, the Fair Market Value shall be
the average of the last reported bid and asked prices for Common Stock of the
Company on the last trading day prior to the date of determination or, in the
event the Common Stock of the Company is listed on a stock exchange or the
Nasdaq National Market, the Fair Market Value shall be the closing price on such
exchange or quotation system on the last trading day prior to the date of
determination.
(vi) "Outside Director" shall mean any director who
is not (i) a current employee of the Company or any Parent, Subsidiary or
Affiliate of the Company, (ii) a former employee of the Company or any Parent,
Subsidiary or Affiliate of the Company who is receiving compensation for prior
services (other than benefits under a tax-qualified pension plan), (iii) a
current or former officer of the Company or any Parent, Subsidiary or Affiliate
of the Company or (iv) currently receiving compensation for personal services in
any capacity, other than as a director, from the Company or any Parent,
Subsidiary or Affiliate of the Company; provided, however, that at such time as
the term "Outside Director", as used in Section 162(m) of the Code, is
-17-
<PAGE>
defined in the regulations promulgated under Section 162(m), "Outside Director"
shall have the meaning set forth in such regulations, as amended from time to
time and as interpreted by the Internal Revenue Service.
7. TERMS AND CONDITIONS OF OPTIONS. The Committee shall determine
whether each Option is to be an ISO or an NQSO, the number of Shares for which
the Option shall be granted, the exercise price of the Option, the periods
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following terms and conditions:
(a) Form of Option Grant. Each Option granted under this Plan
shall be evidenced by a written Stock Option Grant ("Grant") in such form (which
need not be the same for each Optionee) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
(b) Exercise Price. The exercise price of an Option shall be
not less than the Fair Market Value of the Shares, at the time that the Option
is granted. The exercise price of any Option granted to a person owning 10% or
more of the total combined voting power of all classes of stock of the Company
or any Parent or Subsidiary of the Company ("Ten Percent Shareholder") shall not
be less than 110% of the Fair Market Value of the Shares at the time of the
grant, as determined by the Committee in good faith.
(c) Exercise Period. Options shall be exercisable within the
times or upon the events determined by the Committee as set forth in the option
grant; provided, however, that no Option shall be exercisable after the
expiration of ten years from the date the option is granted, and provided
further that no Option granted to a Ten Percent Shareholder shall be exercisable
after the expiration of five years from the date the Option is granted.
(d) Limitations on ISOs. The aggregate Fair Market Value
(determined as of the time an Option is granted) of stock with respect to which
ISOs are exercisable for the first time by an Optionee during the calendar year
(under this Plan or under any other incentive stock option plan of the Company
or any Parent or Subsidiary of the Company) shall not exceed $100,000. If the
Fair Market Value of stock with respect to which ISOs are first exercised
exceeds $100,000, the Options for the first $100,000 worth of stock shall be
ISOs and options for the amount in excess of $100,000 shall be NQSOs.
(e) Date of Grant. The date of grant of an Option shall be the
date on which the Committee makes the determination to grant such Option unless
otherwise specified by the Committee. The Grant representing the Option shall be
delivered to the Optionee within a reasonable time after the granting of the
Option.
(f) Assumed Options. In the event the Company assumes an
option granted by another company, the terms and conditions of such option shall
remain unchanged (except the exercise price and the number and nature of shares
issuable upon exercise, which will be adjusted appropriately pursuant to Section
425(c) of the Code). In the event the Company elects to grant a new option
rather than assuming an existing option (as specified in Section 6(a), such new
option need not be granted at Fair Market Value on the date of grant and may
instead be granted with a similarly adjusted exercise price.
8. EXERCISE OF OPTIONS.
(a) Notice. Options may be exercised only by delivery to the
Company of a written notice and exercise agreement in a form approved by the
Committee, stating the number of Shares being purchased, the restrictions
imposed on the Shares and such representations and agreements regarding the
Optionee's investment intent and access to information as may be required by the
Company to comply with applicable securities laws together with payment in full
of the exercise price for the number of Shares being purchased.
-18-
<PAGE>
(b) Payment. Payment for the Shares may be made (i) in cash
(by check); (ii) by surrender of shares of common stock of the Company that have
been owned by Optionee for more than six (6) months (and which have been paid
for within the meaning of SEC Rule 144 and, if such shares were purchased from
the Company by use of a promissory note, such note has been fully paid with
respect to such shares) or were obtained by the Optionee in the open public
market, having a Fair Market Value equal to the exercise price of the Option;
(iii) where permitted by applicable law and approved by the Committee in its
sole discretion, by tender of a full recourse promissory note having such terms
as may be approved by the Committee; (iv) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (a "NASD Dealer") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
exercise price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company; or (v) by any
combination of the foregoing where approved by the Committee in its sole
discretion. Optionees who are not employees or directors of the Company shall
not be entitled to purchase Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares.
(c) Withholding Taxes. Prior to issuance of the Shares upon
exercise of an Option, the Optionee shall pay or make adequate provision for any
federal or state withholding obligations of the Company, if applicable.
(d) Limitations on Exercise. Notwithstanding the exercise
periods set forth in the Grant, exercise of an Option shall always be subject to
the following limitations:
(i) If an Optionee ceases to be employed by the
Company or any Parent, Subsidiary or Affiliate of the Company for any reason
except death or disability, the Optionee may exercise such Optionee's Options to
the extent (and only to the extent) that it would have been exercisable upon the
date of termination, within three (3) months after the date of termination (or
such shorter time period as may be specified in the Grant), provided that, if
Optionee is an Insider and the Company is subject to Section 16(b) of the
Exchange Act, the Optionee's Option will be exercisable for a period of time
sufficient to allow such Optionee from having a matching purchase and sale under
Section 16(b), with any extension beyond three (3) months from termination of
employment in the case of an Option constituting an ISO being deemed to be as an
NQSO, and provided further that in no event may an Option be exercisable later
than the expiration date of the Option.
(ii) If an Optionee's employment with the Company or
any Parent, Subsidiary or Affiliate of the Company is terminated because of the
death of the Optionee or disability of Optionee within the meaning of Section
22(e)(3) of the Code, such Optionee's Options may be exercised to the extent
(and only to the extent) that it would have been exercisable by the Optionee on
the date of termination, by the Optionee (or the Optionee's legal
representative) within twelve (12) months after the date of termination (or such
shorter time period as may be specified in the Grant), but in any event no later
than the expiration date of the Options.
(iii) The Committee shall have discretion to
determine whether the Optionee has ceased to be employed by the Company or any
Parent, Subsidiary or Affiliate of the Company and the effective date on which
such employment terminated.
(iv) In the case of an Optionee who is a director,
independent consultant, contractor or advisor, the Committee will have the
discretion to determine whether the Optionee is "employed by the Company or any
Parent, Subsidiary or Affiliate of the Company" pursuant to the foregoing
Sections.
(v) An Option shall not be exercisable unless such
exercise is in compliance with the Securities Act of 1933, as amended, and all
applicable state securities laws, as they are in effect on the date of exercise.
-19-
<PAGE>
(vi) The Committee may specify a reasonable minimum
number of Shares that may be purchased on any exercise of an Option, provided
that such minimum number will not prevent the Optionee from exercising the full
number of Shares as to which the Option is then exercisable.
9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee. No Option may be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent and distribution.
10. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a shareholder with respect to any Shares subject to an Option until
the Option has been validly exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
of exercise, except as provided in this Plan. The Company shall provide to each
Optionee a copy of the annual financial statements of the Company, at such time
after the close of each fiscal year of the Company as they are released by the
Company to its shareholders.
11. ADJUSTMENT OF OPTIONS SHARES. In the event that the number of
outstanding shares of common stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares subject
to outstanding Options and the exercise price per share of such Options shall be
proportionately adjusted, subject to any required action by the Board or
shareholders of the Company and compliance with applicable securities; provided,
however, that no certificate or scrip representing fractional shares shall be
issued upon exercise of any Option and any resulting fractions of a Share shall
be ignored.
12. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted
under this Plan shall confer on any Optionee any right to continue in the employ
of the Company or any Parent, Subsidiary or Affiliate of the Company or limit in
any way the right of the Company or any Parent, Subsidiary or Affiliate of the
Company to terminate the Optionee's employment at any time, with or without
cause.
13. COMPLIANCE WITH LAWS. The grant of Options and the issuance of
Shares upon exercise of any Options shall be subject to and conditioned upon
compliance with all applicable requirements of law, including without limitation
compliance with the Securities Act of 1933, as amended, any required approval by
the Commissioner of Corporations of the State of California, compliance with all
other applicable state securities laws and compliance with the requirements of
any stock exchange on which the Shares may be listed. The Company shall be under
no obligation to register the Shares with the SEC or to effect compliance with
the registration or qualification requirements of any state securities laws or
stock exchange.
14. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself or its assignee(s) in the Grant (a) a right of
first refusal to purchase any Shares that an Optionee (or a subsequent
transferee) may propose to transfer to a third party and (b) a right to
repurchase all Shares held by an Optionee upon the Optionee's termination of
employment or service with the Company or its Parent, Subsidiary or Affiliate of
the Company for any reason within a specified time as determined by the
Committee at the time of grant at (i) the Optionee's original purchase price
(provided that the right to repurchase at such price shall lapse at the rate of
at least 20% per year from the date of grant), (ii) the Fair Market Value of
such Shares as determined by the Committee in good faith or (iii) a price
determined by a formula or other provision set forth in the Grant.
15. ASSUMPTION OF OPTIONS BY SUCCESSORS. In the event of a dissolution
or liquidation of the Company, a merger in which the Company is not the
surviving corporation, or the sale of substantially all of the assets of the
Company, any or all outstanding Options shall, notwithstanding any contrary
terms of the Grant, accelerate and become exercisable in full at least ten days
prior to (and shall expire on) the consummation of such dissolution,
liquidation, merger or sale of stock or sale of assets on such conditions as the
Committee shall determine unless the successor corporation assumes the
outstanding Options or substitutes
-20-
<PAGE>
substantially equivalent options. The aggregate Fair Market Value (determined at
the time an Option is granted) of stock with respect to ISOs which first become
exercisable in the year of such dissolution, liquidation, merger, sale of stock
or sale of assets cannot exceed $100,000. Any remaining accelerated ISOs shall
be NQSOs.
16. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time
terminate or amend this Plan in any respect (including, but not limited to, any
form of Grant, agreement or instrument to be executed pursuant to this Plan);
provided, however, that the Committee shall not, without the approval of the
holders of a majority of the outstanding voting shares of the Company, amend
this Plan in any manner that requires such shareholder approval pursuant to the
Code or the regulations promulgated thereunder as such provisions apply to
incentive stock option plans or pursuant to the Exchange Act or Rule 16b-3 (or
its successor) promulgated thereunder.
17. TERM OF PLAN. Options may be granted pursuant to this Plan from
time to time within a period of ten years from the date this Plan is adopted by
the Board.
-21-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM Q2 FY98
FORM 10-Q FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 20,868
<SECURITIES> 4,813
<RECEIVABLES> 26,843
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 58,451
<PP&E> 18,771
<DEPRECIATION> 0
<TOTAL-ASSETS> 118,932
<CURRENT-LIABILITIES> 30,259
<BONDS> 0
0
0
<COMMON> 62,488
<OTHER-SE> 25,936
<TOTAL-LIABILITY-AND-EQUITY> 118,932
<SALES> 32,194
<TOTAL-REVENUES> 56,758
<CGS> 6,385
<TOTAL-COSTS> 20,202
<OTHER-EXPENSES> 36,578
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,752
<INCOME-TAX> 596
<INCOME-CONTINUING> 1,156
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,156
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
