Integrated Systems Reports Second Quarter Results; Revenues Increase 32 Percent Over Last Year, Exceed $100 Million Annual Run Rate.

SUNNYVALE, Calif.--(BUSINESS WIRE)--Sept. 18, 1996--Integrated Systems, Inc. (NASDAQ:INTS) today reported total revenue of $26.1 million for the second quarter ended August 31, 1996, an increase of 32 percent over the previous year's second quarter total revenue. Net income for the second quarter ended August 31, 1996 before merger and other charges was $3.0 million ($0.13 per share), an increase of 22 percent over the previous year's second quarter. Net income for the second quarter, after pre-tax merger and other charges of $0.9 million, was $2.4 million ($0.10 per share).

For the six months ended August 31, 1996, total revenues were $49.3 million, representing an increase of 29 percent over the previous year. Net income for the six months ended August 31, 1996 before merger and other charges was $5.4 million ($0.23 per share), an increase of 35 percent over the previous year.

During the second quarter, product revenue increased 41% and service revenue, which includes product maintenance and consulting contracts, increased 17% compared to the prior year's second quarter.

David St. Charles, Integrated Systems' president and chief executive officer states: "During the last six months, we embarked on the most ambitious product development and product introductions in the Company's history. We are excited about our recent product announcements resulting from these activities. Our investments in new product development, marketing and expansion of the distribution infrastructure should continue to position the company well over the long-term."

In July 1996, the Company completed the acquisition of Epilogue Corporation of Albuquerque, New Mexico. Epilogue is a developer of network management and embedded Internet software for telecommunications and datacommunications equipment manufacturers, embedded software suppliers and networking related integrated circuit manufacturers. The acquisition extends Integrated Systems' network management capabilities and the Embedded Internet product family. In connection with this transaction, Integrated Systems issued 700,000 shares of common stock and options . The acquisition has been accounted for as a pooling of interests.

During this week, the Company announced several new products at the Embedded Systems Conference currently being held in San Jose, California and the Networld+InterOp Conference being held in Atlanta, Georgia.

At the Embedded Systems Conference, the Company introduced the next generation Integrated Development Environment (IDE), pRISM+. pRISM+ is the embedded systems industry's most complete and truly open visual development suite for writing, compiling, debugging and analyzing real-time embedded applications. Based on an intuitive graphical development environment, pRISM+ represents the only single-vendor solution for every step of the development tool chain, and meets developers' definitive demands for ease-of-use, true openness, full-range scalability, and RTOS awareness, all with a native look and feel across Windows and UNIX environments.

The Company also announced the formation of a worldwide tools partnership program that gives embedded developers access to a wide variety of products from nearly 700 hardware and software vendors. Because ISI's new pRISM+ embedded development tools are built on an object bus which conforms to the open industry-standard, CORBA (Common Object Request Broker Architecture), it is easy to interface tools to pRISM+, whether they are already CORBA compliant or not.

Integrated Systems' Epilogue business unit introduced Decorum, an innovative new worldwide web technology that makes it possible to manage SNMP (Simple Network Management Protocol) and non-SNMP devices using standard web browsers. The product supports a wide variety of Internet protocols and services and provides a cost-effective network management solution.

The Company also announced several major enhancements to its Embedded Internet product family, including a web browser based on Spyglass embedded technology and support for a wide range of protocols optimized for embedded use.

Except for the historical information contained herein, the matters discussed in this news release are forward looking statements that involve risks and uncertainties, including the timely availability and acceptance of recently announced and future products, the cost of developing and introducing new products, the impact of competitive products and pricing, the management of growth, the successful integration of acquisitions, sufficient availability of qualified personnel, changes in international operations, including exchange rate risks, changes in market conditions for the Company's products and the other risks detailed from time-to-time in the Company's Securities and Exchange Commission reports.

Integrated Systems, Inc. is a leading worldwide provider of embedded operating software and simulation and control design tools for the telecommunications/datacommunications, automotive, multimedia, entertainment, office/retail automation, aerospace and process control industries. Its software helps manufacturers bring higher quality, more fully featured products to market faster. The Company's business model is based on the sale of software development licenses for creating new products followed by runtime licenses for products using its embedded operating software. Sales and services offices are located worldwide in Asia, Europe and North America. -0-

NOTE TO EDITORS: Decorum, Embedded Internet and pRISM+ are trademarks or registered trademarks of Integrated Systems, Inc. or Epilogue Corporation, Inc. All other names mentioned are the property of their respective owners. -0-

              Condensed Consolidated Statements of Income
                 (in thousands, except per share data)

                         Three Months Ended     Six Months Ended
                             August 31,            August 31,
                           1996     1995        1996      1995

Revenue:
 Product                 $17,107   $12,146    $30,825   $23,768
 Services                  8,998     7,705     18,431    14,541
Total revenue             26,105    19,851     49,256    38,309

Costs and expenses:
 Cost of product revenue   2,086     2,073      4,097     4,539
 Cost of services revenue  3,892     3,971      8,066     7,394
 Marketing and sales       9,842     6,246     18,663    12,625
 Research and development  4,409     2,843      8,121     5,428
 General and
  administrative           1,937     1,604      3,948     3,161
 Amortization of intangible
  assets                     104       186        207       372
 Acquisition and other       926        --        926        --
Total costs and expenses  23,196    16,923     44,028    33,519

Income from operations     2,909     2,928      5,228     4,790
Interest and other income    798       691      2,192     1,216
Income before income taxes 3,707     3,619      7,420     6,006
Provision for income taxes 1,335     1,185      2,597     1,994

Net income                $2,372    $2,434     $4,823    $4,012

Earnings per share         $0.10     $0.11      $0.21     $0.18

Shares used in per
share calculations        23,511    21,994     23,110    21,854

Condensed Consolidated Balance Sheets
(in thousands)
                               Aug 31, 1996      Feb 28, 1996

Assets:
Cash and marketable securities     $51,014           $49,476
Accounts receivable, net            21,386            19,822
Other assets                        30,474            15,966
Total assets                      $102,874           $85,264

Liabilities and shareholders' equity:
Current liabilities                $20,669           $26,404
Noncurrent liabilities                 127               584
Shareholders' equity                82,078            58,276
Total liabilities and
shareholders' equity              $102,874           $85,264

CONTACT: Integrated Systems Inc.

Steven Sipowicz, 408/542-1996 (CFO)

email: [e-mail] or [e-mail]