<PAGE> 1
Form 10-QSB
U.S. Securities and Exchange Commission
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 0-29486
Merge Technologies Incorporated
-------------------------------
(Exact name of small business issuer as specified in its charter.)
Wisconsin 39-1600938
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1126 South 70th Street, Milwaukee, WI 53214-3151
------------------------------------------------
(Address of principal executive offices)
414-977-4000
------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
As of August 7, 2000 the issuer had 5,793,427 shares of Common Stock outstanding
<PAGE> 2
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements...............................1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................5
PART II
Item 4. Submission of Matters to a Vote of Security Holders............10
Item 6. Exhibits and Reports on Form 8-K...............................10
Signatures.................................................11
Exhibit Index..............................................12
i
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PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
1999 2000
(UNAUDITED)
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents................... $ 2,044,035 $ 604,968
Accounts receivable, net of allowance
for doubtful accounts of $83,600 and
$36,169 at December 31, 1999 and
June 30, 2000 respectively................ 3,085,962 2,478,999
Inventory................................... 1,509,060 1,447,260
Prepaid expenses............................ 173,460 294,100
Taxes recoverable........................... 385,495 386,573
----------- -----------
7,198,012 5,211,900
----------- -----------
Property and equipment:
Computer equipment.......................... 2,698,889 3,010,116
Office equipment............................ 393,673 402,871
----------- -----------
3,092,562 3,412,987
Less accumulated depreciation............... 1,588,943 2,058,735
----------- -----------
Net property and equipment..................... 1,503,619 1,354,252
Purchased and developed software, net of
accumulated amortization of $3,953,422 and
$4,487,566 at December 31, 1999 and
June 30, 2000 respectively.................. 3,577,674 4,018,659
Goodwill, net of accumulated amortization
of $42,426 and $76,600 at December 31, 1999
and June 30, 2000 respectively.............. 429,469 411,521
Other intangibles, net of accumulated
amortization of $241,066 and $381,721 at
December 31, 1999 and June 30, 2000,
respectively................................ 304,132 246,197
Other.......................................... 215,963 175,423
----------- -----------
Total assets................................... $13,228,869 $11,417,952
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ 2,101,101 $ 1,567,864
Current portion of obligations under
capital leases............................ 15,050 27,080
Customer deposits........................... 204,496 384,804
Accrued wages............................... 402,883 523,569
Other accrued liabilities................... 151,304 112,276
----------- -----------
Total current liabilities...................... 2,874,834 2,615,593
Notes payable.................................. 141,876 144,200
Put options related to redeemable common stock. 1,223,670 1,293,810
Obligations under capital leases, excluding
current portion............................. 24,250 44,334
----------- -----------
Total liabilities........................... 4,264,630 4,097,937
Shareholders' equity
Preferred stock, $0.01 par value:
authorized 5,000,000, one share issued... --- ---
Common stock, $0.01 par value: authorized
30,000,000, issued and outstanding
5,793,427 shares at June 30, 2000......... 57,814 57,934
Additional paid-in capital.................. 14,333,392 14,287,558
Accumulated deficit......................... (5,487,418) (7,001,358)
Accumulated other comprehensive
income-cumulative translation adjustment.. 60,451 (24,119)
----------- -----------
Total shareholders' equity.................... 8,964,239 7,320,015
----------- -----------
Total liabilities and shareholders' equity.... $13,228,869 $11,417,952
=========== ===========
See accompanying notes to consolidated financial statements.
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MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales...................................... $ 2,815,938 $ 3,496,480 $ 6,235,353 $ 6,765,495
Cost of goods sold:
Purchased components....................... 654,792 1,113,540 1,505,820 1,916,955
Amortization of purchased and developed
software................................... 317,995 340,814 625,609 696,337
----------- ----------- ----------- -----------
Total cost of goods sold ..................... 972,787 1,454,354 2,131,429 2,613,292
----------- ----------- ----------- -----------
Gross profit.................................. 1,843,151 2,042,126 4,103,924 4,152,203
----------- ----------- ----------- -----------
Operating costs and expenses:
Sales and marketing........................ 1,172,859 1,327,749 2,289,039 2,680,075
Product research and development........... 474,647 532,745 856,041 1,057,116
General and administrative................. 529,734 784,779 964,906 1,428,682
Depreciation and amortization.............. 153,237 227,527 315,113 447,861
----------- ----------- ----------- -----------
Total operating costs and expenses............ 2,330,477 2,872,800 4,425,099 5,613,734
----------- ----------- ----------- -----------
Operating income (loss)....................... (487,326) (830,674) (321,175) (1,461,531)
----------- ----------- ----------- -----------
Total other income (expenses):
Interest expense........................... (3,291) (8,123) (3,294) (13,743)
Interest income............................ 33,912 6,209 67,685 14,650
Other, net................................. (47,223) (37,029) (127,342) (31,405)
----------- ----------- ----------- -----------
Total other expense........................... (16,602) (38,943) (62,951) (30,498)
----------- ----------- ----------- -----------
Loss before income taxes...................... (503,928) (869,617) (384,126) (1,492,029)
Income taxes expense (benefit)................ --- 9,858 3,800 21,911
Net loss...................................... $ (503,928) $ (879,475) $ (387,926) $(1,513,940)
=========== =========== =========== ===========
Accretion of put options...................... --- 35,070 --- 70,140
=========== =========== =========== ===========
Loss available to common shareholders......... $ (503,928) $ (914,545) $ (387,926) $(1,584,080)
=========== =========== =========== ===========
Basic and diluted net loss per share.......... $ (0.09) $ (0.15) $ (0.07) $ (0.26)
=========== =========== =========== ===========
Shares used to compute basic and diluted
net loss per share.......................... 5,778,216 6,198,703 5,778,216 6,198,460
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
2
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MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
---------------------------
1999 2000
----------- -----------
Cash flows from operating activities:
Net loss.................................... $ (387,926) $(1,513,940)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities
Depreciation and amortization.............. 830,104 1,144,198
Provision for doubtful accounts receivable. (29,442) (28,767)
Change in assets and liabilities:
Accounts receivable...................... (198,109) 635,731
Inventory................................ 390,368 61,800
Prepaid expenses......................... (108,390) (208,676)
Accounts payable......................... 61,907 (549,462)
Accrued expenses......................... (30,155) 65,296
Customer deposits........................ 80,003 180,307
Other.................................... 3,752 (51,446)
----------- -----------
Net cash provided by (used in)
operating activities........................ 612,112 (264,959)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment......... (266,424) (200,740)
Development of software..................... (702,022) (975,129)
----------- -----------
Net cash used in investing activities.......... (968,446) (1,175,869)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options..... --- 826
Principal payments under capital leases..... (9,069) (7,283)
----------- -----------
Net cash used in financing activities.......... (9,069) (6,457)
----------- -----------
Effect of exchange rate changes on cash........ 35,172 8,218
Net decrease in cash and cash equivalents...... (330,231) (1,439,067)
Cash and cash equivalents, beginning of period. 3,659,879 2,044,035
----------- -----------
Cash and cash equivalents, beginning of period. $ 3,329,648 $ 604,968
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes..................... $ 14,346 $ 16,150
Cash paid for interest......................... $ 4,477 $ 5,070
NON CASH FINANCING AND INVESTING ACTIVITIES:
Property and equipment acquired through
capital leases.............................. $ --- $ 39,396
Accretion of put options related to
exchangeable share rights................... $ --- $ 70,140
See accompanying notes to consolidated financial statements
3
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MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ----------------------------
1999 2000 1999 2000
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net loss................................... $ (503,928) $ (879,475) $ (387,926) $ (1,513,940)
Other comprehensive income (loss) -
cumulative translation adjustment....... 19,022 (20,906) 80,397 (84,570)
------------ ----------- ------------- ------------
Comprehensive net loss..................... $ (484,906) $ (900,381) $ (307,529) $ (1,598,510)
============ =========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared pursuant to the rules and regulations for reporting on Form 10-QSB.
Accordingly, certain information and footnotes required by generally accepted
accounting principles for complete financial statements are not included herein.
The interim statements should be read in conjunction with the financial
statements and notes thereto included in the Company's latest Annual Report on
Form 10-KSB.
The accompanying unaudited consolidated financial statements of the
Company reflect all adjustments of a normal recurring nature which are, in the
opinion of management, necessary to present a fair statement of the financial
position.
(2) Revenue Recognition
The Company recognizes revenue according to the American Institute of
Certified Public Accountants Statement of Position 97-2, Software Revenue
Recognition. Revenues from software fees and software maintenance are deferred
and recognized ratably over the contract period, which is generally one year.
Revenue from product sales is recognized upon shipment. No significant Company
obligations exist with regard to delivery or customer acceptance following
shipment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Certain statements in this report that are not historical facts
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of
1933, as amended (the Securities Act) and Section 21E of the Securities Exchange
Act of 1934, as amended (the Exchange Act). Discussions containing such
forward-looking statements may be included herein in the material set forth
under Management's Discussion and Analysis of Financial Condition and Results of
Operations as well as within this report generally. In addition, when used in
this report, the words believes, intends, anticipates, expects and similar
expressions are intended to identify forward-looking statements. These
statements are subject to a number of risks and uncertainties, including, among
others, the Company's lack of consistent profitability, history of operating
losses, fluctuations in operating results, credit and payment risks associated
with end-user sales, involvement with rapidly developing technology in highly
competitive markets, significant investment in new product development,
dependence on major customers, expansion of its international sales effort,
broad discretion of management and dependence on key personnel, risks associated
with product liability and product defects, costs of complying with government
regulation, changes in external competitive market factors which might impact
trends in the Company's results of operation, unanticipated working capital and
other cash requirements, general changes in the industries in which the Company
competes, and various other competitive factors that may prevent the Company
from competing successfully in the marketplace. Actual results could differ
materially from those projected in the forward-looking statements. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect any future events
or circumstances.
OVERVIEW
Our business is eHealth. Founded in 1987, Merge Technologies has been
developing, marketing and supporting clinical connectivity and information
management solutions for more than a decade. We are a global leader in the drive
towards an integrated healthcare enterprise, with 42% of our business in the
first six months of 2000 conducted with our international customers.
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Our products enable communication and automate transactions that occur
within and between healthcare organizations, healthcare professionals and their
patients. A healthcare organization uses our products to provide a
communications bridge to incompatible "legacy" medical devices and information
systems and to create a standards-based electronic repository for medical data.
Healthcare professionals using our products can reference pertinent information
and convert a patient's medical data into concise multi-media information that
may be included in an electronic patient record, distributed within a health
care organization's information network, and communicated externally to
referring physicians, their patients, insurers and others via the Internet. We
also provide services to assist customers in the planning, implementation and
on-going support of their eHealth connectivity and information management
solutions.
We classify our sales by application type. OEM/VAR products are sold
primarily through original equipment manufacturers and value-added resellers,
which integrate Merge's products into their own product offerings in order to
increase the functionality of their equipment or systems. Systems Solutions are
complete networked imaging applications using a combination of Merge components.
Systems Solutions are sold to end-users either directly or through distributors
under the Merge brand name. Professional Services includes both our MergeLink
training, advisory services, project management and medical standards
validation, and our Merge Integration Technology Services worldwide field
service organization. OEM/VAR, Systems Solutions and Professional Services sales
were as follows for the three-month and six-month periods ended June 30, 2000
and June 30, 1999.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-----------------------------------------
2000 1999 2000 1999
-------- -------- -------- --------
APPLICATION (UNAUDITED AND IN THOUSANDS)
OEM/VAR....................... $ 1,533 $ 1,496 $ 3,013 $ 3,032
Systems Solutions............. 1,601 1,015 3,015 2,717
Professional Services......... 362 305 737 486
-------- -------- -------- --------
$ 3,496 $ 2,816 $ 6,765 $ 6,235
======== ======== ======== ========
RESULTS OF OPERATIONS
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Net sales. Net sales increased by 24% to $3,496,000 in the three months
ended June 30, 2000 from $2,816,000 in the three months ended June 30, 1999. Net
sales of Systems Solutions accounted for the largest increase, rising by
$586,000 or 58% to $1,601,000 in the three months ended June 30, 2000 from
$1,015,000 in the three months ended June 30, 1999. The majority of the increase
is due to sales of systems directly to hospitals. We are accelerating our focus
on direct sales and marketing of Systems Solutions and are currently recruiting
additional field sales personnel.
Cost of goods sold. Cost of goods sold consists of purchased components
and amortization of purchased and developed software. The cost of purchased
components as a percentage of net sales was 32% in the three months ended June
30, 2000 compared to 23% in the three months ended June 30, 1999. The increase
in the cost of purchased components as a percentage of net sales is due to a
change in the product mix and increased discounts to certain customers. We are
modifying our discounting policies and focusing on growing sales of more
profitable product lines in order to decrease the cost of purchased components
as a percentage of net sales to historic levels in the future.
Amortization of purchased and developed software increased to $341,000
of net sales in the three months ended June 30, 2000 from $318,000 in the three
months ended June 30, 1999, due to commencement of amortization of certain
software development projects. However, as a percentage of net sales,
amortization of purchased and developed software decreased to 10% in the second
quarter of 2000 compared to 11% in the comparable period last
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year. Amortization of purchased and developed software is expected to continue
to increase in dollar terms but remain at or below the current level as a
percentage of net sales as net sales increase in the future.
Gross profit. Gross profit increased to $2,042,000 in the three months
ended June 30, 2000 from $1,843,000 in the three months ended June 30,1999. As a
percentage of net sales, gross profit was 58% in the three months ended June 30,
2000 compared to 65% in the three months ended June 30, 1999. The decrease in
gross profit as a percentage of net sales is due primarily to a change in
product mix and increased discounts. We have modified our discounting policies
and focused our sales efforts on more profitable products in order to restore
gross margins to historic levels in the future.
Sales and marketing. Sales and marketing expense increased $155,000 to
$1,328,000 in the three months ended June 30, 2000 from $1,173,000 in the three
months ended June 30, 1999. This increase is due primarily to additional
marketing and product service personnel and their related activities in support
of our objective of attaining sales growth in 2000. We expect to continue to
make additions to our sales/marketing and service staffs, and specifically, we
intend to recruit additional field sales personnel in order to increase direct
sales. Sales and marketing expense decreased as a percentage of net sales to 38%
in the three months ended June 30, 2000 from 42% in the three months ended June
30, 1999. We expect that over time sales and marketing expense will continue to
decline as a percentage of net sales.
Product research and development. Product research and development
expense increased $58,000 to $533,000 in the three months ended June 30, 2000
from $475,000 in the three months ended June 30, 1999. As a percentage of net
sales, product research and development expense decreased to 15% from 17% in the
comparable period last year. The increase in research and development expense in
terms of dollars is due primarily to the cost of additional software engineers
engaged in product development in Toronto. This workforce, which was added at
the time of the Interpra acquisition in September, 1999, is engaged in new
product development on our Merge Workflow products, including the releases this
quarter of MergePort(TM) and MergeWeb(TM). Product research and development
expense is expected to increase nominally in the next two quarters but to
decrease somewhat as a percentage of net sales as net sales increase.
General and administrative. General and administrative expense
increased $255,000 to $785,000 in the three months ended June 30, 2000 from
$530,000 in the three months ended June 30, 1999. As a percentage of net sales,
general and administrative expense increased to 22% in the three months ended
June 30, 2000 from 19% in the three months ended June 30, 1999. The increase
relates primarily to: administration costs for operating our subsidiaries in
Toronto and Tokyo, both of which were established in the second half of 1999;
and also, additional information technology infrastructure to support our
business and prepare for the anticipated expansion of sales. We expect general
and administrative expense to increase modestly for the balance of 2000 in
dollar terms and to decrease as a percentage of net sales due to anticipated
increases in net sales.
Depreciation and amortization. Depreciation and amortization expense
increased by $74,000 to $227,000 in the three months ended June 30, 2000 from
$153,000 in the three months ended June 30, 1999, primarily due to amortization
expense related to the acquisition of Interpra in September, 1999.
Total other expense, net. Total other expense, net, was an expense of
$39,000 in the three months ended June 30, 2000 compared to an expense of
$17,000 in the three months ended June 30, 1999. Net interest expense during the
quarter was $2,000 compared to net interest income of $31,000 in the three
months ended June 30, 1999 due to a decrease in cash balances.
Income taxes. We recognized an income tax expense in the three months
ended June 30, 2000 and in the three months ended June 30, 1999, despite
incurring losses for financial reporting purposes, due primarily to Japanese
income tax withholding on software royalties.
7
<PAGE> 10
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Net sales. Net sales increased by 9% to $6,765,000 in the six months
ended June 30, 2000 from $6,235,000 in the six months ended June 30, 1999. Net
sales of Systems Solutions accounted for the largest increase, rising by
$298,000 or 11% to $3,015,000 in the six months ended June 30, 2000 from
$2,717,000 in the six months ended June 30, 1999. The increase is due to sales
of systems directly to hospitals. We are accelerating our focus on direct sales
and marketing of System Solutions and are currently recruiting additional field
sales personnel.
Cost of goods sold. Cost of goods sold consists of purchased components
and amortization of purchased and developed software. The cost of purchased
components as a percentage of net sales was 28% in the six months ended June 30,
2000 compared to 24% in the six months ended June 30, 1999. The increase in the
cost of purchased components is due to a change in product mix and increased
discounts to certain customers. The cost of purchased components as a percentage
of net sales is expected to decrease to historic levels in the future.
Amortization of purchased and developed software was $696,000 in the
six months ended June 30, 2000 compared to $626,000 in the comparable period of
1999, due to commencement of amortization of certain software development
projects. As a percentage of net sales, amortization of purchased and developed
software was 10% in each of the first six months of 2000 and 1999. Amortization
of purchased and developed software is expected to continue to increase in
dollar terms, but remain at or below the current level as a percentage of net
sales as net sales increase in the future.
Gross profit. Gross profit increased to $4,152,000 in the six months
ended June 30, 2000 from $4,104,000 in the six months ended June 30, 1999 and
decreased as a percentage of net sales to 61% in the six months ended June 30,
2000 compared to 66% in the six months ended June 30, 1999. The decrease in
gross profit as a percentage of net sales is due primarily to the change in
product mix and increased discounts to certain customers. We have modified our
discounting policies and focused our sales efforts on more profitable products
in order to increase gross margins to historic levels in the future.
Sales and marketing. Sales and marketing expense increased $391,000 to
$2,680,000, or 40% of net sales, in the six months ended June 30, 2000 from
$2,289,000, or 37% of net sales, in the six months ended June 30, 1999. This
increase is due primarily to additional marketing and product service personnel
and their related activities in support of our objective of attaining sales
growth in 2000. We expect to continue to make additions to our sales/marketing
and service staffs, and specifically, we intend to recruit additional field
sales personnel in order to increase direct sales. However, we expect that over
time sales and marketing expense will decrease as a percentage of net sales.
Product research and development. Product research and development
expense increased $201,000 to $1,057,000, or 16% of net sales in the six months
ended June 30, 2000 from $856,000, or 14% of net sales, in the six months ended
June 30, 1999. The increase in research and development expense is due to
increased personnel costs and, in particular, to the cost of additional software
engineers engaged in product development in Toronto. This workforce, which was
added at the time of the Interpra acquisition, is engaged in new product
development on information service products based on Java and XML technologies
and was responsible for the second quarter 2000 product releases of MergePort
and MergeWeb.
General and administrative. General and administrative expense
increased $464,000 to $1,429,000 in the six months ended June 30, 2000 from
$965,000 in the six months ended June 30, 1999. As a percentage of net sales,
general and administrative expense increased to 21% in the six months ended June
30, 2000 from 15% in the six months ended June 30, 1999. The increase relates
primarily to: administration costs for operating our subsidiaries in Toronto and
Tokyo both of which were established in the second half of 1999; and also, added
information technology infrastructure to support the business and prepare for
the anticipated expansion of sales. We expect general and administrative expense
to increase modestly for the balance of 2000 in dollar terms and to decrease as
a percentage of net sales due to anticipated increases in net sales.
Depreciation and amortization. Depreciation and amortization expense
increased by $133,000 to $448,000
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<PAGE> 11
in the six months ended June 30, 2000 from $315,000 in the six months ended June
30, 1999 primarily due to amortization expense related to the acquisition of
Interpra in September, 1999.
Total other expense, net. Total other expense, net, was an expense of
$30,000 in the six months ended June 30, 2000 compared to an expense of $63,000
in the six months ended June 30, 1999. Net interest income was $1,000 during the
first six months of 1999 compared to $64,000 in the comparable period last year
due to lower cash balances. Other expense, net in 1999 also included a foreign
exchange transaction charge of $114,000.
Income taxes. We recognized an income tax expense in the six months
ended June 30, 2000 and in the six months ended June 30, 1999, despite incurring
losses for financial reporting purposes, due primarily to Japanese income tax
withholding on software royalties.
LIQUIDITY AND CAPITAL RESOURCES
Operating cash flows. Operating cash flows were $(265,000) for the
three months ended June 30, 2000. Our gross margin contribution was less than
fixed operating expense due to lower-than-anticipated net sales and less
profitable sales through certain channels. Accounts receivable decreased
$636,000 during the six months ended June 30, 2000, and due to refocused
collection efforts we experienced a decrease in the days sales outstanding of
customer accounts to 65 days at June 30, 2000 from 76 days at March 31, 2000. We
also reduced accounts payable during the quarter by $549,000, which strengthens
our operating cash position in the third quarter of this year.
Investing cash flows. Investing cash flows were $(1,176,000) for the
six months ended June 30, 2000. Cash outflows for property and equipment were
$201,000 versus $266,000 in the comparable period last year, a result of
management initiatives to lower capital equipment spending. The Company also
invested $975,000 in capitalized software development, an increase of $273,000
over 1999 due to additional product development engineering in our Toronto
office, which was established in the Interpra acquisition in September, 1999.
Financing cash flows. Financing cash flows, which were $(6,500) for the
six months ended June 30, 2000 representing primarily principal payments under
capitalized leases.
Cash and cash equivalents were $605,000 and working capital was
$2,596,000 at June 30, 2000. The decrease in cash for the six months ended June
30, 2000, was $1,439,000, due to lower than anticipated sales.
To supplement our total available cash resources, we obtained a
revolving line of credit for working capital funding of $3 million in May, 2000
with Merchants and Manufacturers BanCorp of Milwaukee. At June 30, 2000 we had
not taken any draws on the line. Subsequent to quarter-end, we drew $900,000 on
the line due to intra-quarter fluctuations in cash collections. The line bears
interest at LIBOR plus 275 basis points or the Bank's prime rate, as selected by
us from time to time.
We expect that our current resources together with internally generated
cash flows and projected availability on the bank line of credit will be
sufficient to support operations in 2000. However, should we elect to make
targeted investments to accelerate near-term sales growth, we may raise
additional capital through the sale of equities or assumption of long-term
subordinated debt.
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PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Shareholders on May 23, 2000 was
adjourned to June 8, 2000. Matters voted on and the results of such votes at the
reconvened meeting on June 8, 2000 are listed below.
<TABLE>
<CAPTION>
VOTES
AGAINST OR BROKER
VOTES FOR WITHHELD ABSTAINED NON-VOTES RESULT
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Elect Robert A. Barish, M.D. to serve as
Director until the next annual meeting of 3,047,101 103,535 --- --- Elected
Shareholders
Elect Dennis Brown to serve as Director until
the next annual meeting of Shareholders 3,139,786 10,850 --- --- Elected
Elect Michael D. Dunham to serve as Director
until the next annual meeting of Shareholders 3,139,786 10,850 --- --- Elected
Elect Robert T. Geras to serve as Director
until the next annual meeting of Shareholders 3,140,781 9,855 --- --- Elected
Elect Douglas S. Harrington, M.D. to serve as
Director until the next annual meeting of
Shareholders 3,047,306 103,330 --- --- Elected
Elect Kevin E. Moley to serve as Director until
the next annual meeting of Shareholders 3,139,586 11,050 --- --- Elected
Elect William C. Mortimore to serve as Director
until the next annual meeting of Shareholders 3,138,781 11,855 --- --- Elected
Elect Hymie S. Negin to serve as Director until
the next annual meeting of Shareholders 3,140,786 9,850 --- --- Elected
Approve an increase in the number of shares
of Common Stock which may be used under the
Merge Technologies Incorporated 1999
Stock Option Plan for Directors 2,961,420 185,916 3,300 --- Approved
Approve the adoption of the Merge Technologies
Incorporated 2000 Employee Stock Purchase Plan 3,099,870 48,066 2,700 --- Approved
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit Index
(b) No Reports on Form 8-K were filed during the second fiscal quarter.
10
<PAGE> 13
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MERGE TECHNOLOGIES INCORPORATED
By: /s/ William C. Mortimore Date: August 14, 2000
----------------------------------------------
William C. Mortimore
President and Chief Executive Officer
By: /s/ Colleen M. Doan Date: August 14, 2000
----------------------------------------------
Colleen M. Doan
Chief Financial Officer, Treasurer and Secretary
(Principal Financial Officer and Principal
Accounting Officer)
11
<PAGE> 14
EXHIBIT INDEX
3.1 Articles of Incorporation of Registrant (1), Articles of
Amendment as of June 16, 1998 (3), and Articles of Amendment
as of September 1, 1999
3.2 Amended and Restated By-Laws of Registrant as of February 3,
1998 (2)
10.1 Employment Agreement dated September 1, 1997 between Registrant
and William C. Mortimore (1)
10.5 1996 Stock Option Plan for Employees of Registrant dated May 13,
1996 (1)
10.6 Office Lease for West Allis Center dated May 24, 1996 between
Registrant and Whitnall Summit Company, LLC, Supplemental Office
Lease dated July 3, 1997 (1), Supplemental Office Space Lease
dated January 30, 1999 (2) and Supplemental Office Space Lease
for 1126 Operating Associates Limited Partnership dated April 11,
2000 (4)
10.8 1999 Stock Option Plan For Directors (2)
10.9 Merge Technologies Incorporated 2000 Employee Stock Purchase
Plan (5)
27.1 Financial Data Schedule
- - - - - - - - - - - - - - - -
(1) Incorporated by reference to Registration Statement on Form SB-2
(No. 333-39111) effective January 29, 1998.
(2) Incorporated by reference to Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1997.
(3) Incorporated by reference to Quarterly Report on Form 10-QSB
for the three months ended March 31, 1999.
(4) Incorporated by reference to Quarterly Report on Form 10-QSB
for the three months ended March 31, 2000.
(5) Incorporated by reference to Form 14A dated May 9, 2000.
12
