UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998.
[ ] 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
LEVEL 8 SYSTEMS, INC.
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 11-2920559
- -----------------------------------------------------------------
(State or other jurisdiction (I.R.S Employer Identification
of incorporation or Number)
organization)
1250 Broadway, 35th Floor, 10001
New York, New York
- -----------------------------------------------------------------
(Address of principal (Zip Code)
executive offices)
(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.
7,639,822 common shares, $.01 par value, were outstanding as of
July 31, 1998.
LEVEL 8 SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION Page #
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets at
June 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of
Operations for the three months
ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of
Operations for the six months
ended June 30, 1998 and 1997 5
Condensed Consolidated Statements of
Cash Flows for the six months ended
June 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8 - 9
Part II. OTHER INFORMATION 10 - 13
LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
ASSETS 1998 1997
---------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 5,856,170 $ 7,062,275
Accounts receivable, net 6,233,775 6,455,041
Income taxes receivable - 405,525
Inventory 336,310 336,310
Prepaid expenses and other
assets 545,613 421,235
Net assets from discontinued
operation 1,768,607 3,577,292
Deferred income taxes 1,324,725 -
---------- ----------
TOTAL CURRENT ASSETS 16,065,200 18,257,678
---------- ----------
PROPERTY AND EQUIPMENT, NET 1,523,900 973,747
---------- ----------
---------- ----------
OTHER ASSETS
Excess of cost over net
assets acquired, net 2,299,062 1,793,375
Software development costs,
net 2,730,418 2,167,980
Deposits and deferred costs 279,215 289,907
---------- ----------
5,308,695 4,251,262
---------- ----------
$22,897,795 $23,482,687
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of loan
from related company $ 127,964 $ 127,964
Current maturities of
long-term debt 496,863 7,169
Accounts payable 1,408,085 1,935,792
Accrued expenses 625,143 224,246
Due to related company 75,476 -
Customer deposits 2,718 29,687
Deferred revenue 317,576 12,500
Deferred income taxes - 94,400
----------- ----------
TOTAL CURRENT LIABILITIES 3,053,825 2,431,758
----------- ------------
----------- ------------
OTHER LIABILITIES
Long term debt, net of
current maturities 987,656 15,518
Loan from related company,
net of current maturities 138,444 201,788
Deferred income taxes 353,200 462,000
----------- ----------
1,479,300 679,306
----------- ----------
SHAREHOLDERS' EQUITY
Preferred Stock, $.01 par
value (authorized-1,000,000
shares: no shares issued
and outstanding) - -
Common stock, $.01 par value
(authorized-15,000,000 shares:
issued and outstanding
7,639,822 shares at June
30, 1998 and 7,044,634
shares at Dec. 31, 1997) 76,398 70,446
Additional paid-in-capital 28,362,130 20,603,498
Accumulated deficit (9,955,749) (184,212)
Unearned compensation (118,109) (118,109)
----------- -----------
18,364,670 20,371,623
----------- -----------
$22,897,795 $23,482,687
----------- -----------
----------- -----------
See notes to condensed consolidated financial statements.
LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30, 1998 and 1997
(Unaudited)
1998 1997
---------- ------------
REVENUE
Consulting, service and
maintenance $ 3,066,296 $ 2,021,847
Software 533,713 699,782
Other 17,301 45,254
----------- ----------
3,617,310 2,766,883
----------- -----------
COST OF REVENUE
Consulting and service 1,386,778 996,938
Software 317,830 260,121
Other - 7,702
------------ -----------
1,704,608 1,264,761
------------ -----------
GROSS MARGIN 1,912,702 1,502,122
------------ -----------
OPERATING EXPENSES
Selling, general and
administrative 3,287,776 1,166,210
------------ -----------
OPERATING INCOME (LOSS) (1,375,074) 335,912
OTHER INCOME (EXPENSES)
Interest income 79,534 94,107
Interest expense (35,037) (5,165)
------------ -----------
44,497 88,942
------------ -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES (1,330,577) 424,854
INCOME TAX (EXPENSE) BENEFIT 157,300 (126,800)
------------ -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS (1,173,277) 298,054
DISCONTINUED OPERATION
Income (loss) from discontinued
operation, net of income
taxes - 24,971
------------ -----------
NET INCOME (LOSS) ($1,173,277) $ 323,025
------------ -----------
------------ -----------
NET INCOME (LOSS) PER COMMON SHARE
Basic Earnings Per Share:
Income (loss) from
continuing operations ($ 0.15) $ 0.05
Income (loss) from
discontinued operation - -
----------- ---------
Net Income (Loss) ($ 0.15) $ 0.05
----------- ---------
----------- ---------
Diluted Earnings Per Share:
Income (loss) from
continuing operations ($ 0.15) $ 0.04
Income (loss) from
discontinued operation - -
----------- ---------
Net Income (Loss) ($ 0.15) $ 0.04
----------- ---------
----------- ---------
WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION
Basic 7,617,932 6,966,707
Diluted 7,617,932 7,482,681
See notes to condensed consolidated financial statements.
LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30, 1998 and 1997
(Unaudited)
1998 1997
---------- ------------
REVENUE
Consulting, service and
maintenance $ 5,797,693 $ 3,983,596
Software 823,197 1,590,894
Other 557,187 45,254
----------- ----------
7,178,077 5,619,744
----------- -----------
COST OF REVENUE
Consulting and service 2,975,049 1,853,047
Software 469,445 1,026,309
Other - 38,463
------------ -----------
3,444,494 2,917,819
------------ -----------
GROSS MARGIN 3,733,583 2,701,925
------------ -----------
OPERATING EXPENSES
Selling, general and
administrative 4,895,955 2,265,790
Purchased research and
development 6,510,000 -
Write off of capitalized
software costs 1,793,880 -
------------ -----------
13,199,835 2,265,790
------------ -----------
OPERATING INCOME (LOSS) (9,466,252) 436,135
OTHER INCOME (EXPENSES)
Interest income 154,099 209,146
Interest expense (39,327) (10,520)
------------ -----------
114,772 198,626
------------ -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES (9,351,480) 634,761
INCOME TAX (EXPENSE) BENEFIT 762,400 (220,600)
------------ -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS (8,589,080) 414,161
DISCONTINUED OPERATION
Income (loss) from discontinued
operation, net of income
taxes (benefit) of ($90,000)
and $22,000 (135,457) 58,585
Loss on disposal, net of
income tax benefit of
$270,000 (1,047,000) -
------------ -----------
(1,182,457) 58,585
------------ -----------
NET INCOME (LOSS) ($9,771,537) $ 472,746
------------ -----------
------------ -----------
NET INCOME (LOSS) PER COMMON SHARE
Basic Earnings Per Share:
Income (loss) from
continuing operations ($ 1.17) $ 0.06
Income (loss) from
discontinued operation ( .16) 0.01
----------- ---------
Net Income (Loss) ($ 1.33) $ 0.07
----------- ---------
----------- ---------
Diluted Earnings Per Share:
Income (loss) from
continuing operations ($ 1.17) $ .06
Income (loss) from
discontinued operation ( .16) -
----------- ---------
Net Income (Loss) ($ 1.33) $ .06
----------- ---------
----------- ---------
WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION
Basic 7,351,769 6,963,247
Diluted 7,351,769 7,505,613
See notes to condensed consolidated financial statements.
LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1998 and 1997
(Unaudited)
1998 1997
---------- --------------
OPERATING ACTIVITIES
Net income (loss) ($9,771,537) $ 472,746
Adjustments to reconcile net
income (loss) to net cash used
by operating activities:
Loss (income) from
discontinued operation 135,457 (58,585)
Loss on disposal of
discontinued operation 1,047,000 -
Depreciation 735,246 86,248
Amortization 643,887 257,582
Purchased research and
development costs 6,510,000 -
Write off of capitalized
software costs 1,793,880
Deferred income taxes - 286,900
Changes in operating assets
and liabilities:
Accounts receivable 474,798 (1,469,962)
Income taxes receivable 405,525 271,465
Prepaid expenses and other
assets (72,442) (625,759)
Deferred income taxes (1,059,125) -
Deposits and deferred
costs (462,697) (21,123)
Accounts payable (771,727) (122,981)
Due to related company 75,476 -
Accrued expenses 111,782 -
Customer deposits (26,969) 56,866
Deferred revenue (79,140) -
----------- -----------
Net cash used by
operating activities ( 310,586) (866,603)
---------- -----------
NET CHANGE IN ASSETS OF
DISCONTINUED OPERATION 266,228 (221,286)
---------- -----------
INVESTING ACTIVITIES
Purchases of marketable
securities - (1,998,128)
Redemption of marketable
securities - 6,497,273
Purchases of property and
equipment (1,111,267) (144,108)
Software development costs (149,702) (585,812)
Net cash received from
acquisitions 362,263 -
---------- ----------
Net cash provided (used)
by investing activities (898,706) 3,769,225
---------- ----------
FINANCING ACTIVITIES
Payments on long-term debt (63,344) (65,465)
Proceeds from long-term debt (149,917) -
Deferred income taxes (108,800) -
Proceeds from exercise of
stock options 59,020 57,688
Additional public offering
costs - (137,365)
---------- ----------
Net cash used by financing
activities (263,041) (145,142)
---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,206,105) 2,536,194
CASH AND CASH EQUIVALENTS
Beginning of Period 7,062,275 3,318,252
---------- ----------
End of Period $5,856,170 $5,854,446
---------- ----------
---------- ----------
See notes to condensed consolidated financial statements.
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 June 30, 1998 and
December 31, 1997 and the results of operations and cash
flows for the three and six months ended June 30, 1998 and
1997. The results of operations and cash flows for the
three and six months ended June 30, 1998 are not necessarily
indicative of the results to be expected for the year ending
December 31, 1998, 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, 1997.
2. Principles of Consolidation -
The condensed consolidated financial statements include the
accounts of Level 8 Systems, Inc. ("Level 8") and its
wholly-owned subsidiaries, Level 8 Technologies, Inc.
("Level 8 Technologies"), ASU consulting division and its
new wholly-owned subsidiary, Momentum Software Corporation
("Momentum"), from the date of acquisition of March 26,
1998. On April 6, 1998, the Company sold its wholly-owned
subsidiary, ProfitKey International, Inc. ("ProfitKey").
ProfitKey has been accounted for as a discontinued operation
and the results of its operations have been excluded from
continuing operations in the condensed consolidated
financial statements for all periods presented. All inter-
company accounts and transactions are eliminated in
consolidation.
3. Acquisition -
On March 26, 1998, the Company acquired Momentum. Under the
agreement, Level 8 issued 544,866 shares of common stock and
warrants to purchase 200,000 common shares, subject to
increased amounts based on the market value of the Company's
stock at a later date. The total cost of the acquisition
was approximately $8.6 million and is treated as a purchase.
As a result of the acquisition of Momentum, as of March 31,
1998, the Company incurred a one time charge to earnings of
approximately $6.5 million related to the purchase of in-
process research and development costs. The remaining
amount was allocated to goodwill and software development
costs. The results of operations of Momentum are included
in the financial statements since the date of acquisition.
The acquisition of Momentum is as follows:
Fair value of assets acquired $9,633,361
Reimbursable costs ( 275,200)
Additional direct costs ( 473,389)
Liabilities assumed (1,002,597)
Stock and warrants (7,807,175)
------------
75,000
Cash acquired ( 437,263)
------------
Net cash received from acquisition ($ 362,263)
------------
------------
4. Write Off of Capitalized Software Costs -
In connection with the acquisition of the middleware
software of Momentum, the Company wrote off approximately
$1.8 million of capitalized software costs that will not
continue to be developed due to the new software.
5. Discontinued Operations -
On April 6, 1998, the Company sold its wholly owned
subsidiary, ProfitKey. The disposition of ProfitKey was
accounted for as a discontinued operation as of March 31,
1998. The Company received $463,615 at the closing and a
$2,000,000 note from the buyer. The purchase price is
subject to adjustment to reflect any variance in working
capital from a specified amount. The buyer has notified the
Company that it believed there was a variance of $1,466,444,
which would require a reduction in the purchase price of
that amount. Based on information available to the Company
at this time, management believes that an adjustment, if
any, is not determinable and should not have a material
adverse effect on the Company. In connection with the sale,
the Company recorded a loss from the discontinued operation
of approximately $1.3 million before a tax benefit of
$270,000.
LEVEL 8 SYSTEMS, INC AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Overview
Level 8 Systems, Inc. ("Level 8") develops and sells
proprietary vertical application software packages and provides
software consulting and support services to customers located
primarily in the United States and Canada. Level 8 Technologies,
Inc. ("Level 8 Technologies") is a wholly-owned subsidiary
specializing in transactional messaging middleware and
distributed object technology.
On March 26, 1998, Level 8 acquired all the stock of
Momentum Software Corporation ("Momentum") for 544,866 shares of
Level 8 common stock and 200,000 warrants. The number of shares
will be adjusted based upon the future Level 8 common stock
price. The results of Momentum are included in the financial
statements since the date of acquisition.
On April 6, 1998, Level 8 sold its wholly-owned subsidiary,
ProfitKey International, Inc. ("ProfitKey"). The sale resulted
in a loss of approximately $1,000,000. Level 8 recorded the loss
in the first quarter of 1998 for the disposal of the business and
the anticipated operating losses until disposal. ProfitKey is
reported as a discontinued operation for 1998 and 1997, and,
accordingly, the loss from operations is recorded as a loss from
a discontinued operation. Level 8's operating results for prior
periods were restated to reflect the continuing operations.
In connection with the sale of ProfitKey, the parties agreed
to adjust the purchase price to reflect any variance in
ProfitKey's closing date working capital from a specified amount.
The buyer has notified the Company that it believed there was a
variance of $1,466,444, which would require a reduction in the
purchase price of that amount. Based on information available to
the Company at this time, management believes that an adjustment,
if any, is not determinable and should not have a material
adverse effect on the Company.
Level 8 purchased $1,500,000 of software development costs
from Liraz Systems, Ltd., a significant shareholder. This amount
is being paid in installments beginning in the second quarter of
1998.
Three Months Ended June 30, 1998 Compared With Three Months Ended
June 30, 1997
Revenue for the three months ended June 30, 1998 was
approximately $3,617,000 as compared to $2,767,000 for the three
months ended June 30, 1997, an increase of $850,000 or 30.7%. The
increase is primarily related to an increase from consulting,
services and maintenance revenue of $1,044,000 of which $350,000
represents deferred maintenance revenue recognized in this
period, and a decrease in software product and other revenue of
$194,000 associated with MQSeries licenses.
Cost of revenue for the three months ended June 30, 1998 was
approximately $1,705,000 as compared to $1,265,000 for the three
months ended June 30, 1997, an increase of $440,000 or 34.8%. The
increase was due to Level 8 Technologies' increase in the cost of
consulting, services and maintenance of approximately $390,000 or
39.1%, and a $58,000 or 22.2% increase in the cost of software
products.
The gross margin for the three months ended June 30, 1998
was 52.9% as compared to 54.3% for the three months ended June
30, 1997. The decrease was due to a decrease in Level 8
Technologies' margin from consulting from 50.7% to 48.9%.
Selling, general, and administrative expenses for the three
months ended June 30, 1998 were approximately $3,288,000 as
compared to approximately $1,166,000 for the three months ended
June 30, 1997, an increase of approximately $2,122,000. The
increase is a result of additional development expenses of
approximately $820,000; additional operational costs associated
with Momentum of $770,000; software amortization of $270,000 and
other overall increases of $262,000.
Six Months Ended June 30, 1998 Compared With Six Months Ended
June 30, 1997
Revenue for the six months ended June 30, 1998 was
approximately $7,178,000 as compared to $5,620,000 for the six
months ended June 30, 1997, an increase of $1,558,000 or 27.7%.
The increase is primarily related to increases from consulting,
services and maintenance revenue of $1,814,000 of which $370,000
represents deferred maintenance revenue recognized in this
period, and an increase in other revenue of $512,000 with a
decrease in software product revenue of $768,000 relating to
lower MQSeries sales.
Cost of revenue for the six months ended June 30, 1998 was
approximately $3,444,000 as compared to $2,918,000 for the six
months ended June 30, 1997, an increase of $526,000 or 18.0%. The
increase was due to Level 8 Technologies' increase in the cost of
consulting, services and maintenance of approximately $1,122,000
or 60.6% and a decrease of $556,000 or 54.2% in the purchase of
MQSeries products for resale.
The gross margin for the six months ended June 30, 1998 was
52.0% as compared to 48.1% for the six months ended June 30,
1997. The increase was due to higher margins on consulting and
services.
Selling, general, and administrative expenses for the six
months ended June 30, 1998 were approximately $4,896,000 as
compared to approximately $2,266,000 for the six months ended
June 30, 1997, an increase of approximately $2,630,000. The
increase is a result of additional development expense of
approximately $974,000 relating to new product development;
$182,000 in selling and marketing expenses which reflects the
build-up of Level 8's sales organization; $850,000 of additional
operational costs associated with Momentum; software amortization
of $390,000 and other overall increases of $234,000.
In connection with the acquisition of Momentum as of March
26, 1998, Level 8 incurred a $6,510,000 charge related to
purchased research and development costs. Also, in connection
with the acquisition of the middleware software from Momentum,
Level 8 wrote off approximately $1,800,000 of capitalized
software costs that will not continue to be developed due to the
new software.
Other income decreased by approximately $80,000 for the six
months ended June 30, 1998 and $40,000 for the three months ended
June 30, 1998 due to a decrease in interest income from fewer
funds being invested and an increase of interest expense
associated with long-term debt.
Income taxes represent a benefit of 8.2% of the loss from
continuing operations before income taxes. The rate is below the
expected tax rate primarily due to the non-deductibility of the
purchased research and development costs of $6,500,000, and a
valuation allowance.
The loss on disposal from a discontinued operation of
ProfitKey totaled approximately $1,300,000 before a tax benefit
of $270,000.
Liquidity and Capital Resources
Continuing operating activities for the six months ended
June 30, 1998 used net cash of approximately $311,000. Level 8
used approximately $900,000 for investing activities in the six
months ended June 30, 1998 primarily as a result of purchases of
property and equipment. Continuing financing activities for the
six months ended June 30, 1998 used net cash of $263,000. At
June 30, 1998, Level 8 had working capital of approximately
$13,000,000 and a current ratio of 5.26. Level 8 believes that
the existing working capital and the anticipated funds generated
from operations will be sufficient to fund its working capital
and capital expenditure requirements at least through the end of
1998.
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
(a) The annual meeting of shareholders of Level 8
Systems, Inc. was held on May 11, 1998.
(b) A vote was proposed to (1) elect the Board of
Directors to serve for the ensuing year, and (2)
to approve an amendment to the Company's 1997
Stock Option Plan.
The shareholders voting results are as follows:
<TABLE>
<CAPTION>
Votes
For Against Withheld Abstained
<S> <C> <C> <C> <C> <C>
(1) Arie Kilman 6,372,998 N/A 231,995 N/A
Samuel Somech 6,373,093 N/A 231,900 N/A
Theodore Fine 6,373,093 N/A 231,900 N/A
Lenny Recanati 6,373,093 N/A 231,900 N/A
Frank J. Klein 6,373,093 N/A 231,900 N/A
Michel Berty 6,373,093 N/A 231,900 N/A
Robert Brill 6,373,093 N/A 231,900 N/A
(2) Amendment to
Stock Option
Plan 5,219,489 336,997 N/A 4,830
</TABLE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11.0 Statement regarding computation of earnings per
share
27.0 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed the following reports with the
Securities and Exchange Commission on Form 8-K during the quarter
ended June 30, 1998:
The Company's current report on Form 8-K and Form 8-K/A
filed on April 10, 1998 and June 8, 1998, respectively,
reported under Item 2, concerning the Company's
acquisition of Momentum Software Corporation, a
Delaware corporation.
The Company's current report on Form 8-K and Form 8-K/A
filed on April 21, 1998 and June 19, 1998,
respectively, reported under Item 2, concerning the
Company's disposition of its wholly-owned subsidiary,
ProfitKey International, Inc.
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 August 14, 1998 LEVEL 8 SYSTEMS, INC.
-------------------- ------------------------------
(Registrant)
/s/ Arie Kilman
------------------------------
Arie Kilman
Chief Executive Officer
Acting Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,856,170
<SECURITIES> 0
<RECEIVABLES> 6,947,498
<ALLOWANCES> (713,723)
<INVENTORY> 336,310
<CURRENT-ASSETS> 16,065,200
<PP&E> 2,616,815
<DEPRECIATION> (1,092,915)
<TOTAL-ASSETS> 22,897,795
<CURRENT-LIABILITIES> 3,053,825
<BONDS> 0
0
0
<COMMON> 76,398
<OTHER-SE> 18,288,272
<TOTAL-LIABILITY-AND-EQUITY> 22,897,795
<SALES> 7,178,077
<TOTAL-REVENUES> 7,178,077
<CGS> 3,444,494
<TOTAL-COSTS> 3,444,494
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (39,327)
<INCOME-PRETAX> (9,351,480)
<INCOME-TAX> (762,400)
<INCOME-CONTINUING> (8,589,080)
<DISCONTINUED> (1,182,457)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,771,537)
<EPS-PRIMARY> (1.17)
<EPS-DILUTED> (1.33)
</TABLE>
LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENTS
EXHIBIT 11.0
Three Months Ended
June 30, June 30,
1998 1997
--------- ---------
BASIC
WEIGHTED AVERAGE COMMON SHARES 7,617,932 6,966,707
--------- ---------
--------- ---------
DILUTED
WEIGHTED AVERAGE COMMON SHARES 7,617,932 7,482,681
--------- ---------
--------- ---------
