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 September 30, 1998
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 October 16, 1998: 11,633,630 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 September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements: Page
----
Consolidated Balance Sheets as of December 31, 1997 and
September 30, 1998 (unaudited) 3
Unaudited Consolidated Statements of Operations
for the three and nine months ended September 30, 1997 and 1998 4
Unaudited Consolidated Statements of Cash Flows
for the nine months ended September 30, 1997 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 9-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
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 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
2
<PAGE>
EIS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
-------------- ------------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $22,525 $21,127
Short-term investments 2,332 --
Accounts receivable, trade, less allowances for doubtful
accounts and sales returns of $4,546 in 1997 and $3,943 in 1998 13,979 12,478
Current portion of installment and lease receivables 1,674 1,145
Inventories 5,160 4,336
Deferred income taxes 3,448 1,589
Refundable income taxes 611 2,376
Prepaids and other current assets 857 887
------------ ------- -------
Total current assets 50,586 43,938
Capitalized software development costs, net 4,372 4,693
Property and equipment, net 7,842 6,689
Installment and lease receivables, less current portion 1,254 387
Deferred income taxes 2,206 2,206
Other assets 1,532 931
------------ ------- -------
Total assets $67,792 $58,844
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $16,106 $ 9,083
Deferred revenue 2,983 3,125
------------ ------- -------
Total current liabilities 19,089 12,208
Other liabilities 253 167
------------ ------- -------
Total liabilities 19,342 12,375
Commitments and Contingencies
Stockholders' equity:
Common Stock, $.01 par value, 15,000,000 shares authorized, issued
11,641,393 shares in 1997 and 11,734,585 shares in 1998 116 117
Additional paid-in capital 60,357 60,671
Accumulated translation adjustments (326) (475)
Retained deficit (10,792) (12,939)
Treasury stock, at cost - 101,225 shares in 1997
and 1998 (905) (905)
------------ ------- -------
Total stockholders' equity 48,450 46,469
------------ ------- -------
Total liabilities and stockholders' equity $67,792 $58,844
======= =======
</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 Nine Months Ended
Ended September 30, Ended September 30,
------------------------ -----------------------
1997 1998 1997 1998
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net revenues:
Product and software $14,117 $ 7,029 $44,415 $ 26,066
Service and other 6,884 6,321 19,922 19,603
------- -------- ------- --------
21,001 13,350 64,337 45,669
Cost of revenues:
Cost of product and software sold 4,563 3,822 16,057 11,997
Recovery of provision for contract losses -- -- -- (1,636)
Cost of service and other 3,505 3,611 11,657 10,420
------- -------- ------- --------
8,068 7,433 27,714 20,781
------- -------- ------- --------
Gross margin 12,933 5,917 36,623 24,888
------- -------- ------- --------
Operating cost and expense:
Research and development cost 2,769 2,282 9,171 7,361
Selling, general, and administrative 8,045 6,040 26,486 20,098
Restructuring costs -- -- 2,877 543
------- -------- ------- --------
10,814 8,322 38,534 28,002
------- -------- ------- --------
Operating income (loss) 2,119 (2,405) (1,911) (3,114)
Other income, net: 363 324 895 983
------- -------- ------- --------
Income (loss) before income taxes 2,482 (2,081) (1,016) (2,131)
Income tax benefit (expense) (934) (4) 401 (16)
------- -------- ------- --------
Net income (loss) $ 1,548 $ (2,085) $ (615) $ (2,147)
======= ======== ======= ========
Basic earnings (loss) per share: $ 0.13 $ (0.18) $ (0.05) $ (0.19)
Diluted earnings (loss) per share: 0.13 (0.18) (0.05) (0.19)
Weighted average common and common equivalent shares:
Basic 11,505 11,633 11,289 11,589
Diluted 11,887 11,633 11,289 11,589
</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>
Nine Months
Ended September 30,
------------------------------
1997 1998
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (615) $(2,147)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Provision for doubtful accounts and
sales returns 2,518 2,789
Recovery of provision for contract losses - (1,636)
Depreciation and amortization 5,949 5,248
Deferred income taxes - (510)
Changes in assets and liabilities:
Accounts receivable, trade 3,992 (1,288)
Proceeds from sale of lease receivables - 745
Installment and lease receivables 1,302 651
Inventories 2,236 824
Refundable income taxes - 94
Accounts payable and accrued expenses (5,152) (5,387)
Deferred revenue 328 142
Other (1,059) (192)
------- -------
Net cash provided by continuing operations 8,989 (157)
Cash used in discontinuing operations (1,976) -
------- -------
Net cash provided by (used in) operating activities 7,013 (157)
------- -------
Cash flows from investing activities:
Additions to property and equipment (3,671) (2,271)
Sales of short-term investments 3,371 2,332
Purchases of short-term investments (2,070) -
Capitalization of software development costs (944) (1,617)
------- -------
Net cash used in investing activities (3,314) (1,556)
------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options 1,499 315
------- -------
Net cash provided by financing activities 1,499 315
------- -------
Net increase (decrease) in cash and cash equivalents 5,198 (1,398)
Cash and cash equivalents at beginning of period 11,099 22,525
------- -------
Cash and cash equivalents at end of period $16,297 $21,127
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 32 $ 68
Income taxes 158 362
</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 consolidated financial statements of EIS International, Inc. and its wholly
owned subsidiaries (collectively, "EIS") 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 EIS' Annual
Report on Form 10-K for the year ended December 31, 1997. 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 EIS' financial position and results of operations. The
results of operations for the three and nine month periods ended September 30,
1998 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. All
significant intercompany balances and transactions have been eliminated in
consolidation.
(3) New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 129, "Disclosure of
Information about Capital Structure" which is effective for the year ending
December 31, 1998. SFAS No. 129 continues the previous requirements to disclose
certain information about an entity's capital structure found in Accounting
Principles Board ("APB") Opinions No. 10, "Omnibus Opinion-1966," and No. 15,
"Earnings per Share," and FASB SFAS No. 47, "Disclosure of Long-Term
Obligations." EIS has been subject to the requirements of those standards and,
as a result, the adoption of SFAS No. 129 effective January 1, 1998 did not have
a material impact on its financial statements.
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income" which
is effective for the year ending December 31, 1998. SFAS No. 130 establishes
standards for the reporting and display of comprehensive income and its
components in the financial statements. EIS adopted SFAS No. 130 effective as of
January 1, 1998.
The schedule below reflects consolidated comprehensive income (loss) for the
three and nine month periods ended September 30, 1997 and 1998:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------------- -------------------------------
1997 1998 1997 1998
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income (loss) $1,548 $(2,085) $(615) $(2,147)
Other comprehensive income (loss):
Foreign currency translation adjustment (239) (256) (222) (149)
------ ------- ----- -------
Comprehensive income (loss) $1,309 $(2,341) $(837) $(2,296)
------ ------- ----- -------
</TABLE>
In June 1997, FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which is effective for the year ending
December 31, 1998. SFAS No. 131 requires companies to present certain
information about operating segments and related information, including
geographic and major customer data, in its annual financial statements and in
condensed financial statements for interim periods. EIS does not believe that
the adoption of SFAS No. 131 will have a material impact on its financial
statements.
6
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
In October 1997, the AICPA Accounting Standards Executive Committee issued
Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"), which
supercedes Statement of Position 91-1 "Software Revenue Recognition". SOP 97-2
focuses on when and in what amounts revenue should be recognized for licensing,
selling, leasing, or otherwise marketing computer software, and is effective for
transactions entered into in fiscal years beginning after December 15, 1997. As
a result of the adoption of SOP 97-2 on January 1, 1998, product and software
revenue was higher by $83,000 for the three months ended September 30, 1998, and
$663,000 lower for the nine months ended September 30, 1998.
(4) 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 months ended September 30, 1997, the computation of
diluted earnings per share include the assumed exercise of dilutive stock
options and warrants. For the nine months ended September 30, 1997, and the
three and nine month periods ended September 30, 1998, the assumed exercise of
stock options and warrants has not been included in the calculation as they
would be anti-dilutive.
(5) 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 will be or have been affected in some manner by
Year 2000 issues. EIS has developed and is continuing the implementation of a
plan (the "Year 2000 Product Plan") that makes necessary modifications to its
products. The current total estimated cost to update those products is
approximately $2.0 million. EIS has not sought any independent verification of
this cost estimate and it could change materially as the Year 2000 Product Plan
continues. During the three and nine months ended September 30, 1998, EIS
incurred $794,000 and $1,075,000, respectively, of costs associated with the
Year 2000 Product Plan. No costs were incurred prior to 1998. These costs are
included in research and development in the accompanying consolidated statements
of operations. EIS expects to continue to supplement its internal resources with
subcontract labor to complete the Year 2000 Product Plan. EIS will seek to
manage its research and development costs and Year 2000 Product Plan costs, so
that its total research and development costs are not materially higher than the
range of research and development costs incurred during 1996 and 1997, but there
can be no assurance that EIS will be able to do so. In addition to incurring
research and development costs, EIS may incur additional costs in other areas of
its operation, including program management and installation services.
On July 30, 1998, EIS announced that a Year 2000 compliant release of its Call
Processing System ("CPS") software was complete and available for sale. CPS is
EIS' most widely used and sold software. EIS has also announced that its Call
Manager, Call Manager Gateway, Outbound Call Manager on certain hardware
platforms, Smart Agent Manager, and Call Processor products are Year 2000
compliant. EIS is currently planning to release Year 2000 compliant versions of
its System 7000 and Centenium software products by the end of 1998. EIS has
begun and is planning to continue 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. EIS
products affected by the Year 2000 issue will not be saleable during or after
Year 2000, unless the Year 2000 Product Plan is completed before that date.
Failure to successfully complete the Year 2000 Product Plan could have a
material adverse impact on EIS' operations and financial condition. EIS expects
to be successful in completing the Year 2000 Product Plan changes in all of its
products; however, upgrading all customers' products 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. Because EIS expects that its
products will be Year 2000 compliant by the end of 1998, contingency plans have
not been drafted for any product line. EIS will continue to monitor the need for
contingency plans until the Year 2000 Product Plan is completed.
EIS is in 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,
7
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
and desktop applications are Year 2000 compliant. Although the completion of
that process may involve additional costs, EIS believes that those costs will
not have a material adverse affect on its operations and financial condition. If
that update is not completed in a timely manner, or if EIS' costs exceed its
current estimates, the cost of Year 2000 compliance for EIS' Internal Systems
could have a material adverse impact on its operations and financial condition.
EIS also intends to determine the extent of any adverse impact resulting from
failures by its major vendors and distributors to be Year 2000 compliant.
However, EIS is currently unable to estimate any such potential adverse impact,
although such adverse impact could be material to EIS' results of 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 not drafted
any contingency plans in the event its Internal Systems are not updated prior to
the Year 2000. EIS will continue to monitor the need for contingency plans as
progress continues on reviewing and updating its Internal Systems.
(6) Restructuring
On March 3, 1997, EIS announced a restructuring and reorganization program (the
"Restructuring"), the purpose of which was to refocus efforts on its core
systems business and to reduce costs. Under the Restructuring, EIS downsized the
operations of Cybernetics Systems International Corp. ("Cybernetics"), a
wholly-owned EIS subsidiary, closed and sublet its Fort Lauderdale, Florida
facility, focusing Cybernetics' development and marketing efforts primarily on
the Workforce Manager product. EIS also terminated the separate operations of
Pulse Technologies, Inc. ("Pulse"), its Chantilly, Virginia based integration
services business, by integrating the business of Pulse into EIS' core business
operations. In addition, EIS closed the corporate headquarters in Pittsburgh,
Pennsylvania and relocated its corporate headquarters to its facility in
Herndon, Virginia. A total of approximately 110 employees were terminated as a
result of the Restructuring. During the first quarter of 1997, in connection
with the Restructuring, EIS recorded charges of $2.9 million, including $1.1
million of severance costs, $1.3 million of facilities leases and fixed asset
disposal costs, and $500,000 of other costs.
Effective June 30, 1998, EIS terminated Cybernetics' operations because of
continuing losses and management's decision to focus on EIS' core business. In
connection with the termination of operations of Cybernetics, EIS recorded
restructuring charges of $543,000, comprised of $350,000 of severance payments
and $193,000 of facilities, fixed asset disposal, and other costs.
(7) Recovery of Provision for Contract Losses
The recovery of provision for contract losses of $1.6 million included in the
accompanying unaudited consolidated statement of operations for the nine months
ended September 30, 1998, 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. During the first six months of 1998,
Cybernetics completed work on certain contracts and resolved certain other
contract obligations with its customer which resulted in the recovery of the
provision for contract losses.
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 are subject to the safe harbors created thereby.
All statements included in this document regarding EIS' financial position,
business strategy and plans, objectives for future operations, technical
developments, Year 2000 compliance, industry conditions -- other than statements
of historical facts -- are forward-looking statements. While these statements
reflect EIS' reasonable assumptions, based upon management's beliefs and
information currently available to it, EIS can give no assurance that such
expectations will prove 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" in EIS' Annual Report on Form 10-K for the year ending December 31,
1997. 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 sales and service and other revenues,
respectively.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
---------------------------------- ------------------------------------
1997 1998 1997 1998
-------------- ---------------- ---------------- ----------------
$ % $ % $ % $ %
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Product and software revenue 14,117 67.2 7,029 52.7 44,415 69.0 26,066 57.1
Service and other 6,884 32.8 6,321 47.3 19,922 31.0 19,603 42.9
------ ----- ------ ----- ------ ----- ------ -----
Net revenues 21,001 100.0 13,350 100.0 64,337 100.0 45,669 100.0
------ ----- ------ ----- ------ ----- ------ -----
Cost of product and software sold 4,563 32.3 3,822 54.4 16,057 36.2 11,997 46.0
Recovery of provision for contract losses -- -- -- -- -- -- (1,636) --
Cost of service and other 3,505 50.9 3,611 57.1 11,657 58.5 10,420 53.2
------ ----- ------ ----- ------ ----- ------ -----
Gross margin 12,933 61.6 5,917 44.3 36,623 56.9 24,888 54.5
------ ----- ------ ----- ------ ----- ------ -----
Research and development cost 2,769 13.2 2,282 17.1 9,171 14.3 7,361 16.1
Sales, general and administrative 8,045 38.3 6,040 45.2 26,486 41.2 20,098 44.0
Restructuring costs -- -- -- -- 2,877 4.5 543 1.2
------ ----- ------ ----- ------ ----- ------ -----
Operating income (loss) 2,119 10.1 (2,405) (18.0) (1,911) (3.0) (3,114) (6.8)
Other income, net 363 1.7 324 2.4 895 1.4 983 2.2
------ ----- ------ ----- ------ ----- ------ -----
Income (loss) before income tax
benefit (expense) 2,482 11.8 (2,081) (15.6) (1,016) (1.6) (2,131) (4.7)
Income tax benefit (expense) (934) (4.4) (4) (0.0) 401 0.6 (16) (0.0)
------ ----- ------ ----- ------ ----- ------ -----
Net income (loss) 1,548 7.4 (2,085) (15.6) (615) (1.0) (2,147) (4.7)
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Net Revenues
Net revenues of $13.4 million in the third quarter of 1998 decreased $7.6
million (36%) from $21.0 million in the third quarter of 1997. Product and
software revenues of $7.0 million in the third quarter of 1998 decreased $7.1
million (50%) from $14.1 million in the third quarter of 1997. Net revenues of
$45.7 million in the first nine months of 1998 decreased $18.6 million (29%)
from $64.3 million in the first nine months of 1997. Product and software
revenues of $26.1 million in the first nine months of 1998 decreased $18.3
million (41%) from $44.4 million in the first nine
9
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
months of 1997. The decrease in product and software revenue is primarily a
result of continued slow demand due to excess capacity of outbound telemarketing
service bureaus, who represent the largest portion of EIS' customer base. All of
EIS' products have been effected by this trend. Also, as discussed in note 3 to
the accompanying financial statements, in October 1997, the AICPA Accounting
Standards Executive Committee issued Statement of Position 97-2, "Software
Revenue Recognition" ("SOP 97-2"). As a result of the adoption of SOP 97-2 on
January 1, 1998, product and software revenue was higher by $83,000 for the
three months ended September 30, 1998, and $663,000 lower for the nine months
ended September 30, 1998.
EIS has taken and is continuing to take actions with respect to its domestic and
international sales, product development, and marketing activities to address
the decline in product and software revenue. However, no assurance can be given
that these actions will result in the stabilization or increase of product
revenue.
Service and other revenues of $6.3 million in the third quarter of 1998
decreased $563,000 (8%) from $6.9 million in the third quarter of 1997. That
decline was primarily due to a decline in revenue from customers covered by
maintenance contracts and the termination of Cybernetics' operations effective
June 30, 1998 (see "Restructuring Costs" below). Service and other revenues of
$19.6 million in the first nine months of 1998 decreased $319,000 (2%) from
$19.9 million in the first nine months of 1997. This decrease was primarily due
to a decline in EIS' client services revenues.
Gross Margin and Cost of Revenues
Total gross margin was $5.9 million (44.3%) in the third quarter of 1998,
compared to $12.9 million (61.6%) in the third quarter of 1997, and $24.9
million (54.5%) for the first nine months of 1998, compared to $36.6 million
(56.9%) for the first nine months of 1997. The decline in the gross margin
dollars and percentages for the three and nine months ended September 30, 1998
are discussed below. Included in the total gross margin was the recovery of
provision for contract losses of $1.6 million in the first nine months of 1998.
The recovery of provision for contract losses 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. During the first six
months of 1998, Cybernetics completed work on certain contracts and resolved
certain other contract obligations with its customers which resulted in the
recovery of the provision for contract losses.
Gross margin on product and software sales was $3.2 million (45.6%) in the third
quarter of 1998, compared to $9.6 million (67.7%) in the third quarter of 1997,
and $14.1 million (54.0%) in the first nine months of 1998, compared to $28.4
million (63.8%) in the first nine months of 1997. 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 was
primarily caused by staffing and other direct costs associated with product and
software revenue during the three and nine months ended September 30, 1998,
which did not decline in proportion to the decline in product and software
revenue. The gross margin percentage was also affected by a higher volume of
hardware upgrade sales at lower margins during the three months ended September
30, 1998. Also during the three months ended September 30, 1998, EIS accelerated
the amortization of certain capitalized software development costs which were
deemed not to have any further useful life (see "Research and Development Costs"
below). Finally, as discussed above, the reduction in revenue as a result of the
adoption of SOP 97-2 contributed to the decrease in gross margin on product and
software revenue during the nine months ended September 30, 1998.
As discussed below under Research and Development Costs, the development of
Centenium XL was completed in September 1998. Beginning in the fourth quarter of
1998, capitalized software development costs related to Centenium XL will begin
to be amortized resulting in an increase in cost of product and software sold of
approximately $235,000 per quarter. That amortization will be partially offset
by certain other software development costs that became fully amortized during
the third quarter of 1998, which will result in decreased amortization of
software development costs of approximately $156,000 in future quarters.
Gross margin on service and other revenue was $2.7 million (42.9%) in the third
quarter of 1998, compared to $3.4 million (49.1%) in the third quarter of 1997,
and $9.2 million (46.8%) in the first nine months of 1998, compared to $8.3
million (41.5%) in the first nine months of 1997. The decline in the gross
margin on service and other revenue during the third quarter of 1998, as
compared to the third quarter of 1997, was primarily due to the decline in
service
10
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
and other revenue which was not offset by a decline in the costs of providing
such services. The improvement in gross margin on service and other revenue
during the first nine months of 1998, compared to the first nine months of 1997,
was primarily due to expense control measures implemented during the latter part
of the first quarter of 1997 as a result of the Restructuring (see
"Restructuring Costs" below). In addition, the cost of supplying parts under
EIS's customer maintenance agreements decreased during the first nine months of
1998 as a result of management's ongoing 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 current levels.
Research and Development Costs
Research and development costs were $2.3 million in the third quarter of 1998
compared to $2.8 million in the third quarter of 1997, and $7.4 million in the
first nine months of 1998 compared to $9.2 million in the first nine months of
1997. The decrease during the three and nine months ended September 30, 1998
compared to the same periods in 1997, was primarily due to an increase in
capitalized software development costs of $443,000 and $674,000, respectively.
That increase was due to an increase in engineering resources and related costs
during 1998 which were incurred in connection with the completion of the
Centenium XL product, which was released in September 1998. Additionally, the
number of employees and related costs not associated with the development of
Centenium XL declined during the three and nine month periods ended September
30, 1998 as compared to the same 1997 periods, but was offset by an increase in
subcontract labor costs during the third quarter of 1998 associated with the
Year 2000 Product Plan (see "Year 2000 Issues" below).
EIS 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 ("SFAS") No. 86 "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed."
Approximately $617,000 and $175,000 were capitalized in the third quarters of
1998 and 1997, respectively, and $1,617,000 and $944,000 were capitalized in the
first nine months of 1998 and 1997, respectively. Amortization of capitalized
software development costs of $604,000 and $346,000 is included in cost of
products sold in the third quarters of 1998 and 1997, respectively, and
$1,296,000 and $1,038,000 in the first nine months of 1998 and 1997,
respectively. The increase during the three and nine months ended September 30,
1998, as compared to September 30, 1997, was primarily a result of accelerating
the amortization of certain software development costs which were deemed not to
have any further useful life.
EIS is committed to technological innovation and believes that additional
research and development costs will be required to maintain its market position
and those costs may increase in absolute amounts during the remainder of 1998
and thereafter.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expense of $6.0 million during the
third quarter of 1998 declined $2.0 million (25%) from $8.0 million in the third
quarter of 1997. SG&A expenses of $20.1 million in the first nine months of 1998
declined $6.4 million from $26.5 million in the first nine months of 1997. The
decrease in the third quarter of 1998 was primarily due to a decrease in the
number of employees and the related decreases in costs for salaries, a decline
in incentive compensation expense, and other overhead support costs.
Additionally, during the first quarter of 1997, in connection with the
Restructuring (see "Restructuring Costs" below), EIS downsized its Cybernetics
and Pulse subsidiaries and consolidated several of its administrative functions
and facilities.
11
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Restructuring Costs
On March 3, 1997, EIS announced a restructuring and reorganization program (the
"Restructuring"), the purpose of which was to refocus efforts on its core
systems business and to reduce costs. Under the Restructuring, EIS downsized the
operations of Cybernetics Systems International Corp. ("Cybernetics"), a
wholly-owned EIS subsidiary, closed and sublet its Fort Lauderdale, Florida
facility, focusing Cybernetics' development and marketing efforts primarily on
the Workforce Manager product. EIS also terminated the separate operations of
Pulse Technologies, Inc. ("Pulse"), its Chantilly, Virginia based integration
services business, by integrating the business of Pulse into EIS' core business
operations. In addition, EIS closed the corporate headquarters in Pittsburgh,
Pennsylvania and relocated its corporate headquarters to its facility in
Herndon, Virginia. A total of approximately 110 employees were terminated as a
result of the Restructuring. During the first quarter of 1997, in connection
with the Restructuring, EIS recorded charges of $2.9 million, including $1.1
million of severance costs, $1.3 million of facilities leases and fixed asset
disposal costs, and $500,000 of other costs.
Effective June 30, 1998, EIS terminated Cybernetics' operations because of
continuing losses and management's decision to focus on EIS' core business. In
connection with the termination of operations of Cybernetics, EIS recorded
restructuring charges of $543,000, comprised of $350,000 of severance payments
and $193,000 of facilities, fixed asset disposal, and other costs.
Interest and Other Income, Net
Interest and other income decreased $39,000 to $324,000 during the third quarter
of 1998 as compared to $363,000 in the third quarter of 1997. This decrease was
due to a reduction in interest earned on EIS' lease portfolio as a result of the
sale of certain leases during the second quarter of 1998 (see "Liquidity and
Capital Resources"). Interest and other income of $983,000 increased $88,000
during the first nine months of 1998 compared to $895,000 during the same period
in 1997 primarily due to higher average cash and cash equivalent balances in the
first nine months of 1998 as compared to the same period in 1997.
Income Taxes
Although EIS incurred a pre-tax loss of $2.1 million during the three and nine
months ended September 30, 1998, a tax expense of $4,000 and $16,000,
respectively, was incurred relating to foreign taxes arising from certain
foreign subsidiaries. Since the tax benefit of $811,000 recorded during the
third quarter of 1998, using a 39% effective tax rate, was fully offset by an
increase in the valuation allowance on EIS' deferred tax assets, EIS did not
recognize a tax benefit from the losses incurred during the nine months ended
September 30, 1998. As disclosed in Note 7 to EIS' consolidated financial
statements included in its Annual Report on Form 10-K dated December 31, 1997,
EIS had established a $4.2 million valuation allowance on its deferred tax
assets, which increased to $5.0 million as of September 30, 1998. Based on EIS'
plan for future taxable income, management believes that the valuation allowance
of $5.0 million was adequate at September 30, 1998. However, if EIS incurs
losses in future periods, or if EIS' plan for future taxable income change, the
deferred tax asset valuation allowance may be increased and such increase could
be material to EIS' financial condition and results of operations.
EIS' effective income tax rate was 38% and 39%, respectively, for the three and
nine months ended September 30, 1997.
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.
12
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Impact on EIS. All EIS products will be or have been affected in some manner by
Year 2000 issues. EIS has developed and is continuing the implementation of a
plan (the "Year 2000 Product Plan") that makes necessary modifications to its
products. The current total estimated cost to update those products is
approximately $2.0 million. EIS has not sought any independent verification of
this cost estimate and it could change materially as the Year 2000 Product Plan
continues. During the three and nine months ended September 30, 1998, EIS
incurred $794,000 and $1,075,000, respectively, of costs associated with the
Year 2000 Product Plan. No costs were incurred prior to 1998. These costs are
included in research and development in the accompanying consolidated statements
of operations. EIS expects to continue to supplement its internal resources with
subcontract labor to complete the Year 2000 Product Plan. EIS will seek to
manage its research and development costs and Year 2000 Product Plan costs, so
that its total research and development costs are not materially higher than the
range of research and development costs incurred during 1996 and 1997, but there
can be no assurance that EIS will be able to do so. In addition to incurring
research and development costs, EIS may incur additional costs in other areas of
its operation, including program management and installation services.
On July 30, 1998, EIS announced that a Year 2000 compliant release of its Call
Processing System ("CPS") software was complete and available for sale. CPS is
EIS' most widely used and sold software. EIS has also announced that its Call
Manager, Call Manager Gateway, Outbound Call Manager on certain hardware
platforms, Smart Agent Manager, and Call Processor products are Year 2000
compliant. EIS is currently planning to release Year 2000 compliant versions of
its System 7000 and Centenium software products by the end of 1998. EIS has
begun and is planning to continue 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. EIS
products affected by the Year 2000 issue will not be saleable during or after
Year 2000, unless the Year 2000 Product Plan is completed before that date.
Failure to successfully complete the Year 2000 Product Plan could have a
material adverse impact on EIS' operations and financial condition. EIS expects
to be successful in completing the Year 2000 Product Plan changes in all of its
products; however, upgrading all customers' products 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. Because EIS expects that its
products will be Year 2000 compliant by the end of 1998, contingency plans have
not been drafted for any product line. EIS will continue to monitor the need for
contingency plans until the Year 2000 Product Plan is completed.
EIS is in 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, and desktop applications are Year 2000
compliant. Although the completion of that process may involve additional costs,
EIS believes that those costs will not have a material adverse affect on its
operations and financial condition. If that update is not completed in a timely
manner, or if EIS' costs exceed its current estimates, the cost of Year 2000
compliance for EIS' Internal Systems could have a material adverse impact on its
operations and financial condition. EIS also intends to determine the extent of
any adverse impact resulting from failures by its major vendors and distributors
to be Year 2000 compliant. However, EIS is currently unable to estimate any such
potential adverse impact, although such adverse impact could be material to EIS'
results of 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 not drafted any contingency plans in the event its Internal
Systems are not updated prior to the Year 2000. EIS will continue to monitor the
need for contingency plans as progress continues on reviewing and updating its
Internal Systems.
Liquidity and Capital Resources
EIS' working capital was $31.5 and $31.7 million at December 31, 1997 and
September 30, 1998, respectively. Cash and cash equivalents and short-term
investment balances were $24.9 and $21.1 million at December 31, 1997 and
September 30, 1998, respectively.
As reflected in the accompanying unaudited consolidated statements of cash
flows, operating activities used $157,000 in cash in the first nine months of
1998 compared to $7.0 million generated in the first nine months of 1997. This
13
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
decrease was the result of several factors. Cash used in discontinued operations
in the first nine months of 1997 was $2.0 million. This decline was primarily
due to higher cash requirements during the early stages of discontinuing the
business of Surefind Information, Inc. in 1997. During the second quarter of
1998, EIS sold a portion of its lease portfolio resulting in $745,000 of cash
proceeds. Those changes were offset by an increase in accounts receivable, trade
of $1.3 million during the first nine months of 1998, compared to a decrease of
$4.0 million in such accounts receivable during the first nine months of 1997.
Collections of accounts receivable, trade were higher during the first nine
months of 1997 primarily because the accounts receivable, trade balance was
$21.3 million at December 31, 1996 as compared to $14.0 million at December 31,
1997.
Cash and cash equivalents used to invest in the purchase of property and
equipment was $2.3 million for the first nine months of 1998 and $3.7 million
for the first nine months of 1997. The decline in the purchase of property and
equipment is directly attributable to the decline in the number of employees and
size of operations as a result of the decrease in revenue as discussed above
under the heading "Net Revenues". Net sales and purchases of investments during
the first nine months of 1998 generated $2.3 million of cash compared to $1.3
million during the first nine months of 1997. That change was caused by EIS
reinvesting its short-term investments in more liquid cash equivalents during
the first nine months of 1998. The capitalization of software development costs
increased from $944,000 during the first nine months of 1997 to $1.6 million for
the same period in 1998. The increase in capitalized software development costs
is discussed above under Research and Development Costs. Proceeds from the
exercise of stock options and warrants decreased from $1.5 million during the
first nine months of 1997 to $315,000 during the same period in 1998.
Effective September 3, 1998, EIS entered into a Loan Document Modification
Agreement (the "Modified Loan Agreement") which amended its existing line of
credit. Under the Modified Loan Agreement, EIS may borrow up to $7 million,
subject to certain borrowing base limitations, and amounts outstanding accrue
interest at the lender's prime rate plus 1/2%. The Modified Loan Agreement is
secured by substantially all of the assets of EIS and expires on September 2,
1999. There were no amounts outstanding under the Modified Loan Agreement as of
September 30, 1998. Prior to the Modified Loan Agreement, EIS had a line of
credit of $7 million with the same commercial bank under a commitment that
expired on September 2, 1997.
EIS is a party to various legal actions and claims arising in the ordinary
course of its business. At this date, in the opinion of management, there are no
pending claims the outcome of which are expected to result in a material adverse
effect on EIS' consolidated financial position or results of operations, except
for the shareholder lawsuit discussed below under Part II Item 1 - "Legal
Proceedings". EIS is currently not able to estimate the costs or a range of
costs which may arise out of such shareholder lawsuit.
EIS expects that its current cash balances and short-term investments, together
with cash anticipated to be provided by operating activities, and amounts
available under the Modified Loan Agreement, will be sufficient to fund its
working capital requirements (including research and development and Year 2000
compliance costs) for the foreseeable future. However, EIS' ability to achieve
those results will be affected by the amount of cash generated from operations
and the pace that its available resources are utilized. Accordingly, EIS may in
the future be required to seek additional sources of financing, including
borrowings and/or sales of equity. If additional funds are raised by selling
equity, further dilution to shareholders could result. No assurance can be given
that any such additional sources of financing will be available on acceptable
terms, or at all.
14
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company and certain individuals indicated below were named as defendants in
the following lawsuits, each of which were filed on the date indicated in the
United States District Court for the District of Connecticut, allegedly on
behalf of certain of the Company's shareholders. Each of these claims allege
securities fraud based upon certain alleged misleading representations regarding
the Company's acquisition of Surefind and Cybernetics and their operations, each
of which seek damages in an unspecified amount.
1. Warburgh v. EIS International, Inc., Joseph J. Porfeli, Edward J. Sarkisian
and Kent M. Klineman, filed April 29, 1997.
2. Wallace v. EIS International, Inc., Joseph J. Porfeli, Edward J. Sarkisian,
Harry Peisach, and Kent M. Klineman, filed May 21, 1997.
3. Augenbaum v. EIS International, Inc., Joseph Porfeli, Edward J. Sarkisian,
Kent M. Klineman, Robert Jesurum and Herbert Balzuweit, filed May 23, 1997.
4. Romano, et. al, v. EIS International, Inc., Joseph J. Porfeli, Edward J.
Sarkisian, and Kent M. Klineman, filed June 4, 1997.
5. Dechter v. EIS International, Inc., Joseph J. Porfeli, Edward J. Sarkisian,
Kent M. Klineman and Harry Peisach, filed June 17, 1997.
These lawsuits have been consolidated and a consolidated and amended class
action complaint was filed on April 29, 1998. The Company 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 and
awaiting possible oral argument and decision by the court, although no assurance
can be given as to when a decision will be reached. The Company is currently not
able to estimate the potential damages or costs or a range of potential damages
or costs which 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 EIS'
technology infringed on a patent held by MAMS. MAMS filed an infringement action
against certain of EIS' customers who received the infringement warning. Under
EIS' contract 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
believes this infringement claim to be without merit, and will vigorously defend
its patent rights. 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.
EIS is also party to various other legal actions and claims arising in the
ordinary course of its business. The Company 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.
Item 3. Defaults Upon Senior Securities.
None.
15
<PAGE>
EIS International, Inc. and Subsidiaries
- ----------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
Any proposal submitted pursuant to Rule 14a-8 under the Securities Exchange Act
of 1934, as amended, that a stockholder wishes to be considered for inclusion in
EIS' proxy materials for its 1999 Annual Meeting of Stockholders must be
received by the Secretary of EIS at its principal offices no later than December
9, 1998.
Written notice of shareholder proposals submitted outside the processes of Rule
14a-8 for consideration at the 1999 Annual Meeting of Stockholders must be
received by EIS on or before February 21, 1999, in order to be considered timely
for purposes of Rule 14a-4. The persons designated in EIS' proxy statement shall
be granted discretionary authority with respect to any shareholder proposals of
which EIS does not receive timely notice.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
* Exhibit 4.4 - Rights Agreement dated as of May 16, 1997,
between the Registrant and BankBoston, NA, as Rights Agent, which
includes as Exhibit A the Form of Certificate of Designations, as
Exhibit B, the Form of Rights Certificate, and as Exhibit C, the
Summary of Rights to Purchase Preferred Stock.
Exhibit 11 - Statement Re Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None.
- ----------------------
* Incorporated by reference to Exhibit 1 to the Registrant's Registration
Statement on Form 8-A, as filed with the Securities and Exchange Commission on
May 28, 1997.
16
<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: November 13, 1998 By: /s/ James E. McGowan
----------------------------- ----------------------
James E. McGowan
President and Chief Executive Officer
Date: November 13, 1998 By: /s/ Frederick C. Foley
----------------------------- ------------------------
Frederick C. Foley
Senior Vice President, Finance,
Chief Financial Officer and Treasurer
17
EIS International, Inc. and Subsidiaries
- ----------------------------------------
Exhibit 11
Statement Re Computation of Per Share Earnings
(In thousands, except for per share amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------------ ----------------------------
1997 1998 1997 1998
-------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Net income (loss) $ 1,548 $ (2,085) $ (615) $ (2,147)
======= ======== ======= ========
Weighted average number of common shares outstanding - Basic: 11,505 11,633 11,289 11,589
Dilutive effect of stock options and warrants 382 -- -- --
------- -------- ------- --------
Weighted average number of common shares outstanding - Diluted: 11,887 11,633 11,289 11,589
======= ======== ======= ========
Basic income (loss) per share: $ 0.13 $ (0.18) $ (0.05) $ (0.19)
Diluted income (loss) per share: 0.13 (0.18) (0.05) (0.19)
</TABLE>
Note: For the three months ended September 30, 1998 and the first nine months of
1997 and 1998, the assumed exercise of stock options and warrants has not been
included in the calculation as they would be anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 21,127
<SECURITIES> 0
<RECEIVABLES> 16,421
<ALLOWANCES> 3,943
<INVENTORY> 4,336
<CURRENT-ASSETS> 43,938
<PP&E> 17,277
<DEPRECIATION> 10,588
<TOTAL-ASSETS> 58,844
<CURRENT-LIABILITIES> 12,208
<BONDS> 0
0
0
<COMMON> 117
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 58,844
<SALES> 45,669
<TOTAL-REVENUES> 45,669
<CGS> 20,781
<TOTAL-COSTS> 48,240
<OTHER-EXPENSES> 543
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,131)
<INCOME-TAX> 16
<INCOME-CONTINUING> (2,147)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,147)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
