<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K-A
AMENDMENT NO. 2
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report: November 17, 1999
(Date of earliest event reported)
MERGE TECHNOLOGIES INCORPORATED
(Exact name of registrant as specified in the charter)
Wisconsin 0-29486 39-1600938
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
1126 South 70th St.
Milwaukee, Wisconsin 53214-3151
(Address of Principal Executive Offices)
(414) 977-4000
Registrant's telephone number including area code)
N/A
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
(a) Financial Statements of Business Acquired
AUDITORS' REPORT
TO THE SHAREHOLDERS OF INTERPRA MEDICAL IMAGING NETWORK LTD.
We have audited the balance sheet of Interpra Medical Imaging Network Ltd. as at
August 31, 1998 and 1999 and the statements of operations, shareholders' equity
(deficiency), cash flows and comprehensive income (loss) for each of the years
in the two-year period ended August 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at August 31, 1998 and 1999
and the results of its operations and the cash flows for each of the years in
the two-year period ended August 31, 1999 in accordance with accounting
principles generally accepted in the United States of America.
/s/ Bennett Gold
Chartered Accountants
Toronto, Ontario, Canada
October 15, 1999
2
<PAGE> 3
INTERPRA MEDICAL IMAGING NETWORK LTD.
BALANCE SHEETS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
AUGUST 31
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 140,448 $ 8,254
Accounts receivable.................................................... 9,101 10,000
Prepaid expenses and other sundry assets............................... 1,817 11,747
Taxes recoverable...................................................... 124,183 383,289
----------- -----------
Total current assets........................................................ 275,549 413,290
Property and equipment:
Computer equipment..................................................... 69,627 57,535
Office equipment....................................................... 8,796 9,757
Leasehold improvements................................................. 6,301 13,040
----------- -----------
84,724 80,332
Less accumulated depreciation.......................................... (15,227) (26,345)
----------- -----------
Net property and equipment.................................................. 69,497 53,987
Trademark................................................................... 4,730 --
Software licenses........................................................... -- 250,000
Deferred interest charge.................................................... 96,175 807
----------- -----------
Total assets................................................................ $ 445,951 $ 718,084
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable and accrued liabilities............................... $ 60,740 $ 232,794
Notes payable to investors............................................. 16,532 37,040
Deposits for subscriptions............................................. 3,224 --
Customer deposits...................................................... -- 520,000
----------- -----------
Total current liabilities................................................... 80,496 789,834
Notes payable............................................................... 195,402 343,197
----------- -----------
Total liabilities........................................................... 275,898 1,133,031
----------- -----------
Shareholders' Equity (deficiency)
Common stock, no par value:
authorized unlimited, issued and outstanding 915 shares at August
31, 1998 and 1,323.53 at August 31, 1999............................... 899,763 1,256,857
Accumulated deficit.................................................... (705,465) (1,646,744)
Other comprehensive loss - cumulative translation adjustment........... (24,245) (25,060)
----------- -----------
Total shareholders' equity (deficiency)..................................... 170,053 (414,947)
----------- -----------
Total liabilities and shareholders' equity (deficiency)..................... $ 445,951 $ 718,084
=========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
INTERPRA MEDICAL IMAGING NETWORK LTD.
STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31, 1997, 1998 AND 1999
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
(unaudited)
Net sales........................................... $ -- $ 20,936 $ 269,754
----------- ----------- -----------
Operating costs and expenses:
Product research and development............... 13,578 363,473 654,042
General and administrative..................... 9,812 241,266 437,875
----------- ----------- -----------
Total operating costs and expenses.................. 23,390 604,739 1,091,917
----------- ----------- -----------
Operating loss...................................... (23,390) (583,803) (822,163)
----------- ----------- -----------
Other expenses
Interest, net.................................. (21,332) (76,940) (95,335)
Other, net..................................... -- -- (23,781)
----------- ----------- -----------
Total other expenses................................ (21,332) (76,940) (119,116)
----------- ----------- -----------
Net loss............................................ (44,722) (660,743) (941,279)
=========== =========== ===========
Basic and diluted net loss per share................ $ (931.71) $ (803.82) $ (988.74)
Shares used to compute basic and diluted
loss per share...................................... 48 822 952
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
INTERPRA MEDICAL IMAGING NETWORK LTD.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
PERIODS ENDED AUGUST 31, 1997, 1998 AND 1999
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Accumulated Cumulative Total
Common Stock Deficit Translation Shareholders'
Shares Amount (Note 5) Adjustment Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1996 $ -- $ -- $ -- $ -- $ --
----------- ----------- ----------- ----------- -----------
Issuance of common stock.................. 590.00 307,307 -- -- 307,307
Net loss.................................. -- -- $ (44,722) -- (44,722)
Foreign currency translation
adjustment................................ -- -- -- (4,154) (4,154)
----------- ----------- ----------- ----------- -----------
Balance at August 31, 1997 (unaudited)......... 590.00 $ 307,307 $ (44,722) $ (4,154) $ 258,431
Issuance of common stock.................. $ 325.00 $ 592,456 -- -- 592,456
Net loss.................................. -- -- (660,743) -- (660,743)
Foreign currency translation
adjustment................................ -- -- (20,091) (20,091)
----------- ----------- =========== =========== ===========
Balance at August 31, 1998..................... $ 915.00 $ 899,763 $ (705,465) $ (24,245) $ 170,053
Issuance of common stock.................. $ 408.53 $ 357,094 -- -- 357,094
Net loss.................................. -- -- (941,279) -- (941,279)
Foreign currency translation
adjustment................................ -- -- -- (815) (815)
=========== =========== ----------- ----------- -----------
Balance at August 31, 1999..................... 1,323.53 $ 1,256,857 $(1,646,744) $ (25,060) $ (414,947)
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
INTERPRA MEDICAL IMAGING NETWORK LTD.
STATEMENTS OF CASH FLOWS
Years ended August 31, 1997, 1998 and 1999
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Years ended August 31,
-----------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
(unaudited)
Cash flows from operating activities:
Net loss ...................................... $ (44,722) $(660,743) $(941,279)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Depreciation and amortization ................. 455 15,813 11,118
Loss on disposal of assets .................... -- -- 18,124
Expenses related to issuance of common stock .. 21,991 154,446 338,152
Change in assets and liabilities:
Accounts receivable ...................... -- (9,101) (899)
Prepaid expenses and other sundry assets.. (4,712) (121,288) (269,036)
Accounts payable and accrued liabilities.. 7,749 52,992 172,054
Customer deposits ........................ -- -- 520,000
---------- --------- --------
Net cash used in operating activities .............. (19,239) (567,881) (151,766)
---------- --------- --------
Cash flows from investing activities:
Purchases of property and equipment ........... (2,988) (81,735) (9,003)
Other assets................................... -- (4,730) (250,000)
---------- --------- --------
Net cash used in investing activities .............. (2,988) (86,465) (259,003)
---------- --------- --------
Cash flows from financing activities:
Notes payable to investors..................... 94,014 117,920 168,303
Shareholder subscriptions ..................... 58,216 (54,992) (3,224)
Issuance of common stock, net of expenses ..... 91,557 522,963 116,132
---------- --------- ---------
Net cash provided by financing activities .......... 243,787 585,891 281,211
---------- --------- ---------
Effect of exchange rate changes on cash ............ (4,503) (8,154) (2,638)
Net increase (decrease) in cash and cash equivalents 217,057 (76,609) (132,194)
Cash and cash equivalents, beginning of year ....... -- 217,057 140,448
---------- --------- ---------
Cash and cash equivalents, end of year ............. $ 217,057 $ 140,448 $ 8,254
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 7
INTERPRA MEDICAL IMAGING NETWORK LTD.
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED AUGUST 31, 1997, 1998 AND 1999
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------
1997 1998 1999
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Net loss ............................ $ (44,722) $(660,743) $(941,279)
Other comprehensive loss - cumulative
translation adjustment ........... (4,154) (20,091) (815)
--------- --------- ---------
Comprehensive net loss .............. $ (48,876) $(680,834) $(942,094)
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 8
INTERPRA MEDICAL IMAGING NETWORK LTD.
NOTES TO FINANCIAL STATEMENTS
August 31, 1999 and 1998
1. SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Operations
In 1996, Interpra Medical Imaging Network Ltd. was founded in Canada as a
software publisher to develop workflow management systems for radiologists. Its
products include a patent-pending software architecture representing a unique,
Internet-based approach integrating healthcare systems and data.
(b) Basis of Presentation
These financial statements have been presented in accordance with US
generally accepted accounting principles as a result of the subsequent purchase
agreement between Merge Technologies Incorporated and Interpra Medical Imaging
Network Ltd. (as disclosed in Note 9 below). Comparative figures have been
restated to reflect this basis of presentation.
(c) Cash and Cash Equivalents
For the purposes of the balance sheets and the statements of cash flows,
the Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
(d) Property and Equipment
Property and equipment are stated at cost. Amortization is calculated using
the declining balance basis at the following annual rates:
<TABLE>
<S> <C>
Computer hardware 30%
Office equipment 20%
Computer software 100%
</TABLE>
Leasehold improvements are amortized on straight-line method at the annual
rate of 20%.
(e) Software Licenses
The software licenses were purchased for use in products to be sold to
customers. These licenses are stated at cost. The licenses will be amortized
over their estimated useful lives of three years.
(f) Change in Reporting Currency
The financial statements for the years ended August 31, 1998 and 1997 were
originally reported in Canadian dollars (CAD). For the year ended August 31,
1999, the Company is reporting its financial statements in US dollars (USD) and
in accordance with US generally accepted accounting principles (GAAP), due to
the pending acquisition of the Company by Merge Technologies Incorporated, a
company incorporated in the United States. Comparative figures have been
converted into USD and presented in accordance with US GAAP.
(e) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities (if any) at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting periods. Actual results may vary from the current estimates. These
estimates are reviewed periodically and, as adjustments become necessary, they
are reflected in operations in the periods in which such adjustments become
known.
8
<PAGE> 9
2. NOTES PAYABLE
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Advances from shareholders $195,402 $201,032
Promissory note payable --- 142,164
----------- ------------
$195,402 $343,196
=========== ============
</TABLE>
(a) Advances from shareholders are non-interest bearing, have no
definite terms of repayment and are unlikely to be repaid within
the next 12 months. Pursuant to the terms and conditions of the
loan agreement between the Company and the lenders, these
individuals acquired 100 Class C common shares for no additional
consideration.
(b) The promissory note payable includes interest at the actual rate
of 8%, is due July 27, 2000 and is secured by a general security
agreement covering all assets.
3. COMMITMENTS
(a) Operating Leases
The Company has entered into a property lease agreement terminating on
January 31, 2002. Aggregate lease payments for each of the next three years are
as follows:
<TABLE>
<S> <C>
2000 $ 53,193
2001 $ 53,193
2002 $ 22,164
</TABLE>
b. Software Licenses
The company was committed to purchasing additional software licenses
totaling $250,000. Subsequent to year-end, the Company took delivery of the
software licenses and offset the obligation against a related accounts
receivable. [See Note 9(e)]
4. CAPITAL STOCK
AUTHORIZED
Unlimited number of shares without par value, as follows:
Class A Special shares, 1% per month non-cumulative dividend, redeemable and
retractable at $1CAD per share ($0.67USD) plus any unpaid declared dividend,
non-voting, non-participating.
Class B Special shares, discretionary non-cumulative dividend, in preference to
Class A or common shares, redeemable and retractable at $1CAD per share
($0.67USD) plus any unpaid declared dividend, non-voting, non-participating.
Class C common Shares, voting, participating.
<TABLE>
<CAPTION>
ISSUED
1998 1999
------------------- ------------------
<S> <C> <C>
915 Class C Common Shares (1999: 1,323.53 shares) $ 899,763 $ 1,256,857
=================== ==================
</TABLE>
9
<PAGE> 10
Note 4 (continued)
ISSUANCES
During the year, the Company issued 41.667 Class C common shares for a total
cash consideration of $116,132, of which $3,224 was received as deposits on
subscriptions in the previous year.
The Company issued 94.3 Class C common shares to employees in lieu of debt
totaling $125,338.
The Company issued 323.563 Class C common shares for NIL consideration during
the year. The amounts charged to operations to recognize these shares are as
follows:
<TABLE>
<CAPTION>
# OF EXPENSE
SHARES AMOUNT ALLOCATION
----------- ----------- ---------------------------
<S> <C> <C> <C>
Issued in lieu of interest on loan payable 5 $16,590 Interest
Issued to contractors 25 $ 8,099 Contractor salaries
Issued to employees 136 $44,064 Development salaries
Issued in lieu of consulting fees 157.563 $51,548 Consulting fees
</TABLE>
REPURCHASED
During the year, the Company repurchased and retired 51 Class C common shares
from a shareholder for cash consideration of $4,977.
5. RESTATEMENT OF ACCUMULATED DEFICIT, BEGINNING OF YEAR
As stated in Note 1(b) of these financial statements, the Company has
retroactively changed its accounting policies concerning shares issued for nil
consideration and the expensing of deferred development costs to comply with US
GAAP. In addition, as stated in note 1(f) of these financial statements, the
Company has retroactively changed the reporting currency to US dollars.
In order to reflect the cumulative effect of these retroactive changes to the
accounts, the balance of the Company's accumulated deficit as at September 1,
1997 and 1998 have been restated, as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deficit, beginning of year
As previously reported in CAD under Canadian GAAP
$(439,069) $ (12,527)
========= =========
Balance converted to USD, under Canadian GAAP
$(305,570) $ (9,154)
--------- ---------
Prior year's development costs charged to
operations under U.S. GAAP (136,773) (13,577)
Value of shares issued for nil consideration
charged to operations under U.S. GAAP (69,493) --
Future tax asset not recognized under U.S. GAAP (73,108) --
Interest expense incurred for shares issued in lieu
of interest paid (84,953) (21,991)
Cumulative adjustments from prior years (35,568) --
--------- ---------
(399,895) (35,568)
========= =========
Balance, as restated, in USD and under US GAAP
$(705,465) $ (44,722)
========= =========
</TABLE>
10
<PAGE> 11
Note 5 (continued)
As a result of these retroactive changes, the Company's net loss for 1998,
previously reported as $(426,542) CAD, has been reported as a net loss of
$(660,743) USD, as follows:
<TABLE>
<S> <C>
Net loss for 1998 as previously reported in CAD under
Canadian GAAP $(426,542)
=========
Net loss for 1998 converted to USD $(296,416)
Adjustments for retroactive changes in accounting policies (364,327)
=========
Net loss for 1998, in USD and under US GAAP $(660,743)
=========
</TABLE>
6. CONCENTRATION OF CREDIT RISK
Cash is on deposit with a major Canadian Chartered bank. Management does
not believe the Company is subject to any significant credit risk.
7. RELATED PARTY TRANSACTION
In the normal course of business, services were rendered by and payments
made to shareholders of the Company, as follows:
<TABLE>
<CAPTION>
1999 $1998
-------- --------
<S> <C> <C>
Developers' remuneration $257,044 $141,300
Management's remuneration $110,005 $122,100
Legal fees $ 3,982 $ 10,600
</TABLE>
8. INCOME TAXES
Non-capital losses:
The Company has accumulated non-capital losses for income tax purposes.
These losses are available for application against future years' taxable income,
until their expiry, as follows:
<TABLE>
<CAPTION>
Year of Expiry Federal Provincial
---------- ----------
<S> <C> <C>
2004 $ 16,568 $ 20,860
2005 355,011 444,318
2006 766,402 889,570
========== ==========
$1,137,981 $1,354,748
========== ==========
---------- ----------
</TABLE>
9. SUBSEQUENT EVENTS
(a) Acquisition
On September 3, 1999, a subsidiary of the US Company Merge Technologies
Incorporated (Merge), acquired control of Interpa Medical Imaging Network Ltd.
Pursuant to the articles of amendment [Note 9(b)], the existing common shares
were converted to non-voting exchangeable shares. The Company also issued 100
common shares from treasury, for cash consideration of $100CAD to the subsidiary
of Merge.
(b) Articles of Amendment
On September 3, 1999, Interpra filed articles of amendment. The amendment
provided for:
11
<PAGE> 12
Note 9 (continued)
(i) the cancellation of the previously authorized Class A and B Special
shares;
(ii) the creation of a new class of 420,000 exchangeable, non-voting,
non-dissenting shares as disclosed in note 9(c);
(iii) the conversion of the previously issued and outstanding Class C
common shares on the basis of 317.33 new Exchangeable shares for
each Class C common share; and
(iv) the creation of an unlimited number of common shares.
(c) New Exchangeable Shares
These shares rank in priority to common shares as well as to all other
junior shares regarding the payment of dividends. The amount of the dividend is
the Canadian cash equivalent of dividends declared on Merge Technologies
Incorporated common shares, in the same number, type and amount. Restrictions
exist if dividends are declared but have not been paid in full.
Shares are retractable to August 31, 2004. The retraction price is equal to
the market value of a specified number of Merge common shares plus any unpaid
declared dividends whether stock or cash. The retraction price is $4.50 per
share for the period between September 1, 2004 and October 1, 2004.
The holders of the exchangeable shares are not entitled to vote nor to
dissent on a proposal to amend the Articles of the Company in respect of changes
to the share capital.
A purchase agreement dated September 1, 1999 allowed for all shareholders
of the Company to exchange their exchangeable shares for Merge Technologies
Incorporated common shares at $0.01 par value.
(d) Change of Corporate Name
The articles of amendment dated September 3, 1999, for Interpra Medical
Imaging Network Ltd. provide for the Company to change its name to Merge
Technologies Canada Ltd.
(e) Significant Operations
Subsequent to year-end, the Company agreed to take delivery on an
additional $250,000 in software licenses. When combined with the licenses
acquired before August 31, 1999, the transaction had an aggregate value of
$500,000. The Company in turn provided software it developed valued at $500,000.
Receivables and payables generated by the transaction were set off against one
another.
The terms described in Note 2 Notes Payable have been amended subsequent to
year-end. The promissory note payable is non-interest bearing and due in the
year 2004.
As a result of the acquisition, the $10,000 accounts receivable and the
$520,000 deferred revenue at year end will be recharacterized as part of the
intercompany loan from Merge Technologies Incorporated. Revenue has been
recognized on the license related to the $10,000 receivable. No revenue will be
recognized on the $520,000 deferred revenue related to the intercompany loan
from Merge.
10. YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant system failure which could
12
<PAGE> 13
Note 10 (continued)
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers, suppliers or other
third parties, will be fully resolved.
13
<PAGE> 14
b. PRO FORMA FINANCIAL INFORMATION
On September 3, 1999, Merge Technologies Holdings Co., a wholly-owned
subsidiary of the Company formed to effect the acquisition of Interpra Medical
Imaging Network Ltd., acquired all the outstanding voting shares of Interpra.
The purchase price consisted of 420,000 common equivalent shares and 420,000 put
options exercisable in five years at $4.50 per share. In addition, $176,000 in
acquisition expenses were incurred. The acquisition was accounted for using the
purchase method.
The following unaudited pro forma summary presents the consolidated
results of operations for the year ended December 31, 1998 and the nine months
ended September 30, 1999 assuming the Interpra acquisition had occurred as of
January 1 of each year. These amounts are based upon certain assumptions and
estimates and do not necessarily represent results that would have occurred if
the acquisition had taken place on the basis assumed above, nor are they
indicative of the results of future combined operations.
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER SEPTEMBER
31, 1998 30, 1999
----------- -----------
(in thousands, except for per
share data)
<S> <C> <C>
Net sales....................................... $ 9,773 $ 9,468
Net loss........................................ (2,331) (2,928)
Basic loss per share............................ $ (0.38) $ (0.47)
</TABLE>
14
<PAGE> 15
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 hereunto duly authorized.
MERGE TECHNOLOGIES INCORPORATED
Date: November 17, 1999 By: /s/ William C. Mortimore
-----------------------------------------
William C. Mortimore,
President and Chief Executive Officer
Date: November 17, 1999 By: /s/ Colleen M. Doan
-----------------------------------------
Colleen M. Doan
Chief Financial Officer,
Treasurer and Secretary
15
