UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For
the quarterly period ended June 30, 2009
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For
the transition period from
to
Commission
file number 0–29486
MERGE
HEALTHCARE INCORPORATED
(Exact
name of Registrant as specified in its charter)
Delaware
|
|
39–1600938
|
(State
or other jurisdiction
of
incorporation or organization)
|
|
(I.
R. S. Employer
Identification
No.)
|
6737
West Washington Street, Suite 2250, Milwaukee, Wisconsin
53214–5650
(Address
of principal executive offices, including zip code)
(Registrant’s
telephone number, including area code)
(414) 977–4000
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
x
No
o
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer, or a smaller reporting company.
See the definitions of “accelerated filers”, “large accelerated filer” and
“smaller reporting company” in Rule 12b–2 of the Exchange Act.
Large
accelerated filer
o
Non-accelerated
filer
x
|
Accelerated
filer
o
Smaller
reporting company
o
|
Indicate
by check mark whether the Registrant is a shell company (as defined in
Rule 12b–2 of the Act).
Yes
o
No
x
The
number of shares outstanding of the Registrant’s common stock, par value $0.01
per share, as of July 28, 2009: 60,128,914
|
|
INDEX
|
|
|
|
|
|
|
|
Item
|
|
|
|
Page
|
|
|
PART I –
FINANCIAL INFORMATION
|
|
|
Item
1.
|
|
|
|
1
|
|
|
|
|
1
|
|
|
|
|
2
|
|
|
|
|
3
|
|
|
|
|
4
|
|
|
|
|
5
|
Item
2.
|
|
|
|
13
|
Item
3.
|
|
|
|
21
|
Item
4.
|
|
|
|
22
|
|
|
PART II – OTHER
INFORMATION
|
|
|
Item
1.
|
|
|
|
23
|
Item
1A.
|
|
|
|
23
|
Item
2.
|
|
|
|
25
|
Item
3.
|
|
|
|
25
|
Item
4.
|
|
|
|
26
|
Item
5.
|
|
|
|
26
|
Item
6.
|
|
|
|
26
|
|
|
Exhibit
31.1 Section 302 Certification of Principal Executive
Officer
|
|
29
|
|
|
Exhibit
31.2 Section 302 Certification of Principal Financial
Officer
|
|
30
|
|
|
Exhibit
32 Section 906 Certification of Principal Executive and Financial
Officers
|
|
31
|
PART I
– FINANCIAL INFORMATION
Item 1.
|
Condensed
Consolidated Financial Statements
|
MERGE HEALTHCARE INCORPORATED
AND SUBSIDIARIES
|
|
CONDENSED CONSOLIDATED
BALANCE SHEETS
|
|
(In thousands, except for share
data)
|
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
(Unaudited)
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents, including restricted cash of $363 and $621 at June
30, 2009
|
|
|
|
|
|
|
and
December 31, 2008, respectively
|
|
$
|
19,967
|
|
|
$
|
17,848
|
|
Accounts
receivable, net of allowance for doubtful accounts and sales returns of
$1,278
|
|
|
|
|
|
and
$1,378 at June 30, 2009 and December 31, 2008,
respectively
|
|
|
14,191
|
|
|
|
12,779
|
|
Inventory
|
|
|
169
|
|
|
|
550
|
|
Prepaid
expenses
|
|
|
1,349
|
|
|
|
1,509
|
|
Deferred
income taxes
|
|
|
217
|
|
|
|
217
|
|
Other
current assets
|
|
|
1,166
|
|
|
|
721
|
|
Total
current assets
|
|
|
37,059
|
|
|
|
33,624
|
|
Property
and equipment:
|
|
|
|
|
|
|
|
|
Computer
equipment
|
|
|
6,520
|
|
|
|
6,317
|
|
Office
equipment
|
|
|
2,002
|
|
|
|
1,989
|
|
Leasehold
improvements
|
|
|
1,291
|
|
|
|
1,272
|
|
|
|
|
9,813
|
|
|
|
9,578
|
|
Less
accumulated depreciation
|
|
|
8,214
|
|
|
|
7,604
|
|
Net
property and equipment
|
|
|
1,599
|
|
|
|
1,974
|
|
Purchased
and developed software, net of accumulated amortization of $13,699
and
|
|
|
|
|
|
|
|
|
$12,584
at June 30, 2009 and December 31, 2008, respectively
|
|
|
4,770
|
|
|
|
5,653
|
|
Customer
relationships, net of accumulated amortization of $1,669 and $1,259
at
|
|
|
|
|
|
|
|
|
June
30, 2009 and December 31, 2008, respectively
|
|
|
2,057
|
|
|
|
2,291
|
|
Goodwill
|
|
|
1,770
|
|
|
|
-
|
|
Deferred
income taxes
|
|
|
4,585
|
|
|
|
4,585
|
|
Investments
|
|
|
1,971
|
|
|
|
5,690
|
|
Other
assets
|
|
|
50
|
|
|
|
920
|
|
Total
assets
|
|
$
|
53,861
|
|
|
$
|
54,737
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
3,351
|
|
|
$
|
4,036
|
|
Accrued
wages
|
|
|
1,663
|
|
|
|
1,590
|
|
Restructuring
accrual
|
|
|
549
|
|
|
|
1,173
|
|
Note
payable
|
|
|
14,489
|
|
|
|
-
|
|
Other
accrued liabilities
|
|
|
2,333
|
|
|
|
2,421
|
|
Deferred
revenue
|
|
|
12,591
|
|
|
|
16,150
|
|
Total
current liabilities
|
|
|
34,976
|
|
|
|
25,370
|
|
Note
payable
|
|
|
-
|
|
|
|
14,230
|
|
Deferred
income taxes
|
|
|
39
|
|
|
|
39
|
|
Deferred
revenue
|
|
|
375
|
|
|
|
644
|
|
Income
taxes payable
|
|
|
5,449
|
|
|
|
5,418
|
|
Other
|
|
|
122
|
|
|
|
195
|
|
Total
liabilities
|
|
|
40,961
|
|
|
|
45,896
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
Series
3 Special Voting Preferred Stock, no par value: one share authorized; zero
shares and one share
|
|
|
|
|
|
issued
and outstanding at June 30, 2009 and December 31, 2008
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $0.01 par value: 100,000,000 shares authorized: 56,276,595 shares
and 55,506,702
|
|
|
|
|
|
shares
issued and outstanding at June 30, 2009 and December 31, 2008,
respectively
|
|
|
563
|
|
|
|
555
|
|
Common
stock subscribed, 6,349 shares and 30,271 shares at June 30, 2009
and
|
|
|
|
|
|
|
|
|
December
31, 2008, respectively
|
|
|
26
|
|
|
|
37
|
|
Additional
paid-in capital
|
|
|
466,023
|
|
|
|
465,083
|
|
Accumulated
deficit
|
|
|
(455,353
|
)
|
|
|
(458,641
|
)
|
Accumulated
other comprehensive income
|
|
|
1,641
|
|
|
|
1,807
|
|
Total
shareholders' equity
|
|
|
12,900
|
|
|
|
8,841
|
|
Total
liabilities and shareholders' equity
|
|
$
|
53,861
|
|
|
$
|
54,737
|
|
See
accompanying notes to unaudited condensed consolidated financial statements.
MERGE HEALTHCARE INCORPORATED
AND SUBSIDIARIES
|
|
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
(Unaudited)
|
|
(in
thousands, except for share and per share data)
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
and other
|
|
$
|
9,020
|
|
|
$
|
6,280
|
|
|
$
|
17,704
|
|
|
$
|
12,335
|
|
Services
and maintenance
|
|
|
6,333
|
|
|
|
7,035
|
|
|
|
12,958
|
|
|
|
14,723
|
|
Total
net sales
|
|
|
15,353
|
|
|
|
13,315
|
|
|
|
30,662
|
|
|
|
27,058
|
|
Cost
of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
and other
|
|
|
880
|
|
|
|
1,329
|
|
|
|
2,110
|
|
|
|
2,528
|
|
Services
and maintenance
|
|
|
2,373
|
|
|
|
3,168
|
|
|
|
4,523
|
|
|
|
6,943
|
|
Amortization
|
|
|
623
|
|
|
|
716
|
|
|
|
1,273
|
|
|
|
1,432
|
|
Total
cost of sales
|
|
|
3,876
|
|
|
|
5,213
|
|
|
|
7,906
|
|
|
|
10,903
|
|
Gross
margin
|
|
|
11,477
|
|
|
|
8,102
|
|
|
|
22,756
|
|
|
|
16,155
|
|
Operating
costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
1,826
|
|
|
|
2,311
|
|
|
|
3,498
|
|
|
|
5,673
|
|
Product
research and development
|
|
|
2,543
|
|
|
|
3,485
|
|
|
|
4,814
|
|
|
|
8,220
|
|
General
and administrative
|
|
|
2,104
|
|
|
|
8,452
|
|
|
|
5,356
|
|
|
|
14,610
|
|
Acquisition-related
expenses
|
|
|
339
|
|
|
|
-
|
|
|
|
339
|
|
|
|
-
|
|
Trade
name impairment, restructuring and other expenses
|
|
|
-
|
|
|
|
10,705
|
|
|
|
-
|
|
|
|
12,067
|
|
Depreciation,
amortization and impairment
|
|
|
546
|
|
|
|
1,458
|
|
|
|
1,094
|
|
|
|
2,300
|
|
Total
operating costs and expenses
|
|
|
7,358
|
|
|
|
26,411
|
|
|
|
15,101
|
|
|
|
42,870
|
|
Operating
income (loss)
|
|
|
4,119
|
|
|
|
(18,309
|
)
|
|
|
7,655
|
|
|
|
(26,715
|
)
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(768
|
)
|
|
|
(242
|
)
|
|
|
(1,529
|
)
|
|
|
(243
|
)
|
Interest
income
|
|
|
16
|
|
|
|
56
|
|
|
|
24
|
|
|
|
150
|
|
Other,
net
|
|
|
(2,900
|
)
|
|
|
(86
|
)
|
|
|
(2,819
|
)
|
|
|
395
|
|
Total
other income (expense)
|
|
|
(3,652
|
)
|
|
|
(272
|
)
|
|
|
(4,324
|
)
|
|
|
302
|
|
Income
(loss) before income taxes
|
|
|
467
|
|
|
|
(18,581
|
)
|
|
|
3,331
|
|
|
|
(26,413
|
)
|
Income
tax expense (benefit)
|
|
|
21
|
|
|
|
(384
|
)
|
|
|
43
|
|
|
|
(384
|
)
|
Net
income (loss)
|
|
$
|
446
|
|
|
$
|
(18,197
|
)
|
|
$
|
3,288
|
|
|
$
|
(26,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share - basic
|
|
$
|
0.01
|
|
|
$
|
(0.45
|
)
|
|
$
|
0.06
|
|
|
$
|
(0.70
|
)
|
Weighted
average number of common shares outstanding - basic
|
|
|
56,278,744
|
|
|
|
40,251,186
|
|
|
|
56,291,586
|
|
|
|
37,088,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share - diluted
|
|
$
|
0.01
|
|
|
$
|
(0.45
|
)
|
|
$
|
0.06
|
|
|
$
|
(0.70
|
)
|
Weighted
average number of common shares outstanding - diluted
|
|
|
57,905,444
|
|
|
|
40,251,186
|
|
|
|
57,513,818
|
|
|
|
37,088,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to unaudited condensed consolidated financial statements.
MERGE HEALTHCARE INCORPORATED
AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF
CASH
FLOWS
|
|
(Unaudited)
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
Six
Months Ended
June
30,
|
|
|
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
3,288
|
|
|
$
|
(26,029
|
)
|
Adjustments
to reconcile net income (loss) to
|
|
|
|
|
|
|
|
|
net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation, amortization and impairment
|
|
|
2,367
|
|
|
|
3,732
|
|
Share-based compensation
|
|
|
885
|
|
|
|
3,534
|
|
Loss on disposal of subsidiary
|
|
|
-
|
|
|
|
1,713
|
|
Amortization of note payable issuance costs & discount
|
|
|
552
|
|
|
|
74
|
|
Unrealized loss on investment
|
|
|
3,553
|
|
|
|
-
|
|
Trade name impairment
|
|
|
-
|
|
|
|
1,060
|
|
Provision for doubtful accounts receivable and sales returns, net of
recoveries
|
|
|
264
|
|
|
|
22
|
|
Deferred income taxes
|
|
|
-
|
|
|
|
(384
|
)
|
Changes in operating assets and liabilities, net of effects of
acquisitions and dispositions:
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,676
|
)
|
|
|
1,020
|
|
Inventory
|
|
|
419
|
|
|
|
664
|
|
Prepaid expenses
|
|
|
161
|
|
|
|
(1,439
|
)
|
Accounts payable
|
|
|
(36
|
)
|
|
|
(9
|
)
|
Accrued wages
|
|
|
73
|
|
|
|
88
|
|
Restructuring accrual
|
|
|
(618
|
)
|
|
|
5,718
|
|
Deferred revenue
|
|
|
(5,120
|
)
|
|
|
(164
|
)
|
Other accrued liabilities
|
|
|
(1,126
|
)
|
|
|
134
|
|
Other
|
|
|
422
|
|
|
|
(100
|
)
|
Net
cash provided by (used in) operating activities
|
|
|
3,408
|
|
|
|
(10,366
|
)
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Cash
paid for acquisitions
|
|
|
(1,250
|
)
|
|
|
-
|
|
Purchases
of property, equipment, and leasehold improvements
|
|
|
(91
|
)
|
|
|
(482
|
)
|
Change
in restricted cash
|
|
|
258
|
|
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(1,083
|
)
|
|
|
(482
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of term note, net of non-cash discount of
$510
|
|
|
-
|
|
|
|
14,490
|
|
Proceeds
from issuance of Common Stock
|
|
|
-
|
|
|
|
5,479
|
|
Note
and stock issuance costs paid
|
|
|
-
|
|
|
|
(2,386
|
)
|
Proceeds
from exercise of stock options and employee stock purchase
plan
|
|
|
52
|
|
|
|
30
|
|
Net
cash provided by financing activities
|
|
|
52
|
|
|
|
17,613
|
|
Effect
of exchange rates on cash and cash equivalents
|
|
|
-
|
|
|
|
(33
|
)
|
Net
increase in cash and cash equivalents
|
|
|
2,377
|
|
|
|
6,732
|
|
Cash
and cash equivalents (net of restricted cash), beginning of period
(1)
|
|
|
17,227
|
|
|
|
13,637
|
|
Cash
and cash equivalents (net of restricted cash), end of period
(2)
|
|
$
|
19,604
|
|
|
$
|
20,369
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
975
|
|
|
$
|
975
|
|
Cash
paid for income taxes, net of refunds
|
|
$
|
(184
|
)
|
|
$
|
(17
|
)
|
(1)
|
|
Net
of restricted cash of $621 and $363 at December 31, 2008 and 2007,
respectively.
|
(2)
|
|
Net
of restricted cash of $363 and $363 at June 30, 2009 and 2008,
respectively.
|
See accompanying notes to unaudited condensed consolidated
financial statements.
MERGE HEALTHCARE INCORPORATED
AND SUBSIDIARIES
|
|
CONDENSED CONSOLIDATED
STATEMENT OF
SHAREHOLDERS’ EQUITY
|
|
(Unaudited)
|
|
(in
thousands, except for share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Common Stock
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Shares
|
|
|
Issued
|
|
|
Shares
|
|
|
Subscribed
|
|
|
Shares
|
|
|
Issued
|
|
|
Paid–in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Shareholders’
|
|
|
|
Issued
|
|
|
Amount
|
|
|
Subscribed
|
|
|
Amount
|
|
|
Issued
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
|
|
|
Equity
|
|
Balance
at December 31, 2008
|
|
|
1
|
|
|
$
|
-
|
|
|
|
30,271
|
|
|
$
|
37
|
|
|
|
55,506,702
|
|
|
$
|
555
|
|
|
$
|
465,083
|
|
|
$
|
(458,641
|
)
|
|
$
|
1,807
|
|
|
$
|
8,841
|
|
Exchange of exchangeable share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
rights
into Common Stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
719,412
|
|
|
|
7
|
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Retirement
of preferred share
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Stock
issued under ESPP
|
|
|
-
|
|
|
|
-
|
|
|
|
(23,922
|
)
|
|
|
(11
|
)
|
|
|
50,481
|
|
|
|
1
|
|
|
|
62
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52
|
|
Share-based
compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
885
|
|
|
|
-
|
|
|
|
-
|
|
|
|
885
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,288
|
|
|
|
-
|
|
|
|
3,288
|
|
Other
comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(166
|
)
|
|
|
(166
|
)
|
Balance
at June30, 2009
|
|
|
-
|
|
|
$
|
-
|
|
|
|
6,349
|
|
|
$
|
26
|
|
|
|
56,276,595
|
|
|
$
|
563
|
|
|
$
|
466,023
|
|
|
$
|
(455,353
|
)
|
|
$
|
1,641
|
|
|
$
|
12,900
|
|
See accompanying notes to unaudited condensed consolidated
financial statements.
MERGE HEALTHCARE INCORPORATED
AND SUBSIDIARIES
|
|
CONDENSED CONSOLIDATED
STATEMENTS OF
COMPREHENSIVE INCOME
(LOSS)
|
|
(Unaudited)
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
June
30,
|
|
Six
Months Ended
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
income (loss)
|
|
$
|
446
|
|
|
$
|
(18,197
|
)
|
|
$
|
3,288
|
|
|
$
|
(26,029
|
)
|
Translation
adjustment
|
|
|
-
|
|
|
|
552
|
|
|
|
-
|
|
|
|
282
|
|
Unrealized
loss on marketable security
|
|
|
(3
|
)
|
|
|
(79
|
)
|
|
|
(166
|
)
|
|
|
(480
|
)
|
Comprehensive
net income (loss)
|
|
$
|
443
|
|
|
$
|
(17,724
|
)
|
|
$
|
3,122
|
|
|
$
|
(26,227
|
)
|
See accompanying notes to unaudited condensed consolidated financial
statements.
Merge
Healthcare Incorporated and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(Unaudited
and in thousands, except for share and per share data)
(1)
|
Basis
of Presentation and Significant Accounting
Policies
|
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission (“SEC”) for reporting on
Form 10-Q. Accordingly, certain information and notes required
by United States of America generally accepted accounting principles (“GAAP”)
for annual financial statements are not included herein. These
interim statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Annual Report on Form 10-K for
the year ended December 31, 2008 of Merge Healthcare Incorporated, a
Delaware corporation, and its subsidiaries and affiliates (which we sometimes
refer to collectively as “Merge,” “we,” “us” or “our”).
Principles
of Consolidation
Our
unaudited condensed consolidated financial statements reflect all adjustments,
which are, in the opinion of management, necessary for a fair presentation of
our financial position and results of operations. Such adjustments
are of a normal recurring nature, unless otherwise noted. The results
of operations for the three and six month periods ended June 30, 2009 are not
necessarily indicative of the results to be expected for any future
period.
Our
unaudited condensed consolidated financial statements are prepared in accordance
with GAAP. These accounting principles require us to make certain
estimates, judgments and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. We believe that the estimates, judgments
and assumptions are reasonable, based on information available at the time they
are made. Actual results could differ materially from those
estimates.
Where
appropriate, certain reclassifications have been made to the prior period’s
financial statements to conform to the current year
presentation. Specifically, we have reclassified $649 of certain
accrued expenses from other current liabilities to accounts payable in the
balance sheet as of December 31, 2008 in order to conform to current year
presentation.
Goodwill is our primary intangible asset not subject to
amortization. In the quarterly period ended June 30, 2009, goodwill
of $1,770 arose upon completion of the insignificant acquisition of certain
assets, subject to certain liabilities, of eko systems, inc.
(“eko”). Goodwill was calculated in accordance with Financial
Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards
(“SFAS”) No. 141(R),
Business
Combinations
. The total purchase price included cash
consideration of $1,250, of which $125 was placed into escrow, and estimated
contingent consideration of $415, as a result of earn-out provisions in the
agreement that are in effect for a 12-month period.
Other
than capitalized software development costs, our intangible assets subject to
amortization are summarized as of June 30, 2009 as follows:
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Remaining
Amortization Period (Years)
|
|
Gross
Carrying Amount
|
|
Accumulated
Amortization
|
|
Purchased
software
|
|
|
2.0
|
|
|
$
|
11,814
|
|
|
$
|
(7,843
|
)
|
Customer
relationships
|
|
|
2.1
|
|
|
|
3,726
|
|
|
|
(1,669
|
)
|
Total
|
|
|
|
|
|
$
|
15,540
|
|
|
$
|
(9,512
|
)
|
Amortization
expense for purchased software, which is being expensed within cost of sales on
a ratable basis over the life of the related intangible asset, was $486 and $530
in the three months ended June 30, 2009 and 2008, respectively, and $955 and
$1,060 in the six months ended June 30, 2009 and 2008,
respectively. Customer relationships amortization expense, which is
being expensed in the depreciation, amortization and impairment classification
of operating costs and expenses on a ratable basis over the life of the related
intangible asset, was $247 and $259 in the three months ended June 30, 2009 and
2008, respectively, and $484 and $518 in the six months ended June 30, 2009 and
2008, respectively.
Merge
Healthcare Incorporated and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
(Unaudited
and in thousands, except for share and per share data)
In the
quarterly period ended June 30, 2009, we increased the gross carrying amount of
purchased software and customer relationships by $390 and $250, respectively,
upon completion of the insignificant acquisition of certain assets, subject to
certain liabilities, of eko. The amounts allocated to purchased
software and customer relationships are estimates made by us with the assistance
of independent valuation specialists. These amounts are being
amortized over a 5–year period. The estimated asset lives were
determined based on projected future economic benefits and expected life cycles
of the purchased software and customer relationships.
Estimated
aggregate amortization expense for purchased software and customer relationships
for the remaining periods is as follows:
For
the remaining 6 months of the year ended:
|
2009
|
|
$
|
1,477
|
|
For
the year ended December 31:
|
2010
|
|
|
2,953
|
|
|
2011
|
|
|
1,305
|
|
|
2012
|
|
|
128
|
|
|
2013
|
|
|
128
|
|
|
2014
|
|
|
37
|
|
As of
June 30, 2009, we had gross capitalized software development costs of $6,655 and
accumulated amortization of $5,856. The weighted average remaining
amortization period of capitalized software development costs was 1.5 years as
of June 30, 2009. Capitalized software development amortization
expensed within cost of sales was $137 and $186 in the three months ended June
30, 2009 and 2008, respectively, and $318 and $372 in the six months ended June
30, 2009 and 2008, respectively.
In
the three months ended June 30, 2009, we received cash proceeds of $382 from the
sale of patents which we determined were not necessary to support our
business. Year-to-date, we have received cash proceeds of $510 from
the sale of patents.
(3)
|
Fair
Value Measurement
|
SFAS No.
157,
Fair Value Measurements
(“SFAS No. 157”) establishes a three-tier value hierarchy, which
prioritizes the inputs used in measuring fair value of financial assets and
liabilities. These tiers include: Level 1, defined as observable
inputs such as quoted prices in active markets; Level 2, defined as inputs other
than quoted prices in active markets that are directly or indirectly observable;
and Level 3, defined as unobservable inputs in which little or no market data
exists, therefore, requiring an entity to develop its own
assumptions.
Effective
this quarter, we implemented FASB Staff Position (“FSP”) SFAS No. 157-4,
Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly
(“FSP SFAS
No. 157-4”). FSP SFAS No. 157-4 amends SFAS No. 157, and provides
additional guidance for estimating fair value in accordance with SFAS No. 157
when the volume and level of activity for the asset or liability have
significantly decreased, and also includes guidance on identifying circumstances
that indicate a transaction is not suitable for fair value
measurements. Effective this quarter, we also implemented FSP SFAS
No. 107-1 and APB No. 28-1,
Interim Disclosures about Fair Value
of Financial Instruments
. This FSP amends SFAS No. 107,
Disclosures about Fair Value
of Financial Instruments,
to require disclosures about fair value of
financial instruments in the interim financial statements of publicly traded
companies as well as in annual financial statements. Our adoption of
these FSP’s did not have a significant impact on the determination or reporting
of our financial results. However, adoption of these FSP’s has
resulted in additional disclosures in our interim financial statements of the
fair values attributable to our financial instruments.
Non-Current
Investments
At June
30, 2009, we held securities in a publicly traded entity valued at $152 and
private companies valued at $1,819, which are classified as non-current
assets. In determining fair value, we utilize techniques that
maximize the use of observable inputs and minimize the use of unobservable
inputs to the extent possible. In calculating potential impairment
losses for the private company securities, we evaluate the fair value of these
investments by comparing them to certain public company metrics such as revenue
multiples, independent transactions involving such securities, and inquiries and
estimates made by us. The following tables set forth our non-current
investments that are carried at fair value:
Merge
Healthcare Incorporated and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
(Unaudited
and in thousands, except for share and per share data)
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Balance
at June 30, 2009
|
|
Investment
in publicly traded equity security
|
|
$
|
152
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
152
|
|
Investments
in equity securities of private companies
|
|
|
-
|
|
|
|
-
|
|
|
|
1,819
|
|
|
|
1,819
|
|
Total
|
|
$
|
152
|
|
|
$
|
-
|
|
|
$
|
1,819
|
|
|
$
|
1,971
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Balance
at December 31, 2008
|
|
Investment
in publicly traded equity security
|
|
$
|
318
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
318
|
|
Investments
in equity securities of private companies
|
|
|
-
|
|
|
|
-
|
|
|
|
5,372
|
|
|
|
5,372
|
|
Total
|
|
$
|
318
|
|
|
$
|
-
|
|
|
$
|
5,372
|
|
|
$
|
5,690
|
|
We
performed the evaluation of our Level 3 investments in the quarterly period
ended June 30, 2009, and concluded that there was a significant change in the
fair value of one of these investments. Due to the acquisition of
Eklin Medical Systems, Inc. (“Eklin”) by VCA Antech, Inc. (“VCA”) in July 2009,
we expect to receive cash of $1,407 for our equity investment in Eklin, the
majority of which is to be received in the third quarter of 2009. As
a result, we recorded an impairment of $3,553 in the quarterly period ended June
30, 2009. The impairment is included in the other, net line of our
condensed consolidated statement of operations. The following table
sets forth the change in the fair value of our Level 3 non-current
investments:
|
|
2009
|
|
|
2008
|
|
Balance
at January 1
|
|
$
|
5,372
|
|
|
$
|
6,030
|
|
Transfer
in
|
|
|
-
|
|
|
|
-
|
|
Impairment
charge
|
|
|
(3,553
|
)
|
|
|
-
|
|
Balance
at June 30
|
|
$
|
1,819
|
|
|
$
|
6,030
|
|
Unrealized
gains or losses on our available-for-sale (publicly traded) security, as well as
foreign currency translation adjustments, are components of accumulated other
comprehensive income as set forth in the following table:
|
|
Balance
at June 30,
|
|
|
|
2009
|
|
|
2008
|
|
Cumulative
translation adjustment
|
|
$
|
1,936
|
|
|
$
|
1,997
|
|
Net
unrealized gain (loss) on available-for-sale security
|
|
|
(295
|
)
|
|
|
475
|
|
Total
accumulated other comprehensive income
|
|
$
|
1,641
|
|
|
$
|
2,472
|
|
Other
Financial Instruments
Our other
financial instruments include cash and cash equivalents, accounts receivable,
accounts payable, deferred revenue, note payable and certain accrued
liabilities. The carrying amounts of these assets and liabilities
approximate fair value due to the short maturity of these instruments and, in
the case of the note payable, due to the interest rate and terms approximating
those available to us for similar obligations.
(4)
|
Transactions
with Related Party
|
On June
4, 2008, we completed a private placement pursuant to which we raised net
proceeds of $16,639 through a securities purchase agreement with Merrick RIS,
LLC (“Merrick”), an affiliate of Merrick Ventures, LLC ("Merrick Ventures"),
which was executed on May 21, 2008. Based on the terms of the private
placement, we received $20,000 from Merrick in exchange for a $15,000 senior
secured term note due June 4, 2010 and 21,085,715 shares of our Common
Stock. The note bears interest at 13.0% per annum, payable quarterly
in arrears on the fourth day of March, June, September and
December. Michael W. Ferro, Jr. and trusts for the benefit of Mr.
Ferro’s family members beneficially own a majority of the equity interest in
Merrick Ventures. Mr. Ferro, who is the chairman of our board of
directors, also serves as the chairman and chief executive officer of Merrick
Ventures. Accordingly, Mr. Ferro indirectly owns or controls the term
note and all of the shares owned by Merrick. As of June 30, 2009,
Merrick and its affiliates owned approximately 49.5% of our Common
Stock. We paid interest to Merrick of $488 and $975 during the three
months ended June 30, 2009 and 2008, respectively, and $975 and $975 during the
six months ended June 30, 2009 and 2008, respectively. As of June 30,
2009 and December 31, 2008, we have recorded $163, or one month of accrued
interest on the note, in other accrued liabilities.
The
note payable is classified as a short term liability at June 30, 2009, since it
is due in June of 2010.
Merge
Healthcare Incorporated and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
(Unaudited
and in thousands, except for share and per share data)
Effective
January 1, 2009, we entered into a consulting agreement with Merrick under which
we receive certain consulting services for cash consideration of $100 per
quarter, plus reasonable expenses, for a one year term. We paid $130
and $230 to Merrick for such services in the three and six months ended June 30,
2009, respectively, and recognized $105 and $235 in expense within the general
and administrative expense classification of operating costs and expenses in the
three and six months ended June 30, 2009, respectively. As of June
30, 2009, we have $5 recorded in accounts payable covering obligations under
this agreement.
On March
31, 2009, we entered into a value added reseller agreement with Merrick
Healthcare Solutions, LLC (“Merrick Healthcare”). Under terms of the
agreement, Merrick Healthcare purchased software licenses from us for
$400. Payment of the entire balance was made on the date of the
agreement. We recognized $400 in revenue in the first quarter of 2009
related to this transaction.
As part
of our business combination with Cedara Software Corp. in June 2005, we issued
5,581,517 shares of our Common Stock to the shareholders of Cedara Software
Corp. and granted rights for the issuance of 13,210,168 shares of Common Stock
to holders of Cedara Software Corp. exchangeable shares on a one-for-one
basis. On February 13, 2009, we exercised our call right regarding
redemption of the outstanding exchangeable shares, as certain conditions
allowing us to do so were met. Final redemption occurred on April 15,
2009, and the exchangeable shares were delisted from the Toronto Stock Exchange
following the close of trading on April 16, 2009. The respective
weighted average number of these shares have been included within the number of
shares of Common Stock used to calculate basic net income (loss) per share (see
Note 10).
(6)
|
Share-Based
Compensation
|
The
following table summarizes share-based compensation expense related to
share-based awards subject to SFAS No. 123(R),
Share-Based Payment
,
recognized during the periods indicated:
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Share-based
compensation expense included in the statement of
operations:
|
|
|
|
|
|
|
|
Services
and maintenance (cost of sales)
|
|
$
|
14
|
|
|
$
|
(28
|
)
|
|
$
|
29
|
|
|
$
|
66
|
|
Sales
and marketing
|
|
|
92
|
|
|
|
42
|
|
|
|
184
|
|
|
|
382
|
|
Product
research and development
|
|
|
88
|
|
|
|
42
|
|
|
|
170
|
|
|
|
232
|
|
General
and administrative
|
|
|
172
|
|
|
|
180
|
|
|
|
502
|
|
|
|
884
|
|
Trade
name impairment, restructuring and other expenses
|
|
|
-
|
|
|
|
1,970
|
|
|
|
-
|
|
|
|
1,970
|
|
Total
|
|
$
|
366
|
|
|
$
|
2,206
|
|
|
$
|
885
|
|
|
$
|
3,534
|
|
There
were no stock options granted or exercised, and there were 170,345 options
forfeited/expired in the six months ended June 30, 2009. Stock
options outstanding as of June 30, 2009 were 4,526,229. There was no
restricted stock award activity in the six months ended June 30,
2009. There were 479,997 shares of restricted stock outstanding as of
June 30, 2009.
As of
June 30, 2009, there was approximately $2,368 of unrecognized compensation cost
related to stock options and restricted stock that may be recognized in future
periods.
(7)
|
Commitments
and Contingencies
|
On April
27, 2006, Merge Healthcare received an informal, non-public inquiry from the
Securities and Exchange Commission (“SEC”) requesting voluntary production of
documents and other information. The inquiry principally related to
our announcement, on March 17, 2006, that we would investigate allegations of
improprieties related to financial reporting and revise our results of
operations for the fiscal quarters ended June 30, 2005, and September 30,
2005. On July 10, 2007, SEC Staff advised us that the SEC had issued
a formal order of investigation in this matter. Merge Healthcare is
cooperating fully with the SEC. The SEC Staff has informed Merge
Healthcare that the Staff is considering recommending an injunctive or cease and
desist order against Merge Healthcare prohibiting violations of the reporting,
record-keeping, and internal control provisions under the Securities Exchange
Act of 1934. The Staff did not inform Merge Healthcare that it is
considering recommending any monetary sanctions against Merge
Healthcare. However, the matter has not yet been finally resolved,
and, until such final resolution, Merge Healthcare will continue to incur
expenses, including legal fees and other costs, in connection with the SEC’s
investigation.
Merge
Healthcare Incorporated and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
(Unaudited
and in thousands, except for share and per share data)
On June
1, 2009, Merge Healthcare was served with a Summons and Complaint in the
Milwaukee County Circuit Court, State of Wisconsin, captioned
William C. Mortimore and
David M. Nosay v. Merge Technologies Inc. n/k/a Merge Healthcare Inc.
[sic]
, Case Number 09CV008356, Case Code 30301. The Complaint
includes a demand for a jury trial and alleges that the corporation unreasonably
refused Mortimore and Noshay’s request for indemnification; requests the court
order that they are entitled to indemnification under Wisconsin Statute Section
180.0851(2); alleges breaches of certain employment agreements; and a breach of
the covenant of good faith and fair dealing. Monetary damages are
unspecified. We have retained litigation counsel, notified our
appropriate insurers and intend to vigorously defend this action.
In
addition to the matters discussed above, we are from time to time parties to
legal proceedings, lawsuits and other claims incident to our business
activities. Such matters may include, among other things, assertions
of contract breach or intellectual property infringement, claims for indemnity
arising in the course of our business and claims by persons whose employment has
been terminated. Such matters are subject to many uncertainties and
outcomes are not predictable with assurance. Consequently, we are
unable to ascertain the ultimate aggregate amount of monetary liability, amounts
which may be covered by insurance or recoverable from third parties, or the
financial impact with respect to these matters as of the date of this
report.
During
2008, we completed two separate restructuring and reorganization initiatives,
which had remaining obligations as of December 31, 2008. The
following table illustrates the activity related to these two initiatives in the
six months ended June 30, 2009:
|
|
Employee
Termination Costs
|
|
|
Contract
Exit Costs
|
|
|
Total
|
|
First
Quarter 2008 Initiative
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
$
|
31
|
|
|
$
|
284
|
|
|
$
|
315
|
|
Charges
to expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Payments
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
(7
|
)
|
Foreign
exchange
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
Balance
at June 30, 2009
|
|
|
25
|
|
|
|
284
|
|
|
|
309
|
|
Second
Quarter 2008 Initiative
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
|
502
|
|
|
|
371
|
|
|
|
873
|
|
Charges
to expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Payments
|
|
|
(453
|
)
|
|
|
(188
|
)
|
|
|
(641
|
)
|
Foreign
exchange
|
|
|
1
|
|
|
|
13
|
|
|
|
14
|
|
Balance
at June 30, 2009
|
|
|
50
|
|
|
|
196
|
|
|
|
246
|
|
Total
Balance at June 30, 2009
|
|
$
|
75
|
|
|
$
|
480
|
|
|
$
|
555
|
|
As of
June 30, 2009, $549 of the remaining balance was recorded in the restructuring
accrual in current liabilities, with the remainder recorded in other long term
liabilities.
On July
20, 2009, we completed a restructuring initiative to reduce our workforce by
approximately 35 individuals. We have taken this action concurrent
with the acquisition of etrials, upon an assessment of ongoing personnel needs
in light of the acquisition. We expect to incur approximately $1,700
in cash expenditures for severance and related costs, primarily in the third
quarter of 2009.
We record
income tax expense on an interim basis under Accounting Principles Board (“APB”)
Opinion No. 28,
Interim
Financial Reporting,
as amended by SFAS No. 109,
Accounting for Income
Taxes
. The estimated annual effective income tax rate is
adjusted quarterly and items discrete to a specific quarter are reflected in tax
expense for that interim period. The estimated annual effective
income tax rate reflects the effect of changes in a valuation allowance due to
expected current year earnings or loss. A valuation allowance is
established when necessary to reduce deferred tax assets to the amount
more-likely-than-not to be realized. Further limitations may apply to
deferred tax assets if ownership changes occur. There was no material
change in unrecognized tax benefits in the six month period ending June 30,
2009, and we do not anticipate a material change in total unrecognized tax
benefits within the next 12 months.
Merge
Healthcare Incorporated and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
(Unaudited
and in thousands, except for share and per share data)
Basic and
diluted net earnings or loss per share is computed by dividing earnings or loss
available to common shareholders by the weighted average number of shares of
Common Stock outstanding. Diluted earnings per share includes the
dilution that could occur based on outstanding restricted stock awards and the
potential exercise of stock options, except for stock options with an exercise
price of more than the average market price of our Common Stock, as such
exercise would be anti-dilutive. The following table sets forth the
computation of basic and diluted earnings per share for the periods
indicated:
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
446
|
|
|
$
|
(18,197
|
)
|
|
$
|
3,288
|
|
|
$
|
(26,029
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares of Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
- basic
|
|
|
56,278,744
|
|
|
|
40,251,186
|
|
|
|
56,291,586
|
|
|
|
37,088,684
|
|
Effect
of stock options
|
|
|
1,146,703
|
|
|
|
-
|
|
|
|
742,235
|
|
|
|
-
|
|
Effect
of restricted stock
|
|
|
479,997
|
|
|
|
-
|
|
|
|
479,997
|
|
|
|
-
|
|
Denominator
for net income (loss) per share - diluted
|
|
|
57,905,444
|
|
|
|
40,251,186
|
|
|
|
57,513,818
|
|
|
|
37,088,684
|
|
Net
income (loss) per share - basic
|
|
$
|
0.01
|
|
|
$
|
(0.45
|
)
|
|
$
|
0.06
|
|
|
$
|
(0.70
|
)
|
Net
income (loss) per share - diluted
|
|
$
|
0.01
|
|
|
$
|
(0.45
|
)
|
|
$
|
0.06
|
|
|
$
|
(0.70
|
)
|
For
the three months ended June 30, 2009 and 2008, options to purchase 1,578,729 and
3,496,683 shares of our Common Stock, respectively, had exercise prices greater
than the average market price of our Common Stock, and, therefore, are not
considered in the above calculations of diluted net income (loss) per
share. For the six months ended June 30, 2009 and 2008, options to
purchase 1,578,729 and 2,496,683 shares of our Common Stock, respectively, had
exercise prices greater than the average market price of our Common Stock, and,
therefore, are not considered in the above calculations of diluted net income
(loss) per share.
As a
result of the loss in the three and the six months ended June 30, 2008,
incremental shares from the assumed conversion of employee stock options
totaling zero and 8,006, respectively, have been excluded from the calculation
of diluted loss per share as their inclusion would have been
anti-dilutive. As a result of the loss in the three and six months
ended June 30, 2008, incremental shares from restricted stock awards totaling
1,491,982 and 1,628,530, respectively, have been excluded from the calculation
of diluted loss per share as their inclusion would have been
anti-dilutive.
SFAS
No. 131,
Disclosures
about Segments of an Enterprise and Related Information
(“SFAS
No. 131”), establishes annual and interim reporting standards for operating
segments of a company. It also requires entity-wide disclosures about
the products and services an entity provides, the material countries in which it
holds assets and reports revenues, and its major customers. Our Chief
Executive Officer has been identified as the chief operating decision maker, and
relies on the information derived from our financial reporting process to assess
the performance and the allocate resources within Merge Healthcare.
Our
financial reporting process includes revenue for both of our business units,
Merge Fusion and Merge OEM, as well as consolidated operating results and
consolidated assets. On June 30, 2009, we completed enhancements to
our financial reporting process to allow us to obtain discrete operating results
for our business units. This business unit information will be used
going forward by our Chief Executive Officer to assess performance and allocate
resources within Merge Healthcare. As a result, we believe that
effective in the third quarter of 2009, we will have reportable segments under
SFAS No. 131.
Merge
Healthcare Incorporated and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (continued)
(Unaudited
and in thousands, except for share and per share data)
(12)
|
Other
Recent Accounting Pronouncements
|
In April
2009, the FASB issued FSP SFAS No. 115-2 and SFAS No. 124-2,
Recognition and Presentation of
Other-Than-Temporary Impairments
. This FSP amends both SFAS
No. 115,
Accounting for
Certain Investments in Debt and Equity Securities
, and SFAS No. 124,
Accounting for Certain
Investments Held by Not-for-Profit Organizations,
as well as Emerging
Issues Task Force Issue No. 99-20,
Recognition of Interest Income and
Impairment on Purchased Beneficial Interests and Beneficial Interests That
Continue to Be Held by a Transferor in Securitized Financial Assets,
to
make the other-than-temporary impairments guidance more operational and to
improve the presentation of other-than-temporary impairments in the financial
statements. This FSP will replace the existing requirement that
management assert it has both the intent and ability to hold an impaired debt
security until recovery with a requirement that management assert it does not
have the intent to sell the security, and it is more likely than not it will not
have to sell the security before recovery of its cost basis. This FSP
provides increased disclosure about the credit and noncredit components of
impaired debt securities that are not expected to be sold and also requires
increased and more frequent disclosures regarding expected cash flows, credit
losses, and an aging of securities with unrealized losses. Although
this FSP does not result in a change in the carrying amount of debt securities,
it does require that the portion of an other-than-temporary impairment not
related to a credit loss for a held-to-maturity security be recognized in a new
category of other comprehensive income and be amortized over the remaining life
of the debt security as an increase in the carrying value of the
security. This FSP is effective for interim and annual periods ending
after June 15, 2009. Our adoption of this FSP did not have a
significant impact on the determination or reporting of our financial
results.
In
April 2009 the FASB issued FSP SFAS No. 141(R)-1,
Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies
(“FSP SFAS No. 141(R)-1”)
.
FSP SFAS No.
141(R)-1 amends SFAS No. 141(R) to require assets acquired and liabilities
assumed in a business combination that arise from contingencies to be recognized
at fair value, as determined in accordance with SFAS No. 157, if the
acquisition-date fair value can be reasonably determined. If the
acquisition-date fair value cannot be reasonably determined, then the future
settlement amount would be measured in accordance with existing accounting
rules. FSP SFAS No. 141(R)-1 is effective for fiscal years beginning
after December 15, 2008. Our adoption of this FSP did not have a
significant impact on the determination or reporting of our financial
results.
In
May 2009, the FASB issued SFAS No. 165,
Subsequent Events
(“SFAS No.
165”). SFAS No. 165 establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be
issued. Specifically, this standard sets forth the period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. SFAS
No. 165 is effective for interim and annual reporting periods ending after
June 15, 2009. We adopted this standard effective June 15, 2009
and have evaluated any subsequent events through the date of this filing.
We do not believe there are any material subsequent events, other than those
addressed in these Notes, which would require further disclosure.
In
June 2009, the FASB issued SFAS No. 168,
The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles
(“SFAS No. 168”). SFAS No. 168 replaces SFAS
No. 162,
The Hierarchy of
Generally Accepted Accounting Principles
, provides for the FASB
Accounting Standards Codification (the “Codification”) to become the single
official source of authoritative, nongovernmental GAAP, except for
rules and interpretive releases of the SEC, which are sources of
authoritative GAAP for SEC registrants. The Codification did not
change GAAP, but reorganizes the literature. SFAS No. 168 is
effective for interim or annual reporting periods ending after
September 15, 2009. We will adopt SFAS No. 168 in the third quarter
of fiscal 2009. As the Codification was not intended to change or alter
existing GAAP, it will not have any impact on the determination or reporting of
our financial results.
On July
20, 2009, we completed the acquisition of etrials Worldwide,
Inc. Merge’s acquisition of etrials will create an organization
capable of providing clinical trial sponsors and contract research organizations
(“CROs”) comprehensive and configurable solutions that include both critical
imaging technologies and proven eClinical capabilities. Under the
terms of the Merger Agreement, we acquired all of the outstanding shares of
common stock of etrials for consideration per share of $0.80 in cash, without
interest, and 0.3448 shares of Merge common stock. Total
consideration for the transaction is expected to be approximately
$25,200. We are currently determining the allocation of the purchase
price based on the estimated fair values of assets and liabilities as of the
acquisition date. In connection with the acquisition, we incurred
$339 in costs in the three months ended June 30, 2009, which are identified
separately in our condensed consolidated statement of operations, and will incur
additional costs in the third quarter of 2009.
Item 2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
Cautionary
Note Regarding Forward-Looking Statements
The discussion below contains
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act, and
Section 21E of the Exchange Act. We have used words such as
“believes,” “intends,” “anticipates,” “expects” and similar expressions to
identify forward-looking statements. These statements are based on
information currently available to us and are subject to a number of risks and
uncertainties that may cause our actual results of operations, financial
condition, cash flows, performance, business prospects and opportunities and the
timing of certain events to differ materially from those expressed in, or
implied by, these statements. These risks, uncertainties and other
factors include, without limitation, those matters discussed in Item 1A of Part
I of our Annual Report on Form 10-K for the year ended December 31,
2008. Except as expressly required by the federal securities laws, we
undertake no obligation to update such factors or to publicly announce the
results of any of the forward-looking statements contained herein to reflect
future events, developments, or changed circumstances, or for any other
reason. The following discussion should be read in conjunction with
our consolidated financial statements and notes thereto appearing in our Annual
Report on Form 10-K, and Item 1A,
“Risk Factors” in both our Annual
Report on Form 10-K for the year ended December 31, 2008 and this Quarterly
Report on Form 10-Q.
Management’s
Discussion and Analysis is presented in the following order:
·
|
Liquidity
and Capital Resources
|
·
|
Material
Off Balance Sheet
Arrangements
|
·
|
Critical
Accounting Policies
|
We
develop healthcare information management software and deliver related services
through two primary business units. Merge OEM primarily sells medical
imaging software products, developer toolkits and custom engineering services to
original equipment manufacturers and Value Added Resellers (“VAR”)
world-wide. These customers develop, manufacture or resell health IT
software or medical devices. Merge Fusion primarily sells directly or
through VAR/distributors to the end-user healthcare market consisting of
hospitals, imaging centers and specialty clinics located in the U.S., Canada,
Europe, the Middle East, Asia, Central and South America and Africa, and also
distributes certain products through the Internet via our website.
We have
seen our markets become increasingly affected by the continuing global
macroeconomic downturn. The downturn, which first started in the
U.S., has also impacted our customers in other parts of the world. We
believe that the initiatives to reduce our operating expenses that we have
undertaken have appropriately positioned our recurring cost
structure. We believe it is likely that this economic downturn
will persist; however, we cannot predict its severity, duration or impact on our
future operating results.
We will
attempt to use the economic downturn as an opportunity to expand our market
share and to continue moving into similar, related, or adjacent markets to those
in which we currently are active, as well as invest in international
growth. We continue to develop several new products and are pleased
with the breadth and depth of our product lines and service
capabilities. We believe that this innovation will have a positive
impact on our long-term prospects and that our strategy and our ability to
execute provide us with long-term growth opportunities.
We are
also monitoring the increasing regulatory and legislative activity surrounding
healthcare and health information technology. Thus far in 2009, the
American Reinvestment and Recovery Act was passed in the U.S. and included
stimulus monies for health IT adoption. A similar economic stimulus
act has also been passed in China. Current legislation under
discussion in the U.S. includes changes to the utilization factor for
reimbursement, which would negatively impact imaging practices, as well as
overall healthcare reform. Due to the complexity of the reform
legislation, it is difficult to forecast any potential net benefit to our
customers and market, and thus we remain cautious about the impact on our
business.
Our
business strategy also includes accretive growth through
acquisition. In April of 2009, we completed the insignificant
purchase of certain assets, subject to certain liabilities, of eko systems, inc.
(“eko”). The total purchase price for this transaction includes cash
consideration of $1.3 million, of which $0.1 million was placed into escrow, and
estimated contingent consideration of $0.4 million, as a result of earn-out
provisions that are in effect for a 12-month period.
On July
20, 2009, we completed the acquisition of etrials Worldwide, Inc. (“etrials”), a
provider of clinical trials software and services. Under the terms of
the Merger Agreement, we acquired all of the outstanding shares of common stock
of etrials for consideration per share of $0.80 in cash, without interest, and
0.3448 shares of Merge common stock. Total consideration for the
transaction is expected to be approximately $25.2 million. We are
currently determining the final allocation of the purchase price based on the
estimated fair values of the assets and liabilities acquired as of the
acquisition date. Concurrent with the acquisition of etrials, we
completed a restructuring initiative to reduce our workforce by approximately 35
individuals. We have taken this action upon an assessment of ongoing
personnel needs in light of the acquisition. We expect to incur
approximately $1.7 million in cash expenditures for severance and related costs,
primarily in the third quarter of 2009.
Results
of
Operations
The
following operational activities and economic considerations have significantly
impacted the results of operations for the periods discussed
herein:
·
|
During
2008, we completed two significant restructuring initiatives, the first in
February 2008 and the second in June 2008. Both of these
initiatives included workforce reductions in all parts of the organization
as well as elimination of
facilities.
|
·
|
In
the second quarter of 2008, we disposed of our French
subsidiary.
|
·
|
In
the second quarter of 2008, we completed a private placement pursuant to
which we raised net proceeds of $16.6
million.
|
·
|
In
the third quarter of 2008, we exited our operations in
India.
|
·
|
Our
Canadian operations primarily invoice customers in U.S. dollars, whereas
the majority of operating expenses, which include approximately one-half
of our current workforce, are denominated in the Canadian
dollar. During late 2008, the U.S. dollar to Canadian
dollar exchange rate significantly strengthened. As a result,
we have experienced an approximate 16% reduction in average cost for our
Canadian dollar denominated expenses in the three months ended June 30,
2009 when compared to similar costs in the three months ended June 30,
2008. In the six months ended June 30, 2009, we experienced an
approximate 20% reduction of similar costs compared to the six months
ended June 30, 2008 as a result of exchange rate
changes.
|
Business
Segments
SFAS
No. 131,
Disclosures
about Segments of an Enterprise and Related Information
(“SFAS
No. 131”), establishes annual and interim reporting standards for operating
segments of a company. It also requires entity-wide disclosures about
the products and services an entity provides, the material countries in which it
holds assets and reports revenues, and its major customers. Our Chief
Executive Officer has been identified as the chief operating decision maker, and
relies on the information derived from our financial reporting process to assess
the performance and the allocate resources within Merge Healthcare.
Our
financial reporting process includes revenue for both of our business units,
Merge Fusion and Merge OEM, as well as consolidated operating results and
consolidated assets. On June 30, 2009, we completed enhancements to
our financial reporting process that allow us to obtain discrete operating
results for our business units. This business unit information will
be used going forward by our Chief Executive Officer to assess performance and
allocate resources within Merge Healthcare. As a result, we believe
that effective in the third quarter of 2009, we will have reportable segments
under SFAS No. 131.
Three
Months Ended June 30, 2009 Compared to the Three Months Ended June 30,
2008
The
following table sets forth selected, summarized, unaudited, consolidated
financial data for the periods indicated, as well as comparative data showing
increases and decreases between the periods. All amounts, except
percentages, are in thousands.
|
|
|
|
Three
Months Ended June 30,
|
|
Change
|
|
|
|
|
|
2009
|
|
%
|
(1)
|
2008
|
|
%
|
(1)
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
and other
|
$ 9,020
|
|
58.8%
|
|
$ 6,280
|
|
47.2%
|
|
$ 2,740
|
|
43.6%
|
|
|
Services
and maintenance
|
6,333
|
|
41.2%
|
|
7,035
|
|
52.8%
|
|
(702)
|
|
-10.0%
|
|
Total
net sales
|
15,353
|
|
100.0%
|
|
13,315
|
|
100.0%
|
|
2,038
|
|
15.3%
|
|
Cost
of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
and other
|
880
|
|
9.8%
|
|
1,329
|
|
21.2%
|
|
(449)
|
|
-33.8%
|
|
|
Services
and maintenance
|
2,373
|
|
37.5%
|
|
3,168
|
|
45.0%
|
|
(795)
|
|
-25.1%
|
|
|
Amortization
|
623
|
|
NM
|
(2)
|
716
|
|
NM
|
(2)
|
(93)
|
|
-13.0%
|
|
Total
cost of sales
|
3,876
|
|
25.2%
|
|
5,213
|
|
39.2%
|
|
(1,337)
|
|
-25.6%
|
|
Gross
margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
and other
|
7,517
|
|
83.3%
|
(3)
|
4,235
|
|
67.4%
|
(3)
|
3,282
|
|
77.5%
|
|
|
Services
and maintenance
|
3,960
|
|
62.5%
|
|
3,867
|
|
55.0%
|
|
93
|
|
2.4%
|
|
Total
gross margin
|
11,477
|
|
74.8%
|
|
8,102
|
|
60.8%
|
|
3,375
|
|
41.7%
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
1,826
|
|
11.9%
|
|
2,311
|
|
17.4%
|
|
(485)
|
|
-21.0%
|
|
|
Product
research and development
|
2,543
|
|
16.6%
|
|
3,485
|
|
26.2%
|
|
(942)
|
|
-27.0%
|
|
|
General
and administrative
|
2,104
|
|
13.7%
|
|
8,452
|
|
63.5%
|
|
(6,348)
|
|
-75.1%
|
|
|
Acquisition-related
expenses
|
339
|
|
2.2%
|
|
-
|
|
0.0%
|
|
339
|
|
NM
|
(2)
|
|
Trade
name impairment, restructuring and other expenses
|
-
|
|
0.0%
|
|
10,705
|
|
80.4%
|
|
(10,705)
|
|
-100.0%
|
|
|
Depreciation,
amortization and impairment
|
546
|
|
3.6%
|
|
1,458
|
|
11.0%
|
|
(912)
|
|
-62.6%
|
|
Total
operating costs and expenses
|
7,358
|
|
47.9%
|
|
26,411
|
|
198.4%
|
|
(19,053)
|
|
-72.1%
|
|
Operating
income (loss)
|
4,119
|
|
26.8%
|
|
(18,309)
|
|
-137.5%
|
|
22,428
|
|
-122.5%
|
|
Other
income (expense), net
|
(3,652)
|
|
-23.8%
|
|
(272)
|
|
-2.0%
|
|
(3,380)
|
|
NM
|
(2)
|
Income
(loss) before income taxes
|
467
|
|
3.0%
|
|
(18,581)
|
|
-139.5%
|
|
19,048
|
|
-102.5%
|
|
Income
tax expense (benefit)
|
21
|
|
0.1%
|
|
(384)
|
|
-2.9%
|
|
405
|
|
-105.5%
|
|
Net
income (loss)
|
$ 446
|
|
2.9%
|
|
$ (18,197)
|
|
-136.7%
|
|
$ 18,643
|
|
-102.5%
|
|
(1)
|
Percentages
are of total net sales, except for cost of sales and gross margin, which
are based upon related net sales.
|
(2)
|
NM
denotes percentage is not meaningful.
|
|
|
|
|
|
|
|
(3)
|
Gross
margin for software and other sales includes amortization expense recorded
in cost of sales.
|
|
Net
Sales
Net
sales, by business unit, are indicated as follows:
|
|
Three
Months Ended June 30,
|
|
|
Change
|
|
|
|
2009
|
|
|
%
|
|
|
2008
|
|
|
%
|
|
|
$
|
|
|
|
%
|
Merge
OEM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
and other
|
|
$
|
6,634
|
|
|
43.2
|
%
|
|
$
|
2,974
|
|
|
22.3
|
%
|
|
$
|
3,660
|
|
|
123.1
|
%
|
Services
and maintenance
|
|
|
1,662
|
|
|
10.8
|
%
|
|
|
2,657
|
|
|
20.0
|
%
|
|
|
(995
|
)
|
|
-37.4
|
%
|
Total
net sales
|
|
|
8,296
|
|
|
54.0
|
%
|
|
|
5,631
|
|
|
42.3
|
%
|
|
|
2,665
|
|
|
47.3
|
%
|
Merge
Fusion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
and other
|
|
|
2,386
|
|
|
15.5
|
%
|
|
|
3,306
|
|
|
24.8
|
%
|
|
|
(920
|
)
|
|
-27.8
|
%
|
Services
and maintenance
|
|
|
4,671
|
|
|
30.4
|
%
|
|
|
4,378
|
|
|
32.9
|
%
|
|
|
293
|
|
|
6.7
|
%
|
Total
net sales
|
|
|
7,057
|
|
|
46.0
|
%
|
|
|
7,684
|
|
|
57.7
|
%
|
|
|
(627
|
)
|
|
-8.2
|
%
|
Total
net sales
|
|
$
|
15,353
|
|
|
|
|
|
$
|
13,315
|
|
|
|
|
|
$
|
2,038
|
|
|
|
|
Software and Other
Sales.
Total software and other sales in 2009 were $9.0
million, an increase of $2.7 million, or 43.6%, from $6.3 million in
2008. OEM sales increased $3.7 million, primarily due to a new value
added reseller agreement with Eklin Medical Systems, Inc. (“Eklin”) in the
second quarter of 2009 that generated $2.2 million of additional revenue when
compared to 2008. In addition, sales were negatively affected in the
second quarter of 2008 because of customer concerns with our financial
viability. We believe that these concerns were largely alleviated
with the financing transaction completed in June of 2008. Fusion
sales decreased $0.9 million, primarily as a result of the downturn in general
macroeconomic conditions in North America, transition to a per-study pricing
model and 2009 having fewer contracts with significant hardware sales compared
to 2008. We anticipate that the revenue recognized from software and
other sales may vary significantly on a quarterly basis, especially in the
current economic environment.
Service and Maintenance
Sales.
Total service and maintenance sales in 2009 were $6.3
million, a decrease of $0.7 million, or 10.0%, from $7.0 million in
2008. OEM sales decreased $1.0 million due to a decrease in the
number of custom engineering services projects and revenue, primarily as a
result of the reluctance of customers to start new projects in the current
economic environment. The increase of $0.3 million in Merge Fusion is
due to an increase in maintenance revenue related to the Frontiers product line
(acquired as part of the eko transaction).
Gross
Margin
Gross Margin – Software and Other
Sales
.
Gross margin on
software and other sales was $7.5 million in 2009, an increase of $3.3 million,
or 77.5%, from $4.2 million in 2008. Gross margin as a percentage of
software and other sales increased to 83.3% in 2009 from 67.4% in 2008,
primarily due to the change in mix of sales from our business
units. OEM sales, which typically consist of software only contracts
at higher margins, were 73.5% of sales in 2009 compared to 47.4% in
2008. In addition, Merge Fusion hardware sales, which typically have
a lower margin than software only sales, decreased to 20.8% of sales in 2009
compared to 34.4% in 2008. We expect our gross margin on software and
other sales going forward to fluctuate depending on the mix between the business
units.
Gross Margin – Services and
Maintenance Sales
.
Gross margin on
services and maintenance sales was $4.0 million in 2009, an increase of $0.1
million, or 2.4%, from $3.9 million in 2008. Gross margin as a
percentage of services and maintenance sales increased to 62.5% in 2009 from
55.0% in 2008, primarily due to a decrease in salaries and other related
expenses (including travel and entertainment) as a result of our restructuring
initiative completed in 2008.
Sales and
marketing expense decreased $0.5 million, or 21.0%, to approximately $1.8
million in 2009 from $2.3 million in 2008. Salaries, commissions and
other related expenses (including travel and entertainment) decreased $0.5
million primarily due to our restructuring initiative completed in
2008.
Product
Research and Development
Product
research and development expense decreased $1.0 million, or 27.0%, to $2.5
million in 2009 from $3.5 million in 2008. The decrease was primarily
due to a $0.6 million reduction in salaries, related expenses (including travel
and entertainment) and third party service costs as a result of our
restructuring initiative completed in 2008. Additional decreases
include $0.2 million due to the exiting of our India operations in the third
quarter of 2008, and $0.2 million from reduced Canadian related costs due to
strengthening of the average exchange rate for the U.S. dollar compared to
Canadian dollar.
General
and Administrative
General
and administrative expense decreased $6.4 million, or 75.1%, to $2.1 million in
2009 from $8.5 million in 2008. Salaries and related expenses
(including travel and entertainment) decreased $1.0 million primarily due to our
restructuring initiative completed in 2008. In addition, legal,
accounting and other professional fees associated with the settlement of a class
action lawsuit and prior restatement of financial statements decreased by $5.0
million (including lawsuit settlement costs of $3.0 million).
Acquisition-Related
Expenses
Acquisition-related
expenses are costs incurred to effect business combinations, including banking,
legal, accounting, valuation and other professional or consulting
fees. In 2009, we incurred $0.3 million in expenses related to our
acquisition of etrials, which we completed in July 2009.
Trade
Name Impairment, Restructuring and Other Expenses
We
recorded a $7.5 million restructuring charge in 2008 related to the
restructuring initiative announced in June 2008. In addition, we
recorded a $1.1 million trade name impairment charge associated with renaming
our Cedara Software business unit and a $1.7 million charge associated with the
disposal of our French subsidiary in 2008. We also recorded a $0.4
million charge in 2008 related to a change in estimate associated with our
ability to sublease a facility for which we had a prior tenant.
Depreciation,
Amortization and Impairment
Depreciation,
amortization and impairment expense decreased $0.9 million, or 62.6 %, to $0.6
million in 2009 from $1.5 million in 2008 as a result of a $0.5 million
impairment in 2008 for fixed assets held for sale, a $0.1 million reduction due
to the abandonment of certain facilities in 2008, and a $0.3 million decrease in
depreciation due to assets being disposed of or becoming fully
depreciated.
Other
Income (Expense), Net
Other
income (expense), net increased by $3.4 million to $3.7 million of net expense
in 2009 compared to $0.3 million of net expense in 2008. The net
expense in 2009 was due to $0.8 million of interest expense and amortization of
issuance costs and note discount associated with the $15.0 million note payable
issued pursuant to the Merrick financing transaction in June of 2008 and an
impairment charge of $3.6 million related to our investment in Eklin, offset by
a $0.4 million gain on the sale of certain patents that were no longer necessary
to support our business and $0.3 million in foreign currency exchange
gains. The net expense in 2008 was primarily attributable to $0.2
million of interest expense and amortization of issuance costs and note discount
associated with the note payable issued pursuant to the Merrick financing
transaction and $0.1 million in foreign currency exchange losses.
Income
Tax Expense (Benefit)
In 2009,
we recorded income tax expense resulting in an effective tax rate of 4.5%,
compared to an effective tax rate of (2.0)% in 2008. Our effective
tax rates in 2009 and 2008 differ significantly from statutory rates primarily
due to recording a valuation allowance for deferred tax assets that are not
more-likely-than-not to be realized and realizing assets that are fully reserved
with a valuation allowance. Our expected effective income tax rate is
volatile and may move up or down with changes in, among other items, operating
income and the results of changes in tax law and regulations of the U.S. and the
foreign jurisdictions in which we operate.
Six
Months Ended June 30, 2009 Compared to the Six Months Ended June 30,
2008
The
following table sets forth selected, summarized, unaudited, consolidated
financial data for the periods indicated, as well as comparative data showing
increases and decreases between the periods. All amounts, except
percentages, are in thousands.
|
|
|
|
Six
Months Ended June 30,
|
|
|
Change
|
|
|
|
|
|
2009
|
|
%
|
(1)
|
|
2008
|
|
%
|
(1)
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
and other
|
$ 17,704
|
|
57.7%
|
|
|
$ 12,335
|
|
45.6%
|
|
|
$ 5,369
|
|
43.5%
|
|
|
Services
and maintenance
|
12,958
|
|
42.3%
|
|
|
14,723
|
|
54.4%
|
|
|
(1,765)
|
|
-12.0%
|
|
Total
net sales
|
30,662
|
|
100.0%
|
|
|
27,058
|
|
100.0%
|
|
|
3,604
|
|
13.3%
|
|
Cost
of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
and other
|
2,110
|
|
11.9%
|
|
|
2,528
|
|
20.5%
|
|
|
(418)
|
|
-16.5%
|
|
|
Services
and maintenance
|
4,523
|
|
34.9%
|
|
|
6,943
|
|
47.2%
|
|
|
(2,420)
|
|
-34.9%
|
|
|
Amortization
|
1,273
|
|
NM
|
(2)
|
|
1,432
|
|
NM
|
(2)
|
|
(159)
|
|
-11.1%
|
|
Total
cost of sales
|
7,906
|
|
25.8%
|
|
|
10,903
|
|
40.3%
|
|
|
(2,997)
|
|
-27.5%
|
|
Gross
margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
and other
|
14,321
|
|
80.9%
|
(3)
|
|
8,375
|
|
67.9%
|
(3)
|
|
5,946
|
|
71.0%
|
|
|
Services
and maintenance
|
8,435
|
|
65.1%
|
|
|
7,780
|
|
52.8%
|
|
|
655
|
|
8.4%
|
|
Total
gross margin
|
22,756
|
|
74.2%
|
|
|
16,155
|
|
59.7%
|
|
|
6,601
|
|
40.9%
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
3,498
|
|
11.4%
|
|
|
5,673
|
|
21.0%
|
|
|
(2,175)
|
|
-38.3%
|
|
|
Product
research and development
|
4,814
|
|
15.7%
|
|
|
8,220
|
|
30.4%
|
|
|
(3,406)
|
|
-41.4%
|
|
|
General
and administrative
|
5,356
|
|
17.5%
|
|
|
14,610
|
|
54.0%
|
|
|
(9,254)
|
|
-63.3%
|
|
|
Acquisition-related
expenses
|
339
|
|
1.1%
|
|
|
-
|
|
0.0%
|
|
|
339
|
|
NM
|
(2)
|
|
Trade
name impairment, restructuring and other expenses
|
-
|
|
0.0%
|
|
|
12,067
|
|
44.6%
|
|
|
(12,067)
|
|
-100.0%
|
|
|
Depreciation,
amortization and impairment
|
1,094
|
|
3.6%
|
|
|
2,300
|
|
8.5%
|
|
|
(1,206)
|
|
-52.4%
|
|
Total
operating costs and expenses
|
15,101
|
|
49.2%
|
|
|
42,870
|
|
158.4%
|
|
|
(27,769)
|
|
-64.8%
|
|
Operating
income (loss)
|
7,655
|
|
25.0%
|
|
|
(26,715)
|
|
-98.7%
|
|
|
34,370
|
|
-128.7%
|
|
Other
income (expense), net
|
(4,324)
|
|
-14.1%
|
|
|
302
|
|
1.1%
|
|
|
(4,626)
|
|
NM
|
(2)
|
Income
(loss) before income taxes
|
3,331
|
|
10.9%
|
|
|
(26,413)
|
|
-97.6%
|
|
|
29,744
|
|
-112.6%
|
|
Income
tax expense (benefit)
|
43
|
|
0.1%
|
|
|
(384)
|
|
-1.4%
|
|
|
427
|
|
-111.2%
|
|
Net
income (loss)
|
$ 3,288
|
|
10.7%
|
|
|
$ (26,029)
|
|
-96.2%
|
|
|
$ 29,317
|
|
-112.6%
|
|
(1)
|
Percentages
are of total net sales, except for cost of sales and gross margin, which
are based upon related net sales.
|
(2)
|
NM
denotes percentage is not meaningful.
|
|
|
|
|
|
|
|
(3)
|
Gross
margin for software and other sales includes amortization expense recorded
in cost of sales.
|
|
Net
Sales
Net
sales, by business unit, are indicated as follows:
|
|
Six
Months Ended June 30,
|
|
|
Change
|
|
|
|
2009
|
|
|
%
|
|
|
2008
|
|
|
%
|
|
|
$
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merge
OEM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
and other
|
|
$
|
12,652
|
|
|
|
41.3
|
%
|
|
$
|
5,971
|
|
|
|
22.1
|
%
|
|
$
|
6,681
|
|
|
|
111.9
|
%
|
Services
and maintenance
|
|
|
3,478
|
|
|
|
11.3
|
%
|
|
|
5,619
|
|
|
|
20.8
|
%
|
|
|
(2,141
|
)
|
|
|
-38.1
|
%
|
Total
net sales
|
|
|
16,130
|
|
|
|
52.6
|
%
|
|
|
11,590
|
|
|
|
42.8
|
%
|
|
|
4,540
|
|
|
|
39.2
|
%
|
Merge
Fusion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
and other
|
|
|
5,052
|
|
|
|
16.5
|
%
|
|
|
6,364
|
|
|
|
23.5
|
%
|
|
|
(1,312
|
)
|
|
|
-20.6
|
%
|
Services
and maintenance
|
|
|
9,480
|
|
|
|
30.9
|
%
|
|
|
9,104
|
|
|
|
33.6
|
%
|
|
|
376
|
|
|
|
4.1
|
%
|
Total
net sales
|
|
|
14,532
|
|
|
|
47.4
|
%
|
|
|
15,468
|
|
|
|
57.2
|
%
|
|
|
(936
|
)
|
|
|
-6.1
|
%
|
Total
net sales
|
|
$
|
30,662
|
|
|
|
|
|
|
$
|
27,058
|
|
|
|
|
|
|
$
|
3,604
|
|
|
|
|
|
Software and Other
Sales.
Total software and other sales in 2009 were $17.7
million, an increase of approximately $5.4 million, or 43.5%, from $12.3 million
in 2008. OEM sales increased $6.7 million, primarily due to the fact
that sales were negatively affected in 2008 because of customer concerns with
our financial viability. We believe that these concerns were largely
alleviated with the financing transaction completed in June of
2008. OEM sales in 2009 include $0.4 million from a related party
(see note 4 to the condensed consolidated financial
statements). Fusion sales decreased $1.3 million primarily as a
result of the downturn in general macroeconomic conditions in North America,
transition to a per-study pricing model and 2009 having fewer contracts with
significant hardware sales compared to 2008. We anticipate that the
revenue recognized from software and other sales may vary significantly on a
quarterly basis.
Service and Maintenance
Sales.
Total service and maintenance sales in 2009 were $12.9
million, a decrease of $1.8 million, or 12.0%, from $14.7 million in 2008,
primarily due to a decrease in OEM sales. The OEM business unit has
experienced a decrease in the number of custom engineering services projects and
revenue, primarily as a result of the reluctance of customers to start new
projects in the current economic environment.
Gross
Margin
Gross Margin – Software and Other
Sales
.
Gross margin on
software and other sales was $14.3 million in 2009, an increase of $5.9 million,
or 71.0%, from $8.4 million in 2008. Gross margin as a percentage of
software and other sales increased to 80.9% in 2009 from 67.9% in 2008,
primarily due to the mix in sales from our business units. Sales from
our Merge OEM business unit, which typically consist of software only contracts
at higher margins, were 71.5% of software and other sales in 2009 compared to
48.4% in 2008. In addition, Merge Fusion hardware sales, which
typically have a lower margin than software only sales, decreased to 15.8% of
sales in 2009 compared to 32.8% in 2008. We expect our gross margin
on software and other sales going forward to fluctuate depending on the mix of
sales between the business units.
Gross Margin – Services and
Maintenance Sales
.
Gross margin on
services and maintenance sales was $8.4 million in 2009, an increase of $0.6
million, or 8.4%, from $7.8 million in 2008. Gross margin as a
percentage of sales increased to 65.1% in 2009 from 52.8% in 2008 primarily due
to a decrease in salaries and other related expenses (including travel and
entertainment) as a result of our restructuring initiatives completed in
2008.
Sales
and Marketing
Sales and
marketing expense decreased $2.2 million, or 38.3%, to $3.5 million in 2009 from
$5.7 million in 2008. Salaries, commissions and other related
expenses (including travel and entertainment) decreased by $1.6 million and
share-based compensation expense decreased by $0.2 million as a result of the
restructuring initiatives completed in the first half of 2008. In
addition, we incurred $0.1 million less in direct marketing costs in 2009
compared to 2008 as a result of cost saving efforts. Also, 2008
includes $0.3 million of sales and marketing expenses related to the French
subsidiary which we disposed of in April 2008. We anticipate that the
quarterly sales and marketing expenses will increase during the remainder of
2009, when compared to the first half of 2009, due to the additional headcount
associated with our acquisition of etrials in the third quarter of
2009.
Product
Research and Development
Product
research and development expense decreased $3.4 million, or 41.4%, to $4.8
million in 2009 from $8.2 million in 2008. The decrease was primarily
due to a $2.4 million decrease in salaries and related expenses (including
travel and entertainment) as a result of our restructuring initiatives in the
first half of 2008. Additional decreases include $0.4 million in
reduced Canadian related costs due to strengthening of the average exchange rate
for the U.S. dollar compared to Canadian dollar, $0.2 million of product
research and development expenses related to the French subsidiary which we
disposed of in April 2008, and $0.4 million due to the exiting of our India
operations in the third quarter of 2008. We anticipate that the
quarterly product research and development expenses will increase during the
remainder of 2009, when compared to the first half of 2009, due to the
additional headcount associated with our acquisition of etrials in the third
quarter of 2009.
General
and Administrative
General
and administrative expense decreased $9.2 million, or 63.3%, to $5.4 million in
2009 from $14.6 million in 2008. Salaries and related expenses
(including travel and entertainment) decreased $2.5 million and share-based
compensation expense decreased $0.4 million, primarily due to our restructuring
initiatives completed in 2008. In addition, legal, accounting and
other professional fees associated with the settlement of a class action lawsuit
and prior restatement of financial statements decreased by $5.7 million
(including lawsuit settlement costs of $3.0 million). We also
experienced a $0.2 million decrease in expenses at our French subsidiary, which
we disposed of in April 2008, a $0.2 million decrease due to the exiting of our
India operations in the third quarter of 2008, and $0.1 million in reduced
Canadian related costs due to strengthening of the average exchange rate for the
U.S. dollar compared to Canadian dollar. We anticipate that the
quarterly general and administrative expenses will increase during the remainder
of 2009, when compared to the first half of 2009, due to the additional
headcount associated with our acquisition of etrials in the third quarter of
2009.
Acquisition-Related
Expenses
Acquisition-related
expenses are costs incurred to effect business combinations, including banking,
legal, accounting, valuation and other professional or consulting
fees. In 2009, we incurred $0.3 million in expenses related to our
acquisition of etrials, which we completed in July 2009.
Trade
Name Impairment, Restructuring and Other Expenses
We
recorded $8.9 million of restructuring charges in 2008 related to two
initiatives, one announced in February 2008 and another in June
2008. In addition, we recorded a $1.1 million trade name impairment
charge associated with renaming our Cedara Software business unit and a $1.7
million charge associated with the disposal of our French subsidiary in
2008. We also recorded a $0.4 million charge in 2008 related to a
change in estimate associated with our ability to sublease a facility for which
we had a prior tenant.
Depreciation,
Amortization and Impairment
Depreciation,
amortization and impairment expense decreased $1.2 million, or 52.4%, to $1.1
million in 2009 from $2.3 million in 2008, as a result of a $0.5 million
impairment of fixed assets held for sale in 2008, a $0.2 million decrease due to
the abandonment of certain facilities in 2008, and a $0.5 million decrease in
depreciation due to assets being disposed of or becoming fully
depreciated.
Other
Income (Expense), Net
Other
income (expense), net decreased by approximately $4.6 million, to $4.3 million
of net expense in 2009 from $0.3 million of net other income in
2008. The net expense in 2009 is primarily due to $1.5 million of
interest expense and amortization of issuance costs and note discount associated
with the $15.0 million note payable issued pursuant to the Merrick financing
transaction in June of 2008 and an impairment charge of $3.6 million related to
our investment in Eklin, offset by a $0.5 million gain on the sale of certain
patents that were no longer necessary to support our business and $0.3 million
in foreign currency exchange gains. The net other income in 2008 is
primarily due to $0.4 million in foreign exchange gains and $0.1 million of
interest income, offset by $0.2 million of interest expense and amortization of
issuance costs and note discount associated with the note payable issued
pursuant to the Merrick financing transaction.
Income
Tax Expense (Benefit)
We
recorded an income tax expense resulting in an effective tax rate of 1.3% in
2009, compared to an effective rate of (1.5)% in 2008. Our effective
tax rates in the three months ended June 30, 2009 and 2008 differ significantly
from statutory rates primarily due to recording a valuation allowance for
deferred tax assets that are not more-likely-than-not to be realized and
realizing assets that are fully reserved with a valuation
allowance. Our expected effective income tax rate is volatile and may
move up or down with changes in, among other items, operating income and the
results of changes in tax law and regulations of the U.S. and the foreign
jurisdictions in which we operate.
Liquidity
and Capital Resources
Our cash
and cash equivalents were $20.0 million at June 30, 2009, an increase of
approximately $2.2 million, or 11.9%, from our balance of $17.8 million at
December 31, 2008. In addition, our working capital was $16.0 million
at June 30, 2009, an increase of $7.7 million from our working capital of $8.3
million at December 31, 2008. Our calculation of working capital
excludes the note payable and related note discount totaling $14.5 million from
current liabilities, as well as the related debt issuance costs of $0.6 million
from current assets.
In the
six months ended June 30, 2009, we sold for cash proceeds of $0.5 million
certain patents that had been identified as no longer necessary to support the
business.
On July
20, 2009, we completed the acquisition of etrials. Under the terms of
the merger agreement, we acquired all of the outstanding shares of common stock
of etrials for consideration per share of $0.80 in cash, without interest, and
0.3448 shares of Merge common stock. Total consideration for the
transaction is expected to be approximately $25.2 million of which approximately
$9.2 million will be cash.
As a
result of the sale of our equity interest in Eklin, we will receive $1.4
million, the majority of which will be received in the third quarter of
2009.
Cash
provided by operating activities was $3.4 million in the six months ended June
30, 2009, compared to cash used in operating activities of $10.4 million in the
six months ended June 30, 2008. Our operating cash flow in the six
months ended June 30, 2009 was primarily due to the income from operations of
$3.3 million, non-cash depreciation, amortization and impairment expense of $2.4
million, unrealized loss on investment of $3.6 million, share-based compensation
of $0.9 million and amortization of note payable discount and issuance costs of
$0.6 million, offset by a decrease in deferred revenue of $5.1 million and an
increase in gross accounts receivable of $1.7 million.
As a
result of our 2008 restructuring activities, we anticipate that we will pay
approximately $0.6 million over the next several quarters for termination
benefits and contract exit costs. Termination benefits and contract
exit costs paid in the first half of 2009 were $0.6 million. On July
20, 2009, we completed a restructuring initiative to reduce our workforce by
approximately 35 individuals. We have taken this action concurrent
with the acquisition of etrials, upon an assessment of ongoing personnel needs
in light of the acquisition. We expect to incur approximately $1.7
million in cash expenditures for severance and related costs, primarily in the
third quarter of 2009.
Investing
Cash Flows
On April
15, 2009, we made a cash payment of $1.3 million (of which $0.1 million was
placed into escrow) to purchase certain limited assets, subject to certain
liabilities, of eko.
As a
result of the final payment to a former officer, pursuant to his separation
agreement, $0.3 million of restricted cash was released in the six months ended
June 30, 2009.
Contractual
Obligations
Total
outstanding commitments as of June 30, 2009 (in thousands), were as
follows:
|
|
|
|
|
Payment due by period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
1 – 3 Years
|
|
|
3 – 5 Years
|
|
|
5 Years
|
|
Operating
leases
|
|
$
|
2,337
|
|
|
$
|
1,445
|
|
|
$
|
789
|
|
|
$
|
103
|
|
|
$
|
-
|
|
Note
payable (including interest)
|
|
|
16,950
|
|
|
|
16,950
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
19,287
|
|
|
$
|
18,395
|
|
|
$
|
789
|
|
|
$
|
103
|
|
|
$
|
-
|
|
The above
obligations include lease payments, net of contractually committed sub-lease
income of $0.2 million, $0.4 million and $0.2 million in the respective periods
indicated, involving facilities that we use and those we have either ceased to
use or previously abandoned. The note payable bears interest at 13.0%
per annum, payable quarterly in arrears. The note payable contains various
operating and financial covenants, including a requirement that we have positive
adjusted EBITDA for the last fiscal quarter of 2008 and cumulatively thereafter
through the term of the note payable.
Except
for restricted cash of $0.4 million at June 30, 2009, we do not have any other
significant long-term obligations, contractual obligations, lines of credit,
standby letters of credit, guarantees, standby repurchase obligations or other
commercial commitments.
We
believe our current cash and cash equivalent balances will be sufficient to meet
our operating, financing and capital requirements through at least the next 12
months, as well as fund our acquisition of etrials completed on July 20,
2009. However, any projections of future cash inflows and outflows
are subject to uncertainty. In the event that it is necessary to
raise additional capital to meet our short term or long term liquidity needs,
such capital may be raised through additional debt, equity offerings or sale of
certain assets. If we raise additional funds through the issuance of
equity, equity-related or debt securities, such securities may have rights,
preferences or privileges senior to those of our Common
Stock. Furthermore, because of the trading price of our Common Stock,
the number of shares of any new equity or equity-related securities that may be
issued may result in significant dilution to existing
shareholders. In addition, the issuance of debt securities could
increase the liquidity risk or perceived liquidity risk that we
face. We cannot, however, be certain that additional financing, or
funds from asset sales, will be available on acceptable terms. If
adequate funds are not available or are not available on acceptable terms, we
will likely not be able to take advantage of opportunities, develop or enhance
services or products or respond to competitive pressures. Any
projections of future cash inflows and outflows are subject to
uncertainty. In particular, our uses of
cash in
2009 and beyond will depend on a variety of factors such as the costs to
implement our business strategy, the amount of cash that we are required to
devote to defend and address any regulatory proceedings, and potential merger
and acquisition activities. For a more detailed description of risks
and uncertainties that may affect our liquidity, see Item 1A., “Risk Factors” in
our Annual Report on Form 10-K for the year ended December 31, 2008 and in this
Quarterly Report on Form 10-Q.
Material
Off Balance Sheet Arrangements
We have
no material off balance sheet arrangements.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations are
based upon our unaudited condensed consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these condensed consolidated
financial statements requires our management to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. On an
ongoing basis, our management evaluates these estimates. We base our
estimates and judgments on our experience, our current knowledge (including
terms of existing contracts), our beliefs of what could occur in the future, our
observation of trends in the industry, information provided by our customers and
information available from other sources. Actual results may differ
materially from these estimates.
We have
identified the following accounting policies and estimates as those that we
believe are most critical to our financial condition and results of operations
and that require management’s most subjective and complex judgments in
estimating the effect of inherent uncertainties: revenue recognition,
allowance for sales returns and doubtful accounts, software capitalization,
other long-lived assets, goodwill and other intangible asset valuation,
investments, share-based compensation expense, income taxes, guarantees and loss
contingencies. There have been no significant changes in the
quarterly period ended June 30, 2009 in our method of application of these
critical accounting policies. For a complete description of our
critical accounting policies, please refer to Part II, Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Critical Accounting Policies” in our Annual Report on
Form 10-K for the year ended December 31, 2008.
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
Our cash
and cash equivalents are exposed to financial market risk due to fluctuations in
interest rates, which may affect our interest income. As of June 30,
2009, our cash and cash equivalents included money market funds and short term
deposits totaling $20.0 million, and earned interest at a weighted average rate
of approximately 0.3%. The value of the principal amounts is equal to
the fair value for these instruments. Due to the relative short-term
nature of our investment portfolio, our interest income is vulnerable to changes
in short-term interest rates. At current investment levels, our
results of operations would vary by approximately $0.2 million on an annual
basis for every 100 basis point change in our weighted average short-term
interest rate. We do not use our portfolio for trading or other
speculative purposes.
Foreign
Currency Exchange Risk
We have
sales and expenses in Canada, China and Europe that are denominated in
currencies other than the U.S. dollar and, as a result, have exposure to foreign
currency exchange risk. In the event our exposure to foreign currency
exchange risk increases to levels that we do not deem acceptable, we may choose
to hedge those exposures. We did not enter into any derivative
financial instruments to hedge such exposures in 2009 or 2008.
Item
4.
|
Controls and
Procedures
|
Disclosure
Controls and Procedures
We
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of June 30, 2009, as required by Rule 13a-15 of
the Exchange Act. This evaluation was carried out under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer. Based on
this evaluation, our principal executive officer and principal financial officer
have concluded that, as of June 30, 2009, our disclosure controls and procedures
were effective to ensure (1) that information required to be disclosed by
us in the reports we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
SEC’s rules and forms, and
(2) information
required to be disclosed by us in our reports that we file or submit under the
Exchange Act is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.
Management’s
report on internal controls over financial reporting as of December 31, 2008 was
included in our Annual Report on Form 10-K for the year ended December 31,
2008. In the report, management concluded that, as of December 31,
2008, our internal control over financial reporting was effective.
Changes
in Internal Control Over Financial Reporting
The
following significant change in our internal control over financial reporting
occurred during the quarter ended June 30, 2009 that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting:
·
|
On
June 30, 2009, we completed the integration of our U.S. and Canadian
business systems. We now have the ability to automatically
produce consolidated financial statements on a weekly basis as well as
management reporting by business unit. This business unit
information will be used going forward by our Chief Executive Officer
(identified as our chief operating decision maker) to assess performance
and allocate resources within Merge Healthcare. As a result, we
have determined that effective in the third quarter of 2009, we will have
reportable segments under SFAS No.
131.
|
PART II
– OTHER INFORMATION
Item
1.
|
Legal Proceedings
|
On April
27, 2006, Merge Healthcare received an informal, non-public inquiry from the
Securities and Exchange Commission (“SEC”) requesting voluntary production of
documents and other information. The inquiry principally related to
our announcement, on March 17, 2006, that we would investigate allegations of
improprieties related to financial reporting and revise our results of
operations for the fiscal quarters ended June 30, 2005, and September 30,
2005. On July 10, 2007, SEC Staff advised us that the SEC had issued
a formal order of investigation in this matter. Merge Healthcare is
cooperating fully with the SEC. The SEC Staff has informed Merge
Healthcare that the Staff is considering recommending an injunctive or cease and
desist order against Merge Healthcare prohibiting violations of the reporting,
record-keeping, and internal control provisions under the Securities Exchange
Act of 1934. The Staff did not inform Merge Healthcare that it is
considering recommending any monetary sanctions against Merge
Healthcare. However, the matter has not yet been finally resolved,
and, until such final resolution, Merge Healthcare will continue to incur
expenses, including legal fees and other costs, in connection with the SEC’s
investigation.
On June
1, 2009, Merge Healthcare was served with a Summons and Complaint in the
Milwaukee County Circuit Court, State of Wisconsin, captioned
William C. Mortimore and
David M. Nosay v. Merge Technologies Inc. n/k/a Merge Healthcare Inc.
[sic]
, Case Number 09CV008356, Case Code 30301. The Complaint
includes a demand for a jury trial and alleges that the corporation unreasonably
refused Mortimore and Noshay’s request for indemnification; requests the court
order that they are entitled to indemnification under Wisconsin Statute Section
180.0851(2); alleges breaches of certain employment agreements; and a breach of
the covenant of good faith and fair dealing. Monetary damages are
unspecified. We have retained litigation counsel, notified our
appropriate insurers and intend to vigorously defend this action.
In
addition to the matters discussed above, we are from time to time parties to
legal proceedings, lawsuits and other claims incident to our business
activities. Such matters may include, among other things, assertions
of contract breach or intellectual property infringement, claims for indemnity
arising in the course of our business and claims by persons whose employment has
been terminated. Such matters are subject to many uncertainties and
outcomes are not predictable with assurance. Consequently, we are
unable to ascertain the ultimate aggregate amount of monetary liability, amounts
which may be covered by insurance or recoverable from third parties, or the
financial impact with respect to these matters as of the date of this
report.
Our
operations and financial results are subject to various risks and uncertainties
that could adversely affect our business, financial condition, results of
operations, and the market price for our Common Stock. Part I,
Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year
ended December 31, 2008, includes a detailed discussion of these
factors. These factors have not changed materially from those
included in the Form 10-K, other than as set forth below.
If
we are unable to successfully identify or effectively integrate acquisitions,
our financial results may be adversely affected.
We have
in the past and may in the future acquire and make investments in companies,
products or technologies that we believe complement or expand our existing
business and assist in quickly bringing new products to market. There
can be no assurance that we will be able to identify suitable candidates for
successful acquisitions at acceptable prices. In addition, our
ability to achieve the expected returns and synergies from past and future
acquisitions and alliances depends in part upon our ability to integrate the
offerings, technology, administrative functions, and personnel of these
businesses into our business in an efficient and effective manner. We
cannot predict whether we will be successful in integrating acquired businesses
or that our acquired businesses will perform at anticipated
levels. In addition, our past and future acquisitions may subject us
to unanticipated risks or liabilities, or disrupt operations and divert
management’s attention from day-to-day operations. In addition, we
may use our capital stock to acquire acquisition targets, which could be
dilutive to the existing stockholders and cause a decline in the price of our
Common Stock.
In making
or attempting to make acquisitions or investments, we face a number of risks,
including risks related to:
·
|
Identifying
suitable candidates, performing appropriate due diligence, identifying
potential liabilities and negotiating acceptable
terms;
|
·
|
Reducing
our working capital and hindering our ability to expand or maintain our
business, if acquisitions are made using
cash;
|
·
|
The
potential distraction of our management, diversion of our resources and
disruption to our business;
|
·
|
Retaining
and motivating key employees of the acquired
companies;
|
·
|
Managing
operations that are distant from our current headquarters and operational
locations;
|
·
|
Entering
into industries or geographic markets in which we have little or no prior
experience;
|
·
|
Competing
for acquisition opportunities with competitors that are larger or have
greater financial and other resources than
us;
|
·
|
Accurately
forecasting the financial impact of a
transaction;
|
·
|
Assuming
liabilities of acquired companies, including existing or potential
litigation related to the operation of the business prior to the
acquisition;
|
·
|
Maintaining
good relations with the customers and suppliers of the acquired company;
and
|
·
|
Effectively
integrating acquired companies and achieving expected
synergies.
|
In
addition, any acquired business, products or technologies may not generate
sufficient revenue and net income to offset the associated costs of such
acquisitions, and such acquisitions could result in other adverse
effects. Moreover, from time to time, we may enter into negotiations
for the acquisition of businesses, products or technologies but be unable or
unwilling to consummate the acquisitions under consideration. This
can be expensive and could cause significant diversion of managerial attention
and resources.
The
market price of our Common Stock may decline as a result of our acquisition of
etrials.
The
market price of our Common Stock may decline after the acquisition of etrials is
completed. Some of the issues that we could face are:
·
|
the
integration of etrials' business is unsuccessful or takes longer or is
more disruptive than anticipated;
|
·
|
we
do not achieve the expected synergies or other benefits of the etrials
acquisition as rapidly or to the extent anticipated, if at
all;
|
·
|
the
effect of the acquisition of etrials on our financial results does not
meet the expectations of Merge, financial analysts or investors;
or
|
·
|
after
the acquisition, etrials' business does not perform as
anticipated.
|
In
connection with the acquisition of etrials, we estimate that we could issue up
to approximately 4.0 million additional shares of our Common
Stock. The increase in the number of outstanding shares of our Common
Stock may lead to sales of such shares or the perception that such sales may
occur, either of which may adversely affect the market price of our Common
Stock.
Our
acquisition of etrials could trigger certain provisions contained in etrials'
agreements with third parties that could permit such parties to terminate that
agreement.
etrials
may be a party to agreements that permit a counter-party to terminate an
agreement or receive payments because the acquisition would cause a default or
violate an anti-assignment, change of control or similar clause in such
agreements. If this happens, we may have to seek to replace that
agreement with a new agreement or make additional payments under such
agreements. However, we may be unable to replace a terminated
agreement on comparable terms or at all. Depending on the importance
of such agreement to etrials’ business, the failure to replace a terminated
agreement on similar terms or at all, and requirements to pay additional
amounts, may increase our costs of operating etrials' business or prevent us
from operating etrials' business.
We
expect to incur significant costs associated with the acquisition of
etrials.
We
estimate that we will incur direct transaction costs of approximately $0.6
million associated with the acquisition of etrials, including direct costs of
the acquisition as well as liabilities to be accrued in connection with the
acquisition (excluding any related severance costs). All such direct
acquisition costs will be expensed as incurred by us. In addition,
etrials estimates that it will incur direct transaction costs of approximately
$1.8 million, some of which may be paid directly by us. We believe
the combined entity may incur charges to operations, which are not currently
reasonably estimable, in the quarter in which the acquisition is completed or
the following quarters, to reflect costs associated with integrating the two
companies. We may incur additional material charges in subsequent
quarters to reflect additional costs associated with the
acquisition. We anticipate that the combination will require
significant cash outflows for acquisition and integration related
costs. If the benefits of the acquisition do not exceed the costs of
integrating the businesses, our financial results may be adversely
affected.
Litigation
or regulatory actions could adversely affect our financial
condition.
On April
27, 2006, Merge received an informal, non-public inquiry from the SEC requesting
voluntary production of documents and other information. The inquiry
principally related to our announcement, on March 17, 2006, that we would
investigate allegations of improprieties related to financial reporting and
revise our results of operations for the fiscal quarters ended June 30, 2005,
and September 30, 2005. On July 10, 2007, SEC Staff advised Merge
Healthcare that the SEC had issued a formal order of investigation in this
matter. Merge Healthcare is cooperating fully with the
SEC. The SEC Staff has informed us that the Staff is considering
recommending an injunctive or cease and desist order against it prohibiting
violations of the reporting, record-keeping, and internal control provisions
under the Securities Exchange Act of 1934. The Staff did not inform
us that it is considering recommending any monetary sanctions against
it. However, the matter has not yet been finally resolved, and, until
such final resolution, we will continue to incur expenses, including legal fees
and other costs, in connection with the SEC’s investigation.
On June
1, 2009, Merge Healthcare was served with a Summons and Complaint in the
Milwaukee County Circuit Court, State of Wisconsin, captioned
William C. Mortimore and
David M. Nosay v. Merge Technologies Inc. n/k/a Merge Healthcare Inc.
[sic]
, Case Number 09CV008356, Case Code 30301. The Complaint
includes a demand for a jury trial and alleges that the corporation unreasonably
refused Mortimore and Noshay’s request for indemnification; requests the court
order that they are entitled to indemnification under Wisconsin Statute Section
180.0851(2); alleges breaches of certain employment agreements; and a breach of
the covenant of good faith and fair dealing. Monetary damages are
unspecified. We have retained litigation counsel, notified our
appropriate insurers and intend to vigorously defend this action.
As a
result of lawsuits and regulatory matters, including the matters discussed
above, we have incurred and may continue to incur substantial
expenses.
Proposed
federal U.S. government reductions in Medicare and Medicaid reimbursement rates
for radiology procedures could negatively affect revenues of our hospital and
imaging clinic customers, which could reduce our customers’ ability to purchase
our software and services.
Medicare
and Medicaid use scanner utilization rates as a factor in determining
reimbursement rates. They currently use a 50% utilization rate factor
in the reimbursement formula. The Medicare Payment Advisory
Commission (MedPAC) recommended increasing this factor to 90% utilization, or an
increase of 80%, as part of the healthcare reform act currently under
consideration in Congress. This change in the utilization rate has
the potential to dramatically decrease reimbursements for radiology procedures,
and could have a particularly devastating impact on patients, hospitals and
imaging clinics in rural regions of the country where utilization rates are
naturally lower. The resulting effect on our business could be a
reduction in software and service procurement of our customers and potentially
the closure of their facilities.
See also
the discussions in Part I, Item 2, “Liquidity and Capital Resources” and Part I,
Item 4, “Controls and Procedures” in this Quarterly Report on Form
10-Q.
Item 2.
|
Unregistered
Sales of Equity Securities and use of
Proceeds
|
None.
Item 3.
|
Defaults
Upon Senior Securities
|
None.
Item 4.
|
Submission
of Matters to a Vote of Security
Holders
|
Our
Annual Meeting of Shareholders was held on June 12, 2009 (“Annual
Meeting”). At the time of our Annual Meeting, we had received
executed forms of proxy in the same form as addressed on our behalf to the
shareholders of record as of April 17, 2009, the record date for our Annual
Meeting, representing 51,736,723 shares in person or by
proxy. Matters voted on and the results of such votes are as
follows:
The
holders of 51,580,864 shares voted FOR ratification of our appointment of the
firm BDO Seidman, LLP as our independent registered public accounting firm for
the 2009 fiscal year; the holders of 64,853 shares voted AGAINST such
ratification, and the holders of 91,006 shares ABSTAINED.
Of the
proxies represented at our Annual Meeting and referred to above, the following
number of shares were voted FOR and WITHHELD authority for the following six (6)
individuals to serve as our Directors until the next annual meeting of the
shareholders, or otherwise as provided in our bylaws:
|
|
Votes
For
|
|
|
Votes
Against or Withheld
|
|
Result
|
Elect
Dennis Brown to serve as Director until the next annual meeting of
Shareholders
|
|
|
51,281,563
|
|
|
|
455,160
|
|
Elected
|
|
|
|
|
|
|
|
|
|
|
Elect
Justin C. Dearborn to serve as Director until the next annual meeting of
Shareholders
|
|
|
51,433,503
|
|
|
|
303,220
|
|
Elected
|
|
|
|
|
|
|
|
|
|
|
Elect
Michael W. Ferro, Jr. to serve as Director until the next annual meeting
of Shareholders
|
|
|
51,430,764
|
|
|
|
305,959
|
|
Elected
|
|
|
|
|
|
|
|
|
|
|
Elect
Gregg G. Hartemayer to serve as Director until the next annual meeting of
Shareholders
|
|
|
51,270,214
|
|
|
|
466,509
|
|
Elected
|
|
|
|
|
|
|
|
|
|
|
Elect
Richard A. Reck to serve as Director until the next annual meeting of
Shareholders
|
|
|
51,432,653
|
|
|
|
304,070
|
|
Elected
|
|
|
|
|
|
|
|
|
|
|
Elect
Neele E. Stearns, Jr. to serve as Director until the next annual meeting
of Shareholders
|
|
|
51,429,027
|
|
|
|
307,696
|
|
Elected
|
No other
business was brought before the Annual Meeting.
Item 5.
|
Other
Information
|
None.
(a) Exhibits
See
Exhibit Index
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.
|
Registrant:
|
|
|
|
MERGE
HEALTHCARE INCORPORATED
|
|
|
July
31, 2009
|
By:
|
/s/
Justin C. Dearborn
|
|
|
Justin
C. Dearborn
|
|
|
Chief
Executive Officer
|
|
|
(principal
executive officer)
|
|
|
|
July
31, 2009
|
By:
|
/s/
Steven M. Oreskovich
|
|
|
Steven
M. Oreskovich
|
|
|
Chief
Financial Officer
|
|
|
(principal
financial officer and principal accounting
officer)
|
2
|
|
Agreement and Plan
of Merger, dated as of May 30, 2009, by and among Registrant, Merge
Acquisition Corp., a wholly–owned subsidiary of Registrant, and etrials
Worldwide, Inc.
(A)
|
3.1
|
|
Certificate of
Incorporation as filed on October 14, 2008
(B)
|
3.2
|
|
Certificate of
Merger as filed on December 3, 2008 and effective on December 5, 2008
(B)
|
3.3
|
|
Bylaws of
Registrant
(B)
|
4.1
|
|
Form of Stockholder
Support Agreement, dated as of May 30, 2009, by and among Registrant and
certain stockholders of etrials Worldwide, Inc.
(A)
|
4.2
|
|
Term Note, dated
June 4, 2008, between Registrant and Merrick RIC, LLC
(C)
|
10.1
|
|
Registration rights
Agreement, dated June 4, 2008, by and between Registrant and Merrick RIS,
LLC
(C)
|
10.2
|
|
Securities Purchase
Agreement, dated May 21, 2008, by and among Registrant, the subsidiaries
listed on the Schedule of Subsidiaries attached thereto, and Merrick RIS,
LLC
(D)
|
10.3
|
|
Employment Letter
Agreement between the Registrant and Justin C. Dearborn entered into as of
June 4, 2008
(E)
|
10.4
|
|
Employment Letter
Agreement between the Registrant and Steven M. Oreskovich entered into as
of June 4, 2008
(E)
|
10.5
|
|
Employment Letter
Agreement between the Registrant and Nancy J. Koenig entered into as of
June 4, 2008
(E)
|
10.6
|
|
Employment Letter
Agreement between the Registrant and Antonia Wells entered into as of June
4, 2008
(E)
|
10.7
|
|
Amendment dated July
1, 2008 to that certain Securities Purchase Agreement, dated May 21, 2008,
by and among the Registrant, certain of its subsidiaries and Merrick RIS,
LLC
(F)
|
10.8
|
|
Consulting
Agreement, effective as of January 1, 2009, by and between Registrant and
Merrick RIS, LLC
(B)
|
10.9
|
|
1996 Stock Option
Plan for Employees of Registrant dated May 13, 1996
(G)
,
as amended and restated in its entirety as of September 1, 2003
(H)
|
10.10
|
|
1998 Stock Option
Plan for Directors
(I)
|
10.11
|
|
2000 Employee Stock
Purchase Plan of Registrant effective July 1, 2000
(J)
|
10.12
|
|
2003 Stock Option
Plan of Registrant dated June 24, 2003, and effective July 17, 2003
(H)
|
10.13
|
|
2005 Equity
Incentive Plan adopted March 4, 2005, and effective May 24, 2005
(K)
|
31.1
|
|
Certificate
of Chief Executive Officer (principal executive officer) Pursuant to Rule
13a–14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant
to Section 302 of the Sarbanes–Oxley Act of 2002
|
31.2
|
|
Certificate
of Chief Financial Officer (principal accounting officer) Pursuant to Rule
13a–14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant
to Section 302 of the Sarbanes–Oxley Act of 2002
|
32
|
|
Certificate
of Chief Executive Officer (principal executive officer) and Chief
Financial Officer (principal accounting officer) Pursuant to Section 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes–Oxley Act of 2002
|
(A)
|
|
Incorporated
by reference from the Registrant’s Current Report on Form 8–K dated May
30, 2009.
|
(B)
|
|
Incorporated
by reference from the Registrant’s Annual Report on Form 10–K dated March
11, 2009.
|
(C)
|
|
Incorporated
by reference from the Registrant’s Current Report on Form 8–K dated June
6, 2008.
|
(D)
|
|
Incorporated
by reference from the Registrant’s Current Report on Form 8–K dated May
22, 2008.
|
(E)
|
|
Incorporated
by reference from the Registrant’s Current Report on Form 8–K dated July
15, 2008.
|
(F)
|
|
Incorporated
by reference from the Registrant’s Current Report on Form 8–K dated July
7, 2008.
|
(G)
|
|
Incorporated
by reference from Registration Statement on Form SB-2 No. 333-39111)
effective January 29, 1998.
|
(H)
|
|
Incorporated
by reference from the Registrant’s Quarterly Report on Form 10–Q for the
three and nine months ended September 30, 2003.
|
(I)
|
|
Incorporated
by reference from the Registrant’s Annual Report on Form 10–KSB for the
fiscal year ended December 31, 1997.
|
(J)
|
|
Incorporated
by reference from the Registrant’s Proxy Statement for Annual Meeting of
Shareholders dated May 8, 2000.
|
(K)
|
|
Incorporated
by reference from the Registrant’s Registration Statement on Form S–8 (No.
333–125386) effective June 1, 2005.
|
Exhibit 31.1
Pursuant
to Rule 13a–14(a) under the Securities Exchange Act of 1934, as
Adopted
Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
I, Justin
C. Dearborn certify that:
1.
|
|
I
have reviewed this quarterly report on Form 10-Q of Merge Healthcare
Incorporated;
|
|
|
|
2.
|
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
|
|
3.
|
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|
|
|
4.
|
|
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
|
|
|
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|
|
|
|
|
(b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
|
|
|
|
(c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
|
|
|
|
|
|
(d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
|
|
|
5.
|
|
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s
Board of Directors (or such other persons performing the equivalent
functions):
|
|
|
|
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
|
|
|
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date:
July 31, 2009
|
|
/s/
Justin C. Dearborn
|
|
Justin
C. Dearborn
|
Chief
Executive Officer
|
(principal
executive officer)
|
Exhibit 31.2
Pursuant
to Rule 13a–14(a) under the Securities Exchange Act of 1934, as
Adopted
Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
I, Steven
M. Oreskovich certify that:
1.
|
|
I
have reviewed this quarterly report on Form 10-Q of Merge Healthcare
Incorporated;
|
|
|
|
2.
|
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
|
|
3.
|
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|
|
|
4.
|
|
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
|
|
|
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|
|
|
|
|
(b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
|
|
|
|
(c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
|
|
|
|
|
|
(d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
|
|
|
5.
|
|
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s
Board of Directors (or such other persons performing the equivalent
functions):
|
|
|
|
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
|
|
|
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date:
July 31, 2009
|
|
/s/
Steven M. Oreskovich
|
|
Steven
M. Oreskovich
|
Chief
Financial Officer
|
(principal
financial officer and principal accounting
officer)
|
Exhibit 32
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL
FINANCIAL
OFFICER
Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to
Section 906
of the Sarbanes-Oxley Act of 2002
In
connection with the Quarterly Report on Form 10-Q of MERGE HEALTHCARE
INCORPORATED (the “Company”) for the period ended June 30, 2009, as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), Justin
C. Dearborn, as principal executive officer of the Company, and Steven M.
Oreskovich, as principal financial officer of the Company, each hereby certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that, to the best of their
knowledge:
(1)
|
|
The
Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934;
and
|
(2)
|
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
Date:
July 31,
2009
|
|
By:
|
|
/s/
Justin C. Dearborn
|
|
|
|
|
|
|
Justin
C. Dearborn
|
|
|
|
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
(principal
executive officer)
|
|
|
|
|
|
|
|
Date:
July 31,
2009
|
|
By:
|
|
/s/
Steven M. Oreskovich
|
|
|
|
|
|
|
Steven
M. Oreskovich
|
|
|
|
|
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
(principal
financial officer and principal accounting
officer)
|
This
certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for
purposes of Section 18 of the Securities Exchange Act of 1934, as
amended.
Mirage Energy (PK) (USOTC:MRGE)
Historical Stock Chart
From Sep 2024 to Oct 2024
Mirage Energy (PK) (USOTC:MRGE)
Historical Stock Chart
From Oct 2023 to Oct 2024