8-K/A 1 e8-ka.txt LEVEL 8 SYSTEMS, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported) July 10, 2000 ------------------------------ Level 8 Systems, Inc. ------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) Delaware 0-26392 11-2920559 ------------------------------------------------------------------------------- (State or Other (Commission (I.R.S. Employer Jurisdiction of Incorporation) File Number) Identification No.) 8000 Regency Parkway Cary, North Carolina 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) 2 ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT Item 4. Changes in Registrant's Certifying Accountant set forth in Level 8 Systems, Inc.'s Form 8-K dated July 10, 2000 and filed July 17, 2000, is hereby amended in its entirety as follows: a. Previous independent accountants i. On July 10, 2000, Level 8 Systems, Inc. (the "Company") dismissed PricewaterhouseCoopers LLP as its independent accountants. ii. The reports of PricewaterhouseCoopers LLP on the financial statements for the past two fiscal years contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. iii. The Company's Audit Committee participated in and approved the decision to change the Company's independent accountants. iv. In connection with its audits for the two most recent fiscal years, there have been no disagreements with PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make reference thereto in their report on the financial statements for such years. Furthermore from January 1 through July 10, 2000, there have been no disagreements with PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which have been communicated to the Audit Committee. v. In connection with their audit of the financial statements of Level 8 Systems, Inc. as of December 31, 1998 and for the year then ended, PricewaterhouseCoopers LLP communicated the following reportable conditions to the Company: Adequate Accounting Personnel The Company lacked sufficient personnel in 1998 to maintain accurate books and records. In addition, it appeared that accounting supervisors lacked adequate knowledge of specific industry accounting or did not conduct sufficient reviews to ensure entries were booked properly. 2 3 Documentation During 1998, the Company failed to maintain adequate documentation to support revenue and other transactions. In addition, certain documentation, while available, was not stored in a manner to facilitate access. In some circumstances, key accounting documentation had to be obtained from employees outside of the accounting and finance organization or from other alternative sources. Billing and Collections During 1998, the Company was forced to write off or reserve significant amounts of receivables due to inadequate documentation or timely follow-up. Revenue Recognition and Cutoff During 1998, the Company recognized the revenue from several contracts prior to the point in time when the applicable requirements of Statement of Position 97-2 "Software Revenue Recognition" ("SOP 97-2") had been met. This resulted in several adjustments at year end. Software Development Costs During 1998, the Company's accounting department failed to collect and maintain adequate documentation for the composition of development costs capitalized under Statement of Financial Accounting Standards No. 86 "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed" ("SFAS 86") or for adjustments made to the carrying value of this software due to declines in the related product net realizable value. While adequate documentation for these decisions was eventually obtained from alternative sources, the Company's accounting department had to make considerable efforts to locate such documentation. 3 4 Related Party Transactions During 1998, the Company failed to maintain adequate documentation for certain transactions with Liraz Systems Ltd., a significant shareholder of the Company. While adequate documentation was eventually located, due to the subjective nature of related party transactions, PricewaterhouseCoopers LLP recommended that the Company should ensure that all transactions with related parties are documented thoroughly and that the Company can support the valuation of any transactions. No reportable conditions were communicated to management of Level 8 Systems, Inc. by PricewaterhouseCoopers LLP in connection with their audit of the financial statements of Level 8 Systems, Inc. as of December 31, 1999 and for the year then ended. vi. The Company has requested that PricewaterhouseCoopers LLP furnish it with a letter addressed to the SEC stating whether or not it agrees with the above statements. A copy of such letter, dated August 2, 2000, is filed as Exhibit 16 to this Form 8-K. b. Management's comments on internal control matters All of the reportable conditions identified above related to the Company's accounting operations as they existed at its New York/New Jersey facilities during 1998. In early 1999, the Company itself conducted an extensive internal review of the Company's 1998 accounting and made numerous adjustments in conjunction with the finalization of the Company's 1998 annual report. Additionally, on January 1, 1999, the Company ceased all accounting functions at its New York/New Jersey facilities and relocated all accounting, financial reporting and internal control responsibility to the Company's Cary, North Carolina operations. 4 5 c. New independent accountants The Company has engaged Deloitte & Touche LLP as its new independent accountants as of July 11, 2000. Prior to the engagement of Deloitte & Touche LLP, the Company did not consult with such firm regarding the application of accounting principles to a specific completed or contemplated transaction, or any matter that was either the subject of a disagreement or a reportable event. The Company also did not consult with Deloitte & Touche LLP regarding the type of audit opinion which might be rendered on the Company's financial statements and no oral or written report was provided by Deloitte & Touche LLP. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS d. Exhibits 16. Letter from PricewaterhouseCoopers LLP regarding change in certifying accountant, dated August 2, 2000. 5 6 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Company duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. LEVEL 8 SYSTEMS, INC. Date: August 2, 2000 By: /s/ Renee Fulk --------------------------------------------- Renee Fulk, Chief Financial Officer 6 7 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION Exhibit 16 Letter from PricewaterhouseCoopers LLP dated August 2, 2000.
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