SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20594
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
September 21, 1999
(Date of earliest event reported)
CARNEGIE INTERNATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
Colorado 0-8918 13-3692114
(State of other jurisdiction of (Commission File No.) (IRS Employer
incorporation or organization) Identification No.)
11350 McCormick Road, Executive Plaza 3, Suite 1001, Hunt Valley, Maryland 21031
(Address of principal executive offices)
(410) 785-7400
(Registrant's telephone number)
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Item 4. Changes in Registrant's Certifying Accountant.
On September 21, 1999, Carnegie International Corporation (the
"Company") replaced its certifying accountant, Grant Thornton, LLP ("Grant
Thornton"). The decision to replace Grant Thornton was approved by the Company's
Board of Directors. Grant Thornton was notified of the Company's decision on
September 23, 1999.
The Company has engaged Merdinger, Fruchter, Rosen & Corso, P.C. as its
certifying accountant as of September 22, 1999 for the Company's fiscal year
ending December 31, 1999. Merdinger, Fruchter, Rosen & Corso, P.C. previously
audited the December 31, 1998 and 1997 financial statements of Paramount
International Telecommunications, Inc., a wholly-owned subsidiary of the
Company. The Company has not consulted Merdinger, Fruchter, Rosen & Corso, P.C.
previously.
Grant Thornton was engaged by the Company in January 1998, as the
Company's certifying accountant, and previously issued reports concerning the
Company's financial statements for 1997 and 1998. Grant Thornton's report on the
Company's financial statements for each of those years did not contain an
adverse opinion or disclaimer of opinion, and was not qualified or modified as
to uncertainty, audit scope or accounting principles. During the two most recent
fiscal years and subsequent interim periods, the Company has not had any
disagreements with Grant Thornton on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.
On Thursday, September 23, 1999, the Company informed Grant Thornton,
in writing, of the Board's decision to terminate the Company's relationship with
Grant Thornton, effective immediately. The Company's decision to terminate its
relationship with Grant Thornton was based upon the Company's conclusion that
Grant Thornton is not independent with respect to the Company's financial
statements. The Company believes that Grant Thornton cannot be considered to be
objective in the performance of its audit work and therefore is not independent.
The decision to terminate the Company's relationship with Grant Thornton was
also based upon the Company's conclusion that Grant Thornton would not complete
the work that it was engaged to perform, including completion of work necessary
to assist the Company in connection with the filing of an amended Form 10-KSB
for the years ended December 31, 1997 and December 31, 1998, and in connection
with the Company's Form amended 10SB.
On Friday, September 24, 1999, Grant Thornton confirmed, in writing,
that the client-auditor relationship between the Company and Grant Thornton had
ceased. In a separate letter to the Company's Board of Directors, also dated
September 24, 1999, Grant Thornton stated as follows:
"Since the filing of Carnegie's 1998 Form 10-KSB, Carnegie,
Grant Thornton and the SEC's staff have had detailed and intensive
discussions respecting Carnegie's financial reporting. The discussions
were held primarily in response to questions raised by the SEC staff in
a series of comment letters addressed to Carnegie. The staff's comments
focused in significant part on Carnegie's accounting for various events
and transactions. We anticipated that Carnegie would be issuing
restated 1998 audited financial statements in response to certain
comments by the staff and
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to reflect the impact of information discovered subsequent to the
issuance of the 1998 Auditor's Report. Until recently, we believed that
the filing of these restated financial statements was imminent. We now
believe that there is considerable uncertainty as to when, if ever, the
restated financial statements will be issued.
In light of this development, we cannot continue to be
associated with the 1998 Carnegie Financial Statements. Accordingly, we
hereby advise you that we are withdrawing our 1998 Auditor's Report and
that it should no longer be relied upon."
Grant Thornton did not withdraw its 1997 Audit Report.
In separate correspondence from Grant Thornton to the Company, also
dated September 24, 1999, Grant Thornton advised the Company of the following
reportable events, under Item 304(a)(1)(v) of Regulation S-B:
- Information has come to Grant Thornton's attention which has
purportedly lead Grant Thornton to conclude "that we cannot rely
upon the representations of Carnegie's current management."
- Information has come to Grant Thornton's attention which, according
to Grant Thornton, requires "an expansion of the scope of our
audit." Grant Thornton commented that "given management's failure
to provide required evidential detail for certain transactions
effected by Carnegie's stockholders, it is our professional
judgment that the scope of our audit has been limited."
- Grant Thornton had previously discussed the above referenced
reportable events with the Company's audit committee. The Company
has authorized Grant Thornton to respond fully to any inquiries of
Merdinger, Fruchter, Rosen & Corso, P.C. concerning the subject
matter of each reportable event.
The Company strongly disagrees with each of these assertions by Grant
Thornton and believes that these assertions reflect Grant Thornton's lack of
independence in connection with Grant Thornton's 1998 Audit Report.
To the best of the Company's knowledge, the statements made by Grant
Thornton in its September 24, 1999 letters arise from Grant Thornton's request
for records of a March 1999 third-party transaction, involving the purchase and
sale of restricted Company shares by Westshire Trading Company, Inc.
("Westshire"), a Bahamian company, and certain natural and juridical persons,
who are presumed to be former shareholders or creditors of Talidan Limited
("Talidan"), all of whom are presumed to be citizens of countries other than the
United States, and in the aggregate, are principal holders of equity securities
of the Company.
None of Carnegie's officers and directors, and none of their relatives,
and none of any other businesses in which any of them have any interest
whatsoever, have any interest in Westshire. Similarly, none of the Company's
officers and directors, and none of their relatives, and none of any other
businesses in which any of them have any interest whatsoever, had or has any
interest in any entities that owned Talidan; or any shareholders or entities
issued Company shares pursuant to the Purchase Agreement dated September 29,
1997 between Tiller Holdings, Ltd. and the Company for the purchase of Talidan
and Profit Through Telecommunications (Europe) Limited; or the entities involved
in the March 1999 transaction with Westshire.
On August 5, 1999, the Commission wrote the Company, and commented
about facts relating to a 1998 transaction, previously reviewed by Grant
Thornton, and as to which Grant Thornton had expressed no disagreement, relating
to the Company's recognition of revenue in the sale of a print media business to
Westshire. The Company had previously acquired that print media business as part
of a 1997 transaction with Talidan. As part of the transaction between the
Company and Westshire, the Company
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accepted a Note in payment of a portion of the price paid by Westshire for it's
acquisition of the print media portion of the Talidan business. Following the
consummation of that transaction, in July 1998, certain payments were received
from Westshire. By mid-1999, one of the payments due from Westshire had not been
made in full. The Commission inquired about the probability that the Note would
be collected in full. Subsequent to the initial transaction between the Company
and Westshire, Westshire acquired certain warrants for the purchase of Company
shares.
As part of Grant Thornton's work, purportedly to assist the Company in
responding to the August 5, 1999 comments by the Commission about this 1998
transaction, Grant Thornton questioned the nature of relationships between
Westshire and the Company and, in particular, whether Westshire is a Company
shareholder. A review of the transfer agent's statements was undertaken. Grant
Thornton was promptly informed that, in March 1999, Westshire acquired 1,800,000
restricted shares from Westover, Amphora, and Raffel in a private transaction
between Westshire and those natural and juridical persons.
Grant Thornton has requested that the Company provide Grant Thornton
with "evidential detail" of the nature of the transaction between Westshire, on
the one hand, and Westover, Amphora, and Raffel, on the other. Grant Thornton
has now informed the Company, as reflected in its September 24, 1999
communications to the Company, that "information has come to our attention
requiring an expansion of the scope of our audit." The Company believes that the
"information" to which Grant Thornton referred, in this comment, was the
information, described above, that, in March 1999, Westshire acquired 1,800,000
restricted shares from Westover, Amphora, and Raffel in a private transaction
between Westshire and those natural and juridical persons.
The Company has no information concerning the nature of the transaction
between Westshire, on the one hand, and Westover, Amphora, and Raffel, on the
other. Information concerning the nature of the transaction is not available to
the Company, since Westshire is a Bahamian Company. The Company also believes
that none of the three sellers, Westover, Amphora, and Raffel, are residents or
citizens of the United States, although the Company is not in possession of
information about the owners of Westover or Amphora. Westover's address,
previously provided to Grant Thornton, is in Bermuda. Amphora's address, also
provided previously to Grant Thornton, is in the British Virgin Islands.
The Company provided Grant Thornton with the name, address and
telephone number of Westshire's attorney. Grant Thornton was previously in
possession of this information, as well as information concerning the
identities, addresses and other contact information relating to Westover,
Amphora, and Raffel, relating to other Talidan shareholders, and relating to
Talidan's counsel.
Grant Thornton communicated directly with Westshire's counsel, and was
provided with a letter by that attorney, informing Grant Thornton that Westshire
had paid fair consideration for the shares which Westshire acquired from
Westover, Amphora, and Raffel. Westshire's counsel informed Grant Thornton that
he is bound by the attorney-client privilege, and, in addition, that the
transaction between Westshire and the sellers is subject to a non-disclosure
agreement between those parties. The Company's
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management has cooperated fully in Grant Thornton's request for information
about this transaction, and has independently made efforts to persuade
Westshire, through its counsel, to provide Grant Thornton with additional
"evidential detail" concerning this private stock transaction.
No benefit to the Company occurred by reason of the transaction between
Westshire, on the one hand, and Westover, Amphora, and Raffel, on the other. No
such benefit will be realized by the Company by reason of this private stock
transaction at any time in the future.
Grant Thornton has refused to accept these representations by
Westshire's counsel, and has, stated, as set forth above, that "given
management's failure to provide required evidential detail for certain
transactions effected by Carnegie's stockholders, it is our professional
judgment that the scope of our audit has been limited." The Company believes
that the "evidential detail" to which Grant Thornton's comment referred, was
documentation of the private stock transaction between Westshire, on the one
hand, and Westover, Amphora, and Raffel, on the other.
As noted above, the Company's management has not failed to provide
Grant Thornton with any information in the Company's possession. Instead, the
Company's management has, at all times, provided Grant Thornton with complete
access to all of the Company's books and records, it has provided Grant Thornton
with any and all specific information that Grant Thornton has requested that was
available to the Company, and it has at all times assisted Grant Thornton in
acquiring any information which Grant Thornton has requested, if such
information was not in the Company's possession.
As further noted above, the Company's management has not limited the
scope of Grant Thornton's work, particularly its audit work, in any respect.
The Company believes that the "information discovered subsequent to the
issuance of the 1998 Auditor's Report" to which Grant Thornton referred, in its
September 24, 1999 communications to the Company, quoted above, was the fact
that a private stock transaction had occurred in March 1999 between Westshire,
on the one hand, and Westover, Amphora, and Raffel, on the other.
The Company anticipates that the Company will be issuing restated 1997
and 1998 audited financial statements in response to certain comments by the
staff. Any such restated 1998 audited financial statements will reflect the
impact, if any, of information concerning the private stock transaction that has
or having occurred in March 1999 between Westshire, on the one hand, and
Westover, Amphora, and Raffel, on the other.
The Company believes that Grant Thornton has no material basis for its
stated conclusion that it "cannot rely upon the representations of Carnegie's
current management." Grant Thornton has never provided the Company, or the Audit
Committee appointed by the Company's Board, with any written report stating the
evidential detail and basis for Grant Thornton's recent conclusion. The Company
believes that Grant Thornton's recent conclusion is reflective of Grant
Thornton's current adversarial relationship with the Company's management, and
reflective of Grant Thornton's lack of independence.
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Item 7. Financial Statements and Exhibits.
The former accountants' letter, which is required under Item 304(a)(3)
of Regulation S-B, will be filed separately.
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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.
Date: September 27, 1999 /s/ E. David Gable
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E. David Gable
Chairman of the Board
