Merge Healthcare, Inc., a West Allis, Wis.-based developer of medical imaging and clinical software applications, is dumping its overseas subsidiaries after posting another loss during the first quarter of 2008.
In its 10-Q report filed May 9 with the Securities and Exchange Commission, company officials say the company's ninth straight quarter of operating losses could propel them to seek bankruptcy protection this year.
"We are considering all strategic options and also options for generating additional cash and revenues to fund our continuing business operations, including equity offerings, assets sales and debt financings," the report stated. "If adequate funds are not available or are not available on acceptable terms, we will likely not be able to fund our new teleradiology business, take advantage of unanticipated opportunities, develop or enhance services or products, respond to competitive pressures, or continue as a going concern beyond June 30, 2008, and may have to seek bankruptcy protection."
"Healthcare providers continue to be challenged by declining reimbursements, competition and reduced operating profits brought about by the increasing costs of delivering healthcare services," the report added.
On March 21, the company sold its Chinese subsidiary to an unaffiliated local Asian healthcare company for no cash proceeds. On April 11 the French subsidiary was sold to the local management team for no cash proceeds, a deal for which Merge officials expect to post a $1.5 million loss during the second quarter. Officials are now planning to divest the remaining segment of the company's Merge Healthcare EMEA business unit, a branch office in Nuenen, the Netherlands.
"Although we received no monies from the buyers of those businesses, we believe these transactions were less expensive that had we shut down the subsidiaries and incurred related closing costs," officials said in the SEC report.
In an announcement on Monday, company officials indicated that net loss for the first quarter of 2008 totaled $7.8 million, or 23 cents per share, a slight improvement over the $9.7-million loss reported during the first quarter of 2007, while quarterly revenue was $13.7 million, down from $15.9 million for the same quarter last year. A conference call was scheduled with analysts on Thursday.
Company officials said the divestiture of the China subsidiary would allow the Cedara Software business unit to focus its offshore efforts on the development of a custom engineering and development facility in Pune, India.
In the SEC report, Merge officials said they expect to pay approximately $1 million over the next several quarters for termination benefits and contract termination costs in conjunction with restructuring initiatives announced in February. In addition, the report said, "we continue to incur significant legal fees in connection with the class action and other lawsuits and regulatory matters and expect to incur additional expenses until such matters are resolved."
In its report, company officials said the company's financial problems are leading to a loss of customers and failure to attract new customers, low employee morale and increasing employee attrition. In addition, they said vendors and suppliers are terminating their contracts or tightening credit, and management is distracted from focusing on the business.
Company officials has hinted to possibly spinning off operations in Europe, the Middle East and Africa last February, when they announced plans to trim the workforce from 600 employees to about 440 by March 31. At the time, officials said they wanted to focus on the core business of medical imaging and clinical software applications and its new teleradiology products, introduced in November 2007, which allow for remote analysis of medical images.
Merge has struggled after facing requirements to twice restate financial results related to the valuation of intangible assets.
"The two financial statement restatements, and ongoing legal expenses associated with litigation and the SEC investigation have been quite significant and have necessitated the recent rightsizing initiative," said Ken Rardin, the company's president and CEO, in February. "We are making changes to our cost structure with the intention of enabling our company to focus on our core business and return to positive operating results."
Will Merge Healthcare be able to stay afloat in an increasingly competitive healthcare climate? What does the company need to do to stay alive? Email your opinions to Eric Wicklund, managing editor of Healthcare IT News and Healthcare Finance News, at eric.wicklund@medtechpublishing.com.