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, 1998.
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 March 31, 1998.
Class A Common Stock 4,516,496 Shares
1
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
FORM 10-QSB
For the Quarter ended March 31, 1998
INDEX PAGE NO.
----- --------
Part I - Financial Information
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,
1998 1997
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,657,152 $ 1,995,165
Accounts receivable net of allowance for doubtful accounts 3,477,841 2,524,205
Other current assets 243,446 378,954
------------ --------------
Total current assets 5,378,439 4,898,324
Fixed assets less accumulated depreciation 475,125 536,953
Software development costs net of accumulated amortization 117,491 156,491
------------ --------------
Total assets $ 5,971,055 $ 5,591,768
============ ==============
Current Liabilities:
Accounts payable and accrued expenses $ 623,587 $ 493,441
Deferred revenue 111,433 162,906
Current obligations under capital leases 35,091 88,934
------------ ---------------
Total current liabilities 770,111 745,281
Total liabilities 770,111 745,281
------------ ---------------
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;
4,516,496 and 1,975,908 shares issued and
outstanding, respectively 45,165 19,759
Class B common stock:
Par value $.01 per share; 3,094,721 shares authorized;
0 and 2,684,022 shares issued and - 25,406
outstanding, respectively
Additional paid-in-capital 6,198,701 6,198,701
Retained (deficit) (1,042,922) (1,397,379)
------------ --------------
Total stockholders' equity 5,200,944 4,846,487
Commitments and contingencies - -
------------ --------------
$ 5,971,055 $ 5,591,768
============ ==============
</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,
1998 1997
---- ----
Net revenues:
Consulting services $4,266,967 $3,197,543
Software related revenue 230,359 36,057
Other 45,771 38,934
---------- ----------
4,543,097 3,272,534
Costs and expenses:
Cost of consulting services 2,496,408 1,989,207
Cost of software services 81,469 111,970
Sales and marketing 548,446 430,416
Computer software development 202,050 115,592
General and administrative 620,598 565,572
---------- ----------
Income before income tax (benefit) 594,126 59,777
Income tax expense (benefit) (Note 1) 239,681 (65,000)
---------- ----------
Net income $ 354,445 $ 124,777
---------- ----------
Basic earnings per share $ .13 $ .05
========== ==========
Diluted earnings per share $ .13 $ .05
========== ==========
Weighted average shares outstanding - basic 2,626,815 2,617,052
========== ==========
Weighted average shares outstanding - diluted 2,683,552 2,672,245
========== ==========
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,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 354,445 $ 124,777
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 136,860 124,414
Increase in provision for doubtful accounts 38,066 30,276
Changes in assets and liabilities:
Increase in accounts receivable (991,702) (778,049)
(Increase) Decrease in other assets 135,508 (117,122)
Increase (Decrease) in accounts payable/accrued
Expenses 130,146 (108,954)
(Decrease) Increase in deferred revenue (51,473) 413,118
---------- ----------
Net cash used in operating activities (248,150) (311,540)
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (36,020) (47,214)
---------- ----------
Net cash used in investment activities (36,020) (47,214)
---------- ----------
Cash flows from financing activities:
Payments on capital leases (53,843) (82,576)
Issuance of common stock -- 1,645
---------- ----------
Net cash (used in) provided by financing (53,843) (80,931)
activities ---------- ----------
Decrease in cash and cash equivalents (338,013) (439,685)
---------- ----------
Cash and cash equivalents at beginning of period 1,995,165 1,941,747
---------- ----------
Cash and cash equivalents at end of period $1,657,152 $1,502,062
========== ==========
</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 15,
1998.
The consolidated results of operations for the three months ended March 31, 1998
are not necessarily indicative of the results of operations for the year ending
December 31, 1998.
The consolidated balance sheet at December 31, 1997 was condensed from the
audited consolidated balance sheet appearing in the Company's Form 10-KSB dated
April 15,1998.
NOTE 2 - INCOME TAXES:
As of March 31, 1998, the Company has a net deferred tax asset consisting
primarily of a net operating loss carry forward in the amount of $74,962.
The Company records deferred income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109. The Company records taxes under
an asset and liability approach recognizing deferred tax liabilities and assets
for the future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities.
NOTE 3 - EARNINGS PER SHARE:
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which
establishes standards for computing and presenting earnings per share ("EPS") by
replacing the presentation by primary EPS with a presentation of basic EPS. In
addition, SFAS No. 128 requires dual presentation of basic and diluted EPS on
the face of the income statement and requires a reconciliation of the numerator
and denominator of the diluted EPS calculation. The Company has adopted SFAS No.
128 as of December 31, 1997.
Net income per share - basic is computed by dividing net income by the weighted
average number of common shares outstanding. Net income per share - diluted is
computed by dividing net income by the weighted average number of common shares
outstanding and dilutive common share equivalents using the treasury stock
method. Dilutive common share equivalents include common shares issuable upon
exercise of outstanding stock options.
Three Months Ended
March 31,
1998 1997
---- ----
WEIGHED AVERAGE SHARES:
Common Stock
Basic 2,626,815 2,617,052
----------- -----------
Diluted 2,683,552 2,672,245
----------- -----------
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,
1998 1997
---- ----
Net Revenues 100% 100%
Consulting Services Costs 55 61
Software Services Costs 2 3
Sales/Marketing Expenses 12 13
Software Development 4 4
General and Administrative Expenses 14 17
-- --
Income from Operations 13% 2%
=== ===
REVENUES
Consulting services revenue increased by $1,069,424 or 33% for the first three
months of 1998 over the same period in 1997. The increase in consulting revenue
is directly related to the increased utilization of the consulting staff. This
continues a positive trend in the growth of consulting services revenue, which
began in September of 1997. Management anticipates that demand for consulting
services will remain strong throughout the remainder of 1998. 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 and the ability to attract and retain qualified consultants could have
an impact on continued revenue 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 increased by $194,302 for the three
months ended March 31, 1998 or 539% compared to the same period in 1997. The
increase relates to direct sales of the TAMS/ O product in the first quarter.
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 required Oracle to pay the Company
$500,000 in prepaid sublicense fees in 1997 but does not require Oracle to
market TAMS/O. The prepayment was recognized as revenue as product is shipped or
over twelve months after Oracle's first customer shipment. The Company is
required to provide 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 marketing
of the product to prospective customers. For the quarter ended March 31, 1998,
24% of software revenue was derived from the Agreement. Oracle will be licensing
the product directly to its customers under similar terms as the licensing of
Oracle's own products. For the quarter ended March 31, 1998, 28% of software
revenue was recognized as a result of the Oracle License Agreement.
7
<PAGE>
Other revenues for the three-month period ending March 31, 1998 increased by
$6,837 over the comparable three-month period in 1997.
COST OF CONSULTING SERVICES
Cost of consulting services increased by 25% or 507,021 in the first quarter of
1998 as compared to the first quarter of 1997. The increase is the direct result
of the increased consulting revenues in 1998 and the mix of employee and
contractors being used. As a percentage of consulting revenue, cost of
consulting services decreased to 59% in the first quarter of 1998 as compared to
62% for the first quarter of 1997.
The decrease in the cost of consulting services as a percentage of consulting
revenue is due primarily to an increase in the overall utilization for the first
quarter of 1998. As the utilization of existing consultants increases, gross
margins will also increase. The gross margin percentages achieved during the
first quarter of 1998 are not necessarily indicative of the gross margins that
will be achievable throughout the remainder of 1998.
SOFTWARE SERVICE COSTS
Software service costs are direct costs associated with the Company's
proprietary software product TAMS/O including: salaries, wages, travel, and
other expenses incurred during sales and related sales support.
For the three months ended March 31, 1998 such costs were 1.8% of net revenues
and 35% of software related revenue. For the comparable period in 1997, such
costs represented 3% of net revenues and 311% 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 License Agreement signed with Oracle.
SALES AND MARKETING EXPENSES
The increase in sales and marketing expenses in the first quarter of 1998 was
$118,030, from the same period in 1997. The increase is due primarily to
additional headcount and increased commissions due to the increased sales in the
first quarter of 1998 vs. the same period in 1997.
SOFTWARE DEVELOPMENT EXPENSES
Software development expense increased 75% from $115,592 for the first quarter
of 1997 to $202,050 in the first quarter of 1998.
The increase is due primarily to the increase in headcount. Several new
developers were hired to handle the increased consulting for TAMS/O
modifications and customizations.
The Company's current expenditures for development are primarily focused on
TAMS/O enhancements and release upgrades.
8
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $55,026 or 9.7% for the
three-month period ended March 31, 1998 compared to the same period in 1997.
In comparing the first quarter of 1998 to the same period in 1997, the increase
is due primarily to the increased cost of recruiting. Through March 31, 1998 the
Company has hired 9 consultant vs. 5 consultants for the same period in 1997.
Absent the recruiting cost, general and administrative cost decreased.
Pretax income for the first quarter of 1998 was $594,126 versus $59,777 for the
same period in 1997. The turn-around is due to the increased utilization of
existing consultants in the first quarter 1998 vs. the first quarter in 1997.
Additionally, software sales for the first quarter of 1998 increased by
approximately $199,000 over the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998 the Company had cash and cash equivalents of $1,657,152 and
working capital of $4,364,882.
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 1998.
On April 26, 1998 the Company's Board of Directors unanimously approved an
acquisition of the Company by ARIS Corporation subject to stockholder approval
and certain other conditions. If the merger with ARIS is not approved, the
Company will experience significant charges associated with the proposed
transaction. The extent of the charges have not been quantified as of May 15,
1998. If the merger with ARIS is approved, certain compensation charges will be
incurred as more than fully disclosed in the Company's 10-KSB and S-4 as
previously filed.
FORWARD-LOOKING STATEMENTS
Certain statements contained in the section of the report under Results of
Operation and Liquidity of Capital Resources 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 believe that these statements are accurate, the Company's business is
dependant upon 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:
/bullet/ The continued positive trend in the growth of consulting services
revenues. Contributing factors include the ability to hire and retain
qualified consultants and the continued demand from existing customers.
/bullet/ The increase in utilization of existing consultants. Contributing
factors include the ability to sell consulting services to new
customers and expand existing contracts.
/bullet/ The Company's anticipated cash needs. Contributing factors include
a sudden loss of revenues due to loss of existing customers, the
ability to attract new customers, attracting and retaining qualified
consultants and the increasing cost of consultants.
/bullet/ Consummation of the merger. Contributing factors includes stockholder
approval and certain other conditions.
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
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, 1998 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>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAIN SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
UNAUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 31, 1998 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-31-1998
<CASH> 1,657,152
<SECURITIES> 0
<RECEIVABLES> 3,665,863
<ALLOWANCES> (188,022)
<INVENTORY> 0
<CURRENT-ASSETS> 5,378,439
<PP&E> 1,329,382
<DEPRECIATION> 854,258
<TOTAL-ASSETS> 5,971,055
<CURRENT-LIABILITIES> 770,111
<BONDS> 0
0
0
<COMMON> 45,164
<OTHER-SE> 5,155,779
<TOTAL-LIABILITY-AND-EQUITY> 5,971,054
<SALES> 0
<TOTAL-REVENUES> 4,543,097
<CGS> 0
<TOTAL-COSTS> 3,948,971
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 38,066
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 594,126
<INCOME-TAX> 239,681
<INCOME-CONTINUING> 354,445
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 354,445
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
