SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549


                                     Form 10-K

  [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
        SECURITIES EXCHANGE ACT OF 1934
                    For the fiscal year ended December 31, 1996
                                         or
  [ ]    TRANSITION REPORT PURSUANT TO SECTION 14 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934
                   For the transition period from        to

                              Commission File No. ?



                                  LEVEL 8 SYSTEMS, INC.
                 (Exact name of registrant as specified in its
charter)

                       New York                             
11-2920559
             (State or other jurisdiction of              I.R.S.
Employer
              incorporation or organization)            
Identification No.)

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)

           Securities registered pursuant to Section 12(b) of the
Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01
par value



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

       Indicate by check mark whether the registrant (1) has
filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of
1934 during the preceding 12 months (or 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 ___.

       The aggregate market value of the voting Common Stock held
by
non-affiliates of the registrant was $86,146,545 based on the
price of the last
reported sale on the over-the-counter National Market System on
March 11, 1997
reported by NASDAQ.

       As of March 11, 1997, there were 6,961,337 shares of
Common Stock, $.01
par value, outstanding.

                           DOCUMENTS INCORPORATED BY REFERENCE

       The responses to items 10, 11, 12, and 13 herein are
incorporated by
reference to certain information in the Company's Definitive
Proxy Statement for
its Annual Meeting of Shareholders to be held May 6, 1997.

                                      PART I

Item 1.  Business

General

       Level 8 Systems, Inc. (the "Company" or "Level 8")
believes that it has
established itself as a technology leader in the rapidly growing
middleware
marketplace.  The Company's middleware products and services,
some of which have
been developed pursuant to contracts with International Business
Machines
Corporation ("IBM") and Microsoft Corporation ("Microsoft"),
utilize messaging
and object technology to solve enterprise-wide integration
problems associated
with linking legacy environments, the desktop and the internet. 
During 1996, the
Company entered into agreements with Candle Corporation
("Candle"), pursuant to
which Candle purchased 246,800 shares of Common Stock for $11.00
per share and
acquired certain rights to technology developed by the Company
and will acquire
certain non-exclusive rights to the Company's products, including
Falcon External
Gateways (as described below).  In addition, the Company, through
its
wholly-owned subsidiary, ProfitKey International, Inc.
("ProfitKey"), offers MRP
II and shop-floor scheduling packages and related services.

       The Company has experienced steady growth on a
quarter-to-quarter basis
in its middleware products and services operations since 1195, as
the Company's
focus and operating strategy have evolved from that of an
industry specific
("vertical") software developer to a provider of middleware
products and
services.  Industry sources have estimated that the messaging
middleware market
exceeded $100 million in 1995 and that such market is expected to
grow to
approximately $1.7 billion by the year 2000.

       The Company, through its wholly-owned subsidiary, Level 8
Technologies,
Inc. ("Level 8 Technologies"), has been designated an IBM Premier
Partner for IBM
MQSeries.  Pursuant to contracts with IBM, Level 8 Technologies
has ported
version 2 of MQSeries to the DEC VMS platform and will be
entitled to royalties,
if any, from sales of the ported products, and has ported IBM's
distributed
object product, DSOM.  In addition, the Company provides
installation, education,
integration and help-desk services in support of IBM and Level 8
Technologies
sales of MQSeries licenses.  Samuel Somech, co-founder of Level 8
Technologies,
was the original designer of the transactional messaging product
that became
version 1 of MQSeries.

       Microsoft has selected the Company to develop messaging
gateways (called
"Falcon External Gateways") to facilitate communications between
computers
running Microsoft's messaging product (called "Falcon") and
various non-Microsoft
environments.  Microsoft developed Falcon as a transactional
messaging system for
use within Microsoft Window NT and Windows 95.  Level 8
Technologies' Falcon
External Gateways are being developed and are owned by Level 8
Technologies and
facilitate communications of Falcon with IBM MQSeries, mainframes
and UNIX-based
Systems.  Microsoft's Falcon and Level 8 Technologies' Falcon
External Gateways
are currently being Beta tested and are expected to be available
for shipment in
mid-1997.  Microsoft has indicated an intent to promote Level 8
Technologies'
Falcon External Gateways.

       The Company is developing DOT/XM, a product that uses
third-party
transactional messaging and distributed object products in a
Level 8 Technologies
designed tool that facilitates integration of legacy systems into
modern, open
system architectures, by representing the legacy system as a
collection of
objects.  The first large commercial installation of DOT/XM is
currently taking
place at ABN/AMRO bank.

       The Company's expansion plan is to grow primarily on the
basis of Level
8 Technologies middleware products, such as messaging gateways,
DOT/XM and other
software tools that permit access to legacy information from any
computing
environment.  Other products under development by the Company,
and with respect
to which the Company currently is offering consulting services,
are (a) a
publish/subscribe product, which sends designated data
("publish") to interested
users ("subscribers") using transactional messaging as the
delivery mechanism and
(b) an internet-application integration product, which uses
portions of the
DOT/XM framework to integrate commercial transactions on the
internet with legacy
systems of the selling corporation.

       Through ProfitKey, the Company offers MRP II and
shop-floor scheduling
software packages, as well as related installation, training and
support
services.  Historically, ProfitKey has directed its software
packages to job
shops and custom manufacturers, which use ProfitKey's software
package to
facilitate "just-in-time" deliveries and efficient scheduling of
expensive
shop-floor equipment.

       The Company began operations in 1988 as a wholly-owned
subsidiary of Liraz
Systems Ltd. (together with its wholly-owned subsidiaries,
"Liraz"), an Israeli
public company that is a systems integrator.  Since 1988, the
Company, through
its ASU consulting division ("ASU"), has provided systems
integration consulting
services primarily to manufacturing businesses in the State of
California.  In
October 1994, the Company acquired ProfitKey and Bizware Computer
Systems
(Canada) Inc. ("Bizware"), and, in April 1995, the Company
acquired Level 8
Technologies.  In July 1996, the Company decided to focus on the
middleware
activities of Level 8 Technologies, and, in that connection, in
September 1996,
sold substantially all the assets of Bizware for $230,000 and
subsequently
changed the Company's name from Across Data Systems, Inc. to
Level 8 Systems,
Inc.  The Company completed a public offering in December 1996,
selling 705,000 shares of Common Stock at an offering price of
$11.00 per share.

Level 8 Technologies Products and Services

       Level 8 Technologies' Products.  The Company's expansion
plan is to grow
primarily on the basis of middleware products developed by Level
8 Technologies,
such as messaging gateways and software tools that permit access
to legacy
information from any computing environment.  Each of the products
offers the
opportunity to deliver services with the products and, to the
extent that the
sale is made directly by the Company, Level 8 Technologies plans
to offer the
services.  The products also will be sold through other
distribution channels,
such as Candle, IBM or Microsoft Business Partners, and those
third-party sellers
will be encouraged and trained to provide services.  The products
are at various
stages of development, as described below.  There can be no
assurance the
development process will not encounter delays and unforeseen
problems, which
could materially delay the commercial introduction of a
particular product or
jeopardize that entire product.

       Falcon External Gateways.  Microsoft has developed a
transactional
messaging product, Microsoft Falcon, for use with the Microsoft
Windows NT and
Windows 95 operating systems.  Level 8 Technologies was selected
by Microsoft to
develop components of software that allow messages to be passed
from Falcon to
IBM MQSeries and directly to other systems, such as mainframes
and those running
the UNIX operating system (collectively, the "Falcon External
Gateways"). 
Microsoft has agreed to recommend exclusively Level 8
Technologies' Falcon
External Gateways for the first year after commercial release of
the gateways. 
IBM has licensed to Level 8 Technologies portions of its API from
IBM MQSeries
for use with the Falcon External Gateways to facilitate
connections between
Microsoft's Falcon and IBM MQSeries.  Microsoft's Falcon and
Level 8
Technologies' Falcon External Gateways are in Beta site testing,
and Microsoft's
Falcon and Level 8 Technologies' Falcon External Gateways are
expected to be
available for sale in mid-1997.  Level 8 Technologies' Falcon
External Gateways
are expected to sell for $500 to $10,000, depending on the
platform.  A gateway
will be purchased for each of the two systems being connected.

       Level 8 Technologies' Falcon External Gateway family of
products is
designed primarily for customers using Windows NT LANs
co-existing with other
hardware platforms.  By the year 2000, the installed base for
Windows NT has been
projected by industry sources to grow to 7 to 10 million servers. 
The Company
estimates that each of 35,000 IBM mainframes and 1.2 million UNIX
systems will
be connected via messaging to multiple Windows NT servers.  The
Company believes
that Falcon Gateways will permit interfaces between such systems.

       The Falcon Gateways family of products is designed to
provide efficient
and reliable access to IBM mainframes, numerous UNIX platforms,
such as Sun
Solaris, AIX, HP-UX and AT&T GIS, as well as AS/400, OS/2, Sun OS
and VMS. 
Communication is accomplished through a reliable message queuing
technology
offering assured message delivery, time independent messaging and
a consistent
API across all platforms.

       Distributed Object Transactions.  DOT/XM is a Level 8
Technologies
developed tool that facilitates the integration of legacy systems
into modem open
systems architectures by representing legacy systems as a
collection of objects. 
It includes a software framework for the server that is a
middle-tier in a
three-tier computing architecture.  The server responds to
requests for
information from a front-end client by reformatting the request
for communication
directly to legacy machines in their standard communication
format or via a
transactional messaging product, such as IBM MQSeries.  This
"wrapping" of the
legacy machine is accomplished on the server, so that few, if
any, changes to
code are necessary on the legacy machine.  The server utilizes
IBM MQSeries as
the transactional messaging vehicle within the server framework
and optionally
to the legacy machine.  The server framework also utilizes a
distributed ORB that
complies with the CORBA standard, such as DSOM or ORBIX.  The
server has a core
framework of objects that perform the same functions for all
installations of the
server.  The framework includes functions such as systems
management,
communications and security.  The server also has a class library
of business
objects from which objects will be selected to perform similar
functions for
different operating environments, and it will have custom
business objects
designed for the particular customer.  DOT/XM is priced at
approximately $150,000
for a single service application, with site licenses expected to
be priced in the
$500,000 to $1,000,000 range.  Installations include extensive
use of services
to customize DOT/XM business objects to particular applications.

       Publish/Subscribe.  The publish/subscribe product uses
transactional
messaging products, such as MQSeries or Microsoft Falcon, as the
delivery
mechanism to send designated data ("publish") to interested users
("subscribers").  The alternate technique is for interested users
to query the
database on a regular basis to determine if information of
interest has been
added to the database.

       Internet-Application Integration.  Level 8 Technologies is
developing an
internet-application integration product that uses portions of
the DOT/XM
framework to integrate commercial transactions on the internet
with applications
running on the legacy systems of the selling corporation.  A
prototype was
demonstrated at the Object Expo/Java Expo show in New York City
during August
1996.  The prototype was a home banking application that used
JAVA apples to
provide the GUI screen for a client that could be located in the
home and used
the internet as the communications link to a server at the bank. 
The server
accessed information on the customer from an MVS mainframe using
IBM MQSeries and
portions of the DOT/XM distributed object framework.  Level 8
Technologies
believes its technology will be important for companies that wish
to conduct
commerce on the internet and need to integrate that commerce with
the legacy
computers that are being used in their existing businesses.

       Level 8 Technologies Services.  Level 8 Technologies
provides systems
integration services drawing on its expertise in transactional
messaging and
distributed objects and offers a family of services designed to
meet the needs
of companies installing third-party transactional messaging
products.  These
services have been provided to over 40 major companies,
including: financial
institutions, such as ABN/AMRO Bank N.A., American Express, Chase
Manhattan Bank,
Franklin Templeton Group, John Hancock Mutual Life Insurance
Company, NationsBank
Corp., New York Mercantile Exchange, Trigon Blue Cross/Blue
Shield and Travelers
Life Insurance; transportation companies, such as CSX Technology
and Transquest
(Delta Airlines); manufacturing companies, such as Motorola Inc.,
NSK Corp. and
Stanley Tool; retailers, such as K-Mart Corp., The Dillon
Company, Inc. and The
May Company; and government agencies, such as Fannie Mae.  The
following packaged
transactional messaging services are being offered for IBM
MQSeries and are
expected to be offered for Microsoft's Falcon:

              MQ/Quick Start.  A fixed price service designed to
get the customer
started using transactional messaging.  Software is installed,
configured and
tested for a particular application.  Hands-on training is
provided to customer
personnel.

              MQ/Educational Services.  Classroom training in
messaging is
provided at the customer's site or at Level 8 Technologies' Boca
Raton, Florida
training facility.  Theory is taught in addition to practical
applications,
including an actual application workshop.

              MQ/Fast Track Functional Slice.  Level 8
Technologies demonstrates
the value of messaging and its business advantage by automating a
chosen
application based on an on-site requirements analysis.  If
appropriate, Level 8
Technologies will design graphical user interface screens created
for the
application and integrate messaging and an application into the
client-server
architecture.

              MQ/Enterprise Rollout.  Level 8 Technologies staff
assist customers
with application of transactional messaging for multiple
applications and
provides skills transfer required to deliver production strength
systems.

              MQ/Help Center.  Level 8 Technologies offers
continuous help desk
support, which can be accessed by telephone or facsimile or
through the internet.

ProfitKey Products and Services

       ProfitKey offers manufacturing resource planning ("MRP
II") and shop-floor
scheduling software packages, and related installation, training
and support
services for use by manufacturing businesses.  ProfitKey is a
value added
reseller of various computers, barcode equipment and several
related software
packages.

       ProfitKey's principal product, the Rapid Response
Manufacturing software
package, addresses the needs of make-to-order job shop and custom
manufacturers. 
The customers of these make-to-order manufacturers, such as large
automobile
companies, frequently impose on their make-to-order suppliers
especially
stringent delivery deadlines, which, in turn, result in unusually
complex
equipment scheduling and other scheduling requirements for the
make-to-order
manufacturer. User preferences will allow users to customize
table displays
according to their own needs.  Liraz and ASU have provided
contract development
services for this project.  The GUI version of RRM is scheduled
for release in
mid 1996.  Rapid Response Manufacturing's particular strength is
its shop-floor
scheduler, which is especially useful for manufacturers
attempting to meet the
"just-in-time" delivery requirements of their customers. 
ProfitKey also offers
a fully integr
ated MRP II software package for the make-to- stock manufacturer.

       The Rapid Response Manufacturing software package is
comprised of a core
module, plus 20 optional modules to fit the needs of the
particular manufacturer. 
The software offers a wide range of easy-to-use tools, including:
a
workbench-style framework with extensive on-screen inquiry
displays, flexible
browse features, pop-up windows and graphs; a variety of loading
and scheduling
options; management query tools for custom reports and
Windows-based export of
data; bar code entry of labor and job tracking data; and numerous
on-screen and
printed reports.  The package allows manufacturers to prepare
estimates, enter
orders, manage capacity (labor, materials, machines and work
centers), schedule
and track jobs, manage inventory, prepare shipping documents and
prepare
financial statements.

       The software package is priced based on the number and
types of modules
ordered, the hardware platform employed and the number of users. 
Typical
configurations on UNIX and Novell platforms sell for
approximately $35,000 to
$40,000; on an AS/400 platform, the package sells for
approximately $70,000 to
$80,000.

       The purchase price of ProfitKey software includes a
professional services
audit, which recommends an implementation plan supported by
ProfitKey
consultants.  A minimum 10-day implementation plan is required,
but the typical
audit recommends a plan of 30 to 50 days of support services. 
The daily rate
charged is between $800 and $ 1,100, depending upon the length of
the contract
and the skills required.

       ProfitKey is currently rewriting its software in a fourth
generation
language with graphical user interface.  The existing version is
written in
RM/COBOL and runs on UNIX, AS/400 and DOS platforms and Novell
networks and with
ProfitKey's proprietary database or native AS/400 or oracle
databases.  The new
product will use an object- oriented programming approach,
employing GUPTA's SQL
Windows, and is being designed to run on multiple hardware
platforms and
commercial databases.  The Company believes the new software will
be available
in mid- 1997.  However, there can be no assurance the development
process will
not encounter delays and unforeseen problems, which could
materially delay the
commercial introduction of the product or jeopardize the entire
product.

       ProfitKey offers an 11-hour hotline to its service
department for
troubleshooting at an hourly charge or as part of an annual
maintenance contract. 
ProfitKey's average response time is two hours.  ProfitKey offers
its customers
annual maintenance contracts at a cost ranging between 12% and
15% of the base
software license fee, which entitles the customer to telephone
support and new
releases of the software.

ASU Consulting Services

       The ASU Consulting group provides consulting services to
high technology
manufacturers in the San Francisco Bay area.  The group also
provides contract
development services to ProfitKey and consulting services for
Level 8.

       The table below shows the Company's percentage of net
revenues by category
for the years indicated.  The revenues for 1995 include the
results of ASU,
ProfitKey and Bizware for the full year, and Level 8 from its
acquisition on
April 1, 1995.  The revenues for 1994 include ASU for the full
year, ProfitKey
from its acquisition on October 3, 1994 and Bizware from its
acquisition on
October 28, 1994.  The revenues for 1993 include only the results
of the
Company's ASU consulting division.

                   Percentage of Level 8 Net Sales By Revenue
Category

                                Consulting
                               and Services       Software   
Other      Total 
       1993...............         100%              0%        
0%       100%
       1994...............          72              25          3 
      100
       1995...............          70              22          8 
      100
       1996...............          72              22          6 
      100

Markets and Marketing

       The Company sells its products and services primarily in
the United
States, with additional sales in Canada and the United Kingdom.

       The middleware marketplace is in the early stages of
development. 
Industry sources have estimated that the messaging middleware
market exceeded
$100 million in 1995 and that such market is expected to grow to
exceed $1.7
billion by the year 2000.  The need for middleware products and
services results
from the move to distributed processing and from the
proliferation of computer
platforms.  Businesses that have these disparate systems need a
cost effective
and reliable method to enable the disparate systems to
communicate with each
other.  This need has grown as companies have spread
geographically, have
acquired new operations and have offered new services, such as
electronic
commerce on the internet, that require access to information
located throughout
the enterprise.  Companies such as IBM, Digital Equipment
Corporation, SUN
Microsystems and Microsoft have introduced middleware products
that work across
multiple platforms and that provide opportunities for add-on
products and
services, such as those provided by Level 8 Technologies.

       Level 8 Technologies markets and sells its products and
services by
calling directly on large financial services companies and
through referrals to
other companies from its association with hardware and software
providers.  In
July 1996, the Company entered into an agreement with Candle,
pursuant to which,
among other things, the Company agreed to grant Candle certain
distribution
rights and technology licenses for Falcon External Gateways and a
technology
license agreement for DOT/XM.  In August 1996, the Company sold
Candle all the
Company's rights to MQ Secure, a security product the Company
developed for IBM
MQSeries.  In February 1996, Level 8 Technologies entered into a
licensing
agreement with IBM for portions of IBM MQSeries technology, which
gives IBM
certain rights to distribute Level 8 Technologies' Falcon
External Gateways.

       ProfitKey sells into a mature market that has developed
specialty products
for particular manufacturing segments.  ProfitKey's expertise is
in shop floor
scheduling systems, which are most important to make-to-order
manufacturers
(i.e., are manufacturers who generally start to manufacture a
product only after
an order is received).  These manufacturers tend to be small to
medium in size. 
ProfitKey has targeted facilities with 50 to 200 employees and
sells to them with
a direct sales force augmented in some territories by regional
agents.

Customers

       In 1996, one customer accounted for approximately $1.3
million of the
Company's revenue, which represented approximately 10% of the
Company's revenue
for the year.  No customer accounted for more than 10% of the
Company's revenue
in 1995.

Competition

       The Company competes in the application software and
systems integration
services markets, as well as in the developing market for
transactional messaging
and distributed object middleware.  Such markets are highly
competitive, and the
Company believes competition will intensify in such markets in
the future.  The
Company competes with developers of middleware, such as Digital
Equipment
Corporation, IBM, Candle and Microsoft; with providers of systems
integration
services, such as Andersen Consulting and Logica PLC and numerous
local and
regional providers of consulting and integration services; and
with providers of
software packages for particular markets, such as Fourth Shift
Corporation and
Symix Systems, Inc.  The Company's competitors generally have
substantially
larger operations, have broader product lines with greater name
recognition and
market acceptance and have significantly greater financial,
marketing, personnel
and operating resources than the Company. 

Intellectual Property

       The Company does not have any patents and has not filed
any patent
applications.  The Company relies on a combination of trade
secret laws,
nondisclosure and other contractual agreements and technical
measures to protect
its rights in its know-how and its proprietary products.  The
foregoing may not
afford the Company sufficient protection for its know-how and
products, and other
parties may develop similar know-how and products, duplicate the
Company's
know-how and products or be granted patents that would materially
and adversely
affect the Company's business.

       The Company believes its products and services do not
infringe the rights
of third parties; however, while the Company has not received
notice of any
infringement claims, third parties may assert such claims against
the Company,
and such claims could require the Company to enter into license
agreements with respect to
the technology in question or enter into royalty arrangements or
could result in
litigation, which could materially and adversely affect the
Company's business. 
There can be no assurance the Company would acquire such licenses
on terms
acceptable to the Company or at all.  Any failure of the Company
to acquire such
licenses could materially and adversely affect the Company's
business and
prospects.

Employees

       The Company believes its employee relations are
satisfactory.  The
employees are not represented by a labor union, and the Company
has never
experienced any labor problems resulting in a work stoppage.  As
of December 31,
1996, the Company had 118 employees.

Executive Officers of the Registrant

       The names, ages and positions of the executive officers of
the Company are
listed below, along with their business experience during the
past five years. 
The officers are elected annually and serve at the discretion of
the
Board of Directors:

Name                Age    Office                      Business
Experience During
                                                       The Past
Five Years
Arie Kilman         43     Chief Executive Officer     Chief
Executive Officer
                           and Director                of the
Company since July
                                                       1996,
President of the
                                                       Company
from July 1996 to
                                                       October
1996, Chairman of
                                                       the Board
of Directors of
                                                       the
Company from December
                                                       1994 to
July 1996. 
                                                       Chairman
and Chief
                                                       Executive
Officer of Level
                                                       8
Technologies from July
                                                       1996. 
Chairman of the  
                                                       Board and
President of  
                                                       Liraz
Systems, Ltd. since 
                                                       1983.

Robert R. McDonald  52     Chairman of the Board of   Chairman of
the Board of 
                           Directors                   Directors
from July 1996, 
                                                       President
and Chief     
                                                       Executive
Officer of the 
                                                       Company
from October 1994 
                                                       to July
1996, Director  
                                                       since
December 1994,    
                                                       Treasurer
of the Company 
                                                       from
December 1994 to   
                                                       April
1995, Chairman of 
                                                       the Board
and Chief     
                                                       Executive
Officer of    
                                                       Bizware
from October 1994 
                                                       to
September 1996,      
                                                       President
and Chief     
                                                       Executive
Officer of    
                                                       ProfitKey
from May 1994 
                                                       to July
1996 and Director 
                                                       of
ProfitKey since      
                                                       November
1984, Chairman 
                                                       of the
Board of Land and 
                                                       Sea, Inc.
since March   
                                                       1990, and
Chief Executive 
                                                       Officer of
Land and Sea, 
                                                       Inc. from
March 1990 to 
                                                       December
1994. As of February 10,
                                                       1997
Robert MacDonald has served as
                                                       President
and General Manager of
                                                       Bios
Group, LP.

Joseph J. Di Zazzo   38    Controller; Chief          Chief
Accounting Officer, 
                            Accounting Officer;        Treasurer
and Secretary 
                            Treasurer and Secretary    of the
Company since April 
                                                       1995,
Controller since  
                                                       January
1995, Vice      
                                                       President,
Finance of   
                                                       ProfitKey
since January 
                                                       1995,
Controller of     
                                                       ProfitKey
from May
                                                       1992 to
January 1995,   
                                                      
self-employed in video
                                                       business
from June 1991 
                                                       to May
1992, Controller 
                                                       of
Workstation          
                                                      
Technologies from April 
                                                       1987 to
June 1991.


Samuel Somech       44     President and Director      President
of the Company 
                                                       since
October 1996,
                                                       Director
of the Company 
                                                       since
April 1995, Vice
                                                       President
of the Company 
                                                       from April
1995 to October
                                                       1996,
President and Chief 
                                                       Operating
Officer of Level
                                                       8
Technologies since April 
                                                       1995,
Co-founder of Level
                                                       8 in
February 1994,     
                                                       Technical
Director,     
                                                       Messaging
Group of Apertus 
                                                      
Technologies, Inc. from 
                                                       January
1994 to March   
                                                       1994,
Technical Director, 
                                                       Messaging
Group of NYNEX 
                                                       from
September 1990 to  
                                                       December
1993.

Item 2.  Properties

       The Company leases approximately 29,000 square feet of
administrative
space.  The Company's facilities are as follows:

                                                          
Ownership   Square
Location                      Function                     Status 
    Feet

Salem, New Hampshire    Corporate offices ProfitKey        Leased 
    15,600

New York, New York      Corporate office of Level 8 and    Leased 
     5,125
                        Level 8 Technologies 

Framingham,             Development office for Level 8     Leased 
       700
 Massachusetts          Technologies

Boca Raton, Florida     Development office for Level 8     Leased 
     3,950
Technologies            


Boca Raton, Florida     Training facility for Level 8      Leased 
     1,740
                        Technologies

Santa Clara, California Corporate office of ASU            Leased 
     1,750

      The corporate offices of Level 8 and Level 8 Technologies
in New York are
covered by a lease that expires in November 2000.  The lease for
the ProfitKey
office in Salem, New Hampshire expires in October 1999.  The
Level 8 Technologies
development office lease in Framingham can be terminated by
either party on 30 days
notice.  The Level 8 Technologies development office lease in
Boca Raton expires
in July 1999 and the training office lease in Boca Raton can be
terminated by either
party on 15 days notice.  The lease for the ASU office in Santa
Clara expires in
May 1997.

Item 3.  Legal Proceedings

      From time to time the Company is involved in litigation
relating to claims
arising from its operations in the normal course of business.  As
of the date of
this filing, neither the Company nor any of its subsidiaries is a
party to any
legal proceedings, the adverse outcome of which, in management's
opinion, would
have a material adverse effect on the Company's results of
operations or
financial position.

Item 4.  Submission of Matters To A Vote of Security Holders

      No matters were submitted to a vote to the Company's
security holders
during the fourth quarter of 1996.



                                         PART II

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

      The Company's Common Stock is traded on the NASDAQ National
Market System
under the symbol "LEVEL".  The following table sets forth the
high and low last
reported sale prices for the Common Stock for the periods
indicated, as reported
by the NASDAQ National Market.

      Period                                         High       
Low

      1995:
         Third Quarter (from July 27)                10 3/8     
6 1/2
         Fourth Quarter                               8         
5 1/2
      1996:
         First Quarter                                8 1/8     
5 1/2
         Second Quarter                              15 1/2     
7
         Third Quarter                               12 1/2     
8 1/8
         Fourth Quarter                              15 7/8     
9 1/4

      The Company has never declared or paid a cash dividend on
its Common Stock,
and it is anticipated that the Company will continue to retain
its earnings for
use in its business.  Declaration of dividends is within the
discretion of the
Company's Board of Directors and will depend upon the earnings,
capital
requirements and financial position of the Company, general
economic conditions
and other pertinent factors.

      As of March 11, 1997, there were 92 holders of record of
the Common Stock
of the Company.

Item 6.  Selected Financial Data

      For 1996, the following data includes ASU, ProfitKey and
Level 8
Technologies for the full year and Bizware until its sale in
September 1996.  For
1995, the following data includes ASU, ProfitKey and Bizware for
the full year
and Level 8 Technologies since its acquisition on April 1, 1995. 
For 1994, the following data
includes ASU, ProfitKey since its acquisition on October 3, 1994
and Bizware
since its acquisition on October 28, 1994.  Periods prior to 1994
include only
the operations of ASU.


                     SELECTED STATEMENT OF OPERATIONS DATA

                                         Year Ended December 31,

                     1992         1993      1994        1995      
 1996

Revenue            $948,505   $1,312,935 $3,596,602  $10,139,024 
$13,075,338 

Net income (loss) ($ 59,443)  ($  32,712)$  563,590  $   618,049
($ 2,369,397)

Net income (loss)
 per common and
 common equivalent
 share            ($  .02)    ($  .01)   $    .15    $   .13    
($  .39)

Weighted average
 common and common
 equivalent shares
 outstanding      3,839,166    3,839,166  3,839,166   4,777,758   
 6,076,013



                                    SELECTED BALANCE SHEET DATA

                                                     At December
31,

                        1992        1993       1994        1995   
    1996

Working capital
 (deficiency)     $181,812   $290,991   ($1,679,294)   $4,103,621 
 $11,007,583 

Total assets       338,213    438,340     5,848,838    15,059,198 
  22,112,453

Long-term debt, 
 net                16,253      6,771        19,053        43,975 
      23,297

Loans from 
 related companies,
 net               273,900    418,900     2,015,165       453,847 
     330,706

Shareholders'
 equity (deficit)  (52,695)   (85,407)      489,729    11,498,535 
  18,300,153

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

General

      The Company's only operations prior to the acquisitions of
ProfitKey and
Bizware in October 1994 and Level 8 Technologies in April 1995
were certain limited consulting
services through its ASU consulting division.  The following
discussion reflects
the activities of ProfitKey from its acquisition date of October
3, 1994, Bizware
from its acquisition date of October 28, 1994 through its sale on
September 9,
1996 and Level 8 Technologies from its acquisition date of April
1, 1995.

      Prior to the acquisition of ProfitKey in October 1994, the
Company did not
have any substantial non-cash charges to earnings.  Upon the
acquisition of
ProfitKey and the subsequent acquisitions of Bizware and Level 8
Technologies,
the Company began to incur substantial non-cash charges to
earnings due to
amortization of goodwill associated with the acquisitions of
Level 8 and Bizware,
amortization of service contracts of ProfitKey and amortization
of software
development costs of ProfitKey and Bizware.  As a consequence of
the amortization
of intangible assets, the Company will record amortization
expense of
approximately $529,000 each year through 2001, and a reduced
amount each year for
13 years thereafter.

      In July 1996, the Company decided to focus on the
middleware activities of
Level 8 Technologies.  As part of that strategy, on September 9,
1996, the
Company sold substantially all the assets of Bizware, for
$230,000, and, in that
connection, the Company recognized a loss of $1,484,061. 

Results of Operations

1996 and 1995

      Revenue increased from $10,139,024 in 1995 to $13,075,338
in 1996, an
increase of approximately 29%.  The increase was primarily due to
an increase in
Level 8 Technologies revenue of approximately $4,144,000 (201%). 
Approximately
$618,000 of the increase in revenue of Level 8 Technologies was
attributable to
inclusion of the revenue of Level 8 Technologies for the entire
year in 1996
compared to only nine months in 1995 following the acquisition of
Level 8
Technologies on April 1, 1995, and approximately $3,526,000 was
attributable to
an increase in Level 8 Technologies revenue during the comparable
nine-month
period.  The increase in revenue of Level 8 Technologies was
offset, in part, by
a decrease in revenue of Bizware of approximately $1,043,000.

      Cost of revenue increased from $4,514,207 in 1995 to
$7,220,106 in 1996,
an increase of approximately 60%.  The increase was primarily
related to an
increase in cost of revenue at Level 8 Technologies of
approximately $2,319,000
(199%).  Approximately $379,000 of the increase in cost of
revenue of Level 8
Technologies was attributable to the inclusion of cost of revenue
of Level 8
Technologies for the entire year of 1996 compared to only nine
months of 1995
following the acquisition of Level 8 Technologies on April 1,
1995, and
approximately $1,940,000 was attributable to an increase in cost
of revenue of
Level 8 Technologies during the comparable nine- month period. 
As a percentage
of revenue, cost of revenue increased from approximately 45% in
1995 to
approximately 55% in 1996.  This increase was primarily
attributable to an 84%
cost of revenue for sales in 1996 of $1,485,000 of third-party
software licenses.

      Operating expenses for 1996 increased approximately
$3,728,000 (78%) from
1995.  The increase in operating expenses includes a one time
charge of
$1,484,000 related to the sale of substantially all the assets of
Bizware. 
Operating expenses net of the one time charge related to the sale
Bizware
increased approximately $2,244,000 (47%) from 1995 to 1996.  The
increase was
attributable primarily to Level 8 Technologies opening a new
office in Boca
Raton, Florida and related staffing expenses and an additional
three months of
operations in 1996 for Level 8 Technologies totaling
approximately $1,778,000. 
The balance of the increase was due to increased sales and
marketing expenses at
ProfitKey and increased general corporate overhead.  Operating
expense for 1996
includes amortization of goodwill and service contracts acquired
of $527,786 and
$108,271, respectively, compared to $430,144 and $144,951,
respectively, in 1995. 
As a percentage of revenue, operating expenses, including the one
time charge
related to the sale of Bizware, increased from 47% in 1995 to 65%
in 1996. 
Operating expenses, net of the one time charge related to the
sale of Bizware,
increased from 47% in 1995 to 54% in 1996.

      Other income increased from 1995 to 1996 by approximately
$68,000.  The
increase was attributable primarily to an approximately $48,000
increase in
interest earned from investment of cash remaining from the
Company's initial
public offering and the Candle investment and a decrease of
approximately $21,000
interest expense from 1995 to 1996 related to a decrease in the
Company's debt.

      Income tax expense (benefit) was (6%) and 31% of income
before taxes and
minority interest for 1996 and 1995, respectively.  The effective
tax rate
differed from the federal statutory tax rate (i.e., 34%) in 1996
primarily due
to the nondeductibility of the loss on the sale of Bizware and
the change in the
non-deductible goodwill amortization.

      Minority interest in income of consolidated subsidiary was
eliminated
starting April 3, 1995, when the Company acquired the minority
interest in
ProfitKey.

1995 and 1994

      Revenue for 1995 increased by approximately $6,500,000
(182%) over the
prior year.  The increase was attributable primarily to the
acquisitions of
ProfitKey on October 3, 1994, Bizware on October 28, 1994 and
Level 8
Technologies on April 1, 1995.

      Cost of revenue for 1995 increased by approximately
$2,800,000 (165%) over
the prior year.  The increase was attributable primarily to the
acquisitions of
ProfitKey, Bizware and Level 8 Technologies.  As a percentage of
revenue, cost
of revenue decreased from 47% in 1994 to 45% in 1995.  This
decrease was
attributable primarily to lower cost of revenue for Bizware,
which resulted from
a high margin contract that concluded during the second quarter
of 1995.


      Operating expense for 1995 increased by approximately
$3,600,000 (289%)
over the prior year.  The increase was attributable primarily to
the acquisitions
of ProfitKey, Bizware and Level 8 Technologies.  As a percentage
of revenue,
operating expense increased from 34% during 1994 to 47% during
1995.  This
increase was attributable to an increase in amortization of
goodwill and service
contracts from approximately $55,000 during 1994 to approximately
$575,000 during
1995, higher operating expenses at Bizware and Level 8
Technologies, which only
had an impact after their dates of acquisition, and the addition
of corporate
overhead starting in October 1994.

      Income tax expense was 31% and 19% of income before taxes
and minority
interest for 1995 and 1994, respectively.  The effective tax rate
for 1994
differs from the federal statutory tax rate (i.e., 34%) primarily
due to the
effect of foreign tax rates and credits and the utilization of
net operating loss
carryforwards.


Liquidity and Capital Resources

      In 1996, the Company funded its operations with cash
remaining from its
initial public offering.  During 1996, the Company used
approximately $1,556,000
of cash for operations, approximately $2,057,000 for capitalized
software
development costs and approximately $677,000 for equipment.  In
July 1996, Candle
acquired 246,800 shares of Common Stock for $11.00 per share. 
The proceeds from
the Candle investment and the proceeds from the Company's public
offering in
December 1996 (approximately $7 million) have been invested
primarily in
short-term, interest-bearing securities.  At December 31, 1996,
the Company had
working capital of approximately $11,008,000 and a current ratio
of 4.28.

      The Company intends to accelerate its software development,
expand its
sales force and increase its marketing activities, and the
Company may acquire
software businesses and software licenses.  To the extent that
funds from
operations are not sufficient for these purposes, the Company
will fund those
activities from its existing working capital resource.

      The Company believes that its existing working capital and
anticipated
funds generated from operations will be sufficient to fund its
working capital
and capital expenditure requirements through June 1998.

Item 8.  Financial Statements and Supplementary Data

      The Company's Consolidated Financial Statements and the
Report of
Independent Public Accountants are presented in the following
pages.  The
Consolidated Financial Statements filed in Item 8 are as follows:

      Independent Auditor's Report.

      Consolidated Statements of Operations for the years ended
December 31,
1996, 1995 and 1994.

      Consolidated Balance Sheets as of December 31, 1996 and
1995.

      Consolidated Statements of Changes in Shareholders' Equity
for the years
ended December 31 1996, 1995 and 1994.

      Consolidated Statements of Cash Flows for the years ended
December 31,
1996, 1995 and 1994.

      Notes to Consolidated Financial Statements.

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

      Not Applicable.






                              INDEPENDENT AUDITOR'S REPORT

Shareholders and Board of Directors
LEVEL 8 SYSTEMS, INC.
Salem, New Hampshire

We have audited the accompanying consolidated balance sheets of
LEVEL 8 SYSTEMS,
INC. AND SUBSIDIARIES (formally Across Data Systems, Inc.) as of
December 31,
1996 and 1995, and the related consolidated statements of
operations, changes in
shareholders' equity, and cash flows for each of the three years
in the period
ended December 31, 1996.  Our audits also included the financial
statement
schedule listed in the Index at Item 14(b)2.  These financial
statements and
financial statement schedule are the responsibility of the
Company's management. 
Our responsibility is to express an opinion on these financial
statements and
financial statement schedule based on our audits.

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

In our opinion, the financial statements referred to above
present fairly, in all
material respects, the consolidated financial position of LEVEL 8
SYSTEMS, INC.
AND SUBSIDIARIES as of December 31, 1996 and 1995, and the
results of their
operations and their cash flows for each of the three years in
the period ended
December 31, 1996, in conformity with generally accepted
accounting principles. 
Also, in our opinion, such financial statement schedule, when
considered in
relation to the basic financial statements taken as a whole,
presents fairly in
all material respects the information set forth therein.



                                         LURIE, BESIKOF, LAPIDUS
& CO., LLP

Minneapolis, Minnesota
January 31, 1997

















                         LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES
                          CONSOLIDATED STATEMENTS OF OPERATIONS
                      Years Ended December 31, 1996, 1995, and
1994

                                    1996             1995         
    1994

REVENUE
   Consulting and service     $  9,357,493     $  7,060,590     
$  2,574,108
   Software                      2,856,455        2,257,286       
   896,268
   Other                           861,390          821,148       
   126,226
                                13,075,338       10,139,024       
 3,596,602

COST OF REVENUE
   Consulting and service        4,558,098        3,571,535       
 1,428,400
   Software                      2,142,423          341,655       
   162,090
   Other                           519,585          601,017       
   111,927
                                 7,220,106        4,514,207       
 1,702,417

GROSS MARGIN                     5,855,232        5,624,817       
 1,894,185

OPERATING EXPENSES
   Selling, general and
     administrative              6,388,971        4,205,943       
 1,173,071
   Amortization of goodwill
     and service contracts
     acquired                      636,057          575,095       
    54,724
                                 7,025,028        4,781,038       
 1,227,795

OPERATING INCOME (LOSS) BEFORE
 LOSS ON SALE OF SUBSIDIARY     (1,169,796)         843,779       
   666,390

LOSS ON SALE OF SUBSIDIARY      (1,484,061)            -          
      -   

OPERATING INCOME (LOSS)         (2,653,857)         843,779       
   666,390

OTHER INCOME (EXPENSE)
   Interest income                 170,963          122,994       
       677
   Interest expense                (34,203)         (54,733)      
    (8,720)
   Gain on settlement of
    accounts payable                  -                -          
    58,330
                                   136,760           68,261       
    50,287

INCOME (LOSS) BEFORE INCOME
  TAXES AND MINORITY INTEREST   (2,517,097)         912,040       
   716,677

INCOME TAX EXPENSE (BENEFIT)      (147,700)         278,700       
   133,200

INCOME (LOSS) BEFORE MINORITY
 INTEREST                       (2,369,397)         633,340       
   583,477

MINORITY INTEREST IN INCOME OF
  CONSOLIDATED SUBSIDIARY             -              15,291       
    19,887
NET INCOME (LOSS)              ($2,369,397)     $   618,049       
$  563,590

NET INCOME (LOSS) PER
 COMMON SHARE                  ($      .39)     $       .13       
$      .15

WEIGHTED AVERAGE COMMON
 AND COMMON EQUIVALENT 
 SHARES                          6,076,013        4,777,758       
  3,839,166

See notes to consolidated financial statements.


                               CONSOLIDATED BALANCE SHEETS
                               December 31, 1996 and 1995
                     ASSETS                               1996    
     1995   
 
CURRENT ASSETS
   Cash and cash equivalents                         $ 3,531,102  
 $3,147,509
   Marketable securities                               6,524,758  
  2,044,962
   Accounts receivable, less allowance 
      for doubtful accounts of $282,000 
      and $75,000, respectively                        2,977,260  
  1,423,603
   Income taxes receivable                               591,004  
      -    
   Inventory                                             143,874  
    125,334
   Prepaid expenses and other assets                     261,182  
    157,054
   Deferred income taxes                                 331,200  
    268,000
        TOTAL CURRENT ASSETS                          14,360,380  
  7,166,462

PROPERTY AND EQUIPMENT                                   958,110  
    586,881
OTHER ASSETS
   Excess of cost over net assets of businesses 
      acquired, net                                    2,215,347  
  3,717,393
   Service contracts acquired, net                     1,834,469  
  2,016,850
   Software development costs, net                     2,693,114  
  1,505,169
   Deposits and deferred costs                            51,033  
     40,043
   Deferred income taxes                                  -       
     26,400
                                                       6,793,963  
  7,305,855
                                                    $ 22,112,453
$  15,059,198
                     LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
   Current maturities of loan from related company  $   122,000 
$    117,000
   Current maturities of long-term debt                   8,593   
    36,131
   Accounts payable                                   1,120,070   
   514,249
   Accrued expenses                                     549,172   
   444,841
   Income taxes payable                                    -      
    88,412
   Customer deposits                                    153,816   
   213,221
   Deferred revenue                                   1,399,146   
 1,648,987
        TOTAL CURRENT LIABILITIES                     3,352,797   
 3,062,841

OTHER LIABILITIES
   Loan from related company, net of current 
      maturities                                        330,706   
   453,847
   Long-term debt, net of current maturities             23,297   
    43,975
   Deferred income taxes                                105,500   
    -     
                                                        459,503   
   497,822

COMMITMENTS

SHAREHOLDER'S 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 - 
      6,954,366 and 5,922,410, respectively)             69,543   
    59,224
   Additional paid-in capital                        19,506,914   
10,371,302
   Retained earnings (deficit)                       (1,273,175)  
 1,096,222
   Unearned compensation                                 (3,129)  
   (33,323)
   Foreign currency translation adjustments                -      
     5,110
                                                     18,300,153   
11,498,535
                                                   $ 22,112,453 $ 
15,059,198

See notes to consolidated financial statements.





                              LEVEL 8 SYSTEMS, INC. AND
SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
                           Years Ended December 31, 1996, 1995
and 1994


                                                                  
          
                                                            
Foreign
                                Additional Retained Unearned
Currency
                  Common Stock  Paid-in    Earnings Compen-
Translation
                  Shares  Amount  Capital  (Deficit) sation
Adjustments    Total 

BALANCE AT
 DECEMBER 31, 
 1993          2,911,863 $ 10    $  -    ($  85,417)$    -    $-  
  ($  85,407)
   Common 
   Stock 
   issued         97,256  16,700    -          -       -       -  
      16,700
   Net income     -       -        -        563,590    -       -  
     563,590
   Foreign 
   currency trans-
   lation ad-
   justment       -        -       -        -        -       
(5,154)    (5,154)

BALANCE AT
 DECEMBER 31, 
 1994          3,009,119  16,710    -       478,173    -     
(5,154)   489,729
   Recapitalization  -    10,179  (10,179)     -       -        - 
        -   
   Common stock issued:
     Prior to 
     initial public 
     offering    394,315   3,943  521,057      -       -        - 
     525,000
     Level 8 
     Technologies 
     acquisition 525,159   5,252 1,570,225      -       -       
-    1,575,477
     Conversion of 
     loan from
     related company
     to equity   471,264   4,713 2,045,287      -       -       
-    2,050,000
     Initial 
     Public 
     Offering  1,430,000  14,300 5,913,063      -       -       
-    5,927,363
     Conversion of 
     minority 
     common 
     shares of 
     ProfitKey    91,344     913   273,119      -       -       
-      274,032
     Stock 
     Options       1,209      12       988      -       -       
-        1,000
     Other        19,801   3,400      -         -       -       
-        3,400
   Common stock 
   repurchased   (19,801)   (198)   (3,202)     -       -       
-       (3,400)
   Net income     -       -         -       618,049     -       
-      618,049
   Unearned 
   compensation 
   related to 
   issuance of 
   stock options  -       -         68,285      -   (68,285)    
-          -  
   Adjustment of 
   unearned 
   compensation   -       -        (7,341)     -     34,962     - 
      27,621
   Foreign 
   currency 
   translation 
   adjustment     -        -       -        -        -       
10,264     10,264

BALANCE AT
 DECEMBER 31, 
 1995          5,922,410  59,224 10,371,302 1,096,222 (33,323)
5,110 11,498,535
   Common stock issued:
     Candle 
     Corporation 246,800   2,468  2,607,274      -       -       
-   2,609,742
     Public 
     offering    705,000   7,050  6,470,147      -       -       
-   6,477,197
     Stock 
     options      80,156     801    58,191       -       -       
-      58,992
   Net loss         -         -         -  (2,369,397)   -       
-  (2,369,397)
   Adjustment 
   of unearned 
   compensation     -         -         -         -     30,194   
-      30,194
   Foreign 
   currency 
   translation 
   adjustment       -         -         -         -        -   
(5,110)  (5,110)
                    -         -         -         -        -      
 -       -  

BALANCE AT          -         -         -         -        -      
 -        - 
  DECEMBER 31, 
  1996        6,954,366 $69,543 $19,506,914 ($1,273,175) ($3,129)
$- $18,300,153

See notes to consolidated financial statements.





























                              LEVEL 8 SYSTEMS, INC. AND
SUBSIDIARIES
                               CONSOLIDATED STATEMENTS OF CASH
FLOWS
                           Years Ended December 31, 1996, 1995
and 1994

                                            1996         1995     
  1994

OPERATING ACTIVITIES
   Net income (loss)                   ($2,369,397)  $  618,049 
$   563,590
   Adjustments to reconcile net income 
      (loss) to net cash provided (used) 
      by operating activities:
           Depreciation                    226,808      135,942   
   35,475
     Amortization                        1,031,413      640,646   
   68,918
     Loss on sale of subsidiary          1,484,061         -      
     -   
     Tax effect of utilizing 
      deferred tax assets
      reserved at date of acquisition       49,600      448,700   
  289,700
     Deferred income taxes                  19,100     (529,700)  
 (266,700)
     Minority interest in 
      consolidated subsidiary income           -         15,291   
    19,887
     Accrued interest income                   -        (45,190)  
     -   
     Gain on settlement of 
      accounts payable                         -            -     
   (58,300)
     Gain on sale of automobile                -            -     
    (2,099)
     Expenses paid by and included 
      in loans from related companies          -            -     
    13,486
     Changes in operating assets and 
      liabilities, exclusive
      of those arising from 
      business acquisitions and sale:
       Accounts receivable              (1,481,163)     941,612   
  (46,782)
       Income taxes receivable            (592,491)         -     
      -   
       Inventory and unbilled 
            revenue and client costs       (18,540)     (61,647)  
  144,266
       Prepaid expenses and other assets  (125,350)     (77,789)  
   15,835
       Deposits and deferred costs         (15,796)     (19,051)  
   21,193
       Accounts payable                    660,834     (252,954)  
 (226,528)
       Accrued expenses                         73     (282,237)  
   (4,134)
       Income taxes payable               (115,605)    (218,307)  
  173,175
       Customer deposits                   (59,405)     (77,185)  
 (472,086)
       Deferred revenue                   (249,949)      50,757   
     (853)
         Net cash provided (used) 
            by operating activities     (1,555,807)   1,286,937   
  268,013

INVESTING ACTIVITIES
   Purchase of marketable securities    (6,524,758)  (1,999,772)  
     -   
   Redemption of marketable securities   2,044,962         -      
     -   
   Purchase of property and equipment     (676,914)    (380,686)  
  (68,976)
   Software development costs           (2,057,345)    (836,852)  
  (16,073)
   Employee advances (repayments)           21,225       (9,033)  
    6,401
   Proceeds from sales of subsidiary       156,667         -      
     -   
   Payments and advances to former 
      shareholders of acquired 
      subsidiary                               -       (739,678)  
     -   
   Payments received on advances 
      to former shareholders of
      acquired subsidiary                      -        236,708   
     -   
   Cost of acquisitions                        -     (2,151,302) 
(1,190,956)
   Cash acquired in acquisitions               -          5,669   
1,439,932
       Net cash provided (used) 
            by investing activities     (7,036,163)  (5,874,946)  
  170,328

(continued)
See notes to consolidated financial statements.
                              LEVEL 8 SYSTEMS, INC. AND
SUBSIDIARIES
                               CONSOLIDATED STATEMENTS OF CASH
FLOWS (continued
                           Years Ended December 31, 1996, 1995
and 1994

                                         1996         1995        
1994     

FINANCING ACTIVITIES
   Proceeds from issuance of 
      common stock                  $10,469,800   $  8,393,400  $ 
  16,700
   Cost of issuance of 
      common stock                   (1,382,861)    (1,937,637)   
    -   
   Proceeds from exercise of 
      stock options                      58,992          1,000    
    -   
   Repurchase of common stock            -              (3,400)   
    -   
   Repayments on loans from 
      related companies                (118,141)      (907,325)   
    -   
   Loans from related companies          -           1,513,007    
 195,000
   Payments on long-term debt           (48,216)       (82,307)   
 (34,118)
   Proceeds from long-term debt          -              72,095    
    -   
       Net cash provided by 
            financing activities      8,979,574      7,048,833    
 177,582

EFFECT OF EXCHANGE RATE CHANGES 
      ON CASH                            (4,011)        (4,620)   
  17,826


NET INCREASE IN CASH AND CASH 
      EQUIVALENTS                       383,593      2,456,204    
 633,749

CASH AND CASH EQUIVALENTS
   Beginning of year                  3,147,509        691,305    
  57,556

   End of year                      $ 3,531,102    $ 3,147,509  
$  691,305

SUPPLEMENTAL DISCLOSURES OF CASH FLOW 
  INFORMATION
   Cash paid for interest           $    34,203    $    54,733  
$    8,720
   Cash paid (received) 
      for income taxes                  183,467        375,916    
 (63,141)



SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING AND INVESTING
ACTIVITIES

   The Company acquired companies as follows:

                                                        1995      
  1994     

     Cost of net assets acquired (Note 2)          $ 3,575,477  $
2,424,275
     Additional direct costs                           151,302    
 154,669
     Common stock issued                            (1,575,477)   
     -   
     Paid directly by parent company (noncash)             -    
(1,387,988)

     Cash cost of acquisition       $ 3,531,102    $ 2,151,302  $
1,190,956

In 1995, the Company converted $2,050,000 of loans from related
companies into
471,264 shares of common stock.

The Company financed the sale of a subsidiary and has a
receivable of $73,333 at
December 31, 1996.

See notes to consolidated financial statements.

(continued)
                         LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES

                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of the Company and Summary of Significant
Accounting Policies -

   The Company

      Level 8 Systems, Inc. (Level 8, formerly Across Data
Systems, Inc.)
      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.  On October 3,
1994, Level 8
      acquired 92% (100%-owned at April 3, 1995) of ProfitKey
International,
      Inc. (ProfitKey).  ProfitKey provides computer consulting
services and
      sells turnkey manufacturing resource planning (MRP II) and
scheduling
      software packages to manufacturing companies.  On October
28, 1994, Level
      8 also incorporated a 100%-owned Canadian subsidiary,
3077934 Canada,
      Inc., which in turn acquired 99% (100%-owned at June 30,
1995) of Bizware
      Computer Systems (Canada) Inc. (Bizware).  Bizware sold
software packages
      that provide cost information used by the petroleum and
retail industries
      to manage and control individual retail outlets and groups
of outlets.  On
      September 9, 1996, Level 8 sold Bizware (Note 8). 
Effective April 1,
      1995, Level 8 acquired 100% of Level 8 Technologies, Inc.
(Level 8
      Technologies, formerly Level 8 Systems, Inc.).  Level 8
Technologies
      specializes in transactional messaging middleware and
distributed object
      technology.  Level 8 Technologies provides consulting
services to the
      financial services industry and to computer hardware and
software
      providers, and has begun to package portions of its
distributed objects
      for sale to the financial services industry.  Level 8
Technologies also
      sell third party software through licensing agreements.

      Liraz Systems Ltd. and its wholly-owned subsidiaries own
approximately 53%
      of Level 8's common stock at December 31, 1996.

      Principals of Consolidation

      The consolidated financial statements include the accounts
of Level 8, its
      U.S. subsidiaries, ProfitKey and Level 8 Technologies, and
its Canadian
      subsidiaries, 3077934 Canada, Inc. and Bizware (through
September 9,
      1996), collectively referred to as the Company.  All
subsidiaries
      financial information is included from the date of
acquisition.  All
      intercompany accounts and transactions are eliminated in
consolidation.

      Use of Estimates

      The preparation of financial statements in conformity with
generally
      accepted accounting principles requires management to make
estimates and
      assumptions that affect the reported amounts and
disclosures in these
      financial statements.  Actual results could differ from
those estimates. 
      Significant management estimates relate to the amortization
periods for
      intangible assets, the allowance for doubtful accounts, and
the valuation
      allowance for deferred tax assets.

      Foreign Currency Translation

      Assets and liabilities of Bizware were translated at the
exchange rate in
      effect at the balance sheet date.  Revenue and expenses
were translated at
      the average exchange rate prevailing during the year. 
Translation
      adjustments arising from the use of differing exchange
rates were included
      as foreign currency translation adjustments in
shareholders' equity
      through the date of sale.

(continued)

                        LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Description of the Company and Summary of Significant
Accounting Policies
      - (continued)

      Fair Value of Financial Instruments

      The carrying amounts of financial instruments consisting of
cash,
      receivables, long-term debt, and accounts payable
approximate their fair
      values.  It is not practicable to determine the fair value
of the loan
      from the related company due to the related party nature of
the
      transaction.

      Revenue Recognition

      The Company recognizes revenue from the sale of a software
and hardware
      system at the time of the installation of the system,
provided no
      significant obligations remain and collection of the
resulting receivable
      is deemed probable.  Revenue from add-on hardware sales is
recognized when
      the hardware is shipped to the customer.  Revenue related
to service
      contracts is recognized ratably over the terms of the
contracts. 
      Consulting and specialized software development revenue is
recognized in
      accordance with the terms of the contract.

      Cash Equivalents and Marketable Securities

      The Company considers all highly liquid investments
purchased with
      original maturities of three months or less to be cash
equivalents. 
      Investments with original maturities in excess of three
months are
      classified as marketable securities based on the maturity
date.

      Marketable securities at December 31, 1996, consisting of
U.S. Government
      agency bonds, are considered to be "available for sale,"
and are reported
      at cost which approximates fair market value.  Marketable
securities at
      December 31, 1995, consisting of U.S. Treasury Bills, were
considered by
      management to be "held to maturity," and therefore were
reported at
      amortized cost which approximates market value.  The U.S.
Treasury Bills
      were redeemed at maturity resulting in no gain or loss.

      The Company maintains cash in bank deposit accounts which,
at times, may
      exceed federally insured limits.  The Company has not
experienced any
      losses in such accounts and does not believe it is exposed
to any
      significant credit risk on cash.

      Inventory

      Inventory is valued at the lower of cost (first-in,
first-out) or market
      and consists of purchased computers, software and related
equipment.

      Property and Equipment

      Property and equipment are stated at cost less accumulated
depreciation. 
      Depreciation is provided using primarily the straight-line
method over
      estimated useful lives of the assets, primarily five to
seven years.







(continued)
                            LEVEL 8 SYSTEMS, INC. AND
SUBSIDIARIES

                          NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS 

1.    Description of the Company and Summary of Significant
Accounting Policies
      - (continued)

      Excess of Cost Over Net Assets Acquired

      The excess of the purchase price and related costs over the
fair value of
      the net assets of businesses acquired (goodwill) is
amortized on a
      straight-line basis over ten and seven years for the
Bizware and Level 8
      Technologies acquisitions, respectively.  The Company
periodically
      assesses the recoverability of goodwill by determining
whether the
      amortization of the balance over its remaining life can be
recovered
      through undiscounted future operating cash flows of the
acquired
      operations.  Accumulated amortization of goodwill was
$738,450 and
      $445,306 at December 31, 1996 and 1995, respectively.  In
connection with
      the sale of Bizware, the Company wrote off goodwill
totaling $999,126.

      Service Contracts Acquired

      Service contracts acquired in connection with the
acquisition of ProfitKey
      are amortized over 20 years based on the past history of
customer
      retention for service contracts and the Company's
commitment to
      continually update its product.  Upon the cancellation of
any service
      contract acquired, a pro rata portion of the cost is
expensed. 
      Accumulated amortization was $317,944 and $185,163 at
December 31, 1996
      and 1995, respectively.

      Software Development Costs

      The Company capitalizes qualifying software development
costs after having
      established technological feasibility and ends
capitalization when the
      product is available for release to customers, consistent
with Statement
      of Financial Accounting Standards No. 86.  The Company
amortizes such
      costs over a three-year period or the expected useful life
of the product,
      whichever is shorter.  Development costs which are
principally
      attributable to enhancements and modifications of existing
products, and
      which are expected to provide little or no future revenue,
are charged to
      current period operations.  Accumulated amortization was
$362,248 and $-0-
      at December 31, 1996 and 1995, respectively.  Amortization
of in-process
      software development costs totaling 2,330,866 has not begun
as of December
      31, 1996.

      Accounting for Stock-Based Compensation

      The Company accounts for employee stock options under
Accounting
      Principles Board Opinion No. 25 and provides the pro forma
disclosures
      required by Statement of Financial Accounting Standards
Board No. 123.

      Net Income (Loss) Per Common Share

      Primary earnings per share is determined by dividing the
net income (loss)
      by the weighted average number of shares of common stock
outstanding and
      dilutive common equivalent shares from stock options and
warrants.  Prior
      to the initial public offering, in accordance with
Securities and Exchange
      Commission Regulations, common equivalent shares issued by
the Company
      during the twelve-month period immediately preceding the
Company's initial
      public offering were included in the calculation of shares
used in
      computing net income (loss) per share as if they were
outstanding for all
      periods presented, using the treasury stock method, even if
the effect was
      anti-dilutive.
(continued)
                  LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Description of the Company and Summary of Significant
Accounting Policies -
    (continued)

    Reclassifications

    Certain reclassifications were made to the 1995 and 1994
financial statements
    to present them on a basis comparable with the current year. 
The
    reclassifications had no effect on previously reported net
income,
    stockholders' equity, or net cash flows.

2.  Acquisition -

    Effective April 1, 1995, the Company purchased all of the
stock of Level 8
    Technologies, Inc. (Level 8 Technologies) for cash of
$2,000,000 and 525,159
    shares of common stock valued at $1,575,477 ($3.00 per
share).  Employees and
    shareholders of Level 8 Technologies also received options to
purchase an
    aggregate of 39,164 shares at $1.37 per share and an
aggregate of 116,707
    shares at $5.00 per share, respectively. Additional direct
costs of the
    acquisition totaled $132,032.  Level 8 Technologies was
incorporated and
    commenced operations on February 24, 1994.  The acquisition
was accounted for
    as a purchase and, accordingly, the 1995 consolidated
statement of operations
    includes the results of Level 8 Technologies since the date
of acquisition.

    The cost was allocated as follows:

    Cash                                             $     5,669
    Accounts receivable                                1,826,602
    Property and equipment                                53,626
    Excess of cost over net assets acquired            2,828,391
    Accounts payable and accrued expenses               (586,811)
    Other liabilities, primarily deferred income taxes  (552,000)
    Cost of net assets acquired                       $3,575,477

    The following unaudited pro forma financial information shows
the results of
    operations of the Company as if the Level 8 Technologies
acquisition had
    occurred on January 1, 1995. The pro forma information is
provided for
    information purposes only. It is based on historical
information and does not
    necessarily reflect the actual results that would have
occurred, nor is it
    necessarily indicative of future results of operations of the
consolidated
    companies.





                                                                
1995
Revenue                                                     
$12,080,000
Net income                                                   $  
798,200
Net income per common share                                  $    
  .17
Weighted average common and common equivalent shares          
4,777,758
(continued)




              LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.  Property and Equipment -

    Property and equipment consist of the following:

                                           1996           1995
     Computer equipment                $  937,583      $598,169
     Furniture                            211,066        88,921
     Office equipment                     160,726       111,910
     Leasehold improvements                50,909        48,236
                                        1,360,284       847,236
     Less accumulated depreciation        402,174       260,355
                                       $  958,110    $  586,881

4.  Accrued Expenses -

    Accrued expenses consist of the following:

                                           1996           1995
     Accrued compensation               $ 132,712     $ 287,418
     Accrued professional fees            138,969        83,091
     Accrued costs on sale of subsidiary  143,000           -
     Other accrued expenses               134,491        74,332
                                        $ 549,172     $ 444,841

5.  Long-Term Debt -
    Long-term debt consists of various bank and finance company
loans, with
    interest at 10.5% to 18.4% and collateralized by equipment. 
Future
    maturities of long-term debt are as follows:  1997 - $8,593;
1998 - $9,491;
    1999 - $9,074; 2000 - $4,732.

6.  Transactions With Related Companies -
    Loans from Liraz Systems Ltd. (Liraz) and Liraz Export (1990)
Ltd.
    (significant shareholders) totaling $3,528,172 were
noninterest bearing
    through June 30, 1995.  On July 1, 1995, the Company
converted $2,050,000 of
    these loans to equity by issuing 471,264 shares of common
stock.  The Company
    paid     $250,000 on the loan in April 1995 and made an
additional payment
    of $600,000 from the initial public offering proceeds.

    The remaining balance owed to Liraz was converted to a note
due in equal
    quarterly installments of $34,822, including interest at 4%. 
Interest
    expense on the loan for 1996 and 1995 was $21,132 and
$12,319, respectively.


(continued)


              LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.  Transactions With Related Companies - (continued)

    Future maturities of the loan are as follows:

                  Year       Amount
                  1997    $ 122,000
                  1998      127,964
                  1999      133,177
                  2000       69,565
                          $ 452,706

    In December 1995, the Company and Liraz entered into a
development agreement
    for the joint development of certain software for a Microsoft
contract
    obtained in July 1995.  Liraz and the Company will each pay
50% of the total
    project development costs.  In exchange for providing 50% of
the project
    development costs, Liraz will receive royalties of 30% of the
first
    $2,000,000 in contract revenue, 20% of the next $1,000,000,
and 8%
    thereafter.

    In addition, the Company and Liraz were awarded an Israel -
U.S. Binational
    Industrial Research and Development Foundation ("BIRD") grant
totaling
    $432,000.  The BIRD grant will reimburse up to 50% of the
development costs
    of the above project.  Once the products are sold, BIRD will
be paid a
    royalty of 2.5% of related sales in the first year and 5% in
subsequent years
    until BIRD has recovered 110% to 150% (depending on the
elapsed time) of its
    payments.  The Company estimates its 50% share of the total
project
    development costs to be $600,000 before reimbursement of its
BIRD funds of
    $216,000.  The Company is capitalizing the software
development costs
    associated with the project and reduces the capitalized costs
by any grant
    funds received from BIRD.  As of December 31, 1996, the
Company had
    capitalized approximately $460,000 before reimbursement of
BIRD funds
    totaling approximately $48,300.

    Liraz provided software development and management service
totaling $293,463
    and $60,503, respectively, in 1996.  At December 31, 1996,
the Company had
    a receivable of $35,000 from and a payable of $60,503 to
Liraz.

7.  Preferred Stock, Common Stock, Unearned Compensation, Stock 
Options, and
    Warrants - 

    Preferred Stock

    On May 31, 1995, the Board of Directors and on June 16,
    1995, the shareholders authorized the Company to issue up to
    1,000,000 shares of preferred stock, $.01 par value.  No
    shares are issued or outstanding.

    Common Stock

    On March 10, 1995, the Board of Directors and shareholders
    voted to change the no par value common stock to $.01 par
    value, to increase the authorized common stock from 200
    shares to 8,000,000 shares, and to declare a stock split
    resulting in the issuance of 200,000 shares for each share
    outstanding at the time.  On May 12, 1995, the Board of
    Directors authorized a 1.45593157 to 1 common stock split. 
    Accordingly, all share information was retroactively
    adjusted to reflect the recapitalization and stock splits.
    On May 31, 1995, the Board of Directors and on June 16,
    1995, the shareholders approved an increase in the
    authorized shares of common stock from 8,000,000 shares to
    15,000,000 shares.  

7.  Preferred Stock, Common Stock, Unearned Compensation, Stock
    Options, and Warrants - (continued)

    Common Stock - (continued)

    On April 3, 1995, minority common shares of ProfitKey
    totaling 1,254,725 were converted into 91,344 common shares
    of Level 8 at an exchange rate of 13.74 shares of ProfitKey
    stock for one share of Level 8 stock.  The effect of the
    conversion increased service contracts acquired by $238,854, 
    common stock by $913 and additional paid-in capital by
    $273,119, and reduced minority interest by $35,178.

    On July 27, 1995, the Company completed its public offering
    of 1,430,000 shares (including 30,000 shares sold pursuant
    to the underwriter's exercise of its over-allotment option)
    at a price of $5.50 per share.  The proceeds from the
    initial public offering totaled $7,865,000 before costs of
    $1,937,637.

    On July 26, 1996, the Company sold 246,800 shares of common
    stock to Candle Corporation at $11.00 per share before costs
    of sale of $105,058.

    On December 17, 1996, the Company completed a public
    offering of 705,000 shares (including 45,000 shares sold
    pursuant to the underwriter's exercise of its over-allotment
    option) at a price of $11.00 per share before costs of
    $1,277,803.

    Unearned Compensation

    Unearned compensation relates to stock options issued to
    employees and represents the difference between the fair
    market value of the stock at the grant date and the price to
    be paid by the officer or employee.  The original amount of
    unearned compensation was $68,285.  Compensation is
    recognized as an expense over the period the employee
    performs related services and totaled $30,194 and $27,621
    for 1996 and 1995, respectively.

    Stock Options

    On February 2, 1995, the Company adopted the 1995 Stock
Incentive Plan, which
    permits the issuance of incentive and nonstatutory stock
options, stock
    appreciation rights, performance shares, and restricted and
unrestricted
    stock to employees, officers, directors, consultants and
advisors.  The Plan
    reserves 900,000 shares of common stock for issuance upon the
exercise of
    awards and provides that the term of each award be determined
by the Board
    of Directors.

    Under the terms of the Plan, the exercise price of the
incentive stock
    options may not be less than the fair market value of the
stock on the date
    of the award and the options are exercisable for a period not
to exceed five
    years from date of grant.  Stock appreciation rights entitle
the recipients
    to receive the excess of the fair market value of the
Company's stock on the
    exercise date, as determined by the Board of Directors, over
the fair market
    value on the date of grant.  Performance shares entitle
recipients to acquire
    Company stock upon the attainment of specific performance
goals set by the
    Board of Directors. Restricted stock entitles recipients to
acquire Company
    stock subject to the right of the Company to repurchase the
shares in the
    event conditions specified by the Board are not satisfied
prior to the end
    of the restriction period.  The Board may also grant
unrestricted stock to
    participants at a cost not less than 85% of fair market value
on the date of
    sale.

    Options granted vest at varying periods up to 5 years and
    expire in 10 years.

(continued)





                  LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.  Preferred Stock, Common Stock, Unearned Compensation, Stock
    Options, and Warrants -
    (continued)

    Stock Options - (continued)

    Stock option activity during the years ended December 31,
    1996 and 1995, was as follows:

                              1996                   1995
                                    Weighted              
Weighted
                                    Average               
Average
                                    Exercise              
Exercise
                        Options       Price    Options      
Price

OUTSTANDING, 
  beginning of year     489,678     $4.23         -        $-

  Granted               496,620      9.74      432,459      4.70
  ProfitKey options
    converted              -          -         72,742       .69
  Exercised             (80,156)      .73       (1,209)      .69
  Forfeited            (122,987)     9.10      (14,314)      .90

OUTSTANDING,
 end of year            783,155      7.31      489,678      4.23

                              1996             1995
                                    Weighted              
Weighted
                                    Average               
Average
                        Options       Fair     Options       Fair
                        Granted      Value     Granted      Value

Weighted Average Grant Date Fair Value:

  Option price less
    than stock price    187,420     $6.36      275,300     $3.88
  Option price equals
   stock price          309,200      7.15      229,901      1.80

                        496,620     $6.85      505,201     $2.93

  Options outstanding and exercisable as of December 31, 1996,
  are as follows:

                        Options Outstanding    Options
Exercisable

                  Weighted Average
                                                                
Weighted
Range of                                 Remaining              
Average
Exercise                      Exercise   Contractual            
Exercise
Prices       Options          Price      Life-Years   Options   
Price

$.69 to $1.37       49,293    $1.17         8.2        17,030   
$1.15
$5.00 to $6.60     362,862     5.57         8.4       199,543    
5.72
$8.82 to 10.25     371,000     9.83         9.4        63,675    
9.98
$.69 to $10.25     783,155     7.31         8.9       280,248    
6.41
(continued)


7.  Preferred Stock, Common Stock, Unearned Compensation, Stock
    Options, and Warrants -
    (continued)

    Stock Options - (continued)

    If the Company recognized compensation expense based on the
    fair value at the grant dates for options under the Plan,
    consistent with the method prescribed by Statement of 
Financial Accounting
Standards No. 123, net income (loss)
    and per share disclosures would change to the pro forma
    amounts below:

                                         1996                1995

    Net income (loss):
         As reported                     ($2,369,397)           
$618,049
         Pro forma                       ( 3,524,984)            
107,698

    Net income (loss) per common share:
         As reported                  (     .39)                
 .13
         Pro forma                    (     .58)                
 .02

    The fair value of stock options used to compute pro forma net
income (loss)
    and per share disclosures is the estimated present value at
grant date using
    the Black-Scholes Option-Pricing model with the following
weighted average
    assumptions:

                                               1996         1995

         Risk-free interest rate               6.44%       6.32%
         Expected life - years                    5           5
         Expected volatility                     75%         68%
         Expected dividend                        0%          0%


    Stock Warrants

    In connection with the renegotiation of ProfitKey's bank loan
in 1992,
    warrants were issued to the bank to purchase 85,000 shares of
ProfitKey's
    common stock at a price of $.50 per share.  On April 3, 1995,
the warrants
    were converted into 6,188 Level 8 stock warrants at an
exchange rate of 13.74
    ProfitKey stock warrants for one Level 8 stock warrant.  The
warrants are
    exercisable at $6.87 per share, have a grant date fair value
of $.53 per
    share, and expire on March 31, 1997.

    In connection with the initial and second public offerings,
the Company
    issued 140,000 and 110,000 warrants, respectively, to the
underwriter.  These
    warrants are exercisable for four years, commencing one year
from the
    effective dates of the public offerings of July 27, 1995 and
December 17,
    1996, at exercise prices of $7.425 and $14.85 per share,
respectively, and
    have grant date fair values of $3.82 and $6.85 per share,
respectively.




                      LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements


7.  Preferred Stock, Common Stock, Unearned Compensation, Stock
Options, and
    Warrants -

     Preferred Stock

     On May 31, 1995, the Board of Directors and on June 16,1995,
the
shareholders authorized the Company to issue up to 1,000,000
shares of
preferred stock, $.01 par value.  No shares are issued or
outstanding.

       Common Stock

       On March 10, 1995, the Board of Directors and shareholders
voted to
change the no par value common stock to $.01 par value, to
increase the
authorized common stock from 200 shares to 8,000,000 shares, and
to declare a
stock split resulting in the issuance of 200,000 shares for each
share
outstanding at the time.  On May 12, 1995, the Board of Directors
authorized a
1.45593157 to 1 common stock split. Accordingly, all share
information was
retroactively adjusted to reflect the recapitalization and stock
splits. On
May 31, 1995, the Board of Directors and on June 16, 1995, the
shareholders
approved an increase in the authorized shares of common stock
from 8,000,000
shares to 15,000,000 shares.  

                         LEVEL 8 SYSTEMS, INC.  AND SUBSIDIARIES

                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.     Preferred Stock, Common Stock, Unearned Compensation,
Stock Options,
and Warrants - 
       (continued)

       Common Stock - (continued)

       On April 3, 1995, minority common shares of ProfitKey
totaling
1,254,725 were converted into 91,344 common shares of Level 8 at
an exchange
rate of 13.74 shares of ProfitKey stock for one share of Level 8
stock.  The
effect of the conversion increased service contracts acquired by
$238,854,
common stock by $913 and additional paid-in capital by $273,119,
and reduced
minority interest by $35,178.

       On July 27, 1995, the Company completed its public
offering of
1,430,000 shares (including 30,000 shares sold pursuant to the
underwriter's
exercise of its over-allotment option) at a price of $5.50 per
share.  The
proceeds from the initial public offering totaled $7,865,000
before costs of
$1,937,637.

       On July 26, 1996, the Company sold 246,800 shares of
common stock to
Candle Corporation at $11.00 per share before costs of sale of
$105,058.

       On December 17, 1996, the Company completed a public
offering of
705,000 shares (including 45,000 shares sold pursuant to the
underwriter's
exercise of its over-allotment option) at a price of $11.00 per
share before
costs of $1,277,803.

       Unearned Compensation

       Unearned compensation relates to stock options issued to
employees and
represents the difference between the fair market value of the
stock at the
grant date and the price to be paid by the officer or employee.
The original
amount of unearned compensation was $68,285.  Compensation is
recognized as an
expense over the period the employee performs related services
and totaled
$30,194 and $27,621 for 1996 and 1995, respectively.

       Stock Options

       On February 2, 1995, the Company adopted the 1995 Stock
Incentive Plan,
which permits the issuance of incentive and nonstatutory stock
options, stock
appreciation rights, performance shares, and restricted and
unrestricted stock
to employees, officers, directors, consultants and advisors.  The
Plan
reserves 900,000 shares of common stock for issuance upon the
exercise of
awards and provides that the term of each award be determined by
the Board of
Directors.

       Under the terms of the Plan, the exercise price of the
incentive stock
options may not be less than the fair market value of the stock
on the date of
the award and the options are exercisable for a period not to
exceed five
years from date of grant.  Stock appreciation rights entitle the
recipients to
receive the excess of the fair market value of the Company's
stock on the
exercise date, as determined by the Board of Directors, over the
fair market
value on the date of grant.  Performance shares entitle
recipients to acquire
Company stock upon the attainment of specific performance goals
set by the
Board of Directors.  Restricted stock entitles recipients to
acquire Company
stock subject to the right of the Company to repurchase the
shares in the
event conditions specified by the Board are not satisfied prior
to the end of
the restriction period.  The Board may also grant unrestricted
stock to
participants at a cost not less than 85% of fair market value on
the date of
sale.

       Options granted vest at varying periods up to 5 years and
expire in 10
years.

(continued)



                         LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES

                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.     Preferred Stock, Common Stock, Unearned Compensation,
Stock Options,
and Warrants -
       (continued)

       Stock Options - (continued)

       Stock option activity during the years ended December 31,
1996 and
1995, was as follows:

                                                1996              
        
1995         
                                                     Weighted     
           
Weighted
                                                      Average     
            
Average
                                                     Exercise     
           
Exercise
                                       Options         Price      
 Options    
  Price  

OUTSTANDING, beginning of year        489,678          $4.23      
  -        
$-

   Granted                            496,620           9.74      
 432,459    
    4.70
   ProfitKey options converted          -               -         
  72,742    
     .69
   Exercised                          (80,156)           .73      
  (1,209)   
     .69
   Forfeited                         (122,987)          9.10      
 (14,314)   
     .90

OUTSTANDING, end of year              783,155           7.31      
 489,678    
    4.23

                                                1996              
        
1995         

                                                     Weighted     
           
Weighted
                                                      Average     
            
Average
                                       Options         Fair       
 Options    
 Fair
                                       Granted         Value      
 Granted    
  Value  

Weighted Average Grant Date Fair Value:

   Option price less than stock price 187,420          $6.36      
 275,300    
   $3.88
   Option price equals stock price    309,200           7.15      
 229,901    
    1.80

                                      496,620          $6.85      
 505,201    
   $2.93

   Options outstanding and exercisable as of December 31, 1996,
are as
follows:

                             Options Outstanding                 
Options
Exercisable    

                                   Weighted Average               
           
Weighted
                                                 Remaining        
            
Average
 Range of Exercise                 Exercise     Contractual       
           
Exercise
      Prices           Options       Price      Life-Years       
Options      
 Price 
   $.69 to $1.37        49,293       $1.17           8.2         
17,030       
 $1.15
  $5.00 to $6.60       362,862        5.57           8.4        
199,543       
  5.72
  $8.82 to 10.25       371,000        9.83           9.4         
63,675       
  9.98

  $.69 to $10.25       783,155        7.31           8.9        
280,248       
  6.41
(continued)

7.     Preferred Stock, Common Stock, Unearned Compensation,
Stock Options,
and Warrants -
       (continued)

       Stock Options - (continued)

       If the Company recognized compensation expense based on
the fair value
at the grant dates for options
       under the Plan, consistent with the method prescribed by
Statement of
Financial Accounting Standards No.
       123, net income (loss) and per share disclosures would
change to the
pro forma amounts below:

                                                    1996          
     1995   
  

           Net income (loss):
              As reported                       ($2,369,397)      
   $618,049
              Pro forma                         ( 3,524,984)      
    107,698

           Net income (loss) per common share:
              As reported                         (     .39)      
        .13
              Pro forma                           (     .58)      
        .02

       The fair value of stock options used to compute pro forma
net income
(loss) and per share disclosures is
       the estimated present value at grant date using the
Black-Scholes
Option-Pricing model with the following
       weighted average assumptions:

                                                    1996          
     1995   
  

           Risk-free interest rate                  6.44%         
      6.32%
           Expected life - years                       5          
         5
           Expected volatility                        75%         
        68%
           Expected dividend rate                      0%         
         0%


       Stock Warrants

       In connection with the renegotiation of ProfitKey's bank
loan in 1992,
warrants were issued to the bank
       to purchase 85,000 shares of ProfitKey's common stock at a
price of
$.50 per share.  On April 3, 1995,
       the warrants were converted into 6,188 Level 8 stock
warrants at an
exchange rate of 13.74 ProfitKey
       stock warrants for one Level 8 stock warrant.  The
warrants are
exercisable at $6.87 per share, have a
       grant date fair value of $.53 per share, and expire on
March 31, 1997.

       In connection with the initial and second public
offerings, the Company
issued 140,000 and 110,000
       warrants, respectively, to the underwriter.  These
warrants are
exercisable for four years, commencing one
       year from the effective dates of the public offerings of
July 27, 1995
and December 17, 1996, at exercise
       prices of $7.425 and $14.85 per share, respectively, and
have grant
date fair values of $3.82 and $6.85
       per share, respectively.

       All warrants issued were exercisable and outstanding at
December 31,
1996, and had a weighted average
       exercise price and grant date fair value of $10.60 and
$5.04,
respectively.


(continued)

7.  Preferred Stock, Common Stock, Unearned Compensation, Stock
Options, and
    Warrants - (continued)

    Stock Warrants - (continued)

    Weighted average assumptions used to price grant date fair
value of
    warrants are primarily the same as for stock options with the
following
    exceptions.

                                        1996                1995  
          
Risk-free interest rate      6.50%               5.92%
           Expected life-years            4                 3.92
           Expected volatility            76%                68%


8.  Sale of Subsidiary - Bizware

    On September 9, 1996, the Company sold Bizware for $230,000,
resulting in
    a loss on the sale of the subsidiary of $1,484,601.  The
sales price
    consisted of $120,000 in cash and $110,000 due in six equal
monthly
    installments through March 1997.  In connection with the
sale, the Company
    wrote off goodwill of $999,126, software development costs of
$501,665,
    property and equipment of $78,877, and other costs were
accrued or
    expended in connection with the sale totaling $134,933.


9.  Income Taxes -

    Income tax expense (benefit) consists of the following:

                           1996            1995          1994 

       Current:
          Federal        ($97,800)       $320,600      $      -
          State           (17,200)         60,000        20,000
          Foreign        (101,400)        (20,900)       90,200
                         (216,400)        359,700       110,200

       Deferred:
          Federal         130,700        (141,100)        4,800
          State            23,000         (24,900)       18,200
          Foreign         (85,000)         85,000          -   
                           68,700         (81,000)       23,000
                        ($147,700)       $278,700      $133,200
(continued)

9.  Income Taxes - (continued)

    Income tax expense (benefit) computed at the statutory
federal income tax
    rate is as follows:
                                     1996      1995      1994
Tax at statutory 
 federal rate - 34%               ($855,800)  $310,100  $243,600
State taxes, net of federal 
 tax benefit                             300     17,900  (19,700)
Effect of foreign tax 
 rates and credits                     7,500   (126,100) (40,400)
Change in deferred tax 
 asset valuation allowance               -     (129,000)      - 
Net operating loss carryforward
 not recognized (utilized) for
 financial statement purposes            -         -     (87,700)
Rate differences                      14,900     38,800   19,600
Nondeductible goodwill amortization  181,500    159,100   13,900
Nondeductible expenses                14,200      7,600       - 
Nondeductible loss on sale of 
 foreign subsidiary                  487,100        -         -  
Other        
                         2,600        300    3,900

Income tax expense (benefit)       ($147,700)  $278,700 $133,200

    Significant components of net deferred tax asset (liability)
are as
    follows:
                                1996                 1997
                          Current  Long-Term   Current  Long-Term
                           Assets   Assets      Assets    Assets 
Deferred tax
assets:
 Allowance for uncollect-
  ible accounts receivable $113,000    -      $ 22,600      -
 Accrued expenses not 
  currently deductible 
  for tax purposes           51,600    -        63,300      -
 Deferred revenue           381,400    -       451,200      -
 Net operating loss 
  carryforwards              35,200  334,800    35,200   370,200
 Unearned compensation          -     22,000      -       11,000
                            581,200  356,800   572,300   381,200
Deferred tax liabilities:
 Depreciation and amortization  -   (455,800)  (39,200)  (98,300)
 Change from cash 
  to accrual basis          (6,400)   (6,500) (265,100)  (12,900)
                            (6,400) (462,300) (304,300) (111,200)

Deferred tax asset valuation
 allowance                 243,600  (243,600)     -     (243,600)

Net deferred tax 
 asset (liability)       $331,200) ($105,500) $268,000   $26,400
(continued)

9.  Income taxes - (continued)

    At December 31, 1996, the Company has approximate net
operating loss
    carryforwards of $925,000 from the acquisition of ProfitKey,
which may be
    applied against future taxable income.  Under Internal
Revenue Code
    Section 382, as a result of the change in controlling
interest of
    ProfitKey, the Company's ability to utilize these acquired
net operating
    loss carryforwards is limited to approximately $88,000 each
year.  The
    carryforwards are cumulative if not utilized each year and
expire
    primarily in the year 2008.

10.      Commitments -

     Operating Leases

    The Company leases facilities under operating leases expiring
through
    November 2000.  The leases provide for base monthly rents
totaling
    approximately $35,000 plus an adjustment based on the
increase in
    operating expenses or lessor's property taxes over the base
amounts, as
    defined in the leases.  Some leases contain renewal options.

    Rent expense was approximately $464,000, $272,000, and
$80,000 for 1996,
    1995, and 1994, respectively.

    Approximate future minimum leases payments are as follows:

                         Year                       Amount  

                         1997                  $  412,000
                         1998                     398,000
                         1999                     309,000
                         2000                     113,000
                                               $1,232,000

    Employment Agreements

    The Company has employment agreements with four officers of
the Company
    for salaries totaling $475,000 annually through May 1998,
plus performance
    bonuses for three of the officers.

11.    Significant Customers -

    Information regarding revenue from significant customers is
as follows:
                       Years Ended December 31,
                 1996           1995            1994             

 Customer A      10.6%             -              -               

 Customer B        -               -           24.0%
 Customer C        -               -           11.8%
(continued)


12.      Employee Benefit Plan -

    The Company adopted a 401(k) retirement plan for qualified
employees.  The
    Company has not made any contributions to the Plan.


13.    Foreign Operations -

Foreign operations consist of the operations of Bizware, a
Canadian
subsidiary, acquired October 28, 1994 and sold September 9, 1996. 
All Bizware
sales were to customers located in North America.  Financial
information as of
and for the years ended December 31, 1996, 1995 and 1994, is as
follows:

                                    Years Ended December 31,
                             1996          1995           1994

Revenues                  $363,200      $1,405,900      $565,400
Operating income (loss)   (350,600)        581,900       378,200
Identifiable assets           -            706,600       309,000

                                        PART III

Item 10.  Directors and Executive Officers of the Registrant

    Certain information relating to directors and executive
officers of the
Company is incorporated by reference herein from the Company's
definitive
proxy statement in connection with its Annual Meeting of
Shareholders to be
held on May 6, 1997, which proxy statement will be filed with the
Securities
and Exchange Commission not later than 120 days after the close
of the
Company's fiscal year ended December 31, 1996.

Item 11.  Executive Compensation

    Certain information relating to remuneration of directors and
executive
officers and other transactions involving management is
incorporated by
reference herein from the Company's definitive proxy statement in
connection
with its Annual Meeting of Shareholders to be held May 6, 1997,
which proxy
statement will be filed with the Securities and Exchange
Commission not later
than 120 days after the close of the Company's fiscal year
ended December 31, 1996.

Item 12.  Security Ownership of Certain Beneficial Owners and
Management

    Certain information relating to security ownership of certain
beneficial
owners and management is incorporated by reference herein from
the Company's
definitive proxy statement in connection with its Annual Meeting
of
Shareholders to be held on May 6, 1997, which proxy statement
will be filed
with the Securities and Exchange Commission not later than 120
days after the
close of the Company's fiscal year ended December 31, 1996.

Item 13.  Certain Relationships and Related Transactions

    Certain information relating to certain relationships and
related
transactions is incorporated by reference herein from the
Company's definitive
proxy statement in connection with its Annual Meeting of
Shareholders to be
held on May 6, 1997, which proxy statement will be filed with the
Securities
and Exchange Commission not later than 120 days after the close
of the
Company's fiscal year ended December 31, 1996.


                                       PART IV

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

    (a)1.   Financial Statements

    The following consolidated financial statements are included
in Item 8:

    Independent Auditor's Report

    Consolidated Statements of Operations for the years ended
December 31,
    1996, 1995 and 1994.

    Consolidated Balance Sheets as of December 31, 1996 and 1995.

    Consolidated Statements of Changes in Shareholders' Equity
for the years
    ended December 31, 1996, 1995 and 1994.

    Consolidated Statements of Cash Flows for the years ended
December 31,
    1996, 1995 and 1994.

    Notes to Consolidated Financial Statements.

    (b)1. Reports on Form-8K

    On September 9, 1996 the Company filed Form 8-K to record the
sale of
    substantially all of the assets of Bizware Computer Systems
(Canada) Inc.

    2.   Financial Statement Schedule

         The following consolidated financial statement schedule
is included
in Item 14 (b):

    Schedule
         II - Valuation and Qualifying Accounts.

    Schedules other than those listed above have been omitted
since they are
either not required or the information is otherwise included.

    3.   Listing of Exhibits

Exhibits

    3.1           Restated Certificate of Incorporation of
Registrant (filed
                  as exhibit 3.1 to Registration Statement No.
33-92230 on
                  Form S-1 and incorporated herein by reference).

    3.2           By-Laws of Registrant. (filed as exhibit 3.2 to
Registration
                  Statement No. 33-92230 on Form S-1 and
incorporated herein
                  by reference).
    10.1          1995 Stock Incentive Plan, as amended (filed as
exhibit 10.1
                  to Registration Statement No. 333-15455 on Form
S-1 and
                  incorporated herein by reference).
    10.2          Stock Purchase Warrant issued by ProfitKey to
Fleet Bank-NH
                  for 85,000 shares of common stock of ProfitKey
dated January
                  28, 1992 (filed as exhibit 10.2 to Registration
Statement
                  No. 33-92230 on Form S-1 and incorporated
herein by
                  reference).
    10.3          Letter of agreement, dated May 14, 1993,
between Fleet
                  Bank-NH and ProfitKey (filed as exhibit 10.3 to
Registration
                  Statement No. 33-92230 on Form S-1 and
incorporated herein
                  by reference).
    10.4          Consulting Services Agreement, dated March 17,
1994, between
                  Norwest Technical Services, Inc. and Level 8
(filed as
                  exhibit 10.4 to Registration Statement No.
33-92230 on Form
                  S-1 and incorporated herein by reference).
    10.5          Letter of Engagement, dated August 16, 1994,
between Norwest
                  Mortgage, Inc. and Level 8 (filed as exhibit
10.5 to
                  Registration Statement No. 33-92230 on Form S-1
and
                  incorporated herein by reference).
    10.6          Stock Purchase Agreement, dated September 28,
1994 among
                  Liraz, R.W. Allsop & Associates II, L.P., HLM
Partners,
                  L.P., Kitty Hawk Capital, Ltd. and the United
States Small
                  Business Administration (filed as exhibit 10.6
to
                  Registration Statement No. 33-92230 on Form S-1
and
                  incorporated herein by reference).
     10.7         Amendment to Stock Purchase Agreement, dated
September 29,
                  1994 among Liraz, R.W.  Allsop & Associates II,
L.P., HLM
                  Partners, L.P., Kitty Hawk Capital, Ltd. and
the United 
                  States Small Business Administration (filed as
exhibit 10.7
                  to Registration Statement No. 33-  92230 on
Form S-1 and
                  incorporated herein by reference).
Exhibits


     10.8         Letter Agreement, dated February 19, 1995,
between Bizware
                  and Joel Leonoff (filed as  exhibit 10.8 to
Registration
                  Statement No. 33-92230 on Form S-1 and
incorporated herein 
                  by reference).
     10.9         Software Acquisition Agreement dated February
23, 1995 among
                  SASI, Bizware and  Registrant (filed as exhibit
10.9 to
                  Registration Statement No. 33-92230 on Form S-1
and 
                  incorporated herein by reference).
     10.10        Service Agreement, dated March 31, 1995,
between Level 8 and
                  Transaction Information  Systems, Inc. (filed
as exhibit
                  10.10 to Registration Statement No. 33-92230 on
Form S-1 
                  and incorporated herein by reference).

     10.11        Form of Amended and Restated Contribution
Agreement,
                  effective April 1, 1995, among  Registrant and
the
                  shareholders of Level 8 (filed as exhibit 10.11
to
                  Registration Statement  No. 33-92230 on Form
S-1 and
                  incorporated herein by reference).
     10.12        Employment Agreement, effective April 1, 1995,
between Level
                  8 and Samuel Somech  (filed as exhibit 10.11 to
Registration
                  Statement No. 33-92230 on Form S-1 and
incorporated  herein
                  by reference).
     10.12A       Form of Amendment, dated June  , 1995, among
Level 8,
                  Registrant and Samuel Somech  (filed as exhibit
10.12A to
                  Registration Statement No. 33-92230 on Form S-1
and 
                  incorporated herein by reference).
     10.13        Consulting Agreement, effective April 1, 1995,
between Level
                  8 and Theodore Fine (filed as  exhibit to
Registration
                  Statement No. 33-92230 on Form S-1 and
incorporated herein
                  by  reference).
     10.13A       Form of Amendment, dated June  , 1995, among
Level 8,
                  Registrant and Theodore Fine  (filed as exhibit
10.13A to
                  Registration Statement No. 33-92230 on Form S-1
and
                  incorporated herein by reference).
     10.14        Consulting Agreement, dated April 4, 1995,
among Bizware and
                  Daimin Investments Ltd. (filed as exhibit 10.14
to
                  Registration Statement No. 33-92230 on Form S-1
and
                  incorporated  herein by reference).
     10.15        Employment Agreement, dated May 1, 1995,
between Registrant
                  and Arie Kilman (filed as exhibit to
Registration Statement
                  No. 33-92230 on Form S-1 and incorporated
herein by 
                  reference).
     10.15A       Amendment to Employment Agreement, dated as of
September 18,
                  1996, between Registrant and Arie Kilman (filed
as exhibit
                  10.14A to Registration Statement No. 333-15455
on Form S-1
                  and incorporated herein by reference).
     10.15B       Amendment No.2 to Employment Agreement, dated
as of December
                  16, 1996, between Registrant and Arie Kilman
(filed as
                  exhibit 10.14B to Registration Statement No.
333-15455 on
                  Form S-1 and incorporated herein by reference).
     10.16        Employment Agreement, dated May 1, 1995,
between Registrant
                  and Robert R. MacDonald  (filed as exhibit
10.16 to
                  Registration Statement No. 33-92230 on Form S-1
and
                  incorporated  herein by reference).
     10.16A       Amendment to Employment Agreement, dated as of
February 21,
                  1996, between Registrant and Robert MacDonald
(filed


Exhibits


                  as exhibit 10.15A to Registration Statement No.
333-15455 on
                  Form S-1 and incorporated herein by reference).
     10.16B       Amendment to Employment Agreement, dated as of
July 30,
                  1996, between Registrant and Robert MacDonald
(filed as
                  exhibit 10.15B to Registration Statement No.
333-15455 on
                  Form S-1 and incorporated herein by reference).
     10.17        Employment Agreement, dated May 1, 1995,
between Registrant
                  and Joseph J. Di Zazzo  (filed as exhibit 10.18
to
                  Registration Statement No. 33-92230 on Form S-1
and
                  incorporated  herein by reference).
     10.17A       Amendment to Employment Agreement, dated as of
October 23,
                  1996, between Registrant and Joseph J. Di Zazzo 
(filed as
                  exhibit 10.18A to Registration Statement No.
333-15455 on
                  Form S-1 and incorporated  herein by
reference).
     10.18        Agreement AD/Ventures and Liraz Export Systems
Ltd. (filed
                  as exhibit 10.19 to  Registration Statement No.
33-92230 on
                  Form S-1 and incorporated herein by reference).
     10.19        Standard Program Product License Agreement of
ProfitKey
                  (filed as exhibit 10.20 to  Registration
Statement No.
                  33-92230 on Form S-1 and incorporated herein by
reference).
     10.20        Standard Computer Hardware Purchase Agreement
of ProfitKey
                  (filed as exhibit 10.21 to  Registration
Statement No.
                  33-92230 on Form S-1 and incorporated herein by
reference).
     10.21        Standard Software License Agreement of Bizware
and Standard
                  Escrow Agreement (filed as  exhibit 10.22 to
Registration
                  Statement No. 33-92230 on Form S-1 and
incorporated herein 
                  by reference).
     10.22        Agreement, dated June 13, 1995, between
Registrant and Liraz
                  (filed as exhibit 10.23 to  Registration
Statement No.
                  33-92230 on Form S-1 and incorporated herein by
reference).
     10.23        Registration Rights Agreement, dated June 13,
1995 between
                  Registrant and Liraz (filed as  exhibit 1 to
Registration
                  Statement 33-92230 on Form S-1 and incorporated
herein by 
                  reference).
     10.24        Agreement of Purchase and Sale, dated October
28, 1994 among
                  Joel Leonoff, Russell  Rothstein, Mitchell
Wasserman, Daimin
                  Investments Ltd., 2993031 Canada Inc., 2962594 
Canada Inc.,
                  3077934 Canada Inc. and Bizware Computer
Systems (Canada)
                  Inc. (filed as  exhibit 10.25 to Registration
Statement No.
                  33-92230 on Form S-1 and incorporated herein 
by reference).
     10.25        Addendum dated February 14, 1995 among Joel
Leonoff, Russell
                  Rothstein, Mitchell  Wasserman, Daimin
Investments Ltd.,
                  2993031 Canada Inc., 2962594 Canada Inc.,
3077934 Canada
                  Inc. and Bizware Computer Systems (Canada) Inc.
(filed as
                  exhibit 10.26 to  Registration Statement No.
33-92230 on
                  Form S-1 and incorporated herein by reference).
     10.26        Form of Warrant Agreement between the
Registrant and
                  Hampshire Securities Corporation  for 135,000
shares of
                  common stock (filed as exhibit 10.27 to
Registration
                  Statement No.  33-92230 on Form S-1 and
incorporated herein
                  by reference).
     10.27        Form of Loan Agreement, dated June  , 1995,
between
                  Registrant and Liraz regarding  Registrant's
agreement to
                  repay the principal amount of $1,228,172 (filed
as exhibit
                  10.28 to  Registration Statement No. 33-92230
on Form S-1
                  and incorporated herein by reference).
     10.28        Form of Loan Agreement, dated 1995, between
Registrant and
                  Liraz regarding Registrant's  agreement to
repay the
Exhibits


                  principal amount of $628,172 (filed as exhibit
10.29 to
                  Registration  Statement No. 33-92230 on Form
S-1 and
                  incorporated herein by reference).
     10.29        Form of exchange agreement dated 1995, between
Registrant
                  and Liraz (filed as exhibit to  Registration
Statement No.
                  33-92230 on Form S-1 and incorporated herein by
reference).

     10.30        Consulting Agreement dated May 15, 1995 between
Registrant
                  and Nellcor Incorporated  (filed as exhibit
10.31 to
                  Registration Statement No. 33-92230 on Form S-1
and
                  incorporated  herein by reference).
     10.31        Stock Purchase Agreement dated September 9,
1994 by and
                  among Liraz Systems, Ltd.,  Richard T. Lilly
and the other
                  individuals whose names appear on the signature
page thereto 
                  (filed as exhibit 10.32 to Registration
Statement No.
                  33-92230 on Form S-1 and incorporated  herein
by reference).
     10.32        Exchange Agreement dated September  , 1994
between Liraz and
                  the individuals whose  names appear on the
signature page
                  thereto (filed as exhibit 10.33 to Registration
Statement 
                  No. 33-92230 on Form S-1 and incorporated
herein by
                  reference).
     10.33        Stock Purchase Agreement dated October 17, 1994
by and among
                  Liraz and Gary E.  Frashier (filed as exhibit
10.34 to
                  Registration Statement No. 33-92230 on Form S-1
and 
                  incorporated herein by reference).
     10.34        Stock Purchase Agreement dated October  , 1994
by and among
                  Liraz and William Dockins  (filed as exhibit
10.35 to
                  Registration Statement No. 33-92230 on Form S-1
and
                  incorporated  herein by reference).
     10.35        Stock Purchase Agreement dated October 24, 1994
by and among
                  Liraz and Alfred L.  Whiting (filed as exhibit
10.36 to
                  Registration Statement No. 33-92230 on Form S-1
and 
                  incorporated herein by reference).
     10.36        Certificate of Ownership and Merger of PK
Holdings Inc. into
                  ProfitKey International, Inc.  dated March 30,
1995 (filed
                  as exhibit 10.37 to Registration Statement No.
33-92230 on 
                  Form S-1 and incorporated herein by reference).
     10.37        Development Agreement dated July 17, 1995
between Microsoft
                  Corporation and Level 8  (filed as exhibit
10.38 to
                  Registration Statement No. 33-92230 on Form S-1
and
                  incorporated  herein by reference).
     10.38        Letter Agreement dated June 1, 1995 from Visa
International
                  Service Association to Level 8  (filed as
exhibit 10.39 to
                  Registration Statement No. 33-92230 on Form S-1
and
                  incorporated  herein by reference).
     10.39        Development Agreement dated December 19, 1995
between Liraz
                  and Level 8.
     10.40        Development Agreement dated October 23, 1995
between Liraz
                  and ProfitKey.
     10.41        Product Purchase Agreement, dated August 30,
1996, between
                  Candle Corporation and Level 8 (filed as
exhibit 10.40 to
                  Registration Statement No. 333-15455 on Form
S-1 and
                  incorporated herein by reference).
     10.42        Investment Agreement, dated July 26, 1996,
among Registrant,
                  Liraz and Candle Corporation (filed as exhibit
10.41 to
                  Registration Statement No. 333-15455 on Form
S-1 and
                  incorporated herein by reference).


Exhibits


     10.43        Candle Corporation Software Agency Agreement,
dated October
                  7, 1996, between Candle Corporation and Level 8
(filed as
                  exhibit 10.42 to Registration Statement No.
333-15455 on
                  Form S-1 and incorporated herein by reference).
     10.44        IBM Licensing Agreement: NT Client Bridge,
dated February
                  28, 1996, by and between International Business
Machines and
                  Level 8 (filed as exhibit 10.43 to Registration
Statement
                  No. 333-15455 on Form S-1 and incorporated
herein by
                  reference).
     11.0         Statement re: computation of per share income
(loss).
     21.1         List of Subsidiaries of Registrant (filed as
exhibit 21.1 to
                  Registration Statement No. 33-  92230 on Form
S-1 and
                  incorporated herein by reference).
     23.2         Consent of Lurie, Besikof, Lapidus & Co., LLP.


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange
Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the
undersigned,
thereunto duly authorized.
                                    Level 8 Systems, Inc.


                                    By:  s/ Arie Kilman
                                         Arie Kilman
                                         Chief Executive Officer
and Director

Dated: March 13, 1997

    Pursuant to the requirements of the Securities Exchange Act
of 1934, this
report has been signed below by the following persons on behalf
of the
registrants and in the capacities and on the date indicated.


    Signature                            Title             Date

s/ Arie Kilman                Chief Executive Officer March 13,
1997
   (Arie Kilman)              and Director


s/ Robert R. MacDonald  Chairman of the Board   March 13, 1997
   (Robert R. MacDonald)

s/ Samuel Somech        President and Director  March 13, 1997
   (Samuel Somech)


S/ Joseph J. Di Zarro   Controller, Chief       March 13, 1997
   (Joseph J. Di Zarro) Accounting Officer,
                        Treasurer and Secretary


s/ Theodore Fine        Director                      March 13,
1997
   (Theodore Fine)


S/ Lenny Recanati       Director                      March 13,
1997
   (Lenny Recanati)

 
s/ Frank J. Klein       Director                      March 13,
1997
   (Frank J. Klein)





                                      SCHEDULE II

                   LEVEL 8 SYSTEMS, INC. AND SUBSIDIARIES

                         VALUATION AND QUALIFYING ACCOUNTS


Column A          Column B       Column C            Column D     
Column E
                                Additions

                                         Charged
                    Balance   Charged   to Other     Deduc-
                    at Be-    to Costs   Accounts-   tions-      
Balance
                    ginning   and Ex-    Describe    Describe    
at End
Description        of Period  penses     (1)         (2)         
of Period


Year ended
 December 31,
 1994
  Deducted
   from asset
   accounts:
    Allowance
     for
     doubtful
     accounts $  -            $ 39,319   $102.286    ($85,605)   
$ 56,000

Year ended
 December 31,
 1995
  Deducted
   from asset
   accounts:
    Allowance
     for 
     doubtful
     accounts $56,000         $ 96,613   $  -        ($77,613)  $
75,000

Year ended
 December 31,
 1996
  Deducted
   from asset
   accounts:
    Allowance
     for 
     doubtful
     accounts $75,000         $231,000   $  -        ($26,000) 
$282,000

(1)      Allowance for doubtful accounts acquired in connection
with ProfitKey
         International, Inc. and Bizware Computer Systems
(Canada) Inc.
(2)      Uncollectible accounts written off, net of recoveries.