UNITED STATES
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) JUNE 27, 2008
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I/OMAGIC CORPORATION
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(Exact name of registrant as specified in its charter)
NEVADA 0-27267 33-0773180
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
4 MARCONI, IRVINE, CALIFORNIA 92618
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (949) 707-4800
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NOT APPLICABLE
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(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 4.01. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
On July 11, 2008, I/OMagic Corporation (referred to as "we," "us" or similar
terms unless the context otherwise requires) filed a Form 8-K for July 7, 2008
(the "Initial Form 8-K") reporting the dismissal of Swenson Advisors, LLP
("Swenson"), the independent registered public accounting firm that was engaged
as our principal accountant to audit our consolidated financial statements. The
Initial Form 8-K inadvertently identified a dismissal date of July 7, 2008;
however, although we provided formal notice of dismissal to Swenson on July 7,
2008, our Audit Committee first approved the dismissal of Swenson on June 27,
2008 and subsequently executed written resolutions concerning the dismissal
effective as of July 1, 2008. In addition, the Initial Form 8-K reported the
engagement of Simon & Edward, LLP ("Simon & Edward") as our new independent
registered public accounting firm on July 7, 2008; however, although we intended
to engage Simon & Edward on July 7, 2008--the same day we formally notified
Swenson of its dismissal--our Audit Committee first approved the engagement of
Simon & Edward on June 27, 2008 but at that time we had not formally engaged
Simon & Edward through the execution of an engagement letter. We formally
engaged Simon & Edward through the execution of an engagement letter on July 21,
2008. Accordingly, we hereby amend and restate the Initial Form 8-K, as follows:
(a) On June 27, 2008, we dismissed Swenson, the independent registered public
accounting firm that was engaged as our principal accountant to audit our
consolidated financial statements, and on July 7, 2008, we formally notified
Swenson of its dismissal.
Our decision to change our independent registered public accounting
firm was approved by our Audit Committee. The reason for the change was to allow
us to engage an alternative firm that we believe has adequate resources to
provide us with the auditing and tax services we require on a more
cost-effective basis.
Except as to going concern qualifications, the audit reports of Swenson
on our consolidated financial statements and consolidated financial statement
schedules as of and for the years ended December 31, 2006 and 2007 did not
contain any adverse opinion or disclaimer of opinion, nor were they qualified as
to uncertainty, audit scope or accounting principles.
During the years ended December 31, 2006 and 2007 and the subsequent
interim period through July 7, 2008, there were no disagreements with Swenson on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures which disagreements, if not resolved
to Swenson's satisfaction, would have caused Swenson to make reference to the
subject matter of the disagreement in connection with its opinion.
During the years ended December 31, 2006 and 2007 and the subsequent
interim period through July 7, 2008, there were no reportable events as
described in Item 304(a)(1)(v) of Regulation S-K under the Securities Act of
1933, as amended ("Securities Act"), except as described below:
1. FOR THE YEAR ENDED DECEMBER 31, 2006:
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o We conducted an evaluation under the supervision and
with the participation of our management, including
our Chief Executive Officer and Chief Financial
Officer of the effectiveness of the design and
operation of our disclosure controls and procedures.
The term "disclosure controls and procedures," as
defined in Rules 13a-15(e) and 15d-15(e) under the
Securities and Exchange Act of 1934, as amended
("Exchange Act"), means controls and other procedures
of a company that are designed to ensure that
information required to be disclosed by the company
2
in the reports it files or submits under the Exchange
Act is recorded, processed, summarized and reported,
within the time periods specified in the Securities
and Exchange Commission's rules and forms. Disclosure
controls and procedures also include, without
limitation, controls and procedures designed to
ensure that information required to be disclosed by a
company in the reports that it files or submits under
the Exchange Act is accumulated and communicated to
the company's management, including its principal
executive and principal financial officers, or
persons performing similar functions, as appropriate,
to allow timely decisions regarding required
disclosure. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer
concluded as of December 31, 2006 that our disclosure
controls and procedures were not effective at the
reasonable assurance level due to the material
weaknesses discussed immediately below.
A material weakness is defined by the Public Company
Accounting Oversight Board's Audit Standard No. 2 as
being a significant deficiency, or combination of
significant deficiencies, that results in more than a
remote likelihood that a material misstatement of the
financial statements would not be prevented or
detected. A significant deficiency is a control
deficiency, or combination of control deficiencies,
that adversely affects the company's ability to
initiate, authorize, record, process, or report
external financial data reliably in accordance with
generally accepted accounting principles such that
there is more than a remote likelihood that a
misstatement of the company's annual or interim
financial statements that is more than
inconsequential will not be prevented or detected.
o In conjunction with preparing our Form 10-K
for the period ended December 31, 2006,
management reviewed, in the first quarter of
2007, our accounting methodologies relating
to (a) our accounting for reserves for sales
incentives, and (b) our accounting for
direct labor and production expenses related
to production and handling of our products.
As a result of this review, management
concluded, in the first quarter of 2007,
that our accounting methodologies were not
in accordance with generally accepted
accounting principles and that our
consolidated financial statements for the
years ended December 31, 2005, 2004, 2003
and 2002 and for each of the quarterly
periods in the years ended December 31,
2005, 2004 and 2003, and through the nine
months ended September 30, 2006, had been
misstated. Based upon this conclusion, our
Audit Committee and senior management
decided, in the second quarter of 2007, to
restate our consolidated financial
statements as of and for the years ended
December 31, 2005, 2004, 2003 and 2002 and
for each of the quarterly periods in the
years ended December 31, 2005, 2004 and
2003, and through the nine months ended
September 30, 2006, to reflect the
corrections in our accounting methodologies.
Management evaluated, in the second quarter
of 2007 and as of December 31, 2006, the
impact of this restatement on our assessment
of our disclosure controls and procedures
and concluded, in the second quarter of 2007
and as of December 31, 2006, that the
control deficiency that resulted in the
incorrect accounting methodologies
pertaining to (a) our accounting for
reserves for sales incentives, and (b) our
accounting for direct labor and production
expenses related to production and handling
of our products, represented a material
weakness.
3
o As a result of our restatement of prior
periods' financial results, as discussed
above, we were unable to meet our
requirements to timely file our Form 10-K
for the year ended December 31, 2006.
Management evaluated, in the second quarter
of 2007 and as of December 31, 2006, the
impact of our inability to timely file
periodic reports with the Securities and
Exchange Commission on our assessment of our
disclosure controls and procedures and
concluded, in the second quarter of 2007 and
as of December 31, 2006, that the control
deficiency that resulted in the inability to
timely make these filings represented a
material weakness.
2. FOR THE QUARTER ENDED MARCH 31, 2007:
-------------------------------------
o We conducted an evaluation under the supervision and
with the participation of our management, including
our Chief Executive Officer and Chief Financial
Officer of the effectiveness of the design and
operation of our disclosure controls and procedures.
The term "disclosure controls and procedures," as
defined in Rules 13a-15(e) and 15d-15(e) under the
Securities and Exchange Act of 1934, as amended
("Exchange Act"), means controls and other procedures
of a company that are designed to ensure that
information required to be disclosed by the company
in the reports it files or submits under the Exchange
Act is recorded, processed, summarized and reported,
within the time periods specified in the Securities
and Exchange Commission's rules and forms. Disclosure
controls and procedures also include, without
limitation, controls and procedures designed to
ensure that information required to be disclosed by a
company in the reports that it files or submits under
the Exchange Act is accumulated and communicated to
the company's management, including its principal
executive and principal financial officers, or
persons performing similar functions, as appropriate,
to allow timely decisions regarding required
disclosure. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer
concluded as of March 31, 2007 that our disclosure
controls and procedures were not effective at the
reasonable assurance level due to the material
weaknesses discussed immediately below.
A material weakness is defined by the Public Company
Accounting Oversight Board's Audit Standard No. 5 as
being a deficiency, or combination of deficiencies,
in internal control over financial reporting, such
that there is a reasonable possibility of leading to
a material misstatement that will not be prevented or
detected on a timely basis. A significant deficiency,
which is less severe than a material weakness yet
merits attention of those responsible for the
oversight of the company's financial reporting, is a
control deficiency, or combination of control
deficiencies, that adversely affects the company's
ability to initiate, authorize, record, process, or
report external financial data reliably in accordance
with generally accepted accounting principles such
that there is a reasonable possibility that a
misstatement of the company's annual or interim
financial statements that is more than
inconsequential will not be prevented or detected.
o In conjunction with preparing our Form 10-K
for the period ended December 31, 2006,
management reviewed, in the first quarter of
2007, our accounting methodologies relating
to (a) our accounting for reserves for sales
incentives, and (b) our accounting for
direct labor and production expenses related
to production and handling of our products.
As a result of this review, management
4
concluded, in the first quarter of 2007,
that our accounting methodologies were not
in accordance with generally accepted
accounting principles and that our
consolidated financial statements for the
years ended December 31, 2005, 2004, 2003
and 2002 and for each of the quarterly
periods in the years ended December 31,
2005, 2004 and 2003, and through the nine
months ended September 30, 2006, had been
misstated. Based upon this conclusion, our
Audit Committee and senior management
decided, in the second quarter of 2007, to
restate our consolidated financial
statements as of and for the years ended
December 31, 2005, 2004, 2003 and 2002 and
for each of the quarterly periods in the
years ended December 31, 2005, 2004 and
2003, and through the nine months ended
September 30, 2006, to reflect the
corrections in our accounting methodologies.
Management evaluated, in the second quarter
of 2007 and as of March 31, 2007, the impact
of this restatement on our assessment of our
disclosure controls and procedures and
concluded, in the second quarter of 2007 and
as of March 31, 2007, that the control
deficiency that resulted in the incorrect
accounting methodologies pertaining to (a)
our accounting for reserves for sales
incentives, and (b) our accounting for
direct labor and production expenses related
to production and handling of our products,
represented a material weakness.
o As a result of our restatement of prior
periods' financial results, as discussed
above, we were unable to meet our
requirements to timely file our Form 10-K
for the year ended December 31, 2006.
Management evaluated, in the second quarter
of 2007 and as of March 31, 2007, the impact
of our inability to timely file periodic
reports with the Securities and Exchange
Commission on our assessment of our
disclosure controls and procedures and
concluded, in the second quarter of 2007 and
as of March 31, 2007, that the control
deficiency that resulted in the inability to
timely make these filings represented a
material weakness.
o We did not adequately segregate the duties
of different personnel within our accounting
group. Activities that were not adequately
segregated included the processing and
review of product rebate submissions and the
issuing of checks for product rebate
payments. Partly as a result of our
inadequate segregation of duties, we believe
that an ex-employee was able to embezzle,
through repeated issuances of product rebate
checks in the name of the ex-employee's
spouse, the total approximate amount of
$40,000 over the course of a 5-year period.
Management evaluated, in the third quarter
of 2007 and as of March 31, 2007, the impact
of our inadequate segregation of duties on
our assessment of our disclosure controls
and procedures and concluded, in the third
quarter of 2007 and as of March 31, 2007,
that, although immaterial from a financial
perspective, the control deficiency that
resulted in our inadequate segregation of
duties represented a material weakness.
3. FOR THE QUARTER ENDED JUNE 30, 2007:
------------------------------------
o We conducted an evaluation under the supervision and
with the participation of our management, including
our Chief Executive Officer and Chief Financial
Officer of the effectiveness of the design and
5
operation of our disclosure controls and procedures.
The term "disclosure controls and procedures," as
defined in Rules 13a-15(e) and 15d-15(e) under the
Securities and Exchange Act of 1934, as amended
("Exchange Act"), means controls and other procedures
of a company that are designed to ensure that
information required to be disclosed by the company
in the reports it files or submits under the Exchange
Act is recorded, processed, summarized and reported,
within the time periods specified in the Securities
and Exchange Commission's rules and forms. Disclosure
controls and procedures also include, without
limitation, controls and procedures designed to
ensure that information required to be disclosed by a
company in the reports that it files or submits under
the Exchange Act is accumulated and communicated to
the company's management, including its principal
executive and principal financial officers, or
persons performing similar functions, as appropriate,
to allow timely decisions regarding required
disclosure. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer
concluded as of June 30, 2007 that our disclosure
controls and procedures were not effective at the
reasonable assurance level due to the material
weaknesses discussed immediately below.
A material weakness is defined by the Public Company
Accounting Oversight Board's Audit Standard No. 5 as
being a deficiency, or combination of deficiencies,
in internal control over financial reporting, such
that there is a reasonable possibility of leading to
a material misstatement that will not be prevented or
detected on a timely basis. A significant deficiency,
which is less severe than a material weakness yet
merits attention of those responsible for the
oversight of the company's financial reporting, is a
control deficiency, or combination of control
deficiencies, that adversely affects the company's
ability to initiate, authorize, record, process, or
report external financial data reliably in accordance
with generally accepted accounting principles such
that there is a reasonable possibility that a
misstatement of the company's annual or interim
financial statements that is more than
inconsequential will not be prevented or detected.
o In conjunction with preparing our Form 10-K
for the period ended December 31, 2006,
management reviewed, in the first quarter of
2007, our accounting methodologies relating
to (a) our accounting for reserves for sales
incentives, and (b) our accounting for
direct labor and production expenses related
to production and handling of our products.
As a result of this review, management
concluded, in the first quarter of 2007,
that our accounting methodologies were not
in accordance with generally accepted
accounting principles and that our
consolidated financial statements for the
years ended December 31, 2005, 2004, 2003
and 2002 and for each of the quarterly
periods in the years ended December 31,
2005, 2004 and 2003, and through the nine
months ended September 30, 2006, had been
misstated. Based upon this conclusion, our
Audit Committee and senior management
decided, in the second quarter of 2007, to
restate our consolidated financial
statements as of and for the years ended
December 31, 2005, 2004, 2003 and 2002 and
for each of the quarterly periods in the
years ended December 31, 2005, 2004 and
2003, and through the nine months ended
September 30, 2006, to reflect the
corrections in our accounting methodologies.
Management evaluated, in the second quarter
of 2007 and as of June 30, 2007, the impact
of this restatement on our assessment of our
disclosure controls and procedures and
concluded that the control deficiency that
resulted in the incorrect accounting
6
methodologies pertaining to (a) our
accounting for reserves for sales
incentives, and (b) our accounting for
direct labor and production expenses related
to production and handling of our products,
represented a material weakness.
o As a result of our restatement of prior
periods' financial results, as discussed
above, we were unable to meet our
requirements to timely file our Form 10-K
for the year ended December 31, 2006.
Management evaluated, in the second quarter
of 2007 and as of June 30, 2007, the impact
of our inability to timely file periodic
reports with the Securities and Exchange
Commission on our assessment of our
disclosure controls and procedures and
concluded, in the second quarter of 2007 and
as of June 30, 2007, that the control
deficiency that resulted in the inability to
timely make these filings represented a
material weakness.
o We did not adequately segregate the duties
of different personnel within our accounting
group. Activities that were not adequately
segregated included the processing and
review of product rebate submissions and the
issuing of checks for product rebate
payments. Partly as a result of our
inadequate segregation of duties, we believe
that an ex-employee was able to embezzle,
through repeated issuances of product rebate
checks in the name of the ex-employee's
spouse, approximately $40,000 over the
course of a 5-year period. Management
evaluated, in the third quarter of 2007 and
as of June 30, 2007, the impact of our
inadequate segregation of duties on our
assessment of our disclosure controls and
procedures and concluded, in the third
quarter of 2007 and as of June 30, 2007,
that, although immaterial from a financial
perspective, the control deficiency that
resulted in our inadequate segregation of
duties represented a material weakness.
4. FOR THE QUARTER ENDED SEPTEMBER 30, 2007:
-----------------------------------------
o We conducted an evaluation under the supervision and
with the participation of our management, including
our Chief Executive Officer and Chief Financial
Officer of the effectiveness of the design and
operation of our disclosure controls and procedures.
The term "disclosure controls and procedures," as
defined in Rules 13a-15(e) and 15d-15(e) under the
Securities and Exchange Act of 1934, as amended
("Exchange Act"), means controls and other procedures
of a company that are designed to ensure that
information required to be disclosed by the company
in the reports it files or submits under the Exchange
Act is recorded, processed, summarized and reported,
within the time periods specified in the Securities
and Exchange Commission's rules and forms. Disclosure
controls and procedures also include, without
limitation, controls and procedures designed to
ensure that information required to be disclosed by a
company in the reports that it files or submits under
the Exchange Act is accumulated and communicated to
the company's management, including its principal
executive and principal financial officers, or
persons performing similar functions, as appropriate,
to allow timely decisions regarding required
disclosure. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer
concluded as of September 30, 2007 that our
disclosure controls and procedures were not effective
at the reasonable assurance level due to the material
weakness discussed immediately below.
7
A material weakness is defined by the Public Company
Accounting Oversight Board's Audit Standard No. 5 as
being a deficiency, or combination of deficiencies,
in internal control over financial reporting, such
that there is a reasonable possibility of leading to
a material misstatement that will not be prevented or
detected on a timely basis. A significant deficiency,
which is less severe than a material weakness yet
merits attention of those responsible for the
oversight of the company's financial reporting, is a
control deficiency, or combination of control
deficiencies, that adversely affects the company's
ability to initiate, authorize, record, process, or
report external financial data reliably in accordance
with generally accepted accounting principles such
that there is a reasonable possibility that a
misstatement of the company's annual or interim
financial statements that is more than
inconsequential will not be prevented or detected.
o Management has identified the following
material weakness which caused management to
conclude that, as of September 30, 2007, our
disclosure controls and procedures were not
effective at the reasonable assurance level:
as a result of our restatement of prior
periods' financial results, we were unable
to meet our requirements to timely file our
Form 10-K for the year ended December 31,
2006 and our Form 10-Q for the quarter ended
March 31, 2007. We were, however, able to
timely file our Form 10-Q for the quarter
ended June 30, 2007. Management evaluated,
in the fourth quarter of 2007 and as of
September 30, 2007, the impact of our
inability to timely file those periodic
reports with the Securities and Exchange
Commission on our assessment of our
disclosure controls and procedures and
concluded, in the fourth quarter of 2007 and
as of September 30, 2007, that the control
deficiency that resulted in the inability to
timely make these filings represented a
material weakness.
On July 23, 2008, we provided Swenson with a copy of the disclosures we
are making herein in response to Item 304(a) of Regulation S-K under the
Securities Act. We requested that Swenson furnish us with a letter addressed to
the Securities and Exchange Commission stating whether Swenson agrees with the
statements we made in response to Item 304(a) of Regulation S-K under the
Securities Act and, if not, stating the respects in which it does not agree.
Attached hereto as Exhibit 16.1 is Swenson's letter dated July 29, 2008.
(b) On June 27, 2008, we approved the appointment of Simon & Edward as our new
independent registered public accounting firm, and on July 21, 2008, we formally
engaged Simon & Edward through the execution of an engagement letter. We have
not consulted with Simon & Edward in the past regarding the application of
accounting principles to a specified transaction or the type of audit opinion
that might be rendered on our financial statements or as to any disagreement or
reportable event as described in Item 304(a)(1)(iv) and Item 304(a)(1)(v) of
Regulation S-K under the Securities Act.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
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Not applicable.
(b) Pro forma financial information.
--------------------------------
Not applicable.
8
(c) Shell company transactions.
---------------------------
Not applicable.
(d) Exhibits.
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16.1 Letter dated July 29, 2008 from Swenson Advisors, LLP
regarding change in independent registered public
accounting firm
9
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.
Date: July 29, 2008 I/OMAGIC CORPORATION
By: /S/ THOMAS L. GRUBER
--------------------------
Thomas L. Gruber
Chief Financial Officer
10
EXHIBIT FILED WITH THIS REPORT
NUMBER DESCRIPTION
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16.1 Letter dated July 29, 2008 from Swenson Advisors, LLP
regarding change in independent registered public accounting
firm
11