UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998.
[ ] 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 of incorporation (I.R.S Employer Identification
or organization) Number)
1250 Broadway, 35th Floor, New York, New York 10001
- --------------------------------------------------------------------------------
(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.
7,639,822 common shares, $.01 par value, were outstanding as of October 31,
1998.
<PAGE>
LEVEL 8 SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION Page #
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets at September 30, 1998
and December 31, 1997 3
Condensed Consolidated Statements of Operations for the
nine months ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Operations for the
three months ended September 30, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
Part II. OTHER INFORMATION 12
<PAGE>
<TABLE>
<CAPTION>
LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
ASSETS 1998 1997
------ -------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,536,866 $ 7,062,275
Accounts receivable, net 9,264,045 6,455,041
Income taxes receivable - 405,525
Inventory - 336,310
Prepaid expenses and other assets 1,389,148 421,235
Net assets from discontinued operation 1,770,321 3,577,292
Deferred income taxes 1,324,725 -
----------- -----------
TOTAL CURRENT ASSETS 17,285,105 18,257,678
----------- -----------
PROPERTY AND EQUIPMENT, NET 1,547,280 973,747
----------- -----------
OTHER ASSETS
Excess of cost over net assets acquired, net 2,154,051 1,793,375
Software development costs, net 3,035,290 2,167,980
Deposits and other 268,865 289,907
5,458,206 4,251,262
----------- -----------
$24,290,591 $23,482,687
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Current maturities of loan from related company $ 594,074 $ 127,964
Current maturities of long-term debt 26,532 7,169
Accounts payable 1,425,025 1,935,792
Accrued expenses 274,137 224,246
Due to related company 211,987 -
Customer deposits 2,743 29,687
Deferred revenue 4,460,481 12,500
Deferred income taxes - 94,400
----------- -----------
TOTAL CURRENT LIABILITIES 6,994,979 2,431,758
----------- -----------
OTHER LIABILITIES
Long term debt, net of current maturities 85,300 15,518
Loan from related company, net of current maturities 1,038,444 201,788
Deferred income taxes 353,200 462,000
----------- -----------
1,476,944 679,306
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock - -
Common stock 76,398 70,446
Additional paid-in-capital 28,362,299 20,603,498
Accumulated deficit (12,501,920) 184,212)
----------- -----------
Unearned compensation ( 118,109) ( 118,109)
----------- -----------
15,818,668 20,371,623
----------- -----------
$24,290,591 $23,482,687
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 1998 and 1997
(Unaudited)
<CAPTION>
1998 1997
<S> <C> <C>
REVENUE
Consulting and service $ 7,503,819 $ 6,659,460
Software 1,308,247 2,463,316
------------- -----------
Other 642,861 155,254
------------- -----------
9,454,927 9,278,030
COST OF REVENUE
Consulting and service 4,125,891 3,233,472
Software 1,020,648 1,132,541
Other - 36,916
5,146,539 4,402,929
------------- -----------
GROSS MARGIN 4,308,388 4,875,101
------------- -----------
OPERATING EXPENSES
Development cost 1,975,055 567,258
Selling, general and administrative 5,315,184 2,909,411
Depreciation and amortization of goodwill 748,692 454,880
Purchased research and development 6,510,000 -
Write off of capitalized software costs 1,793,880 -
------------- -----------
16,342,811 3,931,549
------------- -----------
OPERATING INCOME (LOSS) ( 12,034,423) 943,552
------------- -----------
OTHER INCOME (EXPENSES)
Interest income 225,527 321,036
Interest expense ( 88,755) ( 15,319)
------------- -----------
136,772 305,717
------------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES ( 11,897,651) 1,249,269
INCOME TAX EXPENSE (BENEFIT) ( 762,400) 422,900
------------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS ( 11,135,251) 826,369
DISCONTINUED OPERATION
Income (loss) from discontinued operation, net of income
taxes (benefit) of ($90,000) and $22,000, respectively ( 135,457) 67,083
Loss on disposal, net of income tax benefit of $270,000, in 1998 ( 1,047,000) -
------------- -----------
( 1,182,457) 67,083
------------- -----------
NET INCOME (LOSS) ($12,317,708) $ 893,452
============= ===========
NET INCOME (LOSS) PER COMMON SHARE Basic Earnings Per Share:
Income (loss) from continuing operations ($ 1.50) $ .12
Income (loss) from discontinued operation ( .15) .01
------------- -----------
Net Income (Loss) ($ 1.65) $ .13
============= ===========
Diluted Earnings Per Share:
Income (loss) from continuing operations ($ 1.50) $ .11
Income (loss) from discontinued operation ( .15) .01
------------- -----------
Net Income (Loss) ($ 1.65) $ .12
============= ===========
WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION
Basic 7,447,952 6,978,095
Diluted 7,447,952 7,597,536
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 1998 and 1997
(Unaudited)
<CAPTION>
<S> <C> <C>
1998 1997
REVENUE
Consulting and service $1,706,126 $2,675,864
Software 485,050 872,422
85,674 110,000
---------- ----------
2,276,850 3,658,286
---------- ----------
COST OF REVENUE
Consulting and service 1,150,842 1,380,425
Software 551,203 106,232
Other - (1,547)
---------- ----------
1,702,045 1,485,110
---------- ----------
GROSS MARGIN 574,805 2,173,176
---------- ----------
OPERATING EXPENSES
Development cost 614,817 283,989
Selling, general and administrative 2,244,407 1,226,896
Depreciation and amortization of goodwill 283,752 154,874
---------- ----------
3,142,976 1,665,759
---------- ----------
OPERATING INCOME (LOSS) ( 2,568,171) 507,417
---------- ----------
OTHER INCOME (EXPENSES)
Interest income 71,428 111,890
Interest expense ( 49,428) ( 4,799)
---------- ----------
22,000 107,091
---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES (2,546,171) 614,508
INCOME TAX EXPENSE (BENEFIT) - 202,300
---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (2,546,171) 412,208
DISCONTINUED OPERATION
Income (loss) from discontinued operation, net of income
taxes (benefit) - 8,498
---------- ----------
NET INCOME (LOSS) ($2,546,171) $ 420,706
========== ==========
NET INCOME (LOSS) PER COMMON SHARE Basic Earnings Per Share:
Income (loss) from continuing operations ($ .33) $ .06
Income (loss) from discontinued operation ( -) -
---------- ----------
Net Income (Loss) ($ .33) $ .06
========== ==========
Diluted Earnings Per Share:
Income (loss) from continuing operations ($ .33) $ .05
Income (loss) from discontinued operation ( -) -
---------- ----------
Net Income (Loss) ($ .33) $ .05
========== ==========
WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION
Basic 7,639,822 7,007,306
Diluted 7,639,822 7,642,389
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1998 and 1997
(Unaudited)
<CAPTION>
1998 1997
-------------------- -------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ($ 12,317,708) $ 893,452
Adjustments to reconcile net income (loss) to net
cash used by continuing operating activities:
Loss (income) from discontinued operation 135,457 (67,083)
Loss on disposal of discontinued operation 1,047,000 --
Depreciation 874,534 133,907
Amortization 1,057,341 402,588
Purchased research and development costs 6,510,000 --
Write off of capitalized software costs 1,793,880 --
Deferred income taxes (1,167,925) 342,700
Non-employee stock options expenses -- 464,000
Changes in operating assets and liabilities, exclusive of
those arising from business acquisitions and sales:
Accounts receivable (2,555,472) (3,023,891)
Income taxes receivable 405,525 2,739
Inventory 336,310 --
Prepaid expenses and other assets (915,976) (270,876)
Deposits and deferred costs (452,347) (24,221)
Accounts payable (754,787) (40,585)
Due to related company 211,987 --
Accrued expenses (239,224) --
Customer deposits (26,944) 59,402
Deferred revenue 4,063,764 --
--------- ---------
Net cash used by continuing operating activities (1,994,585) (1,127,868)
--------- ---------
NET CASH PROVIDED BY DISCONTINUED OPERATION 264,514 (380,042)
------- -------
INVESTING ACTIVITIES
Purchases of marketable securities -- (1,998,128)
Redemption of marketable securities -- 6,497,273
Purchases of property and equipment (1,273,935) (211,645)
Software development costs (723,017) (838,588)
Net cash received from acquisitions 362,263 --
--------- ---------
Net cash provided (used) by investing activities (1,634,689) 3,448,912
--------- ---------
FINANCING ACTIVITIES
Payments on long-term debt (63,344) (98,832)
Proceeds from long-term debt (156,494) --
Proceeds from exercise of stock options 59,189 164,974
Additional public offering costs -- (137,365)
------- -------
Net cash used by financing activities (160,649) (71,223)
------- ------
NET INCREASE (DECREASE) IN CASH AND CASH (3,525,409) 1,869,779
EQUIVALENTS
CASH AND CASH EQUIVALENTS
Beginning of Period 7,062,275 3,318,252
--------- ---------
End of Period $3,536,866 $5,188,031
========= =========
See notes to condensed consolidated financial statements.
</TABLE>
<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,
1998 and the results of operations and cash flows for the three and six
months ended September 30, 1998 and 1997. The results of operations and
cash flows for the three and six months ended September 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/A 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.
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)
===========
<PAGE>
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.
<PAGE>
LEVEL 8 SYSTEMS, INC AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Overview
General. For the three months ended September 30, 1998, the Company's
revenue was $2,278,000, a decrease of 38% from $3,658,000 for the three months
ended September 30, 1997. The operating loss for the three months ended
September 30, 1998 was $2,568,000, compared to a profit of $507,000 for the
three months ended September 30, 1997. For the three months ended September 30,
1998, the Company had a net loss of $2,546,000, or $(0.33) per share, basic and
diluted, compared to a net profit of $421,000, or $0.06 per share basic and
$0.05 per share diluted, for the three months ended September 30, 1997.
The third quarter results do not reflect any revenue from an agreement the
Company entered into with Microsoft Corporation ("Microsoft") in August 1998.
Under the agreement, the Company granted Microsoft exclusive rights to the
English and Japanese versions of its FalconMQ bridge product. Microsoft accepted
the English version of the product in September and the Japanese version of the
product in November. The Company billed Microsoft $2.96 million for the English
version in September, and will bill Microsoft $740,000 for the Japanese version
in November. The Company expects to receive the $3.7 million total from
Microsoft by December. The Company is in the process of determining how long
generally accepted accounting principles will require the Company to continue to
defer recognizing such revenue.
The results of the third quarter reflect the Company's transition toward
developing a base of messaging and enterprise application integration products.
During the third quarter, revenue had not yet begun to reflect the continuing
investment in the development of new products and the infrastructure to support
such products. Toward the end of this quarter, however, the Company had begun to
reduce its expense structure to accommodate its planned transition. The Company
reduced its use of outside consultants, it reassigned some development personnel
to revenue-generating assignments and it reduced headcount generally.
Other Matters. On March 26, 1998, Level 8 acquired all the stock of
Momentum Software Corporation ("Momentum"). 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, which Level 8 recorded in the first quarter of 1998. 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 believes there was a variance from the specified amount of $1,466,444, which
would require a reduction in the purchase price by that amount. The Company
disputes the buyer's position. The parties are proceeding to resolve the dispute
through arbitration.
Level 8 purchased $1,500,000 of software from its affiliate, Liraz Systems
Ltd. This amount is being paid in installments over two years beginning in the
second quarter of 1998.
<PAGE>
Three Months Ended September 30, 1998 Compared With Three Months Ended September
30, 1997
Revenue for the three months ended September 30, 1998 was approximately
$2,278,000 as compared to $3,658,000 for the three months ended September 30,
1997, a decrease of $1,380,000 or 38%. The decrease in revenue was attributable
to decreases in consulting revenue ($970,000) and software license sales
($387,000). The decrease in consulting revenue was mainly attributable to delays
in projects by some of the Company's larger customers. The decrease in software
license sales resulted from the Company's planned strategy to de-emphasize the
reselling of MQ licenses, coupled with delayed introduction of the Company's own
new products relating to its agreement with Microsoft.
Cost of revenue for the three months ended September 30, 1998 was
approximately $1,702,000 as compared to $1,485,000 for the three months ended
September 30, 1997, an increase of $217,000 or 15%. The increase in cost of
revenue was attributable to (i) certain consulting projects, which necessitated
the use of outside consultants carrying higher costs, (ii) costs associated with
newly hired sales personnel and (iii) a change in product mix carrying lower
profit margins.
The gross margin for the three months ended September 30, 1998 was
approximately 25% as compared to approximately 59% for the three months ended
September 30, 1997. The decrease was a result of the changes in revenue and cost
of revenue as mentioned above.
Development costs increased to approximately $615,000 for the three months
ended September 30, 1998 from approximately $284,000 for the same period in the
prior year, reflecting the Company's continued investment in a new product line.
Selling, general, and administrative expenses for the three months ended
September 30, 1998 were approximately $2,244,000 as compared to approximately
$1,227,000 for the three months ended September 30, 1997, an increase of
approximately $1,017,000. The increase in selling, general and administrative
expenses reflects added general expenses associated with Momentum ($525,000) and
the investment in infrastructure needed to support the expected growth in
revenue.
Nine Months Ended September 30, 1998 Compared With Nine Months Ended September
30, 1997
Revenue for the nine months ended September 30, 1998 was approximately
$9,455,000 as compared to $9,278,000 for the nine months ended September 30,
1997, an increase of $177,000 or 2%. The increase is primarily related to
increases from consulting, services and maintenance revenue of $844,000 of which
$815,000 represents deferred maintenance revenue recognized in this period,
offset by a decrease in software license revenue of $1,155,000 relating to lower
MQ License sales.
Cost of revenue for the nine months ended September 30, 1998 was
approximately $5,146,000 as compared to $4,403,000 for the nine months ended
September 30, 1997, an increase of $743,000 or 17%. The increase was due to
Level 8 Technologies' increase in the cost of outside consulting, services and
maintenance of approximately $892,000 or 28% and a decrease of $112,000 or 10%
due to MQ License sales.
The gross margin for the nine months ended September 30, 1998 was
approximately 46% as compared to approximately 53% for the nine months ended
September 30, 1997. The decrease was due to lower margins on consulting and
services revenue.
Development costs increased to approximately $1,975,000 for the nine months
ended September 30, 1998 from approximately $567,000 for the same period in the
prior year, indicative of the Company's commitment to its new product lines.
<PAGE>
Selling, general, and administrative expenses for the nine months ended
September 30, 1998 were approximately $5,315,000 as compared to approximately
$2,909,000 for the nine months ended September 30, 1997, an increase of
approximately $2,406,000. The increase is a result of additional expenses of
approximately $1,045,000 relating to Momentum. The other increases in expenses
were associated with the investment in infrastructure needed to support the
expected growth in revenue.
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 $169,000 for the nine months ended
September 30, 1998 and $85,000 for the three months ended September 30, 1998 due
to a decrease in interest income from fewer ideal funds invested and an increase
of interest expense associated with long-term debt.
Income taxes represent a benefit of 6.4% 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 nine months ended September 30,
1998 used net cash of approximately $1,994,585. Level 8 used approximately
$1,635,000 for investing activities in the nine months ended September 30, 1998
primarily as a result of purchases of property and equipment. Continuing
financing activities for the nine months ended September 30, 1998 used net cash
of approximately $160,000. At September 30, 1998, Level 8 had working capital of
approximately $10,290,000 and a current ratio of approximately 2.5. Level 8
believes that the existing working capital and the anticipated funds generated
from operations will be sufficient to fund its working capital, capital
expenditure and financing requirements at least through the next twelve months.
<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
(a) Exhibits:
27.0 Financial Data Schedule
(b) Reports on Form 8-K:
On October 13, 1998, the Company filed an 8-K under Item 5
regarding the Company entering into an exclusive licensing
agreement with Microsoft Corporation.
<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 13, 1998 LEVEL 8 SYSTEMS, INC.
----------------- ---------------------------------------
(Registrant)
/s/ Arie Kilman
---------------------------------------
Arie Kilman
Chairman of the Board and
Chief Executive Officer
/s/ Yigal Baruch
---------------------------------------
Yigal Baruch
Vice President and Chief Financial
Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,536,866
<SECURITIES> 0
<RECEIVABLES> 10,195,728
<ALLOWANCES> (931,683)
<INVENTORY> 0
<CURRENT-ASSETS> 17,285,105
<PP&E> 2,779,483
<DEPRECIATION> (1,232,203)
<TOTAL-ASSETS> 24,290,591
<CURRENT-LIABILITIES> 6,994,979
<BONDS> 0
0
0
<COMMON> 76,398
<OTHER-SE> 15,742,270
<TOTAL-LIABILITY-AND-EQUITY> 24,290,591
<SALES> 9,454,927
<TOTAL-REVENUES> 9,454,927
<CGS> 5,146,539
<TOTAL-COSTS> 21,489,350
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (88,755)
<INCOME-PRETAX> (11,897,651)
<INCOME-TAX> (762,400)
<INCOME-CONTINUING> (11,135,251)
<DISCONTINUED> (1,182,457)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,317,708)
<EPS-PRIMARY> (1.65)
<EPS-DILUTED> (1.65)
</TABLE>
