UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to
Commission file number 0-20329
EIS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware No. 06-1017599
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
555 Herndon Parkway
Herndon, VA 20170
(703) 478-9808
(Registrant's telephone number, including area code)
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock: Common Stock, par value $.01 per share, outstanding as of July 15,
1999: 10,769,687 shares.
<PAGE>
EIS INTERNATIONAL, INC. and SUBSIDIARIES
INDEX to Financial Statements Filed with Quarterly
Report of Registrant on Form 10-Q for the
Quarter Ended June 30, 1999
(Unaudited)
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements: Page
----
<S> <C>
Unaudited Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998 3
Unaudited Consolidated Statements of Operations
for the three and six months ended June 30, 1999 and 1998 4
Unaudited Consolidated Statements of Cash Flows
for the six months ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements
(unaudited) 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities Not Applicable
Item 3. Defaults Upon Senior Securities Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders Not Applicable
Item 5. Other Information Not Applicable
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
2
<PAGE>
EIS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- ---------------
<S> <C> <C>
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 28,205 $ 28,194
Accounts receivable, trade, less allowances for doubtful accounts
and sales returns of $3,212 in 1999 and $3,513 in 1998 10,025 8,727
Current portion of installment and lease receivables 1,026 857
Inventories 3,687 3,751
Deferred income taxes 1,507 2,446
Prepaids and other current assets 926 922
Refundable income taxes 308 200
-------- --------
Total current assets 45,684 45,097
Capitalized software development costs, net 3,930 4,454
Property and equipment, net 4,697 5,896
Installment and lease receivables, less current portion 356 402
Deferred income taxes 1,421 1,421
Other assets 195 429
-------- --------
Total assets $ 56,283 $ 57,699
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 8,042 $ 9,487
Deferred revenue 2,827 3,058
-------- --------
Total current liabilities 10,869 12,545
Commitments and Contingencies
Stockholders' equity:
Common Stock, $.01 par value, 15,000,000
shares authorized, issued 11,759,212 shares
in 1999 and 11,734,585 shares in 1998 118 117
Additional paid-in capital 60,738 60,672
Accumulated translation adjustments (240) (287)
Retained deficit (12,256) (13,640)
Treasury stock, at cost - 989,525 in 1999
and 512,725 shares in 1998 (2,946) (1,708)
-------- --------
Total stockholders' equity 45,414 45,154
-------- --------
Total liabilities and stockholders' equity $ 56,283 $ 57,699
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
EIS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------- -----------------------
1999 1998 1999 1998
------- -------- --------- --------
<S> <C> <C> <C> <C>
Net revenues:
Product and software $7,898 $ 7,430 $ 15,226 $19,037
Service and other 5,961 6,787 12,095 13,282
------ ------- -------- -------
13,859 14,217 27,321 32,319
Cost of revenues:
Cost of product and software sold 3,726 3,625 7,382 8,175
Recovery of provision for contract losses - (750) (250) (1,636)
Cost of service and other 2,929 3,419 5,825 6,809
------ ------- -------- -------
6,655 6,294 12,957 13,348
------ ------- -------- -------
Gross margin 7,204 7,923 14,364 18,971
------ ------- -------- -------
Operating cost and expense:
Research and development cost 1,867 2,526 3,814 5,079
Selling, general, and administrative 4,431 6,911 8,937 14,058
Restructuring costs - 543 - 543
------ ------- -------- -------
6,298 9,980 12,751 19,680
------ ------- -------- -------
Operating income (loss) 906 (2,057) 1,613 (709)
Other income, net: 376 328 709 659
------ ------- -------- -------
Income (loss) before income taxes 1,282 (1,729) 2,322 (50)
Income tax benefit (expense) (522) 648 (939) (12)
------ ------- -------- -------
Net income (loss) $ 760 $(1,081) $ 1,383 $ (62)
====== ======= ======== =======
Basic earnings (loss) per share: $ 0.07 $ (0.09) $ 0.13 $ (0.01)
Diluted earnings (loss) per share: 0.07 (0.09) 0.13 (0.01)
Weighted average common and common equivalent shares:
Basic 10,768 11,590 10,821 11,568
Diluted 10,914 11,590 10,918 11,568
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
EIS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------------
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,383 $ (62)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Provision for doubtful accounts and
sales returns 1,914 1,391
Recovery of provision for contract losses (250) (1,636)
Depreciation and amortization 2,805 3,379
Deferred income taxes 939 -
Changes in assets and liabilities:
Accounts receivable, trade (3,212) 265
Proceeds from sale of lease receivables - 745
Installment and lease receivables (123) 305
Inventories 64 562
Prepaids and other current assets (108) (79)
Accounts payable and accrued expenses (1,195) (3,881)
Deferred revenue (231) 628
Other 139 (82)
------- -------
Net cash provided by operating activities 2,125 1,535
------- -------
Cash flows from investing activities:
Additions to property and equipment (463) (1,655)
Sales of short-term investments - 2,332
Capitalization of software development costs (480) (1,000)
------- -------
Net cash used in investing activities (943) (323)
------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 67 279
Purchase of treasury stock (1,238) -
------- -------
Net cash provided by (used in) financing activities (1,171) 279
------- -------
Net increase in cash and cash equivalents 11 1,491
Cash and cash equivalents at beginning of period 28,194 22,525
------- -------
Cash and cash equivalents at end of period $28,205 $24,016
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 21 $ 51
Income taxes 173 281
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
Notes to Consolidated Financial Statements (unaudited)
(1) Basis of Presentation
The unaudited consolidated financial statements presented herein have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the information and note disclosures necessary to conform with annual
reporting requirements. The statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998. In
the opinion of management, the accompanying consolidated financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the Company's financial position and
results of operations. The results of operations for the three and six-month
periods ended June 30, 1999, may not be indicative of the results for the full
year.
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.
(2) Basis of Consolidation
The consolidated financial statements include the accounts of EIS and
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
(3) New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for all quarters of all
fiscal years beginning after June 15, 2000. EIS believes that SFAS No. 133 will
not have an impact on its financial statements.
In December 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-9, "Modifications of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions" ("SOP 98-9"). SOP 98-9 is
effective for all transactions entered into in fiscal years beginning after
March 15, 1999. The adoption of SOP 98-9 is not expected to have a material
impact on the Company's financial statements.
(4) Comprehensive Income
The schedule below reflects consolidated comprehensive income (loss) for the
three and six-month periods ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------- ----------------------
1999 1998 1999 1998
------ --------- -------- ------
<S> <C> <C> <C> <C>
Net income (loss) $ 760 $ (1,081) $ 1,383 $ (62)
Other comprehensive income (loss):
Foreign currency translation adjustment 33 (17) 47 107
----- -------- ------- -----
Comprehensive income (loss) $ 793 $ (1,098) $ 1,430 $ 45
===== ======== ======= =====
</TABLE>
EIS has not recognized a tax effect relating to the accumulated foreign currency
translation deficit since EIS is not expected to realize any tax benefit in the
foreseeable future.
6
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
(5) Earnings (Loss) Per Share
Earnings (loss) per share is determined by dividing earnings (loss) by the
weighted average number of shares of EIS common stock outstanding during the
period. For the three and six-month periods ended June 30, 1999, the computation
of diluted earnings per share include the assumed exercise of dilutive stock
options and warrants. For the three and six-month periods ended June 30, 1998,
the assumed exercise of stock options and warrants has not been included in the
calculation as they would be anti-dilutive.
A reconciliation of the numerators and denominators of the basic and diluted EPS
for three and six-month periods ended June 30, 1999 and 1998, is provided below
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------- -----------------------
1999 1998 1999 1998
------- -------- ------- -------
<S> <C> <C> <C> <C>
Numerator
- ------------------------------------------------
Net income $ 760 $ (1,081) $ 1,383 $ (62)
======= ======== ======= =======
Denominator
- ------------------------------------------------
Basic
Weighted average shares outstanding 10,768 11,590 10,821 11,568
Diluted
Dilutive effect of stock options and warrants 146 - 97 -
------- -------- ------- -------
10,914 11,590 10,918 11,568
======= ======== ======= =======
EPS
- ------------------------------------------------
Basic $ 0.07 $ (0.09) $ 0.13 $ (0.01)
Diluted 0.07 (0.09) 0.13 (0.01)
</TABLE>
There were 1,021,216 stock options excluded from the calculation for the three
and six-month periods ended June 30, 1999. These stock options were excluded
since the exercise price of such stock options was above the average fair market
value of EIS' stock during each respective period.
(6) Year 2000 Issues
Background. Many existing computer programs use only two digits to identify a
year in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous results by or at the
Year 2000. The Year 2000 issue affects nearly all companies and organizations.
Impact on EIS. All EIS products have been affected in some manner by Year 2000
issues. EIS has developed and implemented a plan (the "Year 2000 Product Plan")
to make necessary modifications to its products. The current total estimated
cost to update those products is expected not to exceed $1.4 million. During
1998, EIS incurred $1.1 million of costs associated with the Year 2000 Product
Plan. No costs were incurred prior to 1998. The Year 2000 Product Plan was
substantially complete by the end of February 1999. There were no significant
additional costs incurred during the first six months of 1999.
EIS has announced that its Call Processing System(TM), EIS Gateway(TM), Outbound
Call Manager (on certain hardware platforms), SmartAgent Manager(TM), System
7000, and Centenium(R) products are Year 2000 compliant. The current Year 2000
compliant release of EIS' Centenium software also incorporates other new
features, and EIS is in the process of assisting customers with upgrade,
training, installation and support efforts associated with this new release. EIS
has begun and is continuing to provide updated software to its customers under
EIS maintenance contracts, and to charge fees for on-site visits and certain
other services, if necessary, to upgrade EIS' customers' software. Although EIS
has substantially completed the Year 2000 Product Plan changes in all of its
products, upgrading all customers' systems that require such upgrades prior to
the Year 2000 cannot be assured since a substantial part of the upgrade process
will be dependent on EIS' customers. EIS has taken steps to notify its
7
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
customers about scheduling these upgrades. EIS expects to continue to supplement
its internal resources with subcontract labor to install Year 2000 upgrades on
customer systems.
EIS has substantially completed the process of reviewing and estimating the cost
of updating its internal software and hardware information technology ("IT")
systems and non-IT systems (collectively, "Internal Systems") to be Year 2000
compliant. EIS has determined that its mission-critical Internal Systems,
including its financial systems, customer support, network, telecommunications,
and desktop applications and systems, are Year 2000 compliant. Although EIS
could incur additional costs in this regard, EIS believes that those costs will
not have a material effect on its operations and financial condition. No
material costs have been incurred to date with respect to updating EIS' Internal
Systems for Year 2000 compliance. EIS has continued to investigate, but has not
identified, any major vendor or distributor whose failure to be Year 2000
compliant could cause an adverse impact on EIS. The most reasonably likely
worst-case scenario would include: (1) corruption of data contained in the
Company's internal information systems, (2) hardware failure, and (3) the
failure of infrastructure services provided by third parties (e.g. electricity,
phone service, water and sewer, Internet services, etc.). EIS has not formulated
any contingency plans in the event that its Internal Systems are not updated
prior to the Year 2000 because the update process is substantially complete. EIS
will continue to monitor the need for contingency plans with respect to its
major vendors and distributors.
(7) Recovery of Provision for Contract Losses
The recovery of provision for contract losses of $250,000 for the six-month
period ended June 30, 1999, and $750,000 and $1,636,000 for the three and
six-month periods ended June 30, 1998, respectively, represents the reduction of
an accrued expense recorded during the fourth quarter of 1996. This accrual
represented management's estimate, at the time the expense was recorded, of
costs associated with the completion and installation of products and the
resolution of certain contract obligations of Cybernetics Systems International
Corp. ("Cybernetics"). During the first six months of 1998, Cybernetics
completed work on certain contracts and resolved other contract obligations with
certain of its customers that resulted in the recovery of the provision for
contract losses during that period. Finally, during the first six months of
1999, EIS resolved certain other remaining contract obligations of Cybernetics
that resulted in the recovery of provision for contract losses during that
period. There was no accrual remaining for these losses as of June 30, 1999.
(8) Restructuring
Effective June 30, 1998, EIS closed Cybernetics because of continuing losses and
management's decision to focus on EIS' core business. In connection with the
closure of Cybernetics, EIS recorded restructuring charges of $543,000 during
the second quarter of 1998, comprised of $350,000 of severance and $193,000 of
facilities, fixed asset disposal, and other costs. There was no accrual
remaining for these restructuring charges as of June 30, 1999.
8
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Cautionary Statement
- --------------------
In addition to historical information contained herein, this document contains
certain "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and is subject to the safe harbors created thereby. All
statements included in this document regarding the Company's financial position,
business strategy and plans, objectives for future operations, technical
developments, Year 2000 compliance, and industry conditions -- other than
statements of historical facts -- are forward-looking statements. While these
statements reflect the Company's reasonable assumptions, based upon management's
beliefs and information currently available to it, EIS can give no assurance
that such expectations will prove to be correct.
These forward-looking statements are subject to certain risks, uncertainties,
and assumptions related to certain factors including, without limitations,
competitive factors, general economic conditions, customer relations,
technological change, product development, product introductions and acceptance,
distribution networks, changes in industry practices, one-time events, and other
factors described herein and under the heading "Factors Affecting Future
Results" both in the Company's Annual Report on Form 10-K for the year ending
December 31, 1998, and in this Quarterly Report on Form 10-Q. Based upon
changing conditions, should any one or more of these risks or uncertainties
materialize, or should any underlying assumptions prove incorrect, EIS may
experience material fluctuations in its future quarterly and annual operating
results that may vary materially from those described herein and that could
materially and adversely affect its business, financial condition, operating
results, and stock price. EIS does not intend to update these forward-looking
statements.
Results of Operations
The following table sets forth, for the periods indicated, certain financial
data as reflected in the Consolidated Statements of Operations included herein.
The percentages shown are calculated based upon net revenues, except that cost
of product and software sold and cost of services and other are presented as a
percentage of product and software revenue and service and other revenues,
respectively.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------- ----------------------------------------
1999 1998 1999 1998
----------------- ---------------- ----------------- -----------------
$ % $ % $ % $ %
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Product and software revenue 7,898 57.0 7,430 52.3 15,226 55.7 19,037 58.9
Service and other 5,961 43.0 6,787 47.7 12,095 44.3 13,282 41.1
------ ----- ------ ----- ------ ----- ------ -----
Net revenues 13,859 100.0 14,217 100.0 27,321 100.0 32,319 100.0
------ ----- ------ ----- ------ ----- ------ -----
Cost of product and software sold 3,726 47.2 3,625 48.8 7,382 48.5 8,175 42.9
Recovery of provision for contract losses - - (750) - (250) - (1,636) -
Cost of service and other 2,929 49.1 3,419 50.4 5,825 48.2 6,809 51.3
------ ----- ------ ----- ------ ----- ------ -----
Gross margin 7,204 52.0 7,923 55.7 14,364 52.6 18,971 58.7
------ ----- ------ ----- ------ ----- ------ -----
Research and development cost 1,867 13.5 2,526 17.8 3,814 14.0 5,079 15.7
Sales, general and administrative 4,431 32.0 6,911 48.6 8,937 32.7 14,058 43.5
Restructuring costs - - 543 3.8 - - 543 1.7
------ ----- ------ ----- ------ ----- ------ -----
Operating income (loss) 906 6.5 (2,057) (14.5) 1,613 5.9 (709) (2.2)
Other income, net 376 2.7 328 2.3 709 2.6 659 2.0
------ ----- ------ ----- ------ ----- ------ -----
Income (loss) before income tax
benefit (expense) 1,282 9.3 (1,729) (12.2) 2,322 8.5 (50) (0.2)
Income tax benefit (expense) (522) (3.8) 648 4.6 (939) (3.4) (12) (0.0)
------ ----- ------ ----- ------ ----- ------ -----
Net income (loss) 760 5.5 (1,081) (7.6) 1,383 5.1 (62) (0.2)
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Net Revenues
Net revenues of $13.9 million in the second quarter of 1999 decreased 2% from
$14.2 million in the second quarter of 1998. Product and software revenues of
$7.9 million in the second quarter of 1999 increased $468,000 (6%) from $7.4
million in the second quarter of 1998. That increase was primarily due to an
increase in installation revenue and a
9
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
decline in EIS' product returns and allowances, each of which accounted for
approximately half of the 6% increase in product and software revenues.
Net revenues of $27.3 million in the first six months of 1999 decreased $5.0
million (15%) from $32.3 million in the first six months of 1998. Product and
software revenues of $15.2 million in the first six months of 1999 decreased
$3.8 million (20%) from $19.0 million in the first six months of 1998. The
decrease in product and software revenue is primarily a result of slow demand
from outbound telemarketing service bureaus during the first quarter of 1999, as
compared to the first quarter of 1998 that was not offset by the increase in
product and software revenue during the second quarter of 1999, as discussed
above. Outbound telemarketing service bureaus represent the largest portion of
EIS' core business customers.
During the three and six-month periods ended June 30, 1999, approximately 24%
and 21%, respectively, of EIS' product and software revenue was attributable to
software and hardware upgrades. Those upgrades were primarily driven by the need
for customers to upgrade their EIS systems to become Year 2000 compliant. EIS
has taken and is continuing to take actions with respect to its domestic and
international sales, product development, and marketing activities to stabilize
and increase product and software revenue, and to replace the revenue currently
being generated by Year 2000 upgrades. However, no assurance can be given that
these actions will result in the stabilization or increase of product revenue.
Service and other revenues of $6.0 million in the second quarter of 1999
decreased $826,000 (12%) from $6.8 million in the second quarter of 1998.
Service and other revenues of $12.1 million in the first six months of 1999
decreased $1.2 million (9%) from $13.3 million in the first six months of 1998.
Service and other revenues decreased primarily due to an increase in EIS'
service returns and allowances, which reduce gross revenue in arriving at net
revenue, and, to a lesser extent, a decline in EIS' professional services
business. The increase in EIS' service returns and allowances was primarily due
to charges recorded during the first six months of 1999 associated with the
resolution of certain maintenance service contract disputes with certain
customers.
Gross Margin and Cost of Revenues
Total gross margin was $7.2 million (52.0%) in the second quarter of 1999,
compared to $7.9 million (55.7%) in the second quarter of 1998, and $14.4
million (52.6%) for the first six months of 1999, compared to $19.0 million
(58.7%) for the first six months of 1998. Included in the total gross margin
during the six month period ended June 30, 1999, and the three and six-month
periods ended June 30, 1998, was the recovery of provision for contract losses
of $250,000, $750,000, and $1.6 million, respectively. This accrual represented
management's estimate, at the time the expense was recorded, of costs associated
with the completion and installation of products and the resolution of certain
contract obligations of Cybernetics. During the first six months of 1998,
Cybernetics completed work on certain contracts and resolved other contract
obligations with certain of its customers that resulted in the recovery of the
provision for contract losses during that period. During the first six months of
1999, EIS resolved certain other remaining contract obligations of Cybernetics
that resulted in the recovery of the provision for contract losses during that
period. There was no accrual remaining for these losses as of June 30, 1999.
Gross margin on product and software sales was $4.2 million (52.8%) in the
second quarter of 1999, compared to $3.8 million (51.2%) in the second quarter
of 1998. The increase in gross margin dollars was primarily due to the increase
in product and software revenue in the second quarter of 1999 as discussed above
under "Net Revenues." The increase in gross margin as a percentage of revenue is
primarily due to a decrease in staffing and related costs associated with
assembly, shipping, and installing EIS product and software. This decrease was
partially offset by a five-percentage point increase in direct product material
costs and an increase in amortization of software development costs. The
percentage increase in direct product material costs was affected by ongoing
hardware upgrade sales at lower margins. These upgrades are being sold to
customers in connection with EIS' Year 2000 Product Plan to provide Year 2000
upgrades (see "Year 2000 Issues" below). Amortization of software development
costs of $502,000 during the first six months of 1999 increased by $156,000 as
compared to the $346,000 incurred during
10
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
the same 1998 period. This increase was due to the commencement of amortization
of a major Centenium release toward the end of 1998, resulting in a full six
months of amortization expense during the first six months of 1999 related to
this release.
Gross margin on product and software sales was $7.8 million (51.5%) in the first
six months of 1999, compared to $10.9 million (57.1%) in the first six months of
1998. The decline in product and software gross margin dollars was directly
attributable to the decline in product and software revenue. The decline in the
gross margin percentage during the first six months of 1999 was primarily caused
by a four-percentage point increase in direct product costs and an increase in
amortization of software development costs, the explanations for which are
discussed above. Amortization of software development costs of $1.0 million
during the first six months of 1999, increased by $312,000 as compared to the
$692,000 incurred during the same 1998 period.
Gross margin on service and other revenue was $3.0 million (50.9%) in the second
quarter of 1999, compared to $3.4 million (49.6%) in the second quarter of 1998,
and $6.3 million (51.8%) in the first six months of 1999, compared to $6.5
million (48.7%) in the first six months of 1998. The improvement in the gross
margin percentage on service and other revenue was primarily due to cost savings
from staffing reductions implemented during the second half of 1998 (see
"Selling, General and Administrative" below). In addition, the cost of supplying
parts under EIS customer maintenance agreements continued to decrease as a
result of management's efforts to improve this operation.
EIS' gross margin can be affected by a number of factors, including changes in
sales volume, product mix, hardware requirements of each sale, costs of product
support, and competitive pricing pressures. Consequently, there can be no
assurance that EIS will continue to sustain gross margins at previous levels.
Research and Development Cost
Research and development costs were $1.9 million in the second quarter of 1999
compared to $2.5 million in the second quarter of 1998, and $3.8 million in the
first six months of 1999 compared to $5.1 million in the first six months of
1998. The decrease during the three and six-months ended June 30, 1999, compared
to the same periods in 1998 was primarily due to a decline in salary and related
costs resulting from a decrease of approximately 25% in the number of research
and development employees as of June 30, 1999, as compared to June 30, 1998 (see
"Selling, General and Administrative" below), and the closure of Cybernetics
(see "Restructuring Costs" below). These decreases were partially offset by a
decrease in capitalized software development costs of $249,000 to $284,000
during the second quarter of 1999 from $533,000 during the same 1998 period, and
a decrease of $520,000 to $480,000 during the first six months of 1999, compared
to $1.0 million during the same 1998 period. The decrease in capitalized
software development costs during the first three and six months of 1999 as
compared to the same 1998 period was due to a shift in R&D resources directed
towards R&D activities that did not qualify for capitalization under Statement
of Financial Accounting Standards No. 86 "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed."
EIS is committed to technological innovation, and it believes that additional
research and development costs will be required to maintain its market position
and that those costs may increase in absolute amounts during the remainder of
1999 and thereafter.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expense of $4.4 million during the
second quarter of 1999 declined $2.5 million from $6.9 million during the second
quarter of 1998. SG&A expenses of $8.9 million in the first six months of 1999
declined $5.2 million from $14.1 million in the first six months of 1998. These
decreases were primarily due to a 30% reduction in the number of SG&A employees
and related costs as of June 30, 1999 as compared to June 30, 1998. During the
second half of 1998, EIS took action to cut expenses in response to the decline
in revenue during 1998. These actions included staffing reductions in all areas
of EIS operations and other expense control measures designed to significantly
reduce expenses commensurate with revenue trends during 1998 and continuing into
1999.
11
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Restructuring Costs
Effective June 30, 1998, EIS closed Cybernetics because of continuing losses and
management's decision to focus on EIS' core business. In connection with the
closure of Cybernetics, EIS recorded restructuring charges of $543,000 during
the second quarter of 1998, comprised of $350,000 of severance and $193,000 of
facilities, fixed asset disposal, and other costs. There was no accrual
remaining for these restructuring charges as of June 30, 1999.
Interest and Other Income, Net
Interest and other income of $376,000 during the second quarter of 1999
increased $48,000 from $328,000 during the second quarter of 1998. Interest and
other income of $709,000 during the first six months of 1999 increased $50,000
from $659,000 during the first six months of 1998. These increases in interest
and other income were primarily due to higher average cash and cash equivalent
balances in the first six months of 1999 as compared to the same period in 1998.
Income Taxes
The Company's effective income tax rate was approximately 40% for the three and
six month periods ended June 30, 1999, and approximately 37% during the second
quarter of 1998. Although EIS incurred a pre-tax loss of $62,000 during the
first six months of 1998, a tax expense of $12,000 was recorded for foreign
taxes arising from certain foreign subsidiaries, which were not offset by
benefits recorded domestically. The change in the effective tax rate was
attributable to several items that impact the overall effective tax rate,
including levels of income and loss and the related statutory tax rates
domestically and internationally, in addition to the extent of permanent
differences between expenses recorded for book purposes versus expenses recorded
for tax purposes, such as the 50% disallowance of certain meals and
entertainment expenses for tax filing purposes.
As disclosed in Note 7 to EIS' consolidated financial statements included in its
Annual Report on Form 10-K dated December 31, 1998, EIS had established a $7.5
million valuation allowance on its deferred tax assets. Based on projections for
future taxable income, management believes that the valuation allowance of $7.5
million remains adequate at June 30, 1999. However, this allowance may be
increased or decreased depending upon management's projections for future
taxable income or loss, and such increase or decrease could be material to EIS'
financial condition and results of operations.
Year 2000 Issues
Background. Many existing computer programs use only two digits to identify a
year in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous results by or at the
Year 2000. The Year 2000 issue affects nearly all companies and organizations.
Impact on EIS. All EIS products have been affected in some manner by Year 2000
issues. EIS has developed and implemented a plan (the "Year 2000 Product Plan")
to make necessary modifications to its products. The current total estimated
cost to update those products is expected not to exceed $1.4 million. During
1998, EIS incurred $1.1 million of costs associated with the Year 2000 Product
Plan. No costs were incurred prior to 1998. The Year 2000 Product Plan was
substantially complete by the end of February 1999. There were no significant
additional costs incurred during the first six months of 1999.
EIS has announced that its Call Processing System(TM), EIS Gateway(TM), Outbound
Call Manager (on certain hardware platforms), SmartAgent Manager(TM), System
7000, and Centenium(R) products are Year 2000 compliant. The current Year 2000
compliant release of EIS' Centenium software also incorporates other new
features, and EIS is in the process of assisting customers with upgrade,
training, installation and support efforts associated with this new release. EIS
has begun and is continuing to provide updated software to its customers under
EIS maintenance contracts, and to charge fees for on-site visits and certain
other services, if necessary, to upgrade EIS' customers'
12
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
software. Although EIS has substantially completed the Year 2000 Product Plan
changes in all of its products, upgrading all customers' systems that require
such upgrades prior to the Year 2000 cannot be assured since a substantial part
of the upgrade process will be dependent on EIS' customers. EIS has taken steps
to notify its customers about scheduling these upgrades. EIS expects to continue
to supplement its internal resources with subcontract labor to install Year 2000
upgrades on customer systems.
EIS has substantially completed the process of reviewing and estimating the cost
of updating its internal software and hardware information technology ("IT")
systems and non-IT systems (collectively, "Internal Systems") to be Year 2000
compliant. EIS has determined that its mission-critical Internal Systems,
including its financial systems, customer support, network, telecommunications,
and desktop applications and systems, are Year 2000 compliant. Although EIS
could incur additional costs in this regard, EIS believes that those costs will
not have a material effect on its operations and financial condition. No
material costs have been incurred to date with respect to updating EIS' Internal
Systems for Year 2000 compliance. EIS has continued to investigate, but has not
identified, any major vendor or distributor whose failure to be Year 2000
compliant could cause an adverse impact on EIS. The most reasonably likely
worst-case scenario would include: (1) corruption of data contained in the
Company's internal information systems, (2) hardware failure, and (3) the
failure of infrastructure services provided by third parties (e.g. electricity,
phone service, water and sewer, Internet services, etc.). EIS has not formulated
any contingency plans in the event that its Internal Systems are not updated
prior to the Year 2000 because the update process is substantially complete. EIS
will continue to monitor the need for contingency plans with respect to its
major vendors and distributors.
New Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for all quarters of all
fiscal years beginning after June 15, 2000. EIS believes that SFAS No. 133 will
not have an impact on its financial statements.
In December 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-9, "Modifications of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions" ("SOP 98-9"). SOP 98-9 is
effective for all transactions entered into in fiscal years beginning after
March 15, 1999. The adoption of SOP 98-9 is not expected to have a material
impact on the Company's financial statements.
Liquidity and Capital Resources
EIS' working capital was $34.8 and $32.6 million at June 30, 1999 and December
31, 1998, respectively. Cash and cash equivalents was $28.2 million as of June
30, 1999 and December 31, 1998.
As reflected in the accompanying consolidated statements of cash flows,
operating activities generated $2.1 million in cash in the first six months of
1999 compared to $1.5 million in the first six months of 1998. This increase was
the result of several factors. The increase was partly due to the improvement in
EIS' results of operations for the first six months of 1999, during which EIS
generated net income of $1.4 million compared to a $62,000 loss during the same
period of 1998. Additionally, the decline in accounts payable and accrued
expenses during the first six months of 1999 was $1.2 million, or $2.7 million
less than the $3.9 million decrease during the same period of 1998. This change
was primarily due to higher expense levels coming into 1998, resulting in a
higher level of accounts payable, trade payments early in 1998. Offsetting these
items was an increase in accounts receivable, trade of $3.2 million during the
first six months of 1999 as compared to a decline of $265,000 during the same
period of 1998. This increase was due to lower accounts receivable, trade levels
as of December 31, 1998 as compared to June 30, 1999, due to higher revenue
during the second quarter of 1999 as compared to the fourth quarter of 1998, in
addition to the timing of cash receipts from customers at the end of each
respective period.
Net cash used in investing activities was $943,000 in the first six months of
1999 compared to $323,000 in the first six months of 1998. Cash used to invest
in the purchase of property and equipment was $463,000 for the first six months
13
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
of 1999 and $1.7 million for the first six months of 1998. This decrease is
directly attributable to the decreased need for property and equipment as a
result of the staff reductions discussed under "Selling, General and
Administrative" above. Sales of short-term investments during the first six
months of 1998 generated $2.3 million. This change was the result of EIS
reinvesting its short-term investments in more liquid cash equivalents during
the first six months of 1998. The capitalization of software development costs
decreased to $480,000 from $1.0 million for the same period in 1998. This
decrease is discussed above under "Research and Development Cost."
Net cash used in financing activities was $1.2 million in the first six months
of 1999 compared to net cash provided by financing activities of $279,000 in the
first six months of 1998. During the first six months of 1999, EIS used $1.2
million to buy back 476,800 shares of EIS common stock into treasury. On October
1, 1998, EIS announced that its Board of Directors authorized the repurchase of
up to two million shares of the Company's common stock in the open market
subject to certain share price and other guidelines. During the period from
October 1, 1998, through June 30, 1999, EIS has repurchased a total of 888,300
shares into treasury and plans to continue this program subject to the
guidelines discussed above.
On September 2, 1998, EIS entered into a Loan Document Modification Agreement
(the "New Loan Agreement"), which amended the terms and conditions under the
previous line of credit. Under the New Loan Agreement, EIS may borrow up to $7
million, subject to certain borrowing base limitations, and amounts outstanding
accrue interest at the bank's prime rate plus .50%. The New Loan Agreement is
secured by substantially all assets of EIS and expires on September 8, 1999.
There were no amounts outstanding under the New Loan Agreement as of June 30,
1999, and EIS was in compliance with all applicable covenants. Prior to the New
Loan Agreement, EIS had a secured line of credit of $7 million with the same
commercial bank under a commitment that expired in September 1998.
EIS expects that its current cash and cash equivalents balances, together with
cash anticipated to be provided by operating activities, and amounts available
under the New Loan Agreement, will be sufficient to fund its working capital
requirements (including research and development and any remaining Year
2000-compliance costs) for the foreseeable future. However, EIS' ability to
achieve that result will be affected by the amount of cash generated from
operations and the pace at which its available resources are utilized.
Accordingly, EIS may, in the future, be required to seek additional sources of
financing, including borrowing and/or the sale of equity. If additional funds
are raised by issuing equity, further dilution to shareholders may result. No
assurance can be given that any such additional sources of financing will be
available on acceptable terms, or at all.
EIS is party to various legal actions and claims arising in the ordinary course
of its business. 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 EIS,
except for the shareholder lawsuit discussed under Part II Item 1 - "Legal
Proceedings." EIS currently is not able to estimate the costs or a range of
costs that may arise out of such shareholder lawsuit.
EIS has, from time to time, received notices of potential intellectual property
infringement claims against it and is a defendant in one such case. See Part II
Item 1 - "Legal Proceedings." 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 EIS.
Factors Affecting Future Results
In addition to factors described elsewhere in this report, a number of
uncertainties exist that could affect the Company's future operating results,
including, without limitation, the following:
14
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
o A variety of factors influence EIS' net sales in a particular quarter,
including general economic conditions in the call processing industry,
the timing of significant orders, shipment delays, specific feature
requests by customers, the introduction of new products, the
introduction of new products by competitors, acquisitions, production
and quality problems, changes in the cost of materials, disruption in
sources of supply, seasonal patterns of capital spending by customers
and other factors, many of which are beyond EIS' control. Since a
substantial portion of EIS' expenses do not vary relative to its sales
levels, if net sales in any quarter do not meet expectations, that
could have a material adverse effect on EIS' business, financial
condition and results of operations. EIS derives a substantial portion
of its sales from products that may cost in excess of $150,000, and a
failure to close a small number of transactions could have a
significant impact on EIS' net sales and operating results in any given
quarter.
o The market for call processing systems is based upon sophisticated
technologies and is subject to rapid technological change. Current or
new competitors may introduce new products, features or services that
could adversely affect EIS' competitive position. To date, EIS'
research and development programs have produced system features and
enhancements to address customer requirements and competitive
conditions. However, EIS believes that to remain competitive it must
continue to improve its products and related services and develop and
successfully market new products and services. The success of any new
product depends on a variety of factors, including product selection,
successful and timely completion of product development and EIS'
ability to offer its products at competitive prices.
o From time to time, EIS may consider strategic acquisitions. Its ability
to succeed with those acquisitions will depend on many factors,
including the successful identification and acquisition of those
businesses and EIS' ability to integrate and operate them effectively.
The consideration paid for those acquisitions, the diversion of the
attention of management to integrate the acquired business and
difficulties encountered in the integration process could have a
material adverse effect on EIS' business, financial condition and
results of operations. In the past, EIS experienced difficulties with
the successful identification and integration of several acquisitions.
o EIS' success will depend in part on its ability to obtain and maintain
intellectual property rights including patent protection for its
products, as well as its ability to preserve its trade secrets and
operate without infringing on the proprietary rights of third parties.
EIS attempts to protect its technology by, among other things,
investing significant resources in obtaining and maintaining patents,
copyrights and trade secrets. The call processing industry is
characterized by vigorous protection and pursuit of intellectual
property rights or positions, which often have resulted in significant,
protracted and expensive litigation. Any assertions of intellectual
property claims could require EIS to discontinue the use of certain
processes or cease the manufacture, use and sale of infringing
products, to incur significant litigation costs and damages, and to
develop non-infringing technology or to acquire licenses to the alleged
infringed technology. Furthermore, the laws of certain foreign
countries do not protect EIS' intellectual property rights to the same
extent as do the laws of the United States.
o EIS' digital switches are manufactured, assembled and tested by
Kimchuk, an independent contractor, under an agreement that has been in
effect for more than six years. Any adverse developments affecting
Kimchuk could result in delays in the production and delivery of EIS'
systems and could have an adverse impact on their quality and operating
results. Except for some integrated circuit boards provided by Kimchuk,
EIS systems are manufactured from standard industry components. A delay
or lack of supply of these components from existing sources, or an
inability to obtain alternative sources, if and when required, could
have a material adverse effect on EIS' business, financial condition
and results of operations.
15
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
o EIS offers lease financing to customers on a limited basis and intends
to continue that practice. In the past, EIS offered leases to
entrepreneurial businesses with limited capitalization, some of which
might not be considered "credit worthy" by financial institutions. EIS
has an agreement with a third-party leasing company to finance certain
EIS systems which provides, among other things, that such leases could
be subject to certain recourse to EIS. EIS may enter into additional
agreements with third party leasing companies to finance EIS systems,
and those agreements may include recourse arrangements and discounts.
In addition, from time to time, EIS may sell portions of its lease
portfolio to third parties on terms that may include recourse
provisions and discounts.
o Certain uses of outbound call processing systems are regulated by
federal and state law, including the Telephone Consumer Protection Act
of 1991 and the Federal Fair Debt Collection Practices Act. Although
compliance with these laws may limit the potential uses of EIS' system
in some respects, the systems may be programmed to operate in full
compliance with those laws through the use of appropriate calling lists
and campaign calling-time parameters. There can be no assurance,
however, that future legislation, if enacted, will not further restrict
telephone solicitation, and thereby adversely affect EIS. A number of
technical elements EIS' systems are subject to, and conform with,
Federal Communications regulations under the Federal Communications Act
of 1934. Future products developed by EIS also may be subject to
compliance with similar or even more restrictive regulations before
they can be sold in the United States. To the extent that EIS markets
its products in foreign countries, it is required to comply with
applicable foreign laws, including certification of those products by
appropriate regulatory organizations.
o The market for call processing systems continues to evolve. EIS' future
financial performance will depend, in part, on the development and
continuing growth of this market. EIS believes that any such growth
will require expansion of current applications of existing customers,
development of new markets for those systems and increased customer
acceptance. A number of factors, including the continuing development
of an already generally negative consumer perception of telephone
solicitation, could adversely impact the growth of various applications
segments of this market.
o EIS' ability to develop marketable products and maintain a competitive
position in light of continuing technological developments will depend,
in large part, on its ability to attract and retain highly qualified
personnel. Competition for the services of those employees is intense.
o As of June 30, 1999, EIS had net deferred tax assets totaling $2.9
million. As disclosed in Note 7 to EIS' consolidated financial
statements included in its Annual Report on Form 10-K dated December
31, 1998, EIS had established a $7.5 million valuation allowance on its
deferred tax assets. Based on projections for future taxable income,
management believes that the valuation allowance of $7.5 million
remains adequate at June 30, 1999. However, this allowance may be
increased or decreased depending upon management's projections for
future taxable income or loss, and such increase or decrease could be
material to EIS' financial condition and results of operations.
Because of these and other factors, EIS' past financial performance should not
be considered an indicator of its future performance.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
EIS does not believe that it has any material market risk exposure with respect
to derivative or other financial instruments that would require disclosure under
this item.
16
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
EIS and certain current and former officers of EIS were named as defendants in
five securities lawsuits, each of which was filed during 1997 in the United
States District Court for the District of Connecticut, allegedly on behalf of
certain of the Company's shareholders. Each of those claims alleged securities
fraud based upon certain alleged misleading representations regarding the
Company's acquisitions of Surefind and Cybernetics and their operations, each of
which seek damages in an unspecified amount.
These lawsuits have been consolidated, and a consolidated and amended class
action complaint, In Re EIS International, Inc. Securities Litigation, was filed
in the United States District Court for the District of Connecticut on April 29,
1998. EIS and various other defendants have retained counsel, the claims are
being reviewed, and the lawsuit will be vigorously defended. On June 15, 1998,
EIS and the other defendants filed a motion to dismiss the case. That motion is
now fully briefed, oral arguments have been presented, and a decision by the
court is pending, although no assurance can be given as to when a decision will
be reached. EIS currently is not able to estimate the potential damages or costs
or a range of potential damages or costs that may arise out of this case.
During the second quarter of 1998, EIS was informed that certain of its
customers had received a patent infringement warning from Manufacturing
Administration and Management Systems, Inc. ("MAMS") alleging that technology
used by certain of EIS' customers infringed on a patent held by MAMS. MAMS filed
an infringement action against certain of EIS' customers who received the
infringement warning. Under EIS' contracts with its customers, EIS is obligated
to indemnify its customers against any such claim. EIS is currently not able to
estimate the costs or a range of costs that may arise out of those
indemnification obligations. EIS has filed suit against MAMS and one of its
patent inventors requesting that the court rule that EIS' products do not
infringe upon the patent held by MAMS. On July 14, 1998, EIS filed a declaratory
judgment action, EIS International, Inc. v. Manufacturing Administration and
Management Systems, Inc. et al. in the United States District Court for the
Eastern District of New York, against MAMS and one of its patent inventors
requesting the court rule that EIS' products do not infringe upon the patent
held by MAMS. On May 25, 1999, MAMS filed a counterclaim against EIS alleging
EIS' products infringe the MAMS patent. EIS believes MAMS' infringement claim to
be without merit and will vigorously defend its patent rights. However, there
can be no assurance that EIS will prevail in this matter, in which case there
may be a material, negative impact on EIS' results of operations. EIS is
currently not able to estimate the costs or a range of costs that may arise out
of MAMS' patent infringement claim.
During the first six months of 1999, EIS was informed that certain of its
customers had received a patent infringement warning from Q.Sys International,
Inc. ("Q.Sys") alleging that technology used by certain of EIS' customers
infringed on a patent held by Q.Sys. Under EIS' contract with its customers EIS
is obligated to indemnify its customers against any such claims. EIS is
currently not able to estimate the costs or a range of costs that may arise out
of those indemnification obligations. On April 21, 1999, EIS file a declaratory
judgment action, EIS International, Inc. v. Q.Sys International, Inc. in the
United States District Court for the Eastern District of Virginia, against Q.Sys
requesting the court rule that EIS' products do not infringe upon the patent
held by Q.Sys and that the Q.Sys patent is invalid and unenforceable. On June
25, 1999, Q.Sys filed a counterclaim against EIS claiming certain EIS products
directly or contributorily infringe the Q.Sys patent. EIS believes Q.Sys'
infringement claim to be without merit and will vigorously defend its patent
rights. However, there can be no assurance that EIS will prevail in this matter,
in which case there may be a material, negative impact on EIS' results of
operations. EIS is currently not able to estimate the costs or a range of costs
that may arise out of Q.Sys' patent infringement claim.
EIS is also party to various other legal actions and claims arising in the
ordinary course of its business. EIS believes it 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.
Item 2. Changes in Securities.
None.
17
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None.
18
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EIS INTERNATIONAL, INC.
Date: August 13, 1999 By: /s/ James E. McGowan
------------------------ -----------------------------------
James E. McGowan
President and Chief Executive Officer
Date: August 13, 1999 By: /s/ Frederick C. Foley
------------------------ -----------------------------------
Frederick C. Foley
Senior Vice President, Finance,
Chief Financial Officer and Treasurer
19
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<PERIOD-START> JAN-01-1999
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