MRGE

Merge Healthcare Incorporated. (MRGE)

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Merge Technologies Inc. (MRGE)

F3Q07 Earnings Call

February 22, 2008 9:00 am ET

Executives

Mr. Kenneth D. Rardin – Chief Exec. Officer, Pres, Director

Mr. Steve Norton – Executive VP and CFO

Analysts

Bret Jones – Leerink Swann

Richard Close – Jeffries & Co.

Steven Halper – Thomas Weisel Partners

Thomas Isenberg – Open Road Partners

Poppel – PopTech. LPE.

Bill Dezellem – Tieton Capital

Presentation

Host

We would like to welcome you to the Merge Healthcare Incorporated Third Quarter 2007 Earnings Conference Call, which includes an update on the company’s business operations and strategy. Participating in today’s call will be Kenneth Rardin, President and CEO and Steve Norton, Executive Vice President and CFO. Upon completion of the company’s prepared remarks, we will open the call for question.

Prior to review in our third quarter 2007 results, I would like to draw your attention to the company’s Safe Harbor Statement. Except for the historical information herein, the matters discussed in this conference call includes forward-looking statements that may involve a number of risks and uncertainties. When used in this conference call, the words "guidance," "believes," "intends," "anticipates," "expects," “will,” and similar expressions are intended to identify forward-looking statements, but are not exclusive means of identifying them. Actual results could differ materially from those projected in, or implied by, the forward-looking statements based on a number of factors, including, but not limited to, provided in our recent press releases in SEC filings. The Company undertakes no obligation to publicly release the results, other new revisions to these forward-looking statements to reflect any future events or circumstances.

At this time, I would like to turn the call over to Steve Norton, Executive Vice President and Chief Financial Officer.

Steve Norton

Good morning everyone and thank you for joining us. On the call with me today is Ken Rardin, our President and Chief Executive Officer. The agenda for today’s call will be to first discuss the financial results for the third quarter 2007, in comparison to the third quarter 2006, and also the second quarter of 2007. We will also discuss certain non-GAAP information in this call that was included in the press release, although we believe that this information is useful to investors in assessing the performance of our company, both historical and in the future is also important to understand that this information is not in conformity with GAAPs. In reconciliation from the non-GAAP numbers to the US GAAP information is included in the press release. I will then, turn the call over to Ken, who will discuss in more detail the status of our business, the future strategy for our company and the operating results for the three and nine months periods ended September 30, 2007.

I would like to begin the call by saying that we are very happy to report that we are now current with our SEC filings. It has been an extremely long and argues process, but I guess there is a result of the WorldCom’s, the Enron’s in an incredibly cautious public accounting environment that we all live with today. I must admit that the public accounting industry is much different that when I was with KPMG when I was still young, ten plus years ago. However, I think it has gone way too far and has taken away the ability for management to present its own financial statement and have any say in what we believe is right and wrong. But, that just my opinion, and probably that over a million plus other public companies CFOs today, but unfortunately it is depressing to say the least.

After that one side, that I could not just refuse, you have ask me in the Q3 financial results as required by US GAAP, we are entirely written off the remainder of the goodwill on our balance sheet, resulting in a charge of approximately $122 million and in additional, approximately $1 million in trade name impairments. We were also required to write down some of our intangible assets, including our customer relationships in quiet and capitalized software. In the aggregate, we recognized the impairment charges of $131.6 million in the third quarter results. The efforts associated with this impairment analysis have single-handedly caused the two month delay from the filing of the restated in Q2 2007 financials in late December. Our net sales for the third quarter of 2007, totaled $14.1 million, which was a small increase from the $13.9 million in net sales in the third quarter of 2006 and the $14 million of revenue in the second quarter of 2007.

We reach out to North America net sales, totaled $7.7 million during the quarter compared to $7.9 million in Q2 of 2007 and $8.8 million in Q3 of 2006. It is important to note that North America continues to be a challenging market for us. The depths of reduction on that has had a more dramatic effect on our customers’ willingness to invest in ours and our competitors’ solutions that we and others in the industry originally anticipated. Additionally, the major move made during the fourth quarter last year to an onshore, offshore engineering model had a negative impact on our productivity.

Although, we continue to see improvements and we continue to fine tune the balance of onshore versus offshore personnel, it has had an impact on our ability to deliver timely software solutions, which is also caused us too after defer recognition of some revenue. Revenues from the sales of the company’s eFilm diagnostic viewing product to VOE commerce distribution channel continue to grow and achieve record levels. Net sales from our AMIA business unit for the third quarter of 2007, totaled $1.4 million compared to $1.0 million in the second quarter of 2007 and $0.8 million in the third quarter of 2006. As announced in two different press releases during the second quarter, we were successful in selling our Electronic Patient Record solution at Cromer Hospital and our Fusion RIS MX solution at Rams Hospital.

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