-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RD8Qi+l1CGTDM5uhkU60IvWsjBTMJBKDvOaOJedvzCZUPZFtqt0zUmTBbECQc6fJ FuoaMcmz3eRfmljjVZIt2Q== 0000950146-96-001441.txt : 19960816 0000950146-96-001441.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950146-96-001441 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EIS INTERNATIONAL INC /DE/ CENTRAL INDEX KEY: 0000032251 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 061017599 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20329 FILM NUMBER: 96614988 BUSINESS ADDRESS: STREET 1: 1351 WASHINGTON BLVD CITY: STAMFORD STATE: CT ZIP: 06902 BUSINESS PHONE: 2033514800 FORMER COMPANY: FORMER CONFORMED NAME: ELECTRONIC INFORMATION SYSTEMS INC DATE OF NAME CHANGE: 19940218 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [Mark One] [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ______ Commission file number 0-20329 EIS INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware No. 06-1017599 (State or other jurisdiction (I.R.S. Employer of incorporation) Identification Number) 1351 Washington Boulevard Stamford, CT 06902 (203)351-4800 (Registrant's telephone number, including area code) ----------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock: Common Stock, par value $.01 per share, outstanding as of August 13, 1996: 10,959,158 shares. Page 1 of 16 EIS INTERNATIONAL, INC. and SUBSIDIARIES INDEX to Financial Statements Filed with Quarterly Report of Registrant on Form 10-Q for the Quarter Ended June 30, 1996 (Unaudited) PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Page Unaudited Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995 3-4 Unaudited Consolidated Statements of Income for the three months ended June 30, 1996 and 1995, and for the six months ended June 30, 1996 and 1995 5 Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and 1995 6 Notes to Consolidated Financial Statements (unaudited) 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-12 PART II. OTHER INFORMATION Item 1. Legal Proceedings Not Applicable Item 2. Changes in Securities Not Applicable Item 3. Defaults Upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 Page 2 of 16 EIS INTERNATIONAL, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Dollars in Thousands) (Unaudited) June 30, December 31, Assets 1996 1995 ---------- ----------- Current assets: Cash and cash equivalents $22,271 $21,069 Accounts receivable, trade, less allowances for doubtful accounts and sales returns of $2,747 in 1996 and $2,665 in 1995 29,951 29,749 Unbilled revenue 1,365 -- Current portion of installment and lease receivables 2,741 3,806 Inventories (note 3) 8,548 7,681 Deferred income taxes 2,141 2,141 Prepaids and other current assets 1,479 293 ------ ------- Total current assets 68,496 64,739 Capitalized software development costs, net 4,618 3,315 Intangible assets, net 8,601 -- Property and equipment, net 8,683 8,430 Installment and lease receivables, less current portion 3,232 5,994 Other assets 1,941 1,739 ----- ----- Total assets $95,571 $84,217 ====== ====== See accompanying notes to consolidated financial statements. Page 3 of 16 June 30, December 31, 1996 1995 ------- ------------ Liabilities and Stockholders' Equity Current liabilities: Notes payable $ -- $ 354 Accounts payable 9,149 6,391 Accrued compensation and benefits 3,153 4,703 Other accrued liabilities 3,777 2,776 Deferred maintenance revenue 3,412 2,481 Deferred income 3,186 -- Income taxes payable 1,644 3,324 ----- ------ Total current liabilities 24,321 20,029 Deferred income taxes 1,064 1,064 Other liabilities 331 1,026 ----- ----- Total liabilities 25,716 22,119 Commitments and Contingencies (Note 7) Stockholders' equity: Common Stock, $.01 par value, 15,000,000 shares authorized, issued 10,975,768 shares in 1996 and 9,853,641 shares in 1995 110 99 Additional paid-in capital 56,522 36,020 Accumulated translation adjustments (54) (21) Retained earnings 13,796 26,519 Treasury stock, at cost - 76,225 shares in 1996 and 1995 (519) (519) ------- -------- Total stockholders' equity 69,855 62,098 ------ ------ Total liabilities and stockholders' equity $95,571 $84,217 ====== ====== See accompanying notes to consolidated financial statements. Page 4 of 16 EIS INTERNATIONAL, INC. AND SUBSIDIARIES Consolidated Statements of Income (In Thousands, Except Per Share Amounts) (Unaudited) Three Months Six Months Ended June 30, Ended June 30, 1996 1995 1996 1995 ---- ---- ---- ---- Net revenues: Product sales and software $25,740 $17,323 $47,331 $32,213 Service and other 4,887 3,448 9,072 6,790 ------- ------- ------- ------ 30,627 20,771 56,403 39,003 ------- ------- ------ ------ Cost of revenues: Cost of product sold 8,384 5,690 16,049 10,927 Cost of services and other 3,387 1,541 5,859 3,150 ------ ----- ------- ------- 11,771 7,231 21,908 14,077 ------ ----- ------ ------ Gross margin Product sales 17,356 11,633 31,282 21,286 Services and other 1,500 1,907 3,213 3,640 ------ ------- ------- ------- 18,856 13,540 34,495 24,926 ------ ------ ------ ------ Operating cost and expense: Research and development 3,497 1,909 6,392 3,554 Acquired technology in process -- -- 16,900 -- Sales, general and administrative 10,607 8,301 21,245 15,455 ------ ------ ------ ------ 14,104 10,210 44,537 19,009 ------ ------ ------ ------ Operating income (loss) 4,752 3,330 (10,042) 5,917 Other income, net 237 407 617 787 ----- ------ ------- ------ Income (loss) before income taxes 4,989 3,737 (9,425) 6,704 Income taxes 1,846 1,516 3,247 2,682 ----- ----- ------ ----- Net income (loss) $3,143 $2,221 $(12,672) $4,022 ===== ====== ======= ===== Net income (loss) per share: Primary $.27 $.21 $(1.22) $.39 Fully diluted $.27 $.21 $(1.22) $.39 Weighted average common and common equivalent shares Primary 11,609 10,390 10,354 10,351 Fully diluted 11,727 10,398 10,354 10,360 See accompanying notes to consolidated financial statements Page 5 of 16 EIS INTERNATIONAL, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Dollars in Thousands) (Unaudited) Six Months Ended June 30, 1996 1995 ---- ---- Net cash provided by operating activities (note 6) $1,465 $1,222 ------- ------- Cash flows from investing activities: Additions to property and equipment (2,082) (2,551) Sale of lease portfolio 5,200 -- Sale of short term investments -- 3,917 Increase in capitalized software costs (1,620) (631) Acquisition of businesses (6,520) -- ------- ------- Net cash (used in) provided by investing activities (5,022) 735 ------- ------- Cash flows from financing activities: Repayment of short-term debt (354) -- Purchase of treasury stock -- (15) Proceeds from exercise of stock options 5,113 1,301 Proceeds from sale of stock -- 496 ------- ------- Net cash provided by financing activities 4,759 1,782 ------- ------- Net increase in cash and cash equivalents 1,202 3,739 Cash and cash equivalents at beginning of period 21,069 13,447 ------- ------- Cash and cash equivalents at end of period $22,271 $17,186 ======= ======= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $86 $16 ======= ======= Income taxes $3,138 $1,163 ======= ======= Supplemental schedule of non-cash financing activities: Tax benefit from exercise of stock options $1,868 $1,164 ======= ======= See accompanying notes to consolidated financial statements. Page 6 of 16 EIS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) Basis of Presentation The unaudited consolidated financial statements presented herein have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures necessary to conform with annual reporting requirements. The statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report for the year ended December 31, 1995. In the opinion of management, the accompanying consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Company's financial position and results of operations. The results of operations for the three- and six-month period ended June 30, 1996 may not be indicative of the results for the full year. (2) Principles of Consolidation The accompanying financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. (3) Inventories consist of the following at: June 30, 1996 December 31, 1995 Raw materials $ 391 $ 763 Work in process 60 148 Finished goods 8,097 6,770 ----- ----- Total inventories $8,548 $7,681 ===== ===== (4) Acquisitions and Pro-Forma Financial Information On March 1, 1996, the Company acquired all the issued and outstanding capital stock of Cybernetics Systems International Corp. (CSI), a private company located in Coral Gables, Florida, for $22.75 million consisting of $9.3 million in cash and the remainder in shares of EIS common stock. The acquisition of CSI was accounted for by the purchase method of accounting, and accordingly, the acquired assets and liabilities have been recorded at their fair values, with the help of an appraiser, at the date of purchase and the results of the Company reflect those of CSI from March 1, 1996. The consideration (including acquisition costs) and the allocation of the purchase price are summarized below: Page 7 of 16 (4) Acquisitions and Pro-Forma Financial Information (Cont'd) Consideration Cash $ 9,269 EIS stock 13,480 Liabilities assumed 8,042 Transaction costs 352 -------- Total purchase price $31,143 ======== Allocation of purchase price Cash $ 3,126 Accounts receivable 1,436 Prepaids and other current assets 302 Equipment and other assets 404 Intangible assets and goodwill: Acquired technology in process 16,900 Acquired software products (amortized over 5 years) 3,000 Goodwill (amortized over 10 years) 5,975 ------- Total intangible assets and goodwill 25,875 --------- Total purchase price $31,143 ======== The following unaudited pro-forma financial information shows the results of operations for the six months ended June 30, 1996 and 1995 as though the acquisition of CSI had occurred as of January 1, 1995. In addition to combining the historical results of operations of the two companies, the pro-forma calculations include: the amortization of the intangible assets acquired; and the adjustment to income taxes to reflect the effective income tax rate assumed for the Company and CSI on a combined basis for each pro-forma period presented and excludes the write-off of the acquired technology in process of $16.9 million, as such charge is non-recurring and unusual and relates directly to the acquisition. Six Months Ended June 30 ------------------ 1996 1995 ------- -------- Net Revenues $56,647 $42,746 Net Income $2,224 $3,961 Earnings Per Share $0.19 $0.36 Page 8 of 16 EIS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (4) Acquisitions and Pro-Forma Financial Information (Cont'd) On February 29, 1996, the Company merged with Surefind Information, Inc. of Pittsburgh, Pennsylvania. Surefind was a privately held corporation in the business of safely storing critical data by allowing users to upload their files to Surefind's electronic security vaults where it can be instantly retrieved. The Company issued 549,577 shares of EIS common stock, $.01 par value, in exchange for all 2,826,467 shares of Surefind stock outstanding and subject to options and warrants. This merger was accounted for by the pooling method of accounting and, accordingly, the Company's consolidated financial statements have been restated for all periods prior to acquisition to include the results of operations, financial position, and cash flows of Surefind. (5) Sale of Lease Portfolio On March 29, 1996, EIS Leasing Corp., a wholly-owned subsidiary of the Company, entered into a Purchase Agreement whereby a portion of its lease portfolio was sold to a financial institution for $5.2 million in cash. All leases sold under this agreement are subject to certain recourse provisions. The Company is a guarantor to the Purchase Agreement. (6) Reconciliation of Net Income (loss) to Net Cash Provided By Operating Activities. The reconciliation of net income (loss) to net cash provided by operating activities for the periods ending June 30, 1996 and 1995 follows (in thousands). 1996 1995 ---- ---- Cash flows from operating activities: Net income (loss) $(12,672) $4,022 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Provision for doubtful accounts and sales returns 620 1,792 Write-off of acquired technology in process 16,900 -- Depreciation and amortization 2,819 2,043 Changes in assets and liabilities: Accounts receivable, trade (198) (3,459) Unbilled revenue (553) Installment and lease receivables (1,373) (2,829) Inventories (867) (1,514) Prepaids and other current assets (798) 40 Other assets (158) (61) Accounts payable 1,723 (466) Accrued and other liabilities (3,651) (627) Income taxes payable 50 1,544 Deferred maintenance revenue 250 737 Deferred income (627) -- ------- --------- Net cash provided by operating activities $1,465 $1,222 ====== ====== Page 9 of 16 (7) Commitments and Contingencies One of the principal customers of a subsidiary of EIS International, Inc. (the "Company") has indicated that in the view of the customer the Company has not adequately performed under its contract with the customer. The customer has made a claim to recover all amounts paid to the Company under the contract, of which approximately $3,868,000 has been recognized as income through June 30, 1996, and for its direct expenses under the contract. The Company is engaged in discussions with the customer and believes that the matter will be resolved in a satisfactory fashion. Further, the Company believes that it will be entitled to reimbursement from an escrow account established at the time of the acquisition of the relevant subsidiary for an amount which the Company believes will be adequate to resolve the claim of the customer. Accordingly, it is the view of the Company that this claim will be resolved without material impact to the financial position of the Company; and no provision for potential losses, if any, have been recorded in the accompanying financial statements. Page 10 of 16 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations NET REVENUES Net revenues of $30.6 million in the second quarter of fiscal 1996 increased 47% from $20.8 million in the second quarter of fiscal 1995. Net revenues increased to $56.4 million in the first six months of fiscal 1996 as compared to $39.0 million in the corresponding period of fiscal 1995, representing growth of 45%. Product revenues increased $8.4 million (49%) and $15.1 million (47%) for the quarter and six month periods ended June 30, 1996 as compared to the same periods in 1995, respectively. Service and other revenues increased $1.4 million (42%) and $2.3 million (34%) for the same periods over such periods in 1995. The growth in product revenues during the quarter and six month period is primarily a result of the increase in purchases of the Company's products by the existing customer base and of the addition of a number of new domestic and international customers. In addition, inbound software sales from Cybernetics contributed $4.1 million of software revenue for the quarter. Service and other revenues increased during the quarter and the six month period due to the continued expansion of the Company's installed customer base covered by service contracts. COST OF REVENUES Cost of revenues was 38.4% and 38.8% of net revenues in the second quarter and first six months of fiscal 1996, respectively, compared to 34.8% and 36.1% for the comparable 1995 periods. Product cost as a percentage of product revenue was 32.6% and 33.9% in the second quarter and first six months of fiscal 1996, respectively, compared to 32.9% and 33.9% for the comparable 1995 periods. Product cost as a percentage of revenue decreased during the quarter due principally to the lower product costs associated with inbound software sales. Service and other costs as a percentage of service and other revenues were 69.3% and 64.6% in the second quarter and first six months of fiscal 1996, respectively, compared to 44.7% and 46.4% for the comparable 1995 periods. The increase in cost of services and other as a percentage of service and other revenues is primarily due to the expenditures incurred for building the infrastructure of the Surefind and Cybernetics service organizations. RESEARCH AND DEVELOPMENT COST Research and development cost increased to $3.5 million in the second quarter of fiscal 1996, a $1.6 million increase over the second quarter of fiscal 1995. For the first six months of fiscal 1996, research and development cost increased $2.8 million over the comparable 1995 period. Research and development cost increased as a percentage of revenue to 11.4% from 9.2% and to 11.3% from 9.11% for the three month and six month comparable periods ended June 30, 1996 and 1995, respectively. In addition, the Company capitalizes certain software development costs relating to the enhancement of existing products and to the development of new products in accordance with Statement of Financial Accounting Standards No. 86. Costs of $856,000 and $1,620,000 were capitalized in the second quarter and first six months, respectively, of fiscal 1996 compared to $342,000 and $631,000 in the second quarter and first six months of fiscal 1995. The overall cost increase during the three and six month periods ended June 30, 1996 reflects the expansion of the Company's research and development staff to support its on-going product development and the increased cost associated with outside consultants to support existing and future products. In addition, Cybernetics and Surefind incurred $959,000 of research and development costs during the quarter. ACQUIRED TECHNOLOGY IN PROCESS Page 11 of 16 The acquired technology in process costs of $16.9 million incurred in 1996 reflect the fair value of the software products under development at Cybernetics that had not achieved technological feasibility at the date of acquisition, and had no alternative future uses, and were therefore charged against operations at the time of the acquisitions. SALES, GENERAL AND ADMINISTRATIVE Sales, general and administrative expense for the second quarter of fiscal 1996 increased to $10.6 million, an increase of $2.3 million (28%) as compared to $8.3 million in the comparable 1995 period. Sales, general and administrative expense for the 1996 six month period of $21.2 million, increased $5.8 million (37%) over the comparable 1995 period. Sales, general and administrative expense decreased as a percentage of revenue to 34.6% from 40% and to 37.8% from 39.6% for the three month and six month comparable periods ended June 30, 1996 and 1995, respectively. The primary reasons for the overall increase in expenses during the comparable quarter and six month periods were increased staff levels, commissions, travel and expense reimbursement, and bad debt reserves associated with higher sales levels. Additional costs were incurred year over year in advertising and promotions to bring auxilliary products to market for Cybernetics and Surefind. INTEREST AND OTHER INCOME, NET Interest and other income, net decreased to $237,000 and $617,000 from $407,000 and $787,000 in the comparable three and six month periods ended June 30, 1996. This was mainly due to a decrease in interest income from the Company's lease portfolio as a result of the sale of leases for $5.2 million to a financing company during the first quarter. INCOME TAXES The Company's effective income tax rate was 37% in the second quarter and 43% in the first six months of fiscal 1996 without considering the acquired technology in process writeoff of 16.9 million, compared to 40% during the second quarter and first six months of fiscal 1995. The decrease in the effective rate for the three month period is attributable principally to the results of the additional reductions in effective federal and state rates due to increased tax credits received for research and development expenditure and additional losses which occurred in a subsidiary. The increase in the effective rate for the six month period is mainly due to non-deductibility of related merger costs associated with the acquisition of Surefind. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital decreased to $44.2 million at June 30, 1996 from $44.7 million at December 31, 1995. Cash and cash equivalents and short term investment balances were $22.3 million at June 30, 1996 compared to $21.1 million at December 31, 1995. Operating activities provided $1.5 million during the six month period ended June 30, 1996. The Company sold $5.2 million of lease receivables during the first quarter of 1996 on a recourse basis. Cash and cash equivalents were used to purchase property and equipment ($2.1 million) and expenditures for software development costs capitalized in accordance with Statement of Financial Accounting Standards No. 86 ($1.6 million). Proceeds realized from the exercise of stock options and warrants during the period were $5.1 million. As an additional source of liquidity, the Company has a $12.5 million secured line of credit with a commercial bank that will expire in January 1997. At June 30, 1996 there were no borrowings under this line of credit. The Company anticipates that existing cash and cash equivalents, short term investments and available borrowings will be adequate to meet its cash requirements for the next 12 months. Page 12 of 16 In July 1996, the Board of Directors authorized the buy back of up to $4 million of the Company's common stock. Page 13 of 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. Exhibit 11. Page 14 of 16 EIS International, Inc. and Subsidiaries Exhibit 11 Statement Re Computation of Per Share Earnings (in thousands, except for per share amounts)
Three Months Six Months Ended June 30, Ended June 30, 1996 1995 1996 1995 ---- ---- ---- ---- Net Income (Loss): Net Income (Loss) $ 3,143 $ 2,221 $(12,672) $ 4,022 -------------------------------------------------- Net income (loss) per share: Weighted average number of common and common equivalent shares: Common shares outstanding 10,667,036 9,681,159 10,353,658 9,585,540 Dilutive effect of stock options and warrants, primary computation 941,498 708,858 -- 765,115 ------------------------------------------------ Weighted average number of common and common equivalent shares utilized in the primary earnings per share computation 11,608,534 10,390,017 10,353,658 10,350,655 ----------------------------------------------- Additional dilutive effect of stock options and warrants, fully diluted computation 118,375 7,524 -- 9,786 ------------------------------------------------ Weighted average number of common and common equivalent shares utilized in the fully diluted earnings per share computation 11,726,909 10,397,541 10,353,658 10,360,441 ----------------------------------------------- Primary net income (loss) per shar .27 .21 $(1.22) $0.39 ----------------------------------------------- Fully diluted net income (loss) per share .27 .21 $(1.22) $0.39 ------------------------------------------------
Page 15 of 16 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EIS INTERNATIONAL, INC. Date:---------------------------- By:------------------------------------ Joseph J. Porfeli Chairman and Chief Executive Officer Date:---------------------------- By:------------------------------------ Herbert Balzuweit Executive Vice President and Chief Financial Officer Page 16 of 16 -----END PRIVACY-ENHANCED MESSAGE-----