Merge Healthcare Announces Financial Results for the Second Quarter of 2007 and Filing of Its Restated 2006 Form 10-K and First Quarter 2007 10-Q



    MILWAUKEE, December 28 /CNW/ - Merge Technologies Incorporated, d.b.a.
Merge Healthcare (NASDAQ:  MRGE) (TSX:MRG), today announced financial results
for the second quarter and six month periods ended June 30, 2007. In addition,
the Company announced that it has filed with the Securities and Exchange
Commission the Company's restated financial statements for the years ended
December 31, 2006, 2005 and 2004 included in the 2006 Form 10-K and the
restated financial statements for the three months ended March 31, 2007 and
2006 included in the first quarter 2007 10-Q.

    Second Quarter Results:

    For the second quarter ended June 30, 2007, revenue totaled $14.0 million
compared to $31.4 million in the second quarter ended June 30, 2006 and $15.9
million in the first quarter ended March 31, 2007, representing a 55% and a
12% decrease, respectively. Revenue for the second quarter of 2006 included
$11.6 million of revenue from contracts signed in previous quarters for which
the revenue had been deferred due to delays in delivery of the required
product functionality until the second quarter of 2006.

    Operating loss for the second quarter ended June 30, 2007 was $10.7
million compared to an operating loss of $209.9 million in the second quarter
ended June 30, 2006 and $10.2 million in the first quarter ended March 31,
2007. The operating loss for the second quarter of 2006 includes a charge of
$214.1 million for goodwill impairment. Adjusted operating loss for the second
quarter ended June 30, 2007 was $5.4 million compared to income of $9.4
million in the second quarter ended June 30, 2006 and a loss of $4.2 million
in the first quarter ended March 31, 2007.

    The net loss for the second quarter of 2007 totaled $10.7 million, or
$0.32 per share, compared to a net loss of $211.0 million, or $6.27 per share,
in the second quarter of 2006 and a net loss of $9.7 million, or $0.29 per
share, in the first quarter of 2007. During the second quarter of 2006, the
Company recognized a goodwill impairment charge of $214.1 million, or $6.36
per share.

    Six Month Results:

    For the six months ended June 30, 2007, revenue totaled $29.9 million
compared to $47.6 million in the six months ended June 30, 2006, a decrease of
37%. Revenue for the first six months of 2006 included $11.5 million of
revenue from contracts signed in previous quarters for which the revenue had
been deferred due to delays in delivery of the required product functionality
until the second quarter of 2006.

    Operating loss for the six months ended June 30, 2007 was $20.9 million
compared to an operating loss of $217.4 million for the six months ended June
30, 2006 which includes a goodwill impairment charge of $214.1 million.
Adjusted operating loss for the six months ended June 30, 2007 was $9.7
million compared to income of $7.2 million for the six months ended June 30,
2006.

    The net loss for the first six months of 2007 totaled $20.5 million, or
$0.60 per share, compared to a net loss of $216.3 million, or $6.43 per share,
for the first six months of 2006. During the first six months of 2006, the
Company recognized a goodwill impairment charge of $214.1 million, or $6.37
per share.

    Bookings:

    Bookings for the three month and six month periods ended June 30, 2007
totaled approximately $10 million and $30 million, respectively. Bookings is
defined by the Company as the total value of all contracts signed during a
quarter and excludes any value attributed to related maintenance other than
the first year of post-contract customer support (PCS). Bookings for the six
months ended June 30, 2007 included 4 contracts in excess of $1 million and 21
contracts with new customers. Comparative figures for the prior periods are
not available as the Company did not begin disclosing bookings until the
quarter ended December 31, 2006.

    Third Quarter Financial Results:

    The Company currently anticipates filing its quarterly report on Form
10-Q for the three month period ended September 30, 2007 in January of 2008
and will conduct a conference call to review the third quarter results and
provide an update on the Company's business operations and strategy following
the release of its financial statements. On December 20, 2007, the Company's
management and audit committee concluded that all, or substantially all, of
our goodwill has been impaired, thus leading to a non-cash goodwill impairment
charge during the three months ended September 30, 2007. The Company is
currently working with an independent valuation consultant to finalize our
assessment of the fair value of our goodwill and our other indefinite lived
assets. As soon as possible following completion of this assessment, the
Company will file its third quarter Form 10-Q and an announcement will be made
as to the date of this call as soon as the details are known. As previously
disclosed in the Company's press release on October 29, 2007, bookings for the
quarter ended September 30, 2007 are expected to be approximately $9 million
and the cash balance on September 30, 2007 was approximately $22 million.

    GAAP versus Non-GAAP Presentation

    Merge Healthcare provides adjusted operating income, adjusted net income
and adjusted earnings per share in this press release as additional
information regarding the Company's operating results. The measures are not in
accordance with, or an alternative for, GAAP and may be different from
non-GAAP operating income, non-GAAP net income and non-GAAP earnings per share
measures used by other companies. The Company believes that this presentation
of adjusted operating income, adjusted net income and adjusted earnings per
share provides useful information to investors regarding additional financial
and business trends relating to the Company's financial condition and results
of operations. This release should be read in conjunction with our Form 8-K
earnings release and our quarterly report on Form 10-Q filings for the quarter
ended June 30, 2007.

    The non-GAAP adjusted operating income, adjusted net income and adjusted
earnings per share exclude the impact of stock option expense under SFAS
123(R), depreciation and amortization, non-recurring legal and accounting
costs associated with our restatement and various lawsuits, goodwill
impairment, reduction in force and duplication of effort costs. Results
prepared in accordance with U.S. GAAP are reconciled with non-GAAP results
excluding the impact of these adjustments. A full reconciliation of our GAAP
financial measures to non-GAAP adjustments is included in the supplemental
attachment to this release.

    About Merge Healthcare

    Merge Healthcare is a developer of medical imaging and clinical software
applications and developmental tools that are on the forefront of medicine. We
develop medical imaging software solutions that support end-to-end business
and clinical workflow for radiology department and specialty practices,
imaging centers and hospitals. Our software technologies accelerate market
delivery for our OEM customers, while our end-user solutions improve our
customers' productivity and enhance the quality of the patient experience. For
additional information, visit our website at www.mergehealthcare.com.

    Cautionary Notice Regarding Forward-Looking Statements

    This announcement may include forward-looking statements within the
meaning and subject to the protections of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934, as amended. When
used in this announcement, the words "will," "believes," "intends,"
"anticipates," "expects" and similar expressions of the future are intended to
assist you in identifying such forward-looking statements. Such
forward-looking statements include, among others, statements regarding: the
timing of our filing of our SEC reports and our potential goodwill impairment.
Any number of factors could cause the actual results to differ from the
results contemplated by such forward-looking statements, including, but not
limited to: market acceptance and performance of the Company's new products
and services, including the Company's teleradiology product and services;
delay in the offering of the Company's teleradiology product and services; the
Company's ability to attract and retain qualified radiologist consultants;
risks and effects of the past and current restatement of financial statements
of the Company and other actions that may be taken or required as a result of
such restatements; the Company's ability to generate sufficient cash from
operations to meet future operating, financing and capital requirements; the
Company's inability to timely file reports with the Securities and Exchange
Commission; risks associated with the Company's inability to meet the
requirements of The NASDAQ Stock Market for continued listing, including
possible delisting; costs, risks and effects of legal proceedings and
investigations, including the formal investigation being conducted by the
Securities and Exchange Commission and class action, derivative, and other
lawsuits; the uncertainty created by and the adverse impact on relationships
with customers, potential customers, suppliers and investors potentially
resulting from, and other risks associated with, the changes in the Company's
senior management; the impact of competitive products and pricing; continued
negative effects of the DRA (Deficit Reduction Act of 2005); risks related to
regulatory and other legal compliance with applicable health care laws,
regulations, government agency pronouncements and judicial and quasi-judicial
rulings; limited acceptance of digital modalities and RIS-PACS and workflow
technologies; the Company's ability to integrate acquisitions; changing
economic conditions; credit and payment risks associated with end-user sales;
the Company's dependence on major customers; the Company's dependence on key
personnel; and other risk factors detailed in the Company's filings with the
Securities and Exchange Commission. You should not place undue reliance on
forward-looking statements, since the statements speak only as of the date
that they are made. We do not have, or undertake any obligation to, publicly
update, revise or correct any of the forward-looking statements after the date
of this announcement, or after the respective dates on which such statements
otherwise are made, whether as a result of new information, future events or
otherwise. This announcement should be read in conjunction with the risk
factors, financial information and other information contained in the filings
that the Company makes and previously has made with the Securities and
Exchange Commission.

    

               MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                                (in thousands)


                                                   June 30,   December 31,
                                                     2007         2006
                                                 ------------ ------------
                                                 (unaudited)

    Current assets:
      Cash                                            $29,708      $45,945
      Accounts receivable, net                         16,981       16,427
      Inventory                                         2,588        2,164
      Prepaid expenses                                  2,054        1,660
      Deferred income taxes                               196          196
      Other current assets                              1,082          812
                                                 ------------ ------------
    Total current assets                               52,609       67,204

    Property and equipment, net                         4,089        3,940
    Purchased and developed software, net              14,652       16,628
    Other intangibles, net                              8,371        9,511
    Goodwill                                          124,231      124,231
    Other                                              13,828       13,361
                                                 ------------ ------------
    Total assets                                     $217,780     $234,875
                                                 ------------ ------------

    Current liabilities:
      Accounts payable and other accrued
       liabilities                                    $10,313      $10,857
      Accrued wages                                     5,072        6,162
      Income taxes payable                                  -        4,398
      Deferred revenue                                 20,751       18,686
                                                 ------------ ------------
    Total current liabilities                          36,136       40,103

    Deferred income taxes                                 502          502
    Deferred revenue                                    2,770        3,712
    Income taxes payable                                5,358            -
    Other                                                 330          633
                                                 ------------ ------------
    Total liabilities                                  45,096       44,950

    Total shareholders' equity                        172,684      189,925
                                                 ------------ ------------
    Total liabilities and shareholders' equity       $217,780     $234,875
                                                 ------------ ------------

    

    

               MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share data)
                                 (Unaudited)

                                Three Months Ended     Six Months Ended
                                     June 30,              June 30,
                                  2007       2006       2007       2006
                               ---------- ---------- ---------- ----------

    Net sales
      Software and other          $6,693    $18,643    $14,863    $28,167
      Services and maintenance     7,343     12,794     15,047     19,410
                               ---------- ---------- ---------- ----------
    Total net sales               14,036     31,437     29,910     47,577
    Cost of sales
      Software and other           1,445      4,716      3,442      6,376
      Services and maintenance     3,450      3,789      6,970      7,475
      Amortization                 1,633      1,068      2,695      2,345
                               ---------- ---------- ---------- ----------
    Total cost of sales            6,528      9,573     13,107     16,196
                               ---------- ---------- ---------- ----------
    Gross margin                   7,508     21,864     16,803     31,381
    Operating costs and
     expenses:
      Sales and marketing          4,654      5,233      9,387     10,454
      Product research and
       development                 5,412      4,839     10,795      9,682
      General and
       administrative              6,900      6,389     14,439     12,274
      Goodwill impairment,
       restructuring and other
       expenses                      209    214,124      1,006    214,146
      Depreciation and
       amortization                1,034      1,142      2,036      2,184
                               ---------- ---------- ---------- ----------
    Total operating costs and
     expenses                     18,209    231,727     37,663    248,740
                               ---------- ---------- ---------- ----------
    Operating loss               (10,701)  (209,863)   (20,860)  (217,359)
    Other income (expense)           (28)       459        424      1,135
                               ---------- ---------- ---------- ----------
    Loss before income taxes     (10,729)  (209,404)   (20,436)  (216,224)
    Income tax expense
     (benefit)                        11      1,615         25        115
                               ---------- ---------- ---------- ----------
    Net loss                    $(10,740) $(211,019)  $(20,461) $(216,339)
                               ---------- ---------- ---------- ----------

    Net loss per share - basic    $(0.32)    $(6.27)    $(0.60)    $(6.43)
                               ---------- ---------- ---------- ----------
    Weighted average number of
     common shares outstanding
     - basic                      33,915     33,638     33,900     33,636
                               ---------- ---------- ---------- ----------

    Net loss per share -
     diluted                      $(0.32)    $(6.27)    $(0.60)    $(6.43)
                               ---------- ---------- ---------- ----------
    Weighted average number of
     common shares outstanding
     - diluted                    33,915     33,638     33,900     33,636
                               ---------- ---------- ---------- ----------

    

    

               MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  RECONCILIATION OF GAAP TO NON-GAAP RESULTS
                    (in thousands, except per share data)
                                 (Unaudited)



                                     Three Months Ended June 30, 2007
                                ------------------------------------------
                                  GAAP    Adjustments             Non-GAAP
                                --------- -----------             --------

    Net sales
      Software and other          $6,693                           $6,693
      Services and maintenance     7,343                            7,343
                                --------- -----------             --------
    Total net sales               14,036           -               14,036
    Cost of sales
      Software and other           1,445                            1,445
      Services and maintenance     3,450        (211) (a) (e)       3,239
      Amortization                 1,633      (1,633) (b)               -
                                --------- -----------             --------
    Total cost of sales            6,528      (1,844)               4,684
                                --------- -----------             --------
    Gross margin                   7,508       1,844                9,352
    Operating costs and
     expenses:
      Sales and marketing          4,654        (331) (a)           4,323
      Product research and
       development                 5,412        (365) (a) (e)       5,047
      General and
       administrative              6,900      (1,484) (a) (c) (e)   5,416
      Goodwill impairment,
       restructuring and other
       expenses                      209        (209) (d)               -
      Depreciation and
       amortization                1,034      (1,034) (b)               -
                                --------- -----------             --------
    Total operating costs and
     expenses                     18,209      (3,423)              14,786
                                --------- -----------             --------
    Operating loss               (10,701)      5,267               (5,434)
    Other income (expense)           (28)                             (28)
                                --------- -----------             --------
    Loss before income taxes     (10,729)      5,267               (5,462)
    Income tax expense
     (benefit)                        11           -  (h)              11
                                --------- -----------             --------
    Net loss                    $(10,740)     $5,267              $(5,473)
                                --------- -----------             --------

    Net loss per share - basic    $(0.32)                          $(0.16)
                                ---------                         --------
    Weighted average number of
     common shares outstanding
     - basic                      33,915                           33,915
                                ---------                         --------

    Net loss per share -
     diluted                      $(0.32)                          $(0.16)
                                ---------                         --------
    Weighted average number of
     common shares outstanding
     - diluted                    33,915                           33,915
                                ---------                         --------




                                     Three Months Ended June 30, 2006
                                ------------------------------------------
                                   GAAP    Adjustments            Non-GAAP
                                ---------- -----------            --------

    Net sales
      Software and other          $18,643                          $18,643
      Services and maintenance     12,794                           12,794
                                ---------- -----------            --------
    Total net sales                31,437           -               31,437
    Cost of sales
      Software and other            4,716                            4,716
      Services and maintenance      3,789        (135) (a)           3,654
      Amortization                  1,068      (1,068) (b)               -
                                ---------- -----------            --------
    Total cost of sales             9,573      (1,203)               8,370
                                ---------- -----------            --------
    Gross margin                   21,864       1,203               23,067
    Operating costs and
     expenses:
      Sales and marketing           5,233        (235) (a)           4,998
      Product research and
       development                  4,839        (321) (a)           4,518
      General and
       administrative               6,389      (2,263) (a) (c)       4,126
      Goodwill impairment,
       restructuring and other
       expenses                   214,124    (214,124) (d) (f)           -
      Depreciation and
       amortization                 1,142      (1,142) (b)               -
                                ---------- -----------            --------
    Total operating costs and
     expenses                     231,727    (218,085)              13,642
                                ---------- -----------            --------
    Operating loss               (209,863)    219,288                9,425
    Other income (expense)            459                              459
                                ---------- -----------            --------
    Loss before income taxes     (209,404)    219,288                9,884
    Income tax expense
     (benefit)                      1,615       1,394  (g)           3,009
                                ---------- -----------            --------
    Net loss                    $(211,019)   $217,894               $6,875
                                ---------- -----------            --------

    Net loss per share - basic     $(6.27)                           $0.20
                                ----------                        --------
    Weighted average number of
     common shares outstanding
     - basic                       33,638                           33,638
                                ----------                        --------

    Net loss per share -
     diluted                       $(6.27)                           $0.20
                                ----------                        --------
    Weighted average number of
     common shares outstanding
     - diluted                     33,638                           33,638
                                ----------                        --------

    

    
    (a) Adjustments represent stock compensation expense recorded during
         each of the periods. Total stock option expense recorded for the
         three months ended June 30, 2007 and 2006 was $1,362 and $545
         pre-tax, respectively. Because stock option expense is determined
         in significant part by the trading price of our common stock and
         the volatility thereof, over which we have no direct control, the
         impact of such expense is not subject to effective management by
         us. Thus, we have excluded the impact of this expense from
         adjusted non-GAAP results.

    (b) Adjustments represent depreciation and amortization of property
         and equipment, capitalized development costs, including write-
         offs, as well as purchased technology and customer relationships
         amortization as a result of prior acquisitions. Depreciation and
         amortization are commonly excluded from non-GAAP net income by
         companies in our industry due to the non-cash nature of the
         expense and, therefore, we exclude these costs to provide more
         relevant and meaningful comparisons of our operating results to
         that of our competitors and to provide a better indicator of our
         cash earnings or loss.

    (c) Adjustments represent legal and accounting costs associated with
         our prior restatement, class action, derivative and other related
         lawsuits. We have excluded $869 and $2,409 of these costs during
         the three months ended June 30, 2007 and 2006, respectively,
         because they do not correlate to the ongoing expenses of our core
         operations.

    (d) In conjunction with the restructuring initiative implemented
         during the fourth quarter of 2006, we incurred additional
         severance costs and related stay-bonuses during the three months
         ended June 30, 2007. We have excluded the impact of these costs
         from our non-GAAP results because they do not correlate to the
         ongoing expenses of our core operations. For the three months
         ended June 30, 2006 we have excluded costs of $29 that relate to
         restructuring and other related charges.

    (e) In conjunction with the restructuring initiative implemented
         during the fourth quarter of 2006, we incurred costs during the
         three months ended June 30, 2007 from duplication of effort
         related to employees terminated during this initiative, but that
         for transition purposes, have remained employed during the second
         quarter of 2007. These costs are primarily attributable to these
         employees' salaries, outside of their termination benefits. The
         adjustment for the three months ended June 30, 2007 totaled $160.
         We have excluded the impact of these costs from our non-GAAP
         results because they do not correlate to the ongoing expenses of
         our core operations.

    (f) Adjustment relates to a $214,095 goodwill impairment charge
         recorded during the three months ended June 30, 2006. We have
         excluded the impact of this cost from our non-GAAP results
         because they do not correlate to the ongoing expenses of our core
         operations.

    (g) Income tax effect on items (a) through (f), above.

    (h) No adjustment is required. There is no tax effect in this period
         due to the fact that there is a full valuation allowance on all
         tax assets and available net operating loss carryforwards.

    

    

               MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  RECONCILIATION OF GAAP TO NON-GAAP RESULTS
                    (in thousands, except per share data)
                                 (Unaudited)



                                      Six Months Ended June 30, 2007
                                ------------------------------------------
                                  GAAP    Adjustments             Non-GAAP
                                --------- -----------             --------

    Net sales
      Software and other         $14,863                          $14,863
      Services and maintenance    15,047                           15,047
                                --------- -----------             --------
    Total net sales               29,910           -               29,910
    Cost of sales
      Software and other           3,442                            3,442
      Services and maintenance     6,970        (571) (a) (e)       6,399
      Amortization                 2,695      (2,695) (b)               -
                                --------- -----------             --------
    Total cost of sales           13,107      (3,266)               9,841
                                --------- -----------             --------
    Gross margin                  16,803       3,266               20,069
    Operating costs and
     expenses:
      Sales and marketing          9,387        (619) (a) (e)       8,768
      Product research and
       development                10,795        (878) (a) (e)       9,917
      General and
       administrative             14,439      (3,395) (a) (c) (e)  11,044
      Goodwill impairment,
       restructuring and other
       expenses                    1,006      (1,006) (d)               -
      Depreciation and
       amortization                2,036      (2,036) (b)               -
                                --------- -----------             --------
    Total operating costs and
     expenses                     37,663      (7,934)              29,729
                                --------- -----------             --------
    Operating loss               (20,860)     11,200               (9,660)
    Other income (expense)           424           -                  424
                                --------- -----------             --------
    Loss before income taxes     (20,436)     11,200               (9,236)
    Income tax expense
     (benefit)                        25           -  (h)              25
                                --------- -----------             --------
    Net loss                    $(20,461)    $11,200              $(9,261)
                                --------- -----------             --------

    Net loss per share - basic    $(0.60)                          $(0.27)
                                ---------                         --------
    Weighted average number of
     common shares outstanding
     - basic                      33,900                           33,900
                                ---------                         --------

    Net loss per share -
     diluted                      $(0.60)                          $(0.27)
                                ---------                         --------
    Weighted average number of
     common shares outstanding
     - diluted                    33,900                           33,900
                                ---------                         --------




                                      Six Months Ended June 30, 2006
                                ------------------------------------------
                                   GAAP    Adjustments            Non-GAAP
                                ---------- -----------            --------

    Net sales
      Software and other          $28,167                          $28,167
      Services and maintenance     19,410                           19,410
                                ---------- -----------            --------
    Total net sales                47,577          -                47,577
    Cost of sales
      Software and other            6,376                            6,376
      Services and maintenance      7,475       (271)  (a)           7,204
      Amortization                  2,345     (2,345)  (b)               -
                                ---------- -----------            --------
    Total cost of sales            16,196     (2,616)               13,580
                                ---------- -----------            --------
    Gross margin                   31,381      2,616                33,997
    Operating costs and
     expenses:
      Sales and marketing          10,454       (626)  (a)           9,828
      Product research and
       development                  9,682       (693)  (a)           8,989
      General and
       administrative              12,274     (4,293)  (a) (c)       7,981
      Goodwill impairment,
       restructuring and other
       expenses                   214,146   (214,146)  (d) (f)           -
      Depreciation and
       amortization                 2,184     (2,184)  (b)               -
                                ---------- -----------            --------
    Total operating costs and
     expenses                     248,740   (221,942)               26,798
                                ---------- -----------            --------
    Operating loss               (217,359)   224,558                 7,199
    Other income (expense)          1,135          -                 1,135
                                ---------- -----------            --------
    Loss before income taxes     (216,224)   224,558                 8,334
    Income tax expense
     (benefit)                        115      2,811   (g)           2,926
                                ---------- -----------            --------
    Net loss                    $(216,339)  $221,747                $5,408
                                ---------- -----------            --------

    Net loss per share - basic     $(6.43)                           $0.16
                                ----------                        --------
    Weighted average number of
     common shares outstanding
     - basic                       33,636                           33,636
                                ----------                        --------

    Net loss per share -
     diluted                       $(6.43)                           $0.16
                                ----------                        --------
    Weighted average number of
     common shares outstanding
     - diluted                     33,636                           33,636
                                ----------                        --------

    

    
    (a) Adjustments represent stock compensation expense recorded during
         each of the periods. Total stock option expense recorded for the
         six months ended June 30, 2007 and 2006 was $2,545 and $1,994
         pre-tax, respectively. Because stock option expense is determined
         in significant part by the trading price of our common stock and
         the volatility thereof, over which we have no direct control, the
         impact of such expense is not subject to effective management by
         us. Thus, we have excluded the impact of this expense from
         adjusted non-GAAP results.

    (b) Adjustments represent depreciation and amortization of property
         and equipment, capitalized development costs, including write-
         offs, as well as purchased technology and customer relationships
         amortization as a result of prior acquisitions. Depreciation and
         amortization are commonly excluded from non-GAAP net income by
         companies in our industry due to the non-cash nature of the
         expense and, therefore, we exclude these costs to provide more
         relevant and meaningful comparisons of our operating results to
         that of our competitors and to provide a better indicator of our
         cash earnings or loss.

    (c) Adjustments represent legal and accounting costs associated with
         our prior restatement, class action, derivative and other related
         lawsuits. We have excluded $2,226 and $3,889 of these costs
         during the six months ended June 30, 2007 and 2006, respectively,
         because they do not correlate to the ongoing expenses of our core
         operations.

    (d) In conjunction with the restructuring initiative implemented
         during the fourth quarter of 2006, we incurred additional
         severance costs and related stay-bonuses during the six months
         ended June 30, 2007. We have excluded the impact of these costs
         from our non-GAAP results because they do not correlate to the
         ongoing expenses of our core operations. For the six months ended
         June 30, 2006 we have excluded costs of $51 that relate to
         restructuring and other related charges.

    (e) In conjunction with the restructuring initiative implemented
         during the fourth quarter of 2006, we incurred costs during the
         six months ended June 30, 2007 from duplication of effort related
         to employees terminated during this initiative, but that for
         transition purposes, have remained employed during the second
         quarter of 2007. These costs are primarily attributable to these
         employees' salaries, outside of their termination benefits. The
         adjustment for the six months ended June 30, 2007 totaled $692.
         We have excluded the impact of these costs from our non-GAAP
         results because they do not correlate to the ongoing expenses of
         our core operations.

    (f) Adjustment relates to a $214,095 goodwill impairment charge
         recorded during the six months ended June 30, 2006. We have
         excluded the impact of this cost from our non-GAAP results
         because they do not correlate to the ongoing expenses of our core
         operations.

    (g) Income tax effect on items (a) through (f), above.

    (h) No adjustment is required. There is no tax effect in this period
         due to the fact that there is a full valuation allowance on all
         tax assets and available net operating loss carryforwards.

    

    

               MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)
                                 (Unaudited)

                                                       Six Months Ended
                                                           June 30,
                                                        2007       2006
                                                     ---------- ----------


    Cash flows from operating activities:
    Net loss                                          $(20,461) $(216,339)

    Adjustments to reconcile net loss to net cash
     provided by (used in) operating activities:
      Depreciation and amortization                      4,731      4,529
      Provision for doubtful accounts receivable,
       net of recoveries                                   383        130
      Deferred income taxes                               (197)       174
      Stock-based compensation                           2,556      1,922
      Goodwill impairment charge                             -    214,095
    Change in assets and liabilities:
      Accounts receivable                                 (937)     8,319
      Inventory                                           (425)      (176)
      Prepaid expenses                                    (392)       (91)
      Accounts payable and other accrued liabilities      (847)      (142)
      Accrued wages                                     (1,091)    (1,040)
      Deferred revenue                                   1,123    (13,929)
      Other                                                863      1,171
                                                     ---------- ----------
    Net cash used in operating activities              (14,694)    (1,377)
    Cash flows from investing activities:
    Purchases of property, equipment and leasehold
     improvements                                       (1,038)      (549)
    Purchased technology                                     -       (367)
    Capitalized software development                      (726)    (1,322)
                                                     ---------- ----------
    Net cash used in investing activities               (1,764)    (2,238)
    Cash flows from financing activities:
    Proceeds from exercise of stock options and
     employee stock purchase plan                          215         25
                                                     ---------- ----------
    Net cash provided by financing activities              215         25
    Effect of exchange rate changes on cash                  6          1
                                                     ---------- ----------
    Net decrease in cash                               (16,237)    (3,589)
    Cash and cash equivalents, beginning of period      45,945     64,278
                                                     ---------- ----------
    Cash and cash equivalents, end of period           $29,708    $60,689
                                                     ---------- ----------
    




For further information:

For further information: Merge Healthcare Melanie Gretzon Director,
Corporate Services 414.977.4000 ir@mergehealthcare.com or Media Contact: Beth
Frost-Johnson Senior Vice President, Marketing 414.977.4000
bfrost@mergehealthcare.com

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MERGE HEALTHCARE

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