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, 1997
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)
555 Herndon Parkway
Herndon, VA 20170
(703) 478-9808
(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 8, 1997: 11,144,869 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, 1997
(Unaudited)
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements: Page
----
<S> <C>
Consolidated Balance Sheets as of March 31, 1997 (Unaudited)
and December 31, 1996 3
Unaudited Consolidated Statements of Operations
for the three months ended March 31, 1997 and 1996 4
Unaudited Consolidated Statements of Cash Flows
for the three months ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements
(unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
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 12
Signatures 13
</TABLE>
2
<PAGE>
EIS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,397 $ 11,099
Short-term investments 3,626 3,660
Accounts receivable, trade, less allowances for
doubtful accounts and sales returns of $6,241 in
1997 and $6,117 in 1996 20,927 21,335
Current portion of installment and lease receivables 2,034 2,007
Inventories (note 4) 8,784 7,732
Deferred income taxes 10,890 8,638
Refundable income taxes 2,450 2,450
Prepaids and other current assets 727 576
-------- ----------
Total current assets 55,835 57,497
Capitalized software development costs, net 4,636 4,617
Property and equipment, net 8,103 8,181
Installment and lease receivables, less current portion 2,090 2,470
Other assets 1,872 1,925
-------- ----------
Total assets $ 72,536 $ 74,690
======== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 17,926 $ 18,894
Deferred revenue 8,436 5,683
Net liability of discontinued operations 1,768 2,738
-------- --------
Total current liabilities 28,130 27,315
Deferred income taxes 1,829 1,829
Other liabilities 334 304
-------- --------
Total liabilities 30,293 29,448
Commitments and Contingencies
Stockholders' equity:
Common Stock, $.01 par value, 15,000,000
shares authorized, issued 11,221,094 shares
in 1997 and 11,173,252 shares in 1996 112 112
Additional paid-in capital 58,650 58,268
Accumulated translation adjustments (55) (196)
Retained deficit (15,559) (12,037)
Treasury stock, at cost - 101,225 shares in 1997
and 1996 (905) (905)
-------- --------
Total stockholders' equity 42,243 45,242
-------- --------
Total liabilities and stockholders' equity $ 72,536 $ 74,690
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
EIS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months
Ended March 31,
-----------------------
1997 1996
---- ----
Net revenues:
Product and software sales $ 13,913 $ 21,579
Service and other 6,309 4,185
--------- ---------
20,222 25,764
--------- ---------
Cost of revenues:
Cost of product and software sold 5,607 7,392
Cost of service and other 4,185 2,595
--------- ---------
9,792 9,987
--------- ---------
Gross margin 10,430 15,777
--------- ---------
Operating cost and expense:
Research and development cost 3,246 2,744
Selling, general and administrative 10,200 10,042
Restructuring costs 2,877 -
Acquired technology in process - 16,900
------- ---------
16,323 29,686
------- ---------
Operating loss (5,893) (13,909)
-------- ---------
Other income, net 208 404
--------- ---------
Loss before income taxes (5,685) (13,505)
Income tax benefit (expense) 2,163 (1,737)
--------- ---------
Loss from continuing operations (3,522) (15,242)
Discontinued operations:
Loss on discontinued operations, net of
tax (573)
--------- ---------
Net loss $ (3,522) $ (15,815)
========= =========
Primary loss per share:
Continuing operations $ (0.32) $ (1.52)
Discontinued operations - (0.06)
-------- --------
Primary loss per share $ (0.32) $ (1.58)
========= =========
Weighted average common and common
equivalent shares: 11,143 10,032
See accompanying notes to consolidated financial statements.
4
<PAGE>
EIS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
------------------------
1997 1996
---- ----
<S> <C> <C>
Net cash used in operating activities (note 5) $ (3,603) $ (1,483)
--------- ---------
Cash flows from investing activities:
Additions to property and equipment (1,151) (1,104)
Sales of short-term investments 1,038 -
Purchases of short-term investments (1,004) -
Capitalization of software development costs (365) (804)
Purchase of businesses, net of cash acquired - (6,495)
--------- ---------
Net cash used in investing activities (1,482) (8,403)
--------- ---------
Cash flows from financing activities:
Sale of lease portfolio - 5,200
Proceeds from exercise of stock options 383 1,923
--------- ---------
Net cash provided by financing activities 383 7,123
--------- ---------
Net decrease in cash and cash equivalents (4,702) (2,763)
---------- ---------
Cash and cash equivalents at beginning of period 11,099 21,002
--------- ---------
Cash and cash equivalents at end of period $ 6,397 $ 18,239
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 15 $ 29
Income taxes - 562
Supplemental schedule of non-cash financing activities:
Tax benefit from exercise of stock options $ - $ 308
</TABLE>
See accompanying notes to consolidated financial statements.
5
<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, 1996. 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, 1997
may not be indicative of the results for the full year.
(2) Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the any and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(3) Discontinued Operations and Restructuring
On February 28, 1997, at the recommendation of new Company management,
the Board of Directors of the Company resolved to discontinue the
operations of Surefind Information, Inc. ("Surefind"). Accordingly, the
Consolidated Statement of Operations for the three months ended
March 31, 1996 has been reclassified to reflect the results of Surefind
on a discontinued operations basis. The results of Surefind for the
three months ended March 31, 1997 has been charged against the provision
for estimated operating losses during the phase out period established
at December 31, 1996.
On March 3, 1997, the Company announced a restructuring and
reorganization program (the "Restructuring"), the purpose of which is
to refocus the Company's efforts on its core systems business and to
reduce costs. In connection with this Restructuring, the Company has
recorded restructuring charges of $2.9 million comprised of: $1.1
million of severance, facilities leases and fixed asset disposal
costs of $1.3 million, and $0.5 million of other.
(4) Inventories consist of the following at:
March 31, 1997 December 31, 1996
-------------- -----------------
Raw materials $ 190 $ 193
Work in process - 5
Finished goods 8,594 7,534
----- -----
Total inventories $8,784 $7,732
====== ======
6
<PAGE>
EIS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(5) Reconciliation of Net Loss to Net Cash Used In Operating Activities.
The reconciliation of net loss to net cash used in operating activities
for the periods ending March 31, 1997 and 1996 follows (in thousands).
1997 1996
---- ----
Cash flows from operating activities:
Net loss $ (3,522) $ (15,815)
Adjustments to reconcile net loss
to net cash used in operating activities:
Provision for doubtful accounts and
sales returns 676 335
Write-off of acquired technology in
process - 16,900
Depreciation and amortization 1,795 1,506
Deferred income taxes (2,252) -
Changes in assets and liabilities:
Accounts receivable, trade (166) (2,053)
Installment and lease receivables 353 (66)
Inventories (1,052) (648)
Prepaids and other current assets (254) (224)
Other (26) (108)
Accounts payable and accrued expenses (938) (3,592)
Income taxes payable - 2,230
Deferred maintenance revenue 2,753 1,313
---------- ----------
Net cash used in continuing operations (2,633) (222)
Cash used in discontinued operations (970) (1,261)
----------- -----------
Net cash used in operating activities $ (3,603) $ (1,483)
=========== ===========
(6) New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 128 - "Earnings
per Share" which is effective for all interim and annual periods ending
after December 15, 1997. SFAS No. 128 replaces primary and fully
diluted earnings per share ("EPS") with "basic" and "diluted" EPS on
the face of the statement of operations. The Company does not expect
the adoption of SFAS No. 128 to have a material effect on its financial
position or results of operations.
7
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
EIS' quarterly and annual operating results are affected by a wide variety of
factors that could materially and adversely affect revenues and profitability,
including the timing of customer orders; EIS' ability to introduce new products
on a timely basis; introduction of products and technologies by EIS'
competitors; and market acceptance of EIS' and its competitors products. As a
result of the foregoing and other factors, EIS, may experience material
fluctuations in future operating results on a quarterly or annual basis, which
could materially and adversely affect its business, financial condition,
operating results and stock price.
This quarterly report contains certain forward-looking statements and
information relating to EIS that are based on the beliefs of management and
assumptions made by and information currently available to management. When used
in this report, the words "believe," and "expect," and words or phrases of
similar import, as they relate to EIS, its subsidiaries or its management, are
intended to identify forward-looking statements.
Such statements reflect the current risks, uncertainties, and assumptions
related to certain factors including, without limitations, competitive factors,
general economic conditions, customer relations, technological change, product
introductions and acceptance, distribution networks, changes in industry
practices, one-time events and other factors described herein and under the
heading "Factors Affecting Future Results" in EIS' Annual Report on Form 10-K
for the fiscal year ended December 31, 1996. Based upon changing conditions,
should any one or more of these risks or uncertainties materialize, or should
any underlying assumptions prove incorrect, actual results may vary materially
from those described herein. Unless otherwise stated below, EIS does not intend
to update these forward-looking statements.
Results of Operations
- ---------------------
NET REVENUES
Net revenues of $20.2 million in the first quarter of fiscal 1997 decreased 22%
from $25.8 million in the first quarter of fiscal 1996. Product and software
revenues decreased $7.7 million (36%) while service and other revenues increased
$2.1 million (51%). The decrease in product and software sales is primarily a
result of the timing of shipment and installation of call center customer
orders, the impact of recognizing revenue on its Centenium product line upon
customer acceptance after installation, and the decrease in sales from its
wholly owned subsidiary Cybernetics Systems International Corp. ("Cybernetics").
Service and other revenues increased primarily due to expansion of the customer
base covered by service contracts and the expansion of the Company's systems
integration business.
COST OF REVENUES
Cost of revenues was 48% of net revenues in the first quarter of fiscal 1997
compared to 39% in the first quarter of fiscal 1996. Product costs as a
percentage of product revenues increased to 40% from 34% in the first quarter of
1997 compared to 1996. The increase in product costs as a percentage of revenue
is primarily due to the fixed cost of certain operations which do not fluctuate
with changes in product revenue. Service and other costs were 66% of service and
other revenues in the first quarter of fiscal 1997 compared to 62% in the first
quarter of fiscal 1996. The increase in service and other costs as a percentage
of service and other revenues is due primarily to an increase in the cost of
maintenance parts shipped to customers under the related service agreements.
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
RESEARCH AND DEVELOPMENT COST
Research and development costs increased $502,000 from $2.7 million for the
first quarter of fiscal 1996 to $3.2 million for the first quarter of fiscal
1997. 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.
The decline in capitalization of such costs of $365,000 in the first quarter of
fiscal 1997 compared to $764,000 in the first quarter of fiscal 1996 was the
primary reason for the increase in research and development costs. The remaining
increase reflects the continued expansion of the Company's research and
development staff and use of external consultants to support its ongoing product
development and to provide its customers with new product features and
productivity enhancements in both the domestic and international markets.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense for the first quarter of fiscal 1997
was $10.2 million compared to $10.0 million for the first quarter of fiscal
1996. During the first quarter of 1997, the Company downsized its Cybernetics
and Pulse Technologies, Inc. ("Pulse") subsidiaries and consolidated several of
its administrative functions and facilities. The cost savings from these actions
will not begin to be realized until the second quarter of 1997.
RESTRUCTURING COSTS
As discussed above, during the first quarter of 1997, the Company downsized its
Cybernetics and Pulse subsidiaries and consolidated several of its
administrative functions and facilities. The restructuring costs of $2.9
million incurred during the first quarter of 1997 primarily represent severance
and lease buyout costs associated with those actions.
ACQUIRED TECHNOLOGY IN PROCESS
The acquired technology in process costs of $16.9 million incurred in 1996
reflected 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 acquisition.
OTHER INCOME, NET
Other income decreased from $404,000 in the first quarter of fiscal 1996 to
$208,000 in the first quarter of fiscal 1997 primarily due to the sale in 1996
of a major portion of the Company's lease portfolio and lower cash balances.
INCOME TAXES
The Company recorded a tax benefit of $2.2 million in the first quarter of
fiscal 1997, as compared to a tax expense of $1.7 million in the first quarter
of fiscal 1996. The decrease in income taxes from 1996 to 1997 was primarily
due to non-deductible acquired technology in process and other costs incurred
during the first quarter of 1996 associated with the Company's acquisitions
during that period.
9
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased to $27.7 million at March 31, 1997 from
$30.2 million at December 31, 1996. Cash and cash equivalents and short-term
investment balances were $10.0 million at March 31, 1997 compared to $14.8
million at December 31, 1996. Operating activities required $3,744 million of
cash during the three month period ended March 31, 1997. In addition, cash and
cash equivalents were used to purchase property and equipment ($1.2 million).
Expenditures for software development costs capitalized in accordance with
Statement of Financial Accounting Standards No. 86 were $365,000.
The Company had an unsecured line of credit of $12.5 million with a commercial
bank under a commitment that expired in January 1997 and was not renewed. The
Company is currently seeking to renew the line and is also reviewing other
financing alternatives.
The Company expects that its current cash balances and short-term investments,
together with cash anticipated to be provided by operating activities will be
sufficient to fund its working capital requirements (including research and
development) through the balance of 1997. However, the Company's ability to
achieve that result is affected by the amount of cash generated from operations
and the pace it utilizes available resources. Accordingly, the Company may
in the future be required to seek additional sources of financing, including
borrowing and/or the sale of equity. If additional funds are raised by issuing
equity, further dilution to shareholders may result. No assurance can be given
that any such additional sources of financing will be available on acceptable
terms, or at all.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
A lawsuit was filed against the Company, Joseph J. Porfeli, Edward J. Sarkisian,
and Kent M. Klineman by Robert W. Warburgh in the United States District Court
for the District of Connecticut, claiming allegedly on behalf of certain of the
Company's shareholders of certain alleged misleading representations regarding
the acquisition of its Surefind Information, Inc. and Cybernetics Systems
International Corp. subsidiaries and their operations and seeking damages in an
unspecified amount. The Company is reviewing the claims and intends to
vigorously defend the lawsuit.
EIS is a party to various legal actions and claims arising in the ordinary
course of its business. In management's opinion, EIS has adequate legal defenses
for each of the actions and claims and believes that their ultimate disposition
will not have a material adverse effect on EIS' consolidated financial position
or results of operations.
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.
(a) Exhibits
Exhibit 11 -- Statement Re Computation of Earnings Per Share
Exhibit 27 -- Financial Data Schedule
(b) Reports on Form 8-K
None
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: May 15, 1997 By: /s/ James E. McGowan
-------------------- ------------------------------
James E. McGowan
President and Chief Executive Officer
Date: May 15, 1997 By: /s/ Frederick C. Foley
-------------------- ------------------------------
Frederick C. Foley
Senior Vice President and
Chief Financial Officer
12
EIS International, Inc. and Subsidiaries Exhibit 11
Statement Re Computation of Per Share Earnings
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
Quarter Ended March 31,
1997 1996
----------- -----------
<S> <C> <C>
Net Loss:
Loss from continuing operations $ (3,522) $ (15,242)
Loss on discontinued operations - (573)
----------- -----------
Net loss $ (3,522) $ (15,815)
============ ===========
Net loss per share:
Weighted average number of common and common equivalent shares:
Common shares outstanding 11,143 10,032
Dilutive effect of stock options and warrants,
primary computation - -
----------- ----------
Weighted average number of common and
common equivalent shares utilized in the primary
loss per share computation 11,143 10,032
----------- ----------
Additional dilutive effect of stock options and
warrants, fully diluted computation - -
----------- ----------
Weighted average number of common and
common equivalent shares utilized in the fully
diluted loss per share computation 11,143 10,032
----------- ----------
Primary loss per share:
Continuing operations $ (0.32) $ (1.52)
Discontinued operations - (0.06)
--------- --------
Primary loss per share $ (0.32) $ (1.58)
========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 6,397
<SECURITIES> 0
<RECEIVABLES> 20,927
<ALLOWANCES> 6,241
<INVENTORY> 8,784
<CURRENT-ASSETS> 55,835
<PP&E> 8,103
<DEPRECIATION> 11,129
<TOTAL-ASSETS> 72,536
<CURRENT-LIABILITIES> 28,130
<BONDS> 0
0
0
<COMMON> 112
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 72,536
<SALES> 20,222
<TOTAL-REVENUES> 20,222
<CGS> 9,792
<TOTAL-COSTS> 23,238
<OTHER-EXPENSES> 2,877
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,685)
<INCOME-TAX> 2,163
<INCOME-CONTINUING> (3,522)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,522)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
