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, 1997

         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. Employer Identification No.)
	incorporation of organization)

 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)


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  	

Check if there is no disclosure of delinquent filers in response to Item 405 
of Regulation S-B in this form, and no disclosure will be contained, to the 
best of registrant's knowledge, in definitive proxy or information statements 
incorporated by reference in Part III of this Form 10-KSB or any amendment to 
this Form10-KSB.  [X]

For the year ended September 30, 1997, the Registrant's revenues were 
$20,058,984.

As of September 30, 1997, 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 
$24,340,302.

As of November 30, 1997, 2,868,952 shares of the Common Stock of the 
Registrant were outstanding.

PART 1

Item 1.  Business

General

Integral Systems, Inc. (hereinafter referred to as "ISI" or the "Company") was 
incorporated in the state of Maryland in 1982.  ISI is a leading provider of 
satellite ground systems for satellite command and control, orbit analysis, 
data processing, simulation, and flight software validation.  EPOCH 2000, the 
Company's flagship product line for satellite control, offers satellite 
operators a low-cost, highly-adaptable system that can be used to operate 
satellites from any manufacturer, without changing the software.  The Company 
believes that EPOCH 2000 was the first "Commercial Off The Shelf" (COTS) 
product of its type and that it continues to be the only product with proven 
operational capabilities over a wide range of satellite missions.

Customers for satellite ground 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.  ISI 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 and has delivered ground systems for over 90 different satellite 
missions.  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 has the capability to 
deliver turnkey systems which include antenna, RF and baseband equipment as 
well as computer hardware and application software.

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 (i.e. ISI's OASYS product).  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, 
Shinawatra Satellite Public Co. in Thailand, the National Space Program Office 
in Taiwan (ROCSAT),  EOSAT, Earthwatch, the Johns Hopkins University Applied 
Physics Laboratory, the Jet Propulsion Laboratory, Loral Skynet, GE Americom, 
TRW, Lockheed-Martin, Hughes, Boeing, Orbital Sciences Corporation, NASA, 
NOAA, the US Air Force, and the US Navy.

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

The Company also has a major contract with NOAA to provide the command and 
control system for the Air Force's DMSP (Defense Meteorological) satellite 
fleet.  ISI has 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. 

ISI 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 its 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 18 manufacturers. 

Contract Revenue

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.

The percentage of revenues derived by the Company under these different types 
of contracts for the fiscal years ended September 30, 1997 and 1996 is as 
follows:


                                              Fiscal Year
                Contract Type              1997          1996

                Cost Plus                   51%           39%
                Fixed Price                 46%           56%
                Time and Materials           3%            5%

During fiscal year 1997 approximately 46% 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.

The Company sells its products and services to both the Federal Government and 
to commercial and international organizations, including governmental 
organizations.  The Company defines commercial revenues as any business that 
includes as all or part of the sale, any of its COTS software products.  
Government contract revenues arise from the sale of services and products 
other than the Company's COTS products to Federal Government agencies.

The Company's revenues for fiscal years 1997 and 1996 were generated from the 
following sources:


                                         Fiscal Year
                     Customer          1997       1996

                     Commercial         43%        49%
                        NOAA            41%        22%
                 Air Force and Other     7%        17% 
                        NASA             9%        12%


Commercial Contracts

Revenues from commercial contracts increased by approximately 55% between 
fiscal year 1996 and fiscal year 1997, increasing from $5.5 million to $8.6 
million.  Despite this increase, commercial revenue as a percentage of total 
revenue decreased from 49% to 43% between fiscal year 1996 and fiscal year 
1997.

The vast majority of the Company's commercial contracts are fixed price in 
nature.

The Company expects that 32% of revenue for the current fiscal year (fiscal 
year 1998) will be derived from five major commercial contracts.  It is 
estimated that the largest single contract will represent approximately 9% of 
the Company's revenue and the smallest approximately 4%.  The loss of any one 
of these contracts 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.

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 1997 and 1996 are as follows:


                                         Fiscal Year

                 Contract Source       1997        1996

                 Prime Contract         79%         59%
                 Subcontract            21%         41%

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 38% of revenue for the current fiscal year (fiscal 
year 1998) will be derived from four major US Government contracts and 
subcontracts.  It is estimated that the largest single contract will represent 
approximately 24% 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, 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.  

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 8, 1997, the Company employed 122 full time employees, 98 of 
whom are considered professionals in engineering related disciplines.  Of the 
engineering professionals, 97% have undergraduate degrees in a scientific 
discipline, and 35% of those have advanced degrees in a scientific discipline. 
Approximately 84% of the engineering staff have at least seven years 
experience, and 14% 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.


Backlog

The Company's estimated backlog as of September 30, 1997 and  September 30, 
1996 is as follows:


                               September 30,          September 30, 
                                  1997                   1996

      Outstanding Commitments   $14,010,477            $18,162,147
          General Commitments    12,490,050              9,489,563
                        Total   $26,500,527            $27,651,710




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 77% of 
backlog as of September 30, 1997 will be completed during fiscal year 1998.  
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 Lockheed-Martin, Space Systems/Loral Corporation; Computer Sciences 
Corporation, Allied-Signal, Boeing Corporation, and Hughes Electronics.

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.


Research and Development

The Company is continually engaged in research and development activities both 
to improve its existing EPOCH and OASYS  software products  as well as to 
probe additional product areas for the future growth and development of the 
Company.  Currently, the Company is focusing its research and development 
efforts primarily on developing and improving the user interface systems for 
its COTS software products.  In fiscal years 1997 and 1996, total capitalized 
software development costs were $816,730 and $431,773 respectively.

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.

In November, 1997, ISI increased its line of credit agreement with Nations 
Bank from $2,000,000 to $3,000,000.  Borrowings under the line of credit bear 
interest at the Eurodollar Rate plus 1.90 percent per annum.  Any accrued 
interest is payable monthly.   At September 30, 1997 the Company had $500,000 
outstanding under the line of credit.

See Footnote Number 5 of the notes to the Financial Statements for further 
information regarding these matters.

Financial Information in Industry Segments

During the year ended September 30, 1997, 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 its 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 13 of the notes to the Financial Statements for financial 
information regarding these segments.

Item 2.	 Properties

In  March, 1994, ISI renegotiated its lease for office space at its principal 
location at 5000 Philadelphia Way, Suite A, Lanham, Maryland 20706-4417 for an 
additional five years.  The annual lease cost for this 25,600 square feet of 
space is approximately $226,000 excluding operating expenses.

During fiscal year 1997 the Company contracted for an additional 17,638 square 
feet of space at 4200 Forbes Blvd. Lanham, Maryland 20706.  This second lease 
expires in April, 1999 and has an annual lease cost excluding operating 
expenses of approximately $148,000.

Item 3.	Legal Proceeding

In August 1996 the Company sued International Systems Integrators, Inc. 
("Integrators"), a New Mexico company which had failed to pay a $232,708 
invoice from the Company in respect of certain software and hardware products 
sold by the Company to Integrators and subsequently resold by Integrators to 
the United States Air Force.  Integrators acted as the prime contractor for 
the Air Force and the Company acted as a subcontractor to Integrators.

The Company believes that it fully complied with the terms of its subcontract 
with Integrators.  However, Integrators failed to pay the Company's invoice 
for the products  supplied to Integrators by the Company under the 
subcontract.  Integrators was paid by the Air Force for the products supplied 
by the Company. 

The Company sued Integrators, and its principal owner, Bernadette L. Mares  
(together with Integrators, the "Defendants"), for breach of contract, and is 
seeking to recover $232,708, the amount owed under the Company's subcontract 
with Integrators, plus interest and costs.  

In September 1996, the Defendants filed a counterclaim against the Company 
alleging defamation, interference with contractual relations and extortion, 
seeking damages from the Company in an unspecified amount.  The Company 
believes that the Defendants' counterclaim is entirely without merit and 
intends to contest it vigorously.  The Company does not believe that the 
Defendants' counterclaim will have a material adverse effect on its financial 
condition or operations.

In October 1996, the Company filed an answer to the Defendants' counterclaims. 
In December 1996, the Company filed a motion for summary judgment with 
respect to its claims, which was denied in March 1997.  Discovery has been 
completed in the case, but a trial date has not yet been set.  The Company 
believes the trial will occur during calendar year 1998.

Although the Company has fully reserved the receivable it believes is due 
under its contract with Integrators, it continues to pursue vigorously all 
legal remedies available to it with respect to this matter.


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

On June 4, 1997, 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,  Thomas L. Gough, 
Dominic A. Laiti, and R. Doss McComas.

In addition, the shareholders approved an increase to the Company's authorized 
shares from 2.0 million to 10.0 million and also authorized a three for one 
stock split which became effective in July, 1997.

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, 1997 and 1996, 
are shown below (as adjusted for the stock split which occurred in July, 
1997):

          1997 Fiscal Year             High            Low
   
          First Quarter                10 5/16         6 1/2
          Second Quarter               10 3/16         7 5/16
          Third Quarter                11 3/16         7 3/16
          Fourth Quarter               12              9

         1996 Fiscal Year              High            Low

         First Quarter                 9 7/16          7 5/16
         Second Quarter                9               6 5/16
         Third Quarter                 9 13/16         7 3/16
         Fourth Quarter                9 1/2           6 13/16

As of September 30, 1997, there were approximately 495 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 1998 fiscal year.

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



                       COMPARISON OF FISCAL YEAR 1997 
                             TO FISCAL YEAR 1996

The components of the Company's income statement as a percentage of revenue 
are depicted in the following table for fiscal years 1997 and 1996.  Certain 
classifications and presentations from fiscal year 1996 have been changed to 
be consistent with fiscal year 1997 formats.
<TABLE>
<S>                          <C>             <C>            <C>          <C>

                                             % of                        % of
                              1997         Revenue          1996       Revenue
                         (000's omitted)              (000's omitted)
                     
Revenue                      $20,059        100.0          $11,217      100.0

Expenses
  Cost of Revenue            16,020          79.9           8,217        73.2
  Selling, General & Admin.   2,303          11.5           1,758        15.7
  Bad Debt Expense                -             -             233         2.1
  Prod. Amortization            660           3.3             509         4.5
  Other                          64            .3              -2           -
  Income Taxes                  383           1.9             179         1.6

Total Expenses               19,430          96.9          10,894        97.1

Net income                $     629           3.1       $     323         2.9
</TABLE>

Revenue

The Company sells its products and services to both the Federal Government and 
to commercial and international organizations.  The Company defines commercial 
contracts as any business opportunity that includes, as all or part of the 
sale, any of its commercial off the shelf (COTS) software products.  The 
Company presently sells three proprietary COTS products, namely EPOCH, OASYS, 
and DRS.  

The Company through its wholly owned subsidiary, Integral Marketing, Inc. 
(IMI), earns commissions by representing a number electronic product 
manufacturers in Maryland, Virginia and the District of Columbia.  The Company 
classifies IMI revenues as commercial revenues.

During fiscal year 1997, consolidated revenue increased by almost 80% compared 
to fiscal year 1996, climbing from $11.2 million to $20.1 million.  During 
fiscal year 1997, the Company derived approximately 43% of its consolidated 
revenue from commercial opportunities compared to 49% of such revenue last 
fiscal year.  Although the percentage of overall revenue accounted for by 
commercial revenues declined, commercial revenues actually increased in 
absolute dollar terms, rising from $5.5 million in fiscal year 1996 to $8.6 
million in fiscal year 1997, an increase of approximately 55%.

Gross Margin

Although management believes that the distinctions between Government revenue 
and commercial revenue are important in understanding the financial dynamics 
of its business, management believes that it is also important to analyze the 
types of revenue the Company has earned.  Specifically, the Company 
essentially derives revenues from the following sources:

- Software licenses
- Engineering services
- Equipment and subcontract pass throughs
- IMI commission revenues

Each of the above revenue types has different gross margin characteristics.  
Generally license revenues have the greatest gross margins, as the Company 
believes that this revenue type has virtually no marginal cost associated with 
it. By contrast, equipment and subcontract pass throughs have the least gross 
margin rates associated with them, as the Company generally does not mark 
these items up by more than 15%.

Service margins for the Company typically range between 20% and 30% of 
revenue, but can be less depending on specific contract pricing and/or 
contract overruns.  Margins for IMI vary considerably depending on sales 
volume achieved.

Although in many instances margins on given contracts are bundled together as 
part of an overall price and are therefore subject to estimated allocation, 
the Company believes that the table below fairly and accurately portrays the 
Company's revenue and gross margin results for fiscal years 1997 and 1996.
<TABLE>
<S>                <C>          <C>      <C>     <C>          <C>       <C>


                              1997                            1996
                  Revenue    Margin   % Margin   Revenue     Margin   % Margin 
                   (000's omitted)                 (000's omitted)
 
Licenses            $ 1,411    $ 1,411    100.0    $  728      $ 728     100.0
Services              9,824      1,838     18.7     8,106      1,953      24.1
Equip. & Subcontracts 8,286        619      7.5     1,721        138       8.0
IMI                     538        171     31.8       662        181      27.3

Totals              $20,059     $4,039     20.1   $11,217     $3,000      26.7
</TABLE>


Overall, the Company experienced a decrease in gross margin percentage between 
the periods being compared, falling from 26.7% to 20.1%.  The reasons for the 
decrease are essentially twofold.  First, over 41% of the Company's fiscal 
year 1997 revenues were derived from low margin equipment and subcontract pass 
throughs, compared to approximately 15% of such revenues last fiscal year.  
Most of the increase is attributable to a material Government contract the 
Company received during the 2nd half of fiscal year 1996 (i.e., the IPACS 
Contract with the National Oceanic and Atmospheric Administration [NOAA], a 
copy of which was filed as an exhibit to the Company's 1996 Annual Report on 
Form 10-KSB).  In fact over 55% of the Company's equipment and subcontract 
pass through revenue for fiscal year 1997 was derived from this one contract 
alone.

Furthermore, on the Company's commercial side of the business, service margins 
were lower than the prior fiscal year due to operating losses on two 
relatively new contracts.  The Company considers such  losses to be in effect 
"loss leaders", as both contracts were priced to gain entrance to certain 
markets, which the Company believes it has since effectively achieved.  In 
particular, the Company believes that were it not for work performed under the 
contracts referred to above, its current contract with Skynet (originally 
issued by AT&T Corporation) as well as its recent multiple sales of its Low 
Earth Orbiter Terminal (LEO-T) may not have been awarded.

In addition to the above, margins in the Company's IMI operation were 
negatively impacted due to an accounting policy change implemented during the 
second quarter of fiscal year 1997, (see Note 1 of the Notes to Financial 
Statements herein).  Specifically, the Company now recognizes IMI revenue at 
the time that orders are shipped rather than at the time orders are received. 
The Company does not consider the effect of the change to be material to its 
financial statements.

Operating Expenses

SG&A increased by approximately $545,000 between the periods compared as the 
Company continues to build an operating infrastructure to support its 
commercial business.  Bid and proposal expenses for the Company's Government 
operation were also significantly higher in the current period compared to 
last fiscal year.  As a percentage of revenue, however, SG&A accounted for 
only 11.5% of revenue in the current period compared to 15.7% last fiscal 
year.

Product amortization increased by approximately $150,000 between fiscal year 
1997 and fiscal year 1996, reflecting the Company's expanding software 
development amortization base.  Product amortization now only pertains to the 
Company's EPOCH and OASYS products as amortization for all other products was 
fully recognized in fiscal year 1996.

Fiscal year 1996 expenses included a $233,000 provision for bad debt expense 
which did not recur in fiscal year 1997.


Outlook

Overall, net income as a percentage of revenue was 3.1% in fiscal year 1997 
compared to 2.9% in fiscal year 1996, although 1996 net income would have been 
approximately $150,000 greater (i.e. 1.3% of revenue more) were it not for the 
bad debt expense described above.  The Company's fourth quarter of fiscal year 
1997 included its highest ever quarterly revenue total ($5.9 million) with a 
net income of $199,000 or $.07 per share.  Because of its fourth quarter 
performance, its current and significant backlog, its outstanding proposal 
pipeline and contracts believed to be imminent, the Company believes that 
results for fiscal year 1998 will exceed those recorded in fiscal year 1997 
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 $3.0 million which had an 
outstanding balance of $500,000 at September 30, 1997. (See Note 5 of the 
Notes to Financial Statements).  During fiscal year 1997, the Company 
generated approximately $650,000 from operating activities and used $1,540,000 
for investing activities, including approximately $817,000 for newly 
capitalized software development costs.

As a result of its current cash reserves, its unused portion of its line of 
credit, its current profitability and management's internal budgeting and 
planning, the Company believes it will have adequate cash resources to meet 
its obligations for the foreseeable future.  The Company may from time to time 
avail itself of its line of credit facility to finance its current rate of 
growth and the related build up of accounts receivable.

In terms of capital purchases, historically the Company has funded such items 
through operating cash flow or capital lease.  Currently, the Company is 
negotiating a lease line of credit facility with a subsidiary of its principal 
bank in the amount of $1.0 million to fund capital equipment purchases, 
including the sale leaseback of $500,000 of equipment purchased in late fiscal 
year 1997.

With respect to software development the Company plans to continue to invest 
in the continued development and improvement of its principal software 
products, EPOCH and OASYS at amounts approximately commensurate with fiscal 
year 1997 spending levels.

Inflation

Although management believes that inflation has not had a material effect on 
the results of operations during the past several fiscal years, there can be 
no assurance that the Company's results of operations in the future will not 
be affected by inflation in the future.

Forward-Looking Statements

Certain of the statements contained in this section, including those under the 
headings "Outlook" and "Liquidity and Capital Resources" are forward-looking. 
In addition from time to time, the Company may publish forward-looking 
statements relating to such matters as anticipated financial performance, 
business prospects, technological developments, new products, research and 
development activities and similar matters.  While the Company believes that 
these statements are and will be accurate, a variety of factors could cause 
the Company's actual results and experience to differ materially from the 
anticipated results or other expectations expressed in the Company's 
statements.  The Company's business is dependent upon general economic 
conditions and upon various conditions specific to its industry, and future 
trends cannot be predicted with certainty.  Particular risks and uncertainties 
that may effect the Company's business include the following:

-  The presence of competitors with greater financial resources and their 
   strategic response to the Company's new services.
-  The potential obsolescence of the Company's services due to the 
   introduction of new technologies.
-  The response of customers to the Company's marketing strategies and 
   services.
-  Activity levels in the Company's core markets.


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.


                               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
William I. Tittley         Vice President, Asia Pacific Operations
Elaine M. Parfitt          Vice President and Chief Financial Officer
Patrick R. Woods           Vice President of NOAA Programs
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 duly elected and qualified.  Officers of the Company 
serve at the discretion of the Board of Directors.

Steven R. Chamberlain, 42, 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.  Mr. Chamberlain is married to Kimberly A. Chamberlain 
who was the Company's Vice President and Chief Financial Officer until her 
resignation in February, 1997.

Thomas L. Gough, 49, became a member of ISI's staff in January, 1984.  In 
March of 1996, he was elected to the Board of Directors of ISI 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 B.S. degree from the University of Maryland where 
he majored in Information Systems Management in the School of Business and 
Public Administration.

Robert P. Sadler, 47, 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 by 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.

Steven K. Kowal, 44, a Company founder, has been with ISI since 1982.  In May, 
1988, he was appointed Vice President of Engineering Manufacturing.  Mr. Kowal 
is the Chairman of the Board of Integral Marketing, Inc., a wholly-owned 
subsidiary of ISI.  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 ISI 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., 44, joined the Company in 1986.  In July, 1989, he was 
appointed Vice President of Engineering.  He is currently developing new 
business areas for the Company.  From 1979 to 1986, Mr. Mack was employed by 
General Electric Corporation's Space Systems Division where he progressed from 
Design Engineer to 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.

William I. Tittley, 54, 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 Operations, to oversee 
the Company's operations and business development in that region.  Formerly, 
Mr. Tittley was with OAO Corporation (from 1977 through 1992), where he 
performed duties as Director of Space Systems Programs in charge of the 
technical and financial direction of aerospace programs.  Mr. Tittley holds a 
B.S. equivalent in Aerospace Vehicle Design from the Academy of Aeronautics 
(State University of New York), and has graduate studies in Astronomy from the 
University of Maryland, and Engineering from the California Coast University.

Elaine M. Parfitt, 34, joined the Company in 1983.  She served as Staff 
Accountant/Personnel Administrator until January, 1995, when she was promoted 
to Controller/Director of Accounting.  In March, 1997, Ms. Parfitt was 
appointed Vice President and Chief Financial Officer.  She holds a B.S. degree 
in Accounting from the University of Maryland.

Patrick R. Woods, 42, joined the Company in 1995, and is the Vice President of 
NOAA Programs.  From 1994 to 1995, he worked for Space Systems/Loral (SS/L), 
and from 1985 to 1994, he worked for the Lockheed Martin Corporation (formerly 
Loral Aerospace).  Mr. Woods served as the Director of Mission Operations for 
both SS/L and the AeroSys Division of Loral Aerospace. While at Loral 
Aerospace, Mr. Woods received the NASA Public Service Group Achievement Award 
from NASA Administrator Admiral Richard Truly for his management of the Hubble 
Space Telescope control center development and launch support.  Mr. Woods hold 
a B.S. in Public Administration and a M.P.A. in Public Management from Indiana 
University.

Bonnie K. Wachtel, 42, has served as an outside 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, DC.  Ms. 
Wachtel serves as a Director of several corporations, including VSE 
Corporation and Information Analysis, Inc.  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, 66, 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 26 years of experience in starting, building, and managing high-
technology private and public companies with annual revenues from 2 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.

R. Doss McComas, 43, joined the Board in July, 1995.  Since 1982, he has held 
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 COMSAT's 
international operations.  Currently, Mr. McComas is Chairman and Chief 
Executive Officer of Plexsys International, a COMSAT RSI equity investment.  
He holds a B.A. degree from Virginia Polytechnic Institute; a 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, 1997:
<TABLE>

                              SUMMARY COMPENSATION TABLE
<S>                                     <C>    <C>      <C>    <C>      <C>

                                         Long-Term Compensation
                   Annual Compensation        Awards/Payouts

                                      Other		                           All
                                      Annual  Restricted                other
Name and                              Compen- Stock             LTIP    Compen-
Principal                             sation  Award(s) Options/ Payouts sation
Position     Year	 Salary($) Bonus($) ($)($)	 ($)      SAR(#)	    ($)	  ($) (1)

CEO
Steven R.  Chamberlain 
             1997  $117,088  $13,000                     0              $11,639
             1996  $114,179  $14,000                   45,000           $11,486
             1995  $108,577  $14,000                   22,500           $10,502

President
Thomas L. Gough
             1997  $106,242  $11,000                     0              $10,508
             1996  $101,581   $8,000                   30,000           $10,061
             1995   $98,048  $11,000                     0               $9,318

VP, Commercial Systems
Steven A. Carchedi
             1997  $103,701  $11,000                     0              $10,136
             1996   $97,771  $12,000                   30,000            $9,572
             1995   $94,926  $12,000                    6,000            $8,944

VP, Engineering Manufacturing
Steven K. Kowal
             1997  $102,257  $10,000                     0              $10,001
             1996   $97,771   $9,000                   12,000            $9,572
             1995   $94,926   $9,500                     0               $8,944

VP, Asia Pacific Operations
William I. Tittley (2)
             1997  $101,966  $31,623                     0               $8,784
             1996   $98,891  $26,456                   3,000            $10,684
             1995   $96,050   $7,000                  15,000             $9,046
</TABLE>

(1)  Employer Pension Contributions
(2)  Includes Overseas Assignment Bonuses of $26,623 and $19,956 in 1997 and  
1996 respectively
<TABLE>
                OPTION/SAR GRANTS IN LAST FISCAL YEAR
                         
                             Individual Grants				
<S>                  <C>            <C>              <C>            <C>

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

CEO
Steven R. Chamberlain   0              0%               N/A           N/A

PRESIDENT
Thomas L. Gough         0              0%               N/A           N/A

VP, COMMERCIAL SYSTEMS
Steven A.Carchedi       0              0%               N/A           N/A

VP, ENGINEERING 
  MANUFACTURING
Steven K. Kowal         0              0%               N/A           N/A

VP, ASIA PACIFIC
  OPERATIONS
William I. Tittley      0              0%               N/A           N/A

*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 1997 and 1996, 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 150,000 to 600,000 during fiscal year 1994.

A total of 19,512 option shares were issued and 4,853 option shares were 
exercised during fiscal year 1997.  Total option shares issued and outstanding 
as of September, 1997 are 368,620.


Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR 
   Values

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

(a)           (b)           (c)         (d)                  (e)
                                       Number of
                                  Securities Underlying  Value of Unexercised
                                  Unexercised Options/   In-the-Money Options/
                                  SARS at FY-End (#)     SARS at FY End ($)

          Shares Acquired   Value      Exercisable           Exercisable
  Name    on Exercise (#)  Realized   Unexercisable         Unexercisable

 None by        N/A         N/A          N/A                    N/A
Named Executive 
 Officers
</TABLE>
d.  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 or arrangement with respect to any 
individual named in the Summary 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 9/30/97)

None

b.  Security Ownership of Management (as of 9/30/97)
<TABLE>
<S>                               <C>                                <C>

Name of Owner	                (1)(2)Shares    Percentage of Total Shares Owned

Steven R. Chamberlain              234,120                            7.6%
Thomas L. Gough                    109,550                            3.5%
Robert P. Sadler                   134,970                            4.4%
Elaine M. Parfitt                   12,450                             .4%
Donald F. Mack, Jr.                 33,300                            1.1%
Steven K. Kowal                    124,038                            4.0%
Steven A. Carchedi                  79,500                            2.6%
William Tittley                     11,400                             .4%
Bonnie K. Wachtel                   13,500                             .4%
Dominic A. Laiti                    15,000                             .5%
R. Doss McComas                     15,000                             .5%

Officers and Directors as a group  782,828                           25.3%

(1) Includes Options
(2) There are no shares issuable to the individuals named in this table within 
60 days.
	
</TABLE>

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 Sheet as of September 30, 1997 - page 2
Statements of Operations for the Years Ended September 30, 1997, and 1996 - 
page 3
Statement of Stockholders' Equity for Years Ended September 30, 1997 and 1996 
- page 4
Statements of Cash Flows for the Years Ended September 30, 1997 and 1996 - 
page 5
Notes to Financial Statements - pages 6 - 15

 (2) Material Contracts

None

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

A form 8-K was filed on July 1, 1997 announcing the consummation of a three 
for one stock split to all shareholders of record as of that date.


                    INTEGRAL SYSTEMS, INC. PRIVATE  
                           AND SUBSIDIARIES
               

                   CONSOLIDATED FINANCIAL STATEMENTS
             For the Years Ended September 30, 1997 and 1996

                                   AND

                        INDEPENDENT AUDITORS' REPORT



                           TABLE OF CONTENTS


DESCRIPTION                                           PAGES

Independent Auditors' Report                            1

Consolidated Balance Sheet as of September 30, 1997     2

Consolidated Statements of Operations for the Years 
  Ended September 30, 1997 and 1996                     3

Consolidated Statements of Stockholders' Equity for 
  the Years Ended September 30, 1997 and 1996           4

Consolidated Statements of Cash Flows for the Years
  Ended September 30, 1997 and 1996                     5

Notes to Consolidated Financial Statements              6-16



                     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, 1997, and the related 
consolidated statements of operations, stockholders' equity, and cash flows 
for the years ended September 30, 1997 and 1996.  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, 1997, and the 
consolidated results of their operations and their consolidated cash flows for 
the years ended September 30, 1997 and 1996, in conformity with generally 
accepted accounting principles.



November 21, 1997

Rubino & McGeehin, Chartered
Certified Public Accountants
6905 Rockledge Drive, Suite 700
Bethesda, MD  20817-1818

<TABLE>
                            INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
                                CONSOLIDATED BALANCE SHEET
                                    September 30, 1997

<S>                                                     <C>
                  	ASSETS

Current assets
 Cash and cash equivalents                               $ 1,006,614
 Accounts receivable                                       9,068,407
 Employee receivables                                          1,200
 Prepaid expenses                                            106,230
 Deferred income taxes                                        44,324

       Total current assets                               10,226,775
			
Property and equipment, at cost, net of accumulated 
 depreciation and amortization of $610,206                   801,805	
Other assets 	
 Deposits                                                     10,142
 Software development costs, net of accumulated
  amortization of $1,829,443                               1,452,242
			
     Total assets                                       $ 12,490,964
			
                     LIABILITIES AND STOCKHOLDERS' EQUITY
			
Current liabilities	
 Accounts payable - trade                                $ 2,887,419
 Accrued expenses                                          1,503,321
 Notes payable                                               500,000
 Billings in excess of revenue for contracts in progress     803,181
 Income tax payable                                          175,010

    Total current liabilities                             5,868,931

Commitments and contingencies
			
Common stock, $.01 par value, 10,000,000 shares
  authorized, 2,862,452 shares issued and outstanding        28,624
Additional paid-in capital                                  840,784
Retained earnings                                         5,752,625

  Total stockholders' equity                              6,622,033
			
  Total liabilities and stockholders' equity            $12,490,964
</TABLE>

<TABLE>
                 INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF OPERATIONS
              For the Years Ended September 30, 1997 and 1996
<S>                                        <C>               <C>
                   
                                            1997              1996

Revenue                                $  20,058,984      $ 11,217,148
			
Cost of revenue
 Direct labor                              4,514,765         3,617,255
 Direct equipment and subcontracts         7,614,788         1,567,215
 Travel and other direct costs               628,598           302,373
 Overhead costs                            3,261,652         2,729,793
			
  Total cost of revenue                   16,019,803         8,216,636
			
Gross margin                               4,039,181         3,000,512
			
Selling, general and administrative        2,303,294         1,758,248
Product amortization                         660,000           509,477
Bad debt expense                                   -           232,708
			
Income from operations                     1,075,887           500,079
			
Other income (expense)
 Interest income                              45,169            65,396
 Interest expense                            (10,509)           (2,320)
 Miscellaneous, net                          (98,375)          (60,787)
			
Income before income taxes                 1,012,172           502,368
			
Provision for income taxes                   383,343           179,351
		
 Net income                               $  628,829        $  323,017

Weighted average number of common shares   2,859,030         2,844,063

Earnings per share:	

 Net income                                  $  .22             $  .11

</TABLE>

<TABLE>
                    INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
               For the Years Ended September 30, 1997 and 1996
<S>                    <C>        <C>         <C>        <C>      <C>
                          
                                   Common
                                   Stock at   Additional
                       Number of   Par        Paid-in    Retained
                       Shares      Value      Capital    Earnings   Total  
 
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

Stock Split 
      (see Note 11)  1,905,066    19,050   (19,050)            -              -

Stock options exercised  4,853       49     24,916             -         24,965

Tax benefit of 
    stock options            -        -      9,607             -          9,607

Net income                   -        -         -         628,829       628,829

Balance, September 
     30, 1997        2,862,452  $ 28,624 $ 840,784   $  5,752,625  $ 6,622,033
</TABLE>

<TABLE>
                        INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                    For the Years Ended September 30, 1997 and 1996

<S>                                             <C>             <C>
                                                 1997               1996
Cash flows from operating activities:
 Net income                                     $ 628,829        $ 323,017
 Adjustments to reconcile net income to
   net cash provided by operating activities:
     Depreciation and amortization                997,536          705,793
     Change in deferred taxes                      29,589          (13,194)
     Tax effect of stock options                    9,607                -
     (Increase) decrease in:
     Accounts receivable                       (4,218,521)      (1,366,109)
     Prepaid expenses and deposits                (49,234)           4,549
     Employee receivables                          23,000          (24,200)
     Income tax receivable                              -                -
     (Decrease) increase in:
     Accounts payable - trade                   2,100,718          434,706
     Accrued expenses                             345,965          282,108
     Billings in excess of revenue 			
      for contracts in progress                   674,256         (432,277)
     Income tax payable                           126,950          (60,421)
			
       Total adjustments                           19,866         (469,045)
 			
 Net cash provided (used) by operating activities 648,695          (146,028)
			
Cash flows from investing activities:
 Acquisition of property and equipment           (720,233)         (306,799)
 Software development costs                      (816,728)         (431,773)
			
 Net cash used in investing activities         (1,536,961)         (738,572)
			
Cash flows from financing activities:
 Proceeds from line of credit                     500,000                 -
 Proceeds from exercise of stock options           24,965           128,962

 Net cash provided by financing activities        524,965           128,962		
Net decrease in cash                             (363,301)         (755,638)
			
Cash and cash equivalents, beginning of year    1,369,915         2,125,553
			
Cash and cash equivalents, end of year        $	1,006,614       $ 1,369,915
</TABLE>


                      INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  For the Years Ended September 30, 1997 and 1996

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.

Contract Revenue

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.

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.  

Change in Accounting for Commission Revenues

During the fiscal year ended September 30, 1997, the Company elected to 
record commission revenues earned by IMI at the time orders are shipped.  
Previously, the Company recorded commission revenues at the time orders were 
received.  The effect of this change was not material to the financial 
statements.

                        INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    For the Years Ended September 30, 1997 and 1996

1.	Summary of Significant Accounting Policies (continued)

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.

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 
retroactively where appropriate for the stock split discussed in Notes 10 
and 11.  The exercise of outstanding stock options would not result in a 
material dilution of earnings per share.

The earnings per share calculations have been computed in accordance with 
Accounting Principles Board (APB) Opinion No. 15.  The Financial Accounting 
Standards Board has issued Statement 128 which supersedes APB Opinion No. 
15, but is effective for fiscal periods ending after December 15, 1997, and 
early application is not permitted.

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 $23,284 held in a foreign bank account.



1.	Summary of Significant Accounting Policies (continued)

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, 1997, consists of the following:

    Billed
    Government - prime contracts               $  946,647
    Government - subcontractors                   523,795
    Commercial customers                        2,657,018
    Subtotal                                    4,127,460
    
    Unbilled
    Government - prime contracts                1,371,270
    Government - subcontractors                   210,533
    Commercial customers                        3,359,144
    Subtotal                                    4,940,947

    Total                                      $9,068,407

Unbilled accounts receivable include amounts arising primarily 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 billed and collected in one year.

During the years ended September 30, 1997 and 1996, approximately 57% and 
51%, respectively, of the Company's revenue was from prime contracts and 
subcontracts with departments and agencies of the U.S. government.  The 
remaining revenue is from commercial contracts and sales of commercial 
products.  For each of the years ended September 30, 1997 and 1996, 
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, 1997, are as follows:
	
  Electronic equipment                           $ 1,163,082
  Furniture and fixtures                              80,618
  Leasehold improvements                              11,365
  Software                                           156,946
		
    Total property and equipment                   1,412,011
  Less: accumulated depreciation and amortization   (610,206)
                                                   $ 801,805
4.	Software Development

Software development costs at September 30, 1997, consist of the following: 

  Costs incurred                                  $ 3,281,685
  Less:  accumulated amortization                  (1,829,443)
                                                  $ 1,452,242

Amortization expense for the year ended September 30, 1997, is $660,000. 

5.	Line of Credit

The Company has a line of credit agreement with a bank at September 30, 
1997, for $2,000,000. Borrowings under the line of credit bear interest at 
the bank's prime lending rate plus 1/4% 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, 1999.  At September 30, 1997, the Company has a $500,000 outstanding 
balance under the line of credit.

Subsequent to September 30, 1997, the Company negotiated an increase in its 
line of credit from $2,000,000 to $3,000,000.  Borrowings under the line 
bear interest at the Eurodollar Rate plus 1.9% per annum.  Any accrued 
interest is paid monthly.  The line of credit is secured by the Company's 
billed and unbilled accounts receivable.  The line also has certain 
financial covenants, including minimum net worth and liquidity ratios.  The 
new line of credit is effective November 14, 1997 and expires February 28, 
1999.

6.	Accrued expenses

Accrued expenses at September 30, 1997, consist of the following:

  Accrued payroll                       $  651,808
  Accrued vacation                         345,202
  Payroll taxes                            233,971
  Retirement plan payable                  249,143
  Other                                     23,197
                                      $  1,503,321
7.	Commitments and Contingencies

  Leases

The Company leases office space under two leases which expire in 1999.  
Future minimum lease payments under these operating leases are as follows:

Years ending September 30,    1998           $  374,000
                              1999              190,000

                                             $  564,000

Lease payments do not include operating expenses or utilities, which are 
adjusted annually.  Rent expense was $306,111 and $254,327, for the years 
ended September 30, 1997 and 1996, 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.  

Legal Proceeding

In August 1996 the Company sued International Systems Integrators, Inc. 
("Integrators"), a New Mexico company which had failed to pay a $232,708 
invoice from the Company in respect of certain software and hardware 
products sold by the Company to Integrators and subsequently resold by 
Integrators to the United States Air Force.  Integrators acted as the prime 
contractor for the Air Force and the Company acted as a subcontractor to 
Integrators.

The Company believes that it fully complied with the terms of its 
subcontract with Integrators.  However, Integrators failed to pay the 
Company's invoice for the products supplied to Integrators by the Company 
under the subcontract.  Integrators was paid by the Air Force for the 
products supplied by the Company.  

The Company sued Integrators, and its principal owner, Bernadette L. Mares 
(together with Integrators, the "Defendants"), for breach of contract, and 
is seeking to recover $232,708, the amount owed under the Company's 
subcontract with Integrators, plus interest and costs. 

In September 1996, the Defendants filed a counterclaim against the Company 
alleging defamation, interference with contractual relations and extortion, 
seeking damages from the Company in an unspecified amount.  The Company 
believes that the Defendants' counterclaim is entirely without merit and 
intends to contest it vigorously.  The Company does not believe that the 
Defendants' counterclaim will have a material adverse effect on its 
financial condition or operations.

In October 1996, the Company filed an answer to the Defendants' 
counterclaims.  In December 1996, the Company filed a motion for summary 
judgment with respect to its claims, which was denied.  Discovery has been 
completed in the case but a trial date has not yet been set.  The Company 
believes the trial will occur during calendar year 1998.

Although the Company has fully reserved the receivable it believes is due 
under its contract with Integrators, it continues to pursue vigorously all 
legal remedies available to it with respect to this matter.

8.	Income Taxes

For the years ended September 30, 1997 and 1996, the provision for income 
taxes consists of the following:

                                           1997          1996
       Current tax expense
       Federal                         $  289,617  	$  154,910
       State                               64,138       37,635
                                          353,755      192,545
       Deferred tax expense (benefit)      29,588      (13,194)	
         Total provision               $  383,343   $  179,351

At September 30, 1997, the tax effect of significant temporary differences 
representing deferred tax assets and liabilities are as follows:
                                           Asset
                                         (Liability)

     Depreciation and amortization       $  (94,205)
     Vacation accrual                       134,629
     Revenue reserve                          3,900
			
     Net deferred income tax asset        $  44,324

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

                                                 1997              1996

     Federal statutory rate                     34.0%             34.0%
     State tax, net of federal
        income tax benefit                       4.6               4.6
     Tax deductible stock option compensation     -               (2.8)
     Other                                      (0.7)             (0.1)

     Effective rate                             37.9%             35.7


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, 1997 and 1996, the money purchase plan obligated the Company to 
contribute 5% of eligible salaries under the plan.

For the years ended September 30, 1997 and 1996, contributions to the plans 
totalled $570,829 and $473,552, 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 
600,000.  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 from one to five years.

The stock option plan is accounted for under Accounting Principles Board 
(APB) Opinion No. 25.  Accordingly, no compensation has been recognized for 
the plan.  Had compensation cost for the plans been determined based on the 
estimated fair value of the options at the grant dates consistent with the 
method of Statement of Financial Accounting Standards (SFAS) No. 123, the 
Company's net income and earnings per share for the years ended September 
30, 1997 and 1996, would have been:
                                              1997             1996

      Net income             As reported        $ 628,829       $ 323,017
                             Pro forma          $ 358,991       $  65,631

      Income per share       As reported        $     .22       $     .11
                             Pro forma          $     .13       $     .02

The fair value of the options granted in 1997 is estimated on the date of 
the grant using the Black-Scholes options - pricing model assuming the 
following:  no dividend yield, risk-free interest rate of 6%, expected 
volatility of 40 percent, and an expected term of the options of four years. 
Stock option balances and activity discussed herein have been adjusted for 
the stock split discussed in Note 11.

10. Stock Option Plan

At September 30, 1997, options to purchase stock under this plan were 
outstanding to employees as follows:

                           Number of                Exercise Price 
                            Shares                  Per Share
                             56,397                 $	 3.00 - 	3.99
                             50,311                 $	 5.00 - 	5.99
                            211,212                 $	 7.00 - 	7.99
                             42,600                 $	 8.00 - 	8.99
                              5,400                 $	 9.00 - 	9.99
                              1,700                 $	10.00 -	10.99
                              1,000                 $	 9.00 - 	9.99

                            368,620

Of these 368,620 options, 188,257 options are exercisable immediately, and 
180,363 options are exercisable over the next four years.  Transactions 
involving the plan for the years ended September 30, 1997 and 1996, were as 
follows:


                                 1997                   1996
                                Weighted                Weighted
                      Shares   Average Prices  Shares Average Prices      
Outstanding, 
   beginning of year 353,961      $6.66       138,522      $4.72
Granted               19,512      $8.77       256,800      $7.64
Exercised             (4,853)     $5.14       (26,361)     $4.89
Canceled                   -        N/A   	   (15,000)     $8.67

Options outstanding, 
     end of year     368,620      $6.79       353,961      $6.66

Weighted average fair
value of options granted
during the year                   $3.01                    $3.45

11. Stock Split

On June 4, 1997, the Company's shareholders approved an increase to the 
Company's authorized shares from 2.0 million to 10.0 million and also 
authorized a three for one stock split which became effective in July 1997.

12.	Supplemental Cash Flow Information

For the years ended September 30, 1997 and 1996, income taxes paid, net of 
refunds, were $214,360 and $410,076, respectively.  For the years ended 
September 30, 1997 and 1996, interest expense incurred and paid was $10,509 
and $2,320, respectively.

13.	Business Segment Information

During the years ended September 30, 1997 and 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 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, provides consulting services for satellite design and 
procurement, but is presently inactive.)

Summarized financial information is as follows:
                                          1997            1996
  Net sales
      Satellite ground systems        $19,521,353      $10,555,371
      Marketing                           537,631          661,777

  Income before taxes 
      Satellite ground systems            882,483          343,797
      Marketing                           129,689          158,571

  Identifiable assets
      Satellite ground systems         11,130,040         6,139,157
      Marketing                           192,414           405,351

  Capital expenditures
      Satellite ground systems            705,146           305,220
      Marketing                            15,087             1,579

  Depreciation and amortization
      Satellite ground systems            312,706           192,838
      Marketing                             4,830             3,478

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.

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,     12/29/97	
Steven R. Chamberlain     Chief Executive Officer

  /s/                     President, Chief Operating Officer,  12/29/97	
Thomas L. Gough	Director

  /s/                     Vice President of Quality Control,   12/29/97	
Robert P. Sadler          Secretary & Treasurer; Director

 /s/                      Director                             12/29/97	
Bonnie K. Wachtel	

 /s/                      Director                             12/29/97	
Dominic A. Laiti	

 /s/                      Director                             12/29/97	
R. Doss McComas	

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:			12/29/97		



                                          BY:			/s/			
                                          Thomas L. Gough
                                          President, Chief Operating Officer
                                          Director

                                          DATE:			12/29/97		


 
                                          BY:			/s/			
                                          Elaine M. Parfitt
                                          Chief Financial Officer, Principal
                                          Accounting Officer

                                          DATE:			12/29/97