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) December 31, 1998
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Level 8 Systems, Inc.
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(Exact Name of Registrant as Specified in its Charter)
New York 0-26392 11-2920559
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(State or Other Jurisdiction of Incorporation) (Commission File Number)
(I.R.S. Employer Identification No.)
8000 Regency Parkway
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Cary, NC 27511
(Address of Principal Executive Offices)
Registrant's telephone number, including area code (919) 380-5000
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1250 Broadway, 35th Floor, New York, New York 10001
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(Former Name or Former Address, if Changed Since Last Report)
<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
December 31, 1998 and filed January 15, 1999, is hereby amended
to read in its entirety as follows:
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
The financial statements required to be filed were previously reported
in Seer Technologies, Inc.'s Annual Report on Form 10-K for the fiscal
year ended September 30, 1998, and incorporated herein by reference.
(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") 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.
Level 8's historical unaudited consolidated statement of income and balance
sheet included herewith differ from those previously reported and included with
Level 8's Form 10-Q for the quarter ended September 30, 1998. On February 11,
1998, Level 8 announced that it would restate its quarterly financial statements
for 1998, primarily to reflect an adjustment to the $6.5 million charge for
in-process research and development recorded in the first quarter of fiscal year
1998 related to the acquisition of Momentum Software Corporation ("Momentum").
These preliminary restated financial statements for the period ended September
30, 1998 were prepared by the Company's management based primarily on
preliminary information furnished by independent consultants reviewing the
valuation of Momentum's in-process research and development. The preliminary
financial statements for the period ended September 30, 1998 have not been
audited and may be subject to further adjustment in connection with the pending
audit of the consolidated financial statements for the fiscal year ended
December 31, 1998. In the opinion of management, the information contained
herein reflects all material adjustments necessary for a fair statement of the
interim results of operations.
The following pro forma combined financial statements give effect to the
acquisition of 69% of the outstanding voting stock of Seer using the purchase
method of accounting. The pro forma combined financial statements are based on
the respective historical audited and unaudited consolidated financial
statements and the notes thereto of Level 8 and Seer, which are incorporated
herein by reference.
The pro forma combined balance sheet assumes that the acquisition took
place on September 30, 1998 and combined Level 8's unaudited September
30, 1998 consolidated balance sheet and Seer's September 30, 1998
consolidated balance sheet.
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, 1997 combines Seer's unaudited consolidated
statement of income for the twelve month period ended December 31, 1997 and
Level 8's consolidated statement of income for the year ended December
31, 1997. The income statement with the period ending in September combines
Seer's and Level 8's unaudited consolidated statements of income for the nine
month period ended September 30, 1998. Seer's 1997 and 1998 fiscal year's
ended on September 30. Seer's twelve month and nine month periods were
derived by combining the unaudited results for the quarters ended
March 31, June 30, September 30, and December 31, 1997 and the quarters
ended March 31, June 30, and September 30, 1998, respectively.
<PAGE>
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
of fair value were determined by the Company's management based primarily on
information furnished by management of Seer and an independent valuation of
acquired software and research and development. The final allocation of the
purchase price will be based on a complete valuation of the assets and
liabilities of Seer. Management does not expect the finalization of these
matters to have a material effect on the purchase price allocation. Further,
management expects the valuation of the acquisition to be finalized prior to the
filing of Level 8's Annual Report on Form 10-K for fiscal year 1998.
<TABLE>
<CAPTION>
c) EXHIBITS
<C> <S>
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.
</TABLE>
<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.
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Dated: March 16, 1999 By: /s/ Steven Dmiszewicki
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Steven Dmiszewicki
Chief Operating Officer
<PAGE>
<TABLE>
<CAPTION>
LEVEL 8 SYSTEMS, INC.
UNAUDITED PRO FORMA COMBINED AND CONDENSED BALANCE SHEET
(in thousands)
SEER LEVEL8 PRO-FORMA
SEPTEMBER 30, ADJUSTMENTS
1998 1998 NOTE 3 PRO-FORMA
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<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 1,040 $ 3,537 $ - - $ 4,577
Trade accounts receivable, net 17,285 8,598 - - 25,883
Prepaid expenses and other current assets 1,476 1,389 - - 2,865
Net assets from discontinued operations - 1,770 - - 1,770
---------- -------- ---------
Total current assets 19,801 15,294 - - 35,095
Goodwill and other intangible assets - 7,391 26,132 ( a ) 33,523
Property and equipment, net 1,867 1,609 - - 3,476
Capitalized software costs, net 1,140 3,048 - - 4,188
Deferred income taxes - 972 - - 1,325
Other assets 387 13 - - 400
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TOTAL ASSETS $ 23,195 $28,327 - - $ 78,007
========== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable, due on demand $ 38,148 $ - (28,900) ( b ) $ 9,248
Current maturities of loan from related company - 594 12,000 ( b ) 12,594
Current maturities of long-term debt - 27 - - 27
Accounts payable 2,897 1,410 - - 4,307
Accrued expenses: - - - - -
Compensation 744 - - - 744
Commissions 1,156 - - - 1,156
Restructuring 4,064 - - - 4,064
Other 3,459 274 5,330 ( a ) 9,063
Due to related company - 212 - - 212
Deferred revenue 7,355 4,885 - - 12,240
Income taxes payable 1,644 - - - 1,644
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Total current liabilities 59,467 7,402 - - 55,299
OTHER LIABILITIES
Deferred revenue 253 - - - 253
Long term debt, net of current maturities - 85 - - 85
Loan from related company, net of current maturities - 1,039 - - 1,039
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253 1,124 - - 1,730
Stockholders' equity (deficiency):
Preferred stock 39 - (39) ( d ) -
Common stock 120 77 (110) ( a, d ) 87
Additional paid-in-capital 76,023 28,825 (70,164) ( a, d ) 34,684
Cumulative translation adjustments (847) - 847 ( d ) -
Accumulated deficit (111,860) (9,101) 107,168 ( a, d ) (13,793)
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Total stockholders' equity (deficiency) (36,525) 19,801 - - 20,978
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,195 $28,327 - - $ 78,007
========== ======== =========
The accompanying notes are an integral of the combined financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LEVEL 8 SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(in thousands, except per share amounts)
SEER LEVEL8 PRO-FORMA
SEPTEMBER 30, ADJUSTMENTS
1998 1998 NOTE 3 PRO-FORMA
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<S> <C> <C> <C> <C> <C>
Revenue:
Software products $ 4,288 $ 737 $ - - $ 5,025
Services 41,319 7,230 - - 48,549
Other - 632 - - 632
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Total operating revenue 45,607 8,599 - - 54,206
Cost of revenue:
Software products 1,134 856 - - 1,990
Services 30,325 4,126 - - 34,451
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Total cost of revenue 31,459 4,982 - - 36,441
Gross profit 14,148 3,617 - - 17,765
Operating expenses:
Research and product development 9,068 1,975 - - 11,043
Purchased research and development - 1,200 - - 1,200
Selling, General and adminstrative 22,000 7,298 4,731 ( a ) 34,029
Write-off of capitalized software costs - 1,794 - - 1,794
Restructuring charges 13,200 - - - 13,200
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Total operating expenses 44,268 12,267 - 61,266
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Operating income/(loss) (30,120) (8,650) (4,731) - (43,501)
Other income (expense):
Interest income 343 226 - - 569
Interest expense (2,703) (74) 1,314 ( b ) (1,463)
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Other expense, net (2,360) 152 1,314 - (894)
--------- -------- -------- ---------
Loss from continuing operations before
provision for income taxes (32,480) (8,498) (3,417) - (44,395)
Income tax expense/(benefit) 20,052 (763) - - 19,289
Minority interest - - (3,518) ( c ) (3,518)
Net income/(loss) from continuing operations $(52,532) $(7,735) $ 101 - $(60,166)
--------- -------- -------- ---------
Loss per share from continuing operations - - - - - $ (7.12)
basic and diluted =========
Weighted average shares outstanding -
basic and diluted - - - - 8,448
=========
The accompanying notes are an integral part of the combined
financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LEVEL 8 SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(in thousands, except per share amounts)
SEER LEVEL8 PRO-FORMA
DECEMBER 31, ADJUSTMENTS
1997 1997 NOTE 3 PRO-FORMA
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<S> <C> <C> <C> <C>
Revenue:
Software products $ 30,796 $ 4,354 $ - $ 35,150
Services 67,588 10,171 - 77,759
Other - 155 - 155
--------- -------- -------- ---------
Total operating revenue 98,384 14,680 - 113,064
Cost of revenue:
Software products 1,589 2,554 - 4,143
Services 44,660 4,995 - 49,655
Other - 40 - 40
--------- -------- -------- ---------
Total cost of revenue 46,249 7,589 - 53,838
Gross profit 52,135 7,091 - 59,226
Operating expenses
Research and product development 12,913 - - 12,913
Selling, general and administrative 47,786 5,892 6,307 (a) 59,985
--------- -------- -------- ---------
Total operating expenses 60,699 5,892 6,307 72,898
--------- -------- -------- ---------
Operating income / (loss) (8,564) 1,199 (6,307) (13,672)
Other income (expense)
Interest income 495 410 - 905
Interest expense (2,555) (20) 1,886 (b) (689)
--------- -------- -------- ---------
Other expense, net (2,060) 390 1,886 216
========= ======== ======== =========
Loss from continuing operations before
provision for income taxes (10,624) 1,589 (4,421) (13,456)
Income tax expense / (benefit) 978 553 - 1,531
Minority interest - - (3,597) (c) (3,597)
Net income / (loss) from continuing operations (11,602) 1,036 (825) (11,391)
========= ======== ======== =========
Loss per share from continuing operations - - - - $ (1.43)
basic and diluted =========
Weighted average shares outstanding - - - - 7,992
basic and diluted =========
The accompanying notes are an integral part of the combined
financial statements.
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The pro forma combined balance sheet assumes that the acquisition of 69% of
Seer's voting stock took place on September 30, 1998 and combined Level 8's
unaudited September 30, 1998 consolidated balance sheet and Seer's September 30,
1998 consolidated balance sheet. As of January 1, 1997, the shareholders of the
remaining 31% of the outstanding voting stock were deemed to have shared in
the losses of Seer up to their remaining interest in Seer's net assets.
The pro forma combined statements of income assume the business combination
took place as of January 1, 1997. 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, 1997 and Level 8's consolidated statement
of income for the year ended December 31, 1997. The income statement with the
period ending in September combines Seer's and Level 8's unaudited consolidated
statements of income for the nine month period ended September 30, 1998. Seer's
1997 and 1998 fiscal year's ended on September 30. Seer's twelve month and nine
month periods were derived by combining the unaudited results for the relevant
quarters ended March 31, June 30, September 30, and December 31, 1997
and the quarters ended March 31, June 30, and September 30, 1998,
respectively.
On a combined basis there were no material transactions between Seer and
Level 8 during the period presented.
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 only 69% of 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 69% of Seer of $55.5
million, consisting of the following: stock issued to Seer stockholders and
direct costs of the acquisition valued at $7.2 million, other indirect costs
related to the acquisition of $4 million, a 69% share of Seer's net liabilities
of $19.6 million(giving effect for the investment of Welsh, Carson, Anderson and
Stowe VI L.P. and certain affiliated parties("WCAS") as discussed in Note 3.b.
below) or $13.5 million, $4.7 million of in-process research and development,
and $26.1 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 September 30, 1998, with the remainder
recorded as excess cost over net assets acquired on the basis of preliminary
estimates of fair value. These preliminary estimates of fair value were
determined by Level 8's management based primarily on information furnished by
management of Seer and an independent valuation of acquired software and
research and development. The final allocation of the purchase price will be
based on a complete evaluation of the assets and liabilities of Seer and will be
based on Seer's net liabilities at December 31, 1998. Accordingly, the
pro-forma information presented herein as of September 30, 1998 will differ from
the final purchase price allocation calculated as of December 31, 1998.
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.
<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 was conducted by an
independent third-party valuation expert and 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 of $26.1 million are comprised of proven
research and development of $3.2 million, installed customer base of
$4.8 million, acquired workforce of $4.3 million, trademarks of $.6 million,
and goodwill of $13.2 million, which have estimated useful lives ranging
from 3 to 5 years.
The estimated annual amortization charge to income related to intangible
assets acquired and goodwill resulting from the purchase described above
approximates $6.3 million. This charge is reflected in the pro forma combined
statements of income.
Management estimates that approximately $4.7 million of the purchase
price represents purchased in-process research and development that has not
reached technological feasibility and has no alternative future use. This
amount will be expensed as a non-recurring charge upon consummation of the
acquisition. This amount 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) Adjustments are to record the $12 million loan to Level 8 from Liraz and
the $16.9 million investment made by the WCAS parties in conjunction with Level
8's purchase of Seer's capital stock from the WCAS parties, which were received
on December 31, 1998. Upon receiving the loan from Liraz, Level 8 made a
subordinated loan to Seer in the amount of $12 million. On December 31, 1998,
Seer utilized the $28.9 million to pay down its outstanding balances with its
commercial creditors. For additional discussion of these transactions, see
Level 8's Form 8-K filed on January 15, 1999.
The amount of interest expense saved by Seer was computed assuming the
funds were received on January 1, 1997 and utilizing the respective
quarterly weighted-average interest rates for the periods presented.
(c) Adjustments are to record a share of the net loss attributable to the
minority interest of Seer.
(d) Adjustments are to eliminate Seer's historical equity balances.
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.
