SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
to
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996.
[ ] 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 06-1017599
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
555 Herndon Parkway, Herndon, Virginia: 20170
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 478-9808
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 Per Share
(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 was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ X ]Yes [ ]No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or an amendment to this
Form 10-K.[ ]
The aggregate market value as of March 19, 1997 of Common Stock held by
non-affiliates* of the Registrant was:
$40,216,844.
The number of shares of Common Stock outstanding as of March 19, 1997 was:
11,144,869.
<PAGE>
EIS International, Inc. and Subsidiaries
PART II
Item 5 of the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 is hereby amended and restated in its entirety as set forth
below:
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
EIS common stock began trading on the NASDAQ National Market System under the
symbol "EISI" on July 10, 1992. The following table sets forth for the periods
indicated the high and low prices for the Common Stock as reported by NASDAQ.
1995 1996
---- ----
HIGH LOW HIGH LOW
First Quarter 18 1/4 13 3/4 18 3/4 14 1/4
Second Quarter 18 14 31 5/8 14 3/8
Third Quarter 20 15 1/2 28 3/4 12 7/8
Fourth Quarter 19 1/2 13 7/8 14 1/8 6 1/2
As of December 31, 1996, there were approximately 300 holders of record of the
Company's Common Stock and approximately 5,000 beneficial shareholders of the
Company's Common Stock.
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain any earnings for future growth and, therefore, does
not anticipate paying cash dividends on its Common Stock in the foreseeable
future.
On March 1, 1996, EIS issued an aggregate of 494,660 shares of its Common Stock,
in addition to an aggregate of approximately $9,269,000 in cash, in exchange for
all of the issued and outstanding capital stock of Cybernetics, which was then
merged with and into a wholly-owned subsidiary of EIS. The shares of EIS Common
Stock issued in connection with this transaction were not registered under the
Securities Act of 1933, as amended (the "Securities Act"), were issued to a
total of 11 stockholders of Cybernetics, nine of whom were "accredited
investors" within the meaning of Rule 505 (a) under the Securities Act. These
shares were issued in reliance on Section 4(2) under the Securities Act.
2
<PAGE>
EIS International, Inc. and Subsidiaries
Part III
Item 6, Item 7, and Item 8 of the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 are hereby amended and restated in their
entirety as set forth below:
Item 6. Selected Financial Data
Selected Consolidated Financial Data
(In Thousands, Except Per Share Data)
The following selected financial data with respect to the years ended 1992,
1993, 1994, 1995, and 1996, is derived from the Company's audited consolidated
financial statements which as to the years 1994, 1995 and 1996 are included
elsewhere in this report. The selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Results of Operations
and Financial Condition," the Consolidated Financial Statements, related notes
and other financial information included elsewhere in this report.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
1992 1993 1994 1995 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Net revenues $38,711 $50,674 $64,872 $89,610 $95,659
Operating income (loss) 5,790 7,357 12,193 15,861 (37,096)
Income (loss) from continuing operations 3,241 4,710 7,602 11,357 (33,028)
Loss from discontinued operations,
net of tax benefit $ (235) $ (374) $ (544) $(2,137) $ (5,528)
Net earnings (loss) per share data:
Primary:
Continuing operations $ .49 $ .57 $ .86 $ 1.09 $ (3.09)
Discontinued operations (.04) (.04) (.06) (.21) (.52)
-------------------------------------------------------------
Net earnings (loss) $ .45 $ .53 $ .80 $ .88 $(3.61)
==============================================================
Fully diluted:
Continuing operations $ .43 $ .53 $ .83 $ 1.09 --
Discontinued operations (.03) (.04) (.06) (.21) --
-------------------------------------------------------------
Net earnings (loss) $ .40 $ .49 $ .77 $ .88 --
==============================================================
Weighted average common and common equivalent shares:
Primary 6,619 8,259 8,870 10,462 10,681
Fully diluted 7,551 8,775 9,125 10,462 --
Balance Sheet Data
Total assets $32,733 $39,017 $64,944 $84,217 $74,690
Long-term obligations and redeemable
preferred stock $ 9,176 $ -- $ -- $ -- $ --
</TABLE>
3
<PAGE>
EIS International, Inc. and Subsidiaries
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The following discussion contains statements about management's future
expectations, plans and the Company's prospects which constitute forward-looking
statements for purposes of the safe harbor provisions under The Private
Securities Litigation Reform Act of 1995. Actual results may differ materially
from those indicated by these forward-looking statements as a result of various
important factors, including, without limitation, those factors discussed under
the heading "Factors Affecting Future Results" set forth in this Annual Report
on Form 10-K.
Introduction
EIS International, Inc., together with its wholly-owned subsidiaries (the
Company or EIS), designs, manufactures, markets, sells, leases and maintains
computerized "outbound" telephone call processing systems, principally to the
consumer direct marketing industry.
On February 29, 1996, the Company merged with Surefind Information, Inc.
(Surefind) of Pittsburgh, Pennsylvania. Surefind was a privately held
corporation in the business of storing electronic data. The Company issued
505,685 shares of EIS common stock, $.01 par value, in exchange for all
2,826,467 shares of Surefind stock outstanding, subject to options and warrants.
This merger was accounted for by the pooling of interests 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.
On March 1, 1996, the Company acquired all the issued and outstanding capital
stock of Cybernetics Systems International Corp. (CSI), a privately held company
located in Coral Gables, Florida, for $22.8 million consisting of $9.3 million
in cash and the remainder in shares of EIS common stock. CSI specializes in
computerized Workforce Management Systems for the call center industry which are
designed to aid in staff forecasting and scheduling. The acquisition of CSI was
accounted for by the purchase method of accounting and accordingly, the
acquired assets 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.
On September 1, 1996, the Company entered into an Asset Purchase Agreement with
Pulse Technologies, Inc. (Pulse), a Virginia corporation, relating to the
purchase of substantially all of the assets of Pulse for consideration
consisting of the assumption of certain liabilities and the payment of (i)
44,993 shares of the Company's common stock, $.01 par value per share, having a
value of approximately $820,000; (ii) $950,000 in cash and (iii) five-year
warrants to purchase EIS common stock at $18.23 per warrant with the number of
warrants equal to 66.67% of the number of shares of EIS common stock issued in
connection with this transaction. Pulse is a professional and technical service
firm specializing in telecommunications consulting. The acquisition of Pulse was
accounted for by the purchase method of accounting, and accordingly, the
acquired assets 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 Pulse from September 1, 1996.
As part of the refocus by new management on the core business of the Company,
the Company as of December 31, 1996 has discontinued the operations of Surefind.
(See Discontinued Operations). Accordingly the results of Surefind in 1994, 1995
and 1996 are shown as a loss on discontinued operations in the Consolidated
Statements of Operations for the respective periods.
In connection with the CSI and Pulse acquisitions, the Company acquired
technology in process that had not achieved technological feasibility at the
date of acquisition and had no alternative future uses. As a result, the Company
has charged the fair value of such acquired technology in process against
operations at the time of the acquisition.
Results of Operations
The following table sets forth, for the periods indicated, certain financial
data as a percentage of net revenues, except that cost of product sold and cost
of services and other are presented as a percentage of product sales and service
and other revenues, respectively.
Years Ended December 31,
- -----------------------------------------------------------------------
1994 1995 1996
- -----------------------------------------------------------------------
Product sales and software 80.9% 84.0% 77.2%
Service and other 19.1 16.0 22.8
- -----------------------------------------------------------------------
Net revenues 100.0 100.0 100.0
- -----------------------------------------------------------------------
Cost of product sold 35.4 35.3 43.1
Provision for contract losses -- -- 6.7
Cost of services and other 40.8 48.7 60.2
Gross margin 63.6 62.6 47.8
Research and development cost 10.1 8.9 14.8
Sales, general and administrative 34.7 36.0 44.3
Acquired technology in process -- -- 19.1
Write-down of intangible assets -- -- 8.4
Operating income (loss) 18.8 17.7 (38.8)
Income (loss) before income tax
expense (benefit) 17.8 19.8 (37.4)
Income (loss) from continuing
operations 11.7% 12.7% (34.5)%
Net Revenues Net revenues increased $6.1 million, or 7%, in 1996 and $24.7
million, or 38%, in 1995 over net revenues in the respective preceding years.
The acquisition of CSI and Pulse accounted for an increase of $9.9 million of
the income in net revenues in 1996. Product sales in 1996 declined $1.4 million
or 2%. The decrease in product and software sales is primarily a result of an
increase in the Company's allowance for sales returns ($1.3 million) and the
Company's decision to take back a call processing system relating to a customer
dispute ($2.2 million). Both items were taken as revenue reductions during the
third quarter of 1996. In addition, as a result of changing experience with the
Company's more technologically advanced Centenium product line, effective with
the fourth quarter of 1996, the Company began recognizing revenue on its
Centenium product upon
4
<PAGE>
EIS International, Inc. and Subsidiaries
customer acceptance after installation. As of December 31, 1996 the Company had
a backlog of $6.8 million in sales of Centenium products which are expected to
be installed in 1997. No such backlog existed at December 1995 and 1994. The
growth in product sales in 1995 of $22.8 million, or 43%, reflected increased
demand across all product lines from the existing customer base as well as from
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. Service and other revenues
increased $7.5 million, or 52%, in 1996 and $2.0 million, or 16%, in 1995 over
service and other revenues in the respective preceding years. Service and other
revenues increased in 1996 primarily due to expansion of the customer base
covered by service contracts ($4.0 million), the addition of CSI service
contracts ($2.3 million) and the expansion of the Company's systems integration
business primarily through the acquisition of Pulse ($1.2 million). Service and
other revenues increased in 1995 due to the continued expansion of the customer
base covered by service contracts. International revenues were 4% of the
Company's net revenues in 1996, compared to 6% and 4% in 1995 and 1994,
respectively. The Company intends to continue its focus on building its
international sales channels during 1997.
Cost of Revenues and Gross Margins
Cost of revenues consists of product costs, amortization of computer software
costs, installation costs, and maintenance and customer support costs. Overall
gross margin was $45.7 million (47.8%), $56.1 million (62.6%), and $41.3 million
(63.6%), in 1996, 1995 and 1994, respectively. Gross margin on product sales was
$37.0 million (50.1%), $48.7 million (64.7%), and $33.9 million (64.6%) in 1996,
1995 and 1994, respectively. The decrease in product gross margin from 1995 to
1996 reflects an increase in product costs as a percentage of product revenue
from 35.3% in 1995 to 49.9% in 1996 primarily due to a $5.0 million provision
for costs associated with the completion and installation of products and the
resolution of CSI contract obligations, a $1.7 million inventory write-down,
increased hardware costs associated with a CSI installation of $1.3 million and
increased staffing and third party installation costs of $2.3 million.
The slight increase in product gross margin from 1994 to 1995 reflects a
decrease in product costs as a percentage of product revenue from 35.4% in 1994
to 35.3% in 1995 principally due to the increase of direct purchases by
customers of third party hardware partially offset by increased personnel costs
and third party installation costs associated with higher sales volume.
Gross margin on service and other revenue was $8.7 million (39.8%), $7.4 million
(51.3%), and $7.3 million (59.2%) in 1996, 1995 and 1994, respectively. Service
and other costs as a percentage of service and other revenue increased from
48.7% in 1995 to 60.2% in 1996 due to the addition of service costs associated
with building the infrastructure of newly acquired operating units in advance of
generating revenues from these units. Service and other costs as a percentage of
service and other revenue increased from 40.8 % in 1994 to 48.7% in 1995 due to
investments made in the Company's service business by adding personnel,
acquiring support tools, contracting with third party service providers
(including expenses incurred to upgrade customer systems to be compatible with
the North American dialing rules) and expanding the Company's National Service
Center in Herndon, Virginia, from 30,000 square feet to approximately 65,000
square feet. The Company's gross margin can be affected by a number of factors,
including changes in sales volume, product mix, costs of product support and
competitive pressures on pricing. Consequently, there can be no assurance that
the Company will continue to sustain gross margins at previous levels.
Research and Development Cost
Research and development costs increased by $6.2 million or 77% in 1996 over
1995 and by $1.4 million or 22% in 1995 over 1994. Research and development
costs as a percentage of total revenues were 14.8% in 1996 and 8.9% in 1995,
compared to 10.1% in 1994. The addition of CSI during 1996 increased software
development costs by $3.4 million. Additional cost increases during 1996 and
1995 reflect 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.
In addition, the Company capitalized certain software development costs relating
to the enhancement of existing products and to the development of new products
in accordance with
5
<PAGE>
EIS International, Inc. and Subsidiaries
Statement of Financial Accounting Standards (SFAS) No. 86 "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed."
Approximately $2.1 million, $1.4 million and $1.3 million were capitalized
during 1996, 1995 and 1994, respectively. Amortization of capitalized software
costs of $816,000, $993,000, and $703,000 in 1996, 1995 and 1994 are included in
cost of products sold.
The Company has a commitment to technological innovation. It believes that
additional research and development costs will be required to maintain the
Company's market position and that these costs will increase in absolute amounts
in 1997.
Sales, General and Administrative Expense
Sales, general and administrative expense increased $10.1 million in 1996 and
$9.7 million in 1995 over such expenses in the respective preceding years. This
expense as a percentage of revenue was 44.3% in 1996 compared to 36.0% in 1995
and 34.7% in 1994. The principal reasons for the increase of this expense in
1996 over 1995 were the addition of CSI ($3.6 million), additional bad debt
reserves of $4.9 million, increased payroll and benefits of $1.5 million and
merger costs of $680,000. The primary reasons for the increase of this expense
in 1995 over 1994 were increased payroll of $1.8 million, commissions of $2.0
million, travel expenses of $1.1 million and bad debt reserves of $1.5 million
associated with higher sales levels and related overhead costs associated with
additional office space of $1.6 million. The Company anticipates that selling,
general and administrative expenses will decrease in absolute dollars during
1997, although such expenses will fluctuate as a percentage of revenue from
quarter to quarter.
Acquired Technology in Progress
The acquired technology in progress costs of $18.2 million incurred in 1996
reflect the fair value of the software products under development at CSI and
Pulse that had not achieved technological feasibility at the date of
acquisition, had no alternative future uses, and were therefore charged against
operations at the time of the acquisitions.
Write-down of Intangible Assets
In accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" management performed a
discounted cash flow analysis of CSI's operations. As a result of this analysis,
management concluded that a write-down of the intangible assets of CSI from $8.1
million to zero was warranted.
Other Income (Expense)
Interest income was $1.3 million, $1.9 million and $559,000 in 1996, 1995 and
1994, respectively. Interest income decreased from 1995 to 1996 primarily due to
the sale of a major portion of the Company's lease portfolio and lower average
cash balances. The increase from 1994 to 1995 was primarily due to the Company's
maintenance of higher average cash and short-term investment balances combined
with increased customer leasing of Company systems.
Interest expense was $32,000, $37,000 and $38,000 in 1996, 1995 and 1994,
respectively.
Other income (expense) was $81,000, $14,000 and ($93,000) in 1996, 1995 and
1994, respectively. The increase in income from 1995 to 1996 came due to several
miscellaneous items none of which were individually material. The decrease in
expense from 1994 to 1995 was primarily due to a $106,000 loss incurred in 1994
on the sale of a lease portfolio.
The Company recorded charges of $1.1 million during 1994 as a result of the
settlement of all pending litigation between the Company and Digital Systems
International and related legal fees and expenses.
Discontinued Operations and Restructuring
On February 28, 1997, at the recommendation of Company management, the Board of
Directors of the Company resolved to discontinue the operations of Surefind. The
decision to discontinue the operations of Surefind was made after it became
apparent that a higher than anticipated level of cash funding was needed to
exploit Surefind's product and such level was considered excessive given the
cash requirements necessary to focus properly on the core business of the
company. Surefind incurred a net loss of approximately $3.7 million in 1996 and
$2.1 million in 1995. In connection with the decision to discontinue the
operations of Surefind the Company recorded a $1.8 million estimated loss net of
tax benefits on the disposal of Surefind which includes a provision for
anticipated operating losses prior to disposal. 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 the Restructuring, the Company
downsized the operations of CSI, closing its Coral Gables, Florida facility and
focusing CSI's development and marketing efforts primarily on its Workforce
Manager product. In addition, EIS terminated the separate operations of Pulse,
its Chantilly, Virginia based integration services business, by integrating the
business of Pulse into the operations of the Company's core business.
Furthermore, the Company closed its corporate headquarters in Pittsburgh,
Pennsylvania and relocated the corporate headquarters to its facility in
Herndon. A total of approximately 110 employees were terminated as a result of
the Restructuring. The Company expects to record approximately $3 million of
charges related to the Restructuring in the first quarter of 1997.
Income Taxes
The Company's effective income tax (benefit) expense rate was (8)%, 36% and 34%
for 1996, 1995 and 1994,
6
<PAGE>
EIS International, Inc. and Subsidiaries
respectively. The decrease in the tax rate from 1995 to 1996 is primarily
attributable to the losses incurred by the Company offset by the non-deductible
charges related to the acquired technology in process and the write-down of
intangible assets. The increase in the effective tax rate from 1994 to 1995 was
primarily due to the greater reduction of the valuation allowance in 1994 than
in 1995, decreased utilization of research and development tax credits partially
offset by lower state income taxes. The Company accounts for income taxes under
SFAS No. 109, "Accounting for Income Taxes." The Company established a valuation
allowance to reduce the net deferred tax asset to a level which, more likely
than not, would be realized, when necessary. The valuation allowance was
decreased in 1995 by $137,000 resulting principally from the realization of tax
benefits of temporary differences which reversed during 1995 and increased in
1996 by $2.7 million for the net operating loss carryforwards of Cybernetics and
Surefind that were generated prior to EIS' ownership.
Liquidity and Capital Resources
The Company's working capital decreased to $30.2 million at December 31, 1996
from $44.7 million at December 31, 1995. Cash, cash equivalents and short-term
investment balances were $14.8 million at December 31, 1996 compared to $21.1
million at December 31, 1995. Cash and cash equivalents were used for the
purchase of businesses net of cash acquired of $7.0 million, additions to
property and equipment of $5.0 million, discontinued operations of $5.2 million,
purchases of short-term investments of $3.7 million and expenditures of $2.1
million of software development costs capitalized in accordance with SFAS No.86.
Offsetting these uses of cash were cash provided by the net sale of $6.0 million
of a portion of the Company's lease portfolio and proceeds of $5.3 million from
the exercise of warrants and stock options and net cash provided by continuing
operations of $2.1 million.
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. As of
December 31, 1996 there was no balance outstanding under the line.
The Company believes that its collection practices and terms of sale are
consistent with practices in its industry. The Company generally receives a
deposit upon order, a further payment upon installation and a payment of the
invoice balance after an initial period of system use, generally within 90 to
150 days after shipment. The Company has, from time to time, offered extended
payment terms and lease financing to its customers, and it intends to continue
these practices.
Installment and lease receivables were $4.5 million and $9.8 million as of
December 31, 1996 and 1995, respectively. The decrease of $5.3 million is
primarily due to the sale of a portion of the Company's lease portfolio to a
financial institution subject to certain recourse provisions. The increase in
the provision for doubtful accounts and sales returns from $2.7 million as of
December 31, 1995 to $6.1 million as of December 31, 1996 reflects a variety of
factors surrounding the credit risk of specific customers, including historical
trends, general economic conditions and other information. Consequently, an
adverse change in those factors could affect the Company's estimate of its bad
debts and sales returns.
Historically, the Company has funded its working capital requirements, including
acquisitions through external financing sources as well as cash generated from
operations. Significant payment obligations of the Company during 1997 include
the funding of losses at Surefind through June 30, 1997 ($800,000), the
restructuring and reorganization program announced in March 1997 ($3 million)
and the loss provisions on certain uncompleted contracts at CSI ($2.7 million).
The Company expects that its operating cash flow will be sufficient to fund the
Company's working capital requirements (including research and development)
through 1997. However, the Company's ability to achieve this result is affected
by the extent of cash generated from operations and pace at which the Company
utilizes its 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 securities. If additional funds are raised by issuing equity
securities, 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.
From time to time, in the normal course of business, various
claims are made against the Company. At this time, in the opinion of management,
there are no pending claims, the outcome of which are expected to result in a
material adverse effect on the consolidated financial position or results of
operations of the Company.
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EIS International, Inc. and Subsidiaries
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1995 and 1996
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995, and 1996
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1994, 1995, and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994,
1995, and 1996
Notes to Consolidated Financial Statements
Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not required, inapplicable or
the information is otherwise shown in the Consolidated Financial Statements or
notes thereto.
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EIS International, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(Dollars in Thousands, Except Share Amounts)
December 31,
-----------------------
1995 1996
-----------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $21,069 $11,099
Short-term investments -- 3,660
Accounts receivable, trade, less allowances for doubtful
accounts and sales returns of $2,665 in 1995
and $6,117 in 1996 29,749 21,335
Current portion of installment and lease receivables (note 5) 3,806 2,007
Inventories (note 6) 7,681 7,732
Deferred income taxes (note 9) 2,141 8,638
Refundable income taxes -- 2,450
Prepaids and other current assets 293 576
-------- ---------
Total current assets 64,739 57,497
Capitalized software development costs, net 3,315 4,617
Property and equipment, net (note 7) 8,430 8,181
Installment and lease receivables, less current portion (note 5) 5,994 2,470
Other assets 1,739 1,925
-------- ---------
Total assets $84,217 $74,690
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities (note 8) $14,224 $18,894
Deferred revenue 2,481 5,683
Income taxes payable (note 9) 3,324 --
Net liability of discontinued operations (note 16) -- 2,738
-------- --------
Total current liabilities 20,029 27,315
Deferred income taxes (note 9) 1,064 1,829
Other liabilities 1,026 304
Commitments and Contingencies (note 11)
Stockholders' equity (note 10):
Common stock, $.01 par value; 15,000,000 shares authorized,
issued 9,935,778 shares in 1995 and 11,173,252 in 1996 99 112
Additional paid-in capital 36,020 58,268
Accumulated translation adjustments (21) (196)
Retained earnings (deficiency) 26,519 (12,037)
Treasury stock, at cost 76,225 shares in 1995 and 101,225 in 1996 (519) (905)
-------- ---------
Total stockholders' equity 62,098 45,242
-------- --------
Total liabilities and stockholders' equity $84,217 $74,690
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
9
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EIS International, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
Years Ended December 31,
-------------------------------------------
1994 1995 1996
-------------------------------------------
<S> <C> <C> <C>
Net revenues:
Product sales and software $52,504 $75,254 $73,848
Service and other 12,368 14,356 21,811
-------- -------- --------
64,872 89,610 95,659
-------- -------- -------
Cost of revenues:
Cost of product sold 18,569 26,567 31,859
Provision for contract losses (note 11) -- -- 4,967
Cost of services and other 5,047 6,991 13,133
-------- -------- --------
23,616 33,558 49,959
-------- -------- --------
Gross margin 41,256 56,052 45,700
-------- -------- --------
Operating cost and expense:
Research and development cost 6,558 7,979 14,152
Sales, general and administrative 22,505 32,212 42,341
Acquired technology in process (note 3) -- -- 18,245
Write-down of intangible assets (note 15) -- -- 8,058
----------- ---------- ---------
29,063 40,191 82,796
-------- -------- --------
Operating income (loss) 12,193 15,861 (37,096)
--------- -------- ---------
Other income (expense), net:
Interest income 559 1,917 1,264
Interest expense (38) (37) (32)
Litigation settlement (note 14) (1,093) -- --
Other, net (93) 14 81
---------- ----------- ----------
(665) 1,894 1,313
--------- --------- --------
Income (loss) before income tax expense (benefit) 11,528 17,755 (35,783)
Income tax expense (benefit) (note 9) 3,926 6,398 (2,755)
-------- -------- ---------
Income (loss) from continuing operations 7,602 11,357 (33,028)
Discontinued operations (note 16):
Loss on discontinued operations, net of tax benefit (544) (2,137) (3,701)
Loss on disposal of discontinued operations, net of tax benefit -- -- (1,827)
--------- ---------- ---------
Net income (loss) $ 7,058 $ 9,220 $(38,556)
========= ========== ==========
Primary earnings (loss) per share:
Continuing operations $ .86 $1.09 $(3.09)
Discontinued operations $(.06) $(.21) $ (.52)
Primary earnings (loss) per share $ .80 $ .88 $(3.61)
Fully diluted earnings (loss) per share:
Continuing operations $ .83 $1.09 $ --
Discontinued operations $(.06) $(.21) $ --
Fully diluted earnings (loss) per share $ .77 $ .88 $ --
Weighted average common and common equivalent shares:
Primary 8,870 10,462 10,681
Fully diluted 9,125 10,462 --
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE>
EIS International, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
(Dollars in Thousands)
Additional Accumulated Retained Total
Common Stock Paid-in Translation Earnings Treasury Stockholders'
Shares Amount Capital Adjustments (Deficiency) Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 7,425,825 $ 74 $14,719 -- $10,850 $(500) $25,143
Surefind Acquisition (1) 505,685 5 1,644 -- (609) -- 1,040
----------------------------------------------------------------------------
Adjusted Balance at Dec. 31, 1993 7,931,510 79 16,363 -- 10,241 (500) 26,183
Compensation expense related to
issuance of stock options -- -- 40 -- -- -- 40
Sales under Employee
Stock Purchase Plan 31,805 1 247 -- -- -- 248
Stock options exercised 211,427 2 652 -- -- -- 654
Issuance of common shares
net of issuance costs 1,000,000 10 11,714 -- -- -- 11,724
Exercise of stock warrants 345,523 3 2,465 -- -- -- 2,468
Tax benefit of stock options
exercised -- -- 1,108 -- -- -- 1,108
Accumulated translation
adjustment -- -- -- (27) -- -- (27)
Net income -- -- -- -- 7,058 -- 7,058
----------------------------------------------------------------------------
Balance at December 31, 1994 9,520,265 95 32,589 (27) 17,299 (500) 49,456
Sales under Employee Stock
Purchase Plan 36,786 1 320 -- -- -- 321
Stock options exercised 378,727 3 1,693 -- -- -- 1,696
Purchase of treasury stock -- -- -- -- -- (19) (19)
Tax benefit of stock options
exercised -- -- 1,418 -- -- -- 1,418
Accumulated translation
adjustment -- -- -- 6 -- -- 6
Net income 9,220 9,220
----------------------------------------------------------------------------
Balance at December 31, 1995 9,935,778 99 36,020 (21) 26,519 (519) 62,098
Sales under Employee Stock
Purchase Plan 33,784 1 425 -- -- -- 426
Stock options exercised 571,307 5 4,581 -- -- -- 4,586
Exercise of stock warrants 92,730 1 322 -- -- -- 323
Purchase of treasury stock -- -- -- -- -- (386) (386)
Issuance of common shares in
connection with Cybernetics
acquisition 494,660 5 13,476 -- -- -- 13,481
Issuance of common shares in
connection with Pulse
acquisition 44,993 1 820 -- -- -- 821
Tax benefit of stock options
exercised -- -- 2,624 -- -- -- 2,624
Accumulated translation
adjustment -- -- -- (175) -- -- (175)
Net loss -- -- -- -- (38,556) -- (38,556)
---------------------------------------------------------------------------
Balance at December 31, 1996 11,173,252 $112 $58,268 $(196) $(12,037) $(905) $45,242
=============================================================================
</TABLE>
(1) Prior periods have been adjusted to reflect the acquisition of Surefind
Information, Inc. (Surefind) under the pooling of interests method of
accounting.
See accompanying notes to consolidated financial statements.
11
<PAGE>
EIS International, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
(Represents Increases (Decreases) in Cash and Cash Equivalents) (In Thousands)
Years Ended December 31,
-------------------------------------------
1994 1995 1996
-------------------------------------------
<S> <C> <C> <C>
Net cash (used in) provided by operating activities (note 12) $(2,609) $ 3,160 $ (3,164)
Cash flows from investing activites:
Additions to property and equipment (4,172) (4,349) (5,013)
Purchase of short-term investments (2,839) (6,060) (3,660)
Sale of short-term investments 25 13,863 --
Increase in capitalized software costs (1,258) (1,409) (2,119)
Purchase of businesses, net of cash acquired -- -- (6,963)
--------- --------- ----------
Net cash (used in) provided by investing activities (8,244) 2,045 (17,755)
-------- -------- ---------
Cash flows from financing activities:
Repayment of long-term debt (42) (199) --
Sales of lease portfolio 2,324 -- 6,000
Proceeds from excercise of stock options and warrants 3,191 2,017 5,335
Proceeds from sale of common stock 11,978 495 --
Purchase of treasury stock -- (19) (386)
Other 306 124 --
---------- --------- -----------
Net cash provided by financing activities 17,757 2,418 10,949
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 6,904 7,623 (9,970)
Cash and cash equivalents at beginning of period 6,542 13,446 21,069
--------- -------- ---------
Cash and cash equivalents at end of period $13,446 $21,069 $11,099
========= ======== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 42 $ 61 $ 32
========= ======== =========
Income taxes $ 2,563 $ 3,480 $ 584
========= ======== =========
Capital lease obligation $ -- $ 999 $ --
========= ======== =========
Supplemental schedule of non-cash financing activities:
Tax benefit from excercise of stock options $ 1,108 $ 1,418 $ 2,624
========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
EIS International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(1) The Company
EIS International, Inc., together with its wholly-owned subsidiaries (the
Company or EIS), designs, manufactures, markets, sells, leases and maintains
computerized "outbound" telephone call processing systems, principally to the
consumer direct marketing industry.
(2) Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of EIS International,
Inc. and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation. Certain
reclassifications have been made to the 1995 consolidated financial statements
to conform with the December 31, 1996 presentation.
Cash and Cash Equivalents
Cash equivalents are highly liquid investments consisting mainly of commercial
paper placed with a financial institution with original maturities of less than
three months at the date of acquisition.
Short-Term Investments
The Company invests cash in excess of current operating requirements primarily
in corporate debt obligations and U.S. government securities. Such investments
have maturities of less than one year and yield interest at prevailing interest
rates at the time of acquisition.
Under Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," the Company classifies
its investments as available-for-sale and carries its investments at fair value.
Any unrealized holding appreciation or depreciation is credited or charged to a
separate component of stockholders' equity until realized.
Inventories
Inventories consist primarily of system components and peripheral equipment
(finished goods) and are stated at lower of cost or market. Cost is applied on a
first-in, first-out (FIFO) basis. Market is determined based on estimated net
realizable value.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation of property and equipment is computed on the straight-line method
over the estimated useful lives of the related assets, ranging from three to ten
years. Amortization of leasehold improvements is provided over the estimated
useful life of the improvements or the life of the lease, whichever is less.
Capitalized Software Development Costs
The costs for the development of new software products and substantial
enhancements to existing software products are expensed as incurred until
technological feasibility has been established, at which time any additional
costs are capitalized in accordance with SFAS No. 86, "Accounting for the Costs
of Computer Software to Be Sold, Leased or Otherwise Marketed." Amortization of
capitalized software development costs, included in cost of product sold, begins
when the products are available for general release to customers, and is
computed on a product-by-product basis as the greater of: (a) the ratio of
current gross revenues for a product to the total of current and anticipated
future gross revenues for the product, or (b) the straight-line method over a
period not to exceed five years. Amortization expense was $816,000, $993,000 and
$703,000 in 1996, 1995, and 1994. Accumulated amortization at December 31, 1996
and 1995 was $4,522,000 and $3,706,000, respectively.
Research and Development
Expenditures for research, development and engineering of products and
manufacturing processes are expensed as incurred.
Revenue Recognition
Revenue is recognized on system sales and software licenses when the products
are shipped, provided that no significant obligations remain and collection of
the resulting receivable is deemed probable. Due to EIS' changing experience
with respect to the Company's more technologically advanced Centenium product
line, effective October 1996, revenue related to Centenium sales is being
deferred and recognized upon customer acceptance after installation.
Revenue from long-term software contracts is recognized on the
percentage-of-completion method with progress to completion based on achievement
of contract milestones. Revisions in profit estimates are reflected in the year
in which the facts, which require the revision, become known, and any estimated
losses and other future costs are accrued in full.
Revenues from the sale of systems under installment contracts and from
sales-type leases are recognized at the time of sale or at the inception of the
lease, respectively. Revenues from equipment
13
<PAGE>
EIS International, Inc. and Subsidiaries
under operating leases are recognized over the lease term. Revenues related to
maintenance contracts are recognized over the term of the maintenance contract.
Cost of product sold includes material cost, software and hardware installation,
customer training costs, amortization of capitalized software costs and warranty
expense. Installation and training costs are estimated and accrued at the time
of sale. Cost of services and other includes maintenance costs, consisting
primarily of post-contract support costs.
Foreign Currency Translation
Operation of the Company's foreign subsidiaries is measured using the local
currency as the functional currency. Assets and liabilities of the foreign
subsidiaries are translated into U.S. dollars at the exchange rates in effect as
of the balance sheet date, and results of operations are translated using
average rates in effect for the periods presented.
Concentration of Credit Risk
The Company sells its products primarily to customers in the United States and
to a lesser extent overseas. Credit evaluations are done on all new customers
and periodically evaluated for existing customers. The Company generally
requires a percentage of the sales value of a product in cash prior to shipment.
The Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends, general
economic conditions and other information. Consequently, an adverse change in
those factors could affect the Company's estimate of its bad debts.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date. A
valuation allowance is provided to reduce the deferred tax assets to a level
which, more likely than not, will be realized. The net deferred asset reflects
management's estimate of the amount which will be realized.
Earnings (Loss) Per Share
Earnings (loss) per share is determined by dividing earnings (loss) by the
weighted average number of shares of common stock outstanding during the period.
For the year ended December 31, 1996, common stock equivalents have not been
included in the calculation as they would be anti-dilutive on the loss per
share. For the year ended December 31, 1995 and 1994, the computation of primary
and fully diluted earnings per share include the assumed exercise of dilutive
stock options and warrants computed using the treasury stock method.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosure About
Fair Value of Financial Instruments", defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties. Cash and cash equivalents, accounts
receivable, and accounts payable, reported in the Consolidated Balance Sheets
equal or approximate fair values.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Adoption of this
Statement did not have a
14
<PAGE>
EIS International, Inc. and Subsidiaries
material impact on the Company's consolidated financial position or results of
operations. However, during the fourth quarter of 1996, in accordance with the
Statement, the Company recorded a charge of $8.1 million to reflect the
impairment of certain intangible assets at CSI (see note 15).
Stock Option Plans
The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. As such,
compensation expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. On January 1,
1996, the Compay adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 allows entities to continue to apply the provisions
of APB Opinion No. 25 and provide pro forma net income (loss) and pro forma
earnings (loss) per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS No. 123
had been applied.
Excess of Cost Over Net Assets of Businesses Acquired
Excess of cost over net assets of businesses acquired represents the excess of
the purchase price over the fair value of net assets acquired and is amortized
on a straight-line basis over the expected periods to be benefited, generally
five to ten years. The Company assesses the recoverability of these intangible
assets by determining whether the amortization of the balance over its remaining
life can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds (see note 15). The assessment of
the recoverability of such intangibles will be impacted if estimated future
operating cash flows are not achieved.
(3) Business Combinations
On November 30, 1993, the Company merged with International Telesystems
Corporation (ITC) of Herndon, Virginia. ITC was a privately held corporation in
the business of manufacturing and marketing predictive dialing telecomputer
systems to telephone sales, collections, fundraising and similar industries. The
Company issued 1,118,975 shares of EIS common stock, $.01 par value, in exchange
for all outstanding shares of ITC common and Series A and B redeemable
convertible preferred stock. In addition, EIS agreed to assume all outstanding
ITC options and ITC warrants, which represents the right to purchase 545,025
shares of EIS common stock.
On February 29, 1996, the Company merged with Surefind Information, Inc.
(Surefind) of Pittsburgh, Pennsylvania. Surefind was a privately held
corporation in the business of storing electronic data. The Company issued
505,685 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. EIS agreed to assume all outstanding Surefind options and warrants,
which represent the right to purchase 43,892 shares of EIS common stock. This
merger was accounted for by the pooling of interests 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. On February 28, 1997, at the
recommendation of the Company Management, the Board of Directors of the Company
resolved to discontinue the operations of Surefind. Accordingly, the results of
Surefind in 1994, 1995, and 1996 are shown as a loss on discontinued operations
in the Consolidated Statements of Operations for the respective periods.
Net revenues and net income (loss) of the separate companies for the periods
preceding the merger were as follows (in thousands):
Net Revenues Net Income(Loss)
------------ ----------------
Two months ended
February 29, 1996 (unaudited):
EIS $6,711 $(2,897)
Surefind 8 (270)
------- --------
Combined $6,719 $(3,167)
Year ended December 31, 1995:
EIS, as previously reported $89,610 $11,357
Surefind 38 (2,137)
------- -------
Combined $89,648 $ 9,220
======= =======
Year ended December 31, 1994:
EIS, as previously reported $64,872 $ 7,602
======= =======
Surefind 51 (544)
------- --------
Combined $64,923 $ 7,058
======= =======
Transacation costs resulting from the merger of $679,000 are included in the
two-month period ended February 29, 1996.
On March 1, 1996, the Company acquired all the issued and outstanding capital
stock of Cybernetics Systems International Corp. (CSI), a privately held
15
<PAGE>
EIS International, Inc. and Subsidiaries
company located in Coral Gables, Florida, for $22.8 million consisting of $9.3
million in cash and the remainder in shares of EIS common stock. CSI specializes
in computerized Workforce Management Systems for the call center industry which
are designed to aid in staff forecasting and scheduling. 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. In addition, the Company recorded a
$16.9 million charge for acquired technology in process. Intangible assets of
approximately $9.8 million were recorded as a result of this transaction (see
footnotes 15 and 16).
On September 1, 1996, the Company entered into an Asset Purchase Agreement with
Pulse Technologies, Inc. (Pulse), a Virginia corporation, relating to the
purchase of substantially all of the assets of Pulse for consideration
consisting of the assumption of certain liabilities and the payment of (i)
44,993 shares of the Company's common stock, $.01 par value per share, having a
value of approximately $820,000; (ii) $950,000 in cash and (iii) five-year
warrants to purchase EIS common stock at $18.23 per warrant with the number of
warrants equal to 66.67% of the number shares of EIS common stock issued in
connection with this transaction. Pulse is a professional and technical service
firm specializing in telecommunications consulting. The acquisition of Pulse was
accounted for by the purchase method of accounting, and accordingly, the
acquired assets have been recorded at their fair values, with the help of an
appraiser, at the date of the purchase and the results of the Company reflect
those of Pulse from September 1, 1996. The Company recorded a $1.3 million
charge for acquired technology in process. Intangible assets of $396,000
resulting from this transaction are included on Other Assets in the accompanying
balance sheet and are being amortized on a straight-line basis over a period of
eight to ten years.
These two acquisitions resulted in a cash outflow of $10.1 million offset by
cash acquired of $3.1 million.
The following unaudited pro-forma financial information shows the results of
operations for 1995 and 1996 (in thousands, except per share data) as though the
acquisition of CSI and Pulse had occurred as of January 1, 1995. In addition to
combining the historical results of operations of the 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 on a combined basis for each pro-forma period presented and
excludes the write-off of the acquired technology in process of $18.2 million,
as such charge is non-recurring and unusual and relates directly to the
acquisitions.
1995 1996
---- ----
Net Revenues $102,745 $97,168
Net Income (Loss) $10,430 $(22,202)
Net earnings (Loss) Per Share $0.93 $(2.06)
(4) Sales of Lease Portfolio
On August 8, 1994, the Company entered into certain Lease Participation
Agreements whereby a portion of its lease portfolio was sold to Applied
Telecommunication Technologies, Inc. for an aggregate of $2,324,000 in cash and
the issuance of warrants to acquire an aggregate of 48,000 shares of the
Company's common stock at an exercise price of $10.375 per share (fair market
value at date of issuance). The lease receivables were sold on a non-recourse
basis, subject to an indemnity by the Company for breach of operating and
service warranties. The transaction was recorded as a sale of receivables which
resulted in a recognized loss of $106,000.
On March 29, 1996, 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. In July, 1996 an additional
portion of the Company's lease portfolio was sold under this agreement for $0.8
million in cash. All leases sold under this agreement are subject to certain
recourse provisions. The Company is also a guarantor to the Purchase Agreement.
The Company provides for potential losses on recourse in its allowance for
doubtful accounts and sales returns.
At December 31, 1996 approximately $4.4 million of leases previously sold with
recourse are outstanding.
(5) Installment and Lease Receivables
The present value of future installment and lease receivables payments to be
received as of December 31, 1995 and 1996 are as follows (in thousands):
1995 1996
--------- -------
1996 $ 5,062 $ --
16
<PAGE>
EIS International, Inc. and Subsidiaries
1997 4,169 2,479
1998 2,248 1,575
1999 332 976
54 16
2000 --------- -------
$11,865 $5,046
========= =======
Less amounts representing interest
at rates ranging from
4.2% to 16.5% 2,065 569
--------- ------
Present value of receivables 9,800 4,477
Less current portion 3,806 2,007
--------- -------
$ 5,994 $2,470
========= =======
(6) Inventories
Inventories consist of the following at December 31, 1995 and 1996 (in
thousands):
--------- -------
1995 1996
--------- -------
Raw materials $ 763 $ 193
Work in process 148 5
Finished goods 6,770 7,534
------ ------
Total inventories $7,681 $7,732
========= =======
(7) Property and Equipment
Property and equipment consists of the following at December 31, 1995 and 1996
(in thousands):
--------- -------
1995 1996
--------- -------
Furniture and fixtures $ 1,954 $ 2,026
Machinery and equipment 13,146 14,890
Leasehold improvements 994 935
-------- -------
16,094 17,851
Less accumulated depreciation
and amortization (7,664) (9,670)
------- ------
$ 8,430 $ 8,181
========= =======
Depreciation and amortization of property and equipment amounted to $1,992,000,
$3,177,000, and $4,343,000 in 1994, 1995, and 1996, respectively.
(8) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consists of the following at December
31, 1995 and 1996 (in thousands):
--------- -------
1995 1996
--------- -------
Accounts payable $ 6,391 $10,235
Accrued compensation and benefits 4,703 2,323
Other accrued liabilities 3,130 3,614
Loss provision on uncompleted -- 2,722
contracts --------- -------
$14,224 $18,894
--------- -------
(9) Income Taxes
Income tax expense (benefit) from continuing operations consists of the
following (in thousands):
Years Ended December 31,
- --------------------------------------------------------
1994 1995 1996
- --------------------------------------------------------
Current:
Federal $3,467 $5,530 $2,605
State 417 1,100 372
-------- -------- ---------
$3,884 $6,630 $ 2,977
Deferred:
Federal $ 34 $ (204) $(5,015)
State 8 (28) (717)
---------- --------- ---------
42 (232) (5,732)
--------- -------- --------
Total $3,926 $6,398 $(2,755)
========== ======== =========
The effective income tax expense (benefit) rate attributable to income (loss)
from continuing operations for the years ended December 31, 1994, 1995, and 1996
differed from the Federal corporate statutory rate due to the following:
Years Ended December 31,
- -------------------------------------------------------------------
1994 1995 1996
- -------------------------------------------------------------------
Federal corporate statutory rate 35% 35% (35)%
State income taxes, net of
Federal benefit 7 4 (1)
Acquired technology in process -- -- 18
Write-down of intangible assets -- -- 8
Research and development
tax credits (6) (3) --
Increase (Reduction) in
valuation allowance (7) (1) 3
Other, net 5 1 (1)
---- ---- --------
34% 36% (8)%
==== ==== ========
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below (in
thousands):
December 31,
-------------------
1995 1996
-------------------
Deferred Tax Assets
Accounts receivable, principally due to
allowances for doubtful accounts and
sales returns $ 806 $2,851
17
<PAGE>
EIS International, Inc. and Subsidiaries
Net operating loss carryforwards -- 3,831
Loss provision on uncompleted
contract -- 1,967
Inventories, principally due to reserves
for obsolescence 716 1,226
-- 683
Discontinued operations
Plant and equipment, principally due to
differences in depreciation methods 95 415
Other 524 330
------- -----
Total gross deferred tax assets 2,141 11,303
Less: Valuation allowance -- (2,665)
Net deferred tax assets $2,141 $8,638
======= ======
Deferred Tax Liabilities
Capitalized software development costs $1,064 $1,829
------- -----
Total deferred liabilities $1,064 $1,829
======= ======
A valuation allowance is established to reduce the deferred tax asset to a level
which, more likely than not, would be realized, when necessary. The net deferred
asset reflects management's estimate of the amount which would be realized from
future profitability. The valuation allowance was decreased in 1995 by $137,000
resulting principally from the realization of tax benefits of temporary
differences which reversed during 1995 and increased in 1996 by $2.7 million for
the net operating loss carryforwards of Cybernetics and Surefind that were
generated prior to EIS' ownership which are therefore limited under provisions
of the Internal Revenue Code. These carryforwards expire in 2004 through 2011.
(10) Stockholders' Equity
(a) Public Offering
On December 15, 1994, 1,095,000 shares of the Company's common stock were sold
to underwriters at a price of $11.99. Of the 1,095,000 shares included in the
public offering, 1,000,000 shares were sold by the Company and 95,000 shares
were sold by existing shareholders. In addition, existing shareholders exercised
211,706 stock warrants in connection with the offering. The Company did not
receive any proceeds from the sale of shares by the existing shareholders other
than the proceeds of $1,504,000 on the exercise of stock warrants. Net proceeds
to the Company after offering costs were approximately $13,228,000. On February
29, 1996, the Company issued 505,685 shares of its common stock in connnection
with its merger with Surefind and reserved an additional 43,892 shares for
issuance upon exercise of outstanding stock options and stock warrants of
Surefind. On March 1, 1996, the Company issued 494,660 shares of its common
stock in connection with its acquistion of CSI and reserved an additional
321,270 shares for issuance upon exercise of outstanding stock options and stock
warrants of Cybernetics. On September 1, 1996, the Company issued 44,993 shares
of its common stock and 29,995 stock warrants in connection with its purchase of
Pulse.
(b) Stock Options and Warrants
The Company has various stock option plans (the Plans), under which incentive
stock options (ISO's) and non-incentive stock options (Non-ISO's) may be
granted. Pursuant to the Plans, 2,633,363 shares of common stock may be granted
and the same number of shares have been reserved for such issuance. The Board of
Directors has the authority to determine the number, terms and type of stock
options to be granted. The exercise price of all options granted under the Plans
cannot be less than the fair market value at the date of grant.
Generally, options granted under the Plans vest 25% beginning one year from date
of grant and 25% on each anniversary of the grant date thereafter. Additionally,
options expire not later than ten years from date of grant (five years if the
optionee is a principal shareholder).
The Company applies APB Opinion No. 25 in accounting for its Plans and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income (loss) would have been reduced (increased) to
the pro forma amounts indicated below (in thousands), except per share data:
1995 1996
---- ----
Net income (loss) As reported $9,220 $(38,556)
Pro forma 7,642 (42,561)
Net earnings (loss) per share
As reported $.88 $(3.61)
Pro forma $.73 $(3.98)
Pro forma amounts reflect only options granted in 1996 and 1995. Therefore, the
full impact of calculating compensation cost for stock options under SFAS No.
123 is not reflected in the pro forma net income (loss) amounts presented above
because compensation cost is reflected over the options' vesting period of 4
years and compensation cost for options granted prior to January 1, 1995 is not
considered.
18
<PAGE>
EIS International, Inc. and Subsidiaries
The fair value of the stock options granted in 1995 and 1996 is estimated at
grant date using the option pricing model with the following weighted average
assumptions for 1996-expected dividend yield 0.0%, risk free interest rate of
6.4%, expected volatility of 47.4%, and expected life of seven years, for 1995 -
expected dividend yield of 0.0%, risk free interest rate of 6.0%, expected
volatility of 47.4% and an expected life of seven years. The weighted average
grant date fair values of options granted in 1995 and 1996 was $15.96 and
$11.80, respectively.
Stock option activity during the periods indicated is as follows:
ISO'S Non-ISO'S
Number of Weighted-Average Number of Weighted-Average
Shares Exercise Price Shares Exercise Price
Outstanding,
December 31, 1993 1,002,865 $ 8.04 737,258 $ 5.07
Granted 48,617 11.58 79,383 11.43
Exercised (101,090) 12.51 (90,329) 14.51
Forfeited (64,610) 9.06 (25,000) 11.00
---------- ------ -------- -----
Outstanding,
December 31, 1994 885,782 $ 8.45 701,312 $ 6.09
Granted 155,844 16.01 8,656 15.78
Exercised (155,535) 16.77 (80,067) 2.02
Forfeited (33,205) 9.35 (443) 2.73
---------- ------ -------- -----
Outstanding,
December 31, 1995 852,886 $ 9.81 629,458 $ 6.74
Granted 514,498 12.77 479,279 9.96
Exercised (318,637) 7.39 (192,670) 7.75
Forfeited (278,901) 15.29 (180,855) 15.05
---------- ------- -------- ------
Outstanding,
December 31, 1996 769,846 $11.16 735,212 $6.53
---------- ------ ------- -----
At December 31, 1996 and 1995, the number of options exercisable was 817,858 and
855,153, respectively, and the weighted-average exercise price of those options
was $ 6.57# and $ 6.18, respectively.
At December 31, 1996, 817,858 options were exercisable under the Plans at prices
ranging from $0.40 to $17.125. All options granted under the Plans were granted
at exercise prices representing the fair market value of the Company's common
stock at the date of the grant.
At December 31, 1994 and 1995, respectively, the Company had 160,625 and 60,000
stock options outstanding, which are not part of the Plans, with exercise prices
of $.01 and $4.00, of which 60,000 were exercisable at a price of $4.00 per
share at December 31, 1996. Of the non-Plan options, 20,000, 100,625 and 60,000
shares were exercised during 1994, 1995, and 1996 respectively. In January 1991,
60,000 non-Plan options were granted to an employee of the Company at $4.00 per
share when the fair market value of a share of the Company's stock had been
determined by the Board of Directors to be $6.67. Compensation expense of
approximately $160,000 has been recognized ratably over the four-year vesting
period. All other non-Plan options were granted at exercise prices representing
the fair market value of the Company's common stock at the date of the grant.
In connection with the issuance of its preferred stock, in consideration of
additional financing and loans by the Company's investors, and for services
performed by various other parties, the Company has granted warrants to purchase
common stock as follows:
Price Per Expiration
Number Share Dates
Outstanding,
December 31, 1993 398,034 $6.55 - 11.50 5/94 - 8/00
------- ------ ----
Granted 48,000 10.38 8/94 - 7/99
Exercised (345,523) 6.55 - 7.94 5/94 - 8/00
Cancelled - - -
Outstanding,
December 31, 1994 100,511 6.55 - 11.50 10/96 - 7/99
------- ------------
Granted -- -- --
Exercised -- -- --
Cancelled -- -- --
Outstanding ,
December 31, 1995 100,511 6.55-11.50 10/96 - 7/99
------- ------------
Granted 155,552 1.35 -18.23 12/96 - 5/05
Exercised (92,730) 1.35 -18.00 12/96 - 3/00
Cancelled ( 9,758) 7.94 10/96
Outstanding, --------- ------ --------
December 31, 1996 153,575 $1.35 -18.23 12/98 - 5/05
-------- ------------ ------------
(c)Employee Stock Purchase Plan
On February 23, 1993, the Board of Directors approved an employee stock purchase
plan, which provides for the purchase of up to 300,000 shares of common stock by
employees of the Company. At December 31, 1994, 1995 and 1996, 31,805, 36,786
and 33,784 shares were issued under this plan.
(d)Employee Savings Program
19
<PAGE>
EIS International, Inc. and Subsidiaries
The Company maintains an Employee Savings Plan that qualifies as a cash or
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the Plan, participating U.S. employees may defer up to 20% of their
pre-tax compensation, but not more than Internal Revenue Service limitations.
The Company, at the discretion of the Board of Directors, may match the employee
contributions equal to or less than 2.5% of the participant's compensation for
the period vested over four years. The Company recorded a $200,000 and $264,000
expense for 1995 and 1996. No such expense was recorded in 1994.
(e)Non-employee Directors Stock Option Plan
On February 23, 1993, the Board of Directors approved a stock option plan for
non-employee directors, which provided for the granting of 6,250 options to
purchase the Company's common stock for each non-employee director annually,
based on a fixed formula. The Company had reserved 200,000 shares for issuance
under this plan. On December 21, 1993, the Board of Directors approved an
amendment to the plan that provided an aggregate of 30,000 options under the
plan for each non-employee director, of which (i) 26,000 options would be
immediately granted to each such director at the fair market value on December
21, 1993, with vesting of 6,500 options on each of February 23, 1994, February
23, 1995, February 23, 1996, and February 23, 1997, provided that each such
person is a director on such dates, and (ii) 1,000 options under the plan would
be granted to each non-employee director on February 23, 1994, February 23,
1995, February 23, 1996, and February 23, 1997, at the fair market value on the
grant date provided that each such person is a director on such dates.
The following is a summary of the non-employee directors stock option plan
transactions:
--------------------------------------
Price Per Expiration
Number Share Dates
--------------------------------------
Outstanding,
December 31, 1993 193,500 $8.63 - 12.38 12/93 - 12/03
Granted 6,000 13.13 2/95 - 2/04
Exercised - - -
Cancelled (33,250) 9.25 - 13.13 12/93 - 2/04
------- -------------- ------------
Outstanding,
December 31, 1994 166,250 8.63 - 13.13 2/03 - 2/04
Granted 5,000 14.56 2/05
Exercised (42,500) 8.63 - 14.56 11/03 - 2/05
Cancelled (13,000) 12.38 12/03
-------- -------------- ------------
Outstanding,
December 31, 1995 115,750 $8.63 - 14.56 12/93 - 2/05
Granted 4,000 16.88 2/06
Exercised -- -- --
Cancelled -- -- --
-------- -------------- ------------
Outstanding,
December 31, 1996 119,750 $8.63 - 16.88 12/93 - 2/06
-------- ------------- ------------
(f) Treasury Stock
In September 1991, the Company entered into an agreement with a former
employee to acquire 18,750 shares of the Company's common stock for $125,000,
payable in quarterly installments. In May 1992, the Company exercised its
option under the agreement to acquire an additional 18,750 shares at $6.67 per
share. The agreement provided the Company with options, as of December 31,
1992, to purchase an additional 37,500 shares, at $6.67 per share, which were
exercised by the Company in May 1993. In 1995, two employees delivered 1,225
shares of EIS stock in exchange for cash for the exercise of their stock
options. In 1996, the Company repurchased 25,000 shares of its common stock.
(11) Commitments and Contingencies
The Company leases office facilities and equipment under noncancelable operating
lease arrangements which expire at various dates.
The future minimum annual payments for all noncancelable leases at December 31,
1996 follow (in thousands):
1997 $2,784
1998 1,920
1999 1,750
2000 1,744
2001 1,367
Thereafter 278
------
$9,843
======
Rent expense on operating leases totaled $1,205,000 in 1994, $1,549,000 in 1995,
$1,938,000 in 1996.
In connection with the refocus by the Company on its core products (see Note
16), the Company has discontinued for the foreseeable future the marketing and
sale by its CSI subsidiary of certain systems under long-term contracts
requiring customization beyond that required in the typical Company sales of
Company products. The Company has taken a provision in the amount of $4,967,000
for costs associated with the completion and installation of products and the
resolution of CSI's obligations under such contracts.
The Company has from time to time received notices of potential intellectual
property
20
<PAGE>
EIS International, Inc. and Subsidiaries
infringement claims against it. Based on the knowledge and the facts
and, in certain cases, opinions of outside counsel, management believes the
resolution of the existing claims will not have a material adverse effect on the
consolidated financial position or results of operations of the Company.
The Company is a party to various legal actions and claims arising in the
ordinary course of its business. In management's opinion, the Company 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 the
Company's consolidated financial position or results of operations.
(12) Reconciliation of Income (Loss) from
Continuing Operations to Net Cash (used in)
provided by Operating Activities
(in thousands)
Years Ended December 31,
----------------------------
1994 1995 1996
----------------------------
Cash flows from continuing
operating activities:
Income (loss) from continuing
operations $7,602 $11,357 $(33,028)
Adjustments to reconcile income (loss)
from continuing operations
to net cash (used in) provided
by operating activities:
Provision for doubtful accounts
and sales returns 1,250 2,788 8,281
Write off of in process research
and development -- -- 18,245
Write down of intangible assets -- -- 8,058
Provision for contract losses -- -- 2,722
Depreciation and amortization 2,695 3,985 5,694
Deferred income taxes 42 (232) (5,732)
Stock option compensation 40 -- --
Changes in assets and liabilities:
Accounts receivable, trade (9,566) (13,985) 1,569
Installment and lease receivables (4,895) (4,334) (677)
Inventories (1,393) (891) (51)
Prepaids and other current assets (118) 413 105
Other assets (256) (335) 1,910
Accounts payable 1,628 1,218 2,809
Accrued and other liabilities 1,057 1,096 (4,992)
Income taxes payable 1,322 3,377 (1,536)
Deferred revenue (1,543) 536 (1,292)
-------- ------- -------
Net cash (used in) provided by
continuing operations (2,135) 4,993 2,085
Cash (used by) discontinued
operations (474) (1,833) (5,249)
------- -------- -------
Net cash (used in) provided by
operating activities $(2,609) $ 3,160 $(3,164)
======= ======== =======
(13) Significant Customers
There were no individual customers which represented greater than 10% of net
revenues in 1994, 1995, or 1996. Six customers represented 33% of the receivable
lease balance at December 31, 1996 and six customers represented 39% of the
receivable balance at December 31,1995. No individual customer represented more
than 5% of gross trade accounts receivable at December 31, 1995 and 1996.
(14) Litigation
On June 11, 1992, a competitor of the Company, Digital Systems International,
Inc. ("DSI"), filed an action against the Company in the United States District
Court for the Western District of Washington. DSI's complaint in the action
alleged that the Company had made false and misleading statements concerning DSI
and DSI's products and misleading statements concerning the Company's products.
On April 15, 1994, a U.S. District Court jury in Washington State awarded DSI
damages in the amount of $4.8 million.
On March 8, 1994, the Company filed a claim in the Eastern District of Virginia
asserting the invalidity of a patent held by DSI and infringement by DSI of
certain of the Company's patents. DSI denied the allegations and contended that
the Company's patents were invalid. On March 25, 1994, DSI commenced an action
against the Company in the Western District of Washington. DSI's complaint
asserted that the Company's patents were invalid and that the Company infringed
upon DSI's patent. The Company denied DSI's allegations and asserted that DSI's
patent was invalid.
On July 8, 1994, the Company and DSI settled all pending litigation. The
settlement involved payment to DSI by the Company and its insurers of
approximately $4.0 million as well as dismissal of pending patent litigation
between both companies. The Company recorded its portion of the charge plus
legal fees totaling approximately $1.1 million as a result of the settlement.
(15) Write-down of Intangible Assets
In accordance with SFAS No. 121 "Accounting for the Impairment of Long-
21
<PAGE>
EIS International, Inc. and Subsidiaries
Lived Assets and for Long-Lived Assets to Be Disposed Of" management performed a
discounted cash flow analysis of CSI's operations. Management concluded that
this analysis warranted a write-down of the intangible assets of CSI of
approximately $8.1 million to zero. This write-down is included in the
Consolidated Statement of Operations for the year ended December 31, 1996.
(16) 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.
The decision to discontinue the operations of Surefind was made after it became
apparent that a significantly higher than anticipated level of cash funding was
needed to exploit Surefind's product.
Surefind incurred a net loss of approximately $3.7 million, net of a $1.6
million income tax benefit, in 1996 and $2.1 million in 1995 which is separately
shown as a loss on discontinued operations in the Consolidated Statement of
Operations for the respective periods.
The Company plans to continue the operations of Surefind through June 30, 1997
at which time its operations will cease. In connection with the decision to
discontinue the operations of Surefind, the Company recorded a $1.8 million
estimated loss on the disposal of Surefind which includes a provision for
anticipated operating losses prior to disposal. The loss on disposal, recorded
in the fourth quarter of 1996, is shown net of a $1.1 million income tax
benefit.
The components of the net liability of discontinued operations at December 31,
1996 are summarized as follows (in thousands):
Property and equipment, net $1,244
Capitalized software
development costs, net 77
Other assets 194
Current liabilities (697)
Lease obligations and other
liabilities (616)
Provision for estimated loss
on disposal of discontinued
operations (2,140)
Provision for estimated operating
losses during phase-out period (800)
--------
Net liability of discontinued
operations $(2,738)
========
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 the
Restructuring, the Company downsized the operations of CSI, closing its Coral
Gables, Florida facility and focusing CSI's development and marketing efforts
primarily on its Workforce Manager product. In addition, EIS terminated the
separate operations of Pulse, its Chantilly, Virginia based integration services
business, by integrating the business of Pulse into the operations of the
Company's core business. Furthermore, the Company closed its corporate
headquarters in Pittsburgh, Pennsylvania and relocated the corporate
headquarters to its facility in Herndon, Virginia. A total of approximately 110
employees were terminated as a result of the Restructuring. The Company expects
to record approximately $3 million of charges related to the Restructuring in
the first quarter of 1997.
(17) Related Parties
At the time of the merger with Surefind (see note 3), the then President and
Chief Executive Officer of EIS was also the Chief Executive Officer of Surefind
and owned 134,190 shares of Surefind stock and options to purchase 352,113
shares of Surefind stock all of which were exchanged for EIS stock and options
pursuant to the terms of the merger agreement.
At December 31, 1996, the then President and Chief Executive Officer of EIS owed
$161,000 to EIS. As part of his severance arrangement approximately $113,000 of
this balance was effectively paid in March 1997.
(18) Fourth Quarter Charges
During the fourth quarter 1996, the Company recorded the following charges which
are included in the accompanying 1996 consolidated statement of operations (in
millions):
Continuing Operations
Provision for doubtful accounts
and sales returns $ 2.9
Provision for losses on
uncompleted contracts 5.0
Write-down of intangible assets 8.1
------
Total charges to continuing operations 16.0
Discontinued Operations
Loss on disposal of Surefind, net of tax
benefits 1.8
------
Total charges $17.8
------
22
<PAGE>
EIS International, Inc. and Subsidiaries
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
EIS International, Inc.:
We have audited the consolidated financial statements of EIS International, Inc.
and subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EIS International,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
Stamford, Connecticut
March 28, 1997
23
<PAGE>
EIS International, Inc. and Subsidiaries
PART IV
Item 14(a) of the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 is hereby amended and restated in its entirety as set
forth below:
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements and (2) Financial Statement Schedules:
See Index to Financial Statements and Financial Statement Schedules on page 8
and Exhibits Index on page 31.
24
<PAGE>
(3) Exhibits required by Item 601 of Regulation S-K:
3.1 Restated Certificate of Incorporation of EIS
(incorporated by reference to EIS' Exhibit
4.1 to the Company's Registration Statement
on Form S-3 (No. 33-79814) filed with the
Securities and Exchange Commission on June
3, 1994 (the "1994 Registration").
3.2 By-Laws of EIS as amended (incorporated by
reference to Exhibit 3.2 to EIS' Annual
Report on Form 10-K for the year ended
December 31, 1993 (the "1993 Form 10-K").
4.1 Specimen Common Stock Certificate of EIS
(incorporated by reference to Exhibit C to
EIS' Registration Statement on Form 8-A
dated June 22, 1992).
4.2 Warrant No. WC-1 dated January 1, 1993
issued by EIS to Equilease Corporation
(incorporated by reference to Exhibit 4.6
to EIS' Annual Report on Form 10-K for the
year ended December 31, 1992 (the "1992
Form 10-K").
4.3 Warrant No. WC-2 dated September 30, 1993
issued by EIS to Applied Telecommunications
Technologies, I, N.V. (incorporated by
reference to Exhibit 4.7 to the 1993 Form
10-K).
25
<PAGE>
EIS International, Inc. and Subsidiaries
*10.1(a) Form of Stock Option Agreement incorporated
by reference to Exhibit 10.2 to the
Registration Statement on Form S-1 of the
Registrant, file No.33-47665 as filed
with the commission on May 11, 1992 (the
"1992 Registration").
*10.1(b) Amended and Restated Stock Option
Plan of EIS incorporated by reference to
EIS' Exhibit A to EIS' definitive proxy
statement filed in connection with its 1995
Annual Meeting of Stockholders).
*10.1(c) 1993 Employee Stock Purchase Plan of
EIS incorporated by reference to Exhibit B
to EIS' definitive proxy statement filed in
connection with its 1994 Annual Meeting of
Stockholders).
*10.1(d) 1993 Stock Option Plan for Non-Employee
Directors of EIS (incorporated by reference
to Exhibit B to EIS' definitive proxy
statement filed in connection with its
1994 Annual Meeting of Stockholders).
* 10.3 401(K) Plan of EIS (incorporated by
reference to Exhibit 10.3 to the 1992
Registration).
* 10.4 Section 125 Plan of EIS (incorporated by
reference to Exhibit 10.4 to the 1992
Registration).
10.5 Lease Agreement dated November 27, 1990
between Mendik Real Estate Limited
Partnership and EIS (incorporated by
reference to Exhibit 10.5 to the 1992
Registration).
10.7 Manufacturing Agreement dated July 17, 1990
between Kimchuk, Inc. and EIS (incorporated
by reference to Exhibit 10.7 to the 1992
Registration).
10.8 Working Capital Line of Credit Commitment
Letter dated October 31, 1990 between
Silicon Valley Bank and EIS (incorporated by
reference to Exhibit 10.8 to the 1992
Registration).
10.9 Pledge Agreement dated as of November 1,
1990 between Silicon Valley Bank and EIS
(incorporated by reference to Exhibit 10.9
to the 1992 Registration).
10.10 Security Agreement dated November 1, 1990
between Silicon Valley Bank and EIS
(incorporated by reference to Exhibit 10.10
to the 1992 Registration).
10.11 Security Agreement dated as of November 1,
1990 between Silicon Valley Bank and EIS
Leasing Corp. (incorporated by reference to
Exhibit 10.11 to the 1992 Registration).
26
<PAGE>
EIS International, Inc. and Subsidiaries
10.12 Guaranty dated November 1, 1990 by EIS
Leasing Corp. in favor of Silicon Valley
Bank (incorporated by reference to Exhibit
10.12 to the 1992 Registration).
10.13(a) Amendment to Silicon Valley Bank agreements
dated February 22, 1991 (incorporated by
reference to Exhibit 10.13 to the 1992
Registration).
10.13(b) Amendment to Silicon Valley Bank agreements
dated March 14, 1991 (incorporated by
reference to Exhibit 10.14 to the 1992
Registration).
10.13(c) Amendment to Silicon Valley Bank agreements
dated August 10, 1991 (incorporated by
reference to Exhibit 10.15 to the 1992
Registration).
10.13(d) Amendment to Silicon Valley Bank agreements
dated January 6, 1992 (incorporated by
reference to Exhibit 10.13(d) to the 1992
Registration).
10.13(e) Amendment to Silicon Valley Bank agreements
dated April 14, 1993 (incorporated by
reference to Exhibit 10.13(e) to the 1993
Form 10-K).
10.13(f) Joinder and Assumption Agreement dated
October 28, 1994 between Silicon Valley
Bank, EIS International Services Corp. and
EIS (incorporated by reference to Exhibit
10.13(f) to EIS' Annual Report on Form 10-K
for the year ended December 31, 1994 (the
"1994 Form 10-K").
10.13(g) Amended and Restated Promissory Note dated
October 28, 1994 between Silicon Valley
Bank, EIS International Services Corp. and
EIS (incorporated by reference to exhibit
10.13(g) to the 1994 Form 10-K).
10.13(h) Security Agreement dated October 28, 199
between Silicon Valley Bank and EIS
International Services Corp. (incorporated
by reference to exhibit 10.13(h) to the 1994
Form 10-K).
10.17 Agreement dated June 7, 1991 between
American Telephone & Telegraph Company
(AT&T) and EIS (incorporated by reference to
Exhibit 10.24 to the 1992 Registration).
10.18(a) Amendment to AT&T Agreement, dated October
15, 1991 (incorporated by reference to
Exhibit 10.25 to the 1992 Registration).
10.18(b) Amendment to AT&T Agreement, dated March
15, 1991 (incorporated by reference to
Exhibit 10.26 to the 1992 Registration).
10.20 Lease Participation Agreement dated as
of September 30, 1993 between EIS Leasing
Corp. and Applied Telecommunications Inc.
for participation in a finance equipment
lease between EIS Leasing Corp. and RMH
Sales & Marketing Consulting, Inc. dated as
of November 19, 1992. Exhibit 10.25 to EIS's
Registration Statement on the Form S-4 (No.
33-68702) filed with the Securities and
Exchange Commission on
27
<PAGE>
EIS International, Inc. and Subsidiaries
September 13, 1993 (the "1993 Registration")
is incorporated herein by reference.
10.21 Lease Participation Agreement dated as of
September 30, 1993 between EIS Leasing Corp.
and Applied Telecommunications Inc. for
participation in a finance equipment lease
between EIS Leasing Corp. and New Boston
Services Group dated as of March 1, 1993
(incorporated by reference to Exhibit 10.26
to the 1993 Registration).
10.23 Form of Warrant to Purchase Shares of Class
B Common Stock of ITC (incorporated by
reference to Exhibit 99.4 to the 1993
Registration).
10.24 Lease Agreement dated January 23, 1992
between Provident Mutual Life Insurance
Company and ITC (incorporated by reference
to Exhibit 99.5 to the 1993 Registration).
10.25 ITC 1989 Stock Option Plan, together with
form of stock option agreement (incorporated
by reference to Exhibit 99.6 to the 1993
Registration).
10.31 Loan Document Modification Agreement
(No. 3; dated as of December 27, 1995)
between EIS and Silicon Valley Bank
(incorporated by reference to Exhibit 10.31
to EIS' Registration Statement on Form S-4
(No. 333-00632) filed with the Securities
and Exchange Commision on January 31, 1995).
11. Statement re: computation of per share
earnings.
**21. Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedule.
-----------
*Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this form pursuant to Items 14(a) and (c) of
this Report.
**Previously filed
28
<PAGE>
EIS International, Inc. and Subsidiaries
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: April 15, 1997 EIS INTERNATIONAL, INC.
By: /s/ James E. McGowan
--------------------
James E. McGowan
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934 this report
had been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Principal Executive Officer:
/s/ James E. McGowan April 15, 1997
- ------------------------------------------------------------
James E. McGowan
President, Director and Chief Executive Officer
Principal Financial and Accounting Officer:
/s/ Frederick C. Foley April 15, 1997
- ------------------------------------------------------------
Frederick C. Foley
Senior Vice President, Finance and Chief Financial Officer
Directors:
/s/ Robert Cresci April 15, 1997
- ------------------------------------------------------------
Robert Cresci
/s/ Robert Jesurum April 15, 1997
- ------------------------------------------------------------
Robert Jesurum
/s/ Kent M. Klineman April 15, 1997
- ------------------------------------------------------------
Kent M. Klineman
/s/ Charles McCall April 15, 1997
- ------------------------------------------------------------
Charles McCall
29
<PAGE>
EIS International, Inc. and Subsidiaries
SCHEDULE II
Valuation and Qualifying Accounts
Years ended December 31, 1994, 1995, 1996
ADDITIONS
<TABLE>
<CAPTION>
Balance at Charged to Charged Balance
Beginning Costs and to Other Deductions at End
Classification of Year Expenses Accounts (1) of Year
- -------------- ----------- -------- -------- ------------ -------
<S> <C> <C> <C> <C> <C>
1994
Allowances for doubtful
accounts and sales returns 1,692,622 546,981 702,611(2) (1,304,068) 1,638,146
Allowance for
inventory obsolescence 1,009,526 2,351,036 -- (2,343,301) 1,017,261
1995
Allowances for doubtful
accounts and sales returns 1,638,146 1,666,978 1,121,022(2) (1,761,228) 2,664,918
Allowance for
inventory obsolescence 1,017,261 -- -- (267,262) 749,999
1996
Allowances for doubtful
accounts and sales returns 2,664,918 4,780,505 3,500,000(3) (4,828,858) 6,116,565
Allowance for
inventory obsolescence 749,999 2,862,299 -- (1,694,824) 1,917,474
(1) Represents amounts written off
(2) Amounts charged to sales & return allowances
(3) Includes $3.3 million charged as a reduction to net revenue
</TABLE>
30
<PAGE>
EIS International, Inc. and Subsidiaries
EXHIBIT INDEX
Exhibit Description
3.1 Restated Certificate of Incorporation of EIS (incorporated by
reference to EIS' Exhibit 4.1 to the Company's Registration
Statement on Form S-3 (No. 33-79814) filed with the Securities
and ExchangeCommission on June 3, 1994 (the "1994
Registration").
3.2 By-Laws of EIS as amended (incorporated by reference to
Exhibit 3.2 to EIS' Annual Report on Form 10-K for the year
ended December 31, 1993 (the "1993 Form 10-K").
4.1 Specimen Common Stock Certificate of EIS (incorporated by
reference to Exhibit C to EIS' Registration Statement on Form
8-A dated June 22, 1992).
4.3 Warrant No. WC-2 dated September 30, 1993 issued by EIS to
Applied Telecommunications Technologies, I, N.V.(incorporated
by reference to Exhibit 4.7 to the 1993 Form 10-K).
*10.1(a) Form of Stock Option Agreement incorporated by
reference to Exhibit 10.2 to the Registration Statement on
Form S-1 of the Registrant, file No. 33-47665 as filed with
the commission on May 11, 1992 (the "1992 Registration").
*10.1(b) Amended and Restated Stock Option Plan of EIS
incorporated by reference to EIS' Exhibit A to EIS' definitive
proxy statement filed in connection with its 1995 Annual
Meeting of Stockholders).
*10.1(c) 1993 Employee Stock Purchase Plan of EIS incorporated
by reference to Exhibit B to EIS' definitive proxy statement
filed in connection with its 1994 Annual Meeting of
Stockholders).
*10.1(d) 1993 Stock Option Plan for Non-Employee Directors of
EIS (incorporated by reference to Exhibit B to EIS' definitive
proxy statement filed in connection with its 1994 Annual
Meeting of Stockholders).
*10.3 401(K) Plan of EIS (incorporated by reference to Exhibit 10.3
to the 1992 Registration).
*10.4 Section 125 Plan of EIS (incorporated by reference to Exhibit
10.4 to the 1992 Registration).
10.5 Lease Agreement dated November 27, 1990 between Mendik Real
Estate Limited Partnership and EIS (incorporated by reference
to Exhibit 10.5 to the 1992 Registration).
31
<PAGE>
EIS International, Inc. and Subsidiaries
Exhibit Description
10.7 Manufacturing Agreement dated July 17, 1990 between Kimchuk,
Inc. and EIS (incorporated by reference to Exhibit 10.7 to the
1992 Registration).
10.8 Working Capital Line of Credit Commitment Letter dated October
31, 1990 between Silicon Valley Bank and EIS (incorporated by
reference to Exhibit 10.8 to the 1992 Registration).
10.9 Pledge Agreement dated as of November 1, 1990 between Silicon
Valley Bank and EIS (incorporated by reference to Exhibit 10.9
to the 1992 Registration).
10.10 Security Agreement dated November 1, 1990 between Silicon
Valley Bank and EIS (incorporated by reference to Exhibit
10.10 to the 1992 Registration).
10.11 Security Agreement dated as of November 1, 1990 between
Silicon Valley Bank and EIS Leasing Corp. (incorporated by
reference to Exhibit 10.11 to the 1992 Registration).
10.12 Guaranty dated November 1, 1990 by EIS Leasing Corp. in favor
of Silicon Valley Bank (incorporated by reference to Exhibit
10.12 to the 1992 Registration).
10.13(a) Amendment to Silicon Valley Bank agreements dated February 22,
1991 (incorporated by reference to Exhibit 10.13 to the 1992
Registration).
10.13(b) Amendment to Silicon Valley Bank agreements dated March 14,
1991 (incorporated by reference to Exhibit 10.14 to the 1992
Registration).
10.13(c) Amendment to Silicon Valley Bank agreements dated August 10,
1991 (incorporated by reference to Exhibit 10.15 to the 1992
Registration).
10.13(d) Amendment to Silicon Valley Bank agreements dated January 6,
1992 (incorporated by reference to Exhibit 10.13(d) to the
1992 Registration).
10.13(e) Amendment to Silicon Valley Bank agreements dated April 14,
1993 (incorporated by reference to Exhibit 10.13(e) to the
1993 Form 10-K).
10.13(f) Joinder and Assumption Agreement dated October 28, 1994
between Silicon Valley Bank, EIS International Services Corp.
and EIS (incorporated by reference to Exhibit 10.13(f) to EIS'
Annual Report on Form 10-K for the year ended December 31,
1994 (the "1994 Form 10-K").
10.13(g) Amended and Restated Promissory Note dated October 28, 1994
between Silicon Valley Bank, EIS International Services Corp.
and EIS (incorporated by reference to Exhibit 10.13(g) to the
1994 Form 10-K).
32
<PAGE>
Exhibit Description
10.13(h) Security Agreement dated October 28, 1994 between Silicon
Valley Bank and EIS International Services Corp. (incorporated
by reference to Exhibit 10.13(h) to the 1994 Form 10-K).
10.17 Agreement dated June 7, 1991 between American Telephone &
Telegraph Company (AT&T) and EIS (incorporated by reference to
Exhibit 10.24 to the 1992 Registration).
10.18(a) Amendment to AT&T Agreement, dated October 15, 1991
(incorporated by reference to Exhibit 10.25 to the 1992
Registration).
10.18(b) Amendment to AT&T Agreement, dated March 15, 1991
(incorporated by reference to Exhibit 10.26 to the 1992
Registration).
10.20 Lease Participation Agreement dated as of September 30,
1993 between EIS Leasing Corp. and Applied Telecommunications
Inc. for participation in a finance equipment lease between
EIS Leasing Corp. and RMH Sales & Marketing Consulting, Inc.
dated as of November 19, 1992. Exhibit 10.25 to EIS's
Registration Statement on the Form S-4 (No. 33-68702) filed
with the Securities and Exchange Commission on September 13,
1993 ("the 1993 Registration") is incorporated herein by
reference.
10.21 Lease Participation Agreement dated as of September 30,
1993 between EIS Leasing Corp. and Applied Telecommunications
Inc. for participation in a finance equipment lease between
EIS Leasing Corp. and New Boston Services Group dated as of
March 1, 1993 (incorporated by reference to Exhibit 10.26 to
the 1993 Registration).
10.23 Form of Warrant to Purchase Shares of Class B Common Stock of
ITC (incorporated by reference to Exhibit 99.4 to the 1993
Registration).
10.24 Lease Agreement dated January 23, 1992 between Provident
Mutual Life Insurance Company and ITC (incorporated by
reference to Exhibit 99.5 to the 1993 Registration).
10.25 ITC 1989 Stock Option Plan, together with form of stock option
agreement (incorporated by reference to Exhibit 99.6 to the
1993 Registration).
10.31 Loan Document Modification Agreement (No. 3; dated as of
December 27, 1995) between EIS and Silicon Valley Bank
(incorporated by reference to Exhibit 10.31 to EIS'
Registration Statement on Form S-4 (No. 333-00632) filed with
the Securities and Exchange Commission on January 31, 1995)
33
<PAGE>
EIS International, Inc. and Subsidiaries
Exhibit Description
11. Statement re: computation of per share earnings.
**21. Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule.
*Management contract or compensatory plan or arrangement required to
be filed as an exhibit to this form pursuant to Items 14(a) and (c) of
this Report.
**Previously filed.
34
EIS International, Inc. and Subsidiaries Exhibit 11
Statement Re Computation of Earnings (Loss) Per Share
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1994 1995 1996
------------------------------------------------
<S> <C> <C> <C>
Net income (loss):
Income (loss) from continuing operations $ 7,602 $11,357 $(33,028)
Net loss from discontinued operations (544) (2,137) (5,528)
------------------------------------------------
Net income (loss) $ 7,058 $ 9,220 $(38,556)
------------------------------------------------
Net earnings (loss) per share:
Weighted average common and common equivalent shares:
Common shares outstanding 8,240,532 9,707,032 10,681,217
Dilutive effect of stock options and warrants,
primary computation 629,147 754,763 0(a)
------------------------------------------------
Weighted average common and common
equivalent shares utilized in the primary
earnings (loss) per share computation 8,869,679 10,461,795 10,681,217
------------------------------------------------
Additional dilutive effect of stock options and
warrants, fully diluted computation 255,509 0 --
------------------------------------------------
Weighted average common and common
equivalent shares utilized in the fully
diluted earnings (loss) per share computation 9,125,188 10,461,795 --
------------------------------------------------
Primary earnings (loss) per share:
Continuing operations $0.86 $1.09 $(3.09)
Discontinued operations $(.06) $(.21) $(0.52)
Primary earnings (loss) per share $0.80 $0.88 $(3.61)
Fully diluted earnings (loss) per share:
Continuing operations $0.83 $1.09 $--
Discontinued operations $(.06) $(.21) $--
Fully diluted earnings (loss) per share $0.77 $0.88 $--
</TABLE>
(a) For 1996, Common Stock equivalents and other dilutive securities were not
included as they were antidilutive on loss per share.
Accountants' Consent EXHIBIT 23.1
The Board of Directors
EIS International, Inc.:
We consent to the incorporation by reference in the registration statements of
EIS International, Inc. on Form S-8 (No. 33-59754, 33-72392, and 333-2998)
and Form S-3 (Nos. 333-3350 and 333-5823) of our report dated March 28, 1997,
with respect to the consolidated balance sheets of EIS International, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows and
related schedule for each of the years in the three-year period ended December
31, 1996, which report appears in the December 31, 1996, annual report on Form
10-KA of EIS International, Inc.
KPMG Peat Marwick LLP
Stamford, Connecticut
April 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 000032251
<NAME> EIS INTERNATIONAL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,099
<SECURITIES> 3,660
<RECEIVABLES> 25,812
<ALLOWANCES> 6,117
<INVENTORY> 7,732
<CURRENT-ASSETS> 57,497
<PP&E> 17,851
<DEPRECIATION> 9,670
<TOTAL-ASSETS> 74,690
<CURRENT-LIABILITIES> 27,315
<BONDS> 0
0
0
<COMMON> 112
<OTHER-SE> 45,130
<TOTAL-LIABILITY-AND-EQUITY> 74,690
<SALES> 95,659
<TOTAL-REVENUES> 95,659
<CGS> 49,959
<TOTAL-COSTS> 82,796
<OTHER-EXPENSES> (1,313)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> (35,783)
<INCOME-TAX> (2,755)
<INCOME-CONTINUING> (33,028)
<DISCONTINUED> (5,528)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (38,556)
<EPS-PRIMARY> (3.61)
<EPS-DILUTED> 0
</TABLE>
