U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1997.
Commission file number:
INTIME SYSTEMS INTERNATIONAL, INC.
----------------------------------------------
(Name of small business issuer in its charter)
DELAWARE 65-0480407
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
1601 FORUM PLACE, SUITE 500, WEST PALM BEACH, FL 33401
- ------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (407) 478-0022
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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]
Number of shares outstanding of each of the issuer's classes of common equity as
of March 31, 1997.
Class A Common Stock 1,823,674 Shares
Class B Common Stock 2,684,022 Shares
1
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
FORM 10-QSB
For the Quarter ended March 31, 1997
Part I - Financial Information
INDEX PAGE NO.
----- --------
Item 1 Financial Statements
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Income Statement 4
Condensed Consolidated Statement of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II - Other Information 10
2
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,502,062 1,941,747
Accounts receivable net of allowance for doubtful accounts 2,849,713 2,101,940
Other current assets 206,723 89,601
----------- ----------
Total current assets 4,558,498 4,133,288
Fixed assets less accumulated depreciation 595,359 633,558
Software development costs net of accumulated amortization 273,492 312,491
----------- ----------
Total assets 5,427,349 5,079,337
=========== ==========
Current Liabilities:
Accounts payable and accrued expenses 252,934 361,888
Deferred revenue 539,544 126,426
Current obligations under capital leases 177,972 202,903
----------- ----------
Total current liabilities 970,450 691,217
Obligations under capital leases 66,512 124,155
----------- ----------
Total liabilities 1,036,962 815,372
----------- ----------
Stockholders' Equity:
Preferred stock:
Par value $1 per share; 5,000,000 shares authorized;
no shares issued or outstanding -- --
Common stock:
Class A common stock:
Par value $.01 per share; 16,905,279 shares
authorized; 1,823,674 and 1,790,516 shares
issued and outstanding, respectively 18,237 17,905
Class B common stock:
Par value $.01 per share; 3,094,721 shares
authorized; 2,684,022 and 2,715,664 shares
issued and outstanding, respectively 26,840 27,157
Additional paid-in-capital 6,182,272 6,180,643
Retained (deficit) (1,836,962) (1,961,740)
----------- ----------
Total stockholders' equity 4,390,387 4,263,965
Commitments and contingencies -- --
----------- ----------
5,427,349 5,079,337
=========== ==========
</TABLE>
Attention is directed to the accompanying notes to the condensed financial
statements.
3
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
Condensed Consolidated Income Statement
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
1997 1996
--------- ----------
Net revenues:
Consulting services 3,197,543 2,274,643
Software related revenue 36,057 86,110
Other 38,934 728
--------- ----------
3,272,534 2,361,481
Costs and expenses:
Cost of consulting services 1,989,207 1,397,151
Cost of software services 111,970 155,953
Sales and marketing 430,416 771,302
Computer software development 115,592 360,080
General and administrative 565,572 284,170
--------- ----------
Income (loss) before benefit for income taxes 59,777 (607,175)
Benefit for income taxes (Note 1) 65,000 --
--------- ----------
Net income (loss) 124,777 (607,175)
--------- ----------
Net income (loss) per share (Note 2) .05 (.24)
========= ==========
Attention is directed to the accompanying notes to the condensed financial
statements.
4
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) 124,777 (607,175)
Adjustments to reconcile net income (loss) to
net cash (used in) operating activities:
Depreciation and amortization 124,414 81,000
Increase in provision for doubtful accounts 30,276 --
Changes in assets and liabilities:
Increase in accounts receivable (778,049) (654,957)
Increase in other assets (117,122) (32,629)
Increase (decrease) in accounts payable/accrued
expenses (108,954) 140,619
Increase in deferred revenue 413,118 --
---------- ----------
Net cash used in operating activities (311,540) (1,073,142)
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (47,214) (19,054)
---------- ----------
Net cash used in investment activities (47,214) (19,054)
---------- ----------
Cash flows from financing activities:
Payments on capital leases (82,576) (3,453)
Issuance of common stock 1,645 19,919
---------- ----------
Net cash (used in) provided by financing (80,931) 16,466
activities ---------- ----------
Decrease in cash and cash equivalents (439,685) (1,075,730)
Cash and cash equivalents at beginning of period 1,941,747 1,888,574
---------- ----------
Cash and cash equivalents at end of period 1,502,062 812,844
========== ==========
</TABLE>
Attention is directed to the accompanying notes to the condensed financial
statements.
5
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
NOTE 1 - FINANCIAL STATEMENTS:
The consolidated financial statements herein are unaudited. However, in the
opinion of management, such information reflects all adjustments (consisting
only of normal recurring adjustments) necessary for a fair statement of
financial position and results of operations for the periods being reported.
Additionally, it should be noted that the accompanying condensed consolidated
financial statements do not purport to contain complete disclosures in
conformity with generally accepted accounting principles. A summary of the
Company's significant accounting policies is set forth in Note Two to the
Consolidated Financial Statements in the Company's Form 10-KSB dated April 14,
1997.
The consolidated results of operations for the three months ended March 31, 1997
are not necessarily indicative of the results of operations for the year ending
December 31, 1997.
The consolidated balance sheet at December 31, 1996 was condensed from the
audited consolidated balance sheet appearing in the Company's Form 10-KSB dated
March 29, 1997.
NOTE 2 - BENEFIT FOR INCOME TAXES:
As of March 31, 1997, the Company has a net deferred tax asset consisting
primarily of a net operating loss carry forward in the amount of $393,171.
The Company records deferred income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109. As of December 31, 1996 the
Company had a net deferred tax asset that was fully reserved with a valuation
allowance. Due to increased profitability and other factors, the Company
believes that it is appropriate to reduce the valuation allowance held against
the net deferred tax asset. Pursuant to SFAS No. 109, management believes that
the realization of a portion of the net deferred tax asset recorded on the
condensed consolidated financial statements as of March 31, 1997 is more likely
than not. The effect of reducing the valuation allowance for the first quarter
of 1997 is to reduce income tax expense by $65,000.
In determining that it was more likely than not the recorded deferred tax asset
would be realized, management of the Company considered the following:
/bullet/ The budgets and forecasts of taxable income that management has adopted
for the current fiscal year.
/bullet/ Reversing taxable temporary differences that would reverse in the
current and future taxable years.
/bullet/ Four consecutive quarters of profitability.
NOTE 3 - EARNINGS PER SHARE:
Net income (loss) per share is computed using the weighted average number of
common shares and common share equivalents outstanding. Common share equivalents
consist of the Company's common shares issuable upon the exercise of stock
options using the treasury stock method. In February 1997, the Financial
Accounting Standards Board issued SFAS No. 128, Earning Per Share, which is
effective for financial statements issued for period ending after December 15,
1997. Early adoption of SFAS No. 128 is not permitted. The effect of adoption of
SFAS No. 128 on the Company is not expected to be material.
Three Months Ended
March 31,
1997 1996
--------- ---------
WEIGHED AVERAGE SHARES:
- -----------------------
Common stock 2,617,042 2,569,415
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth expense items as a percentage of net revenues for
the periods indicated:
Three Months Ended
March 31,
1997 1996
---- ----
Net Revenues 100% 100%
Consulting Services Costs 61 59
Software Services Costs 3 7
Sales/Marketing Expenses 13 33
Software Development 4 15
General and Administrative Expenses 17 12
Income (Loss) before taxes 2% (26%)
REVENUES
Consulting services revenue increased by $922,900 or 41% for the first
three months of 1997 over the same period in 1996. This continues a positive
trend in the growth of consulting services revenue which began in September of
1995. Management anticipates that demand for consulting services will remain
strong throughout the remainder of 1997. However, there can be no assurances
that existing customers will continue to require consulting services or that the
Company can close sales for new customers. Failure to close new sales will have
an impact on continued growth. Consulting services revenue is generated from
systems integration on human resource and payroll systems.
Software related revenue includes all revenue related to the Company's
Time and Attendance Management Systems (TAMS) including: license, installation
and maintenance fees. Software related revenues decreased by $50,053 for the
three months ended March 31, 1997 or 58% compared to the same period in 1996.
The decline relates to the reduction in direct sales effort as a result of the
signing of a Technology License Agreement as discussed below. Going forward,
management believes the Technology License Agreement will positively affect
software related revenues.
The Company and Oracle Corporation entered into a Technology License
Agreement (the "Agreement") effective January 31, 1997. Under the terms of the
five-year Agreement, the Company licensed TAMS/O to Oracle on a non-exclusive
basis in exchange for future sublicense fees and a percentage of maintenance
fees paid to Oracle by its TAMS/O customers. The Agreement requires Oracle to
pay the Company $500,000 in prepaid sublicense fees in 1997 but does not require
Oracle to market TAMS/O. The prepaid sublicense fee is included in accounts
receivable as of March 31, 1997. The revenue will be recognized as product is
shipped or over twelve months after Oracle's first customer shipment. The
Company is required to provide material technical support during the term of the
Agreement. Commencing on February 20, 1998, Oracle will have the option to
acquire a perpetual royalty-free and non-exclusive license to TAMS/O subject to
continuing to pay three years of sublicense fees to the Company commencing with
the date of exercise. If Oracle exercises the option, the Company's support
responsibilities will cease except for routine telephone technical support. As a
result of the Agreement with Oracle, management does not anticipate extensive
direct licensing of the product to prospective customers. Oracle will be
licensing the product directly to its customers under similar terms as the
licensing of Oracle's own products
7
<PAGE>
Other revenues for the three month period ending March 31, 1997
increased by $38,206 over the comparable three month period in 1996.
COST OF CONSULTING SERVICES
Cost of consulting services increased by 42% or 592,056 in the first
quarter of 1997 as compared to the first quarter of 1996. The increase is the
direct result of the increased consulting revenues in 1997. As a percentage of
consulting revenue, cost of consulting services increased to 62% in the first
quarter of 1997 as compared to 61% for the first quarter of 1996.
The increase in the cost of consulting services is due primarily to a
reduction in the overall utilization for the first quarter of 1997. As the
utilization of existing consultants decreases, gross margins will also decrease.
The gross margin percentages achieved during the first quarter of 1997 are not
necessarily indicative of the gross margins that will be achievable throughout
the remainder of 1997.
SOFTWARE SERVICE COSTS
Software service costs are direct costs associated with the Company's
proprietary software product TAMS including: salaries, wages, travel, and other
expenses incurred during sales demo, installation, customization, training and
maintaining the software.
For the three months ended March 31, 1997 such costs were 3% of net
revenues and 311% of software related revenue. For the comparable period in
1996, such costs represented 7% of net revenues and 181% of software related
revenues. The decrease in the cost of software services is due to a reduction in
the required support effort as a result of the Agreement signed with Oracle.
Additionally, in the first quarter of 1996, the Company built up its sales
support in anticipation of the Agreement, which was not signed until January
1997.
SALES AND MARKETING EXPENSES
The decrease in sales and marketing expenses in the first quarter of
1997 of $340,886, from the same period in 1996, is the result of reduced sales
efforts for the Company's software product, TAMS. In the first quarter of 1996
the Company had begun establishing a sales infrastructure. This effort was later
abandoned due to delays in the release of the Oracle HRMS product.
SOFTWARE DEVELOPMENT EXPENSES
Software development expense decreased 68% from $360,080 for the first
quarter of 1996 to $115,592 in the first quarter of 1997.
The reduction for the comparable three month period is primarily due to
completion of the TAMS/O, Oracle client/server version of TAMS. The bulk of
these investments were made in the last two quarters of 1995 and the first
quarter of 1996.
The Company's current expenditures for research and development are
primarily focused on TAMS/O enhancements and release upgrades.
8
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $281,402 or 99% for the
three month period ended March 31, 1997 compared to the same period in 1996.
In comparing the first quarter of 1997 to the same period in 1996:
employee and employee related costs have increased due to an increased number of
administrative employees. Additionally, the cost of certain key employees have
been classified as general and administrative to reflect their current
responsibilities. Other significant increases in general and administrative
include depreciation, which has increased due to a significant growth in fixed
asset investments and an accrual for the employee 401(k) plan not included in
the first quarter of 1996.
Pretax income for the first quarter of 1997 was $59,777 versus a loss
of $607,175 for the same period in 1996. The turn-around in the operation is due
to less investment in the Time and Attendance product as discussed above under
Sales and Marketing Expense and Software Development Expense. Pre-tax income for
the first quarter of 1997 was approximately $100,000 less than the forth quarter
of 1996. This was primarily due to the higher consulting cost and sales and
marketing cost increase the first quarter of 1997 as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997 the Company had cash and cash equivalents of
$1,502,062 and working capital of $3,381,327.
The Company expects that cash flow from operations and existing cash
and cash equivalents will be adequate to meet the Company's cash requirement
during the remainder of 1997.
FORWARD-LOOKING STATEMENTS
The statements made above under "Results of Operation" relating to the
positive growth trend of consulting services, the expected benefit from the
Technology License Agreement, Oracle's ability to close new sales throughout the
remainder of 1997, the adequacy of the cash flow, are forward looking statements
within the meaning of section 27a of the Securities Act of 1993 and Section 21E
of the Securities and Exchange Act of 1934. As discussed above the results
anticipated by any or all of the these forward looking statements may not occur.
Important factors that may cause actual results to differ from the forward
looking statements include the following: 1) the general competition for
consulting services, 2) the ability to maintain and attract consultants with the
skills necessary to meet market demands, 3) the continued ability to sell new
consulting services, 4) the ability to keep consultants fully utilized, and 5)
Oracle's ability to produce acceptable results under the Technology License
Agreement.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- No reports on Form 8-K were filed during the period
- Exhibit 27, Financial Data Schedule
- Exhibit 10, Technology License Agreement*
* To be filed by amendment
10
<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 on May 15,
1997 by the following persons, thereunto duly authorized.
InTime Systems International, Inc.
By: /s/ WILLIAM E. BERRY
-------------------------
William E. Berry
President
(Chief Executive Officer)
By: /s/ MICHAEL D. MATTE
-------------------------
Michael D. Matte
Chief Financial Officer
11
<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 on May 15,
1997 by the following persons, thereunto duly authorized.
InTime Systems International, Inc.
By:
-------------------------
William E. Berry
President
(Chief Executive Officer)
By:
-------------------------
Michael D. Matte
(Chief Financial Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE COMTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,502,062
<SECURITIES> 0
<RECEIVABLES> 2,982,643
<ALLOWANCES> (132,931)
<INVENTORY> 0
<CURRENT-ASSETS> 4,558,498
<PP&E> 1,038,902
<DEPRECIATION> 443,544
<TOTAL-ASSETS> 5,427,349
<CURRENT-LIABILITIES> 970,450
<BONDS> 66,512
0
0
<COMMON> 45,077
<OTHER-SE> 4,345,310
<TOTAL-LIABILITY-AND-EQUITY> 5,427,349
<SALES> 0
<TOTAL-REVENUES> 3,272,534
<CGS> 0
<TOTAL-COSTS> 3,212,757
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 30,276
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 59,777
<INCOME-TAX> 65,000
<INCOME-CONTINUING> 124,777
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124,777
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
