4
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 event reported): July 22, 1997.
INTILE DESIGNS, INC.
(Exact name of registrant as specified in its charter)
Commission File Number: 33-49854-A
DELAWARE 13-3625325
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9716 Old Katy Road, Suite 110
Houston, Texas 77055
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number: (713) 468-8400
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
<PAGE>
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
ITEM 5. OTHER EVENTS
On July 22, 1997, BDO Seidman, LLP ("BDO"), the auditors of
Intile Designs, Inc. ("Company"), issued a report to the board of
directors of the Company pursuant to the requirements of Section
10A of Securities Exchange Act of 1934 ("Exchange Act"), covering
certain financial matters pertaining to the Company.
Specifically, BDO reported that on July 17, 1997, C. William
Cox, president of the Company, advised BDO that the records of
the Company indicate that personal property amounts were under
reported on personal property tax returns filed by the Company
under the signatures of its president and former vice president
in the states of Texas and Georgia. Based on this disclosure,
BDO conducted an investigation to determine the significance of
the underpayment of taxes. In the course of this review, BDO
discovered what it believes to be significant amounts of
underreporting of personal property taxes. The BDO review
indicates that inventory was reported in most cases at between 10
percent and 15 percent of its actual value on the property tax
returns covering the tax years December 31, 1991 through December
31, 1996. The underpayment of property taxes for the six-year
period is approximately $750,000. Applying a 12 percent interest
rate, BDO estimates the total property tax liability at
approximately $1,000,000 as of March 31, 1997. Property tax
returns for years prior to 1991 have not yet been reviewed, but
there is potential for liability on those returns as well. The
Company forwarded a copy of BDO's report to the Chief Accountant
at the Securities and Exchange Commission ("SEC") on July 23,
1997, as required by Section 10A of the Exchange Act.
The report under Section 10A described above was made by BDO
based on its determination that filing the deficient property tax
reports was a material "illegal act" within the meaning of
Section 10A. Section 10A(f) of the Exchange Act defines the term
"illegal act" to mean "an act or omission that violates any law,
or any rule or regulation having the force of law." The
materiality of the illegal act is determined by the accountant
based on a quantitative and qualitative analysis of the act and
the potential impact on the financial condition of the issuer.
As a result of these developments, BDO has withdrawn its
audit opinion on the March 31, 1996, annual financial statements
of the Company. Furthermore, BDO resigned as the Company's
accounting firm on July 22, 1997. The Company has engaged
counsel to assist it in evaluating the liability for deficient
property tax returns, reporting to the board of directors on the
conduct of the employees and officers responsible for the
erroneous tax reports, preparing amended returns, and assisting
the Company with negotiating payment terms for the tax liability.
Accordingly, the Company agrees with the determination of BDO
that it has a liability for deficiencies in prior year property
tax reports, and the Company is moving forward to determine the
amount of that liability and satisfying the obligation.
The Company concurs with the determination of BDO that the
property tax reports are deficient. The report of BDO on the
1996 annual financial statements of the Company included an
explanatory paragraph about the Company's ability to continue as
a going concern. The Company does not contest that determination.
The Company is not aware of any disagreement with BDO during the
two fiscal years ended March 31, 1997, and from that date to the
date of BDO's resignation on July 22, 1997, on any matter of
accounting principals or practices, financial statement
disclosure, or auditing scope or procedure, which disagreement,
if not resolved to the satisfaction of BDO, would have caused it
to make reference to the subject matter of the disagreement in
connection with its reports.
The Company is in the process of seeking a new independent
accountant to report on the Company's financial statements for
the fiscal years ended December 31, 1996 and 1997. Since BDO
withdrew its opinion on the Company's 1996 annual financial
statements, the Company is not current in its reporting
obligations under the Securities Exchange Act of 1934. The
Company will not be current in its reporting obligation until it
files an amendment to its 1996 annual report on Form 10-KSB with
financial statements reported on by the Company's new
accountants, and until the Company's annual report on Form 10-KSB
for the fiscal year ended March 31, 1997, which is now
delinquent, is completed and filed with the SEC. Furthermore,
the Company must remain current in filing its quarterly reports
on Form 10-QSB, the next of which for the quarter ended on June
30, 1997, is due on August 14, 1997. Since the Company is only
now attempting to engage a new accounting firm, it can not
predict when it will be current in its reporting obligations or
whether it will be able to file its next report on Form 10-QSB on
a timely basis. While the Company is not current in its
reporting obligations under the Exchange Act transactions that
require current reporting, such as sales of restricted securities
under Rule 144, cannot be effected until the Company is current
in its reports.
The Company has a revolving credit facility with
NationsBank, N.A. ("Bank"), under which the Company currently
owes approximately $3,780,000 in principal. At June 30, 1997,
the Company owed $165,000 in interest payments. The Company is
in default under the facility. As of the date of this report the
Bank has not taken any action to foreclose on its security. The
action taken by BDO to withdraw its opinion on the Company's 1996
annual financial statements and the delay in completing the audit
on the Company's' 1997 annual financial statements is a default
under the facility in the Company's obligation to provide audited
annual financial statements on a timely basis. Furthermore, the
impact of the property tax liability discussed above on the
financial statements of the Company could result in further
financial covenant defaults under the facility. The Company is
advising the Bank on July 28, 1997, of the foregoing matters, and
the Company can not predict at this time what action, if any, the
Bank may take. Foreclosure by the Bank on the Company's assets
would have a material adverse impact on the Company's operations
and could force the Company to seek the protection from creditors
offered by the United States Bankruptcy Code.
In 1996 and early 1997, the Company sold securities in
private offerings with a total value of $3,950,000. In those
offerings, the Company provided to investors copies of the
Company's 1996 annual financial statements and other materials,
which did not contain any disclosure regarding the Company's
property tax liability. Investors could claim that this is a
material omission and seek rescission of their investment and
damages under federal and state securities laws. The Company can
not determine now whether there is any basis for such a claim or
predict whether any investor will pursue a claim against the
Company.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements: None.
(b) Pro forma Financial Information: None.
(c) Exhibits: Included in this report as Exhibit No. 1 (Item
601(a)(16) of Regulation S-B) is the letter of BDO Seidman, LLP,
dated July 28, 1997, required by Item 304(a)(3) of Regulation S-B.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, the Registrant has duly caused this report
to be signed on its behalf by the undersigned hereunto duly
authorized.
INTILE DESIGNS, INC.
DATED: July 28, 1997, By: /s/ C. William Cox
President
Exhibit No. 1
Intile Designs, Inc.
Form 8-K dated July 28, 1997
SEC File No.: 33-49854-A
BDO
BDO Seidman, LLP
Accountants and Consultants
1200 Smith Street, Suite 3060
Houston, Texas 77002-4501
Telephone: (713) 659-6551
Fax: (713) 659-3238
July 28, 1997
Securities and Exchange Commission
450 5th Street N.W.
Washington, D.C. 20549
Gentlemen:
We have been furnished with a copy of the response to Item 4 of
Form 8-K for the event that occurred on July 17, 1997, to be
filed by our former client, Intile Designs, Inc. We agree with
the statements made in response to that Item insofar as they
relate to our firm.
Very Truly Yours,
BDO Seidman, LLP
