Merge Technologies Inc. on Monday announced that results from an independent investigation into the alleged improprieties relating to the company's financial reporting, fulfillment of customer contracts and disclosure practices. In the wake of the results — the details of which are very few — a number of executives have resigned and a new management team has been appointed, at least in the interim.
The new leadership includes the appointment of Michael D. Dunham, the company's chairman of the Board, as the interim principal executive officer of the company, and Brian E. Pedlar and Robert J. White who will jointly serve as Merge's interim presidents and chief executive officers. Steve Oreskovich, who has been serving VP and Corporate Controller since April 2004, has been appointed as chief accounting officer and interim Treasurer and Secretary. The company is conducting an ongoing search for a permanent CEO.
Departing are William C. Mortimore, the company's interim CEO and one of the company's founders, Scott T. Veech, CFO, Treasurer and Secretary, and David M. Noshay, the senior VP, Strategic Business Development.
Merge has been dogged by the alleged financial improprieties all year. Early this year Merge announced that its previously issued financial statements for the quarters ended June 30, 2005, and September 30, 2005 were not correct. Since then, the company’s independent Audit Committee determined that, because of improper accounting and financial reporting practices with respect to the reporting periods between fiscal years 2002 through 2005, financial statements for that period cannot be “relied upon.”
New reports are being produced, though Merge has said 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. There is no current estimate as to when these restatements will be available.
Merge also announced that it is seeking another extension with NASDAQ to file its Annual Report on Form 10-K for the 2005 fiscal year, all required restatements and its Form 10-Q for the quarter ended March 31, 2006 which was to be turned in by July 7. There’s no word on whether another extension will be granted. If not, Merge’s common stock will trade on the "Pink Sheets." The company anticipates that its common stock would be eligible for trading on the OTC Bulletin Board once the company becomes current in its SEC filings.
And if that is not enough bad news, a number of class action lawsuits from shareholders still await Merge in the courts. In large part the suits seek damages relating to complaints over the previously mentioned accounting improprieties.