8-K, 2000-07-17
Previous: C P CLARE CORP, PRE 14A, 2000-07-17

<PAGE>   1

                             WASHINGTON, D.C. 20549


                                    FORM 8-K

                                 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 Jurisdiction of   (Commission File Number)   (I.R.S. Employer
Incorporation)                                               Identification No.)

                              8000 Regency Parkway
                           Cary, North Carolina 27511
                    (Address of Principal Executive Offices)

Registrant's telephone number, including area code (919) 380-5000

          (Former Name or Former Address, if Changed Since Last Report)

<PAGE>   2


         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 and any subsequent interim period, there
                           have been no disagreements with
                           PricewaterhouseCoopers LLP on any matter of
                           accounting principles or practices, financial
                           statement disclosure, or auditing scope or procedure.

                  v.       In planning and performing the audit of the financial
                           statements of the Company for the year ended December
                           31, 1998, PricewaterhouseCoopers LLP noted certain
                           internal control deficiencies at the Company's New
                           York/New Jersey facilities that it considered to be
                           reportable conditions under standards established by
                           the American Institute of Certified Public
                           Accountants. Reportable conditions involve matters
                           relating to significant deficiencies in the design or
                           operation of internal controls that could adversely
                           affect the organization's ability to record, process,
                           summarize, and report financial data consistent with
                           the assertions of management in the financial

                           On or about March 31, 1999, PricewaterhouseCoopers
                           LLP provided the Company with a letter regarding such
                           reportable conditions. A detailed description of the
                           deficiencies are listed below in this report.

                           Many of the deficiencies noted by
                           PricewaterhouseCoopers LLP were also noted by the
                           Company's prior auditors. While the Company did make
                           improvements during 1998, many of these deficiencies
                           and accounting adjustments related to these
                           deficiencies were not addressed until subsequent to
                           December 31,1998 in conjunction with the finalization
                           of the Company's 1998 annual report and, therefore,
                           were required to be communicated by
                           PricewaterhouseCoopers LLP under applicable AICPA

<PAGE>   3

                  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 finance operations.

                  PricewaterhouseCoopers LLP acknowledged these changes in its
                  March 31, 1999 letter but could not comment on their
                  effectiveness on the Company's internal control structure at
                  that time. On February 11, 2000, PricewaterhouseCoopers LLP
                  issued its report to the Company on the results of the audit
                  for the year ended December 31, 1999. This report contained no
                  matters that PricewaterhouseCoopers LLP considered to be
                  reportable conditions under standards established by the

         Reportable conditions identified in PricewaterhouseCoopers LLP's March
31, 1999 letter for the year ended December 31, 1998 were as follows:

                           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.


                           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.

<PAGE>   4
                           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

                           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.

                           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.

                  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

<PAGE>   5

         b.       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.


         c. Exhibits

                  16. Letter from PricewaterhouseCoopers LLP regarding change in
                      certifying accountant, dated July __,2000.

<PAGE>   6


         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: July 17, 2000                 By: /s/ Renee Fulk
                                       Renee Fulk,
                                      Chief Financial Officer

<PAGE>   7


Exhibit 16        Letter from PricewaterhouseCoopers LLP dated July __, 2000.*

* To be filed by amendment

© 2019 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission