SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) April 15, 1999
---------------
Level 8 Systems, Inc.
---------------------
(Exact Name of Registrant as Specified in its Charter)
New York 0-26392 11-2920559
-------- ------- ----------
(State or Other Jurisdiction (Commission File Number) (I.R.S.Employer
of Incorporation) Identification No.)
8000 Regency Parkway
Cary, NC 27511
---------------
(Address of Principal Executive Offices)
Registrant's telephone number, including area code (919) 380-5000
--------------
n/a
---
(Former Name or Former Address, if Changed Since Last Report)
1
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
set forth in Level 8 Systems, Inc.'s Form 8-K dated April 15, 1999 and filed
April 30, 1999, is hereby amended to read in its entirety as follows:
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
See Level 8 Systems, Inc.'s Form 8-K dated April 15, 1999 and filed
April 30, 1999.
(b) PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined financial statements are
presented for illustrative purposes only and are not necessarily indicative
of the combined financial position or results of operations for future periods
or the results that actually would have been realized had Level 8 Systems, Inc.
("Level 8" or "Company") and Seer Technologies, Inc. ("Seer") been a combined
company during the specified periods. The pro forma combined financial
statements, including the notes thereto, are qualified in their entirety by
reference to, and should be read in conjunction with, the historical
consolidated financial statements of Level 8 and Seer, including the notes
thereto.
The following pro forma combined financial statements give effect to the
acquisition of the outstanding voting stock of Seer using the purchase method
of accounting. This acquisition was completed in two steps. The first step
("Step One") was completed on December 31, 1998 with the purchase of 69% of
Seer. The second step ("Step Two") was completed on April 30, 1999 and involved
the acquisition of the remaining 31% of Seer. The pro forma combined financial
statements are based on the consolidated financial statements and the notes
thereto of Level 8 and Seer, which were previously filed.
The pro forma combined balance sheet assumes that Step Two took place on
March 31, 1999 and includes Level 8's unaudited March 31, 1999 consolidated
balance sheet and pro forma adjustments to reflect the purchase of the remaining
31% of Seer.
The pro forma combined statements of income assume the business combination
took place as of the beginning of the periods presented. The income statement
for the year ended December 31, 1998 combines Seer's unaudited consolidated
statement of income for the twelve month period ended December 31, 1998 and
Level 8's consolidated statement of income for the year ended December 31,
1998. The income statement with the period ending in March includes Level 8's
unaudited consolidated statements of income for the three month period ended
March 31, 1999 and pro forma adjustments to reflect the completion of Step Two.
Seer's 1998 fiscal year ended on September 30. Seer's twelve month period
was derived by combining the unaudited results for the quarters ended March
31, June 30, September 30, and December 31.
For purposes of the accompanying unaudited pro forma combined condensed
balance sheet, the aggregate purchase price has been allocated to the net assets
acquired, with the remainder recorded as excess cost over net assets acquired on
the basis of preliminary estimates of fair values. These preliminary estimates
fair value were determined by the Company's management based primarily on
information furnished by management of Seer and the methodology used in the
valuation of intangible assets acquired by the Company performed by an
independent party in conjunction with the completion of Step One. The final
allocation of the purchase price will be reviewed by the Company's independent
auditors. Management does not expect the finalization of these matters to
have a material effect on the purchase price allocation.
2
<PAGE>
<TABLE>
<CAPTION>
LEVEL 8 SYSTEMS, INC.
UNAUDITED PRO FORMA COMBINED AND CONDENSED BALANCE SHEET
(IN THOUSANDS)
March 31,
1999 Pro Forma
Level 8 Adjustments Note 3 Total
----------- ------------ ------- ---------
ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 2,221 (1,697) ( c ) $ 524
Trade accounts receivable, net 16,009 16,009
Due from related company 271 271
Note receivable for sale of subsidiary 2,000 2,000
Prepaid expenses and other current assets 2,428 2,428
----------- ---------
Total current assets 22,929 21,232
Property and equipment, net 2,333 2,333
Excess of cost over net assets acquired, net 30,520 953 ( a ) 31,473
Software development costs, net 6,687 6,687
Other assets 1,212 1,212
----------- ---------
TOTAL ASSETS $ 63,681 62,937
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable, due on demand $ 5,600 $ 5,600
Current maturities of loan from related party 167 167
Current maturities of long-term debt 758 758
Accounts payable 1,985 1,985
Accounts payable to related company 170 170
Accrued expenses
Compensation 614 614
Commissions 473 473
Restructuring 797 797
Merger - related 3,145 3,145
Other 7,387 7,387
Deferred revenue and customer deposits 9,747 9,747
Income taxes payable 1,883 1,883
----------- ---------
Total current liabilities 32,726 32,726
Noncurrent Liabilities
Deferred revenue 1,974 1,974
Long-term debt, net of current maturities 11,569 11,569
Loan from related company, net of current 12,484 12,484
Stockholders' equity (deficiency):
Common Stock 87 87
Additional paid-in-capital 34,070 34,070
Accumulated other comprehensive income (161) (161)
Accumulated deficit (29,068) (744) ( a ) (29,812)
Total stockholders' equity (deficiency) 4,928 4,184
----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 63,681 62,937
=========== =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
LEVEL 8 SYSTEMS, INC.
UNAUDITED PRO-FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
March 31, Pro Forma
1999 Adjustments Note 3 Total
----------- ----------- ------- --------
<S> <C> <C> <C> <C>
Revenue:
Software $ 2,712 2,712
Maintenance 3,883 3,883
Services 6,610 6,610
----------- --------
Total operating revenue 13,205 13,205
Cost of revenue
Software 838 838
Maintenance 1,600 1,600
Services 6,018 6,018
Total cost of revenue 8,456 8,456
Gross profit 4,749 4,749
Operating expenses:
Sales and marketing 2,619 2,619
Research and development 1,679 1,679
General and administrative 1,753 1,753
Amortization of intangible assets 1,697 208 ( a ) 1,905
----------- ----------- --------
Total operating expenses 7,748 208 7,956
Operating loss (2,999) 208 (3,207)
Other income (expense)
Interest income 74 74
Interest expense (701) (701)
----------- --------
Other expense, net (627) (627)
----------- --------
Loss from continuing operations before provision
for income taxes (3,626) 208 (3,834)
Income tax expense 202 202
----------- ----------- --------
NET LOSS FROM CONTINUING OPERATIONS (3,828) 208 (4,036)
----------- ----------- --------
Loss per share from continuing operations - $ (.46)
basic and diluted
Weighted average shares outstanding -
basic and diluted 8,710
========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
LEVEL 8 SYSTEMS, INC.
UNAUDITED PRO-FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Dec. 31, Dec. 31,
1998 1998 Pro Forma
Level 8 Seer Adjustments Note 3 Total
---------- ---------- ------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Revenue:
Software products $ 1,552 $ 4,357 5,909
Services 9,133 52,153 61,286
---------- ---------- ---------
Total operating revenue 10,685 56,510 67,195
Cost of revenue
Software products 2,060 2,043 4,103
Services 5,973 41,385 47,358
---------- ---------- ---------
Total cost of revenue 8,033 43,428 51,461
Gross profit 2,652 13,082 15,734
Operating expenses:
Research and product development 2,111 10,610 12,721
Purchased research and development 5,892 -- (4,692) ( e ) 1,200
Selling, general and administrative 9,777 23,278 33,055
Amortization of goodwill and other intangibles 1,933 -- 8,223 ( a ) 10,156
Write-off of goodwill and other intangibles 4,601 -- 4,601
Restructuring charges 1,540 13,200 (1,540) ( d ) 13,200
---------- ---------- ------------- ---------
Total operating expenses 25,854 47,088 1,991 74,933
Operating loss (23,202) (34,006) (1,991) (59,199)
Other income (expense)
Interest income 283 411 694
Interest expense (364) (3,641) 1,462 ( b ) (2,543)
---------- ---------- ------------- ---------
Other expense, net (81) (3,230) 1,462 (1,849)
---------- ---------- ------------- ---------
Loss from continuing operations before provision
for income taxes (23,283) (37,236) (529) (61,048)
Income tax expense 405 20,199 20,604
---------- ---------- ------------- ---------
NET LOSS FROM CONTINUING OPERATIONS $ (23,688) $ (57,435) $ (3,453) (81,652)
---------- ---------- ------------- ---------
Loss per share from continuing operations -
basic and diluted $ (9.55)
=========
Weighted average shares outstanding -
basic and diluted 8,552
=========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
5
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The pro forma combined balance sheet assumes that Step Two of the
acquisition of Seer's voting stock took place on March 31, 1999 and includes
Level 8's unaudited March 31, 1999 consolidated balance sheet and pro forma
adjustments to reflect the purchase of the remaining 31% of Seer.
The pro forma combined statements of income assumes that both steps of the
business combination took place as of January 1, 1998. The income statement
with the period ending in December combines Seer's unaudited consolidated
statement of income for the twelve month period ended December 31, 1998 and
Level 8's consolidated statement of income for the year ended December 31,
1998. The income statement for the period ending March includes Level 8's
unaudited consolidated statements of income for the three month period ended
March 31, 1999 and pro forma adjustments to reflect the completion of Step Two
of the acquisition of Seer. Seer's 1997 and 1998 fiscal year's ended on
September 30. Seer's twelve month period was derived by combining the unaudited
results for the relevant quarters ended March 31, June 30, September 30, and
December 31, 1998.
On a combined basis there were no material transactions between Seer and
Level 8 during the periods presented other than those related to Step One of the
acquisition.
The American Institute of Certified Public Accountants has issued Statement
of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition." SOP 97-2
is effective for transactions entered into in fiscal years beginning after
December 15, 1997, and provides guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions.
Level 8 adopted SOP 97-2 on January 1, 1998 and Seer adopted SOP 97-2 on
October 1, 1998 based on the beginning of their respective fiscal year and in
accordance with the effective dates of the statements. There are no other
material differences between the accounting policies of Seer and Level 8.
As Level 8 acquired Seer's voting stock, the pro forma combined
provision for income taxes does not represent the amounts that would have
resulted had Seer and Level 8 filed a consolidated income tax return during the
period presented.
Certain historical amounts in the accompanying financial statements have
been reclassified to create a uniform pro-forma presentation. Such
reclassifications had no effect on net income/(loss) or stockholders' equity for
the periods presented.
NOTE 2. GENERAL
The acquisition will be accounted for as a purchase business combination by
Level 8. The accompanying unaudited pro forma combined condensed financial
statements reflect an aggregate purchase price for Seer of $77.9
million, consisting of the following: stock issued to Seer stockholders,
stock purchased from Seer shareholders and direct costs of the acquisition
valued at $9.5 million, other indirect costs related to the acquisition of $5.5
million, Seer's net liabilities of $25 million, $5.4 million of in-process
research and development, and $32.5 million of Other Intangible Assets
and Goodwill.
For purposes of the accompanying unaudited pro forma combined condensed
balance sheet, the aggregate purchase price has been allocated to the intangible
assets and net liabilities acquired as of March 31, 1999 for Step Two, with the
remainder recorded as excess cost over net assets acquired on the basis of
preliminary estimates of fair value. Step One was recorded on December 31,
1998. These preliminary estimates of fair value were determined by Level 8's
management based primarily on information furnished by management of Seer and
the methodology used in the valuation of intangible assets acquired by the
Company performed by an independent party in conjunction with the completion of
Step One. The final allocation of the purchase price will be reviewed by the
Company's independent auditors. Accordingly, the pro-forma information
presented herein as of March 31, 1999 will differ from the final purchase
price allocation calculated as of April 30, 1999.
Level 8 also expects to incur costs of approximately $1.5 million primarily
related to the reorganization of Level 8's operations in connection with the
acquisition, primarily for the closure of certain facilities and severance costs
for employees.
6
<PAGE>
NOTE 3. PRO FORMA ADJUSTMENTS
(a) Adjustments are to record the estimated valuation of tangible and
intangible assets, excluding purchased in-process research and development,
resulting from the preliminary allocation of the purchase price, as discussed
in Note 2. Valuation of the intangible assets acquired performed by management
of Level 8 consists of purchased in-process technology, proven research and
development, the installed customer base, trademarks, and acquired workforce
with the excess of the purchase price allocated to goodwill.
Intangible assets and goodwill acquired in Step Two of the transaction
in the amount of $.9 million are comprised of proven research and development of
$3.4 million, installed customer base of $2.1 million, acquired workforce
of $1.4 million, and goodwill of $(6.0) million, which have estimated useful
lives ranging from 3 to 5 years.
Intangible assets and goodwill acquired considering both steps of the
transaction were $32.5 million are comprised of proven research and development
of $6.6 million, installed customer base of $6.9 million, acquired
workforce of $5.7 million, trademarks of $.6 million, and goodwill of $12.7
million, which have estimated useful lives ranging from 3 to 5 years.
The estimated initial annual amortization charge to income related to
intangible assets acquired and goodwill resulting from both steps of the
purchase described above approximates $8.2 million. This charge is reflected
in the pro forma combined statements of income.
Management estimates that approximately $2.4 million of the total
purchase price represents purchased in-process research and development that
has not reached technological feasibility and has no alternative future use.
31% of this amount, $.7 million has been reflected as a reduction to
stockholder's equity and has not been included in the pro forma combined
statement of income due to its non-recurring nature.
The value assigned to purchased in-process research and development
was determined by identifying projects in areas for which technological
feasibility had not been established. The value was determined by estimating
the percentage completed and the discounted expected net cash flows from
these projects. The resulting net cash flows from such projects are based
on Seer management's estimates of revenues, cost of sales, research and
development costs, selling, general and administrative costs, and income
taxes from such projects.
(b) Adjustment is to record the amount of interest expense saved by Seer if
Step One of the acquisition had been completed on January 1, 1998. This savings
was determined by assuming that the $12 million loan to Seer from Level 8 and
the $16.9 million investment made by the Welsh, Carson, Anderson and Stowe VI
L.P. and certain affiliated parties ("WCAS") in conjunction with Level 8's
purchase of Seer's capital stock from WCAS, which were received on December
31, 1998, were utilized to pay down its outstanding balances with commercial
creditors. For additional discussion of these transactions, see Level 8's
Form 8-K filed on January 15, 1999.
(c) Adjustment is to record the cost of purchasing 4,849,739 shares of Seer
common stock at $.35 share.
(d) Adjustment is to eliminate the restructuring charge recorded by Level 8
as a result of the completion of Step One of the acquisition. These costs are
primarily for the closure of certain facilities and severance costs for
employees and are eliminated due to their non-recurring nature.
(e) Adjustment is to eliminate the cost of purchased research and
development incurred in Step One of the transaction due to its non-recurring
nature.
NOTE 4. PRO FORMA EARNINGS PER COMMON SHARE
The unaudited pro forma combined basic earnings per share data is computed
by providing pro forma combined income per share by the weighted average number
of common shares outstanding and the issuance of one million shares of common
stock to WCAS assumed to be issued on January 1, 1997. Diluted earnings (loss)
per share is not presented as its inclusion would be anti-dilutive. Potentially
dilutive securities outstanding during the periods presented include stock
options and stock warrants.
7
<PAGE>
c) EXHIBITS
2.1 Agreement dated November 23, 1998, among Level 8 Systems, Inc. ("Level
8") and WCAS relating to the acquisition of capital stock of Seer
Technologies Inc. ("Seer") by Level 8 are incorporated by reference
to Exhibit 2.1 to Seer Form 10-K for the fiscal year ended
September 30, 1998.
4.1 Form of Warrant(s) representing the 250,000 Level 8 warrants issued to
the WCAS parties is incorporated by reference to Exhibit 8.2(A) to
Seer Form 10-K for the fiscal year ended September 30, 1998.
10.1 Level 8 Guaranty Agreement dated December 31, 1998 is incorporated
herein by reference to exhibit 10.1 to Level 8 Form 8-K dated January
15, 1999.
10.2 Level 8 Promissory Note dated December 31, 1998, in favor of Liraz
Systems Ltd. in the principal amount of $12,000,000 is incorporated
Herein by reference to exhibit 10.1 to Level 8 Form 8-K dated
January 15, 1999.
10.3 Seer Promissory Note dated December 31, 1998, in favor of Level 8 in
the principal amount of $12,000,000 is incorporated herein by reference
to exhibit 10.1 to Level 8 Form 8-K dated January 15, 1999.
10.4 Liraz Agreement is incorporated herein by reference to exhibit 10.1 to
Level 8 Form 8-K dated January 15, 1999.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LEVEL 8 SYSTEMS, INC.
---------------------------------
Dated: June 29, 1999 By: /s/ Steven Dmiszewicki
------------------------
Steven Dmiszewicki
President
9
<PAGE>
