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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
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CURRENT REPORT
Pursuant to section 13 of 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 6, 1998
Network Six, Inc.
(Exact name of registrant as specified in its charter)
Commission File No. 0-21038
Rhode Island 05-036-6090
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
475 Kilvert Street, Warwick, Rhode Island 02886
(Address of principal executive offices, including zip code)
(401) 732-9000
(Registrant's telephone number, including area code)
Item 4. Changes in Registrant's Certifying Accountant
On January 6, 1998, the Registrant engaged the firm of Sansiveri,
Kimball & McNamee, LLP ("SKM"), as its certifying accountant. Before the
engagement, neither the Registrant nor anyone on its behalf (i) consulted with
the newly engaged accountant regarding the application of accounting principles
to a specific completed or contemplated transaction or the type of audit opinion
that might be rendered on the Registrant's financial statements, or (ii) had
been provided with advice that was an important factor considered by the
Registrant in reaching a decision as to an accounting, auditing or financial
reporting issue. The decision to engage SKM was approved by the Audit Committee
of the Board of Directors of the Registrant.
On January 6, 1998, the Registrant terminated, with the concurrence of
its Audit Committee, its relationship with its certifying accountant KPMG Peat
Marwick LLP ("KPMG"). KPMG included in its Independent Auditors' reports dated
March 28, 1997 and April 1, 1996 a statement that the accompanying financial
statements had been prepared assuming that the Company will continue as a going
concern. In addition, during the audit of the Company's financial statements for
the year ended December 31, 1996, KPMG concluded approximately $1.8 million of
revenue recognized on the registrant's contract with the State of Hawaii during
the first three quarters of 1996 should not have been recognized and should have
been reversed in the respective Quarters. The Registrant believes that the
revenue was
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properly and correctly recognized and that there is no reason that it should
have known, during the first three quarters of 1996, under applicable accounting
standards that the revenue should not have been recognized at the time.
Moreover, when the Registrant had reason to know that revenue under the contract
should not be recognized because of changed conditions, such revenue was
reversed in the fourth quarter of 1996 and for the year ended December 31, 1996.
The Registrant has requested KPMG furnish the Registrant with a letter
addressed to the SEC stating whether or not KPMG agrees with the above
statements. A copy of such letter will be filed as an exhibit to this current
Report on Form 8-K.
Item 7. Exhibits
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16.01 Letter regarding Change in Certifying Accountant from
KPMG Peat Marwick LLP, independent auditors.
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 thereunto duly authorized.
Network Six, Inc.
By: /s/ Dorothy M. Cipolla
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Dorothy M. Cipolla
Chief Financial Officer
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KPMG PEAT MARWICK LLP LETTERHEAD APPEARS HERE]
Exhibit 16.01
January 19, 1998
Securities and Exchange Commission
Washington, D.C. 20549
Ladies and Gentlemen:
We were previously principal accountants for Network Six, Inc. ("the Company")
and, under the date of March 28, 1997, we reported on the financial statements
of Network Six, Inc. as of and for the years ended December 31, 1996 and 1995.
Our report on those financial statements included an additional paragraph
describing circumstances that raise substantial doubt about the Company's
ability to continue as a going concern. A copy of our report is attached hereto.
On January 6, 1998, our appointment as principal accountants was terminated. We
have read the Company's statements included under Item 4 of its Form 8-K dated
January 6, 1998, and we agree with such statements except for the following:
1. We are not in a position to agree or disagree with the Company's statement
that neither it nor anyone on its behalf (i) consulted with the newly
engaged accountant regarding the application of accounting principles to a
specific completed or contemplated transaction or the type of audit opinion
that might be rendered on the Company's financial statements, or (ii) had
been provided with advice that was an important factor considered by the
Company in reaching a decision as to an accounting, auditing or financial
reporting issue.
2. We are not in a position to agree or disagree with the Company's statements
that the decisions to terminate its relationship with KPMG Peat Marwick LLP
and engage SKM were approved by the Audit Committee of the Board of
Directors.
In a letter dated May 27, 1997 to the Audit Committee of the Board of Directors,
we communicated the circumstances surrounding our disagreement regarding revenue
recognition related to the Company's contract with the State of Hawaii.
Very truly yours,
/s/ KPMG Peat Marwick LLP
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[KPMG PEAT MARWICK LLP LETTERHEAD APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Network Six, Inc.
We have audited the accompanying balance sheets of Network Six, Inc. as of
December 31, 1996 and 1995, and the related statements of operations,
stockholders' equity and cash flows for each of the years in the three year
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Network Six, Inc. at December
31, 1996 and 1995, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
The accompanying 1996 and 1995 financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed more fully in
note 12 to the financial statements, in 1996 the State of Hawaii terminated a
significant system implementation contract with the Company and filed a lawsuit
against the Company seeking an unspecified amount for damages due to alleged
breach of contract, including alleged failure to complete the design,
application programming, system test, and system implementation. In January
1997, the Company filed a counterclaim alleging that the State had fraudulently
induced the Company into designing and building a system having capabilities and
features beyond the scope of the contract. Management of the Company and its
attorneys are unable to predict with any certainty the ultimate outcome of this
litigation, including the probability that this litigation will have a material
adverse impact on the Company's financial position. At December 31, 1996, the
Company had unbilled work-in-progress related to the contract with the State of
Hawaii of approximately $3.5 million, which exceeded the Company's stockholders
equity of approximately $1.7 million, and for which no allowance for
uncollectibility has been recorded. Additionally, the Company has not accrued
for any liability to the State which may result from this litigation. Also, the
Company is involved in other litigation related to the Hawaii contract as
discussed in note 12, has suffered recurring losses, and its bank financing
agreement has expired. These circumstances raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans regarding
these uncertainties are also described in note 12. The 1996 and 1995 financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
/s/ KPMG Peat Marwick LLP
Providence, Rhode Island
March 28, 1997
