SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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): July 29, 1998
NATIONAL AFFILIATED CORPORATION
(Exact name of registrant as specified in its charter)
Louisiana 000-13538 72-0947819
(State or other jurisdiction
of incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
7228 England Drive, Ste 24
Alexandria, Louisiana
(Address of principal executive offices)
71303
(Zip Code)
Registrant's telephone number, including area code: (800) 673-2220
Item 4. Changes in Registrant's Certifying Accountant
Following the resignation on July 1, 1998, of Johnson Lambert & Co.
("JL&Co"), Certified Public Accountants, as the independent public accountants
that was engaged on February 27, 1998, to perform an audit of the consolidated
financial statements of National Affiliated Corporation ("NAC") and subsidiaries
for the year ended December 31, 1997, for which no report was issued by JL&Co.,
the Audit Committee of NAC recommended and by the Board of Directors approved,
and NAC retained Eubank & Betts, PLLC ("E&B") on July 29, 1998, to perform such
audit. Prior to the engagement, members of the Audit Committee and T. Brent
Chapel on behalf of NAC as well as JL&Co consulted with E&B regarding the
concerns of JL&Co that were expressed in the Form 8-K filed by
NAC with the Commission on July 9, 1998, as follows:
(A) Internal Control:
The Audit Committee of NAC was advised by JL&Co that, in its opinion,
internal controls necessary for NAC to develop reliable financial statements
do not exist. JL&Co has identified what JL&Co believes to be at least two
material weaknesses in internal control which resulted in this conclusion.
Such material weaknesses related to lack of appropriate segregation of duties
and inadequate corporate governance.
JL&Co, members of the Audit Committee and T. Brent Chapel discussed this
matter with a representative of E&B. Furthermore, NAC fully authorized JL&Co to
discuss this matter with E&B, without limitation. As of the date of this
Report, E&B has not obtained sufficient information or completed sufficient
audit procedures to determine whether there was such material weaknesses in
internal control to prevent development of reliable financial statements.
(B) Matters Which Would Prevent JL&Co From Issuing an Unqualified Opinion:
(i) The Audit Committee of NAC was advised by JL&Co that it had identified
what JL&Co believed to be material errors in the accounting for certain
debentures issued by NAC which, if not adjusted, would have resulted in the
modification of the opinion of JL&Co on the consolidated financial statements
of NAC for the year ended December 31, 1997. JL&Co further notified the Audit
Committee of NAC that such errors may also affect the previous reported
quarterly consolidated financial information of NAC and its subsidiaries.
JL&Co, members of the Audit Committee and T. Brent Chapel discussed this
matter with a representative of E&B. Furthermore, NAC fully authorized JL&Co to
discuss this matter with E&B, without limitation. As of the date of this
Report, E&B has not completed sufficient audit procedures to determine whether
there was such material errors in the accounting for certain debentures.
(ii) The Audit Committee of NAC was advised by JL&Co that it encountered
certain difficulties in obtaining competent sufficient evidential matter in
performing the audit of NAC and its subsidiaries including difficulties in
obtaining independent confirmation of the ownership and/or existence of material
amounts of assets and liabilities and related activity from outside counter
parties not affiliated with NAC. Such matters were not satisfactorily resolved
prior to the resignation of JL&Co. If such matters were not satisfactorily
resolved, JL&Co has indicated that its opinion on the consolidated
financial statements of NAC for the year ended December 31, 1997 would have been
modified.
JL&Co, members of the Audit Committee and T. Brent Chapel discussed this
matter with a representative of E&B. Furthermore, NAC fully authorized JL&Co to
discuss this matter with E&B, without limitation. As of the date of this
Report, E&B has not commenced audit procedures to determine whether any
significant difficulties will be encountered in obtaining competent sufficient
evidential matter in performing the audit of NAC and its subsidiaries including
independent confirmation of the ownership and/or existence of material amounts
of assets and liabilities and related activity from outside counter parties
not affiliated with NAC.
(iii) The Audit Committee of NAC was advised by JL&Co that the material
weaknesses in internal control described above are of such a pervasive nature
that JL&Co has concluded that even if other outstanding and unresolved audit
issues were satisfactorily resolved, JL&Co would have been required to disclaim
an opinion as to the fair presentation of the financial statements. JL&Co
indicated that in its opinion, the pervasiveness and serious nature of the
material weaknesses make it impossible for JL&Co to conclude as to the
completeness of the financial statements.
JL&Co, members of the Audit Committee and T. Brent Chapel discussed this
matter with a representative of E&B. Furthermore, NAC fully authorized JL&Co to
discuss this matter with E&B, without limitation. As of the date of this
Report, E&B has not obtained sufficient information or completed sufficient
audit procedures to determine whether there was material weaknesses in internal
control and if such material weaknesses in internal control do exist the
pervasiveness thereof and effect if any upon the ability of E&B to express an
opinion regarding the fair presentation and completeness of the financial
statements.
(iii) The Audit Committee of NAC was been advised by JL&Co that although
its audit of NAC for the year ended December 31, 1997 was not completed, JL&Co
has identified certain conditions that raise substantial doubt about the ability
of NAC to continue as a going concern. Because the audit by JL&Co was not
completed prior to its resignation, JL&Co did not evaluate mitigating
circumstances, if any, that may have alleviated this doubt.
JL&Co, members of the Audit Committee and T. Brent Chapel discussed this
matter with a representative of E&B. Furthermore, NAC fully authorized JL&Co to
discuss this matter with E&B, without limitation. As of the date of this
Report, E&B has not commenced audit procedures to determine and identify the
conditions identified by JL&Co that raise substantial doubt about the ability of
NAC to continue as a going concern.
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
None
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.
NATIONAL AFFILIATED CORPORATION
(Registrant)
By: T. Brent Chapel
Chief Financial Officer
Date: July 28, 1998
