MRGE Mirage Energy Corporation (PK)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Amendment No. 1 to

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): February 25, 2015

Merge Healthcare Incorporated

(Exact name of registrant as specified in its charter)

(312) 565-6868

 (Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17-CFR 240.14a-12)

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

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Item 2.01 Completion of Acquisition or Disposition of Assets

This Amendment No. 1 on Form 8-K is being filed to provide the audited financial statements of D.R. Systems, Inc. (“DR Systems”) and the pro forma financial information related to our acquisition of DR Systems. On February 25, 2015, as reported in our Current Report on Form 8-K filed on March 3, 2015, we acquired 91.5% of the common stock of DR Systems. As of April 17, 2015, we acquired the remaining common stock of DR Systems and it is now a 100% owned subsidiary of Merge.

Item 9.01 Financial Statements and Exhibits

(a)

Financial Statements of Businesses Acquired. The audited financial statements of DR Systems, Inc. for the years ended December 31, 2014 and December 31, 2013 are included herein as Exhibit 99.1.

(b)

Pro Forma Financial Information. The unaudited pro forma condensed consolidated financial information is included herein as Exhibit 99.2.

(d)

Exhibits

23.1 Consent of Mayer Hoffman McCann P.C.

99.1 Audited Financial Statements of DR Systems, Inc. for the years ended December 31, 2014 and December 31, 2013.

99.2 Unaudited Pro Forma Condensed Consolidated Financial Information.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

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Exhibit 23.1

As independent auditors, we hereby consent to the use of our report dated March 4, 2015, relating to the financial statements of DR Systems, Inc. as of and for the years ended December 31, 2014 and 2013, in this Form 8-K/A of Merge Healthcare Incorporated filed on May 11, 2015.

/s/ Mayer Hoffman McCann P.C.

San Diego, California

May 11, 2015

 

 

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Exhibit 99.1

DR Systems, Inc.

Financial Statements

Years Ended December 31, 2014 and 2013

 

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DR Systems, Inc.

Contents

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Independent Auditors’ Report

To the Board of Directors and Stockholders of

DR Systems, Inc.

San Diego, California

We have audited the accompanying financial statements of DR Systems, Inc. (a California S corporation), which comprise the balance sheets as of December 31, 2014 and 2013, and the related statements of income, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

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Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of DR Systems, Inc. as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

As discussed in Note 12 to the financial statements, the Company was acquired by an unrelated party subsequent to December 31, 2014. Our opinion is not modified with respect to this matter.

/s/ Mayer Hoffman McCann P.C.

San Diego, California

March 4, 2015

 

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DR Systems, Inc.

Balance Sheets

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The accompanying notes are an integral part of these financial statements.

 

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DR Systems, Inc.

Statements of Income

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The accompanying notes are an integral part of these financial statements.

 

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DR Systems, Inc.

Statements of Stockholders' Equity

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The accompanying notes are an integral part of these financial statements.

 

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DR Systems, Inc.

Statements of Cash Flows

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The accompanying notes are an integral part of these financial statements.

 

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DR Systems, Inc.

Notes to Financial Statements

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DR Systems, Inc.

Notes to Financial Statements

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DR Systems, Inc.

Notes to Financial Statements

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DR Systems, Inc.

Notes to Financial Statements

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DR Systems, Inc.

Notes to Financial Statements

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DR Systems, Inc.

Notes to Financial Statements

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DR Systems, Inc.

Notes to Financial Statements

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DR Systems, Inc.

Notes to Financial Statements

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DR Systems, Inc.

Notes to Financial Statements

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Exhibit 99.2

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in thousands, except share data)

The following unaudited pro forma condensed consolidated financial statements are based upon the historical financial statements of Merge Healthcare Incorporated (“Merge,” “we,” “us” or “our”) and D.R. Systems, Inc. (“DR Systems”) after giving effect to our acquisition of 91.5% of the issued and outstanding shares of DR Systems on February 25, 2015, followed by our acquisition of the remaining 8.5% of the issued and outstanding shares of DR Systems as of April 17, 2015.

On February 25, 2015, we acquired 91.5% of the outstanding common shares and voting interest of DR Systems for cash consideration of $76,514. As of April 17, 2015, we acquired the remaining common stock of DR Systems for an estimated $7,104 and, as such, DR Systems became a 100% owned subsidiary of Merge. On February 25, 2015, we issued 50,000 shares of preferred stock, par value $0.01 per share, for an aggregate purchase price of $50,000 pursuant to a stock purchase agreement. We used the net proceeds to finance the acquisition of DR Systems and to pay fees related to the transactions.

The following unaudited pro forma condensed consolidated financial statements present (i) the historical balance sheets of Merge and DR Systems as of December 31, 2014, giving pro forma effect as if the acquisition and preferred stock issuance had occurred on December 31, 2014, and (ii) the historical statements of operations of Merge and DR Systems for the year ended December 31, 2014, giving pro forma effect as if the acquisition and the preferred stock issuance had occurred on January 1, 2014.

The historical financial information has been adjusted to give effect to pro forma events that are directly attributable to the preferred stock issuance and the acquisition, are factually supportable and, in the case of the pro forma statement of operations, have a recurring impact. The unaudited pro forma condensed combined financial statements are not necessarily indicative of the financial position or results of operations that may have actually occurred had the acquisition taken place on the dates noted, or the future financial position or operating results of the combined company. The pro forma adjustments are based upon available information and assumptions that we believe are reasonable.

The acquisition of DR Systems was accounted for in accordance with ASC Topic No. 805, Business Combinations. The total purchase price was allocated to the net tangible and intangible assets acquired and liabilities assumed using estimates made by us based on the work performed by independent valuation specialists, primarily through the use of discounted cash flow techniques. The allocation of the purchase price used in this unaudited pro forma condensed consolidated financial statement is preliminary and we expect to make adjustments, some of which could be material, until such time that we complete the final purchase price allocation.

Subsequent to the acquisition of DR Systems, we reversed a portion of a deferred tax asset valuation allowance that had been established against our net deferred tax assets related to U.S. consolidated federal and state jurisdictions. The release of this valuation allowance was not a direct result of our acquisition of DR Systems and occurred after the acquisition. The acquisition included additional sources of taxable income such as the reversal of temporary differences that are available to offset our deferred tax assets in future periods. The net income impact of the tax valuation allowance release was a tax benefit of approximately $18.4 million in 2015. We have excluded the impact of this valuation allowance release in the unaudited pro forma condensed consolidated balance sheet as of December 31, 2014, since the reversal of the valuation allowance occurred after the date of the acquisition. Merge has significant net operating loss carryforwards for federal income tax purposes and has, therefore, assumed no additional income tax expense in the unaudited pro forma condensed consolidated statement of operations in connection with the DR Systems acquisition.

The preferred stock issuance was accounted for in accordance with ASC Topic 480-10-S99-3A, SEC Staff Announcement: Classification and Measurement of Redeemable Securities. Preferred stock with redemption features that are not solely within the control of the issuer are required to be presented outside of permanent equity on the condensed consolidated balance sheet. We have presented the preferred stock in temporary or mezzanine equity on the unaudited pro forma condensed consolidated balance sheet and accreted up to the stated redemption value of $50,000 assuming the preferred stock was redeemable as of December 31, 2014. We have excluded the impact of the amortization of the beneficial conversion feature and the accretion to redemption value recognized in the three months ended March 31, 2015, from preferred stock dividends and dividend equivalents in the unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2014, as they are nonrecurring.

 

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The unaudited pro forma condensed consolidated statement of operations does not reflect the impact of any potential operational efficiencies, cost savings or economies of scale that Merge may achieve with respect to the combined operations. We have already incurred and anticipate incurring costs related to the preferred stock issuance and the acquisition. Based upon information available at the date of preparation of these pro forma financial statements, we anticipate total costs to be incurred will approximate $0.4 million for the acquisition and $0.6 million for the preferred stock issuance.

The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the historical consolidated financial statements and accompanying notes contained in the following:

·

Merge’s Annual Report on Form 10-K for the year ended December 31, 2014;

·

DR Systems’ audited financial statements for the years ended December 31, 2014 and December 31, 2013, included in this Form 8-K/A as Exhibit 99.1

 

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MERGE HEALTHCARE INCORPORATED

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

As of December 31, 2014

(In thousands)

 

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MERGE HEALTHCARE INCORPORATED

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2014

(In thousands, except for share data)

 

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Note 1.

Basis of Pro Forma Presentation

On February 25, 2015, we acquired 91.5% of the outstanding common shares and voting interest of DR Systems for cash consideration of $76,514. As of April 17, 2015, we acquired the remaining common stock of DR Systems for an estimated $7,104 and became a 100% owned subsidiary of Merge. On February 25, 2015, we issued 50,000 shares of Preferred Stock, par value $0.01 per share, for an aggregate purchase price of $50,000 pursuant to a stock purchase agreement. We used the net proceeds of the preferred stock issuance to finance the acquisition of DR Systems and to pay fees related to the transactions.

The unaudited pro forma condensed consolidated financial statements are based on the historical financial statements of Merge and DR Systems after giving effect to the preferred stock issuance, the acquisition and certain reclassifications and pro forma adjustments.

The unaudited pro forma condensed consolidated balance sheet assumes that the acquisition of DR Systems occurred on December 31, 2014. The pro forma condensed consolidated balance sheet combines the historical balances of Merge and DR Systems, after giving effect to pro forma adjustments.

The unaudited pro forma condensed consolidated statement of operations assumes that Merge’s acquisitions of DR Systems occurred on January 1, 2014. The Merge pro forma condensed consolidated statement of operations combines the historical results of Merge and DR Systems for the year ended December 31, 2014 and includes pro forma adjustments.

The unaudited pro forma condensed consolidated financial data are presented for informational purposes only and are not necessarily indicative of the results of operations or financial position for future periods or the results that actually would have been realized had the acquisitions described above been consummated as of December 31, 2014 (for the unaudited pro forma condensed consolidated balance sheet), or, January 1, 2014 (for the unaudited pro forma condensed consolidated statement of operations).

Note 2.

Purchase Price and Preliminary Purchase Price Allocation

The total purchase price for DR Systems was $76,514 on February 25, 2015. As of April 17, 2015, we acquired the remaining common stock of DR Systems for an estimated $7,104.

The purchase price for DR Systems will be allocated to tangible and identifiable intangible assets acquired and liabilities assumed, based on their estimated fair values as of the date the acquisition is completed. The excess of the purchase price over the net tangible and identifiable intangible assets will be recorded as goodwill. Based upon a preliminary valuation, the preliminary purchase price for DR Systems would be allocated as set forth in the following table as of December 31, 2014:

The preliminary allocation of the purchase price of DR Systems is based upon management’s estimates. These estimates and assumptions are subject to change upon final valuation.

Cash and other net tangible assets/liabilities: Cash and other net tangible assets were recorded at their respective estimated fair values. For the purpose of these unaudited pro forma condensed consolidated statements only, the estimated fair values of these assets and liabilities should be treated as preliminary values.

 

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Deferred revenues: For the purpose of these unaudited pro forma condensed consolidated statements only, the carrying value of deferred revenue has been reduced by approximately $5.7 million based on our preliminary valuation.

Deferred tax liabilities: For the purposes of these unaudited pro forma condensed consolidated statements, we have assumed that any deferred tax liability arising from the acquisition, consisting of mainly identifiable intangible assets, represent additional sources of taxable income that are available to offset deferred tax assets in future periods.

Goodwill: For the purpose of the unaudited pro forma condensed consolidated balance sheet as of December 31, 2014, goodwill represents the excess of the preliminary purchase price over the estimated fair value of tangible and identifiable intangible assets acquired. Goodwill includes amounts assignable to acquired workforce which are also intangible assets not subject to amortization.

Identifiable intangible assets subject to amortization: Identifiable intangible assets acquired that are subject to amortization include customer relationships, trade names, non-compete agreements with certain employees and purchased software and technology. Customer relationships represent the value of underlying relationships and agreements with customers. Trade names represent the fair value of marketing-related acquired assets. Purchased software and technology is comprised of products that have reached technological feasibility.

Estimated useful lives of intangible assets for the purposes of these pro forma statements are set forth in the following table:

The pro forma results of operations and financial position include adjustments to recognize the effects of these intangible assets and the associated amortization. The DR Systems intangible assets subject to amortization are being amortized on a straight line basis, which approximates Merge’s historical treatment for the majority of such assets.

Note 3.

Reclassifications and Pro Forma Adjustments

The following reclassifications have been reflected in the unaudited pro forma condensed consolidated financial statements:

(1)

Certain assets and liabilities and certain expenses in the audited financial statements of DR Systems as of and for the year ended December 31, 2014, have been reclassified to conform to the historical presentation of such statements by Merge.

The following pro forma adjustments have been reflected in the unaudited pro forma condensed consolidated balance sheet:

(2)

To record the cash proceeds from the issuance of preferred stock, cash used net of cash acquired for the acquisition of DR Systems and the payment of non-recurring transaction costs not incurred as of December 31, 2014, as set forth in the following table:

 

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(3)

To record fair value adjustments related to inventory, prepaid expenses and assumed liabilities and to record $351 for estimated acquisition expenses.

(4)

To record deferred tax liabilities related to acquisition of DR Systems. As a result of the acquisition and the recording of deferred tax liabilities, Merge released a deferred tax asset valuation allowance of $18.4 million during 2015. The release of that valuation allowance has not been included in this pro forma balance sheet since it was not directly related to the acquisition.

(5)

To record the preliminary valuation of purchased software and technology, customer relationships and other intangibles.

(6)

To record the preliminary valuation of goodwill.

(7)

To adjust the assumed deferred revenue balance of DR Systems to represent the fair value of our future legal performance obligations as if the acquisition occurred on December 31, 2014.

(8)

To record the estimated redemption value of the Series A convertible preferred stock as of the unaudited pro forma condensed consolidated balance sheet date assuming no events would have occurred to require an alternative redemption value as set forth in the following table:

(9)

To eliminate the equity of DR Systems, record accretion of preferred stock to redemption value and recognize acquisition expense as follows:

(10)

To record noncontrolling interest of $7,104 upon initial acquisition of DR Systems followed by subsequent acquisition of the noncontrolling interest.

The following pro forma adjustments have been reflected in the unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2014:

(11)

To record amortization related to the purchased and developed software recognized from the acquisition of DR Systems.

(12)

To record amortization related to the customer relationships, trade names and non-compete agreements recognized from the acquisition of DR Systems.

(13)

To record 8.5% annual preferred stock dividends.

 

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(14)

Change in weighted average shares equal to the dilutive effect of incremental shares from the assumed conversion of stock options and restricted stock awards due to an increase in pro forma net income. We apply the two-class method of calculating basic net income per share. Under the two-class method, net income is reduced by Preferred Stock dividends and dividend equivalents related to Preferred Stock accretion and residual earnings are allocated between common stock and participating securities based upon their participation rights. Our Preferred Stock is a participating security and shares in common stock dividends if declared. Basic net income per share is computed by dividing net income attributable to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing net income attributable to common shareholders by the weighted average number of shares of common stock outstanding during the period adjusted for the effects of potentially dilutive common stock equivalents which are comprised of; stock options, except for stock options with an exercise price of more than the average market price of our common stock during the period as such exercise would be anti-dilutive, restricted stock awards assuming the potential lapse of restrictions using the treasury stock method and convertible Preferred Stock using the if-converted method or the treasury stock method, whichever produces the greater dilution.

 

 

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