SECURITIES AND EXCHANGE COMMISSION 

                          WASHINGTON, D.C.  20549

                                 FORM 10-KSB


    (Mark One)
         X    	ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
				SECURITIES EXCHANGE ACT OF 1934 {Fee Required}

For the fiscal year ended September 30, 1996

              	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
				SECURITIES EXCHANGE ACT OF 1934 {No Fee Required}

For the transition period from  		  to  		

Commission file number  	  0-18603	


            Integral Systems, Inc.				
		
(Name of small business issuer in its charter)


        Maryland                 52-1267968		
	
	(State or other jurisdiction of			(I.R.S. 
  incorporation of organization     Employer Identification No.)


5000 Philadelphia Way, Suite A, Lanham, MD			    20706	
(Address of principal executive offices)       (Zip Code)


Issuer's telephone number  (301) 731-4233				

Securities registered under Section 12(b) of the Exchange Act:

	Title of each class	Name of each exchange on which registered


Securities registered under Section 12(g) of the Exchange Act:

          Common				
      (Title of class)
					

(Title of class)
<PAGE>


Indicate by check mark 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 to file such 
reports), and (2) has been subject to such filing requirements 
for the past 90 days.

	Yes      X   	                   No      		

As of November 30, 1996, the aggregate market value of the Common 
Stock of the Registrant (based upon the average bid and ask 
prices of the Common Stock as reported by the market makers) held 
by non-affiliates of the Registrant was $19,588,322.

As of November 30, 1996, 952,533 shares of the Common Stock of 
the Registrant were outstanding.

<PAGE>

PART 1


Item 1.  Business

General

Integral Systems, Inc. (the "Company") is a leading provider of 
satellite ground systems: computer systems for satellite command 
and control, data processing, simulation, and flight software 
validation.  Customers for these systems include US Government 
organizations such as National Aeronautics and Space 
Administration (NASA), the National Oceanic and Atmospheric 
Administration (NOAA), and the US Air Force, as well as 
commercial satellite operators, both domestic and foreign.  
Integral Systems supports satellite missions for scientific 
research, remote sensing, meteorology, and communications 
applications.  In addition, the Company offers ground system 
products explicitly for real-time environmental monitoring via 
satellite.

The Company has one active wholly owned subsidiary, Integral 
Marketing, Inc. (IMI).  IMI specializes in the sale and marketing 
of electronic equipment primarily for the telemetry, data 
acquisition and test communities.  


Satellite Ground Systems

The Company offers off-the-shelf products as well as custom 
development services for satellite ground systems.  The customers 
for the Company's products include government and commercial 
satellite operators, spacecraft manufacturers, and systems 
integrators.  Typical sales involve a combination of off-the-
shelf software and hardware products together with development 
services for mission specific requirements and system 
integration.

The Company's flagship commercial product is the EPOCH 2000 
software which includes real-time command and control functions 
as well as off-line orbit analysis and mission planning 
functions.  This product has gained international recognition and 
is currently used as a solution on a number of Government and 
commercial satellite programs. EPOCH 2000 components and turnkey 
systems (software and hardware) have been sold to a number of 
customers, including ChinaSat in the Peoples Republic of China, 
the National Space Program Office in Taiwan (ROCSAT),  EOSAT, 
Earthwatch, Johns Hopkins University Applied Physics Laboratory, 
AT&T, GE Americom, APT Satellite Company, Loral, TRW, Orbital 
Sciences Corporation, the US Air Force, and the US Navy.

Integral Systems has ongoing systems engineering work under 
contract to NASA at the Goddard Space Flight Center.  This work 
is in support of NASA's science satellites and includes 
development projects for telemetry and command systems and 
simulation as well as software verification and validation.  The 
Company developed the first workstation-based satellite command 
and control system for NASA Goddard and has supported over a 
dozen different NASA space missions.

For NOAA, Integral Systems builds command and control systems as 
well as payload and image data processing systems for 
meteorological satellites.  The Company has had extensive 
involvement in the both the TIROS and GOES satellite programs.

Recently, the company was awarded a large contract by NOAA to 
provide the command and control system for the Air Force's DMSP 
(Defense Meteorological) satellite fleet.  Integral Systems has 
also built several generations of the DMSP hardware-in-the-loop 
simulator and provided the satellite manufacturer with a 
workstation-based flight software test facility.  The Company 
provides the Air Force with ongoing services for independent 
verification and validation of the DMSP flight software using 
this simulator. 

<PAGE>
Integral Systems also provides a product, called the DOMSAT 
Receive Station (DRS), which facilitates the collection, storage, 
and analysis of environmental data.  The DRS is a PC-based system 
which includes an antenna, receiver, and processing software 
which allows customers to take advantage of the complete NOAA 
GOES Data Collection System.  The Company has sold over 60 DRS 
systems to customers including the Army Corps of Engineers, the 
US Geological Survey, and a variety of state and local 
governments.  The applications include meteorology, water 
control, and pollution monitoring, as well as research in 
geomagnetism and hydrology.


Integral Marketing, Inc.

Through it's wholly-owned subsidiary, Integral Marketing, Inc. 
(IMI), the Company acts as a manufacturer's representative, 
selling electronic test instrumentation and equipment to 
customers in Maryland, D.C., and Virginia.  IMI currently 
represents 14 manufacturers. 


Contract Revenue

	Integral Systems'commercial revenue as a percentage of total 
revenue increased from 42% to 49% between fiscal year 1995 and 
fiscal year 1996.  The Company is continuing to focus its 
marketing efforts on commercial opportunities.  The Company's 
revenue for fiscal years 1996 and 1995 was generated from the 
following sources:
<TABLE>
<S>                           <C>          <C>

                                 Fiscal Year 
Customer                      1996         1995

Commercial                    49           42
NOAA                          22           30
Air Force                     17           12
NASA                          12           16
</TABLE>

		
	ISI's services are principally performed under cost-plus-
fixed-fee contracts, fixed price, and time-and-material contracts 
and subcontracts.  Under cost-plus-fixed-fee contracts, the 
Company is reimbursed for allowable costs within the contractual 
terms and conditions and is paid a negotiated fee.  Under fixed-
price contracts, ISI is paid a stipulated price for services or 
products and bears the risk of increased or unexpected costs.  
Under time-and-materials contracts, the Company receives fixed 
hourly rates intended to cover salary costs attributable to work 
performed on the contract and related overhead expenses, 
reimbursement for other direct costs, and a stipulated profit.  
All contracts include specified objectives and performance 
periods ranging from a few weeks to several years, with most of 
the contracts providing for terms of 4 years or less.

<PAGE>
	The percentage of revenues derived by the Company under 
these different types of contracts for the fiscal years ended 
September 30, 1996 and 1995 is as follows:
<TABLE>
<S>                         <C>           <C>

                                Fiscal Year
Contract Type               1996          1995

Cost Plus                   39            43
Fixed Price                 56            53
Time and Materials           5             4
</TABLE>

Government Contracts

	Company revenues from US Government contracts are derived 
from a combination of contracts with the US Government and 
subcontracts with other companies that have prime contracts with 
the US Government.  The percentage of revenues received by the 
Company from prime contracts and subcontracts with the Government 
for fiscal years 1996 and 1995 are as follows:
<TABLE>
<S>                         <C>          <C>

                               Fiscal Year
Contract Source             1996         1995

Prime Contract              59           46
Subcontract                 41           54
</TABLE>

US Government contracting procedures may be categorized by 
formal advertising or procurement by negotiation.  Negotiated 
procurements may, but do not necessarily, involve the 
solicitation of competitive proposals.  If competitive proposals 
are solicited, the US Government selects the proposal most 
advantageous to it and then conducts negotiations with the 
selected bidder. Most contracts awarded to the Company or to 
other prime contractors for whom the Company served as a 
subcontractor were awarded on the basis of competitive 
procurements.

	Many of the programs in which ISI participates as a 
contractor or subcontractor extend for several years, but are 
funded only on an annual basis.  Accordingly, the Company's 
contracts and subcontracts are subject to termination, reduction 
or modification in the event of changes in the Government's 
requirements or budgetary constraints.  Additionally, when ISI 
participates in a project as a subcontractor, it is subject to 
the risk that the prime contractor may fail or be unable to 
perform the prime contract.

	All of the Company's US Government contracts and 
subcontracts are also subject to termination for "convenience".  
Should a contract be so terminated, the Company would be 
reimbursed for allowable costs to the date of termination and 
would be paid a proportionate amount of the stipulated profits or 
fees attributable to the work actually performed.  To date, no 
ISI contract has been terminated for convenience.

	The Company expects that 53% of revenue for the current 
fiscal year (fiscal year 1997) will be derived from five major US 
Government contracts and subcontracts.  It is estimated that the 
largest single contract will represent approximately 27% of the 
Company's revenue and the smallest approximately 3%.  The loss or 
termination of any one of these contracts due to funding cuts or 
contract termination could significantly affect the Company's 
performance.  Similarly, the expiration of any major contract 
could significantly affect the Company's performance if not 
renewed or replaced by contracts of similar value.  In addition, 
<PAGE>
since a significant portion of revenue for the current fiscal 
year is derived from subcontracts, loss of those subcontracts due 
to termination of the subcontract or of the direct prime contract 
could also affect the Company's performance.  During fiscal year 
1996, approximately 56% of ISI's revenue was performed under 
fixed-price contracts and subcontracts.  Under those contracts, 
an unanticipated increase in the Company's cost or expenses may 
reduce or eliminate the profitability of those contracts, thereby 
adversely affecting the Company's financial performance.

	ISI's books and records are subject to audit by the Defense 
Contract Audit Agency.  Such audits can result in adjustments to 
contract costs and fees.  No audits are currently in process.  
Although the Company thus far has not been required to make any 
material audit adjustments, the possibility that such adjustments 
will be required always exists.  Management is of the opinion 
that any such audit adjustments would not have a material effect 
on the financial position or results of operations of the 
Company.


Employees

	As of December 19, 1996, the Company employed 92 full time 
employees, 79 of whom are considered professionals in engineering 
related disciplines.  Of the engineering professionals, 97% have 
undergraduate degrees in a scientific discipline, and 34% of 
those have advanced degrees in a scientific discipline.  
Approximately 84% of the engineering staff have at least seven 
years experience, and 13% have three to eight years experience.  
Approximately 18% of the engineering staff specialize in digital 
hardware development, although many of these individuals have 
analytic and software development expertise as well.  The 
remaining 82% of the engineering staff are analysts and software 
developers.

	Employees are not represented by any union or collective 
bargaining group, and employee relations are considered good.  
Since inception, ISI has experienced minimal turnover in 
engineering staff.


Marketing

	The Company relies upon senior corporate management, project 
managers and senior technical staff to carry out its marketing 
program.  These individuals collect information concerning 
requirements of current and potential customers in the course of 
contract performance, formal and informal briefings, from 
published literature, and through participation in professional 
and industry organizations.  Senior management evaluates this 
information, identifies potential business opportunities and 
coordinates proposal efforts.  As sources of business within 
existing markets are exhausted, new markets are explored.  The 
Company seeks business believed to be of long term benefit based 
on considerations such as technical sophistication required, 
favorable market positioning and potential product spin-offs.  

<PAGE>

Backlog

	The Company's estimated backlog as of September 30, 1996 and  
September 30, 1995 is as follows:
<TABLE>
<S>                        <C>                        <C>


                       September 30, 1996             September 30, 1995

Outstanding Commitments    $18,162,147                $ 9,596,273
General Commitments        $ 9,489,563                $14,784,770
Total                      $27,651,710                $24,381,043
</TABLE>

	Under outstanding commitments, the Company agrees to provide 
specific services, frequently over an extended period of time, 
with continued performance of those services contingent upon the 
customer's year-to-year decision to fund the contract.  General 
commitments consist of contract options and sole source business 
that management believes likely to be exercised or awarded in 
connection with existing contracts.  Contract options are the 
Company's contractual agreement to perform specifically defined 
services only in the event the customer thereafter requests the 
Company to do so.  Sole source business refers to contract work 
which the Company reasonable expects to be awarded based on its 
unique expertise in a specific area or because it has previously 
done all such work in that area for the customer or prime 
contractor who will award the contract.  The Company estimates 
that 54% of backlog as of September 30, 1996 will be completed 
during fiscal year 1997.  Estimated backlog includes contract 
options through September 30, 2002, including general 
commitments.


Competition

	The Company principally obtains contracts and subcontracts 
through competitive procurements offered by the US Government or 
commercial enterprises.  ISI competes with numerous companies 
having similar capabilities, some of which are larger and have 
considerably greater financial resources.  In addition, many 
smaller companies have specialized capabilities in similar areas.

	Because of its size, ISI often joins with a larger company 
in pursuing major procurements.  It is not unusual for ISI to 
compete with a company for a contract while simultaneously 
joining with the same company in pursuit of another contract.  
The Company has entered into such joint bidding relations with 
Martin Marietta, Space Systems/Loral Corporation; Computer 
Sciences Corporation, and AlliedSignal Aerospace/Bendix Field 
Engineering Corporation.

	It is not possible to predict how ISI's competitive position 
may be affected by changing economic or competitive conditions, 
customer requirements or technological developments.  The 
principal competitive factors for the Company's business are 
reputation and relationship with customers and competitors, 
quality of services and products, pricing, responsiveness, and a 
demonstrable record of delivering work on time and within budget.

<PAGE>

Software Products and Development

	In the second quarter of 1991, ISI undertook several 
internal software development efforts, which have resulted in 
products which the Company is offering commercially.  The DOMSAT 
Receive Station (DRS) product is a hardware/software system that 
allows users to gather environmental telemetry data via a 
commercial communications satellite.  In fiscal year 1996, 
Integral Systems recognized approximately $229,000 in revenue on 
the DRS product.

The EPOCH 2000 product is a hardware/software system that 
allows users to command and control satellites.  The product was 
formally announced in the second quarter of 1992.  EPOCH related 
revenue (license fees and associated services) amounted to $4.2 
million in fiscal year 1996.

The Company has also developed other software intensive 
products.  OASYS, a spacecraft orbit determination product, can 
be sold as a stand-alone package or as a subsystem under the 
EPOCH 2000 product.  OASYS related revenue for fiscal year 1996 
was $384,000.

The Company continues to develop new versions of EPOCH and 
OASYS and plans to capitalize development costs as appropriate in 
fiscal year 1997.


Environment

	No material effects on the Company's expenditures, earnings, 
or competitive position are anticipated as a result of compliance 
with federal, state, and local provisions which have been enacted 
or adopted regulating the discharge of material into the 
environment, or otherwise related to the protection of the 
environment.


Financing

	On July 28, 1988, ISI sold 110,000 of its common shares (par 
value $.01) in its initial public offering for $5.00 per share.

	ISI also has a line of credit agreement with NationsBank for 
$1,200,000.  Borrowings under the line of credit bear interest at 
the bank's prime rate plus one-quarter (1/4) percentage point per 
annum.  Any accrued interest is payable monthly.   At September 
30, 1996 the Company had no amounts outstanding under the line of 
credit.

<PAGE>

Financial Information in Industry Segments

	During the year ended September 30, 1996, the Company's 
operations included two reportable segments:  Satellite ground 
systems and electronic test instrumentation and equipment 
marketing.

	The Company provides satellite ground systems - computer 
systems for satellite command and control, data processing, 
simulation, and flight software validation.  Customers for these 
systems include US Government organizations such as National 
Aeronautics and Space Administration (NASA), the National Oceanic 
and Atmospheric Administration (NOAA), and the US Air Force, as 
well as commercial satellite operators, both domestic and 
foreign.

	Through it's wholly-owned subsidiary, Integral Marketing, 
Inc. (IMI), the Company acts as a manufacturer's representative, 
selling electronic test instrumentation and equipment to 
customers primarily in Maryland, Virginia and the District of 
Columbia.  (The Company's other wholly-owned subsidiary, 
InterSys, Inc. provides consulting services for satellite design 
and procurement, but is presently inactive.)

	See Footnote Number 12 of the notes to the Financial 
Statements for financial information regarding these segments.


Item 2.	 Properties

	As of March, 1994, ISI renegotiated its lease which 
obligated the Company for an additional five years, for an 
aggregate of 25,600 square feet of office space at its principal 
location at 5000 Philadelphia Way, Suite A, Lanham, Maryland 
20706-4417.  The annual lease cost, including operating expenses, 
for the facility, is approximately $242,374.


Item 3.	Legal Proceeding

	During the fiscal year ended September 30, 1996 the Company 
sold certain of its software products along with specified 
hardware to a Federal Government agency.  The procurement 
required the Company to sell these items through an intermediary 
prime contractor.  The value of the contract to the Company was 
$232,708.  

The Company fully complied with the terms of its contract 
and although the third party prime contractor has been paid in 
full by the Federal Government,  Integral Systems has received no 
payments to date.  In August, 1996 the Company filed a complaint 
in the Second Judicial District Court of the State of New Mexico 
against the prime contractor and its principal owner individually 
for breach of contract in an attempt to recover the value of its 
contract.  Based on discovery received, the Company later filed a 
motion for summary judgment against the defendants in December, 
1996.

In late September, 1996 the defendants filed a counterclaim 
against the Company alleging defamation, intentional interference 
with contractual relations and the prima facie tort of extortion.  
The Company believes the counterclaim is without merit and will 
not have a materially adverse effect on its financial statements.

Although the Company has fully reserved the receivable due 
under this contract ($232,708), it continues to vigorously pursue 
all legal remedies available to it.

<PAGE>


Item 4.	Submission of Matters to a Vote of Security Holders

	On March 28, 1996, Integral Systems held their annual 
shareholders meeting.  A Board of Directors was elected, and is 
made up of the following individuals:  Steven R. Chamberlain, 
Robert P. Sadler, Bonnie K. Wachtel, Louis Brown, Thomas L. 
Gough, Dominic A. Laiti, and R. Doss McComas.  In September, 
1996, Mr. Louis Brown announced his resignation as a member of 
the board.  

<PAGE>

PART II


Item 5.	Market for Registrant's Common Equity and Related 
Stockholder's Matters

	Effective May, 1990, Integral Systems' over-the-counter 
stock began trading on NASDAQ.  The Company's NASDAQ trading 
symbol is ISYS.  The range of high and low transaction prices as 
reported by NASDAQ and the market makers for each quarterly 
period during the fiscal years ended September 30, 1996 and 1995, 
are shown below:

<TABLE>
        <S>                    <C>        <C>
  
         1996 Fiscal Year      High       Low

         First Quarter         28 1/4     22
         Second Quarter        27         19
         Third Quarter         29 1/2     21 1/2
         Fourth Quarter         2 1/2      2 1/2



        1995 Fiscal Year       High       Low

        First Quarter          17 3/4     16 3/4
        Second Quarter         23 1/2     17 1/2
        Third Quarter          28         25 3/4
        Fourth Quarter         31         26 1/2
</TABLE>

	As of September 30, 1996, there were approximately 436 
holders of record of the Company's Common Stock.

	No cash dividends have been paid during the Company's 
existence, and none are expected to be declared during the 
forthcoming 1997 fiscal year.
<PAGE>

Item 6.	Management's Discussion And Analysis Of Financial 
        Condition And Results	Of Operations

             COMPARISON OF FISCAL YEAR 1996 
                   TO FISCAL YEAR 1995

	The components of the Company's income statement as a 
percentage of revenue are depicted in the following table for 
fiscal years 1996 and 1995.  Certain classifications and 
presentations from fiscal year 1995 have been changed to be 
consistent with fiscal year 1996 formats.
<TABLE>
<S>                          <C>         <C>     <C>           <C>
                                          % of                % of
                               1996    Revenue   1995         Revenue
                       (000's omitted)         (000's omitted)

Revenue                     $11,217     100.0   $10,771       100.0

Expenses         
    Cost of Revenue           8,217      73.2     8,290        77.0
    Selling, General 
    & Admin.                  1,758      15.7     1,434        13.3
    Bad Debt Expense            233       2.1         -           -
    Prod. 
Amortization                    509       4.5       509         4.7
    Other                        -2         -       -38         -.3
    Income Taxes                179       1.6       195         1.8

Total Expenses               10,894      97.1    10,390        96.5

Net income                     $323       2.9      $381         3.5
</TABLE>


Revenue

	The Company's principal components of revenue for fiscal years 
1996 and 1995 are as follows:

<TABLE>
    <S>                     <C>        <C>         <C>       <C>
                                        % of                 % of
                                1996   Revenue   1995        Revenue
                       (000's omitted)        (000's omitted)

Government Revenue         $5,686      50.7       $6,239     57.9

Commercial Revenue   
    EPOCH                   4,240      37.8        3,512     32.6
    OASYS, DRS, Other         629       5.6          753      7.0
    IMI                       662       5.9          267      2.5

    Total                   5,531      49.3        4,532     42.1

Total Consolidated 
Revenue                   $11,217     100.0      $10,771    100.0

</TABLE>

<PAGE>
	Consolidated revenue increased by approximately $450,000 
between the fiscal year ended September 30, 1996 and the fiscal 
year ended September 30, 1995, principally because of new 
contract awards related to the sale of the Company's EPOCH 
product along with associated integration services.  Revenue 
increases from EPOCH related business more than offset a $550,000 
decline in the Company's Government business.  The Government 
decline is believed to be temporary as new contracts in this 
segment received at the end of fiscal year 1996 should provide 
for higher revenue levels (compared to both 1996 and 1995) during 
fiscal year 1997.  Although less than 6% of consolidated Company 
revenues, Integral Marketing, Inc. (IMI) achieved approximately 
150% of revenue growth in 1996 over 1995.

	During fiscal year 1996, the Company derived approximately 
49% of its revenues from the sale of its commercial products and 
related services as opposed to 42% of such revenue during the 
prior fiscal year.  The increase correlates to the Company's 
conscious effort to reduce its reliance on the Federal 
Government, and to utilize its recently developed software 
products to gain access to organizations in order to sell both 
its products and associated integration and support services.

	Although the Company believes that its full cadre of 
software products is important for its future growth and 
prosperity, to date the Company's largest product investment 
relates to the development of its EPOCH software, a COTS 
(commercial off-the-shelf) product for satellite command and 
control.  The Company believes that it is unique in its status as 
the only entity with COTS software capable of "flying" satellites 
built by any satellite manufacturer in the world.  In fact during 
April, 1996 the Company received a strategically important 
contract to provide its COTS products (and related integration 
services) to command and control a fleet of satellites composed 
of spacecraft from multiple manufacturers.  The preponderance of 
revenue to be derived from this contract is expected to be 
realized in fiscal year 1997.

	During fiscal year 1996, the Company recorded approximately 
$4.2 million of revenue for its EPOCH product and associated 
services compared to $3.5 million of revenue during fiscal year 
1995.  The 1996 EPOCH revenue total included approximately 
$465,000 of license revenue compared to approximately $345,000 of 
this revenue type recorded in 1995.
 
	Because license revenues have nominal marginal costs 
associated with them, this form of revenue is highly important to 
the Company's overall profitability.  Looking forward to fiscal 
year 1997, the Company is encouraged that its current contract 
backlog includes in excess of $500,000 of unearned license 
revenues for its EPOCH product. 

	The principal balance of the Company's commercial revenues 
pertain to other proprietary products as follows: OASYS (Orbital 
Analysis System); DRS (DOMSAT Receive Station); and a collection 
of software pertaining to database and information system 
applications.  During 1996, the Company recorded approximately 
$630,000 of revenue related to the sale of products and services 
under these programs compared to approximately $750,000 of 
revenue recorded last fiscal year.  The decrease principally 
relates to the Company's decision to cease operations of its 
information and database software operation as a discreet profit 
center.  All software development costs associated with this line 
of business have been fully amortized as of September 30, 1996.

<PAGE>
Expenses

	Cost of revenue as a percentage of revenue for fiscal year 
1996 was 73.2% compared to 77.0% for fiscal year 1995.  The 
improvement in these ratios is principally attributable to gross 
margin gains in the Company's EPOCH operation as well as 
increased margins at IMI.

	SG&A increased in both absolute terms (by approximately 
$325,000) and as a percentage of revenue (15.7% vs. 13.3%) in 
1996 over 1995.  The increases reflect the Company's continued 
program to enhance and augment its selling efforts, including a 
very concerted effort (and expense) to sell its commercial 
products internationally.

	During 1996 the Company recorded a non-recurring $233,000 
bad debt expense attributable to a customer's inability to pay.  
Despite this reserve, the Company is vigorously pursuing 
collection of this receivable.  (See Item 3 - Legal Proceedings). 


General

	Overall, net income as a percentage of revenue was 2.9% in 
fiscal year 1996 compared to 3.5% in fiscal year 1995, while 
pretax income was approximately $75,000 lower in 1996 compared to 
1995. Were it not for the bad debt expense described above, 
pretax income would have been 28% greater in 1996 over 1995.  
Further the Company's fourth quarter of fiscal year 1996 included 
its highest ever quarterly revenue total ($3.9 million) and its 
second highest ever pretax profit level ($448,000).  Because of 
its fourth quarter performance, its current and significant 
backlog, and contracts to be imminently received,  the Company 
believes that results for fiscal year 1997 will exceed those 
recorded in fiscal year 1996 for both revenue and profitability.


	
Liquidity and Capital Resources

	The Company has been profitable on an annual basis since 
inception and has been able to generate adequate cash flow from 
operations to fund its operating and capital expenses.  To 
supplement operating cash flows, the Company has access to a line 
of credit facility in the amount of $1.2 million which is 
currently unused. (See Note 5 of the Notes to Financial 
Statements).  During fiscal year 1996, the Company used 
approximately $146,000 for operating activities and used an 
additional $739,000 for investing activities, including 
approximately $432,000 for newly capitalized software development 
costs.

	As a result of its current cash reserves, its unused line of 
credit, its current profitability and its projected profitability 
for fiscal year 1997, the Company believes it will have adequate 
cash resources to meet its obligations for the foreseeable 
future. Although operating and investing activities consumed 
significant sums of cash during 1996, the Company does not 
believe it will have to rely on external sources of cash (i.e. 
its line of credit) to fund its growth and future software 
development in fiscal year 1997.

	In terms of capital purchases, historically the Company has 
funded such items through operating cash flow or capital lease.  
The Company currently has no plans for major capital purchases in 
the ensuing twelve month period, although the Company plans to 
continue to invest in the continued development and improvement 
of its principal software products, EPOCH and OASYS.

<PAGE>
Item 7.	Financial Statements and Supplementary Data

	The information required by this item is set forth under 
item 13(a), which information is incorporated herein by 
reference.


Item 8.	Disagreements on Accounting and Financial Disclosure

	Not Applicable.

<PAGE>
PART III

Item 9.	Directors and Executive Officers, Promoters and Control 
Persons, Compliance With Section 16(a) of the Exchange 
Act.

Name                       Position with the Company

Steven R. Chamberlain      Chairman of the Board
                           and Chief Executive Officer
Thomas L. Gough	President  Chief Operating Officer 
                           and Director 
Robert P. Sadler           Vice President, Quality Control, 
                           Secretary; Treasurer; and Director
Steven K. Kowal            Vice President, Engineering 
                           Manufacturing
Steven A. Carchedi         Vice President of Commercial Systems
Donald F. Mack, Jr.        Vice President of Engineering
Kimberly A. Chamberlain    Vice President, Chief Financial 
                           Officer
William I. Tittley         Vice President, Asia Pacific 
                           Operations
Bonnie K. Wachtel          Outside Director
Dominic A. Laiti           Outside Director
R. Doss McComas            Outside Director


	Directors serve until the next annual meeting of 
stockholders or until successors have been elected and qualified.  
Officers serve at the discretion of the Board of Directors.

	Steven R. Chamberlain, 41, a Company founder, has been 
Chairman of the Board since June, 1992, President since May 1988 
and a Director since 1982.  He served as Vice President from 1982 
until he became President.  From 1978 to 1982, Mr. Chamberlain 
was employed by OAO Corporation where he progressed from Systems 
Analyst to Manager of the Offutt Air Force Base field support 
office.   Mr. Chamberlain holds a B.S. degree in Physics from 
Memphis State University and has done graduate work in Physics 
and Mathematics at Memphis State and the University of Maryland.

	Thomas L. Gough, 48, became a member of ISI's staff in 
January, 1984.  In March of 1996 he was elected to the Board of 
Directors of Integral Systems having served as President and 
Chief Operating Officer since June, 1992. For three years before 
being named President he served as Vice President and Chief 
Financial Officer.  Prior to joining ISI he was employed by 
Business and Technological Systems, Inc., serving initially as a 
Project Leader and later as the Software Systems Division 
Manager.  From 1972 to 1977 he was employed by Computer Sciences 
Corporation where he progressed from programmer/analyst to 
section manager.  Mr. Gough earned a BS degree from the 
University of Maryland where he majored in Information Systems 
Management in the School of Business and Public Administration.

	Robert P. Sadler, 46, a Company founder, has been a 
Director, Secretary, and Treasurer since 1982.  In May 1988, he 
was appointed Vice President of Administration, in June, 1992, he 
was appointed Vice President, Quality Control.  From 1976 to 
1982, Mr. Sadler was employed at OAO Corporation where he 
progressed from Computer Analyst to Project Manager.  Mr. Sadler 
obtained a B.S. in Mathematics and a B.S. in Computer Sciences 
from Pennsylvania State University and a M.S. in Management of 
Information Systems Technology from George Washington University.

<PAGE>

	Steve K. Kowal, 43, a Company founder, has been with ISI 
since 1982.  In May 1988 he was appointed Vice President of 
Engineering Manufacturing.  From 1979 to 1982, Mr. Kowal was 
employed by OAO Corporation where he was a manager of hardware 
development on several of OAO's major systems.  Mr. Kowal holds a 
B.S. degree in Electrical Engineering from the University of 
Delaware.

	Steven A. Carchedi, 45, joined the Company in 1991 and is 
Vice President of Commercial Systems.  Before joining Integral 
Systems as a full-time employee in 1991, Mr. Carchedi worked with 
the company for two years as an independent business development 
consultant.  Previously, he worked for Computational Engineering, 
Inc., where he held positions as a Mathematician, Program 
Manager, Corporate Director, and Vice President of Business 
Development.  Mr. Carchedi holds a B.S. Degree in Mathematics 
from Wake Forest University and a M.A. Degree in Mathematics from 
the University of Maryland.

	Donald F. Mack, Jr., 43, joined the company in 1986.  In 
July of 1989, he was appointed Vice President of Engineering.  
From 1979 to 1986, Mr. Mack was employed by General Electric 
Corporation's Space Systems Division where he progressed from 
design engineer to a Senior Project Supervisor for systems 
development.  Mr. Mack holds a B.S. degree in Electrical 
Engineering from Northeastern University and a M.S. degree in 
Electrical Engineering from Johns Hopkins University.

	Kimberly A. Chamberlain, 40, was appointed Vice President 
and Chief Financial Officer in April, 1995 and has been with the 
company since 1983.  Ms. Chamberlain graduated from the 
University of Maryland, with a B.S. degree in Business Management 
in 1985.  Before coming to Integral Systems, Ms. Chamberlain 
worked at OAO Corporation.

	William I. Tittley, 53, joined the company in 1992, 
performing as Project Manager on the first EPOCH 2000 sale to the 
Chinese Government.  In March, 1995, Mr. Tittley was made Vice 
President, Asia Pacific, to oversee the Company's operations in 
the Asian region.  Formerly, Mr. Tittley was with the OAO 
Corporation (from 1977 through 1992), where he performed duties 
as Director, Space System Programs, in charge of the technical 
and financial direction of aerospace systems programs.  Mr. 
Tittley holds a B.S. in Aerospace Vehicle Design from the State 
University of New York, and a M.S. in Engineering from the 
California Coast University.

	Bonnie K. Wachtel, 42, has served as a Director since May 
1988.  Since 1984 she has been Vice President, General Counsel 
and a Director of Wachtel & Co., Inc., an investment banking firm 
in Washington, D.C.  Ms. Wachtel serves as a Director of several 
corporations including SSE Telecom, Inc. and VSE Corporation. She 
holds a B.A. and M.B.A. from the University of Chicago and a J.D. 
from the University of Virginia, and is a Certified Financial 
Analyst.

	Dominic A. Laiti, 65, was elected director of the Company in 
July, 1995.  Mr. Laiti is presently employed as an independent 
consultant and was President and Director of Globalink, Inc. from 
January 1990 to December 1994.  He has over twenty-five (25) 
years of experience in starting, building, and managing high-
technology private and public companies with annual revenues from 
two million to over 120 million dollars.  Mr. Laiti was President 
of Hadron, Inc. from 1979 to 1989, Vice President of Xonics Inc. 
from 1972 to 1979 and Vice President of KMS Industries from 1968 
to 1972.  He is a former Director of United Press International, 
Saturn Chemicals Company, Hadron, Inc., Telecommunications 
Industries, Inc., MAXXAM Technology, Inc., and Jupiter 
Technology, Inc.

<PAGE>

	R. Doss McComas, 42, joined the Board in July, 1995.  Since 
1982 he has had various positions with COMSAT RSI, a business 
unit of COMSAT supplying products and services to the wireless, 
satellite, air traffic control and other specialized markets 
worldwide.  These positions included General Counsel, Vice 
President of Acquisitions, Strategic Planning and International 
Marketing, as well as Group Vice President, responsible for the 
company's international operations.  Currently he is Chairman and 
Chief Executive Officer of Plexsys International, a COMSAT RSI 
equity investment, and Vice President, Business Development, for 
COMSAT RSI.  He holds a B.A. degree from Virginia Polytechnic 
Institute, an M.B.A. from Mt. Saint Mary's, and a J.D. from 
Gonzaga University.




Item 10.	Executive Compensation

a.  Summary Compensation Table

	The following table sets forth compensation received by the 
Company's CEO and four highest paid executive officers who earned 
over $100,000 during the fiscal year ended September 30, 1996:

<TABLE>
<S>                      <C>  <C>      <C>                   <C>    <C>

                 SUMMARY COMPENSATION TABLE
                                             	Long-Term Compensation
                    	Annual Compensation       Awards         Payouts
                                       Other
                                       Annual Restricted              All other
                                       Compen- Stock             LTIP   Compen-
                                        sation Award(s)Options/ Payouts sation 
                      Year Salary($)Bonus($)($)    ($)  SAR(#)   ($)    ($)(1)
CEO
S. R. Chamberlain    1996 $114,179 $14,000               15,000       $11,486 
                     1995 $108,577 $14,000                7,500       $10,502
                     1994 $105,998 $13,975                    0       $11,208 

PRESIDENT
Thomas L. Gough      1996 $101,581 $ 8,000               10,000       $10,061
                     1995 $ 98,048 $11,000                    0       $ 9,318
                     1994 $ 93,645 $10,980                    0       $ 9,677
VP, 
Commercial 
Systems
Steve Carchedi       1996 $ 97,771 $12,000               10,000       $ 9,572
                     1995 $ 94,926 $12,000                2,000       $ 8,944
                     1994 $ 91,896 $ 9,479                    0       $ 9,479
VP, Engineering 
Manufacturing
Steven K. Kowal      1996 $ 97,771 $ 9,000                4,000       $ 9,572
                     1995 $ 94,926 $ 9,500                    0       $ 8,944
                     1994 $ 91,896 $ 9,479                    0       $ 9,452 
VP, Asia 
Pacific 
Operations
William I. Tittley   1996 $ 98,891 $26,456                1,000       $10,684
                     1995 $ 96,050 $ 7,000                5,000       $ 9,046
                     1994 $ 93,006 $ 6,018                    0       $ 9,779
(1) Employer Pension Contributions
</TABLE>
<PAGE>
<TABLE>
<S>                          <C>         <C>        <C>           <C>


                    OPTION/SAR GRANTS IN LAST FISCAL YEAR

                            	Individual Grants	
                                    Percent of Total
                            Number of	Options/SARs
                            Options/  Granted to 
                               SARs			Employees in	 Exercise/Base  Expiration
Name                         Granted   Fiscal Year  Price ($)      Date

CEO
S.R. Chamberlain              15,000      18%        *$22.50        2001

PRESIDENT
Thomas L. Gough               10,000      12%         $23.50        2001

VP, COMMERCIAL SYSTEMS
Steven A.Carchedi             10,000      12%        *$22.50        2001

VP, ENGINEERING
MANUFACTURING
Steven K. Kowal                4,000       5%         $21.50        2001

VP, ASIA PACIFIC
OPERATIONS
William I. Tittley             1,000       1%         $21.50        2001
*Average Price
</TABLE>


	b.  Compensation Pursuant to Plans

	ISI's Board of Directors awards annual bonuses to officers 
and employees on a discretionary basis.  Currently no formal plan 
exists for determining bonus amounts.

	Effective October 1, 1987, the Company established a 401K 
pension and profit sharing plan under Section 401 of the Internal 
Revenue Code.  Under the plan the Company contributes annually an 
amount equal to 5% of an eligible employee's salary, and may make 
additional contributions of up to 7.5% of an eligible employee's 
salary.  The employee may contribute up to an additional 10% as 
salary deferral.  In fiscal years 1996 and 1995, the Company 
contributed a total of 11% of eligible employees salaries to both 
plans.


	c.  Stock Option Plan

	Effective May 25, 1988, ISI established a stock option plan 
to create additional incentives for the Company's employees, 
consultants and directors to promote the financial success of the 
Company.  ISI's Board of Directors has sole authority to select 
full-time employees, directors, or consultants to receive awards 
of options for the purchase of stock under this plan.  The 
maximum number of shares of ISI Common Stock which may be issued 
pursuant to the stock plan was increased from 50,000 to 200,000 
during fiscal year 1994.

<PAGE>
	A total of 85,600 options were issued and 8,787 options were 
exercised during fiscal year 1996; 5,000 options were canceled.   
Total options issued and outstanding as of September, 1996 are 
117, 987.

Compensation of Directors

	Presently outside directors who are not employees of the 
Company receive $5,000 per year for their services.

	e.  Termination of Employment and Change of Control 
Termination

	The Company has no compensatory plan nor arrangement with 
respect to any individual named in the Cash Compensation Table 
(Item 11(a)) which results or will result from the resignation, 
retirement or any other termination of such individual's 
employment with the Company or its subsidiaries or from a change 
in control of the Company or a change in the individual's 
responsibilities following a change in control.


Item 11.	Security Ownership of Certain Beneficial Owners and 
Management

a.  Security Ownership of Certain Beneficial Owners (as of 
9/30/96)

	None


b.  Security Ownership of Management (as of 9/30/96)

<TABLE>
<S>                        <C>                <C>
	

Name of Owner         	(1)Shares   Percentage of Total Shares Owned
							

Steven R. Chamberlain     79,040             7.7%
Thomas L. Gough           37,850             3.7%
Robert P. Sadler          52,340             5.1%
Kimberly A. Chamberlain   10,460             1.0%
Donald F. Mack, Jr.       11,350             1.1%
Steven K. Kowal           43,346             4.2%
Steven A. Carchedi        26,500             2.6%
William Tittley            3,800              .4%

(1)  Includes Options
</TABLE>

<PAGE>
Item 12.	Certain Relationships and Related Transactions

	Bonnie K. Wachtel is Vice President, General Counsel and 
Director of Wachtel & Co., Inc., one of the Underwriters of ISI's 
initial public offering.  


Item 13.	 Exhibits, Financial Statement Schedules, and Reports 
on Form 8K

(a) (1) Financial Statements

Independent Auditors' Report - page 1
Balance Sheets as of September 30, 1996 - page 2
Statements of Operations for the Years Ended September 30, 1996, 
and 1995 - page 3
Statement of Stockholders' Equity for Years Ended September 30, 
1996 and 1995 - page 4
Statements of Cash Flows for the Years Ended September 30, 1996 
and 1995 - page 5
Notes to Financial Statements - pages 6 - 15

All other schedules are omitted since the required information is 
not present or is not present in amounts sufficient to require 
submission of the schedule, or because the information required 
is included in the financial statements and notes thereto.



(b) Reports on Form 8-K

	There were no Form 8-Ks filed during fiscal year 1996.

<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the 
Securities Exchange Act of 1934, the registrant  caused this 
report to be signed on its behalf by the undersigned, thereunto  
duly authorized.



INTEGRAL SYSTEMS, INC.





	BY:		/s/			
		Steven R. Chamberlain
		Chairman of the Board and
		Chief Executive Officer

	DATE:		January 15, 1997		



	BY:			/s/			
		Thomas L. Gough
		President, Chief Operating 
  Officer,	Director
		
	DATE:		January 15, 1997		



	BY:			/s/			
		Elaine M. Parfitt
		Controller/Principal 
  Accounting Officer
		
	DATE:		January 15, 1997		

<PAGE>

In accordance with the Exchange Act, this report has been signed 
below by the following persons on behalf of the registrant and in 
the capacities and on the dates indicated.



Signature	Titles	Date


/s/                   Chairman of the Board, Director,                	1/15/97
Steven R. Chamberlain Chief Executive Officer



/s/                   President, Chief Operating Officer,              1/15/97
Thomas L. Gough       Director



/s/                   Vice President of Quality Control,              	1/15/97
Robert P. Sadler      Secretary & Treasurer; Director



/s/                   Director                                         1/15/97
Bonnie K. Wachtel



/s/                   Director                                         1/15/97
Dominic A. Laiti	



/s/                   Director                                         1/15/97
R.  Doss McComas	
<PAGE>

 
                        INTEGRAL SYSTEMS, INC. PRIVATE  
                               AND SUBSIDIARIES
	               

                      CONSOLIDATED FINANCIAL STATEMENTS
              For the Years Ended September 30, 1996 and 1995

                                     AND

                         INDEPENDENT AUDITORS' REPORT

TABLE OF CONTENTS



DESCRIPTION	PAGES

Independent Auditors' Report................................	1

Consolidated Balance Sheet as of September 30, 1996........ 	2

Consolidated Statements of Operations for the Years 
Ended September 30, 1996 and 1995..........................  3

Consolidated Statements of Stockholders' Equity for 
the Years Ended September 30, 1996 and 1995.................	4

Consolidated Statements of Cash Flows for the Years
Ended September 30, 1996 and 1995...........................	5

Notes to Consolidated Financial Statements..................	6-15
<PAGE>


                    	INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Stockholders
Integral Systems, Inc.

We have audited the accompanying consolidated balance sheet of 
Integral Systems, Inc. and its subsidiaries as of September 30, 
1996, and the related consolidated statements of operations, stockholders' 
equity, and cash flows for the years ended September 30, 1996 and 1995.  
These financial statements are the responsibility of the Company's management.  
Our responsibility is to express an opinion on these financial 
statements based on our audits.

We conducted our audits in accordance with generally 
accepted auditing standards.  Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement.  An audit includes examining, on a test 
basis, evidence supporting the amounts and disclosures in the financial 
statements.  An audit also includes assessing the accounting principles used 
and significant estimates made by management, as well as evaluating 
the overall financial statement presentation.  We believe that our audits 
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above 
present fairly, in all material respects, the consolidated financial 
position of Integral Systems, Inc. and its subsidiaries as of September 30, 
1996, and the consolidated results of their operations and their 
consolidated cash flows for the years ended September 30, 1996 and 1995, in 
conformity with generally accepted accounting principles.



November 20, 1996
Bethesda, Maryland
<PAGE>
                          INTEGRAL SYSTEMS, INC.
                        CONSOLIDATED BALANCE SHEET
                            September 30, 1996

                               	ASSETS

Current assets
Cash and cash equivalents           $	1,369,915
Accounts receivable                   4,849,886
Employee receivables                     24,200
Prepaid expenses                         59,956
Deferred income taxes                    73,913
Total current assets                  6,377,870
			
Property and equipment, at cost,
net of accumulated depreciation
and amortization of $446,769            399,108
			
Other assets 	
Deposits                                  7,182
Software development costs, net
of accumulated amortization
of $1,463,779	                        1,295,514
			
Total assets                        $	8,079,674
			
      LIABILITIES AND STOCKHOLDERS' EQUITY
			
Current liabilities	
Accounts payable - trade             $   786,701
Accrued expenses                       1,157,356
Billings in excess of revenue for
contracts in progress                    128,925
Income tax payable                        48,060

Total current liabilities              2,121,042

Commitments and contingencies
			
Common stock, $.01 par value,
2,000,000 shares authorized, 952,533
shares issued and outstanding              9,525
Additional paid-in capital               825,311
Retained earnings                      5,123,796

Total stockholders' equity             5,958,632
			
Total liabilities and
stockholders' equity                  $8,079,674

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

<PAGE>

                  INTEGRAL SYSTEMS, INC.
            CONSOLIDATED STATEMENTS OF OPERATIONS
       For the Years Ended September 30, 1996 and 1995

<TABLE>
<S>                                            <C>                <C>
                                               1996	              1995

Revenue                                    $11,217,148        $10,770,661
			
Cost of revenue 
Direct labor                                 3,617,255          3,526,899
Direct equipment and subcontracts            1,567,215          2,218,243
Travel and other direct costs                  302,373            159,992
Overhead costs                               2,729,793          2,385,043
		
Total cost of revenue                        8,216,636          8,290,177
			
Gross margin                                 3,000,512          2,480,484
			
Selling, general and administrative          1,758,248          1,434,296
Product amortization                           509,477            508,556
Bad debt expense                               232,708                  -			
Income from operations                         500,079            537,632
			
Other income (expense)
Interest income                                 65,396             76,222
Interest expense                                (2,320)            (2,529)
Miscellaneous, net                             (60,787)           (35,139)
			
Income before income taxes                     502,368            576,186
			
Provision for income taxes                     179,351            195,483
		
Net income                                   $	323,017          $ 380,703

Weighted average number of common shares       948,021            942,155
			
Earnings per share:        
Net income	                                      $	.34              $	.40
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
<S>                           <C>         <C>   <C>              <S>    <C>

                        INTEGRAL SYSTEMS, INC.
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
            For the Years Ended September 30, 1996 and 1995
                                      Common
                                      Stock at Additional
                           Number of  Par       Paid-in   Retained
                             Shares   Value     Capital   Earnings     Total  

Balance, September 30, 1994 938,020  $ 9,380  	635,541 $ 4,420,076 $ 5,064,997

Stock options exercised       5,726       57    60,896           -      60,953

Net income                        -        -         -     380,703     380,703

Balance, September 30, 1995 943,746    9,437   696,437   4,800,779   5,506,653

Stock options exercised       8,787       88   128,874           -     128,962

Net income                        -        -         -     323,017     323,017

Balance, September 30, 1996 952,533  $ 9,525 $ 825,311 $ 5,123,796 $ 5,958,632
</TABLE>

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

                       INTEGRAL SYSTEMS, INC.
               CONSOLIDATED STATEMENTS OF CASH FLOWS
           For the Years Ended September 30, 1996 and 1995

<TABLE>
                                                <C>              <C>

                                                1996             1995
Cash flows from operating activities:
Net income                                    $	323,017       $	380,703
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization                   705,793         677,207
Change in deferred taxes                        (13,194)         20,805
(Increase) decrease in:
Accounts receivable                          (1,366,109)     (1,090,207)
Interest receivable                                   -          10,333
Prepaid expenses and deposits                     4,549         (46,815)
Employee receivable                             (24,200)              -
Income tax receivable                                 -           6,361
(Decrease) increase in:
Accounts payable - trade                        434,706         145,031
Accrued expenses                                282,108        (157,414)
Billings in excess of revenue
for contracts in progress                      (432,277)        337,288
Income tax payable                              (60,421)        108,481
			
Total adjustments                              (469,045)         11,070
 			
Net cash (used) provided by
operating activities                           (146,028)        391,773
			
Cash flows from investing activities:
Acquisition of property and equipment          (306,799)       (217,642)
Software development costs                     (431,773)       (315,470)
Sale of marketable securities                         -         403,100
		
Net cash used in investing activities          (738,572)       (130,012)
		
Cash flows from financing activities:
Proceeds from issuance of common stock          128,962          60,953
			
Net (decrease) increase in cash                (755,638)        322,714
			
Cash and cash equivalents, beginning of year  2,125,553       1,802,839
			
Cash and cash equivalents, end of year       $1,369,915      $2,125,553
</TABLE>

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


1.	Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include 
the accounts of Integral Systems, Inc. (the Company) and its
wholly owned subsidiaries, Integral Marketing, Inc. (IMI) and InterSys, Inc. 
(InterSys).  All significant intercompany transactions have been 
eliminated in consolidation.

Use of Estimates 

The preparation of financial statements in conformity with 
generally accepted accounting principles requires management to make 
estimates and assumptions that affect certain reported amounts and
disclosures.  Accordingly, actual results could differ from those estimates.

Revenue Recognition

Revenue under cost-plus-fixed-fee contracts is recorded on 
the basis of direct costs plus indirect costs incurred and an allocable 
portion of the fixed fee.  Revenue from fixed-price contracts
is recognized on the percentage-of-completion method, measured by
the cost-to-cost method for each contract.  Revenue from time
and materials contracts is recognized based on fixed hourly rates
for direct labor expended.  The fixed rate 
includes direct labor, indirect expenses and profits.  Material 
or other specified direct costs are recorded at actual cost.

Contract costs include all direct material and labor costs 
and those indirect costs related to contract performance.  General and 
administrative costs are charged to expense as incurred.  Provisions for 
estimated losses on contracts in progress are made in the period in which 
such losses are determined.  Changes in job performance, job 
conditions, and estimated profitability, including final contract settlements, 
may result in revisions to costs and income and are recognized in the period 
in which the revisions are determined.  The Company's contracts vary 
in length from one to four years.

The fees under certain government contracts may be increased 
or decreased in accordance with cost or performance incentive provisions
which measure actual performance against established targets or 
other criteria.  Such incentive fee awards or penalties are included
in revenue at the time the amounts can be reasonably determined.

1.	Summary of Significant Accounting Policies (continued)

Unbilled accounts receivable represents revenue recognized in excess of 
amounts billed.  The liability, billings in excess of revenue for 
contracts in progress, represents billings in excess of revenue 
recognized.  

Revenue from commissions for the sale of equipment is 
recognized when customer orders are submitted.  A reserve is made for possible 
reductions in or cancellations of customer orders.

Depreciation and Amortization

Property and equipment are stated at cost.  The Company 
follows the policy of providing depreciation and amortization by charges, on 
the straight-line method, to operating expenses at rates based on 
estimated useful lives as follows:

Classification        Estimated Useful Lives

Electronic equipment         3 Years
Furniture and fixtures       5 Years
Leasehold improvements       Life of lease
Software                     3 Years

Maintenance and repair costs are charged to expense as 
incurred.  Replacements and betterments are capitalized.  At the time 
properties are retired or otherwise disposed of, the property and related 
accumulated depreciation or amortization accounts are relieved of the 
applicable amounts and any gain or loss is credited or charged to income.

Software Development Costs

The Company has capitalized costs related to the development 
of certain software products.  In accordance with Statement of Financial 
Accounting Standards No. 86, capitalization of costs begins when 
technological feasibility has been established and ends when the product is 
available for general release to customers.  Amortization is computed on an 
individual product basis and has been recognized for those products 
available for market based on the products' estimated economic lives 
which average five years.  Due to inherent technological changes 
in software development, however, the period over which such 
capitalized costs is being amortized may have to be modified.

1.	Summary of Significant Accounting Policies (continued)

Earnings Per Share

Earnings per share computations are based on the weighted 
average number of common shares outstanding during each year and have been 
adjusted where appropriate for stock splits.  The exercise of outstanding 
stock options would not result in a material dilution of earnings per 
share.

Cash Concentrations and Cash Equivalents

The Company considers all highly-liquid debt instruments 
purchased with a maturity of three months or less to be cash equivalents.
Cash accounts are maintained primarily with one federally insured financial 
institution.  Balances usually exceed insured limits, but management does 
not consider this to be a significant concentration of credit risk.  
Included in the cash balance is $89,057 held in a foreign bank 
account.

Reclassification

Certain accounts in the prior year financial statements have 
been reclassified for comparative purposes to conform with the 
presentation in the current year financial statements.


2.	Accounts Receivable and Revenue

Accounts receivable at September 30, 1996 consists of the 
following:

Billed
Government - prime contracts    $ 669,556
Government - subcontractors       440,871
Commercial customers            1,655,615
   Subtotal                     2,766,042

Unbilled
Government - prime contracts      827,637
Government - subcontractors        91,269
Commercial customers            1,164,938
   Subtotal                     2,083,844

Total                         $ 4,849,886


2.	Accounts Receivable and Revenue (continued)

Unbilled accounts receivable include amounts arising from 
the use of the percentage-of-completion or other methods of
recognizing revenue that differ from contractual billing terms.
Substantially all unbilled receivables are expected to be
collected in one year.

During the years ended September 30, 1996 and 1995, 
approximately 51% and 58%, respectively, of the Company's revenue
was from prime contracts and subcontracts with departments and
agencies of the U.S. Government.  The remaining revenue consists
of commercial contracts and sales of commercial products.
For each of the years ended September 30, 1996 and 
1995, commercial revenue included one customer which provided 
revenue in excess of 10% of total revenue.


3.	Property and Equipment

Property and equipment as of September 30, 1996, are as 
follows:
	
Electronic equipment        $ 728,956
Furniture and fixtures         54,898
Leasehold improvements         11,365
Software                       50,658
		
Total property and equipment  845,877
		
Less: accumulated
depreciation and
amortization                 (446,769)
		
                            $ 399,108


4.	Software Development

Software development costs at September 30, 1996, consist of 
the following: 

Costs incurred                  $ 2,759,293
Less:  accumulated amortization	 (1,463,779)

                                $ 1,295,514

The total amortization expense for the year ended September 
30, 1996 is $509,477. 

5.	Line of Credit

The Company has a line of credit agreement with a bank at 
September 30, 1996 for $1,200,000.  Borrowings under the line of credit bear 
interest at the bank's prime lending rate plus one-quarter of one 
percentage point per annum.  Any accrued interest is payable monthly.  The 
line of credit is secured by the Company's billed accounts receivable.  
The line also has certain financial covenants, including minimum net worth 
and liquidity ratios.  The line expires February 28, 1998.  At 
September 30, 1996, the Company had no outstanding balance under the line of 
credit.

6.	Accrued expenses

Accrued expenses at September 30, 1996, consist of the 
following:

Accrued payroll        $   544,974
Accrued vacation           253,950
Payroll taxes              171,054
Retirement plan payable    158,897
Other                       28,481

                       $ 1,157,356

7.	Commitments and Contingencies

Leases

The Company is leasing office space for a five-year period 
that commenced March 15, 1994.  Future minimum lease payments through March 14, 
1999 are as follows:

Years ending September 30, 1997     $219,520
                           1998      226,048
                           1999      105,131

                                    $550,699


Lease payments do not include operating expenses, which are 
adjusted annually, or utilities.  Rent expense was $254,327 and $248,944, 
for the years ended September 30, 1996 and 1995, respectively.

7.	Commitments and Contingencies (continued)

Government Contracts

A significant portion of the revenues of the Company 
represent payments made by the U.S. Government and by contractors that
have prime contracts with the U.S. Government.  These revenues are subject to 
adjustment upon audit by the Defense Contract Audit Agency (DCAA).
Audits by the DCAA have been completed on the Company's contracts
and subcontracts through the year ended September 30, 1994.  Management
is of the opinion that any disallowances by the Government auditors, other
than amounts already provided, will not materially affect the Company's
financial statements.  

Litigation

During the fiscal year ended September 30, 1996, the Company 
sold certain of its software products along with specified hardware to a U.S. 
Government agency.  The procurement required the Company to sell 
these items through an intermediary prime contractor.  The value of the 
contract to the Company was $232,708.

The Company fully complied with the terms of its contract, 
and although the third party prime contractor has been paid in full by the 
U.S. Government, the Company has received no payments to date.  In 
August 1996, the Company filed a complaint in the Second Judicial 
District Court of the State of New Mexico against the prime contractor
and its principal owner individually for breach of contract in an attempt to 
recover the value of its contract.  Based on discovery received, the Company 
subsequently filed a motion for summary judgment against the 
defendants.

In September 1996, the defendants filed a counterclaim 
against the Company alleging defamation, intentional interference with 
contractual relations and the prima facie tort of extortion.  The Company 
believes the counterclaim is without merit and will not have a materially 
adverse effect on its financial statements.

Although the Company has fully reserved the receivable due 
under this contract ($232,708), it continues to vigorously pursue all legal 
remedies available to it.


8.	Income Taxes

For the years ended September 30, 1996 and 1995, the 
provision for income taxes consisted of the following:
                              1996	        1995

Current tax expense
Federal                   $ 154,910   $ 142,972
State                        37,635      31,706
                            192,545     174,678
Deferred tax
(benefit) expense           (13,194)     20,805	

Total provision           $ 179,351   $ 195,483



At September 30, 1996, the tax effect of significant 
temporary differences representing deferred tax assets and liabilities
are as follows:

                                         Asset
                                      (Liability)

Depreciation and amortization	        $ (36,827)
Vacation accrual                         99,040
Revenue reserve                          11,700
			
Net deferred income tax asset	        $  73,913

The effective income tax rates differ from the statutory 
United States income tax rate due principally to the following:

                                      	1996           1995

Federal statutory rate                 34.0%          34.0%
State tax, net of federal
income tax benefit                      4.6            4.6
Tax-exempt interest                       -           (0.8)
Tax deductible stock
option compensation                    (2.8)          (4.1)
Other, primarily change in estimate    (0.1)           0.2

Effective rate                         35.7%          33.9%


9.	Profit Sharing and Employee Benefits Plans

The Company has a profit sharing and 401(k) plan for the 
benefit of substantially all employees.  Profit sharing contributions 
consist of discretionary amounts determined each year by the Board of 
Directors of the Company based upon net profits for the year and total 
compensation paid.  The 401(k) feature allows employees to make elective 
deferrals not to exceed 10% of compensation.  Effective January 1, 1995, the 
separate profit sharing and 401(k) plans were combined into one plan.

The Company also has a money purchase plan.  For the years 
ended September 30, 1996 and 1995, the money purchase plan obligated
the Company to contribute 5% of eligible salaries under the plan.

For the years ended September 30, 1996 and 1995, 
contributions to the plans totalled $473,552 and $455,269, respectively.

10.	Stock Option Plan

Effective May 25, 1989, as amended on January 1, 1994, the 
Company established a stock option plan to create additional incentives 
for the Company's employees, consultants and directors to promote the 
financial success of the Company.  The Board of Directors has sole 
authority to select full-time employees, directors or consultants to receive 
awards of options for the purchase of stock under this plan.  The maximum 
number of shares of common stock which may be issued pursuant to the stock 
option plan is 200,000.  The price of the options is set at the stock's 
bid price on the date of the Board of Directors meeting at which the option 
is granted.  Options expire no later than ten years from the date of 
grant (five years for greater than ten percent owners) or when 
employment ceases, whichever comes first, and vest over three years.

Stock option transactions under the plan for the years 
ended September 30, 1996 and 1995, are summarized as follows:
<TABLE>
<S>                                     <C>            <C>

                                         1996           1995  

Options outstanding, beginning of year   46,174         30,800
Granted                                  85,600         21,100
Exercised                                (8,787)        (5,726)
Cancelled                                (5,000	             -
Options outstanding, end of year        117,987         46,174

Option price range                      $ 21.50 to     $ 17.75 to
                                        $ 29.00        $ 26.00
Options exercisable, end of year         19,012         15,714
Options available, end of year           51,850        132,450
</TABLE>

10.		Stock Option Plan (continued)

The Company applies APB Opinion No. 25 in accounting for its 
stock option plan, and, accordingly, no compensation cost has been recognized 
for the plan.  FASB Statement No. 123, "Accounting for Stock-Based 
Compensation" (SFAS 123), is effective for fiscal years beginning after 
December 15, 1995.  Adoption of SFAS 123 is optional; however, proforma 
disclosures as if the Company adopted the cost recognition requirements under 
SFAS 123 will be required in the Company's financial statements for its 
fiscal year ending September 30, 1997.

11.	Supplemental Cash Flow Information

For the years ended September 30, 1996 and 1995, income 
taxes paid, net of refunds, were $410,076 and $81,012, respectively. 
For the years ended September 30, 1996 and 1995, interest expense
incurred and paid was $2,320 and $2,529, respectively.

12.	Business Segment Information

During the year ended September 30, 1996, the Company's 
operations included two reportable segments:  Satellite ground systems and 
electronic test instrumentation and equipment marketing.  

The Company provides satellite ground systems - computer 
systems for satellite command and control, data processing, simulation, and 
flight software validation.  Customers for these systems include U.S. 
Government organizations such as National Aeronautics and Space 
Administration (NASA), the National Oceanic and Atmospheric Administration 
(NOAA), and the U.S. Air Force, as well as commercial satellite operators, 
both domestic and foreign.

Through its wholly-owned subsidiary, IMI, the Company acts a 
manufacturer's representative, selling electronic test 
instrumentation and equipment to customers primarily in Maryland,
Virginia and the District of Columbia.  (The Company's other
wholly-owned subsidiary, InterSys, provides consulting services for
satellite design and procurement, but is presently inactive.)


12.	Business Segment Information (continued)

Summarized financial information is as follows:
<TABLE>
<S>                              <C>             <C>

                                     1996	           1995
Net sales
Satellite ground systems         $10,555,371     $10,503,423
Marketing                            661,777         267,238

Income before taxes
Satellite ground systems             343,797         615,413
Marketing                            158,571         (39,227)
Identifiable assets 
Satellite ground systems           6,139,157       4,981,702
Marketing                            405,351         163,918

Capital expenditures
Satellite ground systems             305,220         216,896
Marketing                              1,579             746 
Depreciation and amortization
Satellite ground systems             192,838         165,551
Marketing                              3,478           3,100

Identifiable assets of the respective segments include 
accounts receivable, property and equipment, and software development 
costs.  Cash and cash equivalents and the remaining assets are considered 
corporate assets.  There were no significant intercompany sales.
</TABLE>