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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 March 31, 2004

 

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 9,960,344 shares of common stock outstanding as of April 23, 2004.

 

 

Table of Contents

INTEGRAL SYSTEMS, INC.

 

TABLE OF CONTENTS

 

          Page No.

PART I. FINANCIAL INFORMATION:

     

Item 1.

    Financial Statements     
     Consolidated Balance Sheets – March 31, 2004 (unaudited) and September 30, 2003    1
     Unaudited Consolidated Statements of Operations – Three and Six Months Ended March 31, 2004 and March 31, 2003    3
     Unaudited Consolidated Statement of Stockholders’ Equity - Six Months Ended March 31, 2004    4
     Unaudited Consolidated Statements of Cash Flow – Six Months Ended March 31, 2004 and March 31, 2003    5
     Notes to Financial Statements    6

Item 2.

    Management’s Discussion and Analysis of Financial Condition and Results of Operations    10

Item 3.

    Quantitative and Qualitative Disclosures About Market Risk    26

Item 4.

    Controls and Procedures    26

PART II. OTHER INFORMATION:

     

Item 2.

    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities    27

Item 6.

    Exhibits and Reports on Form 8-K    28

 

Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March 31, 2004 and September 30, 2003

 

     March 31,
2004
    September 30,
2003
     (unaudited)     

ASSETS

              

CURRENT ASSETS

              

Cash

    $ 20,458,774    $ 22,526,718

Marketable Securities

      28,263,849      28,188,935

Accounts Receivable

      34,219,917      32,226,317

Notes Receivable

      260,708      257,583

Prepaid Expenses

      474,442      361,743

Inventory

      1,673,834      973,702

Deferred Income Tax

      876,585      876,585
    
  

TOTAL CURRENT ASSETS

      86,228,109      85,411,583

FIXED ASSETS

              

Electronic Equipment

      4,553,338      4,814,843

Furniture & Fixtures

      803,207      776,323

Leasehold Improvements

      929,100      971,965

Software Purchases

      776,101      724,537
    
  

SUBTOTAL - FIXED ASSETS

      7,061,746      7,287,668

Less: Accum. Depreciation

      3,486,267      3,362,553
    
  

TOTAL FIXED ASSETS

      3,575,479      3,925,115

OTHER ASSETS

              

Notes Receivable - Non-Current

      366,439      430,917

Intangible Assets, net

      774,993      1,419,522

Goodwill

      25,715,264      25,715,264

Software Development Costs

      5,326,432      5,754,971

Deposits, Deferred Charges, and Other

      208,513      135,827
    
  

TOTAL OTHER ASSETS

      32,391,641      33,456,501

TOTAL ASSETS

    $ 122,195,229    $ 122,793,199
    
  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

- 1 -

Table of Contents

INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March 31, 2004 and September 30, 2003

 

     March 31,
2004
     September 30,
2003
  
     (unaudited)        

LIABILITIES & STOCKHOLDERS’ EQUITY

                 

CURRENT LIABILITIES

                 

Accounts Payable

    $ 5,506,281     $ 4,544,677  

Accrued Expenses

      5,131,748       12,507,716  

Capital Leases Payable

      33,665       32,270  

Billings in Excess of Cost

      6,715,494       7,009,629  

Income Taxes Payable

      139,287       601,978  
    
 

TOTAL CURRENT LIABILITIES

      17,526,475       24,696,270  
    
 

LONG TERM LIABILITIES

                 

Capital Leases Payable

      43,050       60,238  

Deferred Income Taxes

      2,450,077       2,408,105  
    
 

TOTAL LONG TERM LIABILITIES

      2,493,127       2,468,343  

STOCKHOLDERS’ EQUITY

                 

Common Stock, $.01 par value, 40,000,000 shares authorized, and 9,953,594 and 9,723,802 shares issued and outstanding at March 31, 2004 and September 30, 2003, respectively

      99,536       97,238  

Additional Paid-in Capital

      81,213,398       77,019,957  

Retained Earnings

      20,905,466       18,588,185  

Accumulated other comprehensive income

      (42,773 )     (76,794 )
    
 

TOTAL STOCKHOLDERS’ EQUITY

      102,175,627       95,628,586  
    
 

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY

    $ 122,195,229     $ 122,793,199  
    
 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

- 2 -

Table of Contents

INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

     Three Months Ended March 31,
     Six Months Ended March 31,
  
     2004
     2003
     2004
     2003
  

Revenue

    $ 22,508,021     $ 19,956,596     $ 42,562,322     $ 39,526,377  

Cost of Revenue

                                 

Direct Labor

      5,000,074       4,514,164       9,271,044       8,700,646  

Overhead Costs

      3,676,326       3,199,103       7,191,199       6,370,311  

Travel and Other Direct Costs

      672,061       579,698       1,220,776       1,171,041  

Direct Equipment & Subcontracts

      5,215,790       4,789,988       10,310,818       10,794,357  
    
 
 
 

Total Cost of Revenue

      14,564,251       13,082,953       27,993,837       27,036,355  
    
 
 
 

Gross Margin

      7,943,770       6,873,643       14,568,485       12,490,022  

Selling, General & Administrative

      3,228,720       2,936,196       6,085,163       5,670,652  

Research & Development

      915,251       578,885       1,706,492       1,108,502  

Product Amortization

      761,381       747,231       1,522,762       1,494,462  

Intangible Asset Amortization

      322,264       322,265       644,529       644,530  
    
 
 
 

Income From Operations

      2,716,154       2,289,066       4,609,539       3,571,876  

Other Income (Expense)

                                 

Interest Income

      140,323       139,365       309,409       304,624  

Interest Expense

      (1,739 )     (2,389 )     (4,145 )     (4,982 )

Gain on sale of marketable securities

      0       0       21,439       8,327  

Miscellaneous, net

      (65,735 )     (59,658 )     (283,963 )     (237,547 )
    
 
 
 

Total Other Income

      72,849       77,318       42,740       70,422  

Income Before Income Tax

      2,789,003       2,366,384       4,652,279       3,642,298  

Provision for Income Taxes

      1,008,768       881,630       1,698,233       1,307,736  
    
 
 
 

Net Income

    $ 1,780,235     $ 1,484,754     $ 2,954,046     $ 2,334,562  
    
 
 
 

Weighted Avg. Number of Common Shares:

                                 

Basic

      9,955,794       9,710,205       9,843,386       9,705,717  

Diluted

      10,076,410       9,758,275       9,977,816       9,751,072  

Earnings per Share (Basic)

    $ 0.18     $ 0.15     $ 0.30     $ 0.24  

Earnings per Share (Diluted)

    $ 0.18     $ 0.15     $ 0.30     $ 0.24  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

- 3 -

Table of Contents

INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED MARCH 31, 2004

(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  
    
 
 
 
 
 

Net income

    —         —         —         2,954,046       —         2,954,046  

Unrealized Gain on Marketable Securities (net of deferred tax of $41,972)

    —         —         —         —         65,649       65,649  

Unrealized Loss on Foreign Currency Exchange Contracts

    —         —         —         —         (86,404 )     (86,404 )

Effect of Currency Translation

    —         —         —         —         54,776       54,776  
                          
 
 

Total Comprehensive Income

                            2,954,046       34,021       2,988,067  

Repurchased Shares

    (4,650 )     (46 )     (35,236 )     (46,103 )     —         (81,385 )

Shares issued to acquire RT Logic

    209,926       2,099       3,817,924       —         —         3,820,023  

Stock Options Exercised

    24,516       245      </