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 June 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 July 31, 1997.
Class A Common Stock 1,923,170 Shares
Class B Common Stock 2,585,588 Shares
1
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INTIME SYSTEMS INTERNATIONAL, INC.
FORM 10-QSB
For the Quarter ended June 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 10
2
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INTIME SYSTEMS INTERNATIONAL, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
<TABLE>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $2,242,065 $1,941,747
Accounts receivable, net of allowance for doubtful accounts 1,880,777 2,101,940
Other current assets 505,802 89,601
---------------- -----------------
Total current assets 4,628,644 4,133,288
Property and equipment, net of accumulated depreciation and
amortization 571,556 633,558
Software development costs, net of accumulated amortization 241,658 312,491
---------------- -----------------
Total assets 5,441,858 5,079,337
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses 244,738 361,888
Deferred revenue 263,547 126,426
Current obligations under capital leases 158,373 202,903
---------------- -----------------
Total current liabilities 666,658 691,217
Obligations under capital leases - 124,155
---------------- -----------------
Total liabilities $666,658 $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; 1,840,606 and 1,790,516 shares
issued and outstanding, respectively $18,406 $17,905
Class B common stock:
Par value $.01 per share; 3,094,721 shares authorized;
2,667,671 and 2,715,664 shares issued and 26,677 27,157
outstanding, respectively
Additional paid-in capital 6,184,311 6,180,643
Retained deficit (1,454,194) (1,961,740)
---------------- -----------------
Total stockholders' equity 4,775,200 4,263,965
Commitments and contingencies - -
---------------- -----------------
$5,441,858 $5,079,337
================ =================
</TABLE>
Attention is directed to the accompanying notes to the condensed consolidated
financial statements.
3
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INTIME SYSTEMS INTERNATIONAL, INC.
Condensed Consolidated Income Statement of Operations
(Unaudited)
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June,30,
<S> <C> <C> <C> <C>
1997 1996 1997 1996
---- ---- ---- -----
Net revenues:
Consulting services $2,827,529 $2,798,674 $6,027,711 $5,073,317
Software related revenue 468,647 148,172 502,063 234,282
Other 32,327 14,497 71,261 15,225
----------------- ---------------- -------------- -------------
3,328,503 2,961,343 6,601,035 5,322,824
Costs and expenses:
Cost of consulting services 1,826,307 1,391,181 3,709,998 2,788,332
Cost of software services 161,791 32,568 273,760 188,521
Sales and marketing 422,838 595,789 853,252 1,270,792
Computer software development 152,836 151,234 268,428 511,314
General and administrative 670,437 495,428 1,335,966 875,802
----------------- ---------------- -------------- -------------
Income (loss) before benefit for income taxes 94,294 295,143 159,631 (311,937)
Benefit for income taxes (Note 1) 288,468 - 347,909 -
----------------- ---------------- -------------- -------------
Net income (loss) $382,762 $295,143 $507,540 $(311,937)
----------------- ---------------- -------------- -------------
Net income (loss) per share (Note 2) $.15 $.11 $.19 $(.12)
================= ================ ============== =============
</TABLE>
Attention is directed to the accompanying notes to the condensed consolidated
financial statements.
4
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INTIME SYSTEMS INTERNATIONAL, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $382,769 $295,143 $507,547 $(311,937)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 104,192 88,543 228,607 169,543
Provision for doubtful accounts receivable 37,310 - 80,198 -
Changes in assets and liabilities:
Increase (decrease) in accounts receivable 931,626 (147,633) 146,463 (802,590)
Decrease in other assets (299,079) (25,873) (421,701) (58,502)
Decrease in accounts payable and accrued expenses (8,197) (148,196) (117,150) (7,925)
(Decrease) increase in deferred revenue ( 275,997) - 137,121 -
--------------- --------------- --------------- --------------
Net cash provided by (used in) operating
activities 872,624 61,984 561,084 (1,011,411)
--------------- --------------- --------------- --------------
Cash flows from investing activities:
Purchase of property and equipment (48,557) (38,282) (95,771) (57,336)
--------------- --------------- --------------- --------------
Net cash provided by (used in) investment
activities (48,557) (38,282) (95,771) (57,336)
--------------- --------------- --------------- --------------
Cash flows from financing activities:
Capital lease - 66,679 - 66,679
Decrease in short term lease obligations (19,599) - (44,530) -
Lease obligations - 335,439 - 335,439
Payments on capital leases (66,512) (2,640) (124,155) (6,085)
Issuance of common stock 2,045 - 3,689 20,164
--------------- --------------- --------------- --------------
Net cash (used in) provided by financing
activities (84,066) 399,478 (164,996) 416,197
--------------- --------------- --------------- --------------
Increase (decrease) in cash and cash equivalents 740,001 423,180 300,317 (652,550)
Cash and cash equivalents at beginning of period 1,502,062 812,844 1,941,747 1,888,574
--------------- --------------- --------------- --------------
Cash and cash equivalents at end of period 2,242,063 $1,236,024 $2,242,064 $1,236,024
=============== =============== =============== ==============
</TABLE>
Attention is directed to the accompanying notes to the condensed consolidated
financial statements.
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INTIME SYSTEMS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - FINANCIAL STATEMENTS:
The accompanying condensed 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 six months ended June
30, 1997 are not necessarily indicative of the results to be expected for the
year ending December 31, 1997.
The condensed consolidated financial statements for December 31, 1996 included
herein were condensed 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 June 30, 1997, the Company has a net deferred tax asset
consisting primarily of a net operating loss carry forward in the amount of
$353,468. Due to sustained profitability and future earnings potential, the
Company believes that it is appropriate to eliminate the valuation allowance
held against the net deferred tax asset. 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 June 30, 1997 is more likely than
not. The effect of reducing the valuation allowance for the second quarter of
1997 is to reduce income tax expense by $288,468.
In determining that it was more likely than not that 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 and future periods.
/bullet/ Reversing taxable temporary differences that would reverse in the
current and future taxable years.
/bullet/ Five 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 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.
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30,
1997 1996 1997 1996
---- ----- ---- ----
<S> <C> <C> <C> <C>
WEIGHED AVERAGE SHARES:
Common stock 2,618,259 2,614,571 2,617,802 2,602,670
</TABLE>
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:
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenues 100% 100% 100% 100%
Consulting Services Costs 55 47 56 52
Software Services Costs 5 1 4 4
Sales/Marketing Expenses 13 20 13 24
Software Development Expenses 5 5 4 10
General and Administrative Expenses 19 17 20 16
Income (Loss) Before Taxes 3% 10% 2% (6%)
</TABLE>
REVENUES
Consulting services revenue is generated from systems integration on human
resource and payroll systems. Consulting services revenue increased by $28,855
or 1% for the three months ended June 30, 1997 over the same period of 1996. For
the six months ended June 30, 1997, consulting services revenue has increased by
$954,394 or 19% from the same period in 1996. Consulting services for the first
six months reflect a month to month decline in the consulting billable hours.
This decline is primarily due to turn-over in consulting staff and a change in
the sales philosophy relating to obtaining new engagements. Previously the
Company focused its marketing efforts primarily on obtaining shorter consulting
engagements for customers that were engaged in the installation of or had
previously installed human resource systems. The marketing thrust was aimed at
obtaining referrals from large vendors of human resource and payroll systems.
The Company is now focusing its attention on selling long-term implementation
engagements directly to potential customers of the three major payroll and human
resource vendors. These larger engagements have a necessarily longer sales
cycle, and the Company believes that its decline in consulting billable hours
may be due to this change in philosophy although no assurances can be given.
Management is unable to forecast how long the negative trend in consulting
services revenue will continue.
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. The Company introduced rapid selection methodology in June and
signed two initial sales for preliminary studies, the City of Charlotte, NC and
Novaris. On June 20th, the Company executed an additional agreement with
Decision Drivers, Inc. for twenty additional units of their modeling tool.
Although initial reaction to rapid selection methodology has been positive,
management is unable to forecast the success of this modeling tool.
Software related revenue includes all revenue related to the Company's Time
and Attendance Management System (TAMS), including direct license, royalty,
installation and maintenance fees. Software related revenue increased by
$320,475 or 216% for the three months ended June 30, 1997 as compared to the
same period in 1996. Year to date software revenue has increased by $267,781 or
114% as compared to the six months ended June 30, 1996. The increase in the
software related revenue for the three months ended June 30, 1997 is primarily
due to the minimum royalty payment made by Oracle in
7
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conjunction with the Technology License Agreement (the "Agreement") signed in
February of 1997. Under the terms of the Agreement, a $500,000 minimum royalty
payment was made to the Company in anticipation of future sales. $275,000 of the
prepaid minimum royalty was recognized as revenue during the second quarter of
1997. The revenue from future sales by Oracle will be off-set by the minimum
amount recognized until such time as the royalties from sales by Oracle have
exceeded the $275,000. The remaining $225,000 of the $500,000 minimum royalty
payment will be recognized as income over the period June 1, 1997 through May
31, 1998 to reflect the ongoing support commitment to Oracle. Other revenue for
the three months ended June 30, 1997 increased by $17,830 or 123% versus the
same period in 1996. Other revenue for the six months ended June 30, 1997
increased $56,036 or 368% over the same period in 1996.
COST OF CONSULTING SERVICES
Cost of consulting services increased by $435,126 or 31% in the second
quarter of 1997 as compared to the same period in 1996. Cost of consulting
services increased $921,666 or 33% for the six months ended June 30, 1997 as
compared to the same period in 1996. The primary reasons for the increase are as
follows: increased use of subcontractors, more employees than the same period in
1996 and an increase in bonuses paid to consultants. As previously mentioned,
the sales philosophy for engagements of the Company has changed which has
resulted in longer sales cycles for the implementation projects the Company
currently seeks and lower margins on consulting services revenue. This in turn
will affect the utilization of existing staff and related consulting margins.
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
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 and Oracle TAMS (OTM), relating to the
Technology License Agreement. Costs include salaries, wages, travel, and other
expenses incurred during sales demonstrations, training and maintaining the
software.
For the three months ended June 30, 1997, software services costs increased
$129,223 or 397% over the comparable period in 1996. For the six months ended
June 30, 1997, software services costs increased $85,239 or 45% from the
comparable period in 1996. The increase in the software services costs reflects
the commitment required by the Technology License Agreement regarding on going
development, maintenance and sales support.
SALES AND MARKETING EXPENSES
Sales and marketing expenses for the three months ended June 30, 1997
decreased $172,951 or 29% from the same period in 1996. For the six months ended
June 30, 1997, sales and marketing expenses decreased $417,540 or 33% as
compared to the same period in 1996.
The decrease in sales and marketing expenses is the result of planned
reduced sales efforts by Company personnel for the Company's software product,
TAMS. OTM is currently being distributed by Oracle in accordance with a
Technology License Agreement. 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.
7
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SOFTWARE DEVELOPMENT EXPENSES
Software development expenses increased by $1,602 or 1% for the three
months ended June 30, 1997 as compared to the same period in the prior year. For
the six months ended June 30, 1997, software development expenses decreased
$242,886 or 48% as compared to 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
completed in the first quarter of 1996. There was no similar cost in 1997.
The Company's current expenditures for research and development are
primarily focused on TAMS/O or OTM enhancements and release upgrades.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $175,009 or 35% for the three
month period ended June 30, 1997 compared to the same period in 1996. For the
six months ended June 30, 1997, general and administrative expenses increased
$460,164 or 53%.
In comparing the second 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. Additionally, the cost of certain key employees and
other costs have been classified as general and administrative from sales and
marketing to more accurately reflect their current responsibilities. 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.
Pre-tax income for the second quarter of 1997 was $94,294 versus $295,143
for the same period in 1996. The decrease is due to lower than projected
utilization (billable consultants) and higher consulting costs.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997 the Company had cash and cash equivalents of $2,242,065
and working capital of $3,916,987.
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
The statements made above under "Results of Operations" relating to
Liquidity and Capital Resources and the adequacy of the cash flows, 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. The results
anticipated by this forward looking statement 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
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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
10
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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 August 8,
1997 by the following persons, thereunto duly authorized.
InTime Systems International, Inc.
August 12, 1997 By: /s/ WILLIAM E. BERRY
---------------------------
William E. Berry
President
(Chief Executive Officer)
August 12, 1997 By: /s/ MICHAEL D. MATTE
----------------------------
Michael D. Matte
Chief Financial Officer
11
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EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
27 Financial Data Schedule
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCE FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> JUN-30-1997 DEC-31-1996
<CASH> 2,242,065 1,941,747
<SECURITIES> 0 0
<RECEIVABLES> 2,010,456 2,204,594
<ALLOWANCES> (129,679) (102,654)
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,628,644 4,133,288
<PP&E> 1,087,460 991,689
<DEPRECIATION> (515,904) (358,131)
<TOTAL-ASSETS> 5,441,858 0
<CURRENT-LIABILITIES> 666,657 691,217
<BONDS> 0 0
0 0
0 0
<COMMON> 45,083 45,062
<OTHER-SE> 4,730,117 4,218,903
<TOTAL-LIABILITY-AND-EQUITY> 5,441,858 5,079,337
<SALES> 0 0
<TOTAL-REVENUES> 6,601,043 11,736,869
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 6,441,409 11,676,534
<LOSS-PROVISION> 80,198 30,654
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 159,631 60,335
<INCOME-TAX> 347,909 0
<INCOME-CONTINUING> 507,540 60,335
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 507,540 60,335
<EPS-PRIMARY> .19 .02
<EPS-DILUTED> .19 .02
</TABLE>
