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UNITED STATES
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) June 30, 1999
DIGITAL VIDEO SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-28472 77-0333728
(Commission File Number) (I.R.S. Employer Identification No.)
280 Hope Street
Mountain View, CA 94041
(Address of principal executive offices) (Zip Code)
(650) 564-9699
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
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ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Previous independent accountants
(i) On June 23, 1999, the Company determined to dismiss Ernst &
Young LLP, who served as the Company's independent accountant.
(ii) The report of Ernst & Young LLP accompanying the financial
statements for the fiscal year ended March 31, 1998 contained an adverse
opinion as to the Company's ability to continue as a going concern, but
otherwise contained no adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope or accounting
principles. The report of Ernst & Young LLP accompanying the financial
statements for the fiscal year ended March 31, 1997 contained no adverse
opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles.
(iii) The Board of Directors and the Audit Committee thereof
participated in and approved the decision to dismiss Ernst & Young LLP.
(iv) In connection with its audit for the fiscal year ended
March 31, 1998 and through June 30, 1999, there were no disagreements with
Ernst & Young 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 Ernst & Young LLP,
would have caused Ernst & Young LLP to make reference thereto in their report
on the financial statements for such years.
(v) During the two most recent fiscal years and through June
30, 1999, Ernst & Young LLP informed the Company of the following "reportable
events," described as follows:
In a letter to the Company dated July 9, 1998, Ernst & Young LLP
advised the Company that in connection with its audit for the year ended
March 31, 1998, Ernst & Young LLP had concluded that weaknesses in the
Company's internal controls with respect to its foreign subsidiary, D.V.S. HK
Limited (and its subsidiary, Panyu DVS Electrical Appliance Manufacturing Co.
Ltd.), constituted a "reportable event." The Company has since begun legal
proceedings against its former joint venture partner in Panyu in connection
with such partner's fraud and mismanagement of those subsidiaries and has
effectively shut down all operations at the Panyu facility.
On [date], the Company requested Ernst & Young LLP to provide its
consent to use the previously audited financial statements for fiscal years
ended March 31, 1998 and March 31, 1997 in connection with the Company's
filing of its proxy statement and its Forms S-3 and S-4 registration
statements with the Commission. As a result of that request, Ernst & Young
LLP undertook a review of the Company's records for the first three quarters
of fiscal year 1999.
Simultaneously with such review, on April 20, 1999, the Company began
to strengthen its accounting and finance team. The Company completed such
reorganization on May 23, 1999, and the Company's new accounting team
immediately began work on closing the books for the fiscal year ended March
31, 1999.
In a letter to the Company dated June 16, 1999, Ernst & Young LLP
informed the Company that in course of its previously mentioned review of the
Company's consolidated financial statements for the first three quarters of
the 1999 financial year, Ernst & Young LLP had formed the opinion the
Company's internal controls were insufficient to develop reliable financial
statements. Specifically, the accountants reported that they believed that
the Company's United States accounting function does not follow a systematic
process for the consolidated financial statement close. Ernst & Young LLP
further reported that, in its opinion, the Company's United States management
was not sufficiently informed as to the operation of the Company's overseas
subsidiaries to enable such management to perform an effective review of the
information provided by such subsidiaries. Lastly, Ernst & Young LLP
indicated that as the result of personnel reductions, the employees and
consultants in the Company's finance department did not have sufficient
knowledge or experience for their respective positions, leading to an
inadequate system of internal control.
As noted above, by the time it received Ernst & Young LLP's
letter, the Company had already hired a new internal accounting team,
including a provisional Chief Financial Officer. The new accounting staff
was already in the process of correcting the problems reported by Ernst &
Young LLP in connection with the systematic accounting function, including
conducting inventory checks, reconciling bank statements and closing the
books on the 1999 fiscal year, and it has since completed such tasks.
Lastly, in connection with Ernst & Young LLP's report that the
United States management team was not sufficiently informed as to the
operations and finances of the Company's overseas operations, the Company
notes that this conclusion seems to have been based upon the accountants'
discussions with the former Chief Executive Officer of the firm, who has been
serving in a consultant capacity since early in the year, and consequently,
was not in a position to be fully informed on all Company issues. The
Company believes that the appropriate members of the United States management
team, including the current Chief Executive Officer and provisional Chief
Financial Officer, are fully informed as to all material aspects of the
Company's business, both domestically and overseas. The Audit Committee of
the Board of Directors is in the process of scheduling a meeting with Ernst &
Young LLP to discuss these issues.
Around May 17, 1999, members of Ernst & Young LLP informed the
Company that they were concerned that Ernst & Young LLP would not be able to
complete an audit of the Company's fiscal year ended March 31, 1999 in time
for the June 29, 1999 SEC filing deadline. The Company determined that Ernst
& Young LLP would not be able to complete an audit on time. As a result, on
June 15, 1999, the Company consulted with a new accounting firm, C.G.
Uhlenberg & Co. LLP, to determine whether such new firm would accept an
engagement to become the Company's independent accountant and whether such
new firm believed it could complete the audit prior to the filing deadline.
After a preliminary review of the Company's financial record-keeping
structure and its accounting procedures and controls, C.G. Uhlenberg & Co.
LLP indicated that it would accept such engagement and that it thought it
could complete the audit prior to June 29, 1999. The Company retained C.G.
Uhlenberg & Co. LLP as its new independent accountant on June 23, 1999. The
Company has authorized Ernst & Young LLP to respond fully to the inquires of
the successor accountant concerning the subject matter of the reportable
event indicated above.
The Company fully disclosed to C.G. Uhlenberg & Co. LLP the nature
of such "reportable events" reported to the Company by Ernst & Young LLP as
described above. The Company has informed C.G. Uhlenberg & Co. LLP of the
action that the Company has taken to correct the subject matter of the
"reportable events," and C.G. Uhlenberg & Co. is in the process of reviewing
such corrective action.
(vi) The Company has requested that Ernst & Young LLP furnish it
with a letter addressed to the Commission stating whether or not it agrees
with the above statements. A copy of such letter will be filed subsequently
as an exhibit to this Form 8-K.
(vii) The Company has requested that C.G. Uhlenberg & Co. LLP
review the disclosure referenced above and has provided C.G. Uhlenberg & Co.
LLP with the opportunity to furnish the Company with a letter addressed to
the Commission containing any new information, clarification of the Company's
expression of its views or the respects in which it does not agree with the
statements made by the Company in such disclosure. A copy of such letter will
be filed subsequently as an exhibit to this Form 8-K.
(vii) The Company has requested that C.G. Uhlenberg & Co. LLP
review the disclosure referenced above and has provided
C.G. Uhlenberg & Co. LLP with the opportunity to furnish
the Company with a letter addressed to the Commission
containing any new information, clarification of the
Company's expression of its views or the respects in which
it does not agree with the statements made by the Company
in such disclosure. A copy of such letter will be filed
subsequently as an exhibit to this Form 8-K.
it does not agree with the statements made by the Company
in such disclosure. A copy of such letter will be filed
subsequently as an exhibit to this Form 8-K.
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SIGNATURE
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 thereunto duly authorized.
DIGITAL VIDEO SYSTEMS, INC.
By: /s/ Mali Kuo
Mali Kuo
Chief Executive Officer
June 30, 1999
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