Exhibit 16
[LETTERHEAD OF ERNST & YOUNG LLP]
August 19, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Ladies and Gentlemen:
We have read Item 4 of Form 8-K dated August 14, 1998 of EquiMed,
Inc. (the "Registrant") and we do not believe it is complete and/
or accurate as described in the following.
The date of our resignation indicated in Items 4(i), (iv) and (v)
of Form 8-K dated August 14, 1998 of the Registrant should be
July 27, 1998.
The reason for our resignation was not correctly described by the
Registrant in Items 4(i) and (v). Our resignation letter to the
Registrant, dated July 27, 1998, a copy of which is attached,
stated that the reasons for our resignation involved
(1) disagreements with the Registrant regarding its disclosure
obligations; (2) difficulties in obtaining information related
to: (a) certain transactions with related parties; (b) the
adequacy of collateral securing indemnification commitments of
the Registrant's Chairman; and (c) the Registrant's lack of
liquidity and its ability to meet its obligations as they come
due; and (3) disagreements with respect to the 1997 audit which
are discussed in the following paragraph. In Item 4(iv) and (v)
the Registrant described the reasons for our resignation as a fee
dispute. Our letter concluded, "We have persevered in our
[auditor] relationship through a difficult period, despite the
Company's lack of payment of our fees, in the hope that we could,
with the Audit Committee's assistance, conclude a process that
would bring to the public appropriate disclosure of the Company's
1997 results. We do not believe this can be achieved, and
accordingly, have concluded that we must resign."
Item 4(iv) of Form 8-K dated August 14, 1998 of the Registrant
fails to refer to the following disagreements, as defined in
Item 304(a)(i)(iv) of Regulation S-K, during the audit of the
consolidated financial statements for the year ended December 31,
1997, which was not completed at the time of the resignation.
E&Y previously provided this list of items to the Registrant by
letter dated August 6, 1998.
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August 19, 1998
- Ernst & Young identified adjustments which materially
reduced the Registrant's operating results previously
reported in Form 10-Q for the three quarters of 1997.
Ernst & Young advised the Registrant to amend the
financial statements previously filed on Form 10-Q for
the three quarters of 1997 and file a Form 8-K that the
financial statements included in Form 10-Q for the
three quarters of 1997 should not be relied upon. The
Registrant advised Ernst & Young that it did not
believe it was necessary to file a Form 8-K that stated
that the financial statements included in Form 10-Q for
the three quarters of 1997 should not be relied upon.
Subsequently, the Registrant filed a Form 8-K on
July 28, 1998 stating that the financial statements
included in Form 10-Q for the three quarters of 1997
should not be relied upon.
- Ernst & Young advised the Registrant that it believed
there was a disagreement in connection with the
incomplete audit of the consolidated financial
statements for the year ended December 31, 1997 with
respect to the provision for certain liabilities and
that it was not certain that the matter was
satisfactorily resolved prior to the resignation.
In addition, Item 4(v) of Form 8-K dated August 14, 1998 of the
Registrant did not refer to the following reportable events, as
described in Item 304(a)(i)(v) of Regulation S-K, relating to the
year ended December 31, 1996 which were reported in a management
letter dated May 21, 1997 to the Board of Directors and Audit
Committee:
- Procedures are not in place to assure all adjustments
to the Registrant's accounting records, including
general journal entries, are reviewed, approved, and
supported with documentation or appropriate
explanations.
- Procedures are not in place to assure that routine
reconciliations, reviews and analyses of the
Registrant's significant account balances are performed
on a timely basis.
Regarding the statements concerning the lack of internal control
to prepare financial statements, included in the above paragraph,
we had considered such matters in determining the nature, timing
and extent of procedures performed in our audit of the
Registrant's 1996 financial statements.
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August 19, 1998
Regulation S-K Item 304(a)(3) states, "The Registrant shall
provide the former accountant with a copy of the disclosures it
is making in response to this Item 304(a) that the former
accountant shall receive no later than the day the disclosures
are filed with the Commission." The Registrant filed its Form 8-
K with the Commission on August 14, 1998, and provided Ernst &
Young with a copy on August 17, 1998.
/s/ Ernst & Young LLP
[LETTERHEAD OF ERNST & YOUNG]
July 27, 1998
Dr. Douglas R. Colkitt
Chairman of the Board,
Chief Executive Officer & President
EquiMed, Inc.
2171 Sandy Drive
State College, Pennsylvania 16803
Dear Dr. Colkitt:
We wish to advise you that Ernst & Young has reached the decision
to resign as auditors of EquiMed, Inc. as of today, July 27,
1998.
This decision, reached today after months of effort at attempting
to work with EquiMed to complete an audit of the Company's 1997
financial statements, is based upon the following:
- - Disregard of disclosure obligations - We have discussed with
management and the Audit Committee the need for EquiMed, as
a public company, to communicate clearly with the public
about the state of its financial affairs, most especially
with respect to quarterly financial statements which we
believe reflect serious errors. The Company, in our view,
has a responsibility as the preparer of the financial
statements to correct those errors by filing a Form 10-Q/A
with the Securities and Exchange Commission. After our
prolonged urging about the Company's responsibility in this
regard, the Company last week issued a press release that
stated that its Form 10-Qs for the three quarters of 1997
will be restated and should no longer be relied upon. The
Company, however, to the best of our knowledge has yet to
file a Form 8-K containing the press release with the
Securities and Exchange Commission. We do not believe the
Company and its audit committee has responded appropriately
to our communications.
- - Difficulty of obtaining information - Commencing in February
1998, we made repeated requests for information needed to
perform the audit. The need for this information has been
discussed with members of senior management on numerous
occasions and most recently with the Audit Committee. As
recently as July 17th, we attached a list of still
outstanding items and stressed the need for them to be
satisfactorily furnished to us. Areas requiring additional
information and audit support included:
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July 27, 1998
- Certain transactions with related parties;
- The adequacy of collateral securing indemnification
commitments of the Chairman; and
- Concerns about the Company's lack of liquidity and its
ability to meet its obligations as they come due.
The difficulty of obtaining this information, and the
continued need with the passage of time for yet more
information about additional matters, lead us to doubt that
an audit could be completed.
- - Disagreements with respect to the 1997 audit - In addition
to the matter discussed under "Disregard of disclosure
obligations," EquiMed and Ernst & Young disagreed on the
subject of reserves for contingent tax liabilities. The
matter was contentious and we are not yet certain that it
has been resolved.
We have persevered in our relationship through a difficult
period, despite the Company's lack of payment of our fees, in the
hope that we could, with the Audit Committee's assistance,
conclude a process that would bring to the public appropriate
public disclosure of the Company's 1997 results. We do not
believe this can be achieved, and accordingly, have concluded
that we must resign.
Attached is a letter confirming our resignation which we have
sent to the Securities and Exchange Commission. We refer the
Company to Item 4 of Form 8-K, "Changes in Registrant's
Certifying Accountant," with respect to the Company's obligation
to report our resignation and certain, matters on Form 8-K. We
request that you provide us with a draft of the Form 8-K as soon
as possible.
Yours very truly,
/s/ Tim R. Hannon
Partner
cc: Mr. Caravan
Dr. Derdel
Mr. Keister