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 March 31, 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
May 9, 1996: 10,539,546 shares.
<PAGE>
EIS INTERNATIONAL, INC. and SUBSIDIARIES
INDEX to Financial Statements Filed with Quarterly Report of Registrant
on Form 10-Q for the Quarter Ended March 31, 1996
(Unaudited)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements: Page
Unaudited Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995 3-4
Unaudited Consolidated Statements of Income
for the three months ended March 31, 1996 and 1995 5
Unaudited Consolidated Statements of Cash Flows
for the three months ended March 31, 1996 and 1995 6
Notes to Consolidated Financial Statements
(unaudited) 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-10
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 11
Item 5. Other Information Not Applicable
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
<PAGE>
EIS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in Thousands)
(Unaudited)
March 31, December 31,
Assets 1996 1995
-------- ------------
Current assets:
Cash and cash equivalents $ 18,279 $ 21,069
Accounts receivable, trade, less
allowances for doubtful accounts
and sales returns of $3,049 in 1996
and $2,665 in 1995 31,889 29,749
Unbilled revenue 1,011 --
Current portion of installment
and lease receivables 2,186 3,806
Inventories (note 4) 8,374 7,681
Deferred income taxes 2,141 2,141
Prepaids and other current assets 976 293
------- -------
Total current assets 64,856 64,739
Capitalized software development costs, net 3,878 3,315
Intangible assets, net 8,881 --
Property and equipment, net 8,701 8,430
Installment and lease receivables,
less current portion 2,480 5,994
Other assets 1,792 1,739
----- -----
Total assets $ 90,588 $ 84,217
====== ======
See accompanying notes to consolidated financial statements.
<PAGE>
March 31, December 31,
1996 1995_
Liabilities and Stockholders' Equity --------- ------------
Current liabilities:
Notes payable $ -- $ 354
Accounts payable 11,687 6,391
Accrued compensation and benefits 2,484 4,703
Other accrued liabilities 2,746 2,776
Deferred maintenance revenue 4,473 2,481
Deferred income 3,813 --
Income taxes payable 1,723 3,324
----- ------
Total current liabilities 26,926 20,029
Deferred income taxes 1,064 1,064
Other liabilities 625 1,026
----- -----
Total liabilities 28,615 22,119
Commitments and Contingencies
Stockholders' equity:
Common Stock, $.01 par value, 15,000,000
shares authorized, issued 10,550,405 shares
in 1996 and 9,430,093 shares in 1995 105 94
Additional paid-in capital 51,726 36,025
Accumulated translation adjustments (40) (21)
Retained earnings 10,701 26,519
Treasury stock, at cost - 76,225 shares in 1996
and 1995 (519) (519)
------- --------
Total stockholders' equity 61,973 62,098
------ ------
Total liabilities and stockholders' equity$ 90,588 $ 84,217
====== ======
See accompanying notes to consolidated financial statements.
<PAGE>
EIS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months
Ended March 31,
---------------
1996 1995
---- ----
Net revenues:
Product and software sales $ 21,591 $ 14,890
Service and other 4,185 3,342
------- --------
25,776 18,232
------- --------
Cost of revenues:
Cost of product and software sold 7,665 5,237
Cost of services and other 2,472 1,609
------- --------
10,137 6,846
Gross margin 15,639 11,386
------- --------
Operating cost and expense:
Research and development cost 2,895 1,645
Acquired technology in process 16,900 --
Sales, general and administrative 10,638 7,154
------- --------
30,433 8,799
Operating income (loss) (14,794) 2,587
------- --------
Other income, net:
Interest and other income, net 380 380
--- ---
Income (loss) before income taxes (14,414) 2,967
Income taxes 1,401 1,166
------- ------
Net income (loss) $ (15,815) $ 1,801
======= ======
Net income (loss) per share:
Primary $ (1.58) $ .17
Fully diluted $ (1.58) $ .17
Weighted average common and common
equivalent shares:
Primary 10,032 10,313
Fully diluted 10,032 10,360
See accompanying notes to consolidated financial statements.
<PAGE>
EIS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
Three Months
Ended March 31,
---------------
1996 1995
---- ----
Net cash used in operating activities (note 7) $(1,220) $ (749)
------ ----
Cash flows from investing activities:
Additions to property and equipment (1,080) (1,024)
Sale of lease portfolio 5,200 --
Sale of short term investments -- 7,796
Increase in capitalized software costs (764) (289)
Acquisition of businesses (6,495) --
------- -------
Net cash provided by investing activities (3,139) 6,483
Cash flows from financing activities:
Repayment of short-term debt (354) --
Purchase of treasury stock -- (15)
Proceeds from exercise of stock options 1,923 464
Proceeds from sale of stock -- 191
------ -----
Net cash provided by financing activities 1,569 640
Net increase (decrease) in cash and
cash equivalents (2,790) 6,374
Cash and cash equivalents at beginning
of period 21,069 13,447
------ ------
Cash and cash equivalents at end of period $18,279 $ 19,821
====== ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 29 $ 8
====== ======
Income taxes $ 562 $ 1,020
======= ======
Supplemental schedule of non-cash financing activities:
Tax benefit from exercise of stock options $ 308 $ 328
====== =======
See accompanying notes to consolidated financial statements.
<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 month period ended March 31, 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) Restatement of Financial Statements
The operating results of Surefind are included for the three months ended
March 31, 1996 and 1995. The operating results of Cybernetics are included
from March 1, 1996 to March 31, 1996.
(4) Inventories consist of the following at:
March 31, 1996 December 31, 1995
-------------- -----------------
Raw materials $ 587 $ 763
Work in process 86 148
Finished goods 7,701 6,770
----- -----
Total inventories $8,374 $7,681
===== =====
(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.
<PAGE>
(6) 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.
The consideration (including acquisition costs) and the allocation of the
purchase price are summarized below:
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 3,000
Goodwill 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 three months ended March 31, 1996 and 1995 as though
the acquisition of CSI had occurred at the beginning of the periods
presented. In addition to combining the historical results of operations
of the two companies, the pro-forma calculations include: the amortization
of the excess of the estimated fair value of net assets acquired over the
purchase price; 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..
Three Months
Ended March 31
--------------
1996 1995
---- ----
Net Revenues 26,020 19,753
Net Income (loss) (919) 1,606
Earnings (loss) Per Share $(0.09) $ .15
<PAGE>
EIS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
(7) Reconciliation of Net Income (loss) to Net Cash Used In Operating
Activities.
The reconciliation of net income (loss) to net cash used in operating
activities for the periods
ending March 31, 1996 and 1995 follows (in thousands).
1996 1995
---- ----
Cash flows from operating activities:
Net income (loss) $(15,815) $ 1,801
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Provision for doubtful accounts and
sales returns 384 872
Write-off of acquired technology in
process 16,900 --
Depreciation and amortization 1,376 966
Changes in assets and liabilities:
Accounts receivable, trade (1,900) (1,117)
Unbilled revenue (199)
Installment and lease receivables (66) (1,998)
Inventories (693) (1,429)
Prepaids and other current assets (302) 27
Other assets (9) (65)
Accounts payable 4,261 (161)
Accrued and other liabilities (5,037) (746)
Income taxes payable (1,431) 172
Deferred maintenance revenue 1,311 929
------- -------
Net cash used in operating activities $ (1,220) $ (749)
======== =======
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
NET REVENUES
Net revenues of $25.8 million in the first quarter of fiscal 1996 increased 42%
from $18.2 million in the first quarter of fiscal 1995. Product and software
revenues increased $6.7 million (45%) while service and other revenues increased
$843,000 (25%). The growth in product revenues reflected continued strong demand
across all product lines from the existing call center customer base and a
number of new domestic and international customers in the financial services,
fundraising, telecommunications, cable, direct response, home services, and
market research segments of the outbound call center market. In addition,
inbound software sales from Cybernetics contributed $1.8 million of software
revenue. Service and other revenues increased due primarily to the continued
expansion of the Company's installed customer base covered by service contracts.
COST OF REVENUES
Cost of revenues was 39% of net revenues in the first quarter of fiscal 1996
compared to 38% in the first quarter of fiscal 1995. Product costs as a
percentage of product revenues increased to 36% from 35% in the first quarter of
1996 compared to 1995. The increase in product costs is due principally to
increasing staffing costs associated with customer installations. Service and
other costs were 59% of service and other revenues in the first quarter of
fiscal 1996 compared to 48% in the first quarter of fiscal 1995. The increase in
costs of service and other as a percentage of service and other revenues is due
primarily to investments that the Company made in its service business during
the last six months of 1995 which included adding personnel, acquiring support
tools, and expanding our National Service Center in Herndon, Virginia.
RESEARCH AND DEVELOPMENT COST
Research and development cost increased $1.3 million compared to the first
quarter of fiscal 1995. 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. Such costs of $764,000 were capitalized in the first quarter
of fiscal 1996 compared to $289,000 in the first quarter of fiscal 1995. The
overall cost increase was due principally to increased staffing levels,
equipment expense, and additional use of third party engineer resources to
support the Company's ongoing product development efforts.
ACQUIRED TECHNOLOGY IN PROCESS
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.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense for the first quarter of fiscal 1996
increased to $10.6 million, an increase of $3.4 million (47%) as compared to
$7.2 million in the comparable 1995 period. The principal reasons for the
increase were increased payroll and related costs, travel, and commissions to
support the Company's growth and marketing costs to sustain the increased sales
level, and an additional cost of $722,000 related to the acquisition of Surefind
and $731,000 attributed to employee relocations and severance payments.
INTEREST AND OTHER INCOME, NET
Interest and other income remained constant from 1995 to 1996, due to the
increased interest income from the Company's lease portfolio which was offset by
lower cash balance caused by the purchase of CSI for $22.7 million, of which
$9.3 million was paid in cash, and the funding of Surefind operations.
INCOME TAXES
The Company's effective income tax rate was 36% in the first quarter of fiscal
1996, compared to 37% during the first quarter of fiscal 1995. The decrease in
the effective rate is attributable principally to the additional reductions in
effective federal and state rates due to certain research and development
credits.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased to $37.9 million from $44.7 million at
December 31, 1995. Cash, cash equivalents, and short term investment balances
were $18.3 million at March 31, 1996 compared to $21.0 million at December 31,
1995. Operating activities required $1.2 million of cash during the three month
period ended March 31, 1996. The increase in gross accounts receivable of $1.9
million is due to a longer installation cycle and extended payment terms. In
addition, the Company sold $5.2 million of lease receivables during the quarter
on a recourse basis. Cash and cash equivalents were used to purchase property
and equipment ($1.1 million) and expenditures for software development costs
capitalized in accordance with Statement of Financial Accounting Standards No.
86 were $764,000. Proceeds realized from the exercise of stock options during
the period were $1.9 million.
As an additional source of liquidity, the Company has a $12.5 million unsecured
line of credit with a commercial bank that will expire in January 1997. At March
31, 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>
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.
(a) The Company's annual stockholders' meeting was held on April
25, 1996.
(b) Proxies were solicited for the election of directors pursuant to
Regulation 14 under the Securities Exchange Act of 1934, and all
of management's nominees were elected without opposing proxy
solicitation.
(c) 1. Robert M. Jesurum was elected a Class I Director with
7,846,425 affirmative votes, 0 negative votes and 91,628
abstentions. Charles W. McCall was elected a Class I Director
with 7,846,425 affirmative votes, 0 negative votes and 91,628
abstentions.
2. The proposal to approve an amendment to the Company's Amended
and Restated Stock Option Plan to increase the number of
shares of the Company's Common Stock issuable under such plan
from 1,967,703 to 2,467,703 was adopted with 6,358,361
affirmative votes, 1,513,414 negative votes and 66,278
abstentions.
3. The appointment of KPMG Peat Marwick LLP as the Company's
independent accountants for the year ending December 31, 1996
was approved with 7,910,271 affirmative votes, 5,308 negative
votes and 12,474 abstentions.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit 11.
<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: 5-14-96 By: /s/Joseph J. Porfeli
-------- ---------------------
Joseph J. Porfeli
Chairman and Chief Executive Officer
Date: 5-14-96 By: /s/Herbert Balzuweit
-------- ---------------------
Herbert Balzuweit
Executive Vice President and
Chief Financial Officer
EIS International, Inc. and Subsidiaries Exhibit 11
Statement Re Computation of Per Share Earnings
(in thousands, except for per share amounts)
Quarter Ended March 31,
1996 1995
--------------------------
Net Income (Loss):
Net Income (Loss) $(15,815) $1,801
---------------------------
Net income (loss) per share:
Weighted average number of common and
common equivalent shares:
Common shares outstanding 10,032,283 9,479,617
Dilutive effect of stock options and warrants,
primary computation -- 833,634
-----------------------------
Weighted average number of common and
common equivalent shares utilized in the primary
earnings per share computation 10,032,283 10,313,251
------------------------------
Additional dilutive effect of stock options and
warrants, fully diluted computation -- 47,169
------------------------------
Weighted average number of common and
common equivalent shares utilized in the fully
diluted earnings per share computation 10,032,283 10,360,420
------------------------------
Primary net income (loss) per share $(1.58) $.17
------------------------------
Fully diluted net income (loss) per share $(1.58) $.17
------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 18,279
<SECURITIES> 0
<RECEIVABLES> 34,938
<ALLOWANCES> 3,049
<INVENTORY> 8,374
<CURRENT-ASSETS> 64,856
<PP&E> 17,965
<DEPRECIATION> 9,264
<TOTAL-ASSETS> 90,588
<CURRENT-LIABILITIES> 26,926
<BONDS> 0
0
0
<COMMON> 105
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 90,588
<SALES> 25,776
<TOTAL-REVENUES> 25,776
<CGS> 10,137
<TOTAL-COSTS> 10,137
<OTHER-EXPENSES> 380
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (14,414)
<INCOME-TAX> (1,401)
<INCOME-CONTINUING> (15,815)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,815)
<EPS-PRIMARY> (1.58)
<EPS-DILUTED> (1.58)
</TABLE>
