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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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
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Level 8 Systems, Inc.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 0-26392 11-2920559
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(State or Other (Commission (I.R.S. Employer
Jurisdiction of Incorporation) File Number) Identification No.)
8000 Regency Parkway
Cary, North Carolina 27511
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(Address of Principal Executive Offices)
Registrant's telephone number, including area code (919) 380-5000
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N/A
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(Former Name or Former Address, if Changed Since Last Report)
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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.
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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.
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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.
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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.
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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
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Renee Fulk,
Chief Financial Officer
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EXHIBIT INDEX
<TABLE>
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EXHIBIT
NUMBER DESCRIPTION
<S> <C>
Exhibit 16 Letter from PricewaterhouseCoopers LLP dated August 2, 2000.
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