6-K 1 tor49020.txt FORM 6-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Report of Foreign Issuer Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934 For the month of January 2005 Commission File No. 000-19865 CEDARA SOFTWARE CORP. (Registrant's name) 6509 Airport Road Mississauga, Ontario, Canada L4V 1S7 (Address of principal executive offices) Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40F. Form 20-F Form 40-F X ---------------- ---------------- Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes No X ------------------ ------------------ If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b) : 82-_______________ Documents Included as Part of this Report: No. Document 1. Business Acquisition Report dated December 22, 2004 Document 1 [CEDARA Logo] CEDARA Software with Vision CEDARA SOFTWARE CORP. BUSINESS ACQUISITION REPORT DECEMBER 22ND, 2004 CEDARA SOFTWARE CORP. FORM 51-102F4 BUSINESS ACQUISITION REPORT ITEM 1 IDENTITY OF COMPANY 1.1 NAME AND ADDRESS OF COMPANY Cedara Software Corp. ("CEDARA") 6509 Airport Road Mississauga, Ontario L4V 1S7 1.2 EXECUTIVE OFFICER Further information regarding the matters described in this report may be obtained from Mr. Brian Pedlar, Chief Financial Officer and Corporate Secretary of Cedara who may be contacted at (905) 672-2100 (ext. 2015). ITEM 2 DETAILS OF ACQUISITION 2.1 NATURE OF BUSINESS ACQUIRED On October 8, 2004, Cedara acquired all of the issued and outstanding shares of eMed Technologies Corporation ("eMed"), a privately-held provider of Picture Archiving and Communications Systems (PACS) and web-based medical imaging radiology solutions based in Burlington, Massachusetts (the "Acquisition"). 2.2 DATE OF ACQUISITION The date of the Acquisition was October 8, 2004. 2.3 CONSIDERATION The total amount of consideration paid for the Acquisition, together with the transaction costs, was $61.8 million (US$49.0 million). Cedara financed the Acquisition with approximately $18.3 million (US$14.5 million) from its own cash reserves and approximately $18.9 million (US$15.0 million) from its term credit facility with the Royal Bank of Canada ("RBC"). The remainder of the consideration was financed from the approximately $24.6 million (US$19.5 million) cash on the balance sheet of eMed on the closing of the Acquisition. Under the term credit facility, RBC provided an acquisition term facility of up to $22.5 million to allow Cedara to finance part of the acquisition of eMed. The remaining unused portion of the acquisition term facility was then cancelled. 1 2.4 EFFECT ON FINANCIAL POSITION There are no plans or proposals for material changes in the business affairs of Cedara or in the business affairs of eMed that may have a significant effect on the results of operations and financial position of Cedara. 2.5 PRIOR VALUATIONS No valuation opinion has been required by applicable securities legislation or stock exchange rules in respect of eMed within the last 12 months. 2.6 PARTIES TO TRANSACTION No informed person, associate or affiliate of Cedara was a party to the Acquisition. 2.7 DATE OF REPORT December 22, 2004 ITEM 3 FINANCIAL STATEMENTS The following financial statements are included as part of this Business Acquisition Report: 3.1 CEDARA SOFTWARE CORP. Unaudited pro forma consolidated balance sheet of Cedara Software Corp as at September 30, 2004, and unaudited pro forma consolidated statement of operations of Cedara Software Corp for the three months ended September 30, 2004 and the year ended June 30, 2004, together with KPMG's compilation report dated December 22, 2004; 3.2 EMED TECHNOLOGIES CORPORATION a. Audited financial statements of eMed Technologies Corporation for fiscal years ended December 31, 2003 and 2002, together with Ernst & Young LLP's audit report dated May 3, 2004, except for Note 11, as to which the date is December 19, 2004; and b. Unaudited financial statements of eMed Technologies Corporation for the nine month periods ended September 30, 2004 and 2003. 2 Unaudited pro forma consolidated financial statements of CEDARA SOFTWARE CORP. See Compilation Report As at September 30, 2004 and for the three months then ended and for the year ended June 30, 2004 3 CEDARA SOFTWARE CORP. TABLE OF CONTENTS ----------------------------------------------------------------------------- Compilation report on unaudited pro forma consolidated financial statements..........................................5-6 Unaudited pro forma consolidated balance sheet...............................7 Unaudited pro forma consolidated statements of operations..................8-9 Notes to the unaudited pro forma consolidated financial statements ....................................................10-16 4 COMPILATION REPORT ON UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS To the Board of Directors of Cedara Software Corp. We have read the accompanying unaudited pro forma consolidated balance sheet of Cedara Software Corp. (the "Company") as at September 30, 2004 and the unaudited pro forma consolidated statements of operations for the three months then ended and for the year ended June 30, 2004, and have performed the following procedures: 1. Compared the figures in the columns captioned "Cedara" to the unaudited consolidated financial statements of the Company as at September 30, 2004 and for the three months then ended, and to the audited consolidated financial statements of the Company for the year ended June 30, 2004, respectively, and found them to be in agreement. 2. Compared the figures in the columns captioned "eMed" to the unaudited balance sheet of eMed Technologies Corporation ("eMed") as at September 30, 2004 and the unaudited statement of operations for the three and twelve months periods ended September 30, 2004, respectively, and found them to be in agreement. 3. Made enquiries of certain officials of the Company who are responsible for financial and accounting matters regarding: a. the basis for determination of the Canadian GAAP and pro forma adjustments; and b. whether the pro forma consolidated financial statements comply as to form in all material respects with the published requirements of the Ontario Securities Act and the related regulations. The officials: a. described to us the basis for determination of the Canadian GAAP and pro forma adjustments; and b. stated that the pro forma consolidated financial statements comply as to form in all material respects with the published requirements of the Ontario Securities Act and the related regulations. 4. Read the notes to the unaudited pro forma consolidated financial statements, and found them to be consistent with the basis described to us for determination of the Canadian GAAP and pro forma adjustments. 5. Recalculated the application of the Canadian GAAP and pro forma adjustments to the aggregate of the amounts in the columns captioned "Cedara" and "eMed" as at September 30, 2004 and for the three months then ended, and for the twelve months ended June 30, 2004, and found the amounts in the column captioned "Pro forma" to be arithmetically correct. 5 A pro forma financial statement is based on management assumptions and adjustments which are inherently subjective. The foregoing procedures are substantially less than either an audit or a review, the objective of which is the expression of assurance with respect to management's assumptions, the pro forma adjustments, and the application of the adjustments to the historical financial statements. Accordingly, we express no such assurance. The foregoing procedure would not necessarily reveal matters of significance to the pro forma consolidated financial statements, and we therefore make no representation about the sufficiency of the procedures for the purposes of a reader of such statements. /s/KPMG LLP Chartered Accountants Toronto, Canada December 22, 2004 6

9 CEDARA SOFTWARE CORP. Notes to the unaudited pro forma consolidated financial statements (In thousands of Canadian dollars except for share data) ------------------------------------------------------------------------------ 1. BASIS OF PRESENTATION The unaudited pro forma consolidated financial statements have been prepared in accordance with Canadian Generally Accepted Accounting principles ("Canadian GAAP") to give effect to the October 8, 2004 acquisition of all of the issued and outstanding shares of eMed Technologies Corporation ("eMed") by Cedara Software Corp. ("Cedara") for a purchase price of $61,807 in cash consideration, including estimated transaction costs. On October 8, 2004, Cedara acquired all of the issued and outstanding shares of eMed Technologies Corporation ("eMed"), a privately-held provider of Picture Archiving and Communications Systems (PACS) and web-based medical imaging radiology solutions based in Burlington, Massachusetts (the "Acquisition"). Cedara financed the Acquisition partly from its own cash reserves, partly from its new term credit facility with the Royal Bank of Canada ("RBC") and the remainder of the consideration was financed from cash on the balance sheet of eMed on the closing of the Acquisition, as described in note 4. Under the new credit facility, RBC provided a two year term facility of up to $22,500 to allow the Company to finance part of the acquisition of eMed. The remaining unused portion of this acquisition facility was subsequently cancelled. The facility is secured by a general security agreement granting a first security interest in all of the Company's present and after acquired property to RBC. The borrowings under the facility are repayable by quarterly payments of amounts to be determined based on various conditions. The unaudited pro forma consolidated balance sheet and the unaudited pro forma consolidated statement of operations as at and for the three months ended September 30, 2004 have been prepared by management of Cedara and combine the unaudited consolidated financial statements as at and for the three months ended September 30, 2004 of Cedara and the unaudited financial statements of eMed as at and for the three months period ended September 30, 2004, to comply with the regulatory requirement regarding pro forma financial statements. The pro forma adjustments are based upon available information, estimates and certain assumptions that the company believes are reasonable and are described in the accompanying notes to the unaudited pro forma consolidated financial statements. The unaudited pro forma consolidated financial statements do not take into account any synergies or cost savings which may or are expected to occur as a result of the business acquisition. The unaudited pro forma consolidated statement of operations for the year ended June 30, 2004 has been prepared by management of Cedara and combines the audited consolidated statement of operations of Cedara for the year ended June 30, 2004 and, due to different fiscal year periods, the unaudited statement of operations of eMed for the 12 months period ended September 30, 2004, to comply with regulatory requirements regarding pro forma financial statements. 10 CEDARA SOFTWARE CORP. Notes to the unaudited pro forma consolidated financial statements (In thousands of Canadian dollars except for share data) ------------------------------------------------------------------------------ The amounts set out in the unaudited pro forma consolidated statements of operations under the column headings captioned "eMed" for the three months and twelve months ended September 30, 2004 were prepared solely for the purposes of the unaudited pro forma consolidated statements of operations presented herein from the financial information described below and do not conform with the periods presented in the historical financial statements of eMed included elsewhere in this Business Acquisition Report. The amounts presented for eMed for the twelve months ended September 30, 2004 have been calculated by adding together the amounts set out in the statements of operations of eMed included elsewhere in this Business Acquisition Report for the nine months ended September 30, 2004 and for the year ended December 31, 2003 and subtracting the amounts presented for the nine months ended September 30, 2003. The amounts presented for eMed for the three months ended September 30, 2004 have been extracted from the accounting records of eMed used in the preparation of eMed's statement of operations for the nine months ended September 30, 2004. Accordingly, the amounts presented for eMed for the three months ended September 30, 2004 in the unaudited pro forma consolidated statement of operations for that period are also included in the amounts presented for eMed for the twelve months ended September 30, 2004 included in the unaudited pro forma statement of operations for the year ended June 30, 2004. The unaudited pro forma consolidated financial statements are provided for illustrative purposes only and do not purport to represent what the combined companies' actual performance or financial position would have been had the transaction occurred on the dates indicated and do not purport to indicate financial position or results of operations as of any future date or for any future period. The unaudited pro forma consolidated financial statements are derived from and should be read in conjunction with the audited consolidated financial statements of Cedara as at June 30, 2004 and the audited financial statements of eMed as at December 31, 2003 included in item 3.2 of this Business Acquisition Report. 2. EMED TECHNOLOGY CORPORATION HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS The historical financial statements of eMed included in item 3.2 of this Business Acquisition Report were prepared in accordance with United States GAAP and are presented in United States dollars. For the purposes of the preparation of these unaudited pro forma consolidated financial statements, the historical financial statements of eMed have been translated to Canadian dollars using the exchange rate at the balance sheet date for balance sheet amounts and at the average exchange rate for the period for the statements of operations amounts as follows: 11 CEDARA SOFTWARE CORP. Notes to the unaudited pro forma consolidated financial statements (In thousands of Canadian dollars except for share data) ------------------------------------------------------------------------------ ------------------ ----------------------- -------------------------- Three months ended Twelve months ended September 30, 2004 September 30, 2004 ------------------ ----------------------- -------------------------- Average rate 1.3071 1.3251 Period end rate 1.2616 1.2616 ------------------ ----------------------- -------------------------- 3. RECONCILIATION TO CANADIAN GAAP The following adjustments have been presented to reconcile the balance sheet and income statement amounts presented that have been extracted from the financial statements of eMed, with Canadian GAAP: For all periods presented, eMed had Series L redeemable convertible preferred stocks which are described in Note 5 of the audited annual financial statements of eMed for December 31, 2003. For United States GAAP purposes, all of the net proceeds received from the issuance of Series L redeemable convertible preferred stock, were recorded in stockholders' equity. Under Canadian GAAP, financial instruments are accounted for in accordance with CICA Section 3860, Financial Instruments - Presentation and Disclosure ("CICA 3860"). CICA 3860 requires financial instruments that consist of both elements of debt and equity be accounted for in accordance with the substance of the contractual arrangements on initial recognition. Therefore, as a result of the redemption features contained in the redeemable convertible stock, for purposes of Canadian GAAP, the Company would have recognized a compound instrument with separate recognition of the financial liability and equity components. In addition, the amounts accounted for as dividends in accordance with United States GAAP would be classified as interest expense for the respective periods, based on the computations relative to the financial liability component for those periods. Interest expense is recognized to accrete the liability component to its face value over the term of the redeemable convertible stock. Similarly, share issue costs would have been allocated between the debt and equity components in accordance with Canadian GAAP. Share issue costs related to the financial liability component have been set up as deferred financing costs and amortized over the term of financial instrument. As at September 30, 2004, the carrying value of the liability including cumulative accreted interest amount to $53,065; the unamortized deferred issue costs amount to $355; the capital stock is lower by $50,498 and the cumulative amount of $2,212 of interest expense reduces deficit. 12 CEDARA SOFTWARE CORP. Notes to the unaudited pro forma consolidated financial statements (In thousands of Canadian dollars except for share data) ------------------------------------------------------------------------------ 4. ACCOUNTING FOR THE TRANSACTION WITH EMED The acquisition of eMed is accounted for using the purchase method of accounting in accordance with the recommendations of Section 1581, Business Combinations of the CICA Handbook and the resultant goodwill and other intangible assets will be accounted for prospectively in accordance with the recommendations of Section 3062, Goodwill and Other Intangible Assets of the CICA Handbook. The purchase price will be allocated to the balance sheet assets acquired (including identifiable intangible assets arising from the purchase) and liabilities assumed based on their estimated fair value. Certain fair value adjustments, and the related future income tax effect, to the eMed balance sheet in connection with the Transaction are described in Note 5. In the preparation of these pro forma consolidated financial statements, the purchase consideration has been allocated on a preliminary basis to the fair value of assets acquired, including intangible assets, any future tax impact and liabilities assumed based on management's best estimates and taking into account all relevant information available at the time these statements were prepared. In particular, Cedara has retained the services of an independent valuator to assist with the valuation of acquired intangible assets and the assessment of their expected useful lives. The work of the independent valuator is not yet finalized. To the extent that the finalization of these fair value results in changes to amounts set out in these pro forma consolidated financial statements, the amount assigned to goodwill will be adjusted by an equal and offsetting amount. As a result, actual fair values of assets acquired and liabilities assumed and related operating results, including actual depreciation and amortization expense, could differ materially from those reflected in the unaudited pro forma consolidated financial statements included here in. The purchase price allocation of the estimated fair value of net assets acquired is detailed as follows: 13 CEDARA SOFTWARE CORP. Notes to the unaudited pro forma consolidated financial statements (In thousands of Canadian dollars except for share data) ------------------------------------------------------------------------------

5. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS In the preparation of the unaudited pro forma consolidated financial statements, the following significant assumptions and adjustments have been made: The unaudited pro forma consolidated financial statements have been prepared to give effect to the Transactions discussed in Note 1, as if it had occurred as at: o September 30, 2004 for the purposes of the unaudited pro forma consolidated balance sheet; o July 1, 2003 for the purposes of the unaudited pro forma consolidated statement of operations for the three months ended September 30, 2004; and 14 CEDARA SOFTWARE CORP. Notes to the unaudited pro forma consolidated financial statements (In thousands of Canadian dollars except for share data) ------------------------------------------------------------------------------ o July 1, 2003 for the purposes of the unaudited pro forma consolidated statement of operations for the year ended June 30, 2004. (a) The unaudited pro forma consolidated balance sheet as at September 30, 2004 incorporates the following adjustments: (i) Bank indebtedness in the amount of $18,924, which was issued to finance a portion of the cash consideration of the purchase price (Note 4), has been reflected in the pro forma consolidated balance sheet as if it had been received on September 30, 2004. (ii) Cash and short-term investments were reduced by $50,845 and $10,962, respectively to reflect the cash consideration paid and estimated transaction costs. (iii) Inter-company accounts receivable and accounts payable of $131 have been eliminated. (iv) Costs incurred by Cedara as at September 30, 2004 associated with the Transaction amounting to $772 were adjusted through accounts payable and accrued liabilities. All estimated transaction costs have been assumed to be paid at the closing date and are reflected as a reduction of cash and cash equivalents. (v) The intangible assets acquired represents customer contracts and customer base initially valued at $6,056; purchased technology initially valued at $3,154; order backlog initially valued at $2,523 and brand name and trademarks initially valued at $1,388. The customer contracts and customer base, purchased technology and brand name and trademarks will be amortized over their useful lives which are estimated as follows; customer contracts and customer base over 6 years, purchased technology over 5 years, brand name and trademarks over 5 years. The order backlog asset will be amortized as the orders are fulfilled, which is expected to be one year or less. (vi) The excess of purchase consideration over the estimate fair value of net assets acquired has been recorded as goodwill in the amount of $25,787. (vii) Deferred revenue of eMed has been adjusted by $445 to reflect its estimated fair value. (viii) eMed's share capital and deficit have been eliminated to reflect the effect of the transaction. 15 CEDARA SOFTWARE CORP. Notes to the unaudited pro forma consolidated financial statements (In thousands of Canadian dollars except for share data) ------------------------------------------------------------------------------ The adjustments as described in Note 3 to adjust eMed pro forma balance sheet to Canadian GAAP relate to the reclassification of eMed's Series L redeemable convertible preferred stock into separate financial liability and equity components. As a result of the Transaction, the Series L redeemable convertible preferred stock of $37,695 is eliminated, and includes an adjustment of $355 of deferred financing costs and adjustment of $53,065 of the financial liability component of the Series L redeemable convertible preferred stock. (b) The unaudited pro forma consolidated statements of operations for the three months ended September 30, 2004 and for the year ended June 30, 2004 incorporate the following adjustments: (i) The elimination of inter-company revenues and expenses of $136 for the three months ended September 30, 2004 and $761 for the year ended June 30, 2004. (ii) The elimination of the amortization of deferred financing costs of $92 and $373 for the three months period ended September 30, 2004 and the year ended June 30, 2004 respectively, and of the interest accretion associated with the financial liability component of eMed's Series L redeemable convertible preferred Stock amounting to $2,831 and $11,059 for the three months periods ended September 30, 2004 and the year ended June 30, 2004, respectively. (iii) Amortization of the value assigned to identifiable assets on the acquisition of eMed (note 4) of $479 and $4,441 for the three months period ended September 30, 2004 and the year ended June 30, 2004, respectively. (iv) To record the estimated interest expense of $113 for the three months period ended September 30, 2004 and $450 for the year ended June 30, 2004 as a result of the $18,924 acquisition bank line used to partially fund the Transaction and relating to foregone interest income on the $42,883 of cash used to fund the remainder of the purchase consideration. 16 [Insert Documents in following order: FINANCIAL STATEMENTS eMed Technologies Corporation Years Ended December 31, 2003 and 2002 eMed Technologies Corporation Financial Statements Years Ended December 31, 2003 and 2002 CONTENTS Report of Independent Auditors................................................1 Financial Statements Balance Sheets................................................................2 Statements of Income..........................................................3 Statements of Stockholders' Equity............................................4 Statements of Cash Flows......................................................5 Notes to Financial Statements.................................................6 Report of Independent Auditors The Board of Directors eMed Technologies Corporation We have audited the accompanying balance sheets of eMed Technologies Corporation (the Company) as of December 31, 2003 and 2002, and the related statements of income, stockholders' equity, and cash flows for each of the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of eMed Technologies Corporation as of December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States. /s/ERNST & YOUNG LLP Boston, Massachusetts May 3, 2004, except for Note 11, as to which the date is December 19, 2004

Table Continued

eMed Technologies Corporation Notes to Financial Statements December 31, 2003 1. NATURE OF BUSINESS THE COMPANY eMed Technologies Corporation (the Company) was incorporated under the laws of Delaware in March 1992. As a provider of workflow solutions for electronically managing and distributing medical images and related patient information, the Company markets and sells electronic medical imaging systems, and provides related support services to healthcare providers primarily within the United States. The Company operates in one business segment. RISK The Company is subject to risks common to rapidly growing technology-based companies, including dependence on key personnel, the need for raising capital, rapid technological change, competition from substitute products and larger companies, and the need for continued market acceptance of its products and services. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company invests its excess cash in money market funds of major financial institutions. The Company considers all highly liquid investments with original maturities of 90 days or less when acquired to be cash equivalents. 6 eMed Technologies Corporation Notes to Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) RESTRICTED CASH Restricted cash relates to cash provided as collateral for a letter of credit related to the Company's facility lease. The lease agreement requires the Company to provide, as collateral, a letter of credit drawn on the Company's financial institution for $115,000. The lease agreement provides for a reduction of the letter of credit on November 1, 2006 to $91,403 given the Company's tangible net worth is equal to or greater than $15,000,000 or $60,935 given the Company's tangible net worth is equal to or greater than $20,000,000 on or before October 2006. If the Company's tangible net worth is less than $15,000,000 on or before October 2006, there will be no reduction of the letter of credit. FINANCIAL INSTRUMENTS As of December 31, 2003, the Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, capital lease obligations, and redeemable convertible preferred stock. The carrying amount of these instruments approximates their estimated fair value as of December 31, 2003. The estimated fair values have been determined from information obtained from market sources and management estimates. REVENUE RECOGNITION The Company recognizes revenue in accordance with the Securities and Exchange Commission's (SEC) Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition, as amended by SAB No. 104, which incorporates the provision regarding revenue arrangements with multiple deliverables as prescribed by Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. Revenue from product sales is recognized upon shipment to the customer provided that evidence of an arrangement exists, fees are fixed or determinable, title and risk of loss has passed to the customer, collection of the related receivable is probable, and there are no customer acceptance provisions. The majority of the Company's arrangements also contain installation services (i.e., multiple elements). The Company has determined that the elements of its arrangements can be accounted for as separate units of accounting based on the following factors: > Delivered element or product does have stand-alone value to the customer, as the Company does sell its products separately without installation services. > The Company has an established price list for installation of its products that are charged consistently. 7 eMed Technologies Corporation Notes to Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) > The Company arrangements do not contain a general right of return, and furthermore, the Company has demonstrated through past experience its ability to complete the installation services, which are within the Company's control, without exception. For arrangements in which a portion of the sales price is not due until customer acceptance, the Company recognizes such portion upon obtaining customer acceptance. In the event uncertainty exists about customer acceptance of product sales, such as acceptance criteria greater than 50% of the sales price is not due until customer acceptance, the entire sales price is deferred until acceptance occurs. Customer payments received in advance of product shipments are recorded as deferred revenue. The Company typically provides a one-year warranty on all products sold. The Company accrues the estimated costs to be incurred in connection with product warranty upon product shipment. Service revenue consists of customer fees from installation, set-up and training, network-based comprehensive support, and post-warranty product maintenance. Up-front set-up fees from web-based services are recognized over the expected period of performance. Revenue from installation and training is recognized as the work is performed. Revenue from support agreements and post-warranty product maintenance contracts is deferred and recognized ratably over the applicable periods. In accordance with EITF Issue No. 00-10, Accounting for Shipping and Handling Fees, the Company has classified shipping and handling costs related to sales transactions for which they are reimbursed as revenue and the related charges as cost of revenues. Total shipping and handling amounts billed and included in revenue were $119,024 in 2003 and $88,539 in 2002. WARRANTY EXPENSE Equipment that the Company sells generally is covered by a warranty period of one year. The Company accrues a warranty reserve for estimated costs to provide warranty services. The Company's estimate of costs to service its warranty obligations is based on 8 eMed Technologies Corporation Notes to Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) historical experience and an expectation of future conditions. Accrued warranty expense is included in accounts payable and accrued expenses. A roll-forward of warranty activity is as follows: Balance at December 31, 2001 $ 781,646 Warranty expense - Deductions and other (402,660) --------------------- Balance at December 31, 2002 378,986 Warranty expense 320,148 Deductions and other (328,673) --------------------- Balance at December 31, 2003 $ 370,461 ===================== CONCENTRATIONS OF CREDIT RISK AND OFF-BALANCE-SHEET RISK The Company has no significant off-balance-sheet risk, such as foreign exchange contracts, option contracts or other foreign hedging arrangements. Financial instruments that potentially subject the Company to concentration of credit risks are principally cash and cash equivalents and accounts receivable. The Company invests its cash and cash equivalents with financial institutions with highly rated credit, and monitors the amount of credit exposure to any one financial institution. Concentrated credit risk with respect to accounts receivable is limited to large creditworthy customers. The Company typically does not require collateral. The Company reevaluates its provision for collection losses on a monthly basis based on a specific review of the accounts receivable agings and the period that any receivables are beyond the standard payment terms. The Company has not experienced significant losses related to receivables from individual customers or groups of customers in any specific industry or geographic area. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by 9 eMed Technologies Corporation Notes to Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) management to be probable in the Company's accounts receivable. The Company has not experienced any material losses to date. The Company had no customers with a revenue balance in excess of 10% of total revenues in 2003 or 2002. The following table summarizes the number of customers that individually comprise greater than 10% of accounts receivable, and their aggregate percentage of total accounts receivable: PERCENTAGE OF TOTAL ACCOUNTS RECEIVABLE SIGNIFICANT ------------------------------------------ CUSTOMERS A B C ------------------------------------------------------- Year ended: December 31, 2003 1 * * 11% December 31, 2002 2 12% 10% * * Accounts receivable for this customer represented less than 10% of total accounts receivable as of year end. INVENTORIES Inventories are stated at the lower of cost or market, cost being determined using the first-in, first-out (FIFO) method. CONCENTRATION OF SUPPLIERS The Company purchases certain components of its products from a limited number of suppliers. A change in, or loss of, these suppliers could cause a delay in filling customer orders, and a possible loss of sales, which could adversely affect results of operations; however, management believes that suitable replacement suppliers could be obtained in such an event. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives. Repair and maintenance costs are expensed as incurred. 10 eMed Technologies Corporation Notes to Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) GOODWILL AND OTHER INTANGIBLE ASSETS The Company follows adopted the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, which revised the accounting for goodwill and other intangible assets. Under this pronouncement, goodwill and intangible assets with indefinite lives are no longer subject to amortization, but are monitored annually for impairment. Intangible assets with finite useful lives will continue to be amortized over those periods. Any impairment will be measured based upon the fair value of the related asset based upon the provisions of SFAS No. 142. In 2002, as a result of the closing of an acquired entity's operations, the Company recorded an impairment charge in the amount of $374,613 to reduce the carrying value of goodwill to zero. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with SFAS No. 144, Accounting for the Impairment Disposal of Long-Lived Assets, the Company continually evaluates whether events or circumstances have occurred that indicate that the estimated remaining useful life of its long-lived assets may warrant revision, or that the carrying value of these assets may be impaired. As of December 31, 2003, the Company has determined that the carrying amounts of its long-lived assets are recoverable. STOCK-BASED COMPENSATION The Company accounts for its stock compensation agreements with employees under the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. The Company has adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, an Amendment of FASB Statement No. 123. The Company has computed the value of options using the minimum value option-pricing model prescribed by SFAS No. 123. The weighted-average fair value of the options granted was $0.01 per share in 2003 and $0.01 per share in 2002 using the following assumptions: no dividend yield, a risk-free interest rate of 2.87% to 3.27% in 2003 and 2.95% to 4.65% in 2002 and an expected life of five years from date of the grant. The weighted-average remaining contractual life of options outstanding was 8.7 years and 6.7 years as of December 31, 2003 and 2002, respectively. The impact of applying SFAS No. 123 to compute pro forma net income was not material to net income in 2003 and 2002. 11 eMed Technologies Corporation Notes to Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred. WEBSITE DEVELOPMENT COSTS All significant costs incurred associated with the Company website were related to operating and maintenance of the website and, in accordance with EITF Issue No. 00-2, Accounting for Website Development Costs, these are operating costs and are expensed as incurred. ADVERTISING COSTS Advertising costs are charged to operations as incurred. Advertising costs were approximately $102,000 in 2003 and $100,000 in 2002. RECENT ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued Financial Interpretation No. (FIN) 46, Consolidation of Variable Interest Entities. FIN 46 requires that if an entity is the primary beneficiary of a variable interest entity, the assets, liabilities, and results of operations of the variable interest entity should be included in the consolidated financial statements of the entity. The provisions of FIN 46 were revised in December 2003 to be effective for private companies' financial statements periods commencing after December 15, 2003. The Company currently has no contractual relationship or other business relationship with a variable interest entity, and therefore, the adoption of FIN 46 will not have a material effect on the Company's financial position, results of operations, or cash flows. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. This statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. Instruments that are indexed to, and potentially settled in, an issuer's own shares that are not within the scope of SFAS No. 150 remain subject to existing guidance (e.g., EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to or Potentially Settled in, a Company's Own Stock, Accounting Series Release 268, Redeemable Preferred Stocks). This statement will require companies to classify their mandatorily redeemable preferred stock outside of stockholders' equity and record any accretion of dividends or guaranteed return as interest expense in 12 eMed Technologies Corporation Notes to Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) the statements of operations. For nonpublic companies, the statement is effective as of July 1, 2003 for all financial instruments created or modified after June 30, 2003, and for instruments created or modified prior to June 30, 2003, the statement is effective as of January 1, 2005. The Company's preferred stock is not mandatorily redeemable, as the holders may convert its shares into Common Stock, this statement currently has no impact on the Company. 3. INVENTORIES DECEMBER 31 2003 2002 --------------------------------- Raw materials and purchased components $617,806 $ 668,698 Work-in-process - 290,150 Finished goods 284,273 139,995 --------------------------------- $902,079 $1,098,843 ================================= Included in finished goods are customer demonstration products, which the Company utilizes to facilitate its sales. The Company has continued to classify these as finished goods as these demonstration products have historically been sold to its customers. 4. PROPERTY AND EQUIPMENT

Depreciation and amortization expense on property and equipment, including property under capital leases, was $179,750 in 2003 and $321,760 in 2002. 13 eMed Technologies Corporation Notes to Financial Statements (continued) 5. PREFERRED STOCK Shares authorized, issued, and outstanding, and the carrying values of the Company's convertible preferred stock, are as follows:

There are 2,069,967 shares of Preferred Stock undesignated. Holders of Series L Redeemable Convertible Preferred Stock (Series L Redeemable Convertible Preferred Stock) and Convertible Preferred Stock have the following characteristics: DIVIDENDS The holders of Convertible Preferred Stock, except Series J, are entitled to receive non-cumulative dividends whenever the Company declares a dividend on its common stock, in such an amount as they would be entitled to receive if the convertible preferred stock had been converted into common stock on the date the dividend was declared. The holders of Series J Convertible Preferred Stock (Series J Convertible Preferred Stock) are entitled to receive noncumulative, annual cash dividends of $0.11 per share, when and if declared by the Company, in preference to the holders of Series Preferred or common stock. 14 eMed Technologies Corporation Notes to Financial Statements (continued) 5. PREFERRED STOCK (continued) Prior to the payment of any dividend to the holders of Convertible Preferred Stock, the holders of Series L Redeemable Convertible Preferred Stock are entitled to receive cumulative dividends compounded quarterly at an annual rate sufficient to yield a return of 8% per annum. Accrued dividends at December 31, 2003 were $5,971,712. VOTING Most actions by the Company require the vote or written consent of a majority of all stockholders, plus two-thirds of the outstanding shares of each of the outstanding series of preferred stock. Other actions, including dividend declarations, liquidation events, and change in the number of directors, require the majority vote or written consent of the stockholders, plus two-thirds of the outstanding shares of the Series L Redeemable Convertible Preferred Stock. Each stockholder is entitled to the number of votes equal to the number of shares of Common Stock into which such holder's shares are convertible. CONVERSION Each share of Convertible Preferred Stock and Series L Redeemable Convertible Preferred Stock may be converted at any time, at the option of the stockholder, into Common Stock. The conversion ratios are as follows: Series B 1 to 100 shares Series C 1 to 397 shares Series E 1 to 397 shares Series F 1 to 833 shares Series G 1 to 1,389 shares Series H 1 to 1,389 shares Series J 1 to 0.42 shares Series K 1 to 0.42 shares Series L 1 to 1 shares During 2002, one investor converted two shares Series C, 1 share of Series E, 54 shares of Series F, 77 shares of Series G, and 291,844 shares of Series J Convertible Preferred Stock into 275,973 shares of Common Stock. 15 eMed Technologies Corporation Notes to Financial Statements (continued) 5. PREFERRED STOCK (continued) All outstanding shares of Convertible Preferred Stock (except Series H, J and K) automatically convert into common stock, at their respective conversion rate, upon the closing of an initial public offering of the Company's Common Stock. In the case of Series H, J, and K Convertible Preferred Stock, all outstanding shares automatically convert into common stock upon the closing of an initial public offering of the Company's Common Stock with gross proceeds of at least $15,000,000 to the Company, and at a price to the public of at least $7.20 per common share. In the case of Series L Redeemable Convertible Preferred Stock, all outstanding shares automatically convert into Common Stock upon the closing of an initial public offering of the Company's Common Stock with gross proceeds of at least $40,000,000 to the Company and at a price to the public of at least $4.24 per common share. LIQUIDATION PREFERENCE In the event of any liquidation, dissolution, or winding-up of the Company, the holders of Series L are entitled to receive, prior to any distribution to holders of Convertible Preferred Stock or Common Stock, up to the amount of $4.24 per share as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to Series L Redeemable Convertible Preferred Stock, plus all accrued but unpaid dividends, plus any declared but unpaid dividends. Then the holders of Series K and Series J are entitled to receive, prior to any distribution to holders of Series B, C, E, F, G, and H or Common Stock, up to the amount of $1.40 and $1.10 per share, respectively, plus any declared but unpaid dividends. After the payment of the full liquidation preference of Series L Redeemable Preferred Stock and Series K and J Convertible Preferred Stock, the holders of Series B, Series C, Series E, Series F, Series G, and Series H are entitled to receive, prior to any distribution to holders of Common Stock, up to the amount of $1,000, $5,000, $5,000, $1,000, $5,000 and $5,000 per share, respectively, plus any declared but unpaid dividends. 16 eMed Technologies Corporation Notes to Financial Statements (continued) 5. PREFERRED STOCK (continued) REDEMPTION On or after September 29, 2005, the Company, upon the election of at least a majority of the holders of Series L Redeemable Convertible Preferred Stock, at the option of the holder, is obligated to redeem all of the outstanding shares of Series L Redeemable Convertible Preferred Stock. The redemption price per share is equal to $4.24, plus all accrued and unpaid dividends and all declared and unpaid dividends. No other classes of preferred stock have redemption rights. The Company is accreting all amounts toward redemption on a straight-line basis through September 29, 2005 in the accompanying financial statements. PREFERRED STOCK WARRANTS In June 1997, in connection with the Series J financing, the Company issued immediately exercisable warrants to purchase 170,455 shares of Series J Convertible Preferred Stock at an exercise price of $2.29. As of December 31, 2001, the holders had exercised warrants to purchase 24,823 shares of Series J Convertible Preferred Stock. During 2002, the remaining warrants to purchase 145,632 shares of Series J Convertible Preferred Stock expired unexercised. In December 2000, the Company issued a warrant to purchase 245,798 shares of Series L Redeemable Convertible Preferred Stock. This warrant, which was issued in connection with the completion of the Series L financing, was immediately exercisable at a price of $2.12 per share and expires in 2005. The fair value of this warrant was $345,412 and was recorded as an issuance cost of the Company, and was netted against the proceeds received by the Company. As of December 31, 2003, none of the Series L warrants had been exercised. 6. COMMON STOCK Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company's stockholders. Common stockholders are entitled to receive dividends, if any, as may be declared by the Board of Directors, subject to any preferential dividend rights of the preferred stockholders. RESERVED SHARES As of December 31, 2003, the Company has 28,364,946 shares of common stock reserved for issuance upon the exercise of Common Stock options and warrants, and conversion of the outstanding redeemable convertible preferred stock. 17 eMed Technologies Corporation Notes to Financial Statements (continued) 6. COMMON STOCK (continued) COMMON STOCK WARRANTS The Company has warrants outstanding, related to issuances prior to 2002, for the purchase of 1,954,461 shares of Common Stock at exercise prices ranging from $0.01 to $2.82 per share, and expiring from 2005 to 2010. 7. STOCK PLANS The 1994 Stock Plan (the 1994 Plan) provides for the grant of incentive stock options and nonqualified stock options, stock awards, and stock purchase rights for the purchase of up to 4,925,000 shares of the Company's Common Stock by officers, employees, consultants and directors of the Company. The Board of Directors is responsible for administration of the 1994 Plan. The Board determines the term of each option, the option exercise price, the number of shares for which each option is granted and the rate at which each option vests, which is typically a four-year period. Incentive stock options may be granted to any employee at an exercise price per share of not less than the fair value per common share on the date of the grant (not less than 110% of fair value in the case of holders of more than 10% of the Company's voting stock) and with a term not to exceed ten years from the date of the grant (five years for incentive stock options granted to holders of more than 10% of the Company's voting stock). A summary of stock option activity is as follows:

18 eMed Technologies Corporation Notes to Financial Statements (continued) 7. STOCK PLANS (continued) In 2001, the Compensation Committee authorized the issuance of 4,925,000 shares of restricted stock in connection with 2001 Stock Award Program (the Program). The Program allowed for employees to voluntarily exchange their stock options for restricted stock at no cost to the employee. Under the Program, employees hired before May 31, 2000 could exchange their vested or unvested options for restricted stock that will either vest immediately or over a period ending no later than December 31, 2001. The Company issued 2,196,908 shares of restricted stock in 2001 (and canceled 2,196,908 options to purchase Common Stock) in connection with this program. The Company recorded deferred compensation in the amount of $21,969, which represents the intrinsic value of the restricted stock granted, and is being amortized over the vesting period of the restricted stock on a straight-line basis. In connection with this exchange, the Company also expensed the remaining deferred compensation associated with options granted in 2000 below fair value. During 2001, the Company also issued an additional 2,081,142 shares of restricted stock under this program. Generally, these shares vest over a period not to exceed three years. In connection with this issuance, the Company recorded deferred compensation expense equal to the intrinsic value of the restricted stock granted. The deferred compensation will be amortized to compensation expense over the vesting period. Of these additional shares, the Company reacquired and canceled 1,544,975 shares of restricted common stock upon termination of various employees through December 31, 2003. As of December 31, 2003, deferred compensation of $887, relating to the remaining unvested shares of restricted common stock, will be amortized to compensation expense over the remaining vesting period. 8. INCOME TAXES The Company accounts for income taxes under SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets or liabilities are computed based on the differences between the financial statement and income tax bases of assets and liabilities using the enacted tax rates. The principal difference from the U.S. statutory rate to the Company's effective rate for 2003 is a result of taxable income offset be a reduction in the valuation allowance of the Company's net deferred tax assets based on utilization of approximately $2,973,000 of tax net operating loss carryforwards. The principal difference from the U.S. statutory rate to the Company's effective rate for 2002 is a result of tax losses, for which the Company did not record a benefit due to the uncertainty of future taxable income. The provision for income taxes for the year ended December 31, 2003 represents the Company's current alternative minimum federal tax liability and current minimum state taxes. 19 eMed Technologies Corporation Notes to Financial Statements (continued) 8. INCOME TAXES As of December 31, 2003 and 2002, the components of net deferred tax assets (liabilities) are as follows:

Realization of deferred tax assets is dependent upon the generation of future taxable income. As required by SFAS No. 109, management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of net operating loss carryforwards. As a result of the fact that the Company has cumulative tax losses for the last three years, management has determined that it is more likely than not that the Company will not recognize the benefits of federal and state net deferred tax assets and, as a result, a full valuation allowance has been established against its net deferred tax assets. The Company has offset certain deferred tax liabilities with deferred tax assets that are expected to generate offsetting deductions within the same periods. As of December 31, 2003, the Company had federal net operating losses of approximately $25,471,000, which may be available to offset future federal income tax liabilities and expire at various dates through 2022. As of December 31, 2003, the Company had approximately $723,560 of research and development credits for federal income tax purposes, and approximately $341,380 of state research and development credits. Ownership changes, as defined in the Internal Revenue Code (the Code), have limited the amount of net operating loss carryforwards and credit carryforwards that can be utilized by the Company annually to offset future taxable income. As a result, a portion of the Company's net operating loss carryforwards will expire unutilized. Subsequent changes in ownership could further affect the limitation in future years. 20 eMed Technologies Corporation Notes to Financial Statements (continued) 9. EMPLOYEE BENEFIT PLAN The Company maintains a defined contribution plan, which covers substantially all employees who meet minimum age and service requirements, as defined, and allows participants to defer a portion of their annual compensation on a pretax basis. Under their plan, the Company matches employee contributions up to 3% of the employee's salary, which vests after the employee has been employed by the Company for one year. Total contributions to the plan were $152,268 in 2003 and $157,338 in 2002. 10. COMMITMENTS LEASES The Company leases its facility and certain equipment under operating and capital lease agreements that expire at various dates through 2008. The Company has assets under capital leases in the amount of $42,895 at December 31, 2003 and 2002, and accumulated amortization in the amount of $10,724 and $2,145 at December 31, 2003 and 2002, respectively. The Company's facility lease entered into in 2002 contains escalating, as well as, free rent payments, which the Company is recognizing on a straight-line basis, and is included in deferred rent in the accompanying balance sheet. 21 eMed Technologies Corporation Notes to Financial Statements (continued) 10. COMMITMENTS (continued) As of December 31, 2003, the minimum future payments under these lease agreements are as follows: OPERATING CAPITAL LEASES LEASES --------------------------------- 2004 $ 400,324 $11,324 2005 409,327 11,324 2006 424,891 11,324 2007 429,592 9,437 2008 370,688 - --------------------------------- $2,034,822 43,409 =================== Less amounts representing interest 6,191 --------------- Present value of future minimum lease payments 37,218 Less amounts currently due 5,687 --------------- Capital lease obligations, net of current portion $31,531 =============== Rent expense amounted to approximately $437,000 in 2003 and $752,000 in 2002. EXECUTIVE EMPLOYMENT AGREEMENTS Certain key executives are covered by employment agreements, covering salaries, certain benefits and incentive compensation. These agreements provide for salaries and benefit continuation for a period of up to 12 months in the event of termination without cause. These agreements also provide for additional compensation in the event of sale or merger of the Company. No amounts have been accrued for in the accompanying balance sheets as of December 31, 2003 and 2002 due to the fact that the contingency does not meet the criteria in accordance with SFAS No. 5, Accounting for Contingencies, to record a liability. 22 eMed Technologies Corporation Notes to Financial Statements (continued) 11. SUBSEQUENT EVENT AND CANADIAN GAAP RECONCILIATION SUBSEQUENT EVENT On October 8, 2004, Cedara Software Corp., a Canadian public company, acquired 100% of the outstanding shares of the Company for approximately $49.0 million, including transaction costs. CANADIAN GAAP RECONCILIATION These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP), which differ in significant respects from Canadian GAAP, as described below:

23 eMed Technologies Corporation Notes to Financial Statements (continued) 11. SUBSEQUENT EVENT AND CANADIAN GAAP RECONCILIATION (continued)

The significant differences between United States and Canadian GAAP and their effect on the financial statements of the Company are described below: For all periods presented, the Company had Series L redeemable convertible preferred stock which is described in Note 5. For U.S. GAAP purposes, all of the net proceeds received from the issuance of series L redeemable convertible preferred stock were recorded in stockholders' equity. Under Canadian GAAP, financial instruments are accounted for in accordance with CICA Section 3860, Financial Instruments--Presentation and Disclosure (CICA 3860). CICA 3860 requires financial instruments that consist of both elements of debt and equity be accounted for in accordance with the substance of the contractual arrangement on initial recognition. Therefore, as a result of the redemption features contained in the redeemable convertible stock, for purposes of Canadian GAAP, the Company has recognized a compound instrument with separate recognition of the financial liability and equity components. The amounts previously treated as dividends have been treated as interest expense for the respective years, based on the computations relative to the financial liability component for those years. Similarly, share issue costs related to the financial liability component is set up as deferred financing costs and amortized over the term of financial instrument. 24 eMed Technologies Corporation Notes to Financial Statements (continued) 11. SUBSEQUENT EVENT AND CANADIAN GAAP RECONCILIATION For U.S. GAAP, the Company accounts for its stock compensation agreements with employees under the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. The Company has adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, an Amendment of FASB Statement No. 123. The Company has computed the value of options using the minimum value option-pricing model prescribed by SFAS No. 123. Under Canadian GAAP, provisions of CICA HB 3870 apply. Under this accounting pronouncement, pro forma information regarding net income is required and is determined as if the Company had accounted for its employee stock options granted under the fair value method. The impact of applying SFAS No. 123 and CICA HB 3870 to compute pro forma net income was not material to net income in 2003 and 2002. 25 UNAUDITED FINANCIAL STATEMENTS eMed Technologies Corporation Nine month periods ended September 30, 2004 and 2003 Notice required under National Instrument 51-102, "Continuous Disclosure Obligations" part 4.3(3)(a) (These unaudited interim consolidated financial statements have not been reviewed by an external auditor) eMed Technologies Corporation Unaudited Financial Statements Nine Month Periods Ended September 30, 2004 and 2003 CONTENTS Financial Statements Balance Sheets at September 30, 2004 and December 31, 2003.....................2 Statements of Income...........................................................3 Statements of Stockholders' Equity.............................................4 Statements of Cash Flows.......................................................5 Notes to Financial Statements..................................................6 1 eMed Technologies Corporation Unaudited Balance Sheets

eMed Technologies Corporation Unaudited Statements of Income NINE MONTH PERIOD ENDED SEPTEMBER 30 2004 2003 ------------------------------------- Revenue: Product $12,465,408 $11,335,236 Service 6,907,259 5,974,033 ------------------------------------- Total revenue 19,372,667 17,309,269 Cost of revenue: Product 6,196,665 5,633,979 Service 2,628,774 2,533,774 ------------------------------------- Total cost of revenue 8,825,439 8,167,753 ------------------------------------- Gross margin 10,547,228 9,141,516 Operating expenses: Engineering, research, and development 2,105,355 2,114,030 Sales and marketing 3,267,024 3,006,554 General and administrative 1,834,764 1,880,549 ------------------------------------- Total operating expenses 7,207,143 7,001,133 ------------------------------------- Income from operations 3,340,085 2,140,383 Interest income, net 134,884 101,569 Other income (expense), net 302 1,565 ------------------------------------- Income before provision for income taxes 3,475,271 2,243,517 Provision for income taxes - - ------------------------------------- Net income $ 3,475,271 $ 2,243,517 ===================================== See accompanying notes 3 Statement of Stockholders' equity table 4 eMed Technologies Corporation Unaudited Statements of Cash Flows

eMed Technologies Corporation Notes to Unaudited Financial Statements September 30, 2004 1. NATURE OF BUSINESS The Company eMed Technologies Corporation (the Company) was incorporated under the laws of Delaware in March 1992. As a provider of workflow solutions for electronically managing and distributing medical images and related patient information, the Company markets and sells electronic medical imaging systems, and provides related support services to healthcare providers primarily within the United States. The Company operates in one business segment. Risk The Company is subject to risks common to rapidly growing technology-based companies, including dependence on key personnel, the need for raising capital, rapid technological change, competition from substitute products and larger companies, and the need for continued market acceptance of its products and services. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The disclosures contained in these unaudited interim financial statements do not include all disclosures required under generally accepted accounting principles (GAAP) for annual financial statements. The unaudited interim financial statements should be read in conjunction with the audited annual financial statements for the year ended December 31, 2003. Management believes these unaudited interim financial statements include all adjustments, including normal recurring adjustments, necessary to present fairly the financial position of the Company as at September 30, 2004 and the results of its operations and its cash flows for the three months ended September 30, 2004 and September 2003. Results for the three months ended September 30, 2004 are not necessarily indicative of the results to be expected for the entire year. The unaudited interim financial statements are based upon accounting policies consistent with those used and described in the audited annual financial statements, except as herein noted. 6 eMed Technologies Corporation Notes to Unaudited Financial Statements (continued) Restricted Cash Restricted cash relates to cash provided as collateral for a letter of credit related to the Company's facility lease. The lease agreement requires the Company to provide, as collateral, a letter of credit drawn on the Company's financial institution for $115,000. On June 3, 2004, the Company's landlord exercised the letter of credit, drawing on the $115,000. The Company is currently in negotiations with the landlord for the return of the prepaid rent and re-instatement of the letter of credit. Warranty Expense Equipment that the Company sells generally is covered by a warranty period of one year. The Company accrues a warranty reserve for estimated costs to provide warranty services. The Company's estimate of costs to service its warranty obligations is based on historical experience and an expectation of future conditions. Accrued warranty expense is included in accounts payable and accrued expenses. A roll-forward of warranty activity is as follows: For the nine month period ended September 30 2004 2003 ------------------------------------ Balance at beginning of period $ 370,461 $ 378,986 Warranty expense 377,964 336,975 Deductions and other (236,216) (201,037) ------------------------------------ Balance at end of period $ 512,209 $ 514,924 ==================================== Significant customers The Company had no customer with a revenue balance in excess of 10% of total revenues for the nine month periods ending September 30, 2004 and 2003 respectively. The following table summarizes the number of customers that individually comprise greater than 10% of accounts receivable, and their aggregate percentage of total accounts receivable: 7 eMed Technologies Corporation Notes to Unaudited Financial Statements (continued) PERCENTAGE OF TOTAL ACCOUNTS RECEIVABLE SIGNIFICANT ---------------------------- CUSTOMERS A B --------------------------------------------- September 30, 2004 1 * 12% December 31, 2003 1 11% * *Accounts receivable for this customer represented less than 10% of total accounts receivable as of this period end. Stock-Based Compensation The Company has computed the value of options using the minimum value option-pricing model prescribed by SFAS No. 123. The weighted-average fair value of the options granted was $0.01 per share for the nine months ended September 30, 2004 and 2003, respectively using the following assumptions: no dividend yield, a risk-free interest rate of 3.40% and 2.87% for the nine month periods ended September 30, 2004 and September 30, 2003, respectively and an expected life of five years from date of the grant. The weighted-average remaining contractual life of options outstanding was 7.9 years and 6.3 years as of September 30, 2004 and 2003, respectively. The impact of applying SFAS No. 123 to compute pro forma net income was not material to net income in the nine month period ended September 30, 2004 and September 30, 2003. Advertising Costs Advertising costs are charged to operations as incurred. Advertising costs were approximately $64,000 and $83,000 for the nine month periods ended September 30, 2004 and 2003 respectively. 3. INVENTORIES SEPTEMBER 30 December 31 2004 2003 --------------------------------- Raw materials and purchased components 725,762 617,806 Work-in-process 58,814 - Finished goods 253,791 284,273 --------------------------------- $1,038,367 $902,079 --------------------------------- 8 eMed Technologies Corporation Notes to Unaudited Financial Statements (continued) Included in finished goods are customer demonstration products, which the Company utilizes to facilitate its sales. The Company has continued to classify these as finished goods as these demonstration products have historically been sold to its customers. 4. PROPERTY AND EQUIPMENT

Depreciation and amortization expense on property and equipment, including property under capital leases, was $96,470 and $140,960 for the nine month periods ended September 30, 2004 and 2003 respectively. 5. PREFERRED STOCK Shares authorized, issued, and outstanding, and the carrying values of the Company's convertible preferred stock, are as follows:

9 eMed Technologies Corporation Notes to Unaudited Financial Statements (continued)

(b) Statements of Income:

11 eMed Technologies Corporation Notes to Unaudited Financial Statements (continued) The significant differences between United States and Canadian GAAP and their effect on the financial statements of the Company are described below: (i) For all periods presented, the Company had Series L redeemable convertible preferred stock which is described in Note 5 of the audited annual financial statements for December 31, 2003. For U.S. GAAP purposes, all of the net proceeds received from the issuance of series L redeemable convertible preferred stock, were recorded in stockholders' equity. Under Canadian GAAP, financial instruments are accounted for in accordance with CICA Section 3860, Financial Instruments--Presentation and Disclosure ("CICA 3860"). CICA 3860 requires financial instruments that consist of both elements of debt and equity be accounted for in accordance with the substance of the contractual arrangement on initial recognition. Therefore, as a result of the redemption features contained in the redeemable convertible stock, for purposes of Canadian GAAP, the Company has recognized a compound instrument with separate recognition of the financial liability and equity components. The amounts previously treated as dividends have been treated as interest expense for respective periods, based on the computations relative to the financial liability component for those years. Similarly, share issue costs related to the financial liability component is set up as deferred financing costs and amortized over the term of financial instrument. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. January 13, 2005 CEDARA SOFTWARE CORP. By: /s/ Brian Pedlar --------------------- Brian Pedlar Chief Financial Officer

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