EIS INTERNATIONAL INC /DE/, 10-K, 1998-03-30

EIS INTERNATIONAL INC /DE/
10-K, 1998-03-30
TELEPHONE & TELEGRAPH APPARATUS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OF 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1997.

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________to___________.

Commission File Number: 0-20329
EIS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

Delaware 06-1017599
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

555 Herndon Parkway, Herndon, Virginia: 20170
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (703) 478-9808

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $.01 Per Share
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

[X] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or an amendment to this
Form 10-K.[ ]

The aggregate market value as of January 31, 1998 of Common Stock held by
non-affiliates* of the Registrant was: $71,220,897.

The number of shares of Common Stock outstanding as of January 31, 1998 was:
11,540,171.

*As used herein, "voting stock held by non affiliates" means shares of Common
Stock held by persons other than executive officers, directors and persons known
to the Registrant holding in excess of 5% of the registrant's Common Stock. The
determination of market value of the Common Stock is based on the last reported
sale price as reported by the Nasdaq National Market System on the date
indicated. The determination of "affiliate" status for purposes of this report
on Form 10-K shall not be deemed a determination as to whether a person or
entity is an "affiliate" of the registrant for any other purpose.

<PAGE>

DOCUMENTS INCORPORATED BY REFERENCE

The registrant intends to file a definitive Proxy Statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended December 31,
1997. Portions of such Proxy Statement are incorporated by reference in Part
III.

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EIS International, Inc. and Subsidiaries

PART I

Item 1. Business

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 the Company's financial
position, business strategy and plans, objectives for future operations,
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, the Company can give no assurance that such
expectations will prove to be correct.

These 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
introductions and acceptance, distribution networks, changes in industry
practices, one-time events and other factors described herein (see "Factors
Affecting Future Results" below). Based upon changing conditions, should any one
or more of these risks or uncertainties materialize, or should any underlying
assumptions prove incorrect, the Company 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. The Company
does not intend to update these forward-looking statements.

Background

EIS International, Inc., and its wholly-owned subsidiaries ("EIS") provides
systems, software and services to businesses that use the telephone in campaigns
directed at large targeted audiences. EIS' products improve the productivity and
effectiveness of call centers (also known as "contact centers"), including
campaign management, staffing and technology integration. EIS is one of the
world's largest suppliers of advanced technology for contact centers and a
leading provider of such outbound and integrated inbound/outbound technology.

EIS designs, manufacturers, markets and supports sophisticated, full-featured
contact center systems for outbound and blended inbound applications, including
consumer direct marketing, fund-raising, market research, customer service and
credit and collections. Staff forecasting and scheduling software is provided
through Cybernetics Systems International Corp. ("Cybernetics"), a wholly-owned
EIS subsidiary. EIS also provides system integration and support services for
its products and products of other vendors, including project planning,
requirements analysis, voice and data integration and systems engineering.

EIS customers include many outbound telemarketing service bureaus, financial
institutions, major telecommunications companies, universities, cable operators,
direct response marketers and publishing companies.

EIS systems employ computer telephony integration ("CTI") that adds to the
efficiency and management of contact centers and substantially increase the
productivity of their telephone agents. Software features of EIS systems provide
for outbound intelligent/predictive dialing, database, calling list management,
scripting, real-time and historical reporting and integration with the
customer's computer and telephone systems. EIS' state-of-the-art dialing
technology, including high-speed call switching, patented voice detection
technology, sophisticated pacing algorithms and call classification, EIS systems
increase the percentage of time that call center telephone agents are connected
to called parties. EIS systems automate non-productive call center activities,
leaving telephone agents free to spend 45-50 minutes per hour in talktime,
compared with 15-20 minutes per hour in a manually operated environment. EIS
systems automate calling list management, including campaign list segmentation,
time zone controls and callback handling. The systems include multi-page
scripting capabilities that allow for conversation branching, account history,
product information, order forms and calculations presented to telephone agents
online. The systems' reporting and telephone agent monitoring capabilities allow
supervisors and managers to track up-to-the minute contact center activities and
modify and improve the effectiveness of a telemarketing or other telephone
campaigns in real time.

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EIS International, Inc. and Subsidiaries

EIS systems have an open-architecture that can interface with a variety of
third-party switches and software products and integrate easily with a
customer's host computer and database. The systems are modular, expandable and
flexible to respond to a customer's changing environment and expansion needs.

EIS products include: (i) a Call Processing System ("CPS"), a full-featured
solution for outbound contact centers involved predominantly in direct
marketing; (ii) OCM gold, a product licensed by EIS from AT&T since 1991 that
EIS enhanced to work seamlessly with Lucent's Definity G3 switching platform;
(iii) System 7000, a system acquired in a 1993 merger with International
Telesystems Corporation ("ITC") that is directed at the credit and collections
market; and (iv) Centenium, a powerful client/server solution for corporate
contact centers. EIS products also include SmartAgent Manager, a systems
enhancement to blend outbound campaigns with inbound operations. In addition,
Cybernetics has developed and markets Workforce Manager for Windows ("WMW") and
EMPSx, software systems applications for employee management and planning. Prior
to January 1998, EIS marketed Sound & Screen, an integrated voice and data
recording and playback system for verification of telephone-based transactions.
In January 1998, Sound & Screen was discontinued because it no longer fit within
EIS' strategic product direction. EIS is pursuing alliance relationships with
vendors that design and market systems similar to Sound & Screen.

EIS is a Delaware corporation organized in 1988. It is the successor by merger
to a Connecticut corporation founded in 1980 to engage in software consulting.
EIS sold its first contact center system in 1988 and became publicly traded in
July of 1992. EIS' headquarters are at 555 Herndon Parkway, Herndon, VA 20170,
and it may be contacted at (703) 478-9808, or through the World Wide Web at
http://www.eisi.com.

On February 28, 1997, at the recommendation of EIS' management, its Board of
Directors agreed to discontinue the operations of Surefind Information, Inc.
("Surefind"). The decision to discontinue those operations was made after EIS
determined that a higher than anticipated level of funding would be required to
exploit Surefind's products. Since that funding level was considered excessive
due to the funding requirements of EIS' core business, Surefind's operations
were discontinued in March 1997. Surefind incurred a net loss of approximately
$3.7 million in 1996 and $2.1 million in 1995. In connection with the decision
to discontinue Surefind's operations, EIS recorded a $1.8 million estimated
loss, net of tax benefits, including a provision for anticipated operating
losses prior to the complete disposition of Surefind.

On March 3, 1997, EIS announced a restructuring and reorganization program (the
"Restructuring"), the purpose of which was to refocus efforts on EIS' core
business and to reduce costs. Under the Restructuring, Cybernetics' Fort
Lauderdale, Florida facility was closed and sublet, and Cybernetics began to
concentrate on the development and marketing of WMW. During 1997, EIS also
terminated Pulse's operations, a Chantilly, Virginia based integration services
business acquired in 1996, and integrated Pulse with EIS' core business. EIS
also closed its corporate headquarters in Pittsburgh, Pennsylvania and relocated
its headquarters to the Herndon facility. 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 $0.5 million of other costs.

Market Position

EIS systems are designed to improve efficiency and effectiveness of a variety of
contact centers. In recent years, the rising cost and limited efficiency of
door-to-door sales and direct mail campaigns, coupled with decreased telephone
costs, has made the telephone an increasingly important tool for
business-to-consumer and business to business communications.
Business-to-consumer applications generally employ a large number of telephone
agents engaged in calling campaigns. Manual telephone campaigns are labor
intensive, and a significant amount of valuable telephone calling agent's time
is consumed in making calls and retrieving and organizing data for connected
calls. By automating those functions, EIS systems enable telephone agents to
begin a new conversation within seconds of their completion of the last call,
producing a significant increase in productivity. EIS systems' automated dialing
and data management functions and EIS user-friendly telephone scripts reduce
agent training and eliminate repetitive and frustrating tasks that help to
improve job satisfaction and reduce agent turnover.

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EIS International, Inc. and Subsidiaries

Factors that distinguish EIS systems include a modular design and open
architecture to provide customers with the flexibility of integrating EIS
products with customer supplied call management software. Proprietary features
include predictive dialing with a patented pacing algorithm, high speed call
switching, patented voice detection technology, sophisticated call management
software and multi-page customer scripting capability. The system's open
architecture, modularity and operating features provide a high level of
flexibility, easy integration with a customer's software and hardware systems
and significant price-performance advantages over competitors, resulting in
highly efficient contact centers. The system is configured in contact centers to
address calling campaign objectives of specific customers or specific
industries.

Strategy

EIS' strategy is to provide total solutions to the contact center market. EIS
intends to maintain its position as a leading provider of outbound call
processing solutions and extend its strength in outbound call management to the
overall contact center market, including inbound and blended inbound/outbound
technologies. EIS will continue to build on its core competencies, enhance its
systems' integration capabilities, strengthen strategic alliances, capitalize on
opportunities for international growth and focus on customer satisfaction.

Expand and Enhance Core Competencies: EIS has significant expertise in its core
business of outbound contact center management, CTI and, through Cybernetics,
workforce management. Based on that expertise, EIS plans to continue to expand
and enhance its product offerings, including new features for outbound
applications as well as robust capabilities for inbound, blended
inbound/outbound and telephone agent scheduling applications. EIS will remain
focused on improving agent efficiency and effectiveness by providing information
to agents through its CTI expertise.

Enhance Systems Integration Capabilities. As customer contact centers continue
to evolve, they will require interactivity and integration with a variety of
input/output media (e.g. voice mail, email, world wide web, videoconferencing,
etc.) and external databases. EIS will rely on its systems integration
capabilities to complement its products to support these media and enable
integration with data sources with the purpose of improving agent effectiveness.

Strengthen Strategic Alliances and Combinations. EIS has established and
continues to strengthen alliances with other leading vendors in the customer
contact market so that EIS can offer comprehensive customer contact solutions.
These relationships extend worldwide and include alternative channels of
distribution. EIS has also worked with vendors of contact center applications
software to enable such vendors to offer versions of their software that can
operate with EIS systems. EIS will continue to expand its alliance and vendor
relationships, and work closely with leading vendors of telecommunications
switches so that EIS products may be easily integrated with their switches.

Capitalize on Opportunities for International Growth. EIS believes that
international markets provide EIS with a significant opportunity for future
growth. EIS is positioning itself to increase its international presence by
developing new and strengthening existing relationships with several foreign
distributors and by qualifying its products for sale in additional countries.
EIS intends to continue to pursue opportunities to increase its presence in its
existing markets and expand into new international markets through an increase
in staff and assets in Europe, Latin America and Asia, and by adding
distributors in certain markets.

Focus on Customer Satisfaction. EIS believes that customer satisfaction is
derived from the focus of every employee in every area of the Company on the
customer experience. EIS plans to continue strengthening our partnerships with
our customers to attain the highest level of customer satisfaction.

Products and Services

EIS' outbound call processing systems consist of either EIS proprietary digital
switches which place calls, monitor call results and switch live calls to agents
or interfaces to switches from vendors such as Lucent that operate in
conjunction with call management software provided by EIS. These systems are
identified by the product names Centenium, Call Processing System ("CPS"),
System 7000 and OCM. EIS' proprietary switches can be combined with EIS' Gateway

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EIS International, Inc. and Subsidiaries

product to enable such systems to be integrated with outside vendors' software
applications. Cybernetics' workforce management products are either Unix or
Windows-based software programs which gather and store data from external
systems such as the ACD, and use the data to calculate work volume and schedule
the number of agents needed to meet user-defined service criteria. Identified by
product names of EMPSx and WorkForce Manager, these programs are used to improve
efficiency in inbound contact centers.

Centenium. In September 1994, EIS introduced Centenium, its advanced contact
center system that integrates outbound calling with the customer's inbound
system. The Centenium system is built on a flexible, client/server architecture
that distributes processing tasks and automates many facets of contact center
operations from agent screen displays to management reporting. The core software
for Centenium runs on a UNIX operating system with screen presentations in the
Microsoft Windows environment. Centenium is designed to operate with a variety
of computer platforms and several telecommunication switches, including Lucent's
Definity G3, Aspect's CallCenter and Northern Telecom's Meridian 1, as well as
EIS' proprietary switches. In addition to marketing Centenium to potential new
customers, the Company markets Centenium to its existing customers, as well as
an upgrade alternative to older systems for their expansion needs.

Centenium can be configured to meet a wide range of customer requirements.
Centenium provides agents, administrators and supervisors with the information
they need to handle contact center activities, including scripting, list
management and center activity reporting. Centenium utilizes two sophisticated
scripting packages to provide users with the ability to create agent scripts
with logical branching to lead agents through presentations. Centenium users can
prepare their own reports, combining data from Centenium with other databases.
Supervisors can assign scripts to lists, segment lists and assign them to
separate groups of agents, or filter records in real time during a campaign
using Centenium tools. Centenium uses SQL (structured query language), an
industry standard, to enable users to find and manipulate data in multiple
formats.

Call Processing System. The CPS system consists of a digital switch, combined
with either (i) EIS call management software and related computer hardware or
(ii) EIS Gateway product and the customer's host computer. Using EIS call
management software, the system is a turnkey outbound processing system, with
predictive dialing, voice detection, scripting and data management functions
designed primarily for direct marketing applications. Used with the EIS Gateway
product, the system integrates outside vendors' software applications with EIS
call processing functions. The digital switch can handle 8 to 144 agent stations
and can operate up to 112 analog lines, 336 digital T-1 lines, or a mix of both
analog and T-1 lines. In addition, the CPS system has the ability to add both
stations and trunk lines in modular increments.

System 7000. The System 7000 provides a turnkey outbound call processing system
with predictive dialing, voice detection, scripting and data management
functions designed primarily for credit/collections applications. The System
7000 product line was acquired by EIS through its merger with ITC in November
1993. The System 7000 digital switch can handle up to 80 agent stations and can
operate up to 144 digital lines. Both stations and trunk lines can be added to
the System 7000 in modular increments.

OCM Gold. The OCM Gold is a software product that provides call management and
predictive dialing through Lucent PBX switches and is designed to operate with
customer host computer databases. EIS obtained exclusive third party worldwide
licensing rights (except as to AT&T for certain purposes) to OCM from AT&T in
June 1991. In 1993, EIS introduced OCM Gold, its first outbound call management
system that can be integrated with the customer's inbound system. EIS has also
successfully migrated OCM to the NCR 3000 Series microcomputers running UNIX
System 5 Release 4 and to the HP Series 9000.

Smart Agent Manager. The Smart Agent Manager ("SAM") option for Centenium,
System 7000 and OCM integrates those products with inbound switches from third
parties including Lucent, Aspect and Northern Telecom. With SAM, the system
automatically monitors the demand for agents to answer inbound calls and
switches them from outbound campaigns at the same workstation to meet the
contact center's specified quality levels. When the peak demand subsides, SAM
moves the agents back to outbound to maximize agent productivity. EIS has
utilized advanced Computer Telephony Integration techniques in partnership with
the inbound switch vendors to provide this seamless operation.

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EIS International, Inc. and Subsidiaries

EMPSx. EMPSx is the latest software release of Cybernetics' workforce management
system family of products for the UNIX operating system. EMPSx operates on the
IBM RISC System/6000 running the AIX Operating System and the Hewlett Packard
9000 series under the HP-UX Operating System. It is targeted at multi-site
installations which require networking of their contact centers and large single
site installations with complex workforce management requirements.

Workforce Manager for Windows. Workforce Manager for Windows offers a broad set
of tools for the contact center management team to plan, track resource
performance, and analyze current and future strategies. The goal for
Cybernetics' Workforce Manager is to provide the contact center management team
with an easy to use, yet comprehensive Workforce Management system that will
help them optimize the use of their workforce, utilizing hardware and operating
systems with which they are familiar.

Professional Services. The Company's Professional Services division provides CTI
application development, inbound/outbound integration, network analysis,
performance assessment, systems data integration, general contact center
consulting, custom software development, and training.

Product Features

Important features of EIS systems include the following:

o Open Architecture -- By separating call processing and call management
functions and employing industry standard operating system software, EIS is
able to offer the ability to integrate a digital switch with a customer's
existing call management software and host computer database. The
separation of these functions allows EIS to offer a cost effective solution
to customers who already have data automation systems in place and prefer
to automate call processing without replacing their existing call and data
management systems. By adopting a client/server architecture for Centenium,
EIS has expanded the number of software applications and switches that can
function with its product offering.

o Highly-Efficient Predictive Dialing -- EIS' patented, predictive dialing
algorithms automatically adjust a system's dialing rate according to
customer-established parameters. These algorithms are included in the
software of the Centenium architecture and in the firmware of EIS digital
switches enabling EIS systems to achieve highly effective call pacing,
thereby maximizing agent utilization while reducing the incidence of calls
for which no agent is available to as little as 1% of answered calls.

o High Speed Voice Detection and Switching -- EIS' patented voice detection
and proprietary call switching technology, used in EIS' digital switch in
Centenium and CPS, enables it to distinguish a voice and switch the call to
an agent within 20 milliseconds (1/50th of a second), so quickly that the
agent is able to hear the called party's first "Hello." This permits the
agent to begin a conversation naturally, as if the agent had manually
placed the call. The digital switches also automatically distinguish and
dispose of busy signals, unanswered calls, telephone company recorded
messages, answering and facsimile machines and modems.

o Sophisticated Call Management -- EIS systems have data management and
system control capabilities, including retrieval of phone lists and
associated files, data updating, call results analysis and system activity
reporting. The call management software can, among other things, be
programmed to automatically delete non-working numbers from phone lists,
redial busy or unanswered calls after designated intervals and tailor phone
list usage to implement calling campaigns during predetermined hours across
multiple time zones. EIS has augmented these capabilities in the Centenium
product by introducing a sophisticated message structure for communicating
between elements of the system. Users gain increased control over their
operations and improved ability to observe the results of campaigns through
graphical representation of reports.

o Inbound/Outbound Call Management -- EIS also offers products that can
control and monitor centers that perform both inbound and outbound calling
activities. EIS' SmartAgent Manager product for Centenium, System 7000 and
OCM provides dynamic control of agents based upon quality levels that are
set by the customer.

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EIS International, Inc. and Subsidiaries

o Custom Scripting -- EIS call management software provides on-screen
scripting capabilities for EIS' Centenium and CPS systems. These scripts
are automatically presented to the agent by the system and provide a
consistent and comprehensive support function to agents in conversations
with consumers. Scripts can be created by the customer's administrators
without assistance from EIS. Scripts can be designed to utilize automatic
conditional branching that will cause the appropriate page, field or window
to be displayed based upon responses entered in particular fields by an
agent.

o Modular Expansion -- EIS' digital switch can be expanded by adding circuit
boards in increments of eight agent stations, eight analog trunk lines, and
24 T-1 trunk lines for EIS Centenium, CPS and System 7000 products. This
modular design permits a system to grow with the customer's needs and
reduces system disruption in the event of a trunk or station board failure.

o Sophisticated Automated Scheduling -- An important feature of Cybernetics'
Workforce Management products, critical to the successful operation of
sophisticated automated scheduling, is the "time-based" nature of its
database management system; in other words, the time factor is actually
embedded in the database allowing it to change dynamically over time.
Standard database concepts in general cannot be used to store, retrieve and
update information which can tell a user when events will happen and by
whom a task will be performed. Cybernetics has built a practical,
easy-to-use scheduling system, using time-based database concepts to
maintain and update the workforce management database.

o ODBC Compliant -- Cybernetics' systems provide Open Database Connectivity
("ODBC") which is a standard programming interface for accessing data in
both relational and nonrelational database management systems providing
seamless connectivity to the customers data.

o Network Compatibility -- Cybernetics' systems are available for single
site or multi site (LAN/WAN) network environments.

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 affected in some manner by Year 2000
Issues, except for EMPSx and WMW, which are already Year 2000 compliant. EIS has
developed and expects to implement in 1998 a plan ("the Year 2000 Product Plan")
that makes necessary modifications to its products. The current estimated cost
to update EIS' products is approximately $2.0 million. EIS expects to supplement
its internal resources with external resources to complete the Year 2000 Product
Plan. EIS will seek to manage its research and develop costs and Year 2000
Product Plan costs, so that EIS' total research and development costs are not
materially different from EIS' research and development costs in 1996 and 1997,
but there can be no assurance it 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. EIS is
planning to provide updated software to customers under EIS maintenance
contracts, and to charge fees for on-site visits, when necessary, and for
certain other services to upgrade customer 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
implement 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 to all of its products; however,
upgrading all customers products that require such upgrades prior to Year 2000
cannot be assured since a substantial part of the upgrade process will be
dependent on the customer. Additionally, the estimated research and development
costs discussed above could change materially as development of the Year 2000
Product Plan proceeds.

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EIS International, Inc. and Subsidiaries

EIS is in the process of estimating the cost of bringing its internal software
and hardware systems to be Year 2000 compliant. Although this process may
involve additional costs, EIS believes that those costs will not have a material
adverse affect on its operation and financial condition. If that update is not
completed in a timely manner, or if EIS' costs exceed the current estimates, the
cost of Year 2000 compliance for EIS' internal computer software and hardware
systems could have at 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, it is currently unable to estimate any such potential
adverse impact, and such adverse impact could be material.

Product Development

EIS' continuing research and development program is directed toward increasing
the functionality of existing products based upon currently anticipated customer
needs. A significant element of this program is the integration of EIS products
into a client/server architecture in which information processing tasks are
shared among multiple PCs and networked servers. This program also emphasizes
the introduction of new products to broaden EIS' product lines to reach a larger
segment of the CTI market and technical modification of EIS products for
compliance with individual country standards in connection with EIS'
international sales.

EIS will begin development of Contact Universal Exchange ("CUE") in 1998. This
new technology will initially be UNIX-based, but will also be developed to
support Windows NT(R) in the future. CUE will act as a state of the art contact
center technology infrastructure platform. CUE will be developed in accordance
with object-oriented techniques and in conformity with Common Object Request
Broker ("CORBA") standards. CUE will be designed to interconnect various contact
center applications (switches, predictive dialing processes, databases,
fulfillment applications, workflow management applications, and related
technologies) to meet demand for a unified contact center technology
infrastructure platform. CUE is intended to make contact centers more efficient
and productive, and protect their technology investments.

During 1995, 1996 and 1997 EIS invested $8.0 million, $14.2 million, and $11.9
million, respectively, in research and development, and also capitalized
approximately $1.4 million, $2.1 million, and $1.1 million, respectively, of
software development costs. EIS believes that a significant commitment of its
financial resources and talent will be necessary to maintain and increase its
competitive position. EIS plans to continue to devote a significant portion of
its revenues to research and development, including salaries, consulting, and
other costs to develop new technology.

Customers

EIS maintains customer relationships in a variety of industries. Customers
include American Express, the American Cancer Society, APAC Teleservices, Bell
Canada, CUC International, Fingerhut, Gannett Newspapers, GE Capital, JC Penney,
Michigan State University, MBNA America Bank NA, MCI, Metropolitan Life
Insurance Company, Nike, Sallie Mae, Sitel Corporation, Southwestern Bell,
Spiegel, Inc., Syracuse University, Telespectrum Worldwide, Inc., Turner Vision,
Inc., Warner Cable, USAA Insurance, American Airlines and Pacific Bell Operator
Services.

No individual customer represented more than 10% of EIS' net revenues in 1995,
1996 or 1997.

Sales and Marketing

EIS' systems and services are marketed in the United States and the United
Kingdom by a direct sales force located in numerous regional offices in those
areas. EIS also has distribution agreements with third party distributors in
France, Germany, Italy, Holland, Spain, Mexico and Japan. During 1995, 1996 and
1997, EIS revenues outside North America were approximately 6%, 4% and 6% of net
revenues, respectively.

EIS has established and continues to strengthen alliances with leading vendors
in the contact center market so that it can offer comprehensive solutions to
contact centers. Those relationships are worldwide and include alternative
distribution channels. EIS works with vendors of contact center application
software and offers them versions of EIS' software that operate with their
application software systems. EIS intends to expand those alliance and vendor
relationship, and

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EIS International, Inc. and Subsidiaries

work closely with leading vendors of telecommunications switches so that EIS
products may be easily integrated with those switches.

Customer Support and Service

EIS systems are typically used in contact center applications and those systems
are often mission critical to the customer's business. In mission critical
applications, a system or component failure could suspend, or substantially
interrupt a customer's business. EIS believes that its strong commitment to
customer support and service is a significant competitive factor. Its customer
support staff seeks to resolve most service problems through telephone
consultation and remote diagnostic programs are run through a modem connected to
the customer's system. If a problem cannot be corrected by telephone
consultation or remote diagnostics, an EIS customer service engineer visits the
customer's site, generally within eight hours of identification of a problem.
Customer support is available through a toll-free number 24 hours a day, seven
days a week and EIS provides 90-day warranties on its systems. Maintenance
contracts are available for terms of up to three years, based on monthly,
quarterly, or yearly payments. EIS' service and other revenues as a percentage
of total revenues were 16.0%, 22.8%, and 31.1% in 1995, 1996 and 1997,
respectively.

Competition

The market for call processing and workforce management systems is highly
competitive and EIS believes that competition will intensify as other companies
enter this market with CTI. EIS' principal competitors includes Davox
Corporation, Mosaix, Inc. and Melita International Corporation. EIS may also
encounter increased competition from existing competitors and from new market
entrants, including Aspect, Rockwell and Northern Telecom that have historically
competed primarily in the inbound market. In addition, for sales of application
software operating in contact centers, EIS may compete with software providers
and system integrators like Andersen Consulting and Electronic Data Systems
Corporation. For sales of workforce management systems, EIS primarily competes
with TCS Management Group, Inc. and may from time to time encounter other
competitors like Pipkins, Inc., IEX Corporation, Electronic Data Systems
Corporation and Affinitec Corporation. Many of EIS' current or potential
competitors may have greater financial, technical and marketing resources and
there can be no assurance that EIS will be able to continue to compete
successfully with those competitors. As EIS expands its offerings of contact
center applications, it may also encounter increased competition from third
party providers of contact center applications. To date, EIS has competed on the
basis of the capabilities and the price/performance of its systems, its
applications expertise and the quality of customer support. As the call
processing market matures and new and existing companies compete for the same
customers, price competition is likely to intensify, and that competition could
adversely affect EIS' operating results.

Regulatory Environment

Certain applications of outbound call processing systems are regulated by
federal and state law. In addition, the Federal Fair Debt Collection Practices
Act prohibits certain consumer debt collection practices, including telephone
communication at any unusual or inconvenient time or place. That act also
prohibits repeated or continuous ringing of the telephone or communications by
debt collectors with an intent to annoy, abuse or harass. The Federal Telephone
Consumer Protection Act (the "TCPA") prohibits the use of automatic dialing
equipment to call emergency telephone lines, health care and similar facility
telephone lines where a called party is charged for incoming calls, like pager
and cellular phone services. TCPA also prohibits use of automated equipment to
engage two or more lines of a multi-line business simultaneously. Among other
things, TCPA requires the Federal Communications Commission ("FCC") to initiate
a rulemaking proceeding concerning the need to protect residential telephone
subscribers' privacy rights to avoid receiving telephone solicitations they
object to. The FCC rules also require that telemarketers call consumers only
between 8 a.m. and 9 p.m., local time. In addition, certain states have laws
similar to the above described FCC prohibitions that limit access to telephone
subscribers who object to such solicitations. Although compliance with the
described laws may limit the potential use of EIS' systems in some areas, EIS'
systems may be programmed to operate in full compliance with those laws through
appropriate calling lists and campaign calling time parameters.

To minimize the likelihood that EIS' products will be subject to existing and
future laws and regulations, EIS works closely with industry organizations like
the Direct Marketing Association, the North American Telecommunication
Association and the American Telemarketing Association to educate consumers,
system customers and legislators about

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EIS International, Inc. and Subsidiaries

the significant distinction between predictive dialing systems which promote
person-to-person contacts and automated dialing recorded message players which
play recorded messages without live telephone agents.

A number of technical elements of EIS' systems are subject to and conform with
Federal Communications Commission regulations under the Federal Communications
Act of 1934. Additional products developed by EIS may also be required to comply
with those regulations before they can be sold in the United States. To the
extent EIS markets its products internationally, it must comply with applicable
foreign laws, including certification of those products by foreign regulatory
organizations. There can be no assurance that EIS will not encounter delays or
difficulty in obtaining those certifications and approvals.

Manufacturing and Quality Assurance

EIS systems are manufactured, assembled and tested primarily by Kimchuk, Inc.
("Kimchuk"), an independent contractor. EIS' agreement with Kimchuk expires in
July 1998; however that agreement has an automatic one-year renewal term, unless
either party gives 90 days' notice of an intent not to renew it. During the term
of this agreement, Kimchuk has a right of first refusal to manufacture certain
EIS' products and related components, subject to certain conditions. EIS may
terminate this agreement, if Kimchuk is unable to satisfy EIS' quality assurance
requirements within a specified time after notice to Kimchuk, or Kimchuk is
unable to meet EIS' demand for products as specified in the agreement. The
functions of any EIS manufacturer are conducted in accordance with EIS
specifications and under the direction of EIS' engineering staff. EIS has used
Kimchuk to produce its systems for more than five years. EIS believes that for
at least the next 12 months, Kimchuk has sufficient capacity to meet EIS'
anticipated production requirements. Prior to 1997, EIS also utilized Electronic
Instrumentation and Technology, Inc., ("EIT") to manufacture certain parts for
which EIS no longer has a significant requirement.

Because EIS' systems are manufactured from standard industry components, it
believes that it could make arrangements with other vendors to increase its
output, or replace a current contractor. To date, adequate supplies of these
components and alternative supplies for other components that are currently
single-sourced have been available in a timely manner from a variety of vendors.

EIS has a software quality assurance program to insure that software releases
function properly and related documentation is complete. Various simulation
tools are used for testing software prior to release, and the computerized user
tracking system is able to document reported problems and resolutions. This
tracking system permits analysis of customer problems to determine if service
announcements for software changes are required.

The personal computers used in the EIS contact center system are supplied by
four manufacturers and interruption in the supply of those computers, or the
required peripherals could disrupt or delay the shipment of EIS systems to
contact center customers.

Intellectual Property

EIS' U.S. patent for voice detection technology, based on a unique method of
wave form analysis expires in 2005. EIS' U.S. patent for a method of randomizing
telephone numbers also expires in 2005; its U.S. patent for the digital voice
protocol converter and port controller expires in 2006; its U.S. patent for the
digital voice recording, reproduction and telephone network signaling using
direct storage in RAM of PCM-encoded data expires in 2006; its U.S. patent for
regulating arrivals of customers to servers expires in 2006; its U.S. patent for
a telephone trunk interface circuit expires in 2006; its U.S. patent for an
alternate memory addressing method for information storage and retrieval expires
in 2006; its U.S. patent for a redundancy and buffering design for a call
processor expires in 2007; its U.S. patent for the pacing of telephone calls for
call origination management systems expires in 2007; its U.S. patent for a
method for the classification of audio signals on a telephone line expires in
2008; its U.S. patent for a call pacing algorithm using call progress detection
technology expires in 2010; its U.S. patent for a method for call pacing to
reduce abandoned calls expires in 2011; its U.S. patent for a system for
integrating a stand-alone inbound automatic call distributor and an outbound
predictive dialer expires in 2012; its U.S. patent for an advanced method for
answer machine detection expires in 2012; its U.S. patent for a system that
archives both voice and data in a contact center which expires in 2015; its U.S.
patent for integrating a stand alone inbound automatic call distributor and an
outbound automatic call dialer

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EIS International, Inc. and Subsidiaries

which expires in 2015; its U.S. patent for outbound call pacing method which
statistically matches the number of calls dialed to the number of available
operators expires in 2015; and its U.S. patent for a system for adding outbound
dialing to inbound call distributors expires in 2015.

In December 1997, EIS filed a U.S. patent application for outbound switch
pacing. EIS also has 4 pending U.S. patent applications on: a method for
motivating call center agents; voice interactive call center training using
actual screen and screen logic; real-time on-line call verification systems; and
a communication management system that manages agent responses to clients over
the Internet.

Because of the rapid change in technology in contact centers and since EIS
recognizes that its success depends on its ability to continue to provide
technology enhancements for current and future products, EIS does not believe
that the expiration of its patents will have any material adverse effect on its
business.

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:

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 The market for call processing systems is highly competitive and EIS
believes that competition will intensify as new companies enter the market.
EIS may encounter increased competition from existing competitors and from
new market entrants, including companies which have historically competed
primarily in the inbound call processing market. In addition, for sales of
applications software to contact centers, EIS may compete with third party
software providers and system integrators. Many current or potential
competitors may have greater financial, technical and marketing resources
than EIS. As EIS expands its offerings of contact center applications, it
may also encounter increased competition from providers of contact center
applications. As the call processing market matures and new and existing
companies compete for the same customers, price competition is likely to
intensify (see "Business - Competition")

o From time to time, EIS may consider strategic acquisitions. Its ability to
succeed with those acquisition 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

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EIS International, Inc. and Subsidiaries

the past, EIS experienced difficulties with the successful identification
and integration of several acquisitions (see "Business - Background").

o EIS' success will depend in part on its ability to obtain and maintain
patent protection for its products, 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
have often resulted in significant and often 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 the laws of the United States (see "Business
Intellectual Property").

o EIS' digital switches are manufactured, assembled and tested by Kimchuk, an
independent contractor, under an agreement that has been in effect for over
five years (see "Business - Manufacturing and Quality Assurance"). 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. Personal computers used in
EIS' contact center systems are supplied by four manufacturers. An
interruption in the supply of those computers, or related peripherals could
disrupt or delay the shipment of systems to customers.

o EIS offers lease financing to customers 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 certain leases could be subject to a 10% 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. 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 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 may also be
subject to compliance with similar or even more restrictive regulations
before they can be sold in the United States. To the extent 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.

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<PAGE>

EIS International, Inc. and Subsidiaries

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 likely to be
intense.

Because of the above and other factors, EIS' past financial performance should
not be considered an indicator of its future performance.

Employees

At December 31, 1997, EIS employed 389 persons, many of whom are highly skilled.
EIS' success depends on its ability to continue to attract and retain highly
skilled employees. EIS has never had a work stoppage, and its employees are not
represented by any labor organizations. EIS considers its employee relations to
be good.

Executive Officers of EIS

The executive officers of EIS, and their age and position, are as follows:

Name Age Position
- ------------------------- ------------------------------------------------------

James E. McGowan 54 Chief Executive Officer, President, and Director
Frederick C. Foley 52 Chief Financial Officer, Senior Vice President,
Finance and Treasurer
Joseph E. Smith 47 Senior Vice President, Worldwide Sales and Marketing
Kent M. Klineman 65 Secretary and Director

James E. McGowan has been EIS' Chief Executive Officer, President and a Director
since February 1997. He was also President and Chief Operating Officer of EIS
Systems, an operating division of EIS, from April 1996 until February 1997. From
September 1993 to January 1996, he was President and Chief Executive Officer of
Deluxe Data, a provider of electronic funds transfer processing and software for
financial institutions and automated teller machine networks. From January 1993
to September 1993, he ran McGowan Associates, a consulting company which he
founded. From January 1990 to December 1992, he served as President and Chief
Executive Officer at Xerox Imaging Systems.

Frederick C. Foley has been EIS' Senior Vice President, Finance, since October
1994, Chief Financial Officer of EIS from October 1994 to January 1996 and again
since February 1997, and Treasurer from January 1994 until April 1996 and again
since February 1997. From April 1993 until October 1994, he served as Vice
President, Finance, of EIS. He served as EIS' Controller from October 1991 until
November 1993. He was elected as an executive officer of EIS in April 1993.

Joseph E. Smith has been EIS' Senior Vice President of worldwide sales,
marketing and product management, since June 1997. His areas of responsibility
include overall company marketing, new business development, strategic
alliances, account management and international operations. From February 1996
to June 1997, Mr. Smith was General Manager and Executive Vice President of
InteliData Technologies Corporation, a Herndon-based technology company where he
was responsible for the company's electronic commerce division. From January
1994 to January 1996, Mr. Smith was Senior Vice President at Deluxe Data. From
January 1989 to January 1994, Mr. Smith was founder and president of Altus, a
start-up consulting, publishing and market-research firm that served Fortune 500
and high-tech clients. Mr. Smith's previous experience includes senior-level
sales, marketing and client-services positions at high-tech companies, including
CalComp and IBM.

Kent M. Klineman has been EIS' Secretary and a Director since June 1988 and
served as Treasurer from June 1988 until December 1989. He is an attorney and
private investor and serves as a Director of a number of closely-held companies.
He is also a Director of Concord Camera Corp., a publicly held corporation.

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EIS International, Inc. and Subsidiaries

Item 2. Properties

EIS' executive offices are located in Herndon, Virginia. This facility has
approximately 65,000 square feet and is leased through December 31, 2001, at a
current annual base rent of $1.2 million, plus charges for proportionate real
estate taxes and operating costs. EIS also leases space in Stamford,
Connecticut, primarily for engineering activities. This facility has
approximately 37,000 square feet and is leased through December 31, 2001, at an
annual base rent of approximately $639,000, plus charges for direct costs.
During December, 1997, over one-third of this office was sublet through
September 1998 and EIS is continuing to seek a permanent sublet arrangement or
release from its obligations on this portion of its Stamford facility. This
sublease is expected to reduce rent expense by approximately $264,000 during
this period.

EIS also leases space in Chantilly, Virginia. This facility has approximately
20,000 square feet and is leased through January 2003 at an annual base rent of
$229,000. During the first quarter of 1998, the Company consolidated the
operation of this facility into its Herndon, Virginia facility. The Company is
currently seeking to sublease the Chantilly, Virginia space.

During the first quarter of 1997, EIS closed its 16,000 square foot Canonsburg,
Pennsylvania facility and completed a release from its lease obligations which
was due to expire in January 2002, and required annual base rental payments of
$254,000. EIS also leases numerous regional small sales and customer support
facilities in the U.S. and one facility in each of the Netherlands and the
United Kingdom, all under renewable leases or occupancy arrangements for a term
of one year or less. EIS believes that its facilities are adequate for its
current level of employment but expects that it will require additional square
footage to accommodate future business and employment growth.

Cybernetics leases space in Coral Gables, Florida. The Coral Gables facility has
approximately 9,700 square feet and is leased through March 2002 at an annual
base rent of $180,000. During 1997, Cybernetics closed and sublet its Fort
Lauderdale, Florida, and Pleasanton, California, offices.

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EIS International, Inc. and Subsidiaries

Item 3. Legal Proceedings

The Company and certain individuals indicated below are 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 which 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 25, 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 4, 1997.

These lawsuits have been consolidated into a single case and the Company expects
an amended complaint to be filed in early 1998. The Company and various other
defendants have retained counsel, the claims are being reviewed, and the lawsuit
will be vigorously defended. The Company is currently not able to estimate the
costs or a range of costs which may arise out of this case.

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.

The Company has, from time-to-time, received notices of potential intellectual
property infringement claims against it. Based on the knowledge and the facts
and, in certain cases, opinions of outside counsel, management believes the
resolution of the existing claims will not have a material adverse effect on the
consolidated financial position or results of operations of the Company.

Item 4. Submission of Matters to a Vote of Security Holders

None.

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EIS International, Inc. and Subsidiaries

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

EIS common stock began trading on the NASDAQ National Market System under the
symbol "EISI" on July 10, 1992. The following table sets forth for the periods
indicated the high and low prices for the Common Stock as reported by NASDAQ.

1996 1997
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
First Quarter 18-3/4 14-1/4 8-5/8 4
Second Quarter 31-5/8 14-3/8 8-1/4 4
Third Quarter 28-3/4 12-7/8 10-7/8 7-3/4
Fourth Quarter 14-1/8 6-1/2 9-7/8 5-7/32

As of December 31, 1997, there were approximately 320 holders of record of the
Company's Common Stock and approximately 5,000 beneficial holders of the
Company's Common Stock.

The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain any earnings for future growth and, therefore, does
not anticipate paying cash dividends on its Common Stock in the foreseeable
future.

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EIS International, Inc. and Subsidiaries

Item 6. Selected Financial Data

Selected Consolidated Financial Data
(In Thousands, Except Per Share Data)

The following selected consolidated financial data as of and for the years ended
1993, 1994, 1995, 1996, and 1997 is derived from the Company's audited
consolidated financial statements, which, with respect to the years 1995, 1996
and 1997, are included under Item 8. Financial Statements and Supplementary
Data. The selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Results of Operations and
Financial Condition," the Consolidated Financial Statements, related notes and
other financial information included elsewhere in this report.

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
Statement of Operations Data
<S> <C> <C> <C> <C> <C>
Net Revenues $ 50,674 $ 64,872 $ 89,610 $ 95,659 $ 85,630
Operating income (loss) 7,357 12,193 15,861 (37,096) 763
Income (loss) from continuing operations 4,710 7,602 11,357 (33,028) 1,245
Loss from discontinued operations,
net of tax benefit (374) (544) (2,137) (5,528) --

Net income (loss) per share data:
Basic:
Continuing operations $ 0.68 $ 0.92 $ 1.17 $ (3.09) $ 0.11
Discontinued operations (0.05) (0.07) (0.22) (0.52) --
-------- -------- -------- -------- --------
Net income (loss) $ 0.63 $ 0.85 $ 0.95 $ (3.61) $ 0.11
======== ======== ======== ======== ========

Diluted:
Continuing operations $ 0.58 $ 0.86 $ 1.09 $ (3.09) $ 0.11
Discontinued operations (0.05) (0.06) (0.20) (0.52) --
-------- -------- -------- -------- --------
Net income (loss) $ 0.53 $ 0.80 $ 0.89 $ (3.61) $ 0.11
======== ======== ======== ======== ========

Weighted average common and
common equivalent shares:
Basic 6,978 8,241 9,707 10,681 11,353
Diluted 8,104 8,870 10,462 10,681 11,605

Balance Sheet Data
Total assets $ 39,555 $ 64,944 $ 84,217 $ 72,861 $ 67,792
Long-term obligations
redeemable preferred stock -- -- -- -- --
</TABLE>

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EIS International, Inc. and Subsidiaries

Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition

Cautionary Statement

These 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
introductions and acceptance, distribution networks, changes in industry
practices, one-time events and other factors described herein (see "Business -
Factors Affecting Future Results"). Based upon changing conditions, should any
one or more of these risks or uncertainties materialize, or should any
underlying assumptions prove incorrect, the Company 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. The
Company does not intend to update these forward-looking statements.

Introduction

EIS International, Inc., together with its wholly-owned subsidiaries (the
"Company" or "EIS"), provides integrated systems, software and services to
businesses that use the telephone in organized campaigns to reach large target
audiences. These solutions improve the productivity and effectiveness of call
center (also known as "contact center") operations including campaign
management, staffing and technology integration. The Company is one of the
world's largest suppliers of advanced contact center technology and a leading
provider of outbound and integrated inbound/outbound contact center
technologies.

On March 1, 1996, the Company acquired all the issued and outstanding capital
stock of Cybernetics Systems International Corp. ("Cybernetics"), a privately
held company located in Coral Gables, Florida, for $22.8 million consisting of
$9.3 million in cash and the remainder in shares of EIS common stock.
Cybernetics specializes in computerized Workforce Management Systems for the
contact center industry which are designed to aid in staff forecasting and
scheduling. The acquisition of Cybernetics was accounted for by the purchase
method of accounting and accordingly, the acquired assets have been recorded at
their fair values, with the help of an appraiser, at the date of purchase and
the results of operations of the Company reflect those of Cybernetics from March
1, 1996.

On September 1, 1996, the Company entered into an Asset Purchase Agreement with
Pulse Technologies, Inc. ("Pulse"), a Virginia corporation, relating to the
purchase of substantially all of the assets of Pulse for consideration
consisting of the assumption of certain liabilities and the payment of (i)
44,993 shares of the Company's common stock, $.01 par value per share, having a
value of approximately $820,000; (ii) $950,000 in cash and (iii) five-year
warrants to purchase 29,995 shares of EIS common stock at $18.23 per share.
Pulse was a professional and technical service firm specializing in
telecommunications consulting. The acquisition of Pulse was accounted for by the
purchase method of accounting, and accordingly, the acquired assets have been
recorded at their fair values, with the help of an appraiser, at the date of
purchase and the results of operations of the Company reflect those of Pulse
from September 1, 1996.

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EIS International, Inc. and Subsidiaries

In connection with the Cybernetics and Pulse acquisitions, the Company acquired
technology in process that had not achieved technological feasibility at the
date of acquisition and had no alternative future uses. As a result, the Company
has charged the fair value of such acquired technology in process against
operations at the time of the acquisition.

As part of the refocus on the core business of the Company, as of December 31,
1996, the Company has discontinued the operations of Surefind (see "Discontinued
Operations"). Accordingly the results of Surefind in 1995 and 1996 are shown as
a loss on discontinued operations in the consolidated statements of operations
for the respective periods.

On March 3, 1997, the Company announced a restructuring and reorganization
program (the "Restructuring"), the purpose of which was to refocus the Company's
efforts on its core systems business and to reduce costs. In connection with the
Restructuring, the Company downsized the operations of Cybernetics, closed and
sublet its Fort Lauderdale, Florida facility, focusing Cybernetics' development
and marketing efforts primarily on its Workforce Manager product. In addition,
EIS terminated the separate operations of Pulse, its Chantilly, Virginia based
integration services business, by integrating the business of Pulse into the
operations of the Company's core business. Furthermore, the Company closed its
corporate headquarters in Pittsburgh, Pennsylvania and relocated the corporate
headquarters to its facility in Herndon. A total of approximately 110 employees
were terminated as a result of the Restructuring. During the first quarter of
1997, in connection with the Restructuring, the Company 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 $0.5 million of other costs.

Results of Operations

The following table sets forth, for the periods indicated, certain financial
data as reflected in the Consolidated Statements of Operations included as an
exhibit under Item 14 - Financial Statements and Supplementary Data. The
percentages shown are calculated based upon of 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>
Years Ended December 31,
-------------------- --------------------- -------------------
1995 1996 1997
-------------------- --------------------- -------------------
$ % $ % $ %
--------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Product and software sales 75,254 84.0 73,848 77.2 59,017 68.9
Service and other 14,356 16.0 21,811 22.8 26,613 31.1
--------- ------- -------- -------- ------- -------
Net revenues 89,610 100.0 95,659 100.0 85,630 100.0
--------- ------- -------- -------- ------- -------
Cost of product and software sold 26,567 35.3 31,859 43.1 20,512 34.8
Provision for contract losses -- -- 4,967 6.7 -- --
Cost of service and other 6,991 48.7 13,133 60.2 14,737 55.4
--------- ------- -------- -------- ------- -------
Gross margin 56,052 62.6 45,700 47.8 50,381 58.8
--------- ------- -------- -------- ------- -------
Research and development cost 7,979 8.9 14,152 14.8 11,899 13.9
Sales, general and administrative 32,212 35.9 42,341 44.3 34,842 40.7
Restructuring costs -- -- -- -- 2,877 3.4
Acquired technology in process -- -- 18,245 19.1 -- --
Write-off of intangible assets -- -- 8,058 8.4 -- --
--------- ------- -------- -------- ------- -------
Operating income (loss) 15,861 17.7 (37,096) (38.8) 763 0.9
--------- ------- -------- -------- ------- -------
Other income, net 1,894 2.1 1,313 1.4 1,298 1.5
--------- ------- -------- -------- ------- -------
Income (loss) before income tax
benefit (expense) 17,755 19.8 (35,783) (37.4) 2,061 2.4
--------- ------- -------- -------- ------- -------
Income tax benefit (expense) (6,398) (7.1) 2,755 2.9 (816) (1.0)
--------- ------- -------- -------- ------- -------
Income (loss) from continuing operations 11,357 12.7 (33,028) (34.5) 1,245 1.5
--------- ------- -------- -------- ------- -------
Discontinued operations (2,137) (2.4) (5,528) (5.8) -- --
--------- ------- -------- -------- ------- -------
Net income (loss) 9,220 10.3 (38,556) (40.3) 1,245 1.5
========= ========= ======== ======== ======= =======
</TABLE>

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<PAGE>

EIS International, Inc. and Subsidiaries

Net Revenues

Net revenues of $85.6 million during 1997 decreased $10.0 million (10%) from
$95.7 million during 1996. Product and software sales revenue during 1997
decreased $14.8 million (20%) while service and other revenues increased $4.8
million (22%), as compared to 1996. The decrease in product and software sales
revenue is primarily a result of a decrease in sales of the Company's mature
products which were not offset by an increase in sales of its newer products,
and a decrease in sales of the Company's wholly owned subsidiary, Cybernetics.
Towards the end of 1997 and continuing into 1998, the Company has taken and is
continuing to take actions to address the decline in product revenue including
an increase in its domestic and international sales personnel and marketing
activities, in addition to seeking to increase its strategic alliance
relationships. However, no assurance can be given that these actions will result
in stabilizing or increasing product revenue.

Net revenues increased $6.1 million, or 7%, in 1996 as compared to 1995. The
acquisition of Cybernetics and Pulse accounted for an increase of $9.9 million
of the income in net revenues in 1996. Product and software sales in 1996
declined $1.4 million or 2%. The decrease in product and software sales is
primarily a result of an increase in the Company's allowance for sales returns
($1.3 million) and the Company's decision to take back a call processing system
relating to a customer dispute ($2.2 million). In addition, as a result of
changing experience with the Company's more technologically advanced Centenium
product line, effective with the fourth quarter of 1996, the Company began
recognizing revenue on its Centenium product upon customer acceptance after
installation, which resulted in deferring $6.8 million in sales of Centenium
products at the end of 1996.

The increase in service and other revenues during 1997 as compared to 1996, was
primarily due to expansion of the Company's customer base covered by service
contracts and the expansion of its systems integration business. Service and
other revenues increased $7.5 million, or 52%, in 1996 as compared to 1995.
Service and other revenues increased in 1996 primarily due to expansion of the
customer base covered by service contracts ($4.0 million), the addition of
Cybernetics service contracts ($2.3 million) and the expansion of the Company's
systems integration business primarily through the acquisition of Pulse ($1.2
million).

EIS markets its systems and services in the United States through a direct sales
force located in numerous regional offices throughout the United States and in
the United Kingdom. EIS also has agreements with independent distributors in
France, Germany, Italy, Holland, Spain, Mexico, and Japan. During 1995, 1996 and
1997, the Company's revenues outside North America were approximately 6%, 4%,
and 6% of net revenues, respectively.

Cost of Revenues and Gross Margins

Cost of revenues consists of product costs, amortization of computer software
costs, installation costs, and maintenance and customer support costs. The
overall gross margin was $50.4 million (58.8%) in 1997, $45.7 million (47.8%) in
1996, and $56.1 million (62.6%) in 1995. Gross margin on product and software
sales was $38.5 million (65%) in 1997, $37.0 million (50.1%) in 1996, and $48.7
million (64.7%) in 1995. The increase in gross margin on product and software
sold as a percentage of product and software sales revenue during 1997 compared
to 1996 is primarily due to four factors. First, the percentage of product and
software sold associated with hardware declined by 16% during 1997, as compared
to 1996, as a result of customers purchasing the Company's software to be
installed on existing hardware. Second, during 1996, the Company recorded a $5.0
million provision for costs associated with the completion and installation of
products and the resolution of Cybernetics contract obligations, a $1.7 million
inventory write-down, and increased hardware costs associated with a Cybernetics
installation of $1.3 million. Third, the cost of product and software sold as a
percentage of product and software sales revenue in 1996 was negatively affected
by the lower revenue base used in the calculation as a result of the sales
returns and allowance explained above under "Net Revenues". Fourth, staffing
expenses included in the cost of product and software sold during 1997 decreased
from the staffing expenses during 1996. The decrease in product gross margin
from 1995 to 1996 reflects an increase in product costs as a percentage of
product revenue from 35.3% in 1995 to 49.9% in 1996 primarily due to provision
for costs associated with the Cybernetics contract obligations and inventory
write-down discussed above, increased hardware costs associated with a
Cybernetics installation discussed above, and increased staffing and third-party
installation costs of $2.3 million.

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<PAGE>

EIS International, Inc. and Subsidiaries

Gross margin on service and other revenue was $11.9 million (44.6%) in 1997,
$8.7 million (39.8%) in 1996, and $7.4 million (51.3%) in 1995. Service and
other costs were 55.4% of service and other revenues during 1997 compared to
60.2% in 1996. The decrease in costs of service and other as a percentage of
service and other revenues during 1997 is due primarily to expenditures incurred
during the 1996 periods for building the infrastructure of the service
organizations in advance of generating additional service revenue. The
improvement in 1997 also resulted from a decline in the cost of supplying parts
under customer maintenance agreements as a result of management's efforts to
improve this operation. Service and other costs as a percentage of service and
other revenue increased from 48.7% in 1995 to 60.2% in 1996 due to the addition
of service costs associated with building the infrastructure of the service
organizations in advance of generating revenues from these units during 1996, as
discussed above.

The Company's gross margin can be affected by a number of factors, including
changes in sales volume, product mix, costs of product support and competitive
pressures on pricing. Consequently, there can be no assurance that the Company
will continue to sustain gross margins at previous levels.

Research and Development Costs

Research and development costs as a percentage of total revenues were 13.9% in
1997, 14.8% in 1996, and 8.9% in 1995. Research and development costs decreased
$2.3 million to $11.9 million during 1997 from $14.2 million during 1996. This
decrease was primarily due to a decline in such costs incurred by Cybernetics
and a decline in the use of subcontract software engineers (see "Disclosures
Regarding Year 2000 Issues" below regarding use of external resources during
1998). Research and development costs increased by $6.2 million or 77% in 1996
over 1995. The addition of Cybernetics during 1996 increased software
development costs by $3.4 million in 1996. Additional cost increases during 1996
and 1995 reflect the continued expansion of the Company's research and
development staff and use of external consultants to support its ongoing product
development.

In addition, the Company capitalized certain software development costs relating
to the enhancement of existing products and to the development of new products
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 86
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed." Approximately $1.1 million, $2.1 million, and $1.4 million were
capitalized during 1997, 1996, and 1995, respectively. Amortization of
capitalized software costs of $1,384,000, $816,000, and $993,000 in 1997, 1996,
and 1995, respectively, and are included in cost of products sold.

The Company has a commitment to technological innovation. It believes that
additional research and development costs will be required to maintain the
Company's market position and that these costs may increase in absolute amounts
in 1998.

Sales, General and Administrative Expense

Sales, general and administrative expense decreased $7.5 million to $34.8
million during 1997 from $42.3 million during 1996. This decrease was primarily
due to the fact that during the first quarter of 1997, in connection with the
Restructuring as discussed above, EIS consolidated several of its administrative
functions and facilities and downsized its Cybernetics and Pulse subsidiaries.
Selling expenses also decreased along with the decrease in net revenues. Sales,
general and administrative expense increased $10.1 million during 1996 as
compared to 1995. This expense as a percentage of revenue was 44.3% in 1996
compared to 36.0% in 1995. The principal reasons for the increase of this
expense in 1996 over 1995 were the addition of Cybernetics ($3.6 million),
additional bad debt reserves of $4.9 million, increased payroll and benefits of
$1.5 million and merger costs of $680,000.

Acquired Technology in Progress

The acquired technology in progress costs of $18.2 million incurred in 1996
reflect the fair value of the software products under development at Cybernetics
and Pulse that had not achieved technological feasibility at the date of
acquisition, had no alternative future uses, and were therefore charged against
operations at the time of the acquisitions.

-22-
<PAGE>

EIS International, Inc. and Subsidiaries

Write-down of Intangible Assets

In accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" management performed a
discounted cash flow analysis of Cybernetics' operations. As a result of this
analysis, management concluded that a write-down of the intangible assets of
Cybernetics from $8.1 million to zero was warranted.

Other Income, Net

Other income, net is primarily interest income resulting from the investment of
excess cash and cash equivalents, along with interest generated from the
Company's lease portfolio. Other income, net was $1.3 million in 1997 and 1996,
and $1.9 million in 1995. Interest income (included in other income, net)
decreased from 1995 to 1996 primarily due to the sale of a major portion of the
Company's lease portfolio and lower average cash, cash equivalent, and
short-term investment balances.

Discontinued Operations

On February 28, 1997, at the recommendation of Company management, the Board of
Directors of the Company resolved to discontinue the operations of Surefind. The
decision to discontinue the operations of Surefind was made after it became
apparent that a higher than anticipated level of cash funding was needed to
exploit Surefind's product and such level was considered excessive given the
cash requirements necessary to focus properly on the core business of the
company. Surefind incurred a net loss of approximately $3.7 million in 1996 and
$2.1 million in 1995. In connection with the decision to discontinue the
operations of Surefind, the Company recorded a $1.8 million estimated loss, net
of tax benefits, on the disposal of Surefind which includes a provision for
anticipated operating losses prior to disposal.

Income Taxes

The Company's effective income tax expense (benefit) rate was 39.6%, (7.7)%, and
36% for 1997, 1996, and 1995, respectively. The increase in the effective tax
rate from 1996 to 1997 is primarily attributable to the 1996 losses incurred by
the Company offset by the non-deductible charges related to the acquired
technology in process and the write-down of intangible assets in 1996. The
decrease in the tax rate from 1995 to 1996 is primarily attributable to the 1996
results discussed in the preceding sentence. Additionally, in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, the Company
established a valuation allowance to reduce the net deferred tax asset to a
level which, more likely than not, would be realized, when necessary. The
valuation allowance was increased in 1996 by $4.0 million for the net operating
loss carryforwards of Cybernetics and Surefind that were generated prior to EIS'
ownership.

Year 2000 Issues

Impact on EIS. All EIS products will be affected in some manner by Year 2000
issues, except for EMPSx and WFM, which are already Year 2000 compliant. EIS has
developed and expects to implement in 1998 a plan ("the Year 2000 Product Plan")
that makes necessary modifications to its products. The current estimated cost
to update EIS' products is approximately $2.0 million. EIS expects to supplement
its internal resources with external resources to complete the Year 2000 Product
Plan. EIS will seek to manage its research and develop costs and Year 2000
Product Plan costs, so that EIS' total research and development costs are not
materially different from EIS' research and development costs in 1996 and 1997,
but there can be no assurance it 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. EIS is
planning to provide updated software to customers under EIS maintenance
contracts, and to

-23-
<PAGE>

EIS International, Inc. and Subsidiaries

charge fees for on-site visits, when necessary, and for certain other services
to upgrade customer 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 implement 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 to all of its products; however, upgrading all customers
products that require such upgrades prior to Year 2000 cannot be assured since a
substantial part of the upgrade process will be dependent on the customer.
Additionally, the estimated research and development costs discussed above could
change materially as development of the Year 2000 Product Plan proceeds.

Liquidity and Capital Resources

The Company's working capital increased to $31.5 million at December 31, 1997
from $26.3 million at December 31, 1996. Cash, cash equivalents, and short-term
investment balances increased $10.1 million to $24.9 million at December 31,
1997 from $14.8 million at December 31, 1996. The increase in cash, cash
equivalents, and short-term investments primarily resulted from the $14.6
million of net cash provided by operating activities in 1997, as reflected in
the accompanying consolidated statements of cash flows. Net cash of $4.6 million
used in investing activities during 1997 primarily related to additions to
property and equipment of $4.8 million for leasehold improvements incurred
during the consolidation of facilities, and ongoing upgrades of internal
computer hardware and software.

During 1996, cash and cash equivalents were used for the purchase of businesses
net of cash acquired of $7.0 million, additions to property and equipment of
$5.0 million, discontinued operations of $5.2 million, purchases of short-term
investments of $3.7 million, and expenditures of $2.1 million of software
development costs capitalized in accordance with SFAS No.86. Offsetting these
uses of cash were cash provided in 1996 by the net sale of $6.0 million of a
portion of the Company's lease portfolio as discussed further below, proceeds of
$5.3 million from the exercise of warrants and stock options, and net cash
provided by continuing operations of $2.1 million.

The Company believes that its collection practices and terms of sale are
consistent with practices in its industry. The Company generally receives a
deposit upon order, a further payment upon installation and a payment of the
invoice balance generally within 60 to 120 days after shipment. The Company has,
from time to time, offered extended payment terms and lease financing to its
customers, and it intends to continue these practices.

Current and long-term installment and lease receivables were $2.9 million and
$4.5 million as of December 31, 1997 and 1996, respectively. The decrease of
$1.6 million is primarily due to payments of lease principal. The Company did
not underwrite any significant new leases during 1997.

On March 29, 1996, a wholly-owned subsidiary of the Company entered into a
Purchase Agreement whereby a portion of its lease portfolio was sold to a
financial institution for $5.2 million in cash. In July, 1996 an additional
portion of the Company's lease portfolio was sold under this agreement for $0.8
million in cash. All leases sold under this agreement are subject to certain
recourse provisions and the Company is a guarantor to the Purchase Agreement.
The Company has also entered into an agreement with another leasing company
under which the leasing company will provide favorable lease financing for EIS
customers, and in exchange, EIS is subject to certain limited recourse
provisions for certain leases. The Company provides for potential losses on
recourse in its allowance for doubtful accounts and sales returns. At December
31, 1997, approximately $9.6 million of leases subject to recourse are
outstanding.

-24-
<PAGE>
EIS International, Inc. and Subsidiaries

On September 3, 1997, the Company 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, the Company may
borrow up to $7 million, subject to certain borrowing base limitations, and
amounts outstanding accrue interest at the bank's prime rate plus .75%. The New
Loan Agreement is secured by substantially all assets of the Company and expires
on September 2, 1998. There were no amounts outstanding under the New Loan
Agreement as of December 31, 1997. Prior to the New Loan Agreement, the Company
had an unsecured line of credit of $12.5 million with the same commercial bank
under a commitment that expired in January 1997.

The Company 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 New 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, the Company's ability to
achieve that result will be affected by the amount of cash generated from
operations and the pace that its available resources are utilized. Accordingly,
the Company may in the future be required to seek additional sources of
financing, including borrowing and/or the sale of equity. If additional funds
are raised by issuing equity, further dilution to shareholders may result. No
assurance can be given that any such additional sources of financing will be
available on acceptable terms, or at all.

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 the Company, except for the shareholder lawsuit discussed above under Item 3
- - "Legal Proceedings". The Company is currently not able to estimate the costs
or a range of costs which may arise out of such shareholder lawsuit.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 8. Financial Statements and Supplementary Data

The financial statements required by this Item are included in the financial
statements and schedules included herein under Item 14 and are incorporated
herein by reference.

Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure

None.

-25-
<PAGE>

EIS International, Inc. and Subsidiaries

PART III

Item 10. Directors and Executive Officers of the Registrant

The information under the caption "Election of Directors" of EIS' proxy
statement relating to its 1998 Annual Meeting of Stockholders and the
information under the caption "Security Ownership of Certain Beneficial Holders
and Management" in such proxy statement is incorporated herein by reference.

Item 11. Executive Compensation

The information under the caption "Executive Compensation" of EIS' proxy
statement relating to its 1998 Annual Meeting of Stockholders and the
information under the caption "Certain Transactions" of such proxy statement is
incorporated herein by reference. The information in Part 1 under the caption
"Executive Officers of the Company" is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Holders and Management

The information under the caption "Security Ownership of Certain Beneficial
Holders and Management" of EIS' proxy statement relating to its 1998 Annual
Meeting of Stockholders is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

The information under the caption "Certain Transactions" of EIS' proxy statement
relating to its 1998 Annual Meeting of Stockholders is incorporated herein by
reference.

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<PAGE>

EIS International, Inc. and Subsidiaries

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) Financial Statements, Financial Schedules, and Exhibits

1. EIS International, Inc. Consolidated Financial Statements

Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1996 and 1997
Consolidated Statements of Operations for the Years Ended December 31,
1995, 1996, and 1997
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1996, and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996, and 1997
Notes to Consolidated Financial Statements

2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts

3. Exhibits required by Item 601 of Regulation S-K:

3.1 Restated Certificate of Incorporation of EIS (incorporated by
reference to EIS' Exhibit 4.1 to the Company's Registration Statement
on Form S-3 (No. 33-79814) filed with the Securities and Exchange
Commission on June 3, 1994 (the "1994 Registration")).

3.2 By-Laws of EIS as amended (incorporated by reference to Exhibit 3.2
to EIS' Annual Report on Form 10-K for the year ended December 31,
1993 (the "1993 Form 10-K")).

4.1 Specimen Common Stock Certificate of EIS (incorporated by reference
to Exhibit C to EIS' Registration Statement on Form 8-A dated June
22, 1992).

4.2 Warrant No. WC-1 dated January 1, 1993 issued by EIS to Equilease
Corporation (incorporated by reference to Exhibit 4.6 to EIS' Annual
Report on Form 10-K for the year ended December 31, 1992 (the "1992
Form 10-K")).

4.3 Warrant No. WC-2 dated September 30, 1993 issued by EIS to Applied
Telecommunications Technologies, I, N.V. (incorporated by reference
to Exhibit 4.7 to the 1993 Form 10-K).

*10.1 (a) Form of Stock Option Agreement (incorporated by reference to
Exhibit 10.2 to the Registration Statement on Form S-1 of the
Registrant, file No. 33-47665 as filed with the commission on May 11,
1992 (the "1992 Registration")).

*10.1 (b) Amended and Restated Stock Option Plan of EIS (incorporated by
reference to EIS' Exhibit A to EIS' definitive proxy statement filed
in connection with its 1995 Annual Meeting of Stockholders)).

*10.1 (c) 1993 Employee Stock Purchase Plan of EIS (incorporated by
reference to Exhibit B to EIS' definitive proxy statement filed in
connection with its 1994 Annual Meeting of Stockholders)).

*10.1 (d) 1993 Stock Option Plan for Non-Employee Directors of EIS
(incorporated by reference to Exhibit B to EIS' definitive proxy
statement filed in connection with its 1994 Annual Meeting of
Stockholders).

*10.3 401(K) Plan of EIS (incorporated by reference to Exhibit 10.3 to the
1992 Registration).

*10.4 Section 125 Plan of EIS (incorporated by reference to Exhibit 10.4 to
the 1992 Registration).

-27-
<PAGE>

EIS International, Inc. and Subsidiaries

10.5 Lease Agreement dated November 27, 1990 between Mendik Real Estate
Limited Partnership and EIS (incorporated by reference to Exhibit
10.5 to the 1992 Registration).

10.7 Manufacturing Agreement dated July 17, 1990 between Kimchuk, Inc.
and EIS (incorporated by reference to Exhibit 10.7 to the 1992
Registration).

10.8 Working Capital Line of Credit Commitment Letter dated October 31,
1990 between Silicon Valley Bank and EIS (incorporated by reference
to Exhibit 10.8 to the 1992 Registration).

10.9 Pledge Agreement dated as of November 1, 1990 between Silicon Valley
Bank and EIS (incorporated by reference to Exhibit 10.9 to the 1992
Registration).

10.10 Security Agreement dated November 1, 1990 between Silicon Valley Bank
and EIS (incorporated by reference to Exhibit 10.10 to the 1992
Registration).

10.11 Security Agreement dated as of November 1, 1990 between Silicon
Valley Bank and EIS Leasing Corp. (incorporated by reference to
Exhibit 10.11 to the 1992 Registration).

10.12 Guaranty dated November 1, 1990 by EIS Leasing Corp. in favor of
Silicon Valley Bank (incorporated by reference to Exhibit 10.12 to
the 1992 Registration).

10.13 (a) Amendment to Silicon Valley Bank agreements dated February
22, 1991 (incorporated by reference to Exhibit 10.13 to the 1992
Registration).

10.13 (b) Amendment to Silicon Valley Bank agreements dated March 14,
1991 (incorporated by reference to Exhibit 10.14 to the 1992
Registration).

10.13 (c) Amendment to Silicon Valley Bank agreements dated August
10, 1991 (incorporated by reference to Exhibit 10.15 to the 1992
Registration).

10.13 (d) Amendment to Silicon Valley Bank agreements dated January
6, 1992 (incorporated by reference to Exhibit 10.13(d) to the 1992
Registration).

10.13 (e) Amendment to Silicon Valley Bank agreements dated April 14,
1993 (incorporated by reference to Exhibit 10.13(e) to the 1993
Form 10-K).

10.13 (f) Joinder and Assumption Agreement dated October 28, 1994 between
Silicon Valley Bank, EIS International Services Corp. and EIS
(incorporated by reference to Exhibit 10.13(f) to EIS' Annual Report
on Form 10-K for the year ended December 31, 1994 (the "1994 Form
10-K").

10.13 (g) Amended and Restated Promissory Note dated October 28, 1994
between Silicon Valley Bank, EIS International Services Corp. and EIS
(incorporated by reference to Exhibit 10.13(g) to the 1994 Form
10-K).

10.13 (h) Security Agreement dated October 28, 1994 between Silicon Valley
Bank and EIS International Services Corp. (incorporated by reference
to Exhibit 10.13(h) to the 1994 Form 10-K).

10.17 Agreement dated June 7, 1991 between American Telephone & Telegraph
Company (AT&T) and EIS (incorporated by reference to Exhibit 10.24 to
the 1992 Registration).

10.18 (a) Amendment to AT&T Agreement, dated October 15, 1991
(incorporated by reference to Exhibit 10.25 to the 1992
Registration).

10.18 (b) Amendment to AT&T Agreement, dated March 15, 1991 (incorporated
by reference to Exhibit 10.26 to the 1992 Registration).

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<PAGE>

EIS International, Inc. and Subsidiaries

10.20 Lease Participation Agreement dated as of September 30, 1993
between EIS Leasing Corp. and Applied Telecommunications Inc. for
participation in a finance equipment lease between EIS Leasing
Corp. and RMH Sales & Marketing Consulting, Inc. dated as of
November 19, 1992 (incorporated by reference to Exhibit 10.25 to
the 1993 Registration).

10.21 Lease Participation Agreement dated as of September 30, 1993 between
EIS Leasing Corp. and Applied Telecommunications Inc. for
participation in a finance equipment lease between EIS Leasing Corp.
and New Boston Services Group dated as of March 1, 1993 (incorporated
by reference to Exhibit 10.26 to the 1993 Registration).

10.23 Form of Warrant to Purchase Shares of Class B Common Stock of ITC
(incorporated by reference to Exhibit 99.4 to the 1993 Registration).

10.24 Lease Agreement dated January 23, 1992 between Provident Mutual Life
Insurance Company and ITC (incorporated by reference to Exhibit 99.5
to the 1993 Registration).

10.25 ITC 1989 Stock Option Plan, together with form of stock option
agreement (incorporated by reference to Exhibit 99.6 to the 1993
Registration).

10.31 Loan Document Modification Agreement No. 3; dated as of December 27,
1995) between EIS and Silicon Valley Bank (incorporated by reference
to Exhibit 10.31 of the 1995 Registration).

10.32 Loan Document Modification Agreement No. 5; dated as of September 3,
1997, between EIS and Silicon Valley Bank (incorporated by reference
to Exhibit 10.32 of Form 10-Q for the quarterly period ended
September 30, 1997).

11. Statement re: computation of per share earnings.

21. Subsidiaries of the Registrant.

23.1 Consent of KPMG Peat Marwick.

27 Financial Data Schedule.

* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Items 14(a) and (c) of this Report.

(b) Current Reports on Form 8K.

The Company did not file any Current Reports on Form 8-K during the fourth
quarter of 1997.

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EIS International, Inc. and Subsidiaries

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Dated: March 27, 1998 EIS INTERNATIONAL, INC.

By: /s/ James E. McGowan
------------------------
James E. McGowan
President and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934 this report
had been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

Principal Executive Officer:

/s/ James E. McGowan March 27, 1998
- ------------------------------------
President, Director and Chief Executive Officer

Principal Financial and Accounting Officer:

/s/ Frederick C. Foley March 27, 1998
- ------------------------------------
Frederick C. Foley
Senior Vice President, Finance and Chief Financial Officer

Directors:

March __, 1998
- ------------------------------------
Robert J. Cresci

/s/ Robert M. Jesurum March 27, 1998
- ------------------------------------
Robert M. Jesurum

/s/ Kent M. Klineman March 27, 1998
- ------------------------------------
Kent M. Klineman

/s/ Charles W. McCall March 27,1998
- ---------------------
Charles W. McCall

-30-
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
EIS International, Inc.:

We have audited the accompanying consolidated balance sheets of EIS
International, Inc. and subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997. In
connection with our audits of the consolidated financial statements, we also
have audited the accompanying financial statement Schedule II - Valuation and
Qualifying Accounts, for each of the years in the three-year period ended
December 31, 1997. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EIS International,
Inc. and subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997 in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.

KPMG Peat Marwick LLP

McLean, Virginia
January 28, 1998

-31-
<PAGE>

EIS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except per share amount)

December 31,
--------------------
1996 1997
--------- ---------
Assets
Current assets:
Cash and cash equivalents $ 11,099 $ 22,525
Short-term investments 3,660 2,332
Accounts receivable, trade, less allowances
for doubtful accounts and sales returns of
$6,117 in 1996 and $4,546 in 1997 21,335 13,979
Current portion of installment and lease receivables 2,007 1,674
Inventories 7,732 5,160
Current deferred income taxes 4,713 3,448
Refundable income taxes 2,450 611
Prepaids and other current assets 576 857
--------- ---------
Total current assets 53,572 50,586

Capitalized software development costs, net 4,617 4,372
Property and equipment, net 8,181 7,842
Installment and lease receivables, less current portion 2,470 1,254
Deferred income taxes 2,096 2,206
Other assets 1,925 1,532
--------- ---------
Total assets $ 72,861 $ 67,792
========= =========

Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $ 18,894 $ 15,508
Deferred revenue 5,683 2,983
Net liability of discontinued operations 2,738 598
--------- ---------
Total current liabilities 27,315 19,089

Other liabilities 304 253
--------- ---------
Total liabilities 27,619 19,342

Commitments and Contingencies (notes 4, 9, 10)
Stockholders' equity
Common Stock, $.01 par value, 15,000,000
shares authorized, issued 11,173,252 shares
in 1996 and 11,641,393 shares in 1997 112 116
Additional paid-in capital 58,268 60,357
Accumulated translation adjustments (196) (326)
Retained deficit (12,037) (10,792)
Treasury stock, at cost - 101,225 shares in
1996 and 1997 (905) (905)
--------- ---------
Total stockholders' equity 45,242 48,450
--------- ---------
Total liabilities and stockholders' equity $ 72,861 $ 67,792
========= =========

See accompanying notes to consolidated financial statements.

-32-
<PAGE>

EIS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)

<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1995 1996 1997
----------- ------------ -----------
<S> <C> <C> <C>
Net revenues:
Product and software $75,254 $ 73,848 $ 59,017
Service and other 14,356 21,811 26,613
----------- ------------ -----------
89,610 95,659 85,630
----------- ------------ -----------
Cost of revenues:
Cost of product and software sold 26,567 31,859 20,512
Provision for contract losses -- 4,967 --
Cost of service and other 6,991 13,133 14,737
----------- ------------ -----------
33,558 49,959 35,249
----------- ------------ -----------
Gross margin 56,052 45,700 50,381
----------- ------------ -----------
Operating cost and expense:
Research and development 7,979 14,152 11,899
Sales, general and adminstrative 32,212 42,341 34,842
Restructuring -- -- 2,877
Acquired technology in process -- 18,245 --
Write-off of intangible assets -- 8,058 --
----------- ------------ -----------
40,191 82,796 49,618
----------- ------------ -----------
Operating income (loss) 15,861 (37,096) 763
Other income, net 1,894 1,313 1,298
----------- ------------ -----------
Income (loss) before income tax benefit (expense) 17,755 (35,783) 2,061
Income tax benefit (expense) (6,398) 2,755 (816)
----------- ------------ -----------
Income (loss) from continuing operations 11,357 (33,028) 1,245

Discontinued operations:
Loss on discontinued operations, net of tax benefit (2,137) (3,701) --
Loss on disposal of discontinued
operations, net of tax benefit -- (1,827) --
----------- ------------ -----------
Net income (loss) $ 9,220 $(38,556) $ 1,245
=========== ============ ===========
Basic income (loss) per share:
Continuing operations $ 1.17 $ (3.09) $ 0.11
Discontinued operations (0.22) (0.52) --
----------- ------------ -----------
Basic income (loss) per share $ 0.95 $ (3.61) $ 0.11
=========== ============ ===========
Diluted income (loss) per share:
Continuing operations $ 1.09 $ (3.09) $ 0.11
Discontinued operations (0.20) (0.52) --
----------- ------------ -----------
Diluted income (loss) per share $ 0.89 $ (3.61) $ 0.11
=========== ============ ===========

Weighted average common and common equivalent shares:
Basic 9,707 10,681 11,353
Diluted 10,462 10,681 11,605
</TABLE>

See accompanying notes to consolidated financial statements.

-33-
<PAGE>

EIS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Dollars in thousands)

<TABLE>
<CAPTION>
Common Stock Additional Accumulated Retained Total
------------------------ Paid-in Translation Earnings Treasury Stockholders'
Shares Amount Capital Adjustments (Deficit) Stock Equity
------------- -------- ----------- ------------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1994 9,520,265 $ 95 $ 32,589 $ (27) $ 17,299 $ (500) $ 49,456
Sales under Employee
Stock Purchase Plan 36,786 1 320 -- -- -- 321
Stock options exercised 378,727 3 1,693 -- -- -- 1,696
Purchase of treasury stock -- -- -- -- -- (19) (19)
Tax benefit of stock
options exercised -- -- 1,418 -- -- -- 1,418
Accumulated translation
adjustments -- -- -- 6 -- -- 6
Net income -- -- -- -- 9,220 -- 9,220
---------- ------ -------- --------- ---------- ------- -----------

Balances, December 31, 1995 9,935,778 99 36,020 (21) 26,519 (519) 62,098
Sales under Employee
Stock Purchase Plan 33,784 1 425 -- -- -- 426
Stock options exercised 571,307 5 4,581 -- -- -- 4,586
Exercise of stock warrants 92,730 1 322 -- -- -- 323
Purchase of treasury stock -- -- -- -- -- (386) (386)
Issuance of common stock
in connection with
Cybernetics acquisition 494,660 5 13,476 -- -- -- 13,481
Issuance of common stock
in connection with
Pulse acquisition 44,993 1 820 -- -- -- 821
Tax benefits of stock
options exercised -- -- 2,624 -- -- -- 2,624
Accumulated translation
adjustments -- -- -- (175) -- -- (175)
Net loss -- -- -- -- (38,556) -- (38,556)
---------- ------ -------- --------- ---------- ------- -----------

Balances, December 31, 1996 11,173,252 112 58,268 (196) (12,037) (905) 45,242
Sales under Employee
Stock Purchase Plan 17,152 -- 96 -- -- -- 96
Stock options exercised 450,989 4 1,362 -- -- -- 1,366
Tax benefit from stock
options exercised -- -- 631 -- -- -- 631
Accumulated translation
adjustments -- -- -- (130) -- -- (130)
Net income -- -- -- -- 1,245 -- 1,245
---------- ------ -------- --------- ---------- ------- -----------

Balances, December 31, 1997 11,641,393 $ 116 $ 60,357 $ (326) $ (10,792) $ (905) $ 48,450
========== ====== ======== ========= ========== ======= ===========
</TABLE>

See accompanying notes to consolidated financial statements.

-34-
<PAGE>

EIS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)

<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1995 1996 1997
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing operations $ 11,357 $ (33,028) $ 1,245
Adjustments to reconcile net income (loss) from continuing
operations to net cash from operating activities:
Provision for doubtful accounts and sales returns 2,788 8,281 3,010
Write-off of acquired technology in process -- 18,245 --
Write-off of intangible assets -- 8,058 --
Provision for contract losses -- 2,722 --
Depreciation and amortization 3,985 5,694 6,999
Deferred income taxes (232) (5,732) 1,155
Change in assets and liabilities:
Accounts receivable, trade (13,985) 1,569 4,345
Installment and lease receivables (4,334) (677) 1,549
Inventories (891) (51) 2,572
Refundable income taxes -- (2,450) 1,839
Accounts payable and accrued liabilities 5,691 (1,249) (3,386)
Deferred revenue 536 (1,292) (2,700)
Other 78 1,995 115
--------- --------- --------
Net cash provided by continuing operations 4,993 2,085 16,743
Cash used in discontinued operations (1,833) (5,249) (2,140)
--------- --------- --------
Net cash provided by (used in) operating activities 3,160 (3,164) 14,603
--------- --------- --------
Cash flows from investing activities:
Additions to property and equipment (4,349) (5,013) (4,829)
Purchase of short-term investments (6,060) (3,660) (3,170)
Sale of short-term investments 13,863 -- 4,498
Increase in capitalized software costs (1,409) (2,119) (1,138)
Purchase of businesses, net of cash acquired -- (6,963) --
--------- --------- --------
Net cash provided by (used in) investing activities 2,045 (17,755) (4,639)
--------- --------- --------
Cash flows from financing activities:
Repayment of long-term debt (199) -- --
Sales of lease portfolio -- 6,000 --
Proceeds from exercise of stock options and warrants 2,017 5,335 1,462
Proceeds from sale of common stock 495 -- --
Purchase of treasury stock (19) (386) --
Other 124 -- --
--------- --------- --------
Net cash provided by financing activities 2,418 10,949 1,462
--------- --------- --------
Net increase (decrease) in cash and cash equivalents 7,623 (9,970) 11,426
Cash and cash equivalents at beginning of period 13,446 21,069 11,099
--------- --------- --------
Cash and cash equivalents at end of period $ 21,069 $ 11,099 $ 22,525
========= ========= ========

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 61 $ 32 $ 36
Income taxes 3,480 584 167
Supplemental schedule of non-cash financing activities:
Capital lease obligation $ 999 $ -- $ --
</TABLE>

See accompanying notes to consolidated financial statements.

-35-
<PAGE>

EIS International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(1) The Company

(2) Summary of Significant Accounting Policies

Basis of Consolidation

The consolidated financial statements include the accounts of EIS International,
Inc. and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

Cash equivalents are highly liquid investments consisting mainly of commercial
paper placed with a financial institution with original maturities of three
months or less at the date of acquisition.

Short-Term Investments

The Company invests cash in excess of current operating requirements primarily
in corporate debt obligations and U.S. government securities. Such investments
generally have original maturities of less than one year and yield interest at
prevailing interest rates at the time of acquisition.

Under Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," the Company classifies
its investments as available-for-sale and carries its investments at fair value.
Any unrealized holding appreciation or depreciation is credited or charged to a
separate component of stockholders' equity until realized. At December 31, 1996
and 1997, the fair value of short-term investments approximated cost.

Inventories

Inventories consist primarily of system components and peripheral equipment
(finished goods) and are stated at lower of cost or market. Cost is applied on a
first-in, first-out ("FIFO") basis. Market is determined based on estimated net
realizable value.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation.

Depreciation of property and equipment is computed on the straight-line method
over the estimated useful lives of the related assets, ranging from three to
five years. Amortization of leasehold improvements is provided over the
estimated useful life of the improvements or the life of the lease, whichever is
less.

Capitalized Software Development Costs

The costs for the development of new software products and substantial
enhancements to existing software products are expensed as incurred until
technological feasibility has been established, at which time any additional
costs are capitalized in accordance with SFAS No. 86, "Accounting for the Costs
of Computer Software to Be Sold, Leased or

-36-
<PAGE>

EIS International, Inc. and Subsidiaries

Otherwise Marketed." Amortization of capitalized software development costs,
included in cost of product and software sold, begins when the products are
available for general release to customers, and is computed on a
product-by-product basis as the greater of: (a) the ratio of current gross
revenues for a product to the total of current and anticipated future gross
revenues for the product, or (b) the straight-line method over a period not to
exceed four years. Amortization expense was $993,000, $816,000, and $1,384,000
in 1995, 1996, and 1997. Accumulated amortization at December 31, 1996 and 1997
was $4,522,000 and $5,906,000, respectively.

Research and Development

Expenditures for research, development and engineering of products and
manufacturing processes are expensed as incurred.

Revenue Recognition

Revenue is recognized on system sales and software licenses when the products
are shipped, provided that no significant obligations remain and collection of
the resulting receivable is deemed probable. Due to EIS' changing experience
with respect to the Company's more technologically advanced Centenium product
line, effective October 1996, revenue related to Centenium sales is being
deferred and recognized upon customer acceptance after installation.

Revenue from long-term software contracts is recognized on the
percentage-of-completion method with progress to completion based on achievement
of contract milestones. Revisions in profit estimates are reflected in the year
in which the facts, which require the revision, become known, and any estimated
losses and other future costs are accrued in full.

Revenues from the sale of systems under installment contracts and from
sales-type leases are recognized at the time of sale or at the inception of the
lease, respectively. Revenues from equipment under operating leases are
recognized over the lease term. Revenues related to maintenance contracts are
recognized over the term of the maintenance contract.

Cost of product sold includes material cost, software and hardware installation,
customer training costs, amortization of capitalized software costs and warranty
expense. Installation and training costs are estimated and accrued at the time
of sale. Cost of services and other includes maintenance costs, consisting
primarily of post-contract support costs.

Foreign Currency Translation

Operations of the Company's foreign subsidiaries are measured using the local
currency as the functional currency. Assets and liabilities of the foreign
subsidiaries are translated into U.S. dollars at the exchange rates in effect as
of the balance sheet date, and results of operations are translated using
average rates in effect for the periods presented. The resulting gains and
losses are included as an adjustment to stockholders' equity.

Concentration of Credit Risk

The Company sells its products primarily to customers in the United States and
to a lesser extent overseas. Credit evaluations are done on all new customers
and periodically evaluated for existing customers. The Company generally
requires a percentage of the sales value of a product in cash prior to shipment.
The Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends, general
economic conditions and other information. Consequently, an adverse change in
those factors could affect the Company's estimate of its bad debts.

There were no individual customers which represented greater than 10% of net
revenues in 1995, 1996, or 1997. Three customers represented 43% of the
short-term lease receivables and two customers represented 47% of long-term
lease receivables as of December 31, 1997. Six customers represented 33% of the
total lease receivables at December 31, 1996. No individual customer represented
more than 5% of gross trade accounts receivable at December 31, 1996 and 1997.

-37-
<PAGE>

EIS International, Inc. and Subsidiaries

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date. A
valuation allowance is provided to reduce the deferred tax assets to a level
which, more likely than not, will be realized. The net deferred asset reflects
management's estimate of the amount which will be realized.

Earnings (Loss) Per Share

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings per
Share" which is effective for all interim and annual periods ending after
December 15, 1997. SFAS No. 128 replaces primary and fully diluted earnings per
share ("EPS") with "basic" and "diluted" EPS on the face of the statement of
operations. The presentation of earnings (loss) per share for the years ended
December 31, 1995 and 1996 have been restated to conform to the requirements of
SFAS No. 128.

Earnings (loss) per share is determined by dividing earnings (loss) by the
weighted average number of shares of common stock outstanding during the period.
For the year ended December 31, 1995 and 1997, the computation of diluted
earnings per share include the assumed exercise of dilutive stock options and
warrants computed using the treasury stock method. For the year ended December
31, 1996, the assumed exercise of stock options and warrants has not been
included in the calculation as they would be anti-dilutive in the loss per
share. There were no significant options to purchase common stock that were not
included in the 1995 and 1997 EPS calculation.

A reconciliation of the numerators and denominators of the basic and diluted EPS
for the years ended December 31, 1995, 1996, and 1997, is provided below (in
thousands, except per share amounts):

For the Year Ended December 31,
--------------------------------
1995 1996 1997
---------- ---------- ----------
Numerator
- --------------------------------------
Income (loss) from continuing
operations $ 11,357 $ (33,028) $ 1,245
========== ========== ==========

Denominator
- --------------------------------------
Basic
Weighted average shares outstanding 9,707 10,681 11,353

Diluted
Dilutive effect of stock options
and warrants 755 -- 252
---------- ---------- ----------
10,462 10,681 11,605
========== ========== ==========
EPS
- --------------------------------------
Basic $ 1.17 $ (3.09) $ 0.11
Diluted 1.09 (3.09) 0.11

Fair Value of Financial Instruments

SFAS No. 107, "Disclosure About Fair Value of Financial Instruments", defines
the fair value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties. Cash and
cash equivalents, accounts receivable, installment and lease receivables, and
accounts payable, reported in the consolidated balance sheets equal or
approximate fair values.

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<PAGE>

EIS International, Inc. and Subsidiaries

Use of Estimates

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of

The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Adoption of this
Statement did not have a material impact on the Company's consolidated financial
position or results of operations. However, during the fourth quarter of 1996,
in accordance with the Statement, the Company recorded a charge of $8.1 million
to reflect the impairment of certain intangible assets (see note 11).

Stock Option Plans

The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. As such,
compensation expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. On January 1,
1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 allows entities to continue to apply the provisions
of APB Opinion No. 25 and provide pro forma net income (loss) and pro forma
earnings (loss) per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS No. 123
had been applied.

New Accounting Pronouncements

In February 1997, FASB issued 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." The Company has been
subject to the requirements of those standards, and as a result does not expect
the adoption of SFAS No. 129 to have a material impact on the Company's
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. Earlier application of this statement is
permitted; however, upon adoption the Company will be required to reclassify
previously reported annual and interim financial statements. The Company
believes that the disclosure of comprehensive income in accordance with the
provisions of SFAS No. 130 will change the manner of presentation of its
financial statements as currently and previously reported.

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. The Company does not believe
that the adoption of SFAS No. 131 will have a material impact on its financial
statements.

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".

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<PAGE>

EIS International, Inc. and Subsidiaries

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. The Company has not determined what the full effects of the adoption
of this new pronouncement will have on its financial position and results of
operations.

Reclassifications

Certain amounts in the 1995 and 1996 financial statements have been reclassified
to conform to the 1997 presentation.

(3) Business Combinations

On February 29, 1996, the Company merged with Surefind Information, Inc.
("Surefind") of Pittsburgh, Pennsylvania. Surefind was a privately held
corporation in the business of storing electronic data. The Company issued
505,685 shares of EIS common stock, $.01 par value, in exchange for all
2,826,467 shares of Surefind stock outstanding and subject to options and
warrants. EIS agreed to assume all outstanding Surefind options and warrants,
which represent the right to purchase 43,892 shares of EIS common stock. This
merger was accounted for by the pooling of interests method of accounting and,
accordingly, the Company's consolidated financial statements have been restated
for all periods prior to acquisition to include the results of operations,
financial position, and cash flows of Surefind. On February 28, 1997, the Board
of Directors of the Company resolved to discontinue the operations of Surefind.
Accordingly, the results of Surefind in 1995 and 1996 are shown as a loss on
discontinued operations in the consolidated statements of operations for the
respective periods.

Net revenues and net income (loss) of the separate companies for the periods
preceding the merger were as follows (in thousands):

Net Revenues Net Income (loss)
-------------- -----------------
Two months ended February 29, 1996
(unaudited):
EIS $ 6,711 $ (2,897)
Surefind 8 (270)
------------- -----------------
Combined $ 6,719 $ (3,167)
============= =================

Year ended December 31, 1995:
EIS, as previously reported $ 89,572 $ 11,357
Surefind 38 (2,137)
------------- -----------------
Combined $ 89,610 $ 9,220
============= =================

Transaction costs resulting from the merger of $679,000 are included in the
two-month period ended February 29, 1996.

On March 1, 1996, the Company acquired all the issued and outstanding capital
stock of Cybernetics Systems International Corp. ("Cybernetics"), a privately
held company located in Coral Gables, Florida, for $22.8 million consisting of
$9.3 million in cash, 494,660 shares of EIS common stock, and 321,270 of options
and warrants to acquire EIS common stock. Cybernetics specializes in
computerized Workforce Management Systems for the contact center industry which
are designed to aid in staff forecasting and scheduling. The acquisition of
Cybernetics 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 operations of the Company reflect those of Cybernetics from March 1,
1996. In addition, the Company recorded a $16.9 million charge for acquired
technology in process. Intangible assets of approximately $9.8 million were
recorded as a result of this transaction, which were subsequently written-off
(see notes 11 and 12).

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<PAGE>

EIS International, Inc. and Subsidiaries

$.01 par value per share, having a value of approximately $820,000; (ii)
$950,000 in cash and (iii) five-year warrants to purchase 29,995 shares of EIS
common stock at $18.23 per share. Pulse is a professional and technical service
firm specializing in telecommunications consulting. The acquisition of Pulse was
accounted for by the purchase method of accounting, and accordingly, the
acquired assets have been recorded at their fair values, with the help of an
appraiser, at the date of the purchase, and the results of operations of the
Company reflect those of Pulse from September 1, 1996. The Company recorded a
$1.3 million charge for acquired technology in process. Intangible assets of
$396,000 resulting from this transaction are included on other assets in the
accompanying balance sheet and are being amortized on a straight-line basis over
a period of ten years.

These two acquisitions resulted in cash outflow of $10.1 million offset by cash
acquired of $3.1 million.

The following unaudited pro-forma financial information shows the results of
operations for 1995 and 1996 (in thousands, except per share data) as though the
acquisition of Cybernetics and Pulse had occurred as of January 1, 1995. In
addition to combining the historical results of operations of the companies, the
pro-forma calculations include: the amortization of the intangible assets
acquired; and the adjustment to income taxes to reflect the effective income tax
rate assumed for the Company on a combined basis for each pro-forma period
presented and excludes the write-off of the acquired technology in process of
$18.2 million, as such charge is non-recurring and unusual and relates directly
to the acquisitions.

1995 1996
--------- ---------
Net revenues $ 102,745 $ 97,168
Net income (loss) 10,430 (22,202)
Diluted earnings (loss) per share 1.00 (2.08)

(4) Installment and Lease Receivables

The present value of future installment and lease receivables payments to be
received as of December 31, 1996 and 1997 are as follows (in thousands):

1996 1997
--------- -------
1997 $ 2,479 $ --
1998 1,575 2,048
1999 976 1,133
2000 16 220
2001 -- 36
--------- -------
5,046 3,437
Less amounts representing interest at rates
ranging from 10.85% to 18.0% 569 509
--------- -------
Present value of receivables 4,477 2,928
Less current portion 2,007 1,674
--------- -------
$ 2,470 $ 1,254
========= =======

-41-
<PAGE>

EIS International, Inc. and Subsidiaries

(5) Property and Equipment

Property and equipment consists of the following at December 31, 1996 and 1997
(in thousands):

1996 1997
-------- --------
Furniture and fixtures $ 2,026 $ 1,845
Machinery and equipment 14,890 17,532
Leasehold improvements 935 2,738
-------- --------
17,851 22,115
Less accumulated depreciation
and amortization (9,670) (14,273)
-------- --------
$ 8,181 $ 7,842
======== ========

Depreciation and amortization of property and equipment amounted to $3,177,000,
$4,343,000 and $4,724,000 in 1995, 1996, and 1997, respectively.

(6) Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consists of the following at December
31, 1996 and 1997 (in thousands):

1996 1997
--------- ---------
Accounts payable, trade $ 10,235 $ 5,529
Accrued compensation and benefits 2,323 2,566
Loss provision on uncompleted contracts 2,722 1,920
Customer deposits 787 1,393
Other accrued liabilities 2,827 4,100
----------------------
$ 18,894 $ 15,508
========= =========

(7) Income Taxes

Income tax expense (benefit) from continuing operations consists of the
following (in thousands):

Years Ended December 31,
------------------------------
1995 1996 1997
-------- --------- ----------
Current:
Federal $ 5,530 $ 2,605 $ (288)
State 1,100 372 (51)
-------- --------- ----------
6,630 2,977 (339)
Deferred:
Federal (204) (5,015) 1,028
State (28) (717) 127
-------- --------- ----------
(232) (5,732) 1,155
-------- --------- ----------
Total $ 6,398 $ (2,755) $ 816
======== ========= ==========
The effective income tax expense (benefit) rate attributable to income (loss)
from continuing operations for the years ended December 31, 1995, 1996, and 1997
differed from the Federal corporate statutory rate due to the following:

-42-
<PAGE>

EIS International, Inc. and Subsidiaries

Years Ended December 31,
-------------------------------
1995 1996 1997
-------- ---------- --------
Federal corporate statutory rate 35% (35)% 34%
State income taxes, net of Federal benefit 4 (1) 2
Acquired technology in process -- 18 --
Write-down of intangible assets -- 8 --
Research and development tax credits (3) -- --
Increase (decrease) in valuation allowance (1) 3 8
Other, net 1 (1) (4)
-------- ------ ----------
36% (8)% 40%
======== ====== ==========

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below (in
thousands):

December 31,
-------------------
1996 1997
-------- --------
Deferred Tax Assets
Accounts receivable, principally due to allowances
for doubtful accounts and sales returns $ 2,428 $ 1,889
Net operating loss carryforwards 7,447 7,620
Inventories, principally due to reserves for
obsolescence 881 838
Discontinued operations 1,146 526
Property and equipment, principally due to
differences in depreciation methods 486 498
Other 258 195
--------- --------
Total gross deferred tax assets 12,646 11,566
Less: valuation allowance (4,008) (4,181)
--------- --------
Total deferred tax assets 8,638 7,385
Deferred Tax Liability
Capitalized software development costs (1,829) (1,731)
--------- --------
Net deferred tax assets 6,809 5,654
Less: current deferred tax assets 4,713 3,448
--------- --------
Non-current deferred tax assets $ 2,096 $ 2,206
========= ========

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not that the Company will realize the benefits of these
deductible differences, net of the existing valuation allowances at December 31,
1997. The amount of the deferred tax asset considered realizable, however, could
be reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.

At December 31, 1997, the Company has net operating loss carryforwards of $19.2
million available to reduce future Federal and state taxes which expire in the
years 2004 through 2011. The use of approximately $7 million of these
carryforwards are restricted to the future taxable income of Cybernetics and
Surefind.

-43-
<PAGE>

EIS International, Inc. and Subsidiaries

(8) Stockholders' Equity

(a) Merger and Acquisition

On February 29, 1996, the Company issued 505,685 shares of its common stock in
connection with its merger with Surefind and reserved an additional 43,892
shares for issuance upon exercise of outstanding stock options and stock
warrants of Surefind. On March 1, 1996, the Company issued 494,660 shares of its
common stock in connection with its acquisition of Cybernetics and reserved an
additional 321,270 shares for issuance upon exercise of outstanding stock
options and stock warrants of Cybernetics. On September 1, 1996, the Company
issued 44,993 shares of its common stock and warrants to acquire 29,995 shares
of its common stock in connection with its purchase of Pulse.

(b) Stock Options

Incentive and Non-Incentive Stock Options

The Company has various stock option plans (the "Plans"), under which incentive
stock options ("ISO's") and non-incentive stock options ("Non-ISO's") may be
granted. Pursuant to the Plans, 2,882,662 shares of common stock may be granted
and the same number of shares have been reserved for such issuance. The Board of
Directors has the authority to determine the number, terms and type of stock
options to be granted. The exercise price of all options granted under the Plans
cannot be less than the fair market value at the date of grant.

Generally, options granted under the Plans vest 25% beginning one year from date
of grant and 25% on each anniversary of the grant date thereafter. Additionally,
options expire not later than ten years from date of grant (five years if the
optionee is a principal shareholder).

Stock option activity during the periods indicated is as follows:

ISO'S Non-ISO'S
--------------------------- ---------------------------
Weighted- Weighted-
Number of Average Number of Average
Shares Exercise Price Shares Exercise Price
---------------------------------------------------------
Outstanding,
December 31, 1994 885,782 $ 8.45 701,312 $ 6.09
Granted 155,844 16.01 8,656 15.78
Exercised (155,535) 16.77 (80,067) 2.02
Forfeited (33,205) 9.35 (443) 2.73
-------- ------ --------- -------
Outstanding,
December 31, 1995 852,886 9.81 629,458 6.74
Granted 514,498 12.77 479,279 9.96
Exercised (318,637) 7.39 (192,670) 7.75
Forfeited (278,901) 15.29 (180,855) 15.05
-------- ------ --------- -------
Outstanding,
December 31, 1996 769,846 11.16 735,212 6.53
Granted 577,279 5.67 181,634 5.55
Exercised (60,962) 7.25 (390,027) 2.38
Forfeited (667,158) 11.41 (305,852) 11.99
-------- ------ --------- -------
Outstanding,
December 31, 1997 619,005 $ 6.12 220,967 $ 5.51
======== ====== ========= =======

Non-Employee Director Stock Option Plan

On February 23, 1993, the Board of Directors approved a stock option plan for
non-employee directors, which provided for the granting of 6,250 options to
purchase the Company's common stock for each non-employee director annually,

-44-
<PAGE>

EIS International, Inc. and Subsidiaries

based on a fixed formula. The Company had reserved 200,000 shares for issuance
under this plan. On December 21, 1993, the Board of Directors approved an
amendment to the plan, which was approved by shareholders at the April 27, 1994
Annual Meeting, that increased the options available under the plan to 260,000
and provided for additional grants as follows. An aggregate of 30,000 options
under the plan are available for each non-employee director, of which (i) 26,000
options would be immediately granted to each such director at the fair market
value on December 21, 1993, with vesting of 6,500 options on each of February
23, 1994, February 23, 1995, February 23, 1996, and February 23, 1997, provided
that each such person is a director on such dates, and (ii) 1,000 options under
the plan would be granted to each non-employee director on February 23, 1994,
February 23, 1995, February 23, 1996, and February 23, 1997, at the fair market
value on the grant date provided that each such person is a director on such
dates.

The following is a summary of the non-employee directors stock option plan
transactions:

Price Expiration
Number Per Share Dates
--------- ------------- -------------
Outstanding,
December 31, 1994 166,250 $8.63 - 13.13 2/03 - 2/04
Granted 5,000 14.56 2/05
Exercised (42,500) 8.63 - 14.56 11/03 - 2/05
Cancelled (13,000) 12.38 12/03
--------- ------------- -------------
Outstanding,
December 31, 1995 115,750 8.63 - 14.56 2/03 - 2/05
Granted 4,000 16.88 2/06
Exercised -- -- --
Cancelled -- -- --
--------- ------------- -------------
Outstanding,
December 31, 1996 119,750 8.63 - 16.88 2/03 - 2/06
Granted 204,500 5.00 - 5.9375 2/07 - 4/07
Exercised -- -- --
Cancelled (106,750) 9.25 - 16.875 --
--------- ------------- -------------
Outstanding,
December 31, 1997 217,500 $5.00 - 12.375 12/03 - 4/07
========= ============= =============

The number of ISO, non-ISO, and non-employee director options exercisable at
December 31, 1996 and 1997 was 817,858 and 134,009, respectively, and the
weighted-average exercise price of those options was $6.57 and $7.94,
respectively. At December 31, 1997, options were exercisable under the Plans at
prices ranging from $0.40 to $12.38. All options granted under the Plans were
granted at exercise prices representing the fair market value of the Company's
common stock at the date of the grant.

Disclosure of Additional Stock Option Information

The Company applies APB Opinion No. 25 in accounting for its ISO, non-ISO, and
non-employee director stock options plans and, accordingly, no compensation cost
has been recognized for its stock options in the accompanying consolidated
financial statements. Had the Company determined compensation cost based on the
fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income (loss) would have been reduced (increased) to the pro forma
amounts indicated below (in thousands, except per share data):

1995 1996 1997
------- --------- -------
Net income (loss) as reported $ 9,220 $(38,556) $1,245
Pro forma 7,642 (42,561) 702
Net income (loss) per share as reported -
Basic 0.95 (3.61) 0.11
Net income (loss) per share as reported -
Diluted 0.88 (3.61) 0.11
Pro forma - Basic 0.79 (3.98) 0.06
Pro forma - Diluted 0.73 (3.98) 0.06

-45-
<PAGE>

EIS International, Inc. and Subsidiaries

Pro forma amounts reflect only options granted in 1995 and years thereafter.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income (loss) amounts
presented above because compensation cost is reflected over the options' vesting
period of 4 years and compensation cost for options granted prior to January 1,
1995 is not considered.

The fair value of the ISO, non-ISO, and non-employee stock options granted in
1995, 1996 and 1997 is estimated at grant date using the option pricing model
with the following weighted average assumptions for 1997: expected dividend
yield 0.0%, risk free interest rate of 5.8%, expected volatility of 59.1%, and
expected life of five years; for 1996: expected dividend yield of 0.0%, risk
free interest rate of 6.4%, expected volatility of 47.4% and an expected life of
seven years; and for 1995: expected dividend yield of 0.0%, risk free interest
rate of 6.0%, expected volatility of 47.4% and an expected life of seven years.
The weighted average grant date fair values of options granted in 1995, 1996,
and 1997 was $15.96, $11.80 and $3.86, respectively.

In connection with services performed by various other parties and the business
combinations (see note 3), the Company has granted warrants to purchase common
stock as follows:

Number of Price Per Expiration
Shares Share Dates
------------ ----------- ------------
Outstanding,
December 31, 1994 100,511 $6.55-11.50 10/96 - 7/99
Granted -- -- --
Exercised -- -- --
Cancelled -- -- --
------------ ----------- ------------
Outstanding,
December 31, 1995 100,511 6.55-11.50 10/96 - 7/99
Granted 155,552 1.35-18.23 12/96 - 5/05
Exercised (92,730) 1.35-18.00 12/96 - 3/00
Cancelled (9,758) 7.94 10/96
------------ ----------- ------------
Outstanding,
December 31, 1996 153,575 1.35-18.23 2/98 - 5/05
Granted -- -- --
Exercised -- -- --
Cancelled -- -- --
------------ ----------- ------------
Outstanding,
December 31, 1997 153,575 $1.35-18.23 2/98 - 5/05
============ =========== ============

(d) Employee Stock Purchase Plan

On February 23, 1993, the Board of Directors approved an employee stock purchase
plan, which provides for the purchase of up to 300,000 shares of common stock by
employees of the Company. During 1995, 1996, and 1997, 36,786, 33,784, and
17,152 shares were issued under this plan. The compensation expense, under SFAS
123, associated with the issuance of the shares under this plan is not material
in any year presented. As of December 31, 1997, there are 180,473 remaining
shares available to purchase under this plan.

(e) Employee Savings Program

The Company maintains an Employee Savings Plan that qualifies as a cash or
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the Plan, participating U.S. employees may defer up to 20% of their
pre-tax compensation, but not more than Internal Revenue Service limitations.
The Company, at the discretion of

-46-
<PAGE>

EIS International, Inc. and Subsidiaries

the Board of Directors, may match the employee contributions equal to or less
than 2.5% of the participant's compensation. Such employer contributions vest
equally over a four year period. The Company recorded a $200,000, $264,000, and
$204,000 expense for 1995, 1996, and 1997.

(9) Commitments and Contingencies

Lease Obligations

The Company leases office facilities and equipment under noncancellable
operating lease arrangements which expire at various dates. The future minimum
annual payments for all noncancellable leases at December 31, 1997 follow (in
thousands):

Year Amount
--------------------- --------
1998 $ 2,441
1999 2,359
2000 2,339
2001 2,337
2002 229
Thereafter 19
---------
$ 9,724
=========

Rent expense on operating leases totaled $1,549,000 in 1995, $2,350,000 in 1996,
and $2,718,000 in 1997.

Year 2000 Issues

-47-
<PAGE>

EIS International, Inc. and Subsidiaries

the extent of any adverse impact resulting from failures by its major vendors
and distributors to be Year 2000 compliant; however, it is currently unable to
estimate any such potential adverse impact, and such adverse impact could be
material.

Line of Credit

(10) Litigation

1. Warburgh v. EIS International, Inc., Joseph J. Porfeli, Edward J. Sarkisian
and Kent M. Klineman, filed April 25, 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 4, 1997.

-48-
<PAGE>

EIS International, Inc. and Subsidiaries

(11) Write-Down of Intangible Assets

In accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" management performed a
discounted cash flow analysis of Cybernetics' operations. Management concluded
that this analysis warranted a write-down of the intangible assets of
Cybernetics of approximately $8.1 million to zero. This write-down is included
in the consolidated statement of operations for the year ended December 31,
1996.

(12) Discontinued Operations and Restructuring

On February 28, 1997, the Board of Directors of the Company resolved to
discontinue the operations of Surefind. The decision to discontinue the
operations of Surefind was made after it became apparent that a significantly
higher than anticipated level of cash funding was needed to exploit Surefind's
product.

Surefind incurred a net loss of approximately $3.7 million, net of a $1.6
million income tax benefit, in 1996 and $2.1 million in 1995 which is separately
shown as a loss on discontinued operations in the accompanying consolidated
statements of operations for the respective periods. In connection with the
decision to discontinue the operations of Surefind, the Company recorded a $1.8
million estimated loss on the disposal of Surefind which includes a provision
for anticipated operating losses prior to disposal. The loss on disposal,
recorded in the fourth quarter of 1996, is shown net of a $1.1 million income
tax benefit.

The components of the net liability of discontinued operations at December 31,
1997 are summarized as follows (in thousands):

Lease obligations $ 356
Provision for estimated loss on disposal
of discontinued operations 242
--------
Net liability of discontinued operations $ 598
========

(13) Related Parties

During 1997, the President of EIS entered into a $100,000 loan agreement with
Company. Under the agreement, interest accrues at the rate of 6% and quarterly
amounts are forgiven and included as compensation to the President over the
three year term of the loan. If the President terminates prior to the end of the
three year term, the balance due at such time is to be repaid in full. As of
December 31,1997, there was $74,584 outstanding under the loan.

During 1997, EIS loaned $78,000 to the Senior Vice President of Worldwide Sales
in connection with his relocation. This amount was fully repaid in early 1998.

The Company incurred expenses of $60,000, $60,000, and $80,000 during 1995,
1996, and 1997, respectively, in connection with legal and consulting services
provided by a member of the Board of Directors.

-49-
<PAGE>

EIS International, Inc. and Subsidiaries

At the time of the merger with Surefind (see note 3), the then President and
Chief Executive Officer of EIS was also the Chief Executive Officer of Surefind
and owned 134,190 shares of Surefind stock and options to purchase 352,113
shares of Surefind stock all of which were exchanged for EIS stock and options
pursuant to the terms of the merger agreement.

At December 31, 1996, the then President and Chief Executive Officer of EIS owed
$161,000 to EIS, which was repaid in full during 1997.

(14) Fourth Quarter Charges - 1996

During the fourth quarter 1996, the Company recorded the following charges which
are included in the accompanying 1996 consolidated statement of operations (in
millions):

Item Amount
------------------------------------------------------ ---------
Continuing Operations:
Provision for doubtful accounts and sales returns $ 2.9
Provision for losses on uncompleted contracts 5.0
Write-down of intangible assets 8.1
------
Total charges to continuing operations 16.0
Discontinued Operations:
Loss on disposal of Surefind, net of tax benefits 1.8
------
Total charges to operations $ 17.8
======

-50-
<PAGE>

EIS International, Inc. and Subsidiaries

SCHEDULE II

Valuation and Qualifying Accounts
Years Ended December 31, 1995, 1996, and 1997
(In thousands)

<TABLE>
<CAPTION>
Additions
--------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Classification of Year Expenses Accounts Deductions (a) of Year
- --------------------------------------------------- ------------ ------------ -------------- ------------
1995
<S> <C> <C> <C> <C> <C>
Allowances for doubtful accounts
and sales returns $ 1,638 $ 1,667 $ 1,121 (b) $ (1,761) $ 2,665
Allowances for inventory obsolescence 1,017 -- -- (267) 750

1996
Allowances for doubtful accounts
and sales returns 2,665 4,781 3,500 (b) (4,829) 6,117
Allowances for inventory obsolescence 750 2,862 -- (1,695) 1,917

1997
Allowances for doubtful accounts
and sales returns 6,117 837 2,173 (b) (4,581) 4,546
Allowances for inventory obsolescence 1,917 -- -- (222) 1,695
</TABLE>

- ---------------------------------------

(a) Represents amounts written-off.
(b) Amounts charged to sales returns & allowances (reduction of revenue).

-51-

Exhibit 11

Statement Re Computation of Per Share Earnings
(In thousands, except for per share amounts)

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
Income (loss) from continuing operations $ 11,357 $ (33,028) $ 1,245
Discontinued operations (2,137) (5,528) --
-------- --------- ---------
Net income (loss) $ 9,220 $ (38,556) $ 1,245
========= ========== ==========
Weighted average number of common shares
outstanding - Basic: 9,707 10,681 11,353
Dilutive effect of stock options and warrants 755 -- (a) 252
-------- --------- ---------
Weighted average number of common shares
outstanding - Diluted: 10,462 10,681 11,605
========= ========== ==========
Basic income (loss) per share:
Continuing operations $ 1.17 $ (3.09) $ 0.11
Discontinued operations (0.22) (0.52) --
-------- --------- ---------
Basic income (loss) per share: $ 0.95 $ (3.61) $ 0.11
========= ========== ==========
Diluted income (loss) per share:
Continuing operations $ 1.09 $ (3.09) $ 0.11
Discontinued operations (0.20) (0.52) --
-------- --------- ---------
Diluted income (loss) per share: $ 0.89 $ (3.61) $ 0.11
========= ========== ==========
</TABLE>

(a) For the year ended December 31, 1996, the assumed exercise of stock options
and warrants has not been included in the calculation as they would be
anti-dilutive in the loss per share.

Subsidiaries of the Registrant EXHIBIT 21

STATE OR OTHER JURISDICTION
SUBSIDIARIES OF INCORPORATION

EIS Leasing Corporation Delaware
EIS Leasing of Delaware, Inc. Delaware
EIS International Services Corp. Virginia
Electronic Information Systems Limited United Kingdom
EIS Limited United Kingdom
Electronic Information Systems
International, Inc. Delaware
EIS Foreign Sales Corporation U.S. Virgin Islands (St. Thomas)
EIS Italia, Sr. L Italy
Surefind Information, Inc. Delaware
Cybernetics Systems International Corp. Delaware

EXHIBIT 23.1
Accountant's Consent

The Board of Directors
EIS International, Inc.:

We consent to incorporation by reference in the registration statements of EIS
International, Inc. on Form S-8 (No. 33-59754, 33-72392, and 333-2998) and Form
S-3 (Nos. 333-3350 and 333-5823) of our report dated January 28, 1998, with
respect to the consolidated balance sheets of EIS International, Inc. and
subsidiaries as of December 31, 1996 and 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows and related
schedule for each of the years in the three-year period ended December 31, 1997,
which report appears in the December 31, 1997, annual report on Form 10-K of EIS
International, Inc.

KPMG Peat Marwick LLP

McLean, Virginia
March 27, 1998

<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 22,525
<SECURITIES> 0
<RECEIVABLES> 13,979
<ALLOWANCES> 4,546
<INVENTORY> 5,160
<CURRENT-ASSETS> 50,586
<PP&E> 7,842
<DEPRECIATION> 14,272
<TOTAL-ASSETS> 67,792
<CURRENT-LIABILITIES> 19,089
<BONDS> 0
0
0
<COMMON> 116
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 67,792
<SALES> 85,630
<TOTAL-REVENUES> 85,630
<CGS> 35,249
<TOTAL-COSTS> 81,990
<OTHER-EXPENSES> 2,877
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,061
<INCOME-TAX> 816
<INCOME-CONTINUING> 1,245
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,245
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11

</TABLE>