Jul. 7--Merge Healthcare Inc., a West Allis developer of medical imaging software, said it expects to report lower net income in its second quarter than its first quarter because of a write-down on an equity investment in a company that licenses some of its software.

Operating income, which excludes interest expense, taxes and non-recurring items, is projected to rise in the second quarter compared with the first quarter.

The company released the estimated unaudited results to provide information to the stockholders of Etrials Worldwide Inc. Last month, Merge announced an agreement to buy the company, which provides software and services for clinical trials.

The tender offer for Etrials shares will expire next week, before Merge releases its second-quarter results.

Merge said it expects to report net income in a range from $100,000 to $800,000 for the three months ended June 30, compared with net income of $2.8 million in the first quarter of this year and a loss of $18.2 million in the second quarter of last year.

The company estimates that operating income will increase to a range of $3.7 million to $4.4 million, up from $3.5 million in the first quarter and a loss of $18.3 million in the second quarter of 2008.

Merge's second-quarter net income will include a $3.6 million write-down on its equity interest in Eklin Medical Systems Inc. as a result of Eklin's sale to VCA Antech Inc. In 2005, Merge licensed software to Eklin in exchange for a stake in the company.

Merge will receive $1.4 million for its equity interest in the company. In addition, Merge and Eklin reached an agreement in June that will generate $2.2 million in second-quarter revenue.

The second quarter will mark the fourth consecutive profitable quarter for Merge since a Chicago investment firm took control of the company last summer.

Merge stock closed at $4.68, up 22 cents, or 4.9%, on Monday. The stock is up eighteen-fold from its 52-week low of 26 cents a share on Nov. 28.

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