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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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): April 6, 1998
PROSOFT I-NET SOLUTIONS, INC.
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(Exact Name of Registrant as Specified in Charter)
Nevada 000-21535 87-0448639
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(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification Number)
3001 Bee Caves Rd., Suite 220, Austin, Texas 78746
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(512) 328-6140
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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.
On April 6, 1998, Ernst & Young LLP (the "Former Accountants"),
informed the Audit Committee and the Chairman of the Board and Chief Executive
Officer of Prosoft I-Net Solutions, Inc. (the "Company") that it had resigned as
the Company's independent auditors.
The Former Accountants' report on the consolidated financial statements
of the Company as of and for the periods ended July 31, 1997 and 1996 did not
contain any adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope, or accounting principles.
This decision to resign was made by the Former Accountants and was
neither approved nor disapproved by the Company's Board of Directors or its
Audit Committee.
In connection with the audits of the two fiscal periods ended July 31,
1997 and through April 6, 1998, (i) there were no disagreements between the
Company and the Former Accountants on any matter of accounting principles or
practice, financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of the Former Accountants
would have caused it to make reference thereto in its report and (ii) there were
no reportable events as defined in paragraph 304(a)(1)(v) of Regulation S-K,
except as discussed in the following paragraph.
In connection with work performed by the Former Accountants in response
to the Company's request that the Former Accountants sign a consent to the use
of its audit report dated October 24, 1997 with respect to the Company's Form
S-3 filing, the Former Accountants raised issues relating to the Company's
revenue recognition in the first and second quarters of fiscal 1998.
Specifically, the Former Accountants expressed concern regarding two contracts
for the sale of courseware materials, one which was entered into in the first
quarter of fiscal 1998, and the other which was entered into in the second
quarter of fiscal 1998. Under the accrual method of accounting, the Company
reported the entire amounts to be received under those contracts as revenue in
the quarter in which the contract was entered into, based on the terms and
conditions of such contracts. The Former Accountants raised concerns as to
whether these contracts with the two customers represented currently
recognizable revenue and income under generally accepted accounting principles.
Of particular concern to the Former Accountants was the lack of information
available to evaluate the creditworthiness of these customers. The Company
sought to obtain such information from the two customers in satisfaction of the
Former Accountants' requirements, but was not able to obtain adequate
information prior to the resignation of the Former Accountants. The Former
Accountants had discussed this issue with the Audit Committee of the Board of
Directors as well as management of the Company prior to its resignation. The
Company has authorized the Former Accountants to respond fully to the inquiries
of any new independent accountants engaged by the Company concerning the subject
matter of these issues.
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Although the Company considered the accounting treatment of these
transactions appropriate at the time it reported its results for each of the
first two quarters, after further consideration of the Former Accountants'
concerns, the Company has elected to recognize revenue on these contracts as
cash payments are received rather than upon the customers entering into the
contractual commitment, and intends to restate its first and second quarter
results to reflect this change. The Audit Committee of the Board approved this
restatement on April 8, 1998 and recommended the action to the Board. The Board
accepted the Audit Committee's recommendation and approved the restatement on
April 8. The change in revenue recognition practice will result in a reduction
in revenue and corresponding increase in net loss of $1,450,000 and $1,800,000
in the quarters ended January 31, 1998 and October 31, 1997, respectively. The
Company will file amended Reports on Form 10-Q/A for the first and second
quarters of fiscal 1998 as soon as practicable.
As of the date of this Report, the Company has not yet engaged new
independent accountants as successor to the Former Accountants.
ITEM 5. OTHER EVENTS
On April 13, 1998, the Company issued a press release disclosing that
Ernst & Young LLP had resigned as the Company's independent accountants and that
the Company intended to restate certain financial information that was included
in the Company's previously reported quarterly results for the first two fiscal
quarters. The full text of that press release is attached as Exhibit 99.1.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
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16.1 Letter from Ernst & Young LLP
99.1 Press release dated April 13, 1998
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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.
PROSOFT I-NET SOLUTIONS, INC.
(Registrant)
Date: April 13, 1998 By: /s/ BROOKS A. CORBIN
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Name: Brooks A. Corbin
Title: Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT NO. NAME OF ITEM
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16.1 Letter from Ernst & Young LLP
99.1 Press release dated April 13, 1998
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