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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
January 21, 1998
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Date of Report (Date of earliest event reported)
MC Liquidating Corporation
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(Exact name of registrant as specified in its charter)
Washington 91-1438806
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(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
26899 Northwestern Highway, Suite 120, Southfield, MI 48034
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(Address of principal executive offices)
(248) 304-1780
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(Registrant's telephone number, including area code)
MIDCOM Communications Inc.
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(Former Name)
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ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
1. On January 21, 1998, Ernst & Young LLP, the principal accounting firm
for audit of the registrant's consolidated financial statements, was dismissed
by the registrant. On the same date, Grant Thornton was engaged to audit the
registrant's financial statements for the year ended December 31, 1997.
2. The reports of Ernst & Young LLP on the registrant's consolidated
financial statements for its two most recent fiscal years did not contain an
adverse opinion or a disclaimer of opinion, and were not qualified as to audit
scope or accounting principles. However, the report of Ernst & Young LLP with
respect to the registrant's 1996 consolidated financial statements states that
the registrant's recurring operating losses and shareholder's deficit raise
substantial doubt about the registrant's ability to continue as a going concern.
The report of Ernst & Young LLP with respect to the registrant's 1995
consolidated financial statements also stated that the registrant's recurring
operating losses, working capital deficiency and then-existing credit agreement
defaults raised substantial doubt about the registrant's ability to continue as
a going concern. The consolidated financial statements included with the
registrant's annual reports on Form 10-K with respect to both 1996 and 1995 were
prepared assuming that the registrant would continue as a going concern and did
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets and liabilities that might result
from the stated uncertainties.
3. The decision to change accountants was approved by the Board of
Directors of the registrant.
4. In connection with the audits of the registrant's consolidated
financial statements for its fiscal years ended December 31, 1996 and 1995, and
during the interim periods following December 31, 1996, there were no
disagreements with Ernst & Young LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope and procedures
which, if not resolved to the satisfaction of Ernst & Young LLP, would have
caused Ernst & Young LLP to make reference in connection with their report to
the subject matter of the disagreements.
5. The letter required by Item 304(a)(3) of Regulation S-K is filed as an
exhibit to this report.
6. In connection with the audit of the registrant's 1995 consolidated
financial statements, Ernst & Young LLP identified two conditions which were
characterized as material weaknesses in its internal controls. One material
weakness was the failure of the registrant's accounting and finance systems to
provide accurate information to monitor the registrant's financial position,
results of operations and liquidity. The second material weakness was the
Company's process of estimating unbilled receivables. The material weaknesses
were discussed with the registrant's audit committee. The registrant has
authorized Ernst & Young LLP to respond fully to inquiries of the successor
auditors about these matters.
7. During the registrant's fiscal years ended December 31, 1995, 1996 and
1997, Grant Thornton was not consulted by the registrant concerning the
application of accounting principles to a specified transaction, or the type of
audit opinion that might be rendered on the registrant's financial statements or
concerning any matter that was either the subject of a disagreement with Ernst &
Young LLP as a reportable event.
ITEM 5. OTHER EVENTS.
On January 21, 1998, the registrant completed the sale of substantially all
of its assets and those of its subsidiaries, PacNet Inc. and Cel-Tech
International Corporation, to a wholly-owned subsidiary of WinStar
Communications, Inc. in exchange for approximately $92 million.
On January 15, 1998, the registrant announced that it had entered into an
asset purchase agreement with DICOMM Ventures, Inc. of Lynn, Massachusetts.
DICOMM Ventures is a private investment company that invests in information
technology and telecommunications companies. Under the terms of the agreement,
DICOMM will purchase the assets of Midcom's Enhanced Facsimile and Electronic
Messaging subsidiary, AdVal, Inc., for $6.6 million (subject to certain
adjustments). Under bankruptcy code procedures, the agreement with DICOMM to
sell the assets of AdVal will be subject to bids by other interested purchasers
who will have the opportunity to top DICOMM's offering price on similar terms
and conditions to those set forth in the agreement between Midcom and DICOMM.
The proceeds from the sales of the registrant's assets, net of transaction
and administration costs, will be applied to satisfaction of creditor claims in
accordance with a plan of liquidation which is being prepared for approval by
the bankruptcy court. Net proceeds will not be sufficient to provide any
distribution in liquidation to the holders of shares of common stock of the
registrant.
The name of the registrant has been changed to MC Liquidating Corporation
effective January 22, 1998.
Effective January 22, 1998, Kevin J. Smith was appointed president, chief
executive officer, treasurer and a director of the registrant replacing William
H. Oberlin who was terminated as president, chief executive officer and a
director of the registrant as of that date. Also, effective January 21, 1998,
Steven P. Goldman was terminated as vice president, assistant secretary and
general counsel of the registrant and Paul P. Senio became a director and
continues as the Secretary of the registrant. Effective January 22, 1998, Daniel
M. Dennis and Scott B. Perper resigned as directors of the registrant. Marvin C.
Moses resigned as a director effective January 21, 1998. Karl D. Guelich and
John M. Zrno both resigned as directors effective January 23, 1998.
The board of directors of the registrant currently consists of Kevin J.
Smith, Paul P. Senio, Paul Pfleger, and John M. Orehek.
2
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
16 Letter of Ernst & Young to the Commission.
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: January 28, 1998 MC Liquidating Corporation
By: /s/ Kevin J. Smith
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Kevin J. Smith, President
and Chief Executive Officer
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<TABLE>
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Exhibit No. Description
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16 Letter of Ernst & Young to the Commission
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EXHIBIT 16
January 28, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
We have read Item 4 of Form 8-K dated January 21, 1998 of MC Liquidating
Corporation (formerly Midcom Communications, Inc.) and are in agreement with the
statement contained in the first sentence of paragraph 1, and with the
statements contained in paragraphs 2, 4, 5 and 6. We have no basis to agree or
disagree with other statements of the registrant contained therein.
Regarding the registrant's statement concerning material weaknesses, included in
the sixth paragraph, we had considered such matters in determining the nature,
timing, and extent of procedures performed in our audit of the registrant's 1995
financial statements.
/s/ ERNST & YOUNG, LLP
