UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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)
8000 Regency Parkway, Cary, NC 27511
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(919) 380-5000
----------------------------------------------------
(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 April 30, 1998.
1
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<TABLE>
<CAPTION>
LEVEL 8 SYSTEMS, INC.
INDEX
Page
<S> <C>
PART I. Financial Information Number
------
Item 1. Financial Statements
Consolidated balance sheets as of March 31, 1998 (unaudited)
and December 31, 1997 3
Consolidated statements of operations (unaudited) for the three
months ended March 31, 1998 and 1997 4
Consolidated statements of cash flows (unaudited) for the three months
ended March 31, 1998 and 1997 5
Notes to consolidated financial statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. Other Information 11
SIGNATURES 13
</TABLE>
Introductory Note:
This Amendment on Form 10-Q/A amends the Registrant's Quarterly Report on Form
10-Q for the period ended March 31, 1998, as filed by the Registrant on May 15,
1998, and is being filed to reflect the restatement of the Registrant's
consolidated financial statements (the "Restatement"). The Restatement reflects
the revaluation of acquired in-process research and development from the
acquisition of Momentum Software Corporation on March 26, 1998, based upon
revised guidelines as set forth by the Securities and Exchange Commission (the
"SEC"); informal discussions with the SEC regarding the accounting for
renegotiations of royalty payments under a software development agreement which
the Company is now amortizing over the term of the agreement; and other
adjustments to properly reflect quarterly results. The adjustments to the
previously presented quarterly information, except for the revaluation of
acquired in-process research and development and the renegotiated royalty
payments, are between quarters within each of the years ended December 31, 1997
and 1998 and have no impact on year-end results.
2
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PART I.
ITEM 1.
<TABLE>
<CAPTION>
LEVEL 8 SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Assets
Cash and cash equivalents $ 7,880 $ 7,062
Accounts receivable, less allowance for doubtful accounts
of $369 and $434 at March 31, 1998 and December 31,
1997, respectively 4,899 6,455
Income taxes receivable 648 406
Inventory 336 336
Prepaid expenses and other current assets 624 421
Net assets from discontinued operations 2,446 3,577
Deferred income taxes 159 -
-------- --------
Total current assets 16,992 18,257
Property and equipment, net 1,357 974
Excess of cost over net assets acquired, net 7,302 1,793
Software development costs, net 3,019 2,168
Other assets - 290
-------- --------
Total assets $28,670 $23,482
======== ========
Liabilities and stockholders' equity
Current maturities of loan from related company $ 128 $ 128
Current maturities of long-term debt 44 7
Accounts payable 1,682 1,936
Accrued expenses 547 224
Customer deposits and deferred revenue 603 42
Deferred taxes - 94
-------- --------
Total current liabilities 3,004 2,431
Long-term debt, net of current maturities 88 16
Loan from related company, net of current maturities 170 202
Deferred income taxes 353 462
Stockholders' equity
Preferred stock - -
Common stock 77 70
Additional paid-in-capital 27,646 20,603
Accumulated deficit (2,668) (184)
Unearned compensation - (118)
-------- --------
Total stockholders' equity 25,055 20,371
-------- --------
Total liabilities and stockholders' equity $28,670 $23,482
======== ========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
LEVEL 8 SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Operating revenue:
Consulting and services $ 2,341 $1,962
Software 212 891
Other 540 -
-------- -------
Total operating revenue 3,093 2,853
Cost of revenue:
Consulting and services 1,588 856
Software 426 766
Other - 31
-------- -------
Total cost of revenue 2,014 1,653
Gross profit 1,079 1,200
Operating expenses:
Selling, general and administrative 1,856 1,100
Purchased research and development 1,200 -
-------- -------
Total operating expenses 3,056 1,100
Income (loss) from operations (1,977) 100
Other income (expense)
Interest income 74 115
Interest expense (4) (5)
-------- -------
Income (loss) before tax provision (1,907) 210
Income tax provision (benefit) (401) 94
-------- -------
Income (loss) from continuing operations (1,506) 116
Discontinued operations:
Income (loss) from discontinued operation, net
of taxes (benefit) of ($90) and $22 (135) 34
Loss on disposal, net of income tax expense of $519 (843) -
-------- -------
(978) 34
Net income (loss) $(2,484) $ 150
======== =======
Net income (loss) per common share:
Income (loss) from continuing operations - basic $ (0.21) $ 0.02
Income (loss) from discontinued operations - basic $ (0.14) $ -
-------- -------
Net income (loss) per share - basis $ (0.35) $ 0.02
======== =======
Net income (loss) per common share:
Income (loss) from continuing operations - diluted $ (0.21) $ 0.02
Income (loss) from discontinued operations - diluted $ (0.14) $ -
-------- -------
Net income (loss) per share - diluted $ (0.35) $ 0.02
======== =======
Weighted shares outstanding - basic 7,110 6,960
======== =======
Weighted shares outstanding - diluted 7,110 7,472
======== =======
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
LEVEL 8 SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,484) $ 150
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
(Income) loss from discontinued operations 135 (34)
Loss on disposal of discontinued operations 843 -
Depreciation and amortization 273 149
Deferred income taxes (760) 157
Provision for uncollectible accounts 50 -
Purchased research and development 1,200 -
Write-off of capitalized software costs 294 -
Other - 30
Changes in assets and liabilities, net of assets acquired
and liabilities assumed:
Trade accounts receivable 1,580 (962)
Income taxes receivable (242) (53)
Prepaid expenses and other assets (149) (531)
Accounts payable and accrued expenses (260) 602
Customer deposits and deferred revenue 480 (67)
-------- --------
Net cash provided by (used in) operating activities 960 (559)
Cash flows from investing activities:
Cash received from acquisition 362 -
Purchase of marketable securities - (1,998)
Redemption of marketable securities - 2,481
Purchases of property and equipment (272) (64)
Capitalization of software development costs (118) (370)
-------- --------
Net cash provided by (used in) investing activities (28) 49
Cash flows from financing activities:
Issuance of common shares 28 32
Costs of issuance of common shares - (140)
Deferred income taxes (109) -
Payment on other long-term debt (33) (2)
-------- --------
Net cash used in financing activities (114) (110)
Net increase (decrease) in cash and cash equivalents 818 (620)
Cash and cash equivalents:
Beginning of period 7,062 3,318
-------- --------
End of period $ 7,880 $ 2,698
======== ========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
5
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LEVEL 8 SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
1. Basis of Presentation -
In the opinion of the Company, these unaudited consolidated financial statements
contain all normal, recurring adjustments necessary to present fairly the
financial position of the Company as of March 31, 1998 and December 31, 1997 and
the results of operations and cash flows for the three months ended March 31,
1998 and 1997. The results of operations and cash flows for the three months
ended March 31, 1998 are not necessarily indicative of the results to be
expected for the year ending December 31, 1998, or any other period.
This amendment on Form 10-Q/A amends the Company's Quarterly Report on Form 10-Q
originally filed on May 15, 1998 and is being filed to reflect the restatement
of the Company's consolidated financial statements. See Note 3. The Company
filed its annual report on Form 10-K for the year ended December 31, 1998 which
contains subsequent information regarding certain matters disclosed herein. For
further information, refer to the 1998 consolidated financial statements and
notes included therein.
Additionally, 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, filed September 11, 1998.
2. Principles of Consolidation -
The March 31, 1998 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") and ProfitKey International, Inc.
("ProfitKey") and its new wholly-owned subsidiary, Momentum Software
Corporation, from the date of acquisition of March 26, 1998. The March 31, 1997
condensed consolidated financial statements include the accounts of Level 8,
Level 8 Technologies, ProfitKey, and its ASU consulting division. On April 6,
1998, the Company sold its wholly-owned subsidiary, 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. Restatement -
Purchased research and product development
Subsequent to the issuance of the Company's Quarterly Report on Form 10-Q for
quarterly period ended March 31, 1998, the Company's management revised the
amount of the purchase price which was allocated to in-process research and
development ("IPR&D") in accounting for the acquisition of Momentum Software
Corporation in March of 1998. See Note 4. The revised allocation is based upon
methods prescribed in a letter from the Securities and Exchange Commission
("SEC") sent to the American Institute of Certified Public Accountants in
September 1998. The letter sets forth the SEC's views regarding the valuation
methodology to be used in allocating a portion of the purchase price to IPR&D at
the date of the acquisition.
The Company's initial calculations to value the acquired IPR&D were based upon a
methodology that estimated the costs to develop the IPR&D into commercially
viable products, and discounted the net cash flows back to their present value.
Royalty agreement
During 1995, the Company and Liraz, the Company's majority shareholder, entered
into a custom computer programming agreement for the joint development of
certain software. Liraz and the Company were each to pay 50% of the total
project development costs. In exchange for providing 50% of the project
development costs, Liraz was to receive royalties of 30% of the first $2,000 in
contract revenue from the sale of products developed under this agreement, 20%
of the next $1,000, and 8% thereafter.
Due to a change in the Company's development plans for this product, during the
first quarter of 1998, the Company and Liraz orally agreed to amend the original
custom computer programming agreement. Under the new agreement signed April 1,
1998, the Company agreed to reimburse Liraz's costs of development of $1,500 and
to pay Liraz royalties of 3% of program revenues, as defined in the agreement,
generated from January 1, 1998 until December 31, 2000. The Company originally
recorded the transaction as a purchase of technology with an offsetting note to
Liraz for $1,500 during the first quarter of 1998. Additionally, the Company
6
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recorded an impairment loss related to the capitalized cost of the joint
development costs based upon the net realizable value of the future cash flows
expected from the product. As a result of subsequent informal discussions
with the SEC, the Company has restated its quarterly financial statements to
reflect such amount as a prepaid royalty, and will amortize the cost of
reimbursement over the term of the agreement beginning on April 1, 1998 with the
signing of the agreement.
Other adjustments
In connection with the audit of the Company's 1998 annual consolidated financial
statements, certain adjustments were identified in order to recognize revenue in
the proper quarter of 1998 in accordance with Statement of Position 97-2,
"Software Revenue Recognition," issued by the American Institute of Certified
Public Accountants. For the quarter ended March 31, 1998, revenues totaling
$468 have been deferred until subsequent quarters of 1998. The nature of
this transaction also impacts the accounts receivable balance, as well as
deferred revenues.
The Company also adjusted the value and shares of stock issued for the purchase
of Momentum. This adjustment resulted in a $668 increase to goodwill.
The change in weighted average shares outstanding for the three month period
ending is due to the recomputation of shares taking into effect the purchase of
Momentum Software Corporation.
<TABLE>
<CAPTION>
A summary of the significant effects of the restatement is as follows:
As of March 31, 1998
As
Previously As
Reported Restated
--------- --------
<S> <C> <C>
BALANCE SHEET DATA
Accounts receivable, net $ 5,474 $ 4,899
Property and equipment, net 1,335 1,357
Excess of cost over net assets acquired, net 2,794 7,302
Software development costs, net 2,999 3,019
Total assets 24,831 28,670
Due to related company 1,500 -
Deferred revenue 430 573
Additional paid-in-capital 28,708 27,646
Accumulated deficit (8,782) (2,668)
Unearned compensation (118) -
Total stockholders' equity 19,884 25,055
Total liabilities and stockholders' equity 24,831 28,670
</TABLE>
<TABLE>
<CAPTION>
Three months ended
March 31, 1998
As
Previously As
Reported Restated
---------- --------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Consulting and services $ 2,731 $ 2,341
Software 290 212
Cost of software 152 426
Gross profit 1,821 1,079
Selling, general and administrative 1,608 1,856
Purchased research and development 6,510 1,200
Write-off of capitalized software 1,794 -
Income (loss) from operations (8,091) (1,977)
Income tax provision (605) (401)
Income (loss) from continuing operations (7,416) (1,506)
Loss on disposal, net of income tax expense of $519 (1,047) (843)
Net income (loss) (8,598) (2,484)
Net loss per common share - basic and diluted (1.21) (0.35)
Weighted average shares outstanding - basic and diluted 7,086 7,110
</TABLE>
7
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4. Acquisition -
On March 26, 1998, the Company acquired Momentum Software Corporation
("Momentum"). Under the agreement, Level 8 issued 594,866 shares of common
stock and warrants to purchase 200,000 common shares at an exercise price of
$13.108 per share, subject to adjustment based on the value of the Level 8
common shares on December 1, 1998. The amount of contingent consideration, if
any, will be determined in the fourth quarter of 1998. The total cost of the
acquisition, excluding additional contingent consideration paid in the fourth
quarter, was approximately $7,717 and is treated as a purchase. As a result of
the acquisition of Momentum, the Company incurred a nonrecurring charge to
earnings of an estimate of approximately $1.2 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 purchase price was preliminarily allocated to the assets acquired and
liabilities assumed based on the Company's estimates of fair value at the
acquisition date. The fair value assigned to intangible assets acquired was
based on a valuation prepared by an independent third-party appraisal company of
the purchased in-process research and development, developed technology, and
assembled workforce of Momentum. The purchase price exceeded the amounts
allocated to tangible and intangible assets acquired less liabilities assumed by
approximately $5,615. This excess of the purchase price over the fair values of
assets acquired less liabilities assumed was allocated to goodwill.
<TABLE>
<CAPTION>
The cost of the acquisition was allocated as follows:
<S> <C>
Cash $ 437
Accounts receivable 125
Prepaid expenses and other current assets 52
Property and equipment 174
In-process research and development 1,200
Developed technology 1,100
Goodwill and other intangibles 5,615
Accounts payable (507)
Deferred revenue (367)
Long-term debt (112)
-------
Cost of net assets acquired $7,717
=======
</TABLE>
Approximately $1,200 of the purchase price represents purchased in-process
research and development that had not yet reached technological feasibility and
had no alternative future use. Accordingly, this amount was immediately
expensed in the Consolidated Statement of Operations upon consummation of the
acquisition. The value assigned to in-process research and development, based
on a valuation prepared by an independent third-party appraisal company, was
determined by identifying research projects, all of which related to either
add-ons or enhancements of Momentum's existing XIPC product, in areas for which
technological feasibility had not been established. The value of in-process
projects was adjusted to reflect the relative value and contributions of the
required research and development. In doing so, consideration was given to the
stage of completion, the complexity of the work completed to date, the
difficulty of completing the remaining development costs already incurred, and
the projected cost to complete projects. The discount rate included a factor
that takes into account the uncertainty surrounding successful development of
the purchased in-process research and development.
5. Discontinued Operation -
On April 6, 1998, the Company sold its wholly owned subsidiary, ProfitKey
International, Inc. The Company received $464 at the closing and a $2,000 note
from the buyer. The note will be adjusted for changes in working capital
through the closing date. In connection with the sale, the Company recorded a
loss from the discontinued operation of approximately $1,362, before a tax
expense of $519.
8
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ITEM 2.
LEVEL 8 SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
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 594,866 shares of Level 8 common stock and 200,000
warrants, subject to additional consideration based upon the Level 8 common
stock price on December 1, 1998. 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
$1,362. Level 8 recorded the loss in the first quarter of 1998 for the disposal
of the business and the anticipated operating losses until disposal. The loss
from operations is recorded as a loss from discontinued operations.
Accordingly, ProfitKey is reported as a discontinued operation for 1998 and
1997. Level 8's operating results for prior periods were restated to reflect
continuing operations.
See Note 3 to the Company's consolidated financial statements in Item 1 for
additional information regarding the restatement of the Company's consolidated
financial statements.
Results of Operations
Revenue for the three months ended March 31, 1998 was approximately $3,093 as
compared to $2,853 for the three months ended March 31, 1997, an increase of
$240 or 8%. The increase is primarily related to increased software, consulting
and service revenue from Level 8 Technologies of approximately $245 and Momentum
Software, which was acquired in the first quarter, of approximately $260. These
increases were offset by the sale of the ASU division in the fourth quarter of
1997, which reduced revenue in the first quarter of 1998 by approximately $265.
Cost of revenue for the three months ended March 31, 1998 was approximately
$2,014 as compared to $1,653 for the three months ended March 31, 1997, an
increase of $361 or 22%. The increase was due to Level 8 Technologies increased
costs of approximately $291, and to the write-off of capitalized software of
$294 offset by the sale of the ASU division in the fourth quarter of 1997, which
reduced cost of revenue by $219.
The gross margin for the three months ended March 31, 1998 was 35% as compared
to 42% for the three months ended March 31, 1997. The decrease was primarily
due to a lower margin in consulting and services.
Selling, general, and administrative expenses for the three months ended March
31, 1998 were approximately $1,856 as compared to approximately $1,100 for the
three months ended March 31, 1997, an increase of approximately $756. The
increase is a result of additional development expense of approximately $308 and
other overall increases primarily at Level 8.
As a result of the acquisition of Momentum, the Company recorded a $1,200
nonrecurring charge for purchased in-process research and development costs
based on the results of third-party appraisals. In the opinion of management and
the appraiser, the acquired in-process research and development had not yet
reached technological feasibility and had no alternative future uses. The value
of the in-process projects was adjusted to reflect the relative value and
contribution of the acquired research and development. In doing so, management
gave consideration to the stage of completion, the complexity of the work
completed to date, the difficulty of completing the remaining development costs
already incurred, and the projected cost to complete the projects. The value
assigned to purchased in-process technology was based on key assumptions,
including revenue growth rates for each technology considering, among other
things, current and expected industry trends, acceptance of the technologies and
historical growth rates for similar industry products.
9
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Other income decreased by approximately $40 primarily due to decreased interest
income from funds invested.
Income taxes represent a benefit of 21% of the loss from continuing operations
before income taxes. The rate is below the expected tax rate primarily due to
the nondeductibility of the purchased research and development costs of $1,200.
The loss on the disposal of ProfitKey of approximately $843, net of tax expense
of $519, is reflected in discontinued operations.
Liquidity and Capital Resources
Continuing operating activities for the three months ended March 31, 1998,
provided net cash of approximately $960. At March 31, 1998, Level 8 had working
capital of approximately $13,988 and a current ratio of 5.66. Level 8 believes
that the existing working capital and anticipated funds generated from
operations will be sufficient to fund its working capital and capital
expenditure requirements at least through the end of 1998.
Level 8 spent approximately $118 on software development and $272 on property
and equipment during the three months ended March 31, 1998.
10
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PART II.
LEVEL 8 SYSTEMS, INC.
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
On March 26, 1998, Level 8 Systems, Inc.("Level 8") acquired Momentum
Software Corporation (the "Momentum"), a Delaware corporation. Under the
acquisition agreement, Momentum shareholders received 594,866 common shares of
Level 8 and warrants to purchase 200,000 common shares of Level 8 for $13.108
per share, subject to adjustment ("Contingent Consideration") to take into
account certain fluctuations in the value of the Level 8 common shares. If the
average price per common share during the 30 days prior to the Calculation Date
(as defined) (the "Average Price") is $21.00 or more, there is no Contingent
Consideration; if the Average Price is between $15.00 and $21.00, the Contingent
Consideration is a number of additional common shares equal to the product of
(a) 416.666 and (b) the number of cents by which $21.00 exceeds the Average
Price; and if the Average Price is below $15.00, the Contingent Consideration
is 250,000 common shares or an installment promissory note payable in four
annual installments and bearing interest at the rate of 10% a year, as
determined by the Momentum Liquidating Trust (the "Trust").
Common shares totaling 544,866 and 200,000 warrants are being held by the
Trust, the trustees of which are Dr. Robert Brill, Hubert Vandervoort and Bruns
Grayson. The Trust will distribute the shares and warrants to the Momentum
shareholders on December 1, 1998 (or earlier, in certain circumstance).
Additionally, 50,000 shares were distributed directly to certain shareholders of
Momentum.
In connection with this transaction, the Trust has agreed, among its
trustees, to vote its common shares in Level 8 in accordance with the
instructions of Liraz Systems, Ltd.
No underwriter was involved in this transaction, and no commissions were paid
with respect thereto. The persons to whom Level 8 has issued such securities
have represented to Level 8 the intention to acquire such securities not with
any view to the resale or distribution thereof in violation of the Securities
Act of 1933 (the "Act"). Evidence of the securities so issued has been
appropriately legended to such effect. Upon any exercise of any warrants
referred to above, unless a registration statement with respect thereto is in
effect, the person to whom the warrants have been issued will be required to
renew such representation, and certificates for the shares so issued will be
appropriately legended. Accordingly, Level 8 relies upon the exemption provided
under section 4(2) of the Act with respect to the issuance of such securities.
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security-Holders
None
Item 5. Other Information
None
11
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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:
On January 30, 1998, the Company filed an 8-K regarding Level 8 Systems, Inc.
replacing Lurie, Besikof, Lapidus & Co, LLP as its independent auditors with
Grant Thornton LLP.
12
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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 April 21, 1999 LEVEL 8 SYSTEMS, INC.
-------------------- ------------------------------
(Registrant)
/s/ Arie Kilman
------------------------------
Arie Kilman
Chief Executive Officer
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME FILED AS PART OF
THE ANNUAL REPORT ON FORM 10-k AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,880
<SECURITIES> 0
<RECEIVABLES> 5,268
<ALLOWANCES> 369
<INVENTORY> 336
<CURRENT-ASSETS> 16,992
<PP&E> 1,867
<DEPRECIATION> 510
<TOTAL-ASSETS> 28,670
<CURRENT-LIABILITIES> 3,004
<BONDS> 0
0
0
<COMMON> 77
<OTHER-SE> 24,978
<TOTAL-LIABILITY-AND-EQUITY> 28,670
<SALES> 0
<TOTAL-REVENUES> 3,093
<CGS> 0
<TOTAL-COSTS> 2,014
<OTHER-EXPENSES> 3,056
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> (1,907)
<INCOME-TAX> (401)
<INCOME-CONTINUING> (1,506)
<DISCONTINUED> (978)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,484)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 11.0
LEVEL 8 SYSTEMS, INC.
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENTS
Three Months Ended
March 31,
1998 1997
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BAISC
<S> <C> <C>
WEIGHTED AVERAGE COMMON SHARES 7,110 6,960
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DILUTED
WEIGHTED AVERAGE COMMON SHARES 7,110 6,960
COMMON STOCK EQUIVALENTS (1) 512
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WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 7,110 7,472
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(1) Antidilutive
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