SOURCE: Computer Software Innovations, Inc.

Computer Software Innovations, Inc.

November 15, 2010 10:03 ET

Computer Software Innovations, Inc. Announces Third Quarter 2010 Financial Results

EASLEY, SC--(Marketwire - November 15, 2010) - Computer Software Innovations, Inc. (OTCBB: CSWI), CSI Technology Outfitters™ ("CSI") today announced its financial results for the third quarter and nine months ended September 30, 2010.

Financial Highlights:

--  Revenues (2% up, to $41.3 million), profitability (75% up, to
    $0.5 million) and EBITDA (up 5% to $2.9 million) all remain up for the
    Nine Months 2010 over the same period of the prior year, despite the
    impact of a challenging, record-breaking prior year Third Quarter
    included in 2009 Nine Months results.
--  Revenues of $14.5 million for the Third Quarter of 2010, a decrease of
    19% from 2009;
--  Operating Income of $0.7 million for the Third Quarter of 2010, a
    decrease of 45% from 2009;
--  Net Income of $0.4 million for the Third Quarter of 2010, a decrease of
    47% over 2009;
--  EBITDA of $1.3 million for the First Nine Months of 2010, a decrease of
    32% over 2009.

"We were able to continue the momentum from second quarter and are pleased with our third quarter results. We were profitable in our software and technology segments," said Nancy Hedrick, CEO of CSI. "Our year to date top line and bottom line performance remains improved over 2009, despite the continuing economic challenges for our public sector customer base and against the prior year third quarter's record breaking revenues. Our team has worked hard to achieve these results under very challenging conditions. We are continuing to invest in our education cloud solutions and we are excited to be adding CSI@K12 Voice to our education cloud offerings. These investments in our future are impacting our profitability in our software segment. We have begun to roll out our cloud offerings and look forward to a favorable impact in future periods as we gain traction with these new solutions."

Financial Results:

Three Month Financial Results for the Period Ended September 30, 2010

CSI posted revenues of approximately $14.5 million for the third quarter of 2010, a decrease of $3.3 million or 19% compared to the third quarter of 2009. The revenue decrease was due to a $3.0 million decrease in technology revenues primarily from reduced interactive classroom products and services, combined with a $0.3 million decrease in software revenues primarily from reduced new software sales and services.

CSI's gross profit for the third quarter of 2010 was approximately $3.0 million, a decrease of $0.8 million or 20% compared to the third quarter of 2009. The decrease was due to a $0.5 million decrease in gross profit from the software segment driven by reduced revenues and increased costs for development and a $0.3 million decrease in gross profit from the technology segment primarily from reduced interactive classroom services.

CSI's operating income for the third quarter of 2010 was approximately $0.7 million, a decrease of $0.6 million or 45% compared to the third quarter of 2009. The decrease in operating income came from the decrease in gross profit, partially offset by a decrease in operating expenses.

CSI posted net income for the third quarter of 2010 of approximately $0.4 million or $0.06 earnings per basic share and $0.03 earnings per diluted share, compared to a net income of approximately $0.7 million, or $0.11 earnings per basic share and $0.05 earnings per diluted share for the same period of the prior year. The decrease in net income was due to the decrease in operating income, partially offset by reduced interest expense and a decrease in income tax expense.

Earnings before interest, taxes, depreciation and amortization ("EBITDA") for the third quarter of 2010 was approximately $1.3 million, a decrease of $0.6 million or 32% compared to the third quarter of 2009. (EBITDA is a non-GAAP financial measure. See reconciliation to GAAP measure net income which follows below.) The decrease was primarily a result of the decrease in operating income.

Nine Month Financial Results for the Period Ended September 30, 210

CSI posted revenues of approximately $41.3 million for the nine months ended September 30, 2010, an increase of $0.8 million or 2% compared to the same period of the prior year. The revenue increase was due to a $0.7 million increase in technology revenues primarily from increased personal computer and infrastructure equipment sales combined with a $0.1 million increase in software revenues primarily from increased support revenues.

CSI's gross profit for the nine months ended September 30, 2010 was approximately $8.4 million, a decrease of $0.4 million, or 5%, compared to the same period of the prior year. The decrease was due to a $0.1 million decrease in gross profit from the software segment from increased cost of sales due to increased support for new products recently developed while the technology segment gross profit decreased $0.3 million primarily from decreased interactive classroom services sales.

CSI's operating income for the nine months ended September 30, 2010 was approximately $1.2 million, an increase of $0.2 million, or 21%, compared to the same period of the prior year. The improvement in operating income was due to a decrease in operating expenses primarily due to the impact on the nine months results of a reduction in workforce in May of 2009, partially offset by the decrease in gross profit.

Net income for the nine months ended September 30, 2010 was approximately $0.5 million or $0.08 earnings per basic share and $0.04 earnings per diluted share, compared to a net income of approximately $0.3 million, or $0.05 earnings per basic share and $0.02 earnings per diluted share for the same period of the prior year. The increase in net income was due to the improvement in operating income and reduced interest expenses, partially offset by an increase in income tax expense.

EBITDA increased 5% or $0.1 million to $2.9 million for the nine months ended September 30, 2010 compared to EBITDA of $2.7 million reported for the same period in 2009. (EBITDA is a non-GAAP financial measure. See reconciliation to GAAP measure net income which follows below.) The improvement in EBITDA was primarily due to the increase in operating income.

Conference Call Reminder for Today

The Company will host a conference call today, Monday, November 15, 2010 at 4:15 Eastern Time to discuss the Company's financial and operational results for third quarter 2010, which ended September 30, 2010.

Conference Call Details
Date: Monday, November 15, 2010
Time: 4:15 p.m. (EST)
Dial-in Number: 1-877-941-8418
International Dial-in Number: 1-480-629-9808

It is recommended that participants phone-in approximately 5 to 10 minutes prior to the start of the 4:15 p.m. call. A replay of the conference call will be available approximately three hours after the completion of the call for 30 days, until December 15, 2010. To listen to the replay, dial 1-877-870-5176 if calling within the U.S., 1-858-384-5517 if calling internationally and enter the pass code 4381455.

The call is also being webcast and may be accessed at CSI's website at www.csioutfitters.com. The webcast will be archived and accessible until December 15, 2010 on the Company website.

About Computer Software Innovations, Inc.

CSI provides software and technology solutions to public sector markets. CSI software solutions have established the Company as a major software provider in the southeast education market including through its award winning financial management solutions for the education and local government market sectors. CSI's Version3 products, which include identity and access management and cloud-based communication and collaboration solutions expand CSI's presence beyond the southeast and internationally.

The CSI 21st Century Connected School solution has established the Company as a major technology provider to the southeast education market. CSI 21st Century Connected School is a seamless integration of instruction, collaboration, and network solutions. CSI financial management applications and the 21st Century Connected School solutions have been a significant factor in nearly doubling company revenue in the past three years to over $50 million and increasing education revenue contribution to approximately 90% of total revenue.

The CSI solution portfolio encompasses proprietary financial management software specialized for the public sector, lesson planning and identity and access management software, cloud-based communication and collaboration solutions, SharePoint development, network infrastructure and end device solutions, IP telephony and IP convergence applications, network management solutions and managed services, and interactive classroom technologies. More information about CSI (OTCBB: CSWI) is available at www.csioutfitters.com.

                    COMPUTER SOFTWARE INNOVATIONS, INC.
                  CONSOLIDATED STATEMENTS OF OPERATIONS
                                (UNAUDITED)

(Amounts in thousands,
 except per share data)       Three Months Ended      Nine Months Ended
                            ----------------------  ----------------------
                            September   September   September   September
                             30, 2010    30, 2009    30, 2010    30, 2009
                            ----------  ----------  ----------  ----------
REVENUES
  Software Applications
   Segment                  $    3,595  $    3,936  $   11,170  $   11,073
  Technology Solutions
   Segment                      10,871      13,869      30,121      29,382
                            ----------  ----------  ----------  ----------
     Net sales and service
      revenue                   14,466      17,805      41,291      40,455

COST OF SALES
  Software Applications
   Segment
  Cost of sales, excluding
   depreciation,
   amortization and
   capitalization                2,320       1,991       7,051       6,216
  Depreciation                      49          30         126          88
  Amortization of
   capitalized software
   costs                           387         398       1,085       1,133
  Capitalization of software
   costs                          (415)       (240)     (1,270)       (702)
                            ----------  ----------  ----------  ----------
     Total Software
      Applications Segment
      cost of sales              2,341       2,179       6,992       6,735
                            ----------  ----------  ----------  ----------

  Technology Solutions
   Segment
  Cost of sales, excluding
   depreciation                  9,081      11,815      25,826      24,823
  Depreciation                      28          26          76          79
                            ----------  ----------  ----------  ----------
     Total Technology
      Solutions Segment cost
      of sales                   9,109      11,841      25,902      24,902
                            ----------  ----------  ----------  ----------
     Total cost of sales        11,450      14,020      32,894      31,637
                            ----------  ----------  ----------  ----------
     Gross profit                3,016       3,785       8,397       8,818

OPERATING EXPENSES
  Research and development          45          85         122         252
  Selling costs                  1,154       1,164       3,363       3,608
  Marketing costs                  118          77         387         372
  Stock based compensation           8          29          49         137
  Acquisition costs                 --          --          --           2
  Professional, legal
   compliance and litigation
   costs                            66         133         385         378
  Depreciation and
   amortization                    134         160         434         483
  Other general and
   administrative expenses         755         793       2,496       2,627
                            ----------  ----------  ----------  ----------
     Total operating
      expenses                   2,280       2,441       7,236       7,859
                            ----------  ----------  ----------  ----------
     Operating income              736       1,344       1,161         959

OTHER INCOME (EXPENSE)
  Interest expense                 (54)        (95)       (201)       (302)
  Loss on disposal of
   property and equipment           --          --          (2)         (4)
                            ----------  ----------  ----------  ----------
     Net other income
     (expense)                    (54)        (95)       (203)       (306)
                            ----------  ----------  ----------  ----------
     Income before income
      tax expense                  682       1,249         958         653
INCOME TAX EXPENSE                 295         519         443         358
                            ----------  ----------  ----------  ----------
NET INCOME                  $      387  $      730  $      515  $      295
                            ==========  ==========  ==========  ==========

BASIC EARNINGS PER SHARE    $     0.06  $     0.11  $     0.08  $     0.05
                            ==========  ==========  ==========  ==========

DILUTED EARNINGS PER SHARE  $     0.03  $     0.05  $     0.04  $     0.02
                            ==========  ==========  ==========  ==========

WEIGHTED AVERAGE SHARES
 OUTSTANDING:
- Basic                          6,552       6,405       6,490       6,391
                            ==========  ==========  ==========  ==========

- Diluted                       13,912      14,095      13,889      14,081
                            ==========  ==========  ==========  ========== 





                    COMPUTER SOFTWARE INNOVATIONS, INC.
                        CONSOLIDATED BALANCE SHEETS


                                              September 30,
                                                  2010       December 31,
(Amounts in thousands)                         (Unaudited)       2009
                                              -------------  -------------
ASSETS
  CURRENT ASSETS
   Cash and cash equivalents                  $          --  $          --
   Accounts receivable, net                           8,694          7,587
   Inventories                                          917          2,628
   Prepaid expenses                                     191            140
   Income taxes receivable                               43             32
                                              -------------  -------------
     Total current assets                             9,845         10,387

  PROPERTY AND EQUIPMENT, net                           934            732
  COMPUTER SOFTWARE COSTS, net                        2,773          2,573
  GOODWILL                                            2,431          2,431
  OTHER INTANGIBLE ASSETS, net                        2,411          2,647
                                              -------------  -------------
           Total assets                       $      18,394  $      18,770
                                              =============  =============

LIABILITIES AND SHAREHOLDERS' EQUITY
  CURRENT LIABILITIES
   Accounts payable                           $       3,306  $       2,229
   Deferred revenue                                   5,560          7,790
   Deferred tax liability                               617            445
   Bank line of credit                                1,241             --
   Notes payable                                        152            505
   Current portion of subordinated notes
    payable to shareholders                              56          1,750
                                              -------------  -------------
     Total current liabilities                       10,932         12,719
                                              -------------  -------------

  LONG-TERM DEFERRED TAX LIABILITY, net                 139            144
  SUBORDINATED NOTES PAYABLE TO SHAREHOLDERS,
   less current portion                                 802             --
                                              -------------  -------------
     Total liabilities                               11,873         12,863
                                              -------------  -------------

  SHAREHOLDERS' EQUITY
   Preferred stock - $0.001 par value; 15,000
    shares authorized; 6,740 shares issued
    and outstanding                                       7              7
   Common stock - $0.001 par value; 40,000
    shares authorized; 6,541 and 6,448 shares
    issued and outstanding, respectively                  7              6
   Additional paid-in capital                         9,253          9,075
   Accumulated deficit                               (2,638)        (3,153)
   Unearned stock compensation                         (108)           (28)
                                              -------------  -------------
     Total shareholders' equity                       6,521          5,907
                                              -------------  -------------
           Total liabilities and shareholders'
            equity                            $      18,394  $      18,770
                                              =============  =============




                    COMPUTER SOFTWARE INNOVATIONS, INC.
        CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                                (UNAUDITED)

                                  Additional             Unearned
(Amounts in      Common Preferred  Paid-In  Accumulated   Stock
 thousands)      Stock    Stock    Capital    Deficit  Compensation  Total
                 ------ --------- --------- ----------  ----------  -------
Balances at
 December 31,
 2009            $    6 $       7 $   9,075 $   (3,153) $      (28) $ 5,907
   Issuance of
    common stock      1        --        44         --          --       45
   Issuance of
    stock options    --        --       129         --        (129)      --
   Exercise of
    stock options    --        --         5         --          --        5
   Stock based
    compensation     --        --        --         --          49       49
   Net income
    for the nine
    months ended
    September
    30, 2010         --        --        --        515          --      515
                 ------ --------- --------- ----------  ----------  -------
Balances at
 September 30,
 2010            $    7 $       7 $   9,253 $   (2,638) $     (108) $ 6,521
                 ====== ========= ========= ==========  ==========  =======




                    COMPUTER SOFTWARE INNOVATIONS, INC.
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (UNAUDITED)


(Amounts in thousands)                              Nine Months Ended
                                              ----------------------------
                                              September 30,  September 30,
                                                  2010           2009
                                              -------------  -------------
OPERATING ACTIVITIES
   Net income                                 $         515  $         295
   Adjustments to reconcile net income to net
    cash provided by operating activities
      Depreciation and amortization                   1,721          1,783
      Stock compensation expense, net                    93            178
      Deferred income taxes                             168           (234)
      Loss on disposal of property and
       equipment                                          2              4
   Changes in deferred and accrued amounts
      Accounts receivable                            (1,107)         3,306
      Inventories                                     1,711         (1,334)
      Prepaid expenses                                  (51)           (88)
      Accounts payable                                1,077            711
      Deferred revenue                               (2,230)          (522)
      Income taxes receivable/payable                   (11)           366
                                              -------------  -------------
        Net cash provided by operating
         activities                                   1,888          4,465
                                              -------------  -------------

INVESTING ACTIVITIES
   Purchases of property and equipment                 (604)          (234)
   Capitalization of computer software               (1,285)          (732)
   Investment in other intangible assets                 --            (32)
                                              -------------  -------------
        Net cash used for investing
         activities                                  (1,889)          (998)
                                              -------------  -------------

FINANCING ACTIVITIES
   Net borrowings (repayments) under line of
    credit                                            1,241         (2,926)
   Repayments of notes payable                       (1,245)          (541)
   Proceeds from exercise of stock options
    and warrants                                          5
                                              -------------  -------------
        Net cash used for financing
         activities                                       1         (3,467)
                                              -------------  -------------

        Net change in cash and cash
         equivalents                                     --             --
CASH AND CASH EQUIVALENTS, BEGINNING OF
 PERIOD                                                  --             --
                                              -------------  -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD      $          --  $          --
                                              =============  =============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
 INFORMATION:
   Cash paid during the period for:
      Interest                                $         199  $         395
      Income Taxes                            $         287  $         211

Non-GAAP Financial Measure: Explanation and Reconciliation of EBITDA and Adjusted EBITDA

EBITDA is a non-GAAP financial measure used by management, lenders and certain investors as a supplemental measure in the evaluation of some aspects of a corporation's financial position and core operating performance. Investors sometimes use EBITDA as it allows for some level of comparability of profitability trends between those businesses differing as to capital structure and capital intensity by removing the impacts of depreciation and amortization. EBITDA also does not include changes in major working capital items such as receivables, inventory and payables, which can also indicate a significant need for, or source of, cash. Since decisions regarding capital investment and financing and changes in working capital components can have a significant impact on cash flow, EBITDA is not a good indicator of a business's cash flows. We use EBITDA for evaluating the relative underlying performance of the Company's core operations and for planning purposes, including a review of this indicator and discussion of potential targets in the preparation of annual operating budgets. We calculate EBITDA by adjusting net income or loss to exclude net interest expense, income tax expense or benefit, depreciation and amortization, thus the term "Earnings Before Interest, Taxes, Depreciation and Amortization" and the acronym "EBITDA."

EBITDA is presented as additional information because management believes it to be a useful supplemental analytic measure of financial performance of our core business, and as it is frequently requested by sophisticated investors. However, management recognizes it is no substitute for GAAP measures and should not be relied upon as an indicator of financial performance separate from GAAP measures (as discussed further below).

"Adjusted EBITDA" or "Financing EBITDA" is a non-GAAP financial measure used in our calculation and determination of compliance with debt covenants related to our bank credit facilities. Adjusted EBITDA is also used as a representation as to how EBITDA might be adjusted by potential lenders for financing decisions and our ability to service debt. However, such decisions would not exclude those other items impacting cash flow which are excluded from EBITDA, as noted above. Adjusted EBITDA is defined as net income or loss adjusted for net interest expense, income tax expense or benefit, depreciation, amortization, and also certain additional items allowed to be excluded from our debt covenant calculation including other non-cash items such as operating non-cash compensation expense (such as stock-based compensation), and the Company's initial reorganization or restructuring related costs, unrealized gain or loss on financial instrument (non-cash related) and gain or loss on the disposal of fixed assets. While we evaluate the Company's performance against debt covenants on this basis, investors should not presume the excluded items to be one-time costs. If the Company were to enter into additional capital transactions, for example, in connection with a significant acquisition or merger, similar costs could reoccur. In addition, the ongoing impact of those costs would be considered in, and potential financings based on, projections of future operating performance which would include the impact of financing such costs.

We believe the presentation of Adjusted EBITDA is important as an indicator of our ability to obtain additional financing for the business, not only for working capital purposes, but particularly as acquisitions are anticipated as a part of our growth strategy. Accordingly, a significant part of our success may rely on our ability to finance acquisitions.

When evaluating EBITDA and Adjusted EBITDA, investors should consider, among other things, increasing and decreasing trends in both measures and how they compare to levels of debt and interest expense, ongoing investing activities, other financing activities and changes in working capital needs. Moreover, these measures should not be construed as alternatives to net income (as an indicator of operating performance) or cash flows (as a measure of liquidity) as determined in accordance with GAAP.

While some investors use EBITDA to compare between companies with different investment and capital structures, all companies do not calculate EBITDA or Adjusted EBITDA in the same manner. Accordingly, the EBITDA and Adjusted EBITDA measures presented below may not be comparable to similarly titled measures of other companies.

A reconciliation of Net Income reported under GAAP to EBITDA and Adjusted (Financing) EBITDA is provided below:

                              Three Months Ended      Nine Months Ended
                            ----------------------- -----------------------
                            September   September   September   September
                             30, 2010    30, 2009    30, 2010    30, 2009
                            ----------- ----------- ----------- -----------
Reconciliation of net
 income per GAAP to EBITDA
 and Adjusted (Financing)
 EBITDA:
   Net income per GAAP      $       387 $       730 $       515 $       295
   Adjustments:
     Income tax expense             295         519         443         358
     Interest expense, net           54          95         201         302
     Depreciation and
      amortization of
      property and
      equipment and
      intangible assets
      (excluding Software
      development)                  211         216         636         650
     Amortization of
      software development
      costs                         387         398       1,085       1,133
                            ----------- ----------- ----------- -----------
   EBITDA                   $     1,334 $     1,958 $     2,880 $     2,738
                            ----------- ----------- ----------- -----------
   Adjustments to EBITDA to
    exclude those items
    excluded in loan
    covenant calculations:
     Stock based compensation
      (non-cash portion)              8          29          49         137
                            ----------- ----------- ----------- -----------
   Adjusted (Financing)
    EBITDA                  $     1,342 $     1,987 $     2,929 $     2,875
                            ----------- ----------- ----------- -----------

Forward-Looking and Cautionary Statements

This release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Among other things, these statements relate to our financial condition, results of operations and future business plans, operations, opportunities and prospects. In addition, we and our representatives may from time to time make written or oral forward-looking statements, including statements contained in filings with the Securities and Exchange Commission and in our reports to stockholders. These forward-looking statements are generally identified by the words or phrases "may," "could," "should," "expect," "anticipate," "plan," "believe," "seek," "estimate," "predict," "project" or words of similar import. These forward-looking statements are based upon our current knowledge and assumptions about future events and involve risks and uncertainties that could cause our actual results, performance or achievements to be materially different from any anticipated results, prospects, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements are not guarantees of future performance. Many factors are beyond our ability to control or predict. You are accordingly cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date that we make them. We do not undertake to update any forward-looking statement that may be made from time to time by or on our behalf.

In our most recent Form 10-K, we have included risk factors and uncertainties that might cause differences between anticipated and actual future results. We have attempted to identify, in context, some of the factors that we currently believe may cause actual future experience and results to differ from our current expectations regarding the relevant matter or subject area. The operations and results of our software and systems integration businesses also may be subject to the effects of other risks and uncertainties, including, but not limited to:

--  a reduction in anticipated sales;
--  an inability to perform customer contracts at anticipated cost levels;
--  our ability to otherwise meet the operating goals established by our
    business plan;
--  market acceptance of our new software, technology and services
    offerings;
--  an economic downturn; and
--  changes in the competitive marketplace and/or customer requirements.

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