24 Mar Merge's merger is the crux of shareholder lawsuits
Milwaukee, Wis. — The latest in a growing body of shareholder litigation may cost a West Allis medical imaging software developer dearly.
Alleging that members of its management team violated federal securities law, shareholders of Merge Technologies, Inc., a developer of medical imaging and information management software, have filed several lawsuits in U.S. District Court.
The lawsuits stem from Merge’s $325 million stock purchase of Cedara Corp., a Canadian software company that develops products for the medical imaging OEM market. Shareholders claim that Merge executives broke securities laws by issuing materially false and misleading statements that claimed the merger was successful.
And on Thursday, Merge announced it was requesting a hearing with Nasdaq officials to avoid being delisted because it had not yet filed its annual report.
The lawsuits, which seek class action status, represent people who bought shares of Merge between August 2, 2005, and March 16, 2006. One of the law firms seeking to recover damages on behalf of the class is Federman & Sherwood of Oklahoma City, Okla
Such litigation has been more commonplace since 2000, and especially since the Enron scandal and other cases of corporate malfeasance.
The lawsuits against Merge were filed less than one week after the company acknowledged that it expects to report what it called “material weaknesses” related to its internal controls over financial reporting. As a result, the company said financial statements issued for the quarters ended June 30, 2005, and September 30, 2005, were unreliable.
Specifically, the company determined that approximately $3.8 million of additional tax liability related to the merger with Cedara must be recorded as of June 30, 2005.
Other accounting adjustments will include: an $800,000 reduction in revenue due to the company’s inability to establish fair values for vendor contracts, primarily for maintenance on contracts related to the acquisition of Cedara in June 2005; and a $200,000 adjustment related to the accounting for a single customer credit.
As a result, Merge will need to make a downward adjustment in net sales of approximately $500,000 in both the second and third quarters.
Merge said that revenues for the fourth quarter are still expected to be between $23 million and $26 million, but it is delaying fourth quarter and year-end earnings reports until it completes an audit. Merge said an additional reason for the delay has been the investigation of anonymous complaints. The audit committee of the corporation’s board of directors has retained independent advisors to assist with the reviews of those communications.