<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 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 0-26392
LEVEL8 SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 11-2920559
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S Employer Identification
or organization) Number)
One Penn Plaza, Suite 3401, New York, New York 10119
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212)244-1234
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15d of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest practicable date.
7,025,582 common shares, $.01 par value, were outstanding as of October 31,
- ---------
1997.
<PAGE>
LEVEL 8 SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION Page #
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets at September 30,
1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations for
the three and nine months ended September 30,
1997 and 1996 4-5
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
Part II. OTHER INFORMATION 11
2
<PAGE>
LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------- ----------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,307,308 $ 3,531,102
Marketable securities 2,053,972 6,524,758
Accounts receivable, net 6,065,634 2,977,260
Income taxes receivable 586,073 591,004
Inventory 133,067 143,874
Prepaid expenses and other assets 549,094 261,182
Deferred income taxes 332,100 331,200
----------- -----------
TOTAL CURRENT ASSETS 15,027,248 14,360,380
----------- -----------
PROPERTY AND EQUIPMENT, NET 1,191,180 958,110
----------- -----------
OTHER ASSETS
Excess of cost over net assets acquired, net 1,898,867 2,215,347
Service contracts acquired, net 1,720,703 1,834,469
Software development costs, net 3,770,117 2,693,114
Deposits 78,117 51,033
----------- -----------
7,467,804 6,793,963
----------- -----------
$23,686,232 $22,112,453
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of
long-term debt $ 12,551 $ 8,593
Current maturities of loans
from related company 123,720 122,000
Accounts payable 1,307,186 1,120,070
Accrued expenses 342,224 549,172
Customer deposits 76,509 153,816
Deferred revenue 1,510,790 1,399,146
TOTAL CURRENT LIABILITIES 3,372,980 3,352,797
----------- -----------
LONG TERM DEBT, net of current maturities 72,577 23,297
----------- -----------
LOANS FROM RELATED COMPANY, net of current maturities 237,232 330,706
----------- -----------
DEFERRED INCOME TAXES 315,100 105,500
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock - -
Common stock 70,125 69,543
Additional paid-in-capital 19,997,941 19,506,914
Retained earnings (deficit) (379,723) (1,273,175)
Unearned compensation - (3,129)
19,688,343 18,300,153
----------- -----------
$23,686,232 $22,112,453
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---------- ------------
REVENUE
<S> <C> <C>
Consulting and service $3,584,506 $ 2,478,017
Software 1,164,576 1,581,785
Other 310,672 210,127
5,059,754 4,269,929
---------- ------------
COST OF REVENUE
Consulting and service 1,781,463 1,136,893
Software 260,251 1,354,862
Other 173,217 139,332
---------- ------------
2,214,931 2,631,087
---------- ------------
GROSS MARGIN 2,844,823 1,638,842
OPERATING EXPENSES 2,297,320 3,355,677
---------- ------------
OPERATING INCOME (LOSS) 547,503 (1,716,835)
---------- ------------
OTHER INCOME (EXPENSE)
Interest income 111,890 36,203
Interest expense (4,887) (12,955)
---------- ------------
107,003 23,248
---------- ------------
INCOME (LOSS) BEFORE INCOME TAXES 654,506 (1,693,587)
INCOME TAX EXPENSE (BENEFIT) 233,800 (21,900)
---------- ------------
NET INCOME (LOSS) $ 420,706 ($1,671,687)
========== ============
NET INCOME (LOSS) PER COMMON SHARE $ 0.06 ($0.27)
========== ============
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 7,642,389 6,107,959
========== ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
REVENUE
Consulting and service $ 9,513,178 $ 6,981,241
Software 3,310,314 2,243,431
Other 591,167 561,046
----------- ------------
13,414,659 9,785,718
----------- ------------
COST OF REVENUE
Consulting and service 4,398,764 3,462,191
Software 1,569,801 1,688,561
Other 409,611 412,146
----------- ------------
6,378,176 5,562,898
----------- ------------
GROSS MARGIN 7,036,483 4,222,820
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,872,629 6,833,528
----------- ------------
OPERATING INCOME(LOSS) 1,163,854 (2,610,708)
----------- ------------
OTHER INCOME (EXPENSE)
Interest income 321,036 117,014
Interest expense (16,038) (28,049)
----------- ------------
304,998 88,965
----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES 1,468,852 (2,521,743)
INCOME TAX EXPENSE (BENEFIT) 575,400 (25,100)
NET INCOME (LOSS) $ 893,452 ($2,496,643)
=========== ============
NET INCOME (LOSS) PER COMMON SHARE $0.12 ($0.42)
=========== ============
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 7,597,536 5,985,265
=========== ============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 893,452 $(2,496,643)
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Depreciation 208,566 138,241
Amortization 747,859 798,269
Loss on sale of subsidiary - 1,484,061
Tax effect of utilizing deferred tax assets
reserved at date of acquisition 35,300 49,600
Tax benefit from stock incentive plans 464,000 -
Deferred income taxes 208,700 166,600
Changes in operating assets and liabilities:
Accounts receivable (3,088,547) (819,696)
Income taxes 2,739 (711,716)
Inventory 10,807 (41,137)
Prepaid expenses and other assets (287,912) (129,667)
Deposits (27,084) (24,820)
Accounts payable and accrued expenses (20,041) 1,061,578
Deferred revenue and customer deposits 34,337 (114,295)
Other (28,359) -
----------- -----------
Net cash used by operating activities (846,183) (639,625)
----------- -----------
INVESTING ACTIVITIES
Redemptions of marketable securities 6,497,273 2,044,962
Purchase of marketable securities (1,998,128) (2,497,493)
Purchases of property and equipment (381,319) (600,170)
Software development costs (1,424,214) (1,509,331)
Proceeds from sale of subsidiary - 120,000
Employee repayments - 21,225
----------- -----------
Net cash provided (used) by investing activities 2,693,612 (2,420,807)
----------- -----------
FINANCING ACTIVITIES
Payments on long-term debt (7,078) (45,504)
Payments on loan from related company (91,754) (88,162)
Proceeds from issuance of common stock - 2,609,742
Proceeds from exercise of stock options 164,974 42,176
Additional public offering costs (137,365) -
----------- -----------
Net cash provided (used) by financing activities (71,223) 2,518,252
----------- -----------
Effect of exchange rate changes on cash - (4,573)
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,776,206 (546,753)
Cash and cash equivalents
Beginning of period 3,531,102 3,147,509
----------- -----------
End of period $ 5,307,308 $ 2,600,756
=========== ===========
</TABLE>
Supplemental disclosure of non-cash investing and financing activity
In 1997, the Company acquired $60,318 of computer equipment through a capital
lease.
See notes to condensed consolidated financial statements.
6
<PAGE>
LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
In the opinion of the Company, these unaudited condensed consolidated financial
statements contain all normal recurring adjustments necessary to present fairly
the financial position of the Company as of September 30, 1997 and December 31,
1996, the results of operations for the three and nine months ended September
30, 1997 and 1996 and the statements of cash flows for the nine months ended
September 30, 1997 and 1996. The results of operations for the three and nine
months ended September 30, 1997 are not necessarily indicative of the results to
be expected for the year ending December 31, 1997, or any other period. For
further information, refer to the consolidated financial statements and notes
included in the Company's annual report on Form 10-K for the year ended December
31, 1996.
2. Principles of Consolidation
The condensed consolidated financial statements include the accounts of Level 8
Systems, Inc. (Level 8), its U.S. subsidiaries ProfitKey International, Inc.
(ProfitKey) and Level 8 Technologies, Inc. (Level 8 Technologies), and its
Canadian subsidiary, Bizware Computer Systems (Canada) Inc. (Bizware) (for 1996
only), collectively referred to as the Company. On September 9, 1996 the
Company sold Bizware. All intercompany accounts and transactions are eliminated
in consolidation.
7
<PAGE>
LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Level 8, through its wholly-owned subsidiaries ProfitKey and Level
8 Technologies and its ASU consulting division, develops and markets business
software and provides consulting and ancillary services. Level 8's products
and services include: transactional messaging middleware and distributed object
technology, which facilitate communication among applications that reside on
distributed and often incompatible hardware and software; industry specific
("vertical") software applications Level 8 has developed for manufacturers;
and consulting services for enterprise messaging and for the manufacturing and
financial services industries.
Results of Operations
Revenue for the three and nine months ended September 30, 1997 was approximately
$5,060,000 and $13,415,000, respectively, compared to revenue for the three and
nine months ended September 30, 1996 of approximately $4,270,000 and $9,786,000,
respectively. Revenue for the three and nine months ended September 30, 1996
includes revenue of Bizware of approximately $64,000 and $351,000, respectively.
Substantially all of the assets of Bizware were sold on September 9, 1996. The
increase in revenue for the three months ended September 30, 1997 of $790,000 is
the result of increases in Level 8 Technologies and ASU of approximately
$634,000 and $143,000, respectively. In addition to these increases Level 8
earned $110,000 in a transaction with another high technology company. These
increases were offset by a decrease in revenue at ProfitKey of approximately
$33,000 and the Bizware revenue of approximately $64,000 in 1996. The increase
at Level 8 Technologies is related to an increase in consulting services offset
by decreases in software sales and other revenue. Consulting services increased
from approximately $1,124,000 for the three months ended September 30, 1996 to
approximately $2,151,000 for the three months ended September 30, 1997, while
software sales decreased from approximately $1,200,000 for the three months
ended September 30, 1996 to approximately $872,000 for the three months ended
September 30, 1997 and other revenue decreased from approximately $65,000 for
the three months ended September 30, 1996 to zero for the three months ended
September 30, 1997. The increase at ASU is related to an increase in consulting
services. Consulting services increased from approximately $382,000 for the
three months ended September 30, 1996 to approximately $525,000 for the three
months ended September 30, 1997. The decrease in revenue of ProfitKey is
primarily related to decreases in the consulting services and software sales
offset by an increase in other revenue. Consulting services decreased from
approximately $926,000 for the three months ended September 30, 1996 to
approximately $909,000 for the three months ended September 30,1997, and
software sales decreased from approximately $365,000 for the three months ended
September 30, 1996 to approximately $292,000 for the three months ended
September 30, 1997, while other revenue increased from approximately $143,000
for the three months ended September 30, 1996 to approximately $200,000 for the
three months ended September 30, 1997.
The increase for the nine months ended September 30, 1997, of approximately
$3,629,000 is related to increases at Level 8 Technologies and ProfitKey of
approximately $3,780,000 and $107,000, respectively. In addition to these
increases Level 8 earned $110,000 in a transaction with another high technology
company. These increases were offset by a decrease in revenue at ASU of
approximately $17,000 and the Bizware revenue of approximately $351,000. The
increase in Level 8 Technologies revenue is related to increases in software
sales and consulting services. Software sales increased from approximately
$1,212,000 for the nine months ended September 30, 1996 to approximately
$2,463,000 for the nine months ended September 30, 1997. Consulting services
increased from approximately $2,738,000 for the nine months ended September 30,
1996 to approximately $5,347,000 for the nine months ended September 30, 1997,
while other revenue decreased by approximately $80,000. The increase at
ProfitKey is related to an increase in consulting services offset by decreases
in software sales and hardware sales. Consulting services increased from
approximately $2,704,000 for the nine months ended September 30, 1996 to
approximately $2,854,000 for the nine months ended September 30, 1997, while
software sales decreased from approximately $872,000 for the nine months ended
September 30,1996 to approximately $847,000 for the nine months ended September
30, 1997, and hardware sales decreased from approximately $454,000 for the nine
months ended September 30, 1996 to approximately $436,000 for the nine months
ended September 30, 1997. The
8
<PAGE>
decrease in revenue of ASU consulting is primarily related to a decrease in the
consulting services offset by an increase in hardware sales. Consulting services
decreased from approximately $1,353,000 for the nine months ended September 30,
1996 to approximately $1,312,000, and hardware sales increased from
approximately $21,000 for the nine months ended September 30, 1996 to
approximately $45,000 for the nine months ended September 30, 1997.
Gross margin for the three and nine months ended September 30, 1997 was 56.2%
and 52.5%, respectively, compared to gross margin for the three and nine months
ended September 30, 1996 of 38.4% and 43.2%, respectively. The increase for the
three months ended September 30, 1997 is related to increased margins related to
software sales and other revenue offset by a decrease in consulting services
margin. Software, other and consulting gross margins were 77.7%, 44.2% and
50.3%, respectively, for the three months ended September 30, 1997, compared to
14.4%, 33.7% and 54.1%, respectively for the three months ended September 30,
1996. The increase in software gross margin is related to an increase in the
sale of the Company's own software products. Level 8 Technologies product sales
increased from $0 for the three months ended September 30, 1996 to approximately
$662,000 for the three months ended September 30, 1997. The sales are related
to release of the Level 8 Technologies DOT/XM and Event Works products. Sales
of ProfitKey software decreased from approximately $270,000 for the three months
ended September 30, 1996 to approximately $235,000 for the three months ended
September 30, 1997. The increase in the gross margin of other revenue is
related to $110,000 earned in a transaction with another high technology
company. Consulting services gross margin decreased as a result of a decrease
in the ProfitKey gross margin from 62.6% for the three months ended September
30, 1996 to 55.9% for the three months ended September 30, 1997. The decrease
is related to the reduction in revenue combined with an increase in direct costs
associated with using outside consultants to deliver services. Consulting
services gross margin increased at Level 8 Technologies and ASU for the three
months ended September 30, 1997 to 49.4% and 44.2%, respectively, compared to
47.8% and 41.9%, respectively, for the three months ended September 30, 1996.
The increase at Level 8 Technologies is related to an increase in revenue due to
expanding business opportunities. The increase at ASU is related to the
increase in consulting revenue combined with a reduction in the cost to deliver
those services.
Consulting services, software and other gross margins were 53.8%, 52.6% and
30.7%, respectively, for the nine months ended September 30, 1997, compared to
50.4%, 24.7% and 26.5%, respectively for the nine months ended September 30,
1996. The increase in consulting services gross margin is related to increases
in the gross margins in consulting services at Level 8 Technologies and ASU,
offset by a decrease in consulting services gross margin at ProfitKey. The
consulting services gross margins at Level 8 Technologies and ASU increased to
52.2% and 48.6%, respectively, for the nine months ended September 30, 1997 from
43.9% and 42.4%, respectively, for the nine months ended September 30, 1996. The
increase at Level 8 Technologies is related to an increase in revenue due to
expanding business opportunities. The increase at ASU is related to the
increase in consulting revenue combined with a reduction in the cost to deliver
those services. The consulting services gross margin at ProfitKey decreased
from 61.7% for the nine months ended September 30, 1996 to 59.2% for the nine
months ended September 30, 1997. The decrease is related to the increase in
direct costs associated with using outside consultants to deliver services. The
increase in software gross margin for the nine months ended September 30, 1997
is the result of increased sales of Level 8 software products. Sales of Level
8 Technologies software increased from $0 for the nine months ended September
30, 1996 to approximately $1,165,000 for the nine months ended September 30,
1997. Sales of ProfitKey software increased from approximately $688,000 for
the nine months ended September 30, 1996 to approximately $702,000 for the nine
months ended September 30, 1997. The increase in other revenue gross margin is
primarily related to $110,000 earned in a transaction with another high
technology company.
Operating expenses for the three and nine months ended September 30, 1997 were
approximately $2,297,000 and $5,873,000, respectively, compared to operating
expenses for the three and nine months ended September 30, 1996 of approximately
$1,872,000 and $5,350,000, respectively. The 1996 amounts are net of a one time
charge related to the sale of Bizware of approximately $1,484,000. The increase
for the three months ended September 30, 1997 is the result of increases in
operating expenses at Level 8 Technologies and ASU of approximately $638,000 and
$6,000, respectively. The increases were offset by decreases in operating
expenses at ProfitKey and Level 8 of approximately $48,000 and $81,000,
respectively along with a decrease in non-cash amortization charges related to
goodwill and service contracts acquired of approximately $18,000, and the
reduction of the Bizware operating
9
<PAGE>
expenses of approximately $72,000. The increase in Level 8 Technologies
operating expenses for the three months ended September 30, 1997 is primarily
related to increased sales and marketing expenses of approximately $458,000, an
increase in research and development costs of approximately $187,000, offset by
a decrease in general overhead costs of approximately $7,000. The increase in
sales and marketing is related to increasing the sales and marketing staffs and
general increases in marketing expenses in preparation for the launch of the
FalconMQ product. The increase in research and development costs is related to
the continued efforts associated with new product development. The increase in
ASU operating expenses for the three months ended September 30, 1997 is related
to additional administrative assistance. The decrease in ProfitKey operating
expenses for the three months ended September 30, 1997 is primarily related to a
decrease in sales and marketing of approximately $15,000, a decrease in research
and development expense of approximately $57,000, offset by an increase in
general overhead costs of approximately $24,000. The decrease in sales and
marketing expenses are related to restructuring of the sales department. The
decrease in research and development expense is related to an increased focus on
completion of the ProfitKey client server product for which the costs are
capitalized. The increase in general overhead expenses is related to building
and training support staff in anticipation of the new product release. The
decrease in operating expenses at Level 8 is related to decreases in salaries,
severance pay and vacation pay related to the resignation of an officer of
approximately $72,000 and decreases in other miscellaneous expenses of
approximately $9,000. The decrease in non-cash amortization is related to the
amortization charges of Bizware.
The increase in operating expenses for the nine months ended September 30, 1997
is related to increased operating expenses at Level 8 Technologies and ProfitKey
of approximately $1,204,000 and $22,000, respectively. The increases were
offset by decreases at Level 8 and ASU of approximately $81,000 and $40,000,
respectively, a decrease in non-cash amortization of goodwill and service
contracts acquired of approximately $84,000 and the Bizware operating expenses
of approximately $496,000. The increase in operating expenses at Level 8
Technologies for the nine months ended September 30, 1997 is related to an
increase in sales and marketing expense of approximately $775,000, an increase
in research and development of approximately $328,000 and increases in overhead
expenses of approximately $101,000 as a result of increased staffing to build an
infrastructure to support future business. The increase in operating expenses
at ProfitKey for the nine months ended September 30, 1997 is related to
increased staffing and training costs in preparation of releasing the new
ProfitKey product. The decrease in operating expenses at Level 8 is related to
decreases in salaries, severance pay and vacation pay related to the
resignation of an officer of approximately $72,000 and decreases in other
miscellaneous expenses of approximately $9,000. The decrease in non-cash
amortization of goodwill are directly related to the sale of Bizware.
Interest income for the three and nine months ended September 30, 1997 increased
by approximately $76,000 and $204,000, respectively. The increase is the result
of investing approximately $6,500,000, primarily in three and six month U.S.
Government agency bonds.
Liquidity and Capital Resources
Operating and financing activities for the nine months ended September 30, 1997
used net cash of approximately $846,000 and $71,000, respectively. At September
30, 1997, the Company had working capital of approximately $11,654,000 and a
current ratio of 4.5. The Company believes that cash from operations and the
proceeds from its second public offering will be adequate to fund its working
capital and capital expenditure requirements at least through the short term.
The Company continued new product development at ProfitKey and Level 8
Technologies. During the nine months ended September 30, 1997, the Company
spent approximately $1,424,000 on software development. In addition to
software development, the Company used cash to purchase approximately $381,000
of property and equipment.
10
<PAGE>
Part II
LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security-Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
(11) Statement regarding computation of earnings per share
(27) Financial Data Schedule
Reports on Form 8-K:
None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date November 14, 1997 LEVEL 8 SYSTEMS, INC.
-------------------------- ---------------------
(Registrant)
/S/ Arik Kilman
------------------------------------
Arik Kilman, Chief Executive Officer
/S/ Joseph J. Di Zazzo
-------------------------------------------
Joseph J. Di Zazzo, Chief Financial Officer
12
<PAGE>
LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENTS
EXHIBIT 11.0
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30, September 30, September 30,
PRIMARY: 1997 1996 1997 1996
-------------------------------- ------------------------------
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE COMMON SHARES 7,007,306 6,107,959 6,978,095 5,985,265
COMMON STOCK EQUIVALENTS 635,083 619,441
-------------------------------- ------------------------------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 7,642,389 6,107,959 7,597,536 5,985,265
================================ ==============================
FULLY DILUTED:
WEIGHTED AVERAGE COMMON SHARES 7,007,306 6,107,959 6,978,095 5,985,265
COMMON STOCK EQUIVALENTS 748,951 814,960
-------------------------------- ------------------------------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 7,756,257 6,107,959 7,793,056 5,985,265
================================ ==============================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,307,308
<SECURITIES> 2,053,972
<RECEIVABLES> 6,065,634
<ALLOWANCES> 0
<INVENTORY> 133,067
<CURRENT-ASSETS> 15,027,248
<PP&E> 1,191,180
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,686,232
<CURRENT-LIABILITIES> 3,372,980
<BONDS> 0
0
0
<COMMON> 70,125
<OTHER-SE> 19,618,218
<TOTAL-LIABILITY-AND-EQUITY> 23,686,232
<SALES> 13,414,659
<TOTAL-REVENUES> 13,414,659
<CGS> 6,378,176
<TOTAL-COSTS> 12,250,805
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,038
<INCOME-PRETAX> 1,468,852
<INCOME-TAX> 575,400
<INCOME-CONTINUING> 893,452
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 893,452
<EPS-PRIMARY> .12
<EPS-DILUTED> .11
</TABLE>
