6-K 1 tor48071.txt FORM 6-K 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. Press Release dated January 18, 2005 - Merge eFilm and Cedara Software Corp. to Merge [MERGE eFILM GRAPHIC OMITTED] [CEDARA GRAPHIC OMITTED] JOINT NEWS RELEASE For Immediate Release Contacts: Merge eFilm Richard Linden, President & CEO, 414-977-4665 Scott Veech, Chief Financial Officer, 414-977-4264 Cedara Software Corp. Abe Schwartz, President & CEO, (905) 672-2101 x2000 Brian Pedlar, Chief Financial Officer, (905) 672-2101 x2015 MERGE EFILM AND CEDARA SOFTWARE CORP TO MERGE COMBINation creates MEDICAL IMAGING market leader offering expanded products and services and accelerated innovation in the direct and OEM Channels Combined Run-Rate Revenues Exceed $100 Million (C$122 million); Investor Conference Call Scheduled for 10 a.m. CST to Discuss Transaction Milwaukee, WI, USA, and Toronto, ON, Canada, January 18, 2005 - Merge Technologies Incorporated (NASDAQ: MRGE), d.b.a. Merge eFilm, a leading global healthcare software and services company, and Cedara Software Corp. (NASDAQ: CDSW/TSX:CDE), a leading independent developer of medical software technologies for the global healthcare market, today announced a definitive agreement to merge in an all-stock transaction. Upon completion of the transaction, the combined company will bring one of the most comprehensive image and information management solution sets to manage clinical and business workflow to the diagnostic OEM and end user markets. The combined company will have an extensive imaging product suite to meet the current and emerging needs of OEM and end user customers, radiology and clinical specialties, and an annual revenue run rate exceeding $100 million (C$122 million). In addition, the merged company will have an international presence capitalizing on the digitization of healthcare, and the financial strength, growth trajectory and product and distribution market coverage to drive its continued track record as one of the fastest growing healthcare information technology companies in the market. Merge eFilm will issue either 0.587 Merge eFilm common shares, or 0.587 shares of a newly created class of Canadian exchangeable shares for each Cedara common share. Based on the 20-day volume weighted average price of Merge eFilm stock for the period ending January 14, 2005, the transaction is valued at US$12.37 (approximately C$15.10) for each common share of Cedara, representing a 17.5% premium to Cedara's 20-day volume weighted average price. The merger may permit Canadian shareholders of Cedara to defer any gain on their shares for Canadian income tax purposes. The transaction is subject to approval by shareholders of each company, regulatory approvals and other customary closing conditions. "I'm very pleased to announce that Merge eFilm and Cedara are joining together to lead the market with the product and service depth, financial strength, product innovation resources and market coverage to deliver value to our key stakeholders: customers, employees and shareholders," said Richard Linden, President and CEO of Merge eFilm. "Our combined strengths will allow us to accelerate the development and deployment of new imaging products and services for both the OEM markets and our expanding interest in RIS/PACS offerings beyond radiology. Together, we create a powerful combination of industry leading product innovation, sales and marketing distribution, valued professional services, strengthened international market coverage, and enhanced access to new markets. For example, we are well positioned to leverage the market leading innovation of OEM technologies for clinical specialties such as orthopedics, cardiology, gastroenterology, and mammography into full workflow solutions. The scale and momentum from this merger is a proactive strategy to lead the industry consolidation effort, to further the steady change in the definition of RIS/PACS and alter the competitive landscape. Our combined brand is strong, our value propositions unique, our recent histories indicative of our ability to succeed financially and we are well positioned to achieve our growth objectives. This powerful combination of factors will contribute to the digital evolution of one of the fastest growing sectors in healthcare information technology, and we are pleased to be a catalyst for market change with this merger." "Our merged organization will make it easier to introduce innovative medical solutions for both our global OEM partners and end user customers," said Abe Schwartz, Cedara's President and CEO. "We will be the only company in our industry with this breadth of end-user and OEM offerings, with a new depth of clinical and technical expertise to support them. Our significant expansion of leadership, talent and operational resources will allow us to enter new clinical markets and create product offerings beyond radiology. Our employees will have greater professional growth and career path development, and our shareholders will gain from the financial strength of the combined organization. This is a win-win for all stakeholders." The corporate headquarters for the newly combined company will be in Milwaukee, WI. Richard Linden will serve as its President and CEO, and Abe Schwartz will continue his involvement with the company including serving as a member of its Board of Directors. Leadership and integration planning for the combined company is underway and will be implemented after the anticipated April closing. Based on the strong growth and financial performance of Merge eFilm and Cedara, the transaction is expected to be accretive to Merge eFilm's earnings per share in 2005 (excluding the impact of one-time transaction-related expenses), and beyond. The combined company expects to realize operational synergies including time to market for new imaging products, cross-selling opportunities within our combined end user customer base, and cost savings associated with public company activities. William Blair and Company, L.L.C. acted as financial advisor to Merge eFilm, and Michael Best & Friedrich LLP and Blake, Cassels & Graydon acted as legal advisors. Genuity Capital Markets acted as financial advisor to Cedara and Stikeman Elliott LLP and Debevoise & Plimpton LLP acted as legal advisors. Merge eFilm and Cedara will host a conference call to discuss the transaction today, January 18, at 10:00 am CST. To listen to the live broadcast, please see options listed below: LIVE VIA PHONE: Call: - 800-221-2015 (US & Canada) - 706-634-2159 (International) Reference Conference ID#: 3499352 LIVE VIA WEBCAST: Go To: http://phx.corporate-ir.net/playerlink.zhtml?c=85928&s=wm&e=1002693 For additional information about the conference call, visit: http://www.merge.com/investor/confcalllist.asp (Editors Note: see the following fact sheets for additional details concerning Merge eFilm and Cedara).

~~CEDARA~~MERGE ~~SOFTWARE~~EFILM ~~CORP. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET As at September 30, 2004 (In thousands of Canadian dollars, except per share amounts)~~ -~~------------------------------------------------~~ ~~----------- ------------ ------------- ------------ ---------- -------------- Canadian GAAP Pro forma Pro~~ CEDARA ~~EMED~~MERGER ~~Adjustments~~DEAL ~~Adjustments~~FACT ~~Notes~~SHEET ~~forma~~Parties ~~-------------------------------------------------~~Merge ~~-----------~~eFilm ~~------------~~Cedara ~~-------------~~Software ~~------------~~Exchange ~~----------~~Symbol: ~~--------------~~NASDAQ: ~~(US~~MRGE ~~GAAP)~~TSX: ~~Note~~CDE; ~~2 Note 3 ASSETS Current assets~~NASDAQ: ~~Cash~~CDSW ~~and~~Company ~~cash~~Merge ~~equivalents~~eFilm $is ~~38,432 $ 24,600 $ - $ 18,924 5(~~a~~)(i)~~ $global ~~31,111~~healthcare ~~(50,845)~~software ~~5(a)(ii)~~and ~~Short-term~~Cedara ~~investments~~Software ~~10,962~~Corp. -is ~~- (10,962) 5(~~a~~)(ii)~~ -leading ~~Accounts~~independent ~~receivable~~Description ~~11,960~~services ~~4,686~~company -focused ~~(131)~~on ~~5(a)(iii)~~accelerating ~~16,515~~the ~~Inventory~~provider ~~325~~of ~~1,310~~medical -imaging -technologies. ~~1,635~~Cedara ~~Prepaid~~productivity ~~expenses~~of ~~and~~imaging ~~other assets 924 903 - - 1~~centers,~~827~~ small-~~------------------------------------------------~~ ~~-----------~~to ~~------------~~software ~~-------------~~is ~~------------~~deployed ~~----------~~in ~~--------------~~hospitals ~~62,603~~and ~~31,499~~clinics medium-sized ~~(43,014)~~hospitals ~~51,088~~and ~~Capital~~clinics ~~assets~~with ~~1,968~~a ~~346~~suite -worldwide -and ~~2,314~~is ~~Long~~licensed ~~term~~by ~~investments~~many ~~510~~of -the -world's -of ~~510~~RIS/PACS ~~Other~~products ~~assets~~that -more ~~768~~efficiently -leading ~~768~~medical ~~Deferred~~device ~~financing~~and ~~costs~~healthcare -information -streamline, ~~355~~integrate ~~(355)~~and ~~5(a)(viii)~~distribute -image ~~Deferred~~and ~~acquisition~~technology ~~costs~~companies. ~~772~~Approximately -28,000 -medical ~~(772)~~information ~~5(a)(iv)~~workflow -across ~~Intangible~~the ~~assets~~healthcare ~~370~~imaging -systems -and 136,~~121~~400 ~~5(a)(v)~~Picture ~~13,491~~Archiving ~~Goodwill~~and ~~9,053~~enterprise. -Since ~~- 25~~1987,~~787~~ ~~5(a)(vi)~~Merge ~~34,840~~eFilm ~~-------------------------------------------------~~has ~~-----------~~Communications ~~------------~~System ~~------------- ------------ ---------- -------------- $ 75,276 $ 32,613 $ 355 $~~ (~~5,233~~PACS) $workstations ~~103,011~~have ~~-------------------------------------------------~~been ~~-----------~~leveraged ~~------------~~its ~~-------------~~healthcare ~~------------~~integration ~~----------~~and ~~--------------~~licensed ~~-------------------------------------------------~~to ~~-----------~~date. ~~------------~~Cedara ~~-------------~~recently ~~------------~~acquired ~~----------~~eMed ~~--------------~~connectivity ~~LIABILITIES~~experience ~~AND~~to ~~SHAREHOLDERS'~~create ~~EQUITY~~workflow ~~CURRENT~~Technologies ~~LIABILITIES: Bank indebtedness $ - $ - $ - $ 18~~Corporation,~~924~~ ~~5(a)(i)~~widely $known ~~18,924~~as ~~Accounts payable and accrued liabilities 4,710 5,144 - (131) 5(~~a~~)(iii)~~ ~~8,951~~solutions ~~(772)~~that ~~5(a)(~~improve ~~iv)~~our ~~Deferred~~customers' ~~revenue~~provider ~~976 4,754 - (445) 5(a)(vii) 5,285 Current portion~~ of ~~capital~~innovative ~~lease~~PACS ~~obligation~~and -teleradiology 8productivity -and -enhance 8the ~~Current~~quality ~~liabilities~~ of ~~discontinued~~care ~~operations~~solutions ~~199~~that -have -been -installed ~~199~~in ~~-------------------------------------------------~~over ~~----------- ------------ ------------- ------------ ---------- -------------- 5~~2,~~885~~000 ~~9,906~~they -provide. ~~17,576~~hospitals ~~33,367~~and ~~Capital~~imaging ~~lease~~centers. ~~obligations,~~Headquarters ~~net~~1126 ofSouth ~~current~~70th -Street 326509 -Airport -Road 32Milwaukee, ~~portion~~WI ~~Deferred~~53214 ~~rent~~Mississauga, -Ontario ~~221~~L4V -1S7 -Tel: ~~221~~(414) ~~Non~~977-~~current~~4000 ~~portion~~Tel: ~~of provision for loss on 30 - - - 30 sublease Redeemable convertible preferred stock - - 53,065~~ (~~53,065~~905) ~~5(a)(viii)~~ 672-2100 ~~SHAREHOLDERS'~~CEO ~~EQUITY~~Richard ~~Capital~~Linden ~~Stock~~Abe ~~161,608~~Schwartz ~~88,193~~CFO ~~(50,498)~~Scott ~~(37,695)~~Veech ~~5(a)(viii)~~Brian ~~161,608~~Pedlar ~~Contributed~~Fiscal ~~surplus~~year ~~439~~ends -12/04 -06/05 -Market ~~439~~$257.4 ~~Deficit~~million ~~(92,686)~~$360.8 ~~(65,739)~~million (~~2,212)~~C$439.3 ~~67,951 5(a~~million)~~(viii)~~ ~~(92,686)~~Capitalization ~~----------~~# ~~------------~~of ~~-------------~~Shares ~~------------~~13.2 ~~----------~~million ~~--------------~~31.8 ~~69,361~~million ~~22,454~~# ~~(52,710)~~of ~~30,256~~Employees ~~69,361~~200 ~~-------------------------------------------------~~350 ~~-----------~~RIS/PACS ~~------------~~End ~~-------------~~User ~~------------~~200+ ~~----------~~400+ ~~--------------~~Customers $OEM/VAR ~~75,276~~Customers $100+ ~~32,613~~150+ $Website ~~355 $ (5,233) $ 103,011~~ www.merge-~~------------------------------------------------~~efilm.com ~~-----------~~www.cedara.com ------------ -------~~------~~ ------------ --~~-------- -------------- See accompanying notes to unaudited pro forma consolidated financial statements~~

~~CEDARA~~Financial ~~SOFTWARE~~William ~~CORP.~~Blair ~~UNAUDITED~~& ~~PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS For the three months ended September 30~~Company, 2004 (In thousands of Canadian dollars, except per share amounts) ------------------------------------------------ ------------ ------------ ------------- ------------ ---------- -------------- CEDARA EMED For the For the three three months months Pro forma for ended ended Canadian the three SeptL. ~~30, Sept~~L. ~~30, GAAP Pro forma Notes months ended 2004 2004 Adjustments adjustments Sept~~C. ~~30,~~Genuity ~~2004~~Capital ~~------------------------------------------------~~Markets ~~------------~~Advisors: ~~------------~~Legal ------------- ------------ ---------- -------------- (US GAAP) Note 2 Note 3 Revenue $ 12,341 $ 9,000 $ - $ (136) 5(b)(i) $ 21,205 Direct costs 2,404 4,164 - (136) 5(b)(i) 6,432 ------------------------------------------------ ------------ ------------ ------------- ------------ ---------- -------------- Gross Margin 9,937 4,836 - - 14,773 ExpensesAdvisors: ~~Research~~Michael ~~and~~Best ~~development~~& ~~1,918~~Friedrich ~~907 - - 2,825 Sales~~ and ~~marketing 1~~Blake,~~688~~ ~~1,425~~Cassels -& -Stikeman ~~3,113~~Elliott ~~General~~LLP and ~~administration~~Debevoise ~~1,913~~& ~~687~~Plimpton -LLP -Graydon ~~2,600~~Transaction ~~Severance~~Fixed ~~costs~~exchange 79ratio: - - - 79 Other charges 1,069 - 92 (92) 5(b)(ii) 1,069 Amortization of intangibles 13 - - 479 5(b)(iii) 492 Depreciation and amortization 303 - - - 303 ------------------------------------------------ ------------ ------------ ------------- ------------ ---------- -------------- 6,983 3,019 92 387 10,481 ------------------------------------------------ ------------ ------------ ------------- ------------ ---------- -------------- Income before interest expense 2,954 1,817 (92) (387) 4,292 Interest income (expense), net 235 72 (2,831) (113) 5(b)(iv) 194 2,831 5(b)(ii) ------------------------------------------------ ------------ ------------ ------------- ------------ ---------- -------------- Net income $ 3,189 $ 1,889 $ (2,923) $ 2,331 $ 4,486 ------------------------------------------------ ------------ ------------ ------------- ------------ ---------- -------------- ------------------------------------------------ ------------ ------------ ------------- ------------ ---------- -------------- Earnings per share Basic $ 0.10587 $Merge ~~0.14~~eFilm ~~Diluted~~common $or ~~0.10~~exchangeable ~~$ 0.13 Weighted average number of~~ shares ~~outstanding~~for -each ~~basic~~Cedara ~~31,378,091~~share ~~31,378,091~~summary ~~Weighted~~Structure: ~~average~~Plan ~~number~~ of ~~shares~~Arrangement ~~outstanding~~with -exchangeable ~~diluted~~shares ~~33,485,858~~Approvals: ~~33,485,858~~Subject ~~--------------------------------------------------~~to ~~-----------~~shareholder ~~-----------~~and ~~-------------~~regulatory ~~------------~~approval ~~----------~~Expected ~~--------------~~close: ~~See~~Early ~~accompanying~~2Q ~~notes to unaudited pro forma consolidated financial statements~~2005

About Merge eFilm Merge eFilm is a global healthcare software and services company focused on accelerating the productivity of imaging centers, small- to medium-sized hospitals and clinics with a suite of RIS/PACS products that more efficiently streamline, integrate and distribute image and information workflow across the healthcare enterprise. Since 1987, Merge eFilm has leveraged its healthcare integration and connectivity experience to create workflow solutions that improve our customers' productivity and enhance the quality of care they provide. For more information about Merge eFilm's products and services, visit our website at www. merge-efilm.com, or call Beth Frost-Johnson, Senior Vice President-Marketing and Strategic Planning, at 414-977-4254, email bfrost@merge-efilm.com. About Cedara Software Corp Cedara Software Corp. is a leading independent provider of medical imaging technologies. Cedara's software is deployed in hospitals and clinics worldwide and is licensed by many of the world's leading medical device and healthcare information technology companies. Approximately 28,000 medical imaging systems and 6,400 Picture Archiving and Communications System (PACS) workstations have been licensed to date. Cedara recently acquired eMed Technologies Corporation, widely known as a provider of innovative PACS and teleradiology solutions that have been installed in over 2,000 hospitals and imaging centers. Cedara is quite unique in that it has technologies and expertise that span all the major digital imaging modalities including computed tomography (CT), magnetic resonance imaging (MRI), digital X-ray, mammography, ultrasound, echo-cardiology, angiography, nuclear medicine, positron emission tomography (PET) and fluoroscopy. Furthermore, the Company's medical imaging offerings are used in all aspects of clinical workflow including the capture of a patient's digital image; the archiving, communication and manipulation of digital images; sophisticated clinical applications to analyze digital images; and even the use of imaging in minimally-invasive surgery. For more information about Cedara's products and services, visit our website at www.cedara.com, or call Jacques Cornet, Vice President of Marketing & Operations, at (905) 672-2100 ext. 2564, email: info@cedara.com. # # # Notice to Investors, Prospective Investors and the Investment Community Cautionary Information Regarding Forward-Looking Statements Statements in this press release regarding the proposed merger of Merge Technologies, (d.b.a. Merge eFilm) and Cedara Software Corp. which are not historical facts, including expectations of financial results for the combined companies (e.g., projections regarding revenue, earnings, cash flow, cost savings and future growth), are "forward-looking statements." All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected. Investors are cautioned not to place undue reliance on these forward-looking statements and any such forward-looking statements are qualified in their entirety by reference to the following cautionary statements. Merge eFilm and Cedara undertake no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. Important factors upon which the forward-looking statements presented in this release are premised include: (a) receipt of regulatory and shareholder approvals without unexpected delays or conditions; (b) timely implementation and execution of merger integration plans; (c) the ability to implement comprehensive plans for asset rationalization; (d) the successful integration of the IT systems and elimination of duplicative overhead and IT costs without unexpected costs or delays; (e) retention of customers and critical employees; (f) successfully leveraging Merge eFilm/Cedara's comprehensive product offering to the combined customer base; (g) continued growth at rates approximating recent levels for imaging information systems and other product markets; (h) no unanticipated changes in laws, regulations, regulatory requirements or other industry standards affecting Merge eFilm/Cedara's businesses which require significant product redevelopment efforts, reduce the market for or value of its products or render products obsolete; (i) no unanticipated developments relating to previously disclosed lawsuits or similar matters; (j) successful management of any impact from slowing economic conditions or consumer spending; (k) no catastrophic events that could impact Merge eFilm/Cedara's or its major customer's operating facilities, communication systems and technology or that has a material negative impact on current economic conditions or levels of consumer spending; (l) no material breach of security of any Merge eFilm/Cedara's systems; and (m) successfully managing the potential both for patent protection and patent liability in the context of rapidly developing legal framework for expansive software patent protection. In addition, the ability of Merge eFilm/Cedara to achieve the expected revenues, accretion and synergy savings also will be affected by the effects of competition (in particular the response to the proposed transaction in the marketplace), the effects of general economic and other factors beyond the control of Merge eFilm/Cedara, and other risks and uncertainties described from time to time in Merge eFilm/Cedara's public filings with United States Securities and Exchange Commission and Canadian securities regulatory authorities. Additional Information Shareholders are urged to read the joint proxy statement/management information circular regarding the proposed transaction when it becomes available, because it will contain important information. Shareholders will be able to obtain a free copy of the joint proxy statement/management information circular, as well as other filings containing information about Merge eFilm and Cedara, without charge, at the Securities and Exchange Commission's internet site (http://www.sec.gov). Copies of the joint proxy statement/management information circular and the filings with the Securities and Exchange Commission that will be incorporated by reference in the joint proxy statement/management information circular can also be obtained, without charge, by directing a request to Merge eFilm's Investor Relations Department at Merge eFilm's principal executive offices located at 1126 South 70th Street, Suite S107B, Milwaukee, Wisconsin 53214-3151; telephone number (414) 977-4000. The respective directors and executive officers of Merge eFilm and Cedara may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information regarding Merge eFilm's directors and executive officers is available in Merge eFilm's proxy statement for its 2004 annual meeting of stockholders, which was filed with the Securities and Exchange Commission on April 12, 2004, and information regarding Cedara's directors and executive officers is available in Cedara's notice of annual meeting and proxy circular for its 2004 annual meeting, which was filed with the Securities and Exchange Commission on September 24, 2004. Additional information regarding the interests of potential participants in the proxy solicitation will be contained in the joint proxy statement/management information circular to be filed with the Securities and Exchange Commission when it becomes available. 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 18, 2005 CEDARA SOFTWARE CORP. By: /s/ Brian Pedlar ---------------------------- Brian Pedlar Chief Financial Officer

CEDARA SOFTWARE CORP. UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS For the year ended June 30, 2004 (In thousands of Canadian dollars, except per share amounts) ------------------------------------------------- ----------- ------------ ------------- ------------ ---------- -------------- CEDARA EMED For the For the twelve year months Pro forma ended ended Canadian Notes for the year June 30, Sept. 30, GAAP Pro forma ended June 2004 2004 Adjustments adjustments 30, 2004 ------------------------------------------------- ----------- ------------ ------------- ------------ ---------- -------------- (US GAAP) Note 2 Note 3 Revenue $ 50,386 $ 33,921 $ - $ (761) 5(b)(i) $ 83,546 Direct costs 11,356 15,817 - (761) 5(b)(i) 26,412 ------------------------------------------------- ----------- ------------ ------------- ------------ ---------- -------------- Gross Margin 39,030 18,104 - - 57,134 Expenses: Research and development 8,599 3,685 - - 12,284 Sales and marketing 5,075 5,743 - - 10,818 General and administration 7,258 3,168 - - 10,426 Severance costs 206 - - - 206 Other charges (43) 114 373 (373) 5(b)(ii) 71 Amortization of intangibles 235 - - 4,441 5(b)(iii) 4,676 Depreciation and amortization 1,577 - - - 1,577 ------------------------------------------------- ----------- ------------ ------------- ------------ ---------- -------------- 22,907 12,710 373 4,068 40,058 ------------------------------------------------- ----------- ------------ ------------- ------------ ---------- -------------- Income before interest expense 16,123 5,394 (373) (4,068) 17,076 Interest income (expense), net (557) 225 (11,059) (450) 5(b)(iv) (782) 11,059 5(b)(ii) ------------------------------------------------- ----------- ------------ ------------- ------------ ---------- -------------- Net income $ 15,566 $ 5,619 $ (11,432) $ 6,541 $ 16,294 ------------------------------------------------- ----------- ------------ ------------- ------------ ---------- -------------- Earnings per share Basic $ 0.59 $ 0.62 Diluted $ 0.54 $ 0.56 Weighted average number of 26,295,237 26,295,237 shares outstanding - basic Weighted average number of 29,183,507 29,183,507 shares outstanding - diluted -------------------------------------------------- ----------- ----------- ------------- ------------ ---------- -------------- See accompanying notes to unaudited pro forma consolidated financial statements

CDN$ US$ ---------------------- ------------- Purchase consideration Cash consideration(1) $60,557 $ 48,000 Estimated Transaction costs (2) 1,250 991 -------------------------------------------------------------- ------------------- ---------------- Total purchase consideration $61,807 $ 48,991 -------------------------------------------------------------- ------------------- ---------------- Less estimated fair value of net assets acquired: Book value of net assets acquired as of September 30, 2004 $ 22,454 17,798 Deferred revenue adjustment 445 353 Purchased technology 3,154 2,500 Brand name and trademarks 1,388 1,100 Order backlog 2,523 2,000 Customer base 6,056 4,800 -------------------------------------------------------------- ------------------- ---------------- 36,020 28,551 -------------------------------------------------------------- ------------------- ---------------- Goodwill being excess of purchase consideration over estimated fair value of net assets acquired $ 25,787 20,440 -------------------------------------------------------------- ------------------- ---------------- (1)Cash consideration consisted of the following: CDN$ US$ ------------------- ---------------- Cash on hand $17,033 $13,501 Acquired cash of eMed 24,600 19,499 Acquisition borrowing facility 18,924 15,000 ------------------- ---------------- $60,557 $48,000 =================== ================ (2)Estimated transaction costs have been assumed to be paid at the closing date.

eMed Technologies Corporation Balance Sheets DECEMBER 31 2003 2002 ------------------------------------ ASSETS Current assets: Cash and cash equivalents $ 15,083,525 $ 10,188,539 Accounts receivable, net of allowance of $181,050 in 2003 and $603,342 in 2002 for doubtful accounts 3,928,333 4,817,293 Inventories 902,079 1,098,843 Prepaid expenses and other assets 329,960 552,603 ------------------------------------ Total current assets 20,243,897 16,657,278 Property and equipment, net 325,324 412,875 Restricted cash 115,000 115,000 Other assets 8,562 60,671 ------------------------------------ Total assets $ 20,692,783 $ 17,245,824 ==================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 2,764,053 $ 3,135,891 Deferred revenue 3,390,830 2,695,135 Current portion of capital lease obligations 5,687 5,687 ------------------------------------ Total current liabilities 6,160,570 5,836,713 Capital lease obligations, net of current portion 31,531 36,892 Deferred rent 179,758 61,951 Stockholders' equity: Series L redeemable convertible preferred stock, $0.01 par value; 10,641,306 shares authorized, 9,831,932 shares issued and outstanding at redemption value (aggregate liquidation value of $47,659,104 at December 31, 2003) 39,388,781 32,818,069 Convertible preferred stock, $0.01 par value; 14,358,694 shares authorized, 11,691,414 shares issued and outstanding (aggregate liquidation value of $25,416,460 at December 31, 2003) 25,132,339 25,132,339 Series L redeemable convertible preferred stock warrants 345,412 345,412 Common stock, $0.01 par value; 35,000,000 shares authorized; 5,328,617 shares issued in 2003 and 5,326,742 shares issued in 2002 53,287 53,267 Additional paid-in capital - - Deferred compensation (1,039) (2,221) Treasury stock (1,585,641 shares in 2003 and 1,556,184 shares in 2002 of common stock), at cost (50,000) (50,000) Accumulated deficit (50,547,856) (46,986,598) ------------------------------------ Total stockholders' equity 14,320,924 11,310,268 ------------------------------------ Total liabilities and stockholders' equity $ 20,692,783 $ 17,245,824 ==================================== See accompanying notes. 2

eMed Technologies Corporation Statements of Income YEAR ENDED DECEMBER 31 2003 2002 ------------------------------------ Revenue: Product $15,531,964 $14,110,067 Service 8,004,634 7,148,872 ------------------------------------ Total revenue 23,536,598 21,258,939 Cost of revenue: Product 7,969,204 6,823,030 Service 3,310,785 2,977,743 ------------------------------------ Total cost of revenue 11,279,989 9,800,773 ------------------------------------ Gross margin 12,256,609 11,458,166 Operating expenses: Engineering, research, and development 2,790,984 3,123,954 Sales and marketing 4,073,401 4,171,115 General and administrative 2,435,575 2,767,837 Impairment of goodwill - 374,613 ------------------------------------ Total operating expenses 9,299,960 10,437,519 ------------------------------------ Income from operations 2,956,649 1,020,647 Interest income, net 137,524 144,775 Other income (expense), net 5,576 (75,310) ------------------------------------ Income before provision for income taxes 3,099,749 1,090,112 Provision for income taxes 90,000 - ------------------------------------ Net income $ 3,009,749 $ 1,090,112 ==================================== See accompanying notes. 3

eMed Technologies Corporation Statements of Stockholders' Equity Year Ended December 31, 2003 Series L Redeemable Convertible Preferred Series L Redeemable Convertible Preferred Stock Convertible Preferred Stock Stock Warrants Common Stock Number of Carrying Number of Carrying Number of $0.01 Par Shares Value Shares Value Shares Value ---------- ---------- ----------- ---------- ----------- ---------- ---------- Balance at December 31, 2001 9,831,932 $26,262,269 11,983,392 $25,907,367 $345,412 5,050,769 $50,507 Reacquisition and cancellation of 467,041 shares of common stock awards to employees Conversion of convertible preferred stock into common stock (291,978) (775,028) 275,973 2,760 Accretion of Series L dividends 1,892,432 Accretion of redeemable Series L 4,663,368 Amortization of deferred compensation Net Income ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 2002 9,831,932 32,818,069 11,691,414 25,132,339 345,412 5,326,742 53,267 Reacquisition and cancellation of 29,457 shares of common stock awards to employees Accretion of Series L dividends 2,042,104 Accretion of redeemable Series L 4,528,608 Exercise of common stock options 1,875 20 Amortization of deferred compensation Net income ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 200 9,831,932 $39,388,781 11,691,414 $25,132,339 $345,412 5,328,617 $53,287 ========== ========== ========== ========== ========== ========== ========== See accompanying notes.

eMed Technologies Corporation Statements of Stockholders' Equity Year Ended December 31, 2003 Treasury Stock Additional Total Paid-in Deferred Number of Accumulated Stockholders Capital Compensation Shares Cost Deficit Equity ---------- ------------ --------- ---- ----------- ------------- Balance at December 31, 2001 $4,641,650 $(10,337) (1,089,143) $(50,000,) $(46,930,158) $10,216,710 Reacquisition and cancellation of 467,041 shares of common stock awards to employees (4,670) 4,670 (467,041) Conversion of convertible preferred stock into common stock 772,268 Accretion of Series L dividends (1,892,432) Accretion of redeemable Series L (3,516,816) (1,146,552) Amortization of deferred compensation 3,446 3,446 Net Income 1,090,112 1,090,112 ------------- -------- ----------- --------- ------------- ----------- Balance at December 31, 2002 (2,221) (1,556,184) (50,000) (46,986,598) 11,310,268 Reacquisition and cancellation of 29,457 shares of common stock awards to employees 295 (29,457) (295) - Accretion of Series L dividends (2,042,104) - Accretion of redeemable Series L (4,528,608) - Exercise of common stock options 20 Amortization of deferred compensation 887 887 Net income 3,009,749 3,009,749 $ ------------- -------- ----------- --------- ------------- ----------- Balance at December 31, 200 - $(1,039) (1,585,641) $(50,000) $(50,547,856) $14,320,924 ============= ======== =========== ========= ============= =========== See accompanying notes. 4

eMed Technologies Corporation Statements of Cash Flows YEAR ENDED DECEMBER 31 2003 2002 ------------------------------------ OPERATING ACTIVITIES Net income $ 3,009,749 $ 1,090,112 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 179,750 356,260 Loss on disposal of fixed assets 86 75,801 Stock-based compensation 887 3,446 Impairment of goodwill - 374,613 Deferred rent 117,807 61,951 Changes in operating assets and liabilities: Accounts receivable 888,960 3,173,765 Inventories 196,764 1,128,561 Prepaid expenses and other assets 274,752 (58,036) Accounts payable and accrued expenses (371,838) (1,207,292) Deferred revenue 695,695 (1,252,709) ------------------------------------ Net cash provided by operating activities 4,992,612 3,746,472 INVESTING ACTIVITIES Purchases of property and equipment (92,285) (308,382) Increase in restricted cash - (115,000) ------------------------------------ Net cash used in investing activities (92,285) (423,382) FINANCING ACTIVITIES Principal payments of capital lease obligations (5,361) (316) Proceeds from exercise of stock options 20 - ------------------------------------ Net cash used in financing activities (5,341) (316) ------------------------------------ Net increase in cash and cash equivalents 4,894,986 3,322,774 Cash and cash equivalents at beginning of year 10,188,539 6,865,765 ------------------------------------ Cash and cash equivalents at end of year $15,083,525 $ 10,188,539 ==================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ 3,569 $ 628 ==================================== Cash paid for income taxes $ 3,406 $ 3,446 ==================================== SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES Equipment purchased under capital lease obligations $ - $ 42,895 ==================================== See accompanying notes. 5

ESTIMATED USEFUL LIVES DECEMBER 31 (YEARS) 2003 2002 ----------------------------------------------------------- Furniture and fixtures 5 $ 168,991 $ 126,096 Office equipment and computers 3 287,485 275,890 Electronic equipment 3 292,559 329,280 Shorter of life of lease or estimated useful Leasehold improvements life of asset 152,065 127,767 -------------------------------- 901,100 859,033 Less accumulated depreciation and amortization (575,776) (446,158) -------------------------------- $ 325,324 $ 412,875 ================================

DECEMBER 31 2003 2002 -------------------------------------- Series B: 716 shares authorized, issued, and outstanding $ 700,228 $ 700,228 Series C: 450 shares authorized, 448 shares issued, and outstanding 2,235,000 2,235,000 Series E: 345 shares authorized; 343 shares issued, and outstanding 1,561,656 1,561,656 Series F: 1,000 shares authorized, 946 shares issued, and outstanding 946,000 946,000 Series G: 816 shares authorized, 739 shares issued, and outstanding 3,685,349 3,685,349 Series H: 400 shares authorized, issued, and outstanding 2,000,001 2,000,001 Series J: 8,140,000 shares; 7,544,964 shares issued and outstanding 8,206,639 8,206,639 Series K: 4,145,000 shares authorized; 4,142,858 shares issued and outstanding 5,797,466 5,797,466 -------------------------------------- $25,132,339 $25,132,339 ======================================

YEAR ENDED DECEMBER 31 2003 2002 ------------------------------------------------------------- WEIGHTED- WEIGHTED- AVERAGE AVERAGE EXERCISE EXERCISE SHARES PRICE SHARES PRICE ------------------------------------------------------------- Outstanding at beginning of year 54,350 $0.01 26,350 $0.01 Granted 35,750 0.01 35,500 0.01 Exercised (1,875) 0.01 - - Canceled (15,063) 0.01 (7,500) 0.01 --------------- --------------- 73,162 0.01 Outstanding at end of year 54,350 0.01 =============== =============== Options exercisable at end of year 22,399 $0.01 9,284 $0.01 =============== =============== Options available for grant at end of year 1,924,266 1,915,496 =============== ===============

DECEMBER 31 2003 2002 ---------------------------------------- Deferred tax assets: Net operating loss carryforwards $ 10,040,026 $ 10,775,389 Capitalized research and development costs 1,202,854 1,882,578 Research and development credit carryforwards 1,064,941 970,172 Other 1,203,239 807,202 ---------------------------------------- Deferred tax assets 13,511,060 14,435,341 Valuation allowance (13,511,060) (14,435,341) ---------------------------------------- Deferred tax assets, net $ - $ - ========================================

DECEMBER 31 2003 2002 -------------------------------------- Total assets under U.S. GAAP $20,692,783 $17,245,824 Deferred financing costs 493,104 774,877 -------------------------------------- Total assets under Canadian GAAP $21,185,887 $18,020,701 ====================================== Total liabilities under U.S. GAAP $ 6,371,859 $ 5,935,556 Redeemable convertible preferred stock 29,513,000 24,348,000 Accrued dividend 5,971,611 3,929,506 -------------------------------------- Total liabilities under Canadian GAAP $41,856,470 $34,213,062 ====================================== Total stockholders' equity under U.S. GAAP $14,320,924 $11,310,268 Redeemable convertible preferred stock (34,992,000) (27,503,000) -------------------------------------- Total stockholders' deficit under Canadian GAAP $(20,671,076) $(16,192,732) ======================================

YEARS ENDED DECEMBER 31 2003 2002 ------------------------------------------ Net income under U.S. GAAP $ 3,009,749 $ 1,090,112 Dividends and debt accretion treated as interest expense (7,487,000) (6,289,000) ------------------------------------------ Net loss under Canadian GAAP $(4,477,251) $(5,198,888) ==========================================

SEPTEMBER 30 December 31 2004 2003 ASSETS Current assets: Cash and cash equivalents $ 19,498,793 $ 15,083,525 Accounts receivable, net of allowance of $220,819 in 2004 and 3,713,995 3,928,333 $181,050 in 2003 for doubtful accounts Inventories 1,038,367 902,079 Prepaid expenses and other assets 715,072 329,960 ----------------------------------- Total current assets 24,966,227 20,243,897 Property and equipment, net 274,269 325,324 Restricted cash - 115,000 Deferred Financing Costs 601,704 - Other assets 7,683 8,562 ----------------------------------- Total assets $ 25,849,883 $ 20,692,783 =================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 4,079,219 $ 2,764,053 Deferred revenue 3,768,249 3,390,830 Current portion of capital lease obligations 5,687 5,687 ----------------------------------- Total current liabilities 7,853,155 6,160,570 Capital lease obligations, net of current portion 25,326 31,531 Deferred rent 175,188 179,758 Stockholders' equity: Series L redeemable convertible preferred stock, $0.01 par value; 10,641,306 shares authorized, 9,831,932 shares issued and outstanding at redemption value (aggregate liquidation value of $49,300,311 at September 30, 2004 and $47,659,104 at December 31, 2003) 44,426,545 39,388,781 Convertible preferred stock, $0.01 par value; 14,358,694 shares authorized, 11,691,414 shares issued and outstanding (aggregate liquidation value of $25,416,460 at September 30, 2004) 25,132,339 25,132,339 Series L redeemable convertible preferred stock warrants 345,412 345,412 Common stock, $0.01 par value; 35,000,000 shares authorized; 5,330,554 shares issued in 2004 and 5,328,617 shares issued in 2003 53,306 53,287 Additional paid-in capital - - Deferred compensation (1,036) (1,039) Treasury stock 1,586,026 shares in 2004 and 1,585,641 shares in 2003 of common stock), at cost (50,000) (50,000) Accumulated deficit (52,110,352) (50,547,856) ----------------------------------- Total stockholders' equity 17,796,214 14,320,924 ----------------------------------- Total liabilities and stockholders' equity $ 25,849,883 $ 20,692,783 =================================== See accompanying notes 2

NINE MONTH PERIOD SEPTEMBER 30 2004 2003 ------------------------------------ OPERATING ACTIVITIES Net income $ 3,475,271 $ 2,243,517 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 96,470 140,960 Deferred Financing Costs (601,704) - Deferred rent (4,570) 126,440 Changes in operating assets and liabilities: Accounts receivable 214,338 673,761 Inventories (136,288) 140,201 Prepaid expenses and other assets (385,112) 322,507 Accounts payable and accrued expenses 1,314,038 319,164 Deferred revenue 377,419 442,271 ------------------------------------ Net cash provided by operating activities 4,349,862 4,408,821 INVESTING ACTIVITIES Purchases of property and equipment (43,411) (76,297) Decrease in restricted cash 115,000 - ------------------------------------ Net cash used in investing activities 71,589 (76,297) FINANCING ACTIVITIES Principal payments of capital lease obligations (6,205) (3,381) Proceeds from exercise of stock options 22 - ------------------------------------ Net cash used in financing activities (6,183) (3,381) ------------------------------------ Net increase in cash and cash equivalents 4,415,268 4,329,143 Cash and cash equivalents at beginning of period 15,083,525 10,188,539 ------------------------------------ Cash and cash equivalents at end of period $19,498,793 $14,517,682 ==================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ 2,649 $ 2,766 ==================================== Cash (refunded)/paid for income taxes $ (51,512) $ (16,891) ==================================== See accompanying notes 5

ESTIMATED USEFUL LIVES SEPTEMBER 30, DECEMBER 31, (Years) 2004 2003 ------------------------------------------------------------------------ Furniture and fixtures 5 168,991 168,991 Office equipment and computers 3 298,400 287,485 Electronic equipment 3 327,051 292,559 Shorter of life of lease or Leasehold improvements estimated useful life of asset 152,065 152,065 -------------------------------------- 946,507 901,100 Less accumulated depreciation and amortization (672,238) (575,776) -------------------------------------- $ 274,269 $ 325,324 ======================================

SEPTEMBER 30, December 31, 2004 2003 -------------------------------------- Series B: 716 shares authorized, issued, and outstanding $ 700,228 $ 700,228 Series C: 450 shares authorized, 448 shares issued, and outstanding 2,235,000 2,235,000 Series E: 345 shares authorized; 343 shares issued, and outstanding 1,561,656 1,561,656 Series F: 1,000 shares authorized, 946 shares issued, and outstanding 946,000 946,000 Series G: 816 shares authorized, 739 shares issued, and outstanding 3,685,349 3,685,349 Series H: 400 shares authorized, issued, and outstanding 2,000,001 2,000,001 Series J: 8,140,000 shares; 7,544,964 shares issued and outstanding 8,206,639 8,206,639

Series K: 4,145,000 shares authorized; 4,142,858 shares issued and outstanding 5,797,466 5,797,466 -------------------------------------- $25,132,339 $25,132,339 ======================================

------------------------------ SEPTEMBER 30, December 31, 2004 2003 ------------------------------------------------------------------------------- Total assets under U.S. GAAP $ 25,849,883 $ 20,692,783 Deferred financing costs 280,455 493,104 ------------------------------------------------------------------------------- Total assets under Canadian GAAP $ 26,130,338 $ 21,185,887 ------------------------------------------------------------------------------- Total liabilities under U.S. GAAP $ 8,053,669 $ 6,371,859 Redeemable convertible preferred stock (i) 34,448,000 29,513,000 Accrued dividend (i) 7,613,020 5,971,611 ------------------------------------------------------------------------------- Total liabilities under Canadian GAAP $ 50,114,689 $ 41,856,470 ------------------------------------------------------------------------------- Total stockholders' equity under U.S. GAAP $ 17,796,214 $ 14,320,924 Redeemable convertible preferred stock (i) (41,780,800) (34,992,000) ------------------------------------------------------------------------------- Total stockholders' equity under Canadian GAAP $(23,984,586) $(20,671,076) ===============================================================================

---------------------------------------------------------------------------------- Nine month period ended September 30 -------------------------------- 2004 2003 ---------------------------------------------------------------------------------- Net income under U.S. GAAP $ 3,475,271 $ 2,243,517 Dividends and debt accretion treated as interest expense (i) (6,779,000) (5,639,000) ---------------------------------------------------------------------------------- Loss from operations under Canadian GAAP $(3,303,729) $(3,395,483) ==================================================================================

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