Top executives at PACS vendor Merge Technologies have resigned, and financial statements going back four years are being questioned, following an investigation of charges of impropriety relating to the company’s financial reporting.
Top executives at PACS vendor Merge Technologies have resigned, and financial statements going back four years are being questioned, following an investigation of charges of impropriety relating to the company's financial reporting.
The company's stock crashed Monday on more than 10 times normal trading volume, losing five points to $7.30 from its Friday, June 30, close of $12.31. The share price rebounded about 70¢ to $8 when the market opened this morning, then began to slide. By midday, the company's stock was trading at $7.56.
The investigation and remedial actions taken by Merge have disrupted business and operations at the company for much of this year, according to Michael D. Dunham, now serving as interim principal executive officer. These disruptions will likely continue, Dunham said.
"Merge remains committed to providing elegant and affordable solutions to our customers that improve clinicians' productivity and enhance the quality of the care they provide," he said.
Merge had about $60 million in cash and cash equivalents as of June 30, he said, and sufficient liquidity for the foreseeable future. The company is attempting to retain key personnel throughout the financial crisis by offering additional incentives.
Dunham took the helm at Merge following a special meeting on Sunday, July 2, during which Merge Technologies' board of directors accepted the resignations of William C. Mortimore, the company's interim CEO and a company director; Scott T. Veech, CFO, treasurer, and secretary; and David M. Noshay, senior vice president of strategic business development. The following day, the company announced the resignations along with the news that financial statements for fiscal years 2002 through 2005 are invalid and will have to be restated due to improper accounting and financial reporting practices. (The company announced March 17 it would revise financial statements for the fiscal quarters ended June 30, 2005, and Sept. 30, 2005, following an investigation spurred by anonymous letters alleging financial wrongdoing.) The audit reports of KPMG with respect to those financial statements should no longer be relied upon, according to the company.
"The company currently anticipates that the restatements will primarily relate to the timing of revenue recognition, with a significant amount of revenue recognized in 2002 through early 2005 expected to be instead recognized in late 2005 and 2006," according to a statement released by Merge. "At this time, however, the company cannot provide a precise estimate of the impact of these non-cash adjustments to the financial statements."
During its July 2 meeting, the board appointed Dunham as interim PEO, as well as Brian E. Pedlar and Robert J. White as co-presidents and co-CEOs. Steve Oreskovich was appointed the company's chief accounting officer and interim treasurer and secretary.
Dunham also serves as the chairman of the company's board of directors. Pedlar has been serving as senior vice president and president of Cedara Software. White has been serving as senior vice president of Merge Technologies and president of Merge eMed. Oreskovich had been serving as the company's vice president and corporate controller since April 2004. Pedlar and White will report to Dunham, who is now overseeing day-to-day operations.
The resignations and decision to restate financial performance from fiscal 2002 followed a review by the board's audit committee of findings by national law firm Sidley Austin of the alleged charges of financial impropriety. The report was sent June 29 to the audit committee, which the next day presented its recommendations to the nonemployee directors of Merge.
Sidley Austin was retained along with Alvarez & Marsal, a forensic accounting firm, to conduct an independent investigation of the allegations contained in the anonymous letters. The two companies have been investigating Merge's accounting and financial reporting practices, including a review of relevant documents and interviews with current and former employees of the company and former employees of Cedara Software, which the company acquired in June 2005.
The Nasdaq National Market has continued listing Merge's common stock subject to the company filing, by July 7, of its annual report for fiscal year 2005, quarterlies up to the present, and all required restatements. The company will not meet this deadline but expects to make the required filings by the end of the third quarter 2006. Merge is requesting that the Nasdaq Listing Qualifications Panel grant an extension until Sept. 30. If the extension is not granted, Merge stock will trade on the Pink Sheets beginning July 10, according to the company. This exchange has virtually no financial reporting requirements.