UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 December 31, 2003 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 0-18603
INTEGRAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| Maryland | 52-1267968 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 5000 Philadelphia Way, Lanham, MD | 20706 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code (301) 731-4233
(Former name, address and fiscal year, if changed since last report)
Indicate by checkmark 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 ¨
Indicate by checkmark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). Yes x No ¨
Registrant had 9,956,044 shares of common stock outstanding as of January 30, 2004.
INTEGRAL SYSTEMS, INC.
| Page No. | ||||
| PART I. FINANCIAL INFORMATION: |
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| Item 1. |
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| Consolidated Balance Sheets – December 31, 2003 (unaudited) and September 30, 2003 |
1 | |||
| 3 | ||||
| Unaudited Consolidated Statement of Stockholders’ Equity – Three Months Ended December 31, 2003 |
4 | |||
| 5 | ||||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
10 | ||
| Item 3. |
19 | |||
| Item 4. |
19 | |||
| PART II. OTHER INFORMATION: |
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| Item 6. |
20 | |||
INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2003 and September 30, 2003
ASSETS
| December 31, 2003 (unaudited) |
September 30, 2003 | |||||
| CURRENT ASSETS |
||||||
| Cash |
$ | 25,777,656 | $ | 22,526,718 | ||
| Marketable Securities |
28,071,202 | 28,188,935 | ||||
| Accounts Receivable, net |
31,709,423 | 32,226,317 | ||||
| Notes Receivable |
259,136 | 257,583 | ||||
| Prepaid Expenses |
480,005 | 361,743 | ||||
| Inventory |
1,090,653 | 973,702 | ||||
| Deferred Income Tax - Current Portion |
876,585 | 876,585 | ||||
| TOTAL CURRENT ASSETS |
88,264,660 | 85,411,583 | ||||
| FIXED ASSETS |
||||||
| Electronic Equipment |
4,365,091 | 4,814,843 | ||||
| Furniture & Fixtures |
770,338 | 776,323 | ||||
| Leasehold Improvements |
939,393 | 971,965 | ||||
| Software Purchases |
763,310 | 724,537 | ||||
| SUBTOTAL - FIXED ASSETS |
6,838,132 | 7,287,668 | ||||
| Less: Accumulated Depreciation |
3,075,886 | 3,362,553 | ||||
| TOTAL FIXED ASSETS |
3,762,246 | 3,925,115 | ||||
| OTHER ASSETS |
||||||
| Notes Receivable - Non-Current |
398,878 | 430,917 | ||||
| Intangible Assets, net |
1,097,257 | 1,419,522 | ||||
| Goodwill |
25,715,264 | 25,715,264 | ||||
| Software Development Costs, net |
5,616,537 | 5,754,971 | ||||
| Deposits and Deferred Charges |
133,859 | 135,827 | ||||
| TOTAL OTHER ASSETS |
32,961,795 | 33,456,501 | ||||
| TOTAL ASSETS |
$ | 124,988,701 | $ | 122,793,199 | ||
The accompanying notes are an integral part of these consolidated financial statements.
- 1 -
INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2003 and September 30, 2003
LIABILITIES & STOCKHOLDERS’ EQUITY
| December 31, 2003 (unaudited) |
September 30, 2003 |
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| CURRENT LIABILITIES |
||||||||
| Accounts Payable |
$ | 5,381,494 | $ | 4,544,677 | ||||
| Accrued Expenses |
12,114,315 | 12,507,716 | ||||||
| Capital Leases Payable |
32,960 | 32,270 | ||||||
| Billings in Excess of Cost |
7,705,179 | 7,009,629 | ||||||
| Income Taxes Payable |
635,960 | 601,978 | ||||||
| TOTAL CURRENT LIABILITIES |
25,869,908 | 24,696,270 | ||||||
| LONG TERM LIABILITIES |
||||||||
| Capital Leases Payable |
51,735 | 60,238 | ||||||
| Deferred Income Taxes |
2,420,064 | 2,408,105 | ||||||
| TOTAL LONG TERM LIABILITIES |
2,471,799 | 2,468,343 | ||||||
| STOCKHOLDERS’ EQUITY |
||||||||
| Common Stock, $.01 par value, 40,000,000 shares authorized, and 9,738,928 and 9,723,802 shares issued and outstanding at December 31, 2003 and September 30, 2003, respectively |
97,389 | 97,238 | ||||||
| Additional Paid-in Capital |
77,269,021 | 77,019,957 | ||||||
| Retained Earnings |
19,470,030 | 18,588,185 | ||||||
| Accumulated other comprehensive income |
(189,446 | ) | (76,794 | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY |
96,646,994 | 95,628,586 | ||||||
| TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY |
$ | 124,988,701 | $ | 122,793,199 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
- 2 -
INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended December 31, |
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| 2003 |
2002 |
|||||||
| Revenue |
$ | 20,054,301 | $ | 19,569,781 | ||||
| Cost of Revenue |
||||||||
| Direct Labor |
4,270,970 | 4,186,482 | ||||||
| Overhead Costs |
3,514,873 | 3,171,208 | ||||||
| Travel and Other Direct Costs |
548,715 | 591,343 | ||||||
| Direct Equipment & Subcontracts |
5,095,028 | 6,004,369 | ||||||
| Total Cost of Revenue |
13,429,586 | 13,953,402 | ||||||
| Gross Margin |
6,624,715 | 5,616,379 | ||||||
| Selling, General & Administrative |
2,856,443 | 2,734,456 | ||||||
| Research & Development |
791,241 | 529,617 | ||||||
| Product Amortization |
761,381 | 747,231 | ||||||
| Intangible Asset Amortization |
322,265 | 322,265 | ||||||
| Income From Operations |
1,893,385 | 1,282,810 | ||||||
| Other Income (Expense) |
||||||||
| Interest Income |
169,086 | 165,259 | ||||||
| Interest Expense |
(2,406 | ) | (2,593 | ) | ||||
| Gain on Sale of Marketable Securities |
21,439 | 8,327 | ||||||
| Miscellaneous, net |
(218,228 | ) | (177,889 | ) | ||||
| Total Other Income |
(30,109 | ) | (6,896 | ) | ||||
| Income Before Income Taxes |
1,863,276 | 1,275,914 | ||||||
| Provision for Income Taxes |
689,465 | 426,106 | ||||||
| Net Income |
$ | 1,173,811 | $ | 849,808 | ||||
| Weighted Avg. Number of Common Shares: |
||||||||
| Basic |
9,730,977 | 9,699,729 | ||||||
| Diluted |
10,004,583 | 9,743,439 | ||||||
| Earnings per Share (Basic) |
$ | 0.12 | $ | 0.09 | ||||
| Earnings per Share (Diluted) |
$ | 0.12 | $ | 0.09 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
- 3 -
INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 2003
(Unaudited)
| Number of Shares |
Common Stock at Par Value |
Additional Paid-in Capital |
Retained Earnings |
Accumulated Other Comprehensive Income |
Total |
|||||||||||||||
| Balance September 30, 2003 |
9,723,802 | $ | 97,238 | $ | 77,019,957 | $ | 18,588,185 | $ | (76,794 | ) | $ | 95,628,586 | ||||||||
| Comprehensive Income |
||||||||||||||||||||
| Net Income |
— | — | — | 1,173,811 | — | 1,173,811 | ||||||||||||||
| Unrealized Gain on Marketable Securities (net of deferred tax of $11,959) |
— | — | — | — | 18,706 | 18,706 | ||||||||||||||
| Unrealized Loss on Foreign Currency Exchange Contracts |
— | — | — | — | (196,858 | ) | (196,858 | ) | ||||||||||||
| Effect of Currency Translation |
— | — | — | — | 65,500 | 65,500 | ||||||||||||||
| Total Comprehensive Income |
— | — | — | 1,173,811 | (112,652 | ) | 1,061,159 | |||||||||||||
| Stock Options Exercised |
15,126 | 151 | 249,064 | — | — | 249,215 | ||||||||||||||
| Declared Dividends |
— | — | — | (291,966 | ) | — | (291,966 | ) | ||||||||||||
| Balance December 31, 2003 |
9,738,928 | $ | 97,389 | $ | 77,269,021 | $ | 19,470,030 | $ | (189,446 | ) | $ | 96,646,994 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
- 4 -
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended December 31, 2003 and 2002
(Unaudited)
| For the Three Months Ended December 31, |
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| 2003 |
2002 |
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| Cash flows from operating activities: |
||||||||
| Net income |
$ | 1,173,811 | $ | 849,808 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
1,494,403 | 1,444,998 | ||||||
| Reserve for doubtful accounts |
65,325 | — | ||||||
| Gain on sale of marketable securities |
(21,439 | ) | (8,327 | ) | ||||
| Loss on disposal of fixed assets |
33,166 | 20,968 | ||||||
| Changes in operational assets and liabilities, net of effects from acquisition: |
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| Accounts receivable and other receivables |
480,803 | (1,631,284 | ) | |||||
| Prepaid expenses and deposits |
(114,254 | ) | 315,276 | |||||
| Inventories |
(116,951 | ) | (61,078 | ) | ||||
| Accounts payable |
548,652 | (188,646 | ) | |||||
| Accrued expenses |
(579,931 | ) | (466,843 | ) | ||||
| Billings in excess of cost |
695,550 | 1,186,660 | ||||||
| Income taxes payable, net |
33,982 | 425,306 | ||||||
| Total adjustments |
2,519,306 | 1,037,030 | ||||||
| Net cash provided by operating activities |
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