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 September 30, 1997.
Commission file number: 0-25338
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: (561) 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 November 13, 1997.
Class A Common Stock 1,984,241 Shares
Class B Common Stock 2,540,588 Shares
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
FORM 10-QSB
For the Quarter ended September 30, 1997
Part I - Financial Information
INDEX PAGE NO.
----- --------
Item 1 Financial Statements
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statement of Operations 4
Condensed Consolidated Statement of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II - Other Information 11
2
<PAGE>
<TABLE>
<CAPTION>
INTIME SYSTEMS INTERNATIONAL, INC.
Consolidated Balance Sheet
(Unaudited)
SEPTEMBER 30, December 31,
1997 1996
---------------------- ---------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $2,104,021 $1,941,747
Accounts receivable, net of allowance for doubtful accounts 2,062,819 2,101,940
Other current assets 554,882 89,601
---------------------- ---------------------
Total current assets 4,721,722 4,133,288
Property and equipment, net of accumulated depreciation and
amortization 595,344 633,558
Software development costs, net of accumulated amortization 225,875 312,491
---------------------- ---------------------
Total assets 5,542,941 5,079,337
====================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses 563,293 361,888
Deferred revenue 226,374 126,426
Current obligations under capital leases 124,719 202,903
---------------------- ---------------------
Total current liabilities 914,386 691,217
Obligations under capital leases - 124,155
---------------------- ---------------------
Total liabilities $914,386 $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;
1,968,170 and 1,790,516 shares issued and
outstanding, respectively $19,682 $17,905
Class B common stock:
Par value $.01 per share; 3,094,721 shares authorized;
2,540,588 and 2,715,664 shares issued and
outstanding, respectively 25,406 27,157
Additional paid-in-capital 6,185,153 6,180,643
Retained deficit (1,601,686) (1,961,740)
---------------------- ---------------------
Total stockholders' equity 4,628,555 4,263,965
Commitments and contingencies - -
---------------------- ---------------------
$5,542,941 $5,079,337
====================== =====================
</TABLE>
Attention is directed to the accompanying notes to the condensed consolidated
financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
INTIME SYSTEMS INTERNATIONAL, INC.
Consolidated Income Statement of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues:
Consulting services $ 3,290,525 $3,015,260 $ 9,318,236 $ 8,088,577
Software related revenue 294,801 107,468 796,864 341,750
Other 32,384 14,007 103,645 29,232
------------ ------------ ------------ ------------
3,617,710 3,136,735 10,218,745 8,459,559
Costs and expenses:
Cost of consulting services 1,923,838 1,568,963 5,633,834 4,357,295
Cost of software services 164,603 104,125 438,363 292,646
Sales and marketing 534,873 676,462 1,388,128 2,139,852
Computer software development 178,111 152,235 446,540 668,549
General and administrative 1,032,305 416,300 2,368,264 1,099,504
------------ ------------ ------------ ------------
Income (loss) before benefit for income taxes (216,020) 213,650 (56,384) (98,287)
Benefit for income taxes (Note 2) (68,527) -- (416,436) --
------------ ------------ ------------ ------------
Net income (loss) $ (147,493) $ 213,650 $ 360,052 $ (98,287)
------------ ------------ ------------ ------------
Net income (loss) per share (Note 3) $ (.06) $ .08 $ .14 $ (.04)
============ ============ ============ ============
</TABLE>
Attention is directed to the accompanying notes to the condensed consolidated
financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
INTIME SYSTEMS INTERNATIONAL, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (147,493) $ 213,650 $ 360,052 $ (98,287)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 184,226 83,312 412,833 252,855
Provision for doubtful accounts receivable 41,774 94,000 121,972 94,000
Changes in assets and liabilities:
Decrease in accounts receivable (223,815) (115,383) (77,352) (917,973)
Decrease (increase) in other assets (49,080) 15,065 (470,780) (43,437)
Increase in accounts payable and accrued expenses 318,556 46,102 201,405 43,754
(Decrease) increase in deferred revenue (37,173) (10,969) 99,948 (16,546)
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities 86,995 325,777 648,078 (685,634)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (192,231) (15,602) (288,002) (72,938)
----------- ----------- ----------- -----------
Net cash used in investment activities (192,231) (15,602) (288,002) (72,938)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Lease obligations (33,654) (38,286) (78,184) 363,832
Payments on capital leases -- (2,683) (124,155) (8,763)
Issuance of common stock 847 -- 4,536 20,159
----------- ----------- ----------- -----------
Net cash (used in) provided by financing activities (32,807) (40,969) (197,803) 375,228
----------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents (138,043) 269,206 162,273 (383,344)
Cash and cash equivalents at beginning of period 2,242,063 1,236,024 1,941,747 1,888,574
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 2,104,020 $ 1,505,230 $ 2,104,020 $ 1,505,230
=========== =========== =========== ===========
</TABLE>
Attention is directed to the accompanying notes to the condensed consolidated
financial statements.
5
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
NOTE 1 - FINANCIAL STATEMENTS:
The accompanying 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 the financial position and results of operations for the periods presented.
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 2 to the
Consolidated Financial Statements included in the Company's Form 10-KSB dated
April 14, 1997.
The consolidated results of operations for the three and nine months ended
September 30, 1997 are not necessarily indicative of the results to be expected
for the year ending December 31, 1997.
The consolidated financial statements for December 31, 1996 included herein were
taken from the audited Consolidated Financial Statements included in the
Company's Form 10-KSB dated April 14, 1997.
NOTE 2 - BENEFIT FOR INCOME TAXES:
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. As of September 30, 1997, the Company has a net deferred tax asset
consisting primarily of a net operating loss carry forward in the amount of
$426,557. In the second quarter of 1997, the Company eliminated the valuation
allowance held against the net deferred tax asset due to future earnings
potential. Pursuant to SFAS No. 109, management believes that the realization of
the net deferred tax asset recorded on the condensed consolidated balance sheet
as of September 30, 1997 is more likely than not. The effect of increasing the
deferred tax asset during the third quarter of 1997 is to reduce income tax
expense by $73,089.
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 periods 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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
--------- --------- --------- ---------
WEIGHED AVERAGE SHARES:
Common stock 2,618,755 2,670,625 2,618,425 2,457,175
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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
--- --- --- ---
Net Revenues 100% 100% 100% 100%
Consulting Services Costs 53 50 55 52
Software Services Costs 5 3 4 3
Sales/Marketing Expenses 15 22 14 25
Software Development Expenses 5 5 5 8
General and Administrative Expenses 28 13 23 13
Income (Loss) Before Taxes (6%) 7% (1%) (1%)
REVENUES
Consulting services revenue is generated from systems integration on
human resource and payroll systems. Consulting services revenue increased by
$275,000 or 9% for the three months ended September 30, 1997 over the same
period of 1996. For the nine months ended September 30, 1997, consulting
services revenue has increased by $1,229,000 or 15% from the same period in
1996. The increase in consulting services for the three and nine month period is
primarily attributable to increased head-count and the ability to achieve
increased or higher billing rates. The Company is currently focusing its
attention on selling long-term implementation engagements directly to potential
customers of the three major payroll and human resource vendors.
The Company derives 56% of its revenues from PeopleSoft HRMS
implementations. There are currently two PeopleSoft implementations, Asplundh
Tree Service and New York Times, which represents 13% and 11.4% of total
revenues year-to-date, respectively. The Company currently has contracts for
these clients through October 1997 and May 1998, respectively. There can be no
assurances that the Company will obtain extensions to these contracts or the
customer will authorize additional work to be commenced. Management anticipates
that over the next twelve months, the mix of revenue derived from PeopleSoft
implementations will shift from PeopleSoft to Oracle implementations. This is
due to the investment that the Company has made over the past eighteen months in
the Oracle relationship, as well as anticipated consulting from the product
currently being licensed and sold by the Oracle Corporation.
On May 8th the Company executed a test agreement with Decision Drivers,
Inc., a Gartner Group Company, for use of Decision Drivers modeling tool and
vendor database. The tool is utilized in the Company's "rapid selection
methodology" which assists human resource systems purchasers in making a
knowledgeable decision based on their needs and a factual comparison against
this database. Although initial reaction to rapid selection methodology has been
positive, management is unable to forecast the success of this modeling tool.
Seasonal factors such as weather related shut-downs in major markets,
holidays and vacation days, total business days in a quarter, or the business
practices of a client such as deferring commitments on new projects until after
the end of the fiscal quarter or fiscal year could have an adverse affect on the
Company's business, financial condition and results of operation. These factors
could have an impact on the remainder of the Company's current fiscal year.
7
<PAGE>
Software related revenue includes all revenue related to the Company's
Time and Attendance management system (TAMS/O), including direct license fee,
royalties, installation fees, and maintenance fees. Software related revenue
increased by $187,000 or 174% for the three months ended September 30, 1997 as
compared to the same period in 1996. For the nine months ended September 30,
1997, software license revenue has increased by $455,000 or 133% as compared to
the same period in 1996. The increase in software related revenue for the three
months ended September 30, 1997 is primarily due to the closing of the license
sale to the City of Detroit for $213,000.
Software sales through September 30, 1997 do not include revenue
associated with the Technology License Agreement signed with Oracle. Oracle has
confirmed several units of the Time and Attendance product have sold, but actual
royalty amounts have not been reported to the Company. Revenues related to the
Technology License Agreement will be recorded when reported by Oracle
Corporation.
COST OF CONSULTING SERVICES
Cost of consulting services increased by $355,000 or 23% for the three
months ended September 30, 1997 over the same period of 1996. For the nine
months ended September 30, 1997, cost of consulting services has increased by
$1,277,000 or 29% from the same period in 1996. The increase in the cost of
consulting services is due to the following: increased usage of contractors,
increased headcount, and an increase in bonuses paid to consultants.
The margins on consulting services have decreased as a result of lower
than anticipated utilization of existing staff. This is because as the
utilization of existing consultants decreases, gross margins also decrease.
Ultimately, if the Company is not successful in its sales efforts, management
may be required to reduce consulting staff in order to improve margins. The
gross margin percentage achieved during the third quarter of 1997 is not
necessarily indicative of the gross margins that will be achievable through the
remainder of 1997.
The Company's continued success and future growth will depend on its
ability to attract, develop, and retain a sufficient number of experienced and
highly skilled professional employees. Personnel qualified to deliver most of
the Company's services are in high demand and are likely to remain a limited
resource in the future. There can be no assurances that the Company will be able
to recruit, develop, and retain a sufficient number of experienced and highly
skilled professionals to staff its consulting projects and meet future demands.
The Company's future success in the consulting area will depend in large on its
ability to set high rates of employee utilization, set rates at acceptable
margins, and maintain project quality.
SOFTWARE SERVICE COSTS
Software service costs are direct costs associated with the Company's
proprietary software products, TAMS/O and Oracle Time Management (OTM), relating
to the Technology License Agreement. Costs include salaries, wages, travel, and
other expenses incurred during sales demonstrations and training of Oracle sales
support on the use of the software.
For the three months ended September 30, 1997, software services costs
increased $60,000 or 58% as compared to the prior year. For the nine months
ended September 30, 1997, software services costs increased $145,000 or 50% as
compared to the same period in the prior year. Included in the software service
cost for the three months ended September 30, 1997 is a charge relating to the
severance associated with a former officer of the Company. The remaining
increase in the software services cost reflects the commitment required by the
Technology License Agreement regarding on-going development maintenance and
sales support.
8
<PAGE>
SALES AND MARKETING EXPENSES
Sales and Marketing expenses decreased by $142,000 or 21% for the three
months ended September 30, 1997 over the same period of 1996. For the nine
months ended September 30, 1997, sales and marketing expenses decreased by
$752,000 or 35% from the same period in 1996.
The decrease in sales and marketing expenses year-to-date is the result
of reduced sales efforts from the first quarter of 1996 for the Company's
software product, TAMS/O. In the first quarter of 1996 the Company had begun
establishing a sales infrastructure for the sale and distribution of this
product. This effort was later abandoned due to delays in the release of the
Oracle HRMS product. The time and attendance product is currently being
distributed by Oracle in accordance with a Technology License Agreement and as a
result, no additional sales cost is necessary. Additionally, in the prior year,
certain costs related to the administration of the organization were included in
sales and marketing. These costs include the rent on the corporate headquarters,
as well as the salary of the President and CEO. These costs are being reflected
in general and administrative expense in 1997 and contribute to the decrease in
sales and marketing expense as compared to 1996. A corresponding increase in the
general and administrative expense is discussed below.
SOFTWARE DEVELOPMENT EXPENSES
Software Development expense increased by $21,000 or 13% for the three
months ended September 30, 1997 over the same period of 1996. For the nine
months ended September 30, 1997, software development expense decreased by
$222,000 or 33% from the same period in 1996.
The significant decrease in software development expenses year-to-date
is due to expenditures in the first quarter of 1996 related to the final
development cost of the OTM product which are not included in the 1997 operating
results.
The Company's current expenditures for research and development are
primarily focused on TAMS/O and OTM enhancements and release upgrades.
GENERAL AND ADMINISTRATIVE EXPENSES
General and Administrative expenses increased by $616,000 or 148% for
the three months ended September 30, 1997 over the same period of 1996. For the
nine months ended September 30, 1997, general and administrative expenses
increased by $1,269,000 or 115% from the same period in 1996.
In comparing the third quarter of 1997 and year-to-date expenses,
employee and employee related costs have increased due to an increased number of
administrative employees, as well as significant costs associated with
recruiting new consultants. Certain key employees and other costs have been
classified as general and administrative from sales and marketing to more
accurately reflect their current responsibilities. Of equal significance is the
recruiting cost, which is $224,000 and $456,000 for the quarter and
year-to-date, respectively. Other significant increases in general and
administrative include depreciation, which has increased due to a growth in
fixed assets, accrual for the employee 401(k) plan not included in the first
quarter of 1996, legal fees and office rent. During the third quarter of 1997,
general and administrative expenses increased due to the cost of the Company's
national meeting attended by all employees and accrual of $128,000 related to
the severance of the Company's former Chairman.
Pre-tax loss for the third quarter of 1997 was $216,000 versus a
pre-tax profit of $214,000 in income for the same period in 1996. The decrease
is due to lower than projected utilization (billable consultants) and higher
consulting costs, as well as the one-time charge associated with the
reorganization and related severance costs.
9
<PAGE>
The Company is currently exploring acquisition opportunities and
anticipates making these acquisitions through the issuance of additional common
stock. While the Company's objectives are to ensure that accretive acquisitions
are made, there can be no assurances that the Company will complete any
acquisitions or that the operations of the corporation will be accretive and not
dilutive in nature.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997 the Company had cash and cash equivalents of
$2,104,021 and working capital of $3,758,180.
The Company expects that cash flows from operations and existing cash
and cash equivalents will be adequate to meet the Company's cash requirements
during the remainder of 1997.
FORWARD-LOOKING STATEMENTS
Certain statements contained in the section of the report under Results
of Operation are forward-looking statements within the meaning of Section 27A of
the Securities and Exchange Act of 1993 and Section 21E of the Securities and
Exchange Act of 1934. Statements that express the "belief", "anticipation",
"plans", "expectations", and similar expressions are intended to identify
forward-looking statements. There are a number of important factors that could
cause the Company's actual results to differ materially from those indicated by
such forward-looking statements. While the Company believes that these
statements are accurate, the Company's business is dependant on general economic
conditions and various conditions specific to its industry and future trend
results can not be predicted with certainty. The forward-looking statements
discussed above and some of the qualifying factors are;
* The mix of consulting revenue could shift from the PeopleSoft HRMS product
to Oracle HRMS products. Contributing factors include Oracle's ability to
sell its HRMS software, the ability to sell OTM and TAMS/O, and the ability
of the Company to sell consulting services on Oracle's HRMS products, OTM,
and TAMS/O;
* Seasonal factors such as weather related shut-downs in major markets,
holidays and vacation days, total business days in a quarter, or the
business practices of a client could have an adverse impact on the
financial condition and results of operation. Any of these factors could
have an impact on the remainder of the current fiscal year;
* The Company's continued success and future growth will depend on its
ability to attract, develop, and retain a sufficient number of experienced
and highly skilled professional employees. The Company's inability to
recruit, develop, and retain a sufficient number of experienced and highly
qualified professionals to staff its consulting projects would have an
adverse impact on the Company's performance;
* Sales of the software product, OTM, could vary based on the success of the
Oracle HRMS software. Any down-turned on the sale of Oracle's product would
likely have an adverse impact on InTime software sales; and
* The Company is currently exploring acquisition opportunities and
anticipates making acquisition through the issuance of common stock of the
Company. Among the factors which could impact the ability to complete an
acquisition include price and accounting issues which could impead the
ability of the Company to structure an acquisition on a pooling of interest
basis.
10
<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
27 Financial Data Schedule
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
November 13, 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
12
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> SEP-30-1997 DEC-31-1996
<CASH> 2,104,021 1,941,747
<SECURITIES> 0 0
<RECEIVABLES> 2,214,654 2,204,594
<ALLOWANCES> (151,836) (102,654)
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,721,722 4,133,288
<PP&E> 1,249,306 991,689
<DEPRECIATION> (653,963) (358,131)
<TOTAL-ASSETS> 5,542,941 5,079,337
<CURRENT-LIABILITIES> 914,386 691,217
<BONDS> 0 0
0 0
0 0
<COMMON> 45,086 45,062
<OTHER-SE> 4,583,469 4,218,903
<TOTAL-LIABILITY-AND-EQUITY> 5,542,941 5,079,337
<SALES> 0 0
<TOTAL-REVENUES> 10,218,745 11,736,869
<CGS> 0 0
<TOTAL-COSTS> 10,275,129 11,676,534
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 121,972 30,654
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (56,384) 60,335
<INCOME-TAX> (416,436) 0
<INCOME-CONTINUING> 360,052 60,335
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 360,052 60,335
<EPS-PRIMARY> .14 .02
<EPS-DILUTED> .14 .02
</TABLE>
