UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ______
Commission file number 0-20329
EIS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware No. 06-1017599
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
1351 Washington Boulevard
Stamford, CT 06902
(203)351-4800
(Registrant's telephone number, including area code)
-----------------------------
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 was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock: Common Stock, par value $.01 per share, outstanding as of August
13, 1996: 10,959,158 shares.
Page 1 of 16
<PAGE>
EIS INTERNATIONAL, INC. and SUBSIDIARIES
INDEX to Financial Statements Filed with Quarterly Report of
Registrant on Form 10-Q for the Quarter Ended June 30, 1996
(Unaudited)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements: Page
Unaudited Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995 3-4
Unaudited Consolidated Statements of Income
for the three months ended June 30, 1996 and 1995, and for
the six months ended June 30, 1996 and 1995 5
Unaudited Consolidated Statements of Cash Flows
for the six months ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements
(unaudited) 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings Not Applicable
Item 2. Changes in Securities Not Applicable
Item 3. Defaults Upon Senior Securities Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders Not Applicable
Item 5. Other Information Not Applicable
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Page 2 of 16
<PAGE>
EIS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in Thousands)
(Unaudited)
June 30, December 31,
Assets 1996 1995
---------- -----------
Current assets:
Cash and cash equivalents $22,271 $21,069
Accounts receivable, trade, less allowances for
doubtful accounts and sales returns of $2,747
in 1996 and $2,665 in 1995 29,951 29,749
Unbilled revenue 1,365 --
Current portion of installment and lease receivables 2,741 3,806
Inventories (note 3) 8,548 7,681
Deferred income taxes 2,141 2,141
Prepaids and other current assets 1,479 293
------ -------
Total current assets 68,496 64,739
Capitalized software development costs, net 4,618 3,315
Intangible assets, net 8,601 --
Property and equipment, net 8,683 8,430
Installment and lease receivables, less current portion 3,232 5,994
Other assets 1,941 1,739
----- -----
Total assets $95,571 $84,217
====== ======
See accompanying notes to consolidated financial statements.
Page 3 of 16
<PAGE>
June 30, December 31,
1996 1995
------- ------------
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ -- $ 354
Accounts payable 9,149 6,391
Accrued compensation and benefits 3,153 4,703
Other accrued liabilities 3,777 2,776
Deferred maintenance revenue 3,412 2,481
Deferred income 3,186 --
Income taxes payable 1,644 3,324
----- ------
Total current liabilities 24,321 20,029
Deferred income taxes 1,064 1,064
Other liabilities 331 1,026
----- -----
Total liabilities 25,716 22,119
Commitments and Contingencies (Note 7)
Stockholders' equity:
Common Stock, $.01 par value, 15,000,000
shares authorized, issued 10,975,768
shares in 1996 and 9,853,641 shares in 1995 110 99
Additional paid-in capital 56,522 36,020
Accumulated translation adjustments (54) (21)
Retained earnings 13,796 26,519
Treasury stock, at cost - 76,225 shares in 1996
and 1995 (519) (519)
------- --------
Total stockholders' equity 69,855 62,098
------ ------
Total liabilities and stockholders' equity $95,571 $84,217
====== ======
See accompanying notes to consolidated financial statements.
Page 4 of 16
<PAGE>
EIS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
---- ---- ---- ----
Net revenues:
Product sales and software $25,740 $17,323 $47,331 $32,213
Service and other 4,887 3,448 9,072 6,790
------- ------- ------- ------
30,627 20,771 56,403 39,003
------- ------- ------ ------
Cost of revenues:
Cost of product sold 8,384 5,690 16,049 10,927
Cost of services and other 3,387 1,541 5,859 3,150
------ ----- ------- -------
11,771 7,231 21,908 14,077
------ ----- ------ ------
Gross margin
Product sales 17,356 11,633 31,282 21,286
Services and other 1,500 1,907 3,213 3,640
------ ------- ------- -------
18,856 13,540 34,495 24,926
------ ------ ------ ------
Operating cost and expense:
Research and development 3,497 1,909 6,392 3,554
Acquired technology in
process -- -- 16,900 --
Sales, general and
administrative 10,607 8,301 21,245 15,455
------ ------ ------ ------
14,104 10,210 44,537 19,009
------ ------ ------ ------
Operating income (loss) 4,752 3,330 (10,042) 5,917
Other income, net 237 407 617 787
----- ------ ------- ------
Income (loss) before income
taxes 4,989 3,737 (9,425) 6,704
Income taxes 1,846 1,516 3,247 2,682
----- ----- ------ -----
Net income (loss) $3,143 $2,221 $(12,672) $4,022
===== ====== ======= =====
Net income (loss) per share:
Primary $.27 $.21 $(1.22) $.39
Fully diluted $.27 $.21 $(1.22) $.39
Weighted average common and
common equivalent shares
Primary 11,609 10,390 10,354 10,351
Fully diluted 11,727 10,398 10,354 10,360
See accompanying notes to consolidated financial statements
Page 5 of 16
<PAGE>
EIS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
Six Months
Ended June 30,
1996 1995
---- ----
Net cash provided by operating activities (note 6) $1,465 $1,222
------- -------
Cash flows from investing activities:
Additions to property and equipment (2,082) (2,551)
Sale of lease portfolio 5,200 --
Sale of short term investments -- 3,917
Increase in capitalized software costs (1,620) (631)
Acquisition of businesses (6,520) --
------- -------
Net cash (used in) provided by
investing activities (5,022) 735
------- -------
Cash flows from financing activities:
Repayment of short-term debt (354) --
Purchase of treasury stock -- (15)
Proceeds from exercise of stock options 5,113 1,301
Proceeds from sale of stock -- 496
------- -------
Net cash provided by financing activities 4,759 1,782
------- -------
Net increase in cash and cash equivalents 1,202 3,739
Cash and cash equivalents at beginning of period 21,069 13,447
------- -------
Cash and cash equivalents at end of period $22,271 $17,186
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $86 $16
======= =======
Income taxes $3,138 $1,163
======= =======
Supplemental schedule of non-cash financing activities:
Tax benefit from exercise of stock options $1,868 $1,164
======= =======
See accompanying notes to consolidated financial statements.
Page 6 of 16
<PAGE>
EIS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The unaudited consolidated financial statements presented herein have
been prepared in accordance with the instructions to Form 10-Q and do
not include all of the information and note disclosures necessary to
conform with annual reporting requirements. The statements should be
read in conjunction with the audited consolidated financial statements
and notes thereto included in the Company's Annual Report for the year
ended December 31, 1995. In the opinion of management, the accompanying
consolidated financial statements include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation
of the Company's financial position and results of operations. The
results of operations for the three- and six-month period ended June 30,
1996 may not be indicative of the results for the full year.
(2) Principles of Consolidation
The accompanying financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
(3) Inventories consist of the following at:
June 30, 1996 December 31, 1995
Raw materials $ 391 $ 763
Work in process 60 148
Finished goods 8,097 6,770
----- -----
Total inventories $8,548 $7,681
===== =====
(4) Acquisitions and Pro-Forma Financial Information
On March 1, 1996, the Company acquired all the issued and outstanding
capital stock of Cybernetics Systems International Corp. (CSI), a
private company located in Coral Gables, Florida, for $22.75 million
consisting of $9.3 million in cash and the remainder in shares of EIS
common stock. The acquisition of CSI was accounted for by the purchase
method of accounting, and accordingly, the acquired assets and
liabilities have been recorded at their fair values, with the help of an
appraiser, at the date of purchase and the results of the Company
reflect those of CSI from March 1, 1996. The consideration (including
acquisition costs) and the allocation of the purchase price are
summarized below:
Page 7 of 16
<PAGE>
(4) Acquisitions and Pro-Forma Financial Information (Cont'd)
Consideration
Cash $ 9,269
EIS stock 13,480
Liabilities assumed 8,042
Transaction costs 352
--------
Total purchase price $31,143
========
Allocation of purchase price
Cash $ 3,126
Accounts receivable 1,436
Prepaids and other current assets 302
Equipment and other assets 404
Intangible assets and goodwill:
Acquired technology in
process 16,900
Acquired software products
(amortized over 5 years) 3,000
Goodwill
(amortized over 10 years) 5,975
-------
Total intangible assets
and goodwill 25,875
---------
Total purchase price $31,143
========
The following unaudited pro-forma financial information shows the results of
operations for the six months ended June 30, 1996 and 1995 as though the
acquisition of CSI had occurred as of January 1, 1995. In addition to combining
the historical results of operations of the two companies, the pro-forma
calculations include: the amortization of the intangible assets acquired; and
the adjustment to income taxes to reflect the effective income tax rate assumed
for the Company and CSI on a combined basis for each pro-forma period presented
and excludes the write-off of the acquired technology in process of $16.9
million, as such charge is non-recurring and unusual and relates directly to the
acquisition.
Six Months
Ended June 30
------------------
1996 1995
------- --------
Net Revenues $56,647 $42,746
Net Income $2,224 $3,961
Earnings Per Share $0.19 $0.36
Page 8 of 16
<PAGE>
EIS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(4) Acquisitions and Pro-Forma Financial Information (Cont'd)
On February 29, 1996, the Company merged with Surefind Information, Inc.
of Pittsburgh, Pennsylvania. Surefind was a privately held corporation
in the business of safely storing critical data by allowing users to
upload their files to Surefind's electronic security vaults where it can
be instantly retrieved. The Company issued 549,577 shares of EIS common
stock, $.01 par value, in exchange for all 2,826,467 shares of Surefind
stock outstanding and subject to options and warrants. This merger was
accounted for by the pooling method of accounting and, accordingly, the
Company's consolidated financial statements have been restated for all
periods prior to acquisition to include the results of operations,
financial position, and cash flows of Surefind.
(5) Sale of Lease Portfolio
On March 29, 1996, EIS Leasing Corp., a wholly-owned subsidiary of the
Company, entered into a Purchase Agreement whereby a portion of its
lease portfolio was sold to a financial institution for $5.2 million in
cash. All leases sold under this agreement are subject to certain
recourse provisions. The Company is a guarantor to the Purchase
Agreement.
(6) Reconciliation of Net Income (loss) to Net Cash Provided By Operating
Activities.
The reconciliation of net income (loss) to net cash provided by
operating activities for the periods ending June 30, 1996 and 1995
follows (in thousands).
1996 1995
---- ----
Cash flows from operating activities:
Net income (loss) $(12,672) $4,022
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Provision for doubtful accounts and
sales returns 620 1,792
Write-off of acquired technology in
process 16,900 --
Depreciation and amortization 2,819 2,043
Changes in assets and liabilities:
Accounts receivable, trade (198) (3,459)
Unbilled revenue (553)
Installment and lease receivables (1,373) (2,829)
Inventories (867) (1,514)
Prepaids and other current assets (798) 40
Other assets (158) (61)
Accounts payable 1,723 (466)
Accrued and other liabilities (3,651) (627)
Income taxes payable 50 1,544
Deferred maintenance revenue 250 737
Deferred income (627) --
------- ---------
Net cash provided by operating activities $1,465 $1,222
====== ======
Page 9 of 16
<PAGE>
(7) Commitments and Contingencies
One of the principal customers of a subsidiary of EIS International,
Inc. (the "Company") has indicated that in the view of the customer the
Company has not adequately performed under its contract with the
customer. The customer has made a claim to recover all amounts paid to
the Company under the contract, of which approximately $3,868,000 has
been recognized as income through June 30, 1996, and for its direct
expenses under the contract. The Company is engaged in discussions with
the customer and believes that the matter will be resolved in a
satisfactory fashion. Further, the Company believes that it will be
entitled to reimbursement from an escrow account established at the time
of the acquisition of the relevant subsidiary for an amount which the
Company believes will be adequate to resolve the claim of the customer.
Accordingly, it is the view of the Company that this claim will be
resolved without material impact to the financial position of the
Company; and no provision for potential losses, if any, have been
recorded in the accompanying financial statements.
Page 10 of 16
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
NET REVENUES
Net revenues of $30.6 million in the second quarter of fiscal 1996 increased 47%
from $20.8 million in the second quarter of fiscal 1995. Net revenues increased
to $56.4 million in the first six months of fiscal 1996 as compared to $39.0
million in the corresponding period of fiscal 1995, representing growth of 45%.
Product revenues increased $8.4 million (49%) and $15.1 million (47%) for the
quarter and six month periods ended June 30, 1996 as compared to the same
periods in 1995, respectively. Service and other revenues increased $1.4 million
(42%) and $2.3 million (34%) for the same periods over such periods in 1995. The
growth in product revenues during the quarter and six month period is primarily
a result of the increase in purchases of the Company's products by the existing
customer base and of the addition of a number of new domestic and international
customers. In addition, inbound software sales from Cybernetics contributed $4.1
million of software revenue for the quarter. Service and other revenues
increased during the quarter and the six month period due to the continued
expansion of the Company's installed customer base covered by service contracts.
COST OF REVENUES
Cost of revenues was 38.4% and 38.8% of net revenues in the second quarter and
first six months of fiscal 1996, respectively, compared to 34.8% and 36.1% for
the comparable 1995 periods. Product cost as a percentage of product revenue was
32.6% and 33.9% in the second quarter and first six months of fiscal 1996,
respectively, compared to 32.9% and 33.9% for the comparable 1995 periods.
Product cost as a percentage of revenue decreased during the quarter due
principally to the lower product costs associated with inbound software sales.
Service and other costs as a percentage of service and other revenues were 69.3%
and 64.6% in the second quarter and first six months of fiscal 1996,
respectively, compared to 44.7% and 46.4% for the comparable 1995 periods. The
increase in cost of services and other as a percentage of service and other
revenues is primarily due to the expenditures incurred for building the
infrastructure of the Surefind and Cybernetics service organizations.
RESEARCH AND DEVELOPMENT COST
Research and development cost increased to $3.5 million in the second quarter of
fiscal 1996, a $1.6 million increase over the second quarter of fiscal 1995. For
the first six months of fiscal 1996, research and development cost increased
$2.8 million over the comparable 1995 period. Research and development cost
increased as a percentage of revenue to 11.4% from 9.2% and to 11.3% from 9.11%
for the three month and six month comparable periods ended June 30, 1996 and
1995, respectively. In addition, the Company capitalizes certain software
development costs relating to the enhancement of existing products and to the
development of new products in accordance with Statement of Financial Accounting
Standards No. 86. Costs of $856,000 and $1,620,000 were capitalized in the
second quarter and first six months, respectively, of fiscal 1996 compared to
$342,000 and $631,000 in the second quarter and first six months of fiscal 1995.
The overall cost increase during the three and six month periods ended June 30,
1996 reflects the expansion of the Company's research and development staff to
support its on-going product development and the increased cost associated with
outside consultants to support existing and future products. In addition,
Cybernetics and Surefind incurred $959,000 of research and development costs
during the quarter.
ACQUIRED TECHNOLOGY IN PROCESS
Page 11 of 16
<PAGE>
The acquired technology in process costs of $16.9 million incurred in 1996
reflect the fair value of the software products under development at Cybernetics
that had not achieved technological feasibility at the date of acquisition, and
had no alternative future uses, and were therefore charged against operations at
the time of the acquisitions.
SALES, GENERAL AND ADMINISTRATIVE
Sales, general and administrative expense for the second quarter of fiscal 1996
increased to $10.6 million, an increase of $2.3 million (28%) as compared to
$8.3 million in the comparable 1995 period. Sales, general and administrative
expense for the 1996 six month period of $21.2 million, increased $5.8 million
(37%) over the comparable 1995 period. Sales, general and administrative expense
decreased as a percentage of revenue to 34.6% from 40% and to 37.8% from 39.6%
for the three month and six month comparable periods ended June 30, 1996 and
1995, respectively. The primary reasons for the overall increase in expenses
during the comparable quarter and six month periods were increased staff levels,
commissions, travel and expense reimbursement, and bad debt reserves associated
with higher sales levels. Additional costs were incurred year over year in
advertising and promotions to bring auxilliary products to market for
Cybernetics and Surefind.
INTEREST AND OTHER INCOME, NET
Interest and other income, net decreased to $237,000 and $617,000 from $407,000
and $787,000 in the comparable three and six month periods ended June 30, 1996.
This was mainly due to a decrease in interest income from the Company's lease
portfolio as a result of the sale of leases for $5.2 million to a financing
company during the first quarter.
INCOME TAXES
The Company's effective income tax rate was 37% in the second quarter and 43% in
the first six months of fiscal 1996 without considering the acquired technology
in process writeoff of 16.9 million, compared to 40% during the second quarter
and first six months of fiscal 1995. The decrease in the effective rate for the
three month period is attributable principally to the results of the additional
reductions in effective federal and state rates due to increased tax credits
received for research and development expenditure and additional losses which
occurred in a subsidiary. The increase in the effective rate for the six month
period is mainly due to non-deductibility of related merger costs associated
with the acquisition of Surefind.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased to $44.2 million at June 30, 1996 from
$44.7 million at December 31, 1995. Cash and cash equivalents and short term
investment balances were $22.3 million at June 30, 1996 compared to $21.1
million at December 31, 1995. Operating activities provided $1.5 million during
the six month period ended June 30, 1996. The Company sold $5.2 million of lease
receivables during the first quarter of 1996 on a recourse basis. Cash and cash
equivalents were used to purchase property and equipment ($2.1 million) and
expenditures for software development costs capitalized in accordance with
Statement of Financial Accounting Standards No. 86 ($1.6 million). Proceeds
realized from the exercise of stock options and warrants during the period were
$5.1 million.
As an additional source of liquidity, the Company has a $12.5 million secured
line of credit with a commercial bank that will expire in January 1997. At June
30, 1996 there were no borrowings under this line of credit.
The Company anticipates that existing cash and cash equivalents, short term
investments and available borrowings will be adequate to meet its cash
requirements for the next 12 months.
Page 12 of 16
<PAGE>
In July 1996, the Board of Directors authorized the buy back of up to $4 million
of the Company's common stock.
Page 13 of 16
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit 11.
Page 14 of 16
<PAGE>
EIS International, Inc. and Subsidiaries
Exhibit 11
Statement Re Computation of Per Share Earnings
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income (Loss):
Net Income (Loss) $ 3,143 $ 2,221 $(12,672) $ 4,022
--------------------------------------------------
Net income (loss) per share:
Weighted average number of common
and common equivalent shares:
Common shares outstanding 10,667,036 9,681,159 10,353,658 9,585,540
Dilutive effect of stock options
and warrants, primary computation 941,498 708,858 -- 765,115
------------------------------------------------
Weighted average number of common and
common equivalent shares utilized in
the primary earnings per share
computation 11,608,534 10,390,017 10,353,658 10,350,655
-----------------------------------------------
Additional dilutive effect of
stock options and warrants,
fully diluted computation 118,375 7,524 -- 9,786
------------------------------------------------
Weighted average number of common and
common equivalent shares utilized in
the fully diluted earnings per share
computation 11,726,909 10,397,541 10,353,658 10,360,441
-----------------------------------------------
Primary net income (loss) per shar .27 .21 $(1.22) $0.39
-----------------------------------------------
Fully diluted net income (loss)
per share .27 .21 $(1.22) $0.39
------------------------------------------------
</TABLE>
Page 15 of 16
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EIS INTERNATIONAL, INC.
Date:---------------------------- By:------------------------------------
Joseph J. Porfeli
Chairman and Chief Executive Officer
Date:---------------------------- By:------------------------------------
Herbert Balzuweit
Executive Vice President and
Chief Financial Officer
Page 16 of 16
