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 1, 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, Suite 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
Johnson Lambert & Co. ("JL&Co"), Certified Public Accountants, 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. Effective July 1, 1998, JL&Co
resigned the audit engagement. No audit
report was issued. Based upon the resignation of JL&Co, the Audit
Committee of NAC is endeavoring to retain
another firm of auditors to perform the audit of the consolidated financial
statements of NAC and its subsidiaries for
the year ended December 31, 1997. As of the date of this Report,
replacement auditors has not been retained.
During the years ended December 31, 1995 and 1996, there were no
disagreements with Deloitte & Touche
LLP, NAC's former independent auditors.
(A) Internal Control:
The Audit Committee of NAC has been 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 discussed this matter with the Audit Committee of NAC on July
6, 1998. NAC has fully authorized
JL&Co to discuss this matter with the successor auditor, when retained,
without limitation.
(B) Matters Which Would Prevent JL&Co From Issuing an Unqualified
Opinion:
(i) The Audit Committee of NAC has been advised by JL&Co that it
has identified what JL&Co believes
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 has 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 discussed this matter with the Audit Committee of NAC on July
6, 1998. NAC has fully authorized
JL&Co to discuss this matter with the successor auditor, when retained,
without limitation.
(ii) The Audit Committee of NAC has been 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 discussed this matter with the Audit Committee of NAC on July
6, 1998. NAC has fully authorized
JL&Co to discuss this matter with the successor auditor, when retained,
without limitation.
(iii) The Audit Committee of NAC has been 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 has 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 discussed this matter with the Audit Committee of NAC on July
6, 1998. NAC has fully authorized
JL&Co to discuss this matter with the successor auditor, when retained,
without limitation.
(iii) The Audit Committee of NAC has 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 discussed this matter with the Audit Committee of NAC on July
6, 1998. NAC has fully authorized
JL&Co to discuss this matter with the successor auditor, when retained,
without limitation.
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
16.1 Letter of Johnson Lambert & Co. addressed to the Commission
dated July 8, 1998.
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 8, 1998
EXHIBIT 16.1
JOHNSON LAMBERT & CO.
7500 Old Georgetown Road One Lawson Lane, P.O. Box 525 1350Connecticut Ave NW
Bethesda, MD 208814-6133 Burlington, VT 05402-0525 Washington, DC 20036-1714
Phone (301) 656-0040 Phone (802) 862-2640 Phone (202) 659-6406
Fax (301) 656-0518 Fax (802) ###-##-#### Fax (202) 659-4047
July 8, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
We have read Form 8-K of National Affiliated Corporation (Commission
File #0-13538) with a report dated July 1,
1998. We agree with the statements made by the registrant in response to
Item 304(a).
Sincerely,
/S/JOHNSON LAMBERT & CO.
Johnson Lambert & Co.<PAGE>
