Form 10-KSB

                      [As last amended in Release No. 33-7505,
                      effective January 1, 1999, 63 F.R. 9632]

                      U.S. Securities and Exchange Commission

                               Washington, DC  20549

                                    Form 10-KSB

            [X]    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2001

           [  ]    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934

               For the transition period from .......... to ..........

                     Commission file number ......................


                            MERGE TECHNOLOGIES INCORPORATED
                      Name of small business issuer in its charter


               Wisconsin                              39-1600938
     (State or other jurisdiction of                 (IRS Employer
      incorporation or organization)              Identification Number)

            1126 South 70th Street, Milwaukee, Wisconsin  53214-3151
        (Address of principal executive offices)          (Zip Code)

                Issuer's telephone number:           414-977-4000
          Securities registered under Section 12(b) of the Exchange Act:

     Title of each class:  Common Name of each exchange on which registered:
                                 NASDAQ Small Cap

         Securities registered under Section 12(g) of the Exchange Act:
			         (Title of class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes  X            No
    -----	     -----

Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.  [   ]

Issuer's revenues for its most recent fiscal year.     $15,741,059

The aggregate market value for the Registrant's stock held by non-affiliates
of the Registrant based upon the closing sale price of the common stock on
March 29, 2002 as reported on the NASDAQ Small Cap Market System, was
approximately $36,745,475.  Shares of common stock held by each officer and
director and by each person who owns 5% or more of the outstanding common
stock have been excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.

The number of shares outstanding of each of the issuer's classes of common
equity, as of March 29, 2002:  7,105,447.

                      DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III is incorporated by reference from the
Company's Proxy statement for the 2002 Annual Meeting of Stockholders.

Transitional Small Business Disclosure Format (check one):
Yes       No  X
   -----    -----


<PAGE>



                                     INDEX
                                    -------


								 PAGE
								------

PART I

  Item 1.       Description of Business				   1

  Item 2.       Description of Properties	  		   8

  Item 3.       Legal Proceedings		  		   8

  Item 4.       Submission of Matters to a Vote of Security
		  Holders					   8


PART II

  Item 5.       Market for Common Equity and Related
		  Stockholder Matters	 			   8

  Item 6.       Management's Discussion and Analysis of
		  Financial Condition and Results of Operations	  10

  Item 7.       Financial Statements				  17

  Item 8.	Changes in and Disagreements with Accountants
		  on Accounting and Financial Disclosure	  36


PART III

  Item 9. 	Directors, Executive Officers, Promoters and
		  Control Persons; Compliance with Section
		  16(a) of the Exchange Act			  37

  Item 10.      Executive Compensation				  37

  Item 11.      Security Ownership of Certain Beneficial
		  Owners and Management				  37

  Item 12.      Certain Relationships and Related Transactions	  37

  Item 13.      Exhibits and Reports on Form 8-K		  38


<PAGE>  iii



                                   PART I
				   ------


Item 1.		DESCRIPTION OF BUSINESS


Overview

     Merge Technologies Incorporated ("Merge" or "The Company") is in the
business of integrating radiology images and information into healthcare
enterprise networks.  Merge products and services enhance the quality of
healthcare provided to patients because they improve radiology workflow
efficiencies, reduce healthcare operating costs and improve clinical
decision making processes.  The Company delivers this tangible value to
healthcare facilities of all sizes, but it specifically targets small to
medium size hospitals, multi-hospital groups, clinics and diagnostic imaging
centers by working with its customers to offer modular, cost effective
solutions to solve their image and information management and radiology
workflow needs.

     The Company was founded in 1987.  It has historically been viewed as a
leading provider of medical diagnostic imaging and information connectivity
technologies and professional consulting services for original equipment
manufacturers ("OEMs"), value added resellers ("VARs") and healthcare
facilities worldwide.  Today, Merge believes it is at the forefront of
integrated radiology workflow research and development, bringing modular
software applications to the marketplace that will enable the seamless
integration of images, information, technology and people across the
electronic healthcare enterprise.

     Through its founder and Chairman, William C. Mortimore, the Company
has been a key contributor to the development of the industry's standard
network communications protocol known as Digital Imaging Communications
in Medicine ("DICOM"), open medical standards such as HL-7, and the
Integrated Healthcare Enterprise ("IHE") framework that has been created
through an initiative co-sponsored by the Radiological Society of North
America ("RSNA") and the Healthcare Information and Management Systems
Society ("HIMSS").  The IHE initiative represents a consortium of more
than thirty companies in the Radiology and Healthcare Information Systems
fields.  This set of requirements has paved the way for healthcare
organizations to begin in earnest to integrate the complex workflow systems
of the radiology department with the entire healthcare system by using
equipment and software applications that connect the various image and
communication components.  Merge has incorporated these standards in all
its radiology workflow technologies and software applications establishing
the basis for seamless integration of images and healthcare information
across an organization's intranet or over the Internet.

     Radiology departments, diagnostic imaging centers and their patients
benefit from the Company's solutions in a variety of ways including:
(i) networking of multiple image-producing and image-using devices to
eliminate duplication and reduce the need for capital equipment expenditures
to build digital image and information networks; (ii) creating permanent
electronic archives of diagnostic-quality images to enable the retrieval of
these images and reports at any time in the future; (iii) accessing the
Company's modular architecture of products that allow radiology departments,
clinics and diagnostic imaging centers to build their electronic image and
information management systems in a modular, flexible and cost-effective way:
(iv) delivering the capability to integrate diagnostic radiology images into
the radiologist's report to make it a permanent part of the patient's
electronic medical record; and (v) providing the means to view images and
reports from any number of remote locations.


<PAGE>  1


Business Strategy

     The Company is building on its global leadership position in the
connectivity of medical imaging devices, its reputation for exceptional
customer service, its expertise in radiology workflow integration and its
technically innovative products to offer modular software solutions that
complete the implementation of a full radiology workflow suite.  This fully
integrated, standards based workflow solution enables radiology to integrate
with the rest of the healthcare enterprise.  To accomplish this goal, the
Company is exercising the financial and operational discipline necessary to
attain the right combination of resources, products and strategic partnerships
that will accelerate its ability to deploy and service a fully integrated
radiology workflow solution to the healthcare and OEM/VAR marketplace.

     In the last year, the Company has focused on stabilizing and
strengthening its financial foundation, enhancing its sales and distribution
channels and moving toward the completion of the current product innovation
plan, which is designed to create a comprehensive radiology workflow solution.
In line with this tightly focused operational plan, the Company:

     - Reached its financial goals, as is described in this report.

     - Created a new marketing and communications unit to more
	effectively demonstrate the benefits of the Company's products and
	services, communicate a new message to the market relative to our
	expanded product offering and to more completely engage ongoing
	interaction with its customers.

     - Formed a new technical sales support and project management team to
	coordinate solution design and the efficient deployment of our
	solution to the satisfaction of the customer.

     - Added sales resources to both its OEM/VAR and direct distribution
	channels and established its professional services unit as a growing
	source of revenue and differentiation in the market.

     - Redesigned its product development model to focus on the timely
	delivery to the market of key software modules within the radiology
	workflow process.  The results of which allowed the Company to:

          - Enhance its globally accepted DICOM toolkit with the added
	     flexibility of the Java programming environment and Java
	     classes upon which new Internet applications can be developed.

          - Bring new workflow functionality to the marketplace with the
	     enhancements of its MergePort(Trademark) and ExamWorks + products
	     to further the integration of images with healthcare information.

          - Introduce MergeWeb Healthcare 3.0, the only Java application,
	     development and deployment platform focused specifically on the
	     healthcare information systems sector that accelerates
	     applications development while maintaining a single, fully
	     integrated web-based environment.

          - Launch the MergeView(Trademark) radiology workflow application,
	     which is designed to manage the distribution and visualization of
	     diagnostic images across the healthcare enterprise.

          - Introduce the ImageChannel(Trademark) product that combines
	     Merge's proven storage, toolkit and integration technologies
	     with the visualization and wavelet technology of its partners,
	     eFilm Medical and Pegasus Imaging Corporation, for on-demand
 	     image display and analysis anywhere in the healthcare enterprise.

          - Release MergeNet(Trademark), a product that securely provides
	     referring physicians on-line access to radiology images and
	     reports over the Internet using Merge ImageChannel(Trademark)
	     wavelet streaming technology.

     The disciplined management of the Company's resources to realize these
important accomplishments has created momentum within the Company that it
believes will increase throughout 2002.  Future growth will be driven by a
continued concentration on the core aspects of the business: targeted
sales/marketing activities with broader geographic coverage, modular product
innovation, exceptional professional services, and expanding strategic
partnerships that complement our internal efforts.


<PAGE>  2


     Core to our business strategy are partners who can contribute functional
and technical engineering expertise to the product innovation efforts underway
by the Company's staff and who can expand the distribution of Merge's products
and professional services.  Carefully designed plans to include these partners
are in place as a way to accelerate product development, increase market
penetration and solidify the Company's market position as specialists in
radiology workflow technologies.  An example of a strategic partnership to
accelerated product innovation is the joint development and technology sharing
agreement with eFilm Medical, Inc.  Under this agreement, Merge and eFilm have
agreed to cross license certain technologies and jointly develop image
distribution technologies under the ImageChannel(Trademark) label.  This
relationship provides Merge with innovative and industry recognized image
visualization products that complement Merges' product offerings.

     Merge continues to benefit from long-term and growing OEM/VAR
partnerships that have been in existence for approximately 15 years.
Building on these relationships is important to the Company's future
development. Merge anticipates expanding key OEM/VAR relationships with
customers such as Philips, GE, Siemens, Fuji, Emageon and others to include
a broader offering of our radiology workflow products, well beyond our
traditional connectivity and development toolkits.  These important long-term
partnerships represent an endorsement of the value of the Company's
technologies and overall customer satisfaction, as well as opportunity for
continued revenue growth.


Products and Services

     The Company, which has 85 employees, 81 of whom are full time, is a
recognized leader in the engineering of radiology connectivity and workflow
solutions.  It has assembled a staff with deep expertise, global presence and
a thorough understanding of radiology workflow processes.  It also has
allocated resources to the design and development of IHE concepts, which are
gaining acceptance as the standard for interoperability between imaging and
healthcare information systems throughout the healthcare enterprise.

     Focusing product innovation around the functions related to radiology
image and information management is a hallmark of the Company's product
development strategy.  It views its expertise as developing technologies that
fit into the customer's workflow to achieve processing and communications
efficiencies.  Products in place and those in development are applied to all
aspects of the complex continuum of radiology image studies and the associated
information that touch the patient; integrating them to create a broad data set
around a single patient experience.  The results are increased efficiency and
productivity, more time devoted to accurate analysis and diagnosis and improved
patient care because all pertinent information is provided to the primary care
giver from radiology in a single report.

     The Company's global presence and immersion into the creation of radiology
communications and open medical standards place it in a strong position to
monitor healthcare and technological forces that impact both equipment and
software application innovations for the radiology industry.  In addition, the
Company's established OEM/VAR relationships allow it to work with leading
modality manufacturers as they develop plans for new product introductions.
The product planning cycle is such that the Company can build in this knowledge
and be prepared to meet market demand at the appropriate time.  This strategy
is allowing the Company to move its resources and attention to the development
of software applications that can be integrated into the broader continuum of
radiology workflow.

     The Company's products fall into three distinct categories: connectivity
solutions, radiology workflow software applications, and professional services.
Connectivity solutions continue to be a core competency of the Company to
maintain its market-leading position and long-term OEM/VAR relationships.
The Company continues its product innovation in this area in order to provide
flexible, state-of-the-art solutions to its OEM/VAR partners who incorporate
these products directly into their new modality equipment offerings.  While the
OEM/VAR relationships are central to the distribution of these products, there
is an increasing interest from healthcare organizations to purchase radiology
workflow solutions, including connectivity products, directly from the Company
to complete their individual image management strategies.


<PAGE>  3


     A shift in product mix is occurring as the Company continues to develop
its radiology workflow applications.  These software applications are designed
to complete the Company's fully integrated radiology workflow system product
line that is packaged as a comprehensive suite of modules under the banner of
PACSbuilder(Trademark).  These modules meet the needs of both the Company's
healthcare customers for building their picture and archiving communication
system (PACS) solutions and its OEM/VAR partners to enhance the functionality
of their product offerings. The Company is pursuing the completion of this
product line through a dual strategy of using internal resources and strategic
partnerships, and anticipates completing the last module in the PACSbuilder
(Trademark) suite called MergeReport(Trademark) in the second quarter of 2002.

     Professional services consists of consultants, service engineers and
project managers who provide training, advisory services, solution design
consulting, solution installation, project management, on-going help desk and
on-site service and medical standards validation to healthcare organizations,
healthcare professionals and medical equipment manufacturers.  Proprietary
training materials are used to complement project planning, management tools
and diagnostic testing products.  Annual customer service packages are offered
that are customized to the needs and configuration requirements of each client.
These service packages are priced according to service intensity required and
are reviewed annually to assure all customer needs are met.  The Company offers
this suite of professional services on a global basis, with '24/7 coverage',
and through a combination of remote and on-site delivery.  Growing the revenues
from the sale of professional services continues to be an important focal
point for the Company as it embraces an integrated customer service model and
enhances product offerings with the completion of its radiology workflow
applications.  Additionally, the Company anticipates enhancing their
professional service model to include on-line technologies designed to
proactively monitor the status of deployed PACSbuilder(Trademark) solutions.


Markets and Customers

     Healthcare providers are starting to recover from the managed care
strategies and government reimbursement pressures resulting from the
Balanced Budget Act put in place through the 1990's, and have returned their
focus to the operations of their healthcare delivery organizations.  Key
areas of emphasis are high quality diagnostic and treatment protocols for the
care of the patients in their communities and operational efficiencies to
increase patient satisfaction, address patient safety concerns and mitigate
rising costs.  The expenditures to re-tool the infrastructure of healthcare are
significant and directed at making more comprehensive use of the advances in
medical technology and telecommunications.  This is seen as a cost effective
means to reach optimum efficiency and market their services to the broadest
population.  Radiology image and information management plays a central role
in the revamping of the healthcare delivery system.

     Within the United States, the Company is focusing its direct sales
efforts on the small to middle market healthcare organizations with a size of
less than 350 beds, outpatient clinics and radiology imaging centers.  This
market represents a segment of healthcare providers that desires imaging
modality connectivity and the integration of radiology workflow, particularly
as it relates to communicating throughout the healthcare enterprise and over
long distances to access specialized care for their patients.  This market has
traditionally been under-served by image management and radiology systems
companies due to the high cost of a traditional hardware-centric and
proprietary PACS solution.  To capitalize on this under-served market, the
Company's focus is on providing flexible radiology workflow solutions in a
modular, phased-in approach that allows for meeting short-term needs quickly
and offering additional products to complete the film-less radiology workflow
solution over time.  Currently, 70% of the Company's existing customers are
part of the small to medium sized hospital market segment and overall the
Company provides products and services directly to approximately 7% of the
domestic target market.  The Company believes there is substantial room for
growing market share and for additional product sales to existing customers.


<PAGE>  4


     The Company places a strong emphasis on sustaining its reputation for
high quality services and well-engineered products.  The Company maintains
strict compliance with the tenets of ISO 9001 and EN 46001 both in its domestic
operations and European headquarters in the Netherlands.  The certification
covers its product development activities, manufacturing and worldwide service
operations.  These ongoing certifications to the ISO standard are a reflection
of its commitment to maintaining service and product quality for its customers.
The Company recently completed its ISO 9001 and ED 46001 re-certification in
March 2002, further demonstrating its ongoing commitment to quality processes
that translate into internal efficiencies and quality products for our
customers.

     Responsiveness to customer needs, whether in service or product design and
development, is a key component of the Company's approach to the marketplace.
Late in 2000, the Company announced the formation of the Premier Partnership
Program to increase its direct access to the needs of its healthcare customers.
The Premier Partnership Program allows the Company to collaborate with
healthcare professionals to develop medical informatic solutions for
radiological diagnostic information, determine methodologies within radiology
to decrease healthcare's operating costs, increase workflow efficiencies and
focus on how the Company can assist in improving overall patient care.  The
charter members of the program are the Medical College of Wisconsin, the
Mallinckrodt Institute of Radiology of Washington University in St. Louis,
Missouri, and the University of California - Los Angeles Medical Center.
In 2001, Jersey Shore Medical Center, Methodist Healthcare of Memphis,
Tennessee and Shands Jacksonville Medical Center in Florida joined this
esteemed group of organizations. The Company looks forward to expanding
participation in this program and to the contributions the program will make
towards innovating the Company's products and professional services.


Sales, Marketing and Distribution

     Given the interest in PACS and teleradiology solutions, several market
studies have been conducted.  A recent study by Frost & Sullivan estimates
that, within the decade, annual expenditures for electronic image and
information management systems, or picture archiving communication systems
("PACS") will be approximately $1.1 billion. The Concord Consulting Group has
released data which indicates that with service and upgrades the total PACS
and teleradiology market will exceed $2.7 billion annually. In addition, the
Technology Marketing Group study estimated that expenditures for radiology
information systems ("RIS") will be approximately $220 million in that same
time frame.  Of this RIS market, more than 60% of the Company's target market
segment indicated they would acquire new systems.  Driving these expenditures
is the realization that approximately 15% - 18% of the diagnostic imaging
procedures are processed digitally, with the remaining portion still produced
on film.  Market studies indicate an acceleration in converting the healthcare
diagnostic imaging setting to digital workflow now that modular, integrated,
and cost effective solutions like those offered by the Company are now
available.

     Additional studies indicate that the money being spent by healthcare
organizations for these technologies is increasing 18-20% annually, with
European data suggesting an annual growth rate of 20-25%. The Company's
strategy is to provide a full suite of radiology workflow solutions to its
target market and the Company's existing domestic client base of over 400
healthcare facilities, and to deliver functionality and value that taps into
this combined PACS/RIS $1.3 billion annual market.

     The Company uses a multi-channel approach to reach its target customers.
Over the last two years the Company has invested in building an international
sales force to increase its market presence among both its OEM/VAR and
healthcare customers.  This Company's sales staff has extensive experience in
radiology and diagnostic imaging services and has the ability to work in a
consultative manner to design and customize the right solution for each
customer.


<PAGE>  5


     An important contributor to its sales success is maintaining and expanding
its OEM/VAR partnerships.  Currently, sales through this channel represent
approximately 65% of the Company's annual revenue, and are expected to grow in
dollar volume.  The Company's direct sales force continues to stay focused on
healthcare customers in the small to medium size hospital market and imaging
centers, where the Company's modular, software-centric solutions create
compelling value propositions.  The Company's professional services group was
enhanced this year to provide pre-sale assistance as well as ongoing support.
The contribution to total revenue from direct sales and professional services
activities increased substantially in 2001 to nearly 35% and is expected to
increase its contribution again in 2002.

     Continued visibility in the marketplace is also important to the Company's
overall marketing strategy.  The Company created a Marketing and Communications
unit that has centered its activities on developing marketing materials,
expanding the brand of the Company to include a full suite of radiology
workflow solutions, establishing an electronic process for reaching customers
through a redesigned website and automated e-mail campaigns, and creating new
customer relationship programs.  In addition, the Company regularly
participates in major radiology and healthcare information system industry
trade shows. The Company's ongoing participation in the IHE initiative and
radiology industry panels regarding open communications and medical standards
is an added opportunity to maintain the Company's thought-leader position,
which is recognized by the healthcare industry and enables the Company to
demonstrate its value on many levels.

     The value proposition to the Merge customer is aimed at improving the
organization's efficiency and quality of patient care while reducing cost.
The Company emphasizes how the implementation of various radiology workflow
strategies reduces operational costs due to time reduction in the completion
of an imaging study and diagnostic reporting cycle and improves patient care
through increasing the speed with which the radiologist and primary caregiver
can discuss diagnostic findings and institute appropriate treatment.
Additionally, the Company's systems can enhance revenue due to increased
referral activity from primary care physicians and increased accuracy of
radiology billing and coding.


Competition

     The markets for the Company's products are highly competitive.  Many
customers purchase products from Merge and from its competitors as well.
Competition is present from film vendors who offer certain components of
the radiology workflow application and from current OEM partners who can
offer products similar to Merge solutions.  Analyzing the competitive
environment by product line is illustrative of the Company's perspective and
its strategies to mitigate the impact of competition on the Company's sales or
market penetration.

     The historical connectivity solutions product line has been the mainstay
of the Company, which pioneered its development.  The competitive danger to
this product today is that it is readily available and largely incorporated
into most imaging modalities.  The Company views its value added services,
global operations, recognized brand and engineering strength as the way to
protect its market share in this area.  In addition, it has adopted an
approach to engineering these products into the OEM's medical device through
proprietary Application Program Interface ("API") that protects its
intellectual capital.  Upgrades to its products are continuous as changes
are made by the radiology industry in the DICOM and HL-7 standards.  The
Company's customers can receive full benefit of these upgrades through annual
service contracts.

     In the developing area of radiology workflow applications, there are many
newly emerging competitors who offer portions of the integrated radiology
network through their RIS and PACS to the market targeted by the Company.
Merge relies on its nearly 15 years experience in working in all aspects of
the radiology industry, its strong customer relations and its growing
healthcare customer base as barriers to losing its market potential for its
fully-integrated solution.  In addition, the phased-in approach to
implementing a customized fully-integrated solution is appealing to this
target market and is the foundation of the Company's approach to this
emerging area.


<PAGE>  6


     Many of the current and potential competitors have greater resources
than those that exist at the Company, including financial wherewithal,
research and development, intellectual property and marketing.  Many of these
competitors may also have broader product lines and longer standing
relationships with customers.  The Company's ability to compete successfully
depends on a number of factors both within and outside its control, including:
product innovation; product quality and performance; price; experienced sales,
marketing and service professionals; rapid development of new products and
features; continued active involvement in the development of DICOM and other
medical communication standards; and product and policy decisions announced by
competitors.  There can be no assurance that the Company will be able to
compete successfully.


Intellectual Property Rights

     The Company has received U.S. Patent No. 5,740,428 dated April 14, 1998,
U.S. Patent No. 5,950,207 dated September 7, 1999, New Zealand Patent No.
306009 dated February 7, 1996 and Australia Patent No. 704804 dated August 12,
1999 for the Merge WorkFlow products.   A U.S. patent has been applied for
Distributed Architecture for Health Care Environment, Patent Application No.
09/151902.  The Company has also applied for additional foreign patents;
however the Company generally does not rely solely on patent protection with
respect to our products.  Instead, it relies on a combination of copyright
and trade secret laws, employee and third party confidentiality agreements and
other measures to protect intellectual property rights pertaining to its
systems and technology.


Medical, Regulatory and Government Standards and Reforms

     The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation
of the entire healthcare industry.  Proposals to reform the U.S. healthcare
system have been, and will continue to be, considered by the U.S. Congress.
The Company embraces the general philosophy that it will accept and utilize
all appropriate industry standards in the development of its product and
service offerings.  Merge has positioned itself to assist its customers in the
utilization, implementation and adherence to most major radiology standards
and regulations.  The Company, however, cannot predict with any certainty what
impact, if any, new proposals, healthcare reforms or standards might have on
the business, its financial condition and its results of operations.

     The following are examples of some of the environmental issues,
standards and regulations that the Company monitors and prepares itself to
address to protect its enterprise and that of its customers.

     - The Health Insurance Portability and Accountability Act of 1996
       ("HIPAA") has mandated the use of standard transactions and identifiers,
       prescribed security measures and other provisions designed to simplify
       and secure the exchange of medical information.  The compliance date for
       implementation of security and confidentiality measures will go into
       effect on April 14, 2003.  Merge is taking all the necessary measures
       to help enable its customers to meet HIPAA compliance for data
       management.

     - The U.S. Food and Drug Administration, which is responsible for assuring
       the safety and effectiveness of medical devices under the Federal Food,
       Drug and Cosmetic Act, has regulatory jurisdiction over computer
       software applications when they are labeled or intended to be used in
       the diagnosis of disease or other conditions.

     - International sales of products outside the U.S. are subject to foreign
       regulatory requirements that can vary from country to country.

     - Laws and regulations may be adopted to address Internet commerce such
       as online content, user privacy, pricing and characteristics and quality
       of applications and services.


<PAGE>  7


     - The tax treatment of the Internet and e-commerce is currently unsettled.

     The Company continues to allocate internal resources to industry standards
committees and working  groups who are tasked with setting and promoting both
technology and functionality standards within the diagnostic imaging and
healthcare information systems markets.  Participating in IHE and a variety of
DICOM working groups specializing in HIPAA, HL7 and other standards helps to
ensure that the Company's products and services align with the efforts of these
committees and meets the evolving interoperability needs of healthcare
technologies.



Item 2.		DESCRIPTION OF PROPERTIES

     The Company's principal facilities are located in Milwaukee, Wisconsin,
in an approximately 27,000 square foot office leased through June 2005 at a
rate of approximately $300,000 per year. The Company also lease a sales,
administrative and service support office in Nuenen, the Netherlands, an
engineering facility in Toronto, Canada and a sales office in Tokyo, Japan.

     The Company does not invest in any real estate or interests in real
estate, investment in real estate mortgages or securities of or interest in
persons presently engaged in real estate activities.



Item 3.		LEGAL PROCEEDINGS

     The Company is not involved in any material legal proceedings.



Item 4.  	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The Company did not submit any matters to it's shareholders for their
vote during the fourth quarter of 2001.



                                    PART II
				    -------


Item 5. 	MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


     The Company's common stock commenced trading on the Nasdaq Small Cap
Market System on January 29, 1998, under the symbol MRGE.

The following table sets forth for the periods indicated, the high and low
closing sale prices of our common stock as reported by Nasdaq:


	Common Stock Market Prices
	--------------------------

	2001                4th Quarter  3rd Quarter  2nd Quarter  1st Quarter
	-----		    -----------  ----------   -----------  -----------

	High................   $5.550       $2.000       $1.450       $1.410
	Low.................   $1.500	    $1.250	 $0.750       $0.660


	2000
	-----

	High................   $1.406	    $2.688       $4.063       $6.125
	Low.................   $0.531	    $1.563	 $2.125       $2.000



<PAGE>  8


     According to the transfer agent records, the Company has 179 stockholders
of record of common stock as of March 29, 2002.  The Company estimates that
there are in excess of 1,200 beneficial holders of its common stock.


Dividend Policy

     The company has not paid any cash dividends on its common stock since
formation.  It currently does not intend to declare or pay any cash dividends
on its common stock in the foreseeable future.

     In November 2000, the Company amended its Articles of Incorporation to
designate 1,000,000 shares of preferred stock as Series A Preferred.  The
Series A Preferred Stock is subject to an 8% cumulative cash dividend payable
quarterly.

     The Company's revolving line of credit with Lincoln State Bank restricts
payment of dividends if it is not in compliance with the loan covenants of
its borrowing document, which include a funded debt to equity ratio of 0.4 to
1, monthly financial reporting and compliance with maximum advance ratios.
Any payment of future dividends will therefore be dependent upon the Company's
earnings and the outstanding balance on its bank line of credit.


Sales of Securities During 2001

     During the year ended December 31, 2001, the Company sold shares of its
common stock and Series A Preferred Stock in transactions not registered under
the Securities Act of 1933, as amended (the "Securities Act").  The Company did
not use the services of any placement agents or broker-dealers in connection
with the offer and sale of these securities except for the sale of 629,032
shares of common stock in 2001, for which it paid a placement fee of $48,750
to Belle Haven Investments, a registered securities broker.

     In January and February 2001, the Company issued warrants to purchase
25,267 shares of common stock to two individuals in connection with a bank
guarantee.   The warrants vest immediately and have a term of three years.
The Company valued the warrants at $9,879 using the Black-Scholes option-
pricing model.

     In February 2001, the Company sold 24,000 shares of Series A Preferred
Stock to two individuals for $9,000 in cash and $15,000 in services rendered.
Each share of Series A Preferred Stock is convertible into one share of the
Company's common stock at any time.  In conjunction with this, the Company
issued warrants to purchase 12,000 shares of common stock.  The warrants vest
immediately and have a term of three years.  The Company valued the warrants
at $3,872 using the Black-Scholes option-pricing model.

     In February 2001, 30,473 shares of non-registered common stock were sold
to William C. Mortimore, Chairman and Chief Strategy Officer, in connection
with his employment agreement.  In consideration for these shares, Mr.
Mortimore paid $10,000 in cash and issued a promissory note in the amount of
$10,000.  The promissory note is a full recourse note with a term of six years.
Interest is payable monthly at 5.07% per annum.

     In May 2001, the Company issued 12,502 shares of non-registered common
stock with a value of $17,500 to seven non-management directors in
consideration for service on the Board during their annual term.

     In July 2001, the Company issued 23,030 shares of non-registered common
stock with a value of $22,095 to four individuals as payment for dividends on
Series A Preferred Stock.

     In September 2001, the Company issued 7,661 shares of non-registered
common stock with a value of $10,990 to Directors as consideration for meeting
fees.

     In October 2001, the Company issued 7,141 shares of non-registered common
stock, with a value of $11,069, to four individuals as payment for dividends
on Series A Preferred Stock.


<PAGE>  9


     In October 2001, the Company sold 806,452 shares of non-registered common
stock to seven parties for $1,250,002.  In conjunction with this sale of common
stock, the Company issued warrants to purchase 403,225 shares of common stock
for $2.00 per share.  The warrants vest six months from the date of issuance
and have a term of four years.  The Company valued the warrants at $385,773
using the Black-Scholes option-pricing model.

     The Company believes that the issuance of all shares of stock and warrants
issued in the above transactions are exempt from registration under the
Securities Act pursuant to Section 4(2) and Regulation D thereunder.



Item 6. 	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
		AND RESULTS OF OPERATION


Special Note on Forward-Looking Statements

     Certain statements in this report that are not historical facts constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as
amended (the "Securities Act") and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act").  Discussions containing such forward-
looking statements may be included herein in the material set forth under
Management's Discussion and Analysis of Financial Condition and Results of
Operations, as well as within this report generally.  In addition, when used
in this report, the words believes, intends, anticipates, expects and similar
expressions are intended to identify forward-looking statements.  These
statements are subject to a number of risks and uncertainties, including,
among others, the Company's lack of consistent profitability, history of
operating losses, fluctuations in operating results, credit and payment risks
associated with end-user sales, involvement with rapidly developing technology
in highly competitive markets, acquisition and development of new technologies,
dependence on major customers, expansion of its international sales effort,
broad discretion of management and dependence on key personnel, risks
associated with product liability and product defects, costs of complying with
government regulation, changes in external competitive market factors which
might impact trends in the Company's results of operation, unanticipated
working capital and other cash requirements, general changes in the industries
in which the Company competes, and various other competitive factors that may
prevent the Company from competing successfully in the marketplace.  Actual
results could differ materially from those projected in the forward-looking
statements. The Company undertakes 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.


Overview

     Merge Technologies Incorporated ("Merge") is in the business of
integrating radiology images and information into healthcare enterprise
networks. Merge products and services enhance the quality of healthcare
provided to patients because they improve radiology workflow efficiencies,
reduce healthcare operating costs and improve clinical decision making
processes. The Company delivers this tangible value to facilities of all sizes,
but specifically targets small to medium size healthcare facilities, multi-
hospital groups, clinics and diagnostic imaging centers by working with its
customers to offer unique, phased, cost effective solutions to solve their
image and information management and radiology workflow needs.

     The Company was founded in 1987.  It has historically been viewed as
a leading provider of medical diagnostic imaging and information
connectivity technologies and consulting solutions for original equipment
manufacturers ("OEMs"), value added resellers ("VARs") and healthcare
facilities worldwide. Today, Merge believes that it is at the forefront of
integrated radiology workflow research and development bringing modular
software applications to the marketplace that will enable the seamless
integration of images, information, technology and people across the
electronic healthcare enterprise.

     Radiology departments and diagnostic imaging centers and their
customers benefit from the Company's solutions in a variety of ways
including: (i) networking of multiple image-producing and image-using
devices to eliminate duplication and reduce the need for capital equipment
expenditures to build digital image and information networks; (ii) creating
permanent electronic archives of diagnostic-quality images enable the


<PAGE>  10


retrieval of these images and reports at any time in the future; (iii)
accessing the Company's modular architecture of products that allow radiology
departments, clinics and diagnostic imaging centers to build their electronic
image and information management systems in a phased, flexible and cost-
effective way; (iv) delivering the capability to integrate diagnostic
radiology images into the radiologist's report to make it a permanent
part of the patient's electronic medical record; and (v) providing the
means to view images and reports from any number of remote locations.


Results of Operations

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

     Net sales.  Net sales increased by 25% to $15,741,000 in 2001 from
$12,613,000 in 2000. Net sales of products and software made directly to
healthcare facilities increased 167% to $2,922,000 from $1,095,000 in 2000.
Net sales to OEM/VARs and dealers increased 4% to $10,534,000 from $10,141,000
in 2000.  Net sales of professional services increased 30% to $1,430,000 in
2001 from $1,104,000 in 2000.  Net sales of products sold through the Company's
service group, including upgrades, hardware replacement and service parts,
increased 213% to $855,000 in 2001 from $273,000 in 2000.

     Cost of sales.  Cost of sales consists of purchased components and
amortization of purchased and developed software. The cost of purchased
components decreased as a percentage of net sales to 26% in 2002 from 32% in
2000.  The decrease in the cost of components as a percentage of net sales is
due primarily to the Company's sales mix, which consists of a greater
percentage of higher margin products and services.  Also, cost of sales as a
percentage of net sales was higher in 2000 in part due to inventory provisions
of $390,000 for obsolescence related to inventory parts that were determined
to have no future value due to technology upgrades in the Company's products
and a variance to physical count in both the U.S. and European offices.

     Amortization of purchased and developed software decreased to $932,000
or 6% of net sales in 2001 from $1,227,000 or 10% of net sales in 2000, due
primarily to the write-down of obsolete technologies in the third quarter of
2000.

     Gross profit.  Gross profit increased by 46% to $10,688,000 in 2001
from $7,334,000 in 2000.  As a percentage of net sales, gross profit increased
to 68% of net sales in 2001 compared to 58% in 2000 due to sales of higher
margin products and to an increaese in net sales of professional services.
Labor costs associated with professional services are included in sales and
marketing expense.  The Company implemented a number of initiatives to improve
gross profit in 2001, including targeted price increases, reductions in
component costs and a gradual shift in product mix to higher margin software
applications.

     Sales and marketing.  Sales and marketing expense decreased by 20% to
$4,435,000 in 2001 from $5,520,000 in 2000, due primarily to the reallocation
of certain marketing resources to other departments.  The Company is focused
on increasing revenues in 2002, and as a result, expects to modestly increase
spending on sales and marketing during the course of the year.

     Product research and development.  Research and development expense
decreased by 22% to $1,870,000 in 2001 from $2,411,000 in 2000 due primarily
to a decrease in personnel costs effective with the Company's October 2000
reduction in workforce.  Capitalization of software development costs decreased
to $1,436,000 in 2001 from $1,584,000 in 2000.  However, engineering costs
included in capitalization of software increased as a percentage of total
engineering costs to 43% in 2001 from 40% in 2000.  This increase was the
result of engineering management's focus on near-term software development
deliverables and a more efficient allocation of engineering resources to the
design and construction of new software products.

     General and administrative.  General and administrative expense
decreased by 14% to $2,286,000 in 2001 from $2,663,000 in 2000 due primarily
to decreases in personnel and external consultant expenses and a gain of
$225,000 from derecognition of a liability relating to a change in the
Company's vacation policy in which the maximum payment to terminated employees
for unused vacation time was reduced.


<PAGE>  11


     Depreciation and amortization.  Depreciation and amortization expense
decreased by 11% or $95,000 to $765,000 in 2001 from $860,000 in 2000. The
decrease was due in part to a write-down of certain non-performing intangible
assets in the fourth quarter of 2000.  Depreciation and amortization is
assessed on capital equipment, goodwill and other intangible assets.

     Restructuring and related items.  The Company recorded an expense of
$36,000 in 2001 and $255,000 in 2000 for restructuring and related items. In
2000, the restructuring expenses were $88,000 and reflected severance charges
for eighteen positions eliminated in a workforce reduction in October 2000.
Related expenses were $167,000 and reflect primarily the write-down of the
assembled workforce capitalized as part of the 1999 acquisition of Intrepra
Medical Imaging Network.

     Acquired in-process technology and software write-off.  In September 2000,
the Company recorded a charge of $975,000 for technologies replaced by the
Merge WorkFlow platform.  The Company also wrote down a $155,000 prepaid
software license for which future product delivery from its vendor was at risk.

     Other income, expense.  In 2001, interest expense was $119,000 and
interest income was $45,000 compared to interest expense of $74,000 and
interest income of $24,000 in 2000.  Net other income, which was $137,000
in 2001, includes a gain of $197,000 for settlement of accounts
payable obligations. Net other expense in 2000 was $89,000, which included
$115,000 in charges for impairment of non-operating assets.

     Income taxes. The Company recorded an income tax expense of $87,000 in
2001, which reflects Japanese income tax withholding on software royalties
and an anticipated alternative minimum tax obligation. The Company recognized
an income tax expense in 2000 of $63,000, despite incurring losses for financial
reporting purposes, due primarily to Japanese income tax withholding on
software royalties


Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

     Net sales.  Net sales decreased by 5% to $12,613,000 in 2000 from
$13,300,000 in 1999.  Net sales to OEM/VARs and dealers decreased 8% to
$10,141,000 in 2000 from $11,075,000 in 1999, due primarily to lower than
anticipated orders from dealers.  Net sales of products and software made
directly to healthcare facilities increased 65% to $1,095,000 in 2000 from
$664,000 in 1999.  Net sales of professional services increased 73% to
$1,104,000 in 2000 from $639,000 in 1999.  Net sales products sold through
the Company's service group, including upgrades, hardware replacement and
service parts, decreased 70% to $273,000 in 2000 from $992,000 in 1999 due
to non-recurring business in 1999 for Y2K software upgrades.

     Cost of sales.  Cost of sales consists of purchased components and
amortization of purchased and developed software. The cost of purchased
components increased as a percentage of net sales to 32% in 2000 from 24% in
1999.  The increase in the cost of components as a percentage of
net sales is due primarily to the Company's sales mix, which consisted of a
greater percentage of lower margin products.  Costs in 2000 were also
adversely affected by inventory adjustments in the fourth quarter of $390,000
that include obsolescence expense related to inventory parts determined in
December 2000 to have no future value due to technology upgrades in the
Company's products and a variance to physical count in both the U.S. and
European offices.

     Amortization of purchased and developed software was 10% of net sales in
each of fiscal 2000 and fiscal 1999.  Amortization of purchased and developed
software, which is computed on a straight-line basis, has recently decreased
by approximately $100,000 per quarter due to the writedown of obsoleted
technologies in the third quarter of 2000.

     Gross profit.  Gross profit decreased by 17% to $7,334,000 in 2000 from
$8,791,000 in 1999.  As a percentage of net sales, gross profit decreased to
58% of net sales in 2000 compared to 66% in 1999 due to sales of lower margin
products and the inventory adjustments in the fourth quarter of 2000.  Labor
costs associated with net sales of professional services are included in
sales and marketing expense.


<PAGE>  12


     Sales and marketing.  Sales and marketing expense increased by 8% to
$5,520,000 in 2000 from $5,090,000 in 1999.  This increase is due primarily
to additional sales, marketing and service personnel associated with the
launch of a direct sales strategy.

     Product research and development.  Research and development expense
increased by 9% to $2,411,000 in 2000 from $2,222,000 in 1999.  The increase
in research and development expense is due primarily to the cost of software
engineers engaged in product development in the Toronto office for the full
year.  This workforce, which was added in September 1999 with the acquisition
of Interpra Medical Imaging Network ("Interpra"), is engaged in new product
development on Merge WorkFlow products.

     General and administrative.  General and administrative expense increased
by 37% to $2,663,000 in 2000 from $1,946,000 in 1999.  The increase relates
primarily to administration costs for operating subsidiaries in Toronto and
Tokyo, both of which were established in the second half of 1999, and from
additional information technology infrastructure to support our business and
prepare for the anticipated expansion of sales.

     Depreciation and amortization.  Depreciation and amortization expense
increased by $209,000 to $860,000 in 2000 from $651,000 in 1999. The increase
was due to amortization expense of intangible assets related to the acquisition
of Interpra in September 1999 and the commencement of depreciation expense on
the acquisition of capital equipment purchased in 1999 and 2000.

     Restructuring and related items.  In 2000, the Company recorded an expense
of $255,000 for restructuring and related items.  The restructuring expenses
were $88,000 and reflect severance charges for eighteen positions eliminated
in a workforce reduction in October 2000.  Related expenses were $167,000 and
relate primarily the write-down of the assembled workforce capitalized as part
of the Intrepra acquisition.

     Acquired in-process technology and software write-off.  In September 2000,
the Company recorded a charge of $975,000 for technologies replaced by the
Merge WorkFlow platform.  The Company also wrote down a $155,000 prepaid
software license for which future product delivery from its vendor was at risk.

     In September 1999, a charge of $1.2 million was recorded for the in-
process technology of Interpra Medical Imaging Network, Ltd. that had not
reached technological feasibility as of September 3, 1999, the date which
Merge acquired 100% of its voting stock.  In addition, the Company recorded
a charge of $441,000 for the write-down of software capitalized by Merge that
was replaced by technologies acquired in the merger.

     Other income, expense.  In 2000, interest expense was $74,000 and interest
income was $24,000.  Net other expense, which was $89,000 in 2000, included
$115,000 in charges for impairment of non-operating assets and a credit of
$35,000 for foreign currency transaction expense.  Foreign currency
transaction expense reflected the foreign exchange risk resulting from changes
in the value of the Dutch guilder and Canadian dollar relative to the U.S.
dollar on intercompany transactions that are not of a long-term investment
nature.  In 1999, interest income expense was $27,000 and interest income was
$123,000, due to maintaining increased cash balances on deposit at the
Company's bank.

     Income taxes.  The Company recognized an income tax expense in 2000 and
in 1999, despite incurring. losses for financial reporting purposes, due
primarily to foreign income taxes.  The Company recorded an income tax expense
of $63,000 and $173,000 in 2000 and 1999, respectively, which reflects
primarily Japanese income tax withholding on software royalties.



Liquidity and Capital Resources

     Operating cash flows.  Cash provided by operating activities was
$1,899,000 in 2001  The Company's positive operating cash flow was due
primarily to its net income of $1,271,000.  Significant changes in assets and
liabilities include: an increase in accounts receivable of $1,273,000, which
was the result of the increase in net sales during the year; a decrease in
inventory of $614,000 reflecting continuing initiatives to increase inventory
turns and reduce the average balance of in house inventory; and a decrease in


<PAGE>  13


accounts payable of $1,159,000 resulting from payments and negotiated
settlements of older account balances.

     Investing cash flows.  Cash used in investing activities was $1,585,000.
Software capitalization company-wide was $1,436,000 in 2001, which represented
a decrease from software capitalization of $1,585,000 in 2000, due primarily
to decreases in personnel.  Capital equipment purchases were $148,000, which
is lower than the Company has historically invested in equipment purchases due
to management initiatives to control spending.  The Company expects to increase
capital investments in 2002 as it deploys working capital from its 2001 private
placement to projects that will accelerate sales and product innovation
activities.

     Financing cash flows.  Cash used in financing activities was $69,000 in
2001.  In November 2001, the Company received $1,184,000 in net proceeds for
a private placement of common stock and warrants.  Due to its material cash
balances in the fourth quarter of 2001, the Company paid $1,350,000 to reduce
the balance on its revolving line of credit to zero.

     Total outstanding commitments at December 31, 2001 were as follows.



Contractual 		        Less than     1 - 3     4 - 5	   After
Obligations	       Total      1 year      years     years     5 years
----------------------------------------------------------------------------

Long Term Debt...... $  188,454  $    ---    $   ---   $188,454  $    ---

Capital Lease
Obligations.........     35,738    28,145      7,593        ---       ---

Operating Leases....  1,332,385	  412,401    749,026    170,958       ---
		     ----------  --------   --------   --------  --------
Total Contractual
Cash Obligations.... $1,556,577  $440,546   $756,619  $ 359,412  $    ---
		     ==========  ========   ========   ========  ========


     The Company also recorded a liability of $1,504,230 for put options
on 420,000 shares, which may be exercised for a price of $4.50 per share
during the period from August 31, 2004 until September 30, 2004.

     The Company does not have any other significant long-term obligations,
contractual obligations, lines of credit, standby letters of credit,
guarantees, standby repurchase obligations or other commercial commitments.

     The Company believes that existing cash, together with the availability
under its revolving credit agreement and future cash flows from operations,
will be sufficient to execute the business plan in 2002.  However, any
projections of future cash inflows and outflows are subject to uncertainty.
In 2002, it may be necessary to raise additional capital for activities
necessary to meet the Company's business objectives or its long-term liquidity
needs.  If it is determined that additional capital is needed, it will be
raised by selling additional equity or raising debt from third party sources.
The sale of additional equity or convertible debt securities could result in
dilution to current stockholders.  In addition, debt financing, if available,
could involve restrictive covenants, which could adversely affect operations.
There can be no assurance that any of these financing alternatives, including
raising additional capital, will be available in amounts or on terms
acceptable to the Company.


<PAGE>  14


Significant Accounting Policies

     The Company's consolidated financial statements are impacted by the
accounting policies used and the estimates and assumptions made by management
during their preparation.  Critical accounting policies in which management
makes significant estimates are revenue recognition, accounts receivable,
inventory, software capitalization and other long-lived assets.

     Revenues from sales of WorkFlow systems sold directly to healthcare
institutions are recognized on a percentage of completion basis as determined
by management based on its assessment of the relative value of products,
software, installation and other services included in the contracts.  Changes in
circumstances may cause management's estimates of the value of the contracts or
the effort required to complete installations to change.  Such changes would
cause the Company to adjust downward the amount of revenue recognized or
recognize less revenue than anticipated through the completion of the project.

     The Company's accounts receivable balance is reported net of an allowance
for bad debt.  Management determines collection risk and records allowances
for bad debt based on the aging of accounts and past transaction history with
customers.  If the financial condition of the Company's customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances would be required.

     Inventory is stated at the lower of cost or market.  Management uses
judgment to determine the potential impact of obsolescence and net realizable
value due to technology changes and market changes on the carrying value of
inventory.  If market and technology changes occur more rapidly than estimated
by management, inventory write-downs may be required.

     Software capitalization commences when management determines that
projects have achieved technological feasibility.  Amounts capitalized include
estimates of overhead attributable to the projects.  The useful lives of
capitalized software are assigned by management based on expected lives of
the software.  Management also estimates the realizability of capitalized
values based on projections of future net operating cash flows through the
sale of products related to each capitalized project.  If the Company
determines in the future, that the value of capitalized software cannot be
recovered, a write-down of the value of the capitalized software to its
recoverable value may be required.  If the actual useful life is of a project
is shorter than the useful life estimated by the Company, the asset may be
deemed to be impaired and, accordingly, a write-down of the value of the
asset may be required.

     Other long term assets, including property and equipment, goodwill and
other intangibles are amortized over their expected lives, which are estimated
by management.  Management also makes estimates on the impairment of long term
assets whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.  If the actual useful life is of
a long term asset is shorter than the useful life estimated by the Company,
the assets may be deemed to be impaired and, accordingly, a write-down of the
value of the assets may be required.


Recently Issued Accounting Standards

     In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, Accounting for the Impairment or Disposal for Long-Lived Assets.   SFAS
No. 144 addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. While SFAS No. 144 supercedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of, it retains many of the fundamental provisions of that
Statement. SFAS No. 144 also supersedes the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions for the disposal of a
segment of a business. However, it retains the requirement in Opinion 30 to
report separately discontinued operations and extends that reporting to a
component of an entity that either has been disposed of (by sale,
abandonment, or in a distribution to owners) or is classified as held for


<PAGE>  15


sale. SFAS No. 144 is effective for fiscal years beginning after December 15,
2001 and interim periods within those fiscal years.  The Company has
evaluated the impact of adoption of SFAS No. 144 and has determined that
the effect is not expected to be material to its consolidated financial
statements.

     In June 2001, SFAS No. 141, Business Combinations and SFAS No. 142,
Goodwill and Intangible Assets were issued.  In October 2001, SFAS No. 144
Accounting for the Impairment or Disposal of Long-Lived Assets was issued.
SFAS No. 141 requires that all business combinations initiated after June 30,
2001, be accounted for using the purchase method of accounting, and prohibits
the use of the pooling-of-interests method for such transactions. SFAS No. 141
also requires identified intangible assets acquired in a business combination
to be recognized as an asset apart from goodwill if they meet certain criteria.

     In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets, which supersedes APB Opinion No. 17, Intangible Assets.  SFAS 142
replaces the requirements to amortize intangible assets with indefinite lives
and goodwill with a requirement for an impairment test.  SFAS 142 also requires
an evaluation of intangible assets and their useful lives and a transitional
impairment test for goodwill and certain intangible assets upon adoption.
After transition, the impairment test will be performed annually.  SFAS 142
if effective for fiscal years beginning after December 15, 2001.  Management
is currently evaluating the impact of adopting SFAS 142 on the Company's
consolidated financial statements.

     As of the date of adoption, the Company expects to have unamortized
goodwill in the amount of $310,739, which includes existing intangible assets
that are not considered identifiable under SFAS No. 142.  Amortization expense
related to goodwill was $67,187 for the year ended December 31, 2001 and
accumulated amortization was $177,381 at December 31, 2001.  Because of the
extensive effort needed to comply with adoption SFAS 142, it is not practicable
to reasonably estimate the impact of adopting this Statement on the Company's
financial statements at the date of this report, including whether it will be
required to recognize any transitional impairment losses as the cumulative
effect of a change in accounting principle.

     In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations.  SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets
and for the associated asset retirement cost.  SFAS 143 must be applied
starting with fiscal years beginning after June 15, 2002.  The Company is
currently evaluating the impact that the adoption of SFAS 143 will have on
the consolidated financial statements.


<PAGE>  16



Item 7.		FINANCIAL STATEMENTS


INDEPENDENT AUDITORS' REPORT


The Board of Directors and Shareholders
Merge Technologies Incorporated:

     We have audited the accompanying consolidated balance sheets of Merge
Technologies Incorporated and subsidiaries as of December 31, 2001 and 2000,
and the related consolidated statements of operations, shareholders' equity,
cash flows, and comprehensive income (loss) for each of the years in the
three-year period ended December 31, 2001.  These consolidated financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America.  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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Merge
Technologies Incorporated and subsidiaries as of December 31, 2001 and 2000,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America.


/s/ KPMG LLP

Chicago, Illinois
February 20, 2002


<PAGE>  17


                 MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
                             CONSOLIDATED BALANCE SHEETS

                                      ASSETS

<TABLE>
<CAPTION>
                                                                             December 31,
				                                -----------------------------------
					                              2001	         2000
					                        ---------------    ----------------
<S>					                        <C>		   <C>
Current assets:

 Cash.......................................................... $     1,042,893    $        811,910
 Accounts receivable, net of allowance for doubtful accounts
   of $170,572 and $62,349 at December 31, 2001 and
   December 31, 2000, respectively.............................       2,669,408           2,049,070
 Unbilled accounts receivable..................................	        472,912		      -----
 Inventory.....................................................	        542,136           1,159,115
 Prepaid expenses..............................................          93,831             140,045
 Taxes recoverable.............................................          23,486	            327,657
 Other current assets..........................................	          7,420               2,857
				                       	        ---------------    ----------------
Total current assets...........................................       4,852,086           4,490,654
					                        ---------------    ----------------
 Computer equipment............................................       3,321,304	          3,184,699
 Office equipment..............................................	        416,216	            410,640
					                        ---------------    ----------------
					                              3,757,520           3,595,339

 Less accumulated depreciation.................................       3,097,923           2,419,194
					                        ---------------    ----------------
Net property and equipment.....................................         639,597  	  1,176,145
Purchased and developed software, net of accumulated
  amortization of $5,042,779 and $4,271,898 at December 31,
  2001 and December 31, 2000 respectively......................       3,824,483           3,216,861
Long term accounts receivable..................................	        193,475	             ------
Goodwill, net of accumulated amortization of $177,381 and
  $110,193 at December 31, 2001 and December 31, 2000,
  respectively.................................................	        310,739             377,926
Other intangibles, net of accumulated amortization of $20,966
  and $11,648 at December 31, 2001 and December 31, 2000,
  respectively.................................................	         44,260	             53,578
Other..........................................................         190,956	            210,396
					                        ---------------    ----------------
Total assets................................................... $    10,055,596    $      9,525,560
					                        ===============    ================


                         LIABILITIES AND SHAREHOLDERS' EQUITY


Current liabilities:

 Current portion of obligations under capital leases........... $        23,384    $         27,371
 Line of credit................................................	         ------           1,350,000
 Accounts payable..............................................         815,177           1,974,641
 Accrued wages.................................................	        645,588 	    453,992
 Other accrued liabilities.....................................         258,989	            209,389
 Deferred revenue..............................................         480,446	            213,663
					                        ---------------    ----------------
Total current liabilities......................................       2,223,584	          4,229,056
					                        ---------------    ----------------
 Notes payable.................................................         152,141             149,127
 Put options related to exchangeable common stock..............       1,504,230	          1,363,950
 Obligations under capital leases, excluding current portion...           7,131              30,547
					                        ---------------    ----------------
Total liabilities..............................................       3,887,086	          5,772,680
					                        ---------------    ----------------

Shareholders' equity:

 Preferred stock, $0.01 par value: 4,000,000 shares authorized;
   one share issued and outstanding............................          ------              ------
 Series A Preferred Stock, $0.01 par value:  1,000,000 shares
   authorized; 637,236 shares issued and outstanding at
   December 31, 2001 and 613,236 shares subscribed at
   December 31, 2000...........................................	          6,372	            467,316
 Common stock, $0.01 par value: 30,000,000 shares authorized;
   7,019,493 and 5,805,170 shares issued and outstanding at
   December 31, 2001 and December 31, 2000, respectively.......	         70,195 	     58,052
 Common stock subscribed; 22,173 shares and 189,760 shares at
   December 31, 2001 and December 31, 2000, respectively.......          17,082	            152,750
 Additional paid-in capital....................................      16,182,483	         14,373,798
 Common stock subscription receivable..........................         (35,000)            (50,000)
 Accumulated deficit...........................................      (9,924,055)	(11,194,813)
Accumulated other comprehensive income (loss) -
 cumulative translation adjustment.............................        (148,567)	    (54,223)
					                        ---------------    ----------------
Total shareholders' equity.....................................       6,168,510           3,752,880
					                        ---------------    ----------------
Total liabilities and shareholders' equity..................... $    10,055,596     $     9,525,560
					                        ===============    ================
</TABLE>

             See accompanying notes to consolidated financial statements.


<PAGE>  18



                   MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                    Years Ended December 31,
				                           ----------------------------------------
					                       2001          2000          1999
				                           ------------   -----------  ------------
<S>				                           <C>	          <C>	       <C>
Net sales................................................  $ 15,741,059  $ 12,612,575  $ 13,300,220

Cost of sales:
 Purchased components....................................     4,120,412     4,051,890     3,234,874
 Amortization of purchased and developed software........       932,460     1,226,618     1,274,827
				                           ------------   -----------  ------------
Total cost of sales......................................     5,052,872     5,278,508     4,509,701
				                           ------------   -----------  ------------
Gross profit.............................................    10,688,187     7,334,067     8,790,519
				                           ------------   -----------  ------------
Operating costs and expenses:
 Sales and marketing.....................................     4,434,956     5,520,130     5,089,600
 Product research and development........................     1,869,809     2,411,386     2,222,151
 General and administrative..............................     2,286,217     2,662,906     1,945,731
 Depreciation and amortization...........................       765,494       859,805       651,185
 Restructuring and related items.........................        35,825       254,970        ------
 Acquired in-process R&D and software write-off..........        ------     1,129,871     1,641,063
				                           ------------   -----------  ------------
Total operating costs and expenses.......................     9,392,301    12,839,068    11,549,731
				                           ------------   -----------  ------------
Operating income (loss)..................................     1,295,886    (5,505,001)   (2,759,212)

Other income (expense):
 Interest expense........................................      (118,929)      (73,670)      (26,998)
 Interest income.........................................        44,567        23,617       123,214
 Other, net..............................................       136,520       (89,061)      (62,608)
				                           ------------   -----------  ------------
Total other income (expense).............................        62,158      (139,114)       33,608
				                           ------------   -----------  ------------
Income (loss) before income taxes........................     1,358,044    (5,644,115)   (2,725,604)
Income tax expense.......................................        87,286        63,279       173,217
Net income (loss)........................................     1,270,758    (5,707,394)   (2,898,821)

Less:
 Accretion of put options................................       140,280       140,280        35,070
 Preferred stock dividends...............................        44,236         -----         -----
				                           ------------   -----------  ------------
 Net income (loss) available to common shareholders......  $  1,086,242   $(5,847,674) $ (2,933,891)
							   ============	  ===========  ============

Net income (loss) per share - basic......................  $       0.18   $     (1.01) $      (0.51)
Weighted average number of common shares outstanding -
  basic...................................................    6,178,821     5,792,945     5,778,225
				                           ============   ===========  ============

Net income (loss) per share - diluted....................  $       0.15   $     (1.01) $      (0.51)
				                           ============   ===========  ============
Weighted average number of common shares outstanding -
  diluted................................................     7,310,731     5,792,945     5,778,225
				                           ============   ===========  ============

             See accompanying notes to consolidated financial statements.
</TABLE>


<PAGE>  19

                               MERGE TECHNOLOGIES INCORPORATED AND SUBSIDARIES
                                CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                               For Years Ended December 31, 1999, 2000 and 2001
<TABLE>
<CAPTION>
                                                                            Series A
			      	    Preferred Stock                     Preferred Stock
			  	----------------------  ---------------------------------------------

             			  Shares      Issued	  Shares    Subscribed    Shares     Issued
				  issued      amount	subscribed    amount	  issued     Amount
				----------  ----------	----------  ----------	----------  ----------
<S>				<C>	    <C>		<C>	    <C>		<C>	    <C>
Balance at December 31, 1998	    ------  $   ------	     -----  $    -----       -----   $   -----
				----------  ----------  ----------  ----------  ----------  ----------

Adjustments to fractional shares    ------      ------       -----       -----       -----       -----
Issuance of preferred shares...	         1      ------	     -----	 -----	     -----	 -----
Issuance of exchangable share
  rights.......................	    ------	------	     -----	 -----	     -----	 -----
Exchange of share rights into
  common stock.................     ------	------	     -----	 -----	     -----	 -----
Accretion of put value
Net income (loss)..............	    ------	------	     -----	 -----	     -----	 -----
Foreign currency cumulative
  translation adjustment.......	    ------	------	     -----	 -----	     -----	 -----
				----------  ----------  -----------  ---------	----------  ----------
Balance at December 31, 1999	         1  $   ------       -----	 -----	     -----   $   -----
				----------  ----------  -----------  ---------	----------  ----------

Accretion of put value.........	    ------	------	     -----	 -----	     -----	 -----
Issuance of options for
  services.....................	    ------	------	     -----	 -----	     -----	 -----
Exercise of stock options......	    ------	------	     -----	 -----	     -----	 -----
Exchange of share rights into
  common stock.................	    ------	------	     -----	 -----	     -----	 -----
Shares to be issued for services
  rendered.....................	    ------	------	     -----	 -----	     -----	 -----
Stock purchased under ESPP.....	    ------	------	     -----	 -----	     -----	 -----
Common stock subscriptions.....	    ------	------	     -----	 -----	     -----	 -----
Series A Preferred Stock
  subscriptions................	    ------	------	   613,236     467,316	     -----	 -----
Issuance of common stock
  warrants.....................	    ------	------	     -----	 -----	     -----	 -----
Net income (loss)..............	    ------	------	     -----	 -----	     -----	 -----
Foreign currency cumulative
  translation adjustment.......	    ------	------	     -----	 -----	     -----	 -----
				----------  ----------  -----------  ---------	----------  ----------
Balance at December 31, 2000...	         1  $   ------	   613,236   $ 467,316	     -----  $    -----
				----------  ----------  -----------  ---------	----------  ----------

Accretion of put value.........	    ------	------	     -----	 -----	     -----	 -----
Issuance of common stock.......	    ------	------	     -----	 -----	     -----	 -----
Issuance of preferred stock....	    ------	------	  (613,236)   (467,316)    622,236	 6,222
Issuance of common stock
  warrants.....................	    ------	------	     -----	 -----	     -----	 -----
Stock purchased under ESPP.....	    ------	------	     -----	 -----	     -----	 -----
Exchange of share rights into
  common stock.................	    ------	------	     -----	 -----	     -----	 -----
Shares issued for services
  rendered.....................	    ------	------	     -----	 -----	    15,000	   150
Exercise of stock options......	    ------	------	     -----	 -----	     -----	 -----
Exercise of stock warrants.....	    ------	------	     -----	 -----	     -----	 -----
Preferred stock dividends
  declared.....................	    ------	------	     -----	 -----	     -----	 -----
Issuance of preferred stock
  dividend.....................	    ------	------	     -----	 -----	     -----	 -----
Reduction of stock subscription
  receivable from related party	    ------	------	     -----	 -----	     -----	 -----
Net income (loss)..............     ------	------	     -----	 -----	     -----	 -----
Foreign currency cumulative
  translation adjustment.......	    ------	------	     -----	 -----	     -----	 -----
				----------  ----------  -----------  ---------	----------  ----------
Balance at December 31, 2001...	         1   $  ------	     -----   $   -----	   637,236  $    6,372
				==========  ==========	===========  =========	==========  ==========
</TABLE>

                               MERGE TECHNOLOGIES INCORPORATED AND SUBSIDARIES
                                CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Year's Ended December 31, 1999. 2000
<TABLE>
<CAPTION>

			      	                              Common Stock
			  	-----------------------------------------------------------------------
										Additional
             			  Shares    Subscribed	  Shares       Issued    paid-in     Accumulated
				subscribed    amount	  issued       amount	 capital       deficit
				----------  ----------	----------  ----------	-----------  -----------
<S>				<C>	    <C>		<C>	    <C>		<C>	     <C>
Balance at December 31, 1998	    ------  $    -----   5,778,216  $   57,782  $13,931,432  $(2,588.598)
				----------  ----------  ----------  ----------  -----------  -----------

Adjustments to fractional shares    ------      ------       -----       -----        4,044        -----
Issuance of preferred shares...	         1      ------	     -----	 -----	      -----	   -----
Issuance of exchangable share
  rights.......................	    ------	------	     -----	 -----	    433,020	   -----
Exchange of share rights into
  common stock.................     ------	------	     3,173	    32	        (32)	   -----
Accretion of put value
Net income (loss)..............	    ------	------	     -----	 -----	    (35,072) 	   -----
Foreign currency translation
  adjustment...................	    ------	------	     -----	 -----	      -----   (2,898,821)
				----------  ----------  -----------  ---------	-----------  -----------
Balance at December 31, 1999	         1  $   ------    5,781,389  $  57,814  $14,333,392  $(5,487,419)
				----------  ----------  -----------  ---------	-----------  -----------

Accretion of put value.........	    ------	------	      -----	 -----	   (140,280) 	   -----
Issuance of options for
  services.....................	    ------	------	      -----	 -----	     49,875	   -----
Exercise of stock options......	    ------	------	     12,011	   120 	        706	   -----
Exchange of share rights into
  common stock.................	    ------	------	        952         10          (10)	   -----
Shares to be issued for services
  rendered.....................	    23,459      36,667	      -----      -----	      -----	   -----
Stock purchased under ESPP.....	    20,861	16,082	     10,818	   108	     15,121	   -----
Common stock subscriptions.....	    ------	------	      -----	 -----	      -----	   -----
Series A Preferred Stock
  subscriptions................	   145,350     100,001	      -----	 -----	      -----	   -----
Issuance of common stock
  warrants.....................	    ------	------	      -----	 -----	    114,994	   -----
Net income (loss)..............	    ------	------	      -----	 -----	      -----   (5,707,394)
Foreign currency translation
  adjustment...................	    ------	------	      -----	 -----	      -----	   -----
				----------  ----------  -----------  ---------	-----------  -----------
Balance at December 31, 2000...	   189,670  $  152,750    5,805,170  $  58,052  $14,373,798 $(11,194,813)
				----------  ----------  -----------  ---------	-----------  -----------

Accretion of put value.........	    ------	------	      -----	 -----	   (140,280) 	   -----
Issuance of common stock.......	  (186,809)   (136,668)   1,005,734     10,057    1,330,262	   -----
Issuance of preferred stock....	     -----	 -----	      -----	 -----      470,094        -----
Issuance of common stock
  warrants.....................	     -----	 -----	      -----	 -----	      9,879	   -----
Stock purchased under ESPP.....	     1,312       1,000       94,037        940       68,425 	   -----
Exchange of share rights into
  common stock.................	     -----	 -----	     31,096        311         (311)	   -----
Shares issued for services
  rendered.....................	     -----	 -----	     20,163        202	     43,138
Exercise of stock options......	     -----	 -----	     20,622        206       26,477	   -----
Exercise of stock warrants.....	     -----	 -----	     12,500        125       12,375	   -----
Preferred stock dividends
  declared.....................	     -----	 -----	      -----	 -----	    (44,236)       -----
Issuance of preferred stock
  dividend.....................	     -----	 -----	     30,171	   302       32,862 	   -----
Reduction of stock subscription
  receivable from related party       -----	 -----	      -----	 -----	      -----	   -----
Net income (loss)..............      -----	 -----	      -----	 -----	      -----    1,270,758
Foreign currency translation
  adjustment...................	     -----	 -----	      -----	 -----	      -----	   -----
				----------  ----------  -----------  ---------	-----------  -----------
Balance at December 31, 2001...	    22,173  $   17,082    7,019,493  $  70,195  $16,182,483  $(9,924,055)
				==========  ==========	===========  =========	===========  ===========
</TABLE>


<TABLE>
<CAPTION>

			      	              Common stock
			  	---------------------------------------
				   Stock       Cummulative     Total
             			subscription   translation  shareholders'
				receivable     adjustment      equity
				------------  ------------  -----------
<S>				<C>	      <C>	    <C>
Balance at December 31, 1998	$     ------  $     21,972  $11,422,588
				------------  ------------  -----------

Adjustments to fractional shares       -----         -----        4,044
Issuance of preferred shares...	       -----         -----	  -----
Issuance of exchangable share
  rights.......................	       -----	     -----	433,020
Exchange of share rights into
  common stock.................        -----	     -----        -----
Accretion of put value.........        -----         -----      (35,072)
Net income (loss)..............	       -----	     -----   (2,898,821)
Foreign currency translation
  adjustment...................	       -----	     -----       34,480
				------------   -----------  -----------
Balance at December 31, 1999	$      -----   $    60,452  $ 8,964,239
				------------   -----------  -----------

Accretion of put value.........	       -----	     -----     (140,280)
Issuance of options for
  services.....................	       -----	     -----	 49,875
Exercise of stock options......	       -----	     -----	    826
Exchange of share rights into
  common stock.................	       -----	     -----	  -----
Shares to be issued for services
  rendered.....................	       -----	     -----	 36,667
Stock purchased under ESPP.....	       -----	     -----	 31,311
Common stock subscriptions.....	     (50,000)	     -----	 50,001
Series A Preferred Stock
  subscriptions................	       -----	     -----	467,316
Issuance of common stock
  warrants.....................	       -----	     -----      114,994
Net income (loss)..............	       -----	     -----   (5,707,394)
Foreign currency translation
  adjustment...................	       -----	  (114,675)    (114,675)
				------------  ------------  -----------
Balance at December 31, 2000...	$    (50,000) $    (54,223) $ 3,752,880
				------------  ------------  -----------

Accretion of put value.........	      ------	    ------     (140,280)
Issuance of common stock.......	     (10,000)	    ------    1,193,651
Issuance of preferred stock....	      ------	    ------	  9,000
Issuance of common stock
  warrants.....................	      ------	    ------	  9,879
Stock purchased under ESPP.....	      ------	    ------	 70,365
Exchange of share rights into
  common stock.................	      ------	    ------	  -----
Shares issued for services
  rendered.....................	      ------	    ------	 43,490
Exercise of stock options......	      ------	    ------	 26,683
Exercise of stock warrants.....	      ------	    ------	 12,500
Preferred stock dividends
  declared.....................	      ------	    ------      (44,236)
Issuance of preferred stock
  dividend.....................	      ------	    ------	 33,164
Reduction of stock subscription
  receivable from related party	      25,000	    ------	 25,000
Net income (loss)..............       ------	    ------    1,270,758
Foreign currency cumulative
  translation adjustment.......	      ------	    94,344	(94,344)
				------------  ------------  -----------
Balance at December 31, 2001...	$    (35,000)  $  (148,567) $ 6,168.510
				============  ============  ===========
</TABLE>


        See accompanying notes to consolidated financial statements.


<PAGE>  20


                       MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
                            CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                   Years Ended December 31,
				                         -----------------------------------------
					                     2001          2000           1999
				                         ------------   ------------  ------------
<S>				                         <C>	        <C>	      <C>
Cash flows from operating activities:
Net income (loss)....................................... $  1,270,758   $ (5,707,394) $ (2,898,821)
Adjustments to reconcile net loss to net cash provided
  by (used in) operating activities:
 Depreciation and amortization..........................    1,697,955      2,086,423     1,541,568
 Amortization of discount on note assumed in merger.....       18,681         12,400         3,700
 Provision for doubtful accounts receivable.............      132,986        (13,055)       16,256
 Impairment of other intangibles........................       ------        142,399        ------
 Acquired in-process technology and software write-off..       ------      1,129,871     1,641,063
 Issuance of options and stock for services rendered....       68,490        143,852        ------
 Issuance of warrants for financing transactions........        9,879         ------        ------
 Change in assets and liabilities, net of acquisition:
   Accounts receivable..................................   (1,272,761)     1,049,947    (1,324,874)
   Inventory............................................      613,783        349,945       442,100
   Prepaid and other expenses...........................      (35,913)      (336,018)      (50,311)
   Accounts payable.....................................   (1,158,717)      (142,685)      920,304
   Accrued wages........................................      193,600         51,109      (398,329)
   Other accrued expenses...............................       45,840        (14,241)      391,391
   Deferred revenue.....................................      269,539          9,167        54,904
   Other................................................       45,045        (25,770)     (146,979)
				                          -----------     ----------    ----------
Net cash provided by (used in) operating activities.....    1,899,165     (1,264,050)      191,972
				                          -----------     ----------    ----------

Cash flows from investing activities:
 Purchases of property and equipment....................     (148,318)      (383,092)     (525,340)
 Development of software................................   (1,436,345)    (1,584,607)   (1,301,830)
				                          -----------     ----------    ----------
Net cash used in investing activities...................   (1,584,663)    (1,967,699)   (1,827,170)
                                                          -----------     ----------    ----------

Cash flows from financing activities:
 Proceeds from revolving credit agreement...............       ------      1,350,000        ------
 Repayment of revolving credit agreement................   (1,350,000)        ------        ------
 Repayment of notes acquired from Interpra..............       ------         ------       (37,653)
 Proceeds from sale of Series A Preferred Stock.........        9,000        525,000        ------
 Proceeds from exercise of stock options................       26,683            826        ------
 Proceeds from exercise of warrants.....................       12,500         ------        ------
 Proceeds from stock purchased under ESPP...............       70,365         31,311        ------
 Proceeds from sale of common stock, net of expenses....    1,193,652         50,001        ------
 Principal payments under capital leases................      (30,768)       (20,779)      (15,909)
				                          -----------    -----------    ----------
Net cash provided by (used in) financing activities.....      (68,568)     1,936,359       (53,562)
				                          -----------    -----------    ----------
Effect of exchange rate changes on cash.................      (14,951)        63,265        72,916

Net increase (decrease) in cash and cash equivalents....      230,983     (1,232,125)   (1,615,844)
Cash and cash equivalents, beginning of period..........      811,910      2,044,035     3,659,879
				                          -----------    -----------   -----------
Cash and cash equivalents, end of period................  $ 1,042,893    $   811,910   $ 2,044,035
			                                  ===========    ===========   ===========


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid for income taxes..............................  $     2,452    $    17,944   $    14,657
Cash paid for interest..................................      116,129         52,269        24,839


NONCASH INVESTING AND FINANCING ACTIVITIES:

Property and equipment acquired through capital leases..        3,343         39,396        24,508
Payment of preferred stock dividends through issuance
  of common stock.......................................       33,164         ------        ------
Issuance of exchangeable shares and assumption of net
  liabilities for acquisition of Interpra...............       ------	      ------	 1,800,730
Accretion of put options related to exchangeable share
 rights.................................................      140,280        140,280        35,072
</TABLE>
            See accompanying notes to consolidated financial statements.


<PAGE>  21


                       MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


<TABLE>
<CAPTION>
                                                                  Years Ended December 31,
				                         -----------------------------------------
					                     2001           2000           1999
				                         ------------   ------------  ------------

<S>							<C>		<C>	      <C>
Net income (loss).....................................	$   1,270,758   $ (5,707,394) $ (2,898,821)
Accumulated other comprehensive income (loss) -
 Cumulative translation adjustment....................	      (94,344)      (114,675)       38,480
							-------------	------------  ------------
Comprehensive net income (loss).......................  $   1,176,414   $ (5,822,069) $ (2,864,341)
							=============	============  ============
</TABLE>

            See accompanying notes to consolidated financial statements.

<PAGE>  22



                        Merge Technologies Incorporated
                   Notes to Consolidated Financial Statements


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)	Nature of Operations

     Merge Technologies Incorporated and its wholly owned subsidiaries ("Merge"
or the "Company"), is in the business of integrating radiology images and
information into healthcare enterprise networks.  Merge products and services
enhance the quality of healthcare provided to patients because they improve
radiology workflow efficiencies, reduce healthcare operating costs and improve
clinical decision making processes.  The Company delivers this tangible value
to healthcare facilities of all sizes, but it specifically targets small to
medium size hospitals, multi-hospital groups, clinics and diagnostic imaging
centers by working with its customers to offer modular, cost effective solutions
to solve their image and information management and radiology workflow needs.

(b)	Principles of Consolidation

     The consolidated financial statements include the financial statements of
Merge Technologies Incorporated and its wholly owned subsidiaries.  All
significant inter-company balances and transactions have been eliminated in
consolidation.

(c)	Inventory

     Inventory, consisting principally of raw materials and finished goods,
is stated at the lower of cost or market.  Cost is determined using the
first-in, first-out method.

(d)	Property and Equipment

     Property and equipment are stated at cost.  Equipment under capital leases
is stated at the present value of minimum lease payments.

	Depreciation on property and equipment is calculated on the straight-
line method over the estimated useful lives of the assets.  Useful lives of
the Company's major classes of property and equipment are:  for computer
equipment five years for assets placed in service prior to December 31, 1997
and three years for assets acquired after December 31, 1997; and seven years
for office equipment.  Equipment held under capital leases is amortized using
the straight-line method over the estimated useful life of the asset or the
term of the lease.  Leasehold improvements are amortized using the straight-
line method over the term of the lease.

(e)	Purchased and Developed Software

     All research and development costs incurred prior to the point at which
management believes a project has reached technological feasibility are
expensed as incurred.  Engineering costs incurred subsequent to reaching
technological feasibility are capitalized and reported at the lower of
unamortized cost or net realizable value in accordance with Statement of
Financial Accounting Standards (SFAS) No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed.  Amortization of
purchased and developed software is provided on a product-by-product basis
over the expected economic life of the related software, generally five years,
using the straight-line method.  This method results in greater amortization
than the method based on the ratio that current gross revenues for a product
bear to the total of current and anticipated future gross revenues for that
product.

     The Company assesses the recoverability of these costs each period by
determining whether the unamortized capitalized costs can be recovered through
future net operating cash flows through the sale of that product.


<PAGE>  23


(f)	Fair Value of Financial Instruments

     The Company's financial instruments include cash, accounts receivable,
line of credit, accounts payable and certain accrued expenses.  The carrying
amounts approximate fair value because of the short maturity of these
instruments or the rate is variable.  The carrying value of notes payable is
not materially different from its fair value.

(g)	Long-Lived Assets

     The Company accounts for long lived assets in accordance with SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, under which the Company has reviewed long-lived
assets and certain intangible assets and determined that their carrying values
as of December 31, 2001 are recoverable in future periods.


(h)	Goodwill and Other Intangibles

     Goodwill represents the excess of purchase price over fair value of net
assets acquired in the Signal Stream Technologies, Inc. and Interpra Medical
Imaging Network, Ltd. acquisitions.  Other intangibles include customer lists,
assembled workforces and intellectual property from these acquisitions.
Goodwill is amortized on a straight-line basis over ten years, the expected
period to be benefited.  Other intangibles are amortized on a straight-line
basis over seven years.

     The Company has assessed the recoverability of intangible assets by
determining whether the amortization of the balance over its remaining life
can be recovered through undiscounted future operating cash flows of the
acquired operation.  The amount of impairment, if any, was measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds.  The assessment of
recoverability will be impacted if estimated future operating cash flows are
not achieved.

(i)	Income Taxes

     Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, operating losses and tax credit carryforwards.  Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled.  The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.

(j)	Stock Option Plan

     The Company applies the provisions of the Statement of Financial
Accounting Standard No. 123 (SFAS 123), Accounting for Stock-Based
Compensation, which requires entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provision of APB Opinion No. 25 and provide pro forma disclosures as if the
fair-value-based method defined in SFAS No. 123 had been applied.  The
Company has elected to continue to apply the provisions of APB Opinion No.
25 and provide the pro forma disclosure provisions required by SFAS No. 123.


<PAGE>  24


(k)	Revenue Recognition

     For software arrangements, the Company recognizes revenue according to
the American Institute of Certified Public Accountants Statement of Position
97-2, Software Revenue Recognition and Related Amendments and Statement of
Position 81-1, Accounting for Performance on Construction-Type and Certain
Production-Type Contracts.  Revenues from computer hardware and computer
software packages are recognized upon shipment.   No significant obligations
exist with regard to delivery or customer acceptance following shipment.
Revenues from software usage licensing, software maintenance and service
contracts are deferred and recognized ratably over the contract period, which
is generally one year.  Revenues from sales of workflow systems sold directly
to healthcare institutions under contract are recognized on a percentage of
completion basis as outputs are delivered.

(l)	Use of Estimates

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 revenues
and expenses during the reporting period.  Actual results could differ from
those estimates.

(m)	Income (Loss) Per Share

     Basic earnings per share is computed by dividing income available to
common shareholders by the weighted average number of shares outstanding.
Diluted earnings per share reflects the potential dilution that could occur
based on the effect of the conversion of outstanding convertible preferred
shares and the exercise of stock options and warrants with an exercise price
of less than the average market price of the Company's common stock.  The
following table sets forth the computation of basic and diluted earnings per
share for the years ended December 31, 2001, 2000 and 1999.


<TABLE>
<CAPTION>
                                                                  Years Ended December 31,
				                         -----------------------------------------
					                     2001           2000           1999
				                         ------------   ------------  ------------
<S>							 <C>		<C>	      <C>
Numerator:
Net income (loss)....................................... $  1,270,758   $ (5,707,394) $ (2,898,821)
Accretion of put options................................     (140,280)      (140,280)      (35,070)
Preferred stock dividends...............................      (44,236)        ------        ------
							 ------------	------------  ------------
Numerator for net income (loss) per share - basic....... $  1,086,242   $ (5,847,674) $ (2,933,891)
							 ------------	------------  ------------

Adjustment for effect of assumed conversion of
 preferred stock........................................       44,236         ------        ------
							 ------------   ------------  ------------
Numerator for net income (loss) per share - diluted..... $  1,130,478   $ (5,847,674) $ (2,933,891)
							 ------------	------------  ------------

Denominator:
Weighted average number shares of common stock
 outstanding............................................    6,178,821      5,792,945     5,778,225
							 ------------	------------  ------------
Effect of exchangeable shares...........................      405,181         ------        ------
Effect of convertible preferred stock...................      634,203         ------        ------
Effect of stock options.................................      312,373         ------        ------
Effect of warrants......................................      185,334         ------        ------
 							 ------------	------------  ------------
Denominator for net income (loss) per share - diluted...    7,310,731	   5,792,945     5,778,225
							 ------------	------------  ------------
Net income (loss) per share - basic..................... $       0.18   $     ( 1.01) $      (0.51)
Net income (loss) per share - diluted................... $       0.15   $     ( 1.01) $      (0.51)
</TABLE>


<PAGE>  25


     During the year ended December 31, 2001, the exchangeable share rights
of the Company's common stock were not included in the computation of basic
and diluted income per share because their effect was anti-dilutive.

     During the year ended December 31, 2001, options to purchase 648,594
shares of the Company's common stock at prices ranging from $2.00 to $6.00,
respectively, were not included in the computation of diluted income per share
because the exercise prices for these options were greater than the average
market price of the common stock during such period, and therefore their effect
was anti-dilutive.

     The following potentially dilutive common stock equivalent securities,
including securities considered in the calculation of diluted earnings per
share, were outstanding at December 31, 2001, 2000 and 1999.


					   2001	      2000	 1999
					---------  ---------  ---------
	Stock options.................	1,844,274  1,806,663  1,409,326
	Exchangeable shares...........	  384,779    415,875    416,827
	Warrants......................	1,024,610    596,618    190,000
	Preferred stock...............	  634,203      -----      -----
					---------  ---------  ---------
					3,887,866  2,819,156  2,016,153


(n)	Reclassifications

     Where appropriate, certain items relating to the prior years have been
reclassified to conform to the presentation in the current year.


(o)  	Foreign Currency Translation

     The Company uses the U.S. dollar for financial reporting purposes as
substantially all of the Company's billings are in U.S. dollars.  The
balance sheets of the Company's foreign subsidiaries are translated into
U.S. dollars using the balance sheet date exchange rate, and revenues and
expenses are translated using the average exchange rate.  The resulting
translation gains and losses are recorded as a component of stockholders'
equity.  Foreign currency transaction gains and losses are reflected in the
consolidated statements of income.



(2)  ACQUISITIONS

     On September 3, 1999, the Company acquired 100% of the voting common
stock of Interpra Medical Imaging Network, Ltd. of Canada.  In consideration,
the Company granted certain rights to the holders of 420,000 Interpra
exchangeable shares.  Each holder of Interpra exchangeable shares has the right,
at any time within five years of the acquisition date, to exchange their shares
for the Company's shares on a one for one basis, subject to adjustment
provisions.  During the period from August 31, 2004 until September 30, 2004,
each exchangeable share holder may require the Company to purchase the
exchangeable shares for $4.50 per share.  At September 2004, any remaining
exchangeable shares will automatically be converted to common stock of the
Company.

     The acquisition of Interpra was accounted for under the purchase method
of accounting and accordingly, the assets have been recorded at their estimated
fair values at the date of acquisition based on a purchase price of $1,977,000.
Acquired technology related to this transaction was $140,000 and is being
amortized over a period of five years.  Goodwill and other intangibles related
to this transaction were $412,500, of which $237,500 is attributable to an
acquired customer base and assembled workforce, and is being amortized over
a period of seven years.  The Company also recorded a one-time charge of
$1,200,000 for the in-process technology of Interpra that had not reached
technological feasibility at the date of the acquisition and write-down of
$441,000 of software capitalized by the Company that was replaced by
technologies acquired.

     In December 2000, the Company reduced other intangibles related to the
acquisition by $172,274 to reflect the value which is recoverable in future
periods.  The resulting expense recorded by the Company, net of accumulated
amortization, was $142,399.


<PAGE>  26


     The pro forma unaudited results of operations had the acquisition
occurred at the beginning of 1999 is as follows:

						  Year Ended
						 December 31,
						     1999
					        --------------
				   (in thousands, except for per share data)

		Net sales.....................	$      13,313
		Net loss......................	       (3,728)
		Basic loss per share..........	$       (0.65)



(3)  INDEBTEDNESS

(a)	Line of Credit

     In November 2001, the Company re-negotiated the revolving credit
agreement and obtained more favorable advance ratios increasing the borrowing
base to  25% of inventory, 75% of qualified domestic accounts receivable and
65% of qualified foreign accounts receivable effective January 2, 2002.
The revolving credit agreement matures in April 2003.

     In May 2000, the Company entered into a $3,000,000 revolving credit
agreement with a bank. At December 31, 2001, the loan's interest rate was at
the bank's prime rate of 4.75% and was collateralized by assets of the Company.
Availability under the revolving credit agreement was subject to a borrowing
base consisting of 25% of inventory, 70% of qualified domestic accounts
receivable and 60% of qualified foreign accounts receivable.  The calculated
borrowing base was $2,334,000 and no amounts were outstanding. The Company
incurred interest expense of  $87,000 and $43,000 in 2001 and 2000,
respectively.


(b)	Note Payable to Investor

     In September 1999, the Company assumed a $300,000 Canadian dollar
five-year non-interest bearing note carried on the books of Interpra.  At
December 31, 2001 the U.S. dollar equivalents of the note was approximately
$188,000.  The note was discounted to reflect the current interest rate of
8% at the time the note was assumed.  The discount is being amortized over a
five-year period.  The Company recognized interest expense related to this
note of approximately $19,000 and $12,000 in 2001 and 2000, respectively.
The note is due and payable in August 2004.


(4)  EMPLOYEE BENEFIT PLAN

     The Company maintains a defined contribution retirement plan (401(k))
covering employees who meet the minimum service requirements and have elected
to participate.  Company contributions, which are at the discretion of the
Board of Directors, totaled $70,000, $78,000 and $67,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.


<PAGE>  27


(5)  INCOME TAXES

     The provision for income tax consists of the following for the years
ended December 31, 2001, 2000 and 1999.

				    2001        2000	   1999
				----------  ----------  ----------

	Current:
		Federal........	$  18,000   $   ------  $   ------
      		State..........	    2,000	 2,000	    16,000
		Foreign........	   67,000 	61,000     157,000
				----------  ----------  ----------
         Total Current.........	   87,000       63,000     173,000

	Deferred:
		Federal........	   ------       ------      ------
		State..........	   ------	------	    ------
				----------  ----------  ----------
         Total Deferred........	   ------	------	    ------


         TOTAL PROVISION.......	$  87,000   $   63,000  $  173,000


     Actual income taxes vary from the expected income taxes (computed by
applying the statutory income tax rate of 34% to income (loss) before income
taxes as a result of the following:

						 YEARS ENDED DECEMBER 31,
				       ----------------------------------------
				           2001          2000	        1999
 				       ------------  ------------  ------------

Expected tax expense (benefit)........ $    462,000  $ (1,919,000) $   (927,000)
Total Increase (decrease) in income
  taxes resulting from:
 Nondeductible amortization and
   acquired in-process technology....        32,000       109,000       419,000
 Change in the valuation allowance
   allocated to income tax expense...	   (633,000)	1,815,000	612,000
 Research and experimentation credit.       156,000 	 (122,000)     (123,000)
 Nondeductible acquisition costs	     ------ 	   ------        60,000
 Nondeductible expenses..............	    (69,000)	  300,000	109,000
 Foreign tax credits.................	    (57,000)	   ------      (157,000)
 State and local income taxes, net of
  federal income tax benefits........         1,000	    1,000	 11,000
 Foreign withholding taxes...........	     67,000	   61,000       157,000
 Other...............................	    (10,000)	 (182,000)	 12,000
					------------  ------------  ------------
Actual tax expense...................	$    87,000   $    63,000   $   173,000


<PAGE>  28


     The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 2001 and 2000 are presented below:

                                                             DECEMBER 31,
						    --------------------------
						         2001	        2000
						    ------------  ------------

Deferred tax assets:
 Accounts receivable, principally due to allowance
  for doubtful accounts............................ $     59,000  $     27,000
 Accrued wages.....................................	 193,000       182,000
 Research and experimentation credit carryforwards.    1,674,000     1,693,000
 Other credit carryforwards........................	 367,000       291,000
 Net operating loss carryforwards..................    2,054,000     2,673,000
 Foreign net operating loss carryforwards..........    1,158,000     1,031,000
 Other.............................................       89,000       227,000
						    ------------  ------------
Total gross deferred tax assets....................    5,594,000     6,124,000
 Less valuation allowance..........................   (3,929,000)   (4,562,000)
						    ------------  ------------
 Net deferred tax asset............................    1,665,000     1,562,000

Deferred tax liabilities:
 Property and equipment, principally due to
   differences in depreciation.....................	 (50,000)     (141,000)
 Software development costs........................   (1,606,000)   (1,409,000)
 Customer list.....................................	  (9,000)      (12,000)
						    ------------  ------------
 Total gross deferred liabilities..................   (1,665,000)   (1,562,000)
						    ------------  ------------
Net deferred taxes................................. $     ------  $     ------
						    ============  ============


     The net change in the valuation allowance for the years ended December 31,
2001, 2000 and 1999 was a decrease of $633,000 and an increase of  $2,304,000,
and $1,465,000, respectively.  In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.  The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment.  Based upon the level of historical taxable income, management
believes it is more likely than not the Company will realize the benefits of
these deductible differences net of the existing valuation allowances.

     At December 31, 2001, the Company had federal net operating loss
carryforwards and research credit carryforwards approximating $5,184,000 and
$1,232,000, respectively, state net operating loss carryforwards and research
credit carryforwards of $5,524,000 and $442,000, respectively, and foreign
federal and provincial net operating loss carryforwards of $2,520,000 and
$2,737,000, respectively.  These losses and credits are available to offset
future taxable income and tax, if any.  The federal net operating loss
carryforwards and research credit carryforwards expire in varying amounts
beginning in 2009 and 2006, respectively, and continuing through 2020 and 2021
respectively.  The state net operating losses and research credits expire in
varying amounts beginning in 2012 and continuing through 2015.  The foreign
federal and provincial net opertaing loss carryforwards expire in varying
amounts beginning in 2004 and continuing through 2008.  A portion of the
income tax loss carryforwards and credits are subject to certain limitations,
which could impair the Company's ability to utilize the benefits of these
losses and credits in the future.  In addition, if certain substantial
changes in the Company's ownership should occur, the tax loss and tax
credit carryforwards may be further limited.


<PAGE>  29


(6)  LEASES

     The Company is obligated under various capital leases for computer
equipment that expire at various dates during the next three years.  The gross
amount of computer equipment under capitalized leases and related depreciation
in the following periods was: at December 31, 2001, $102,000 and accumulated
depreciation $29,000; at December 31, 2000 equipment $98,000 and accumulated
depreciation $22,000; and at December 31, 1999 equipment $59,000 and
accumulated depreciation $21,000.

     The Company has a noncancelable operating lease for its main office
facility that expires in June 2005.  Total rent expense associated with this
lease for the years ended December 31, 2001, 2000 and 1999 was approximately
$334,000, $247,000 and $215,000, respectively.  Future minimum lease payments
under noncancelable operating leases (with initial or remaining lease terms in
excess of one year) and future minimum capital lease payment as of December
31, 2000, are:

						  OPERATING       CAPITAL
						------------   ------------
	2002................................... $    412,401   $     28,145
	2003...................................      377,299          7,593
	2004...................................	     371,727         ------
	2005...................................	     170,958	     ------
	2006 thereafter........................	      ------         ------
						------------   ------------
	Total minimum lease payments...........	$  1,332,385   $     35,738
						============   ============
	Less amount representing interest......	       		      5,223
							       ------------
	Present value of net minimum capital
	 lease payments........................	      		     30,515
	Less current installments of
	 obligations under capital leases......	      		     23,384
							       ------------
	Obligations under capital leases,
	 excluding current installments........		       $      7,131
          						       ============

     In February 2002, the Company entered into a lease amendment for its main
office facility in which it surrendered a portion of the premises.  As a
result, the aggregate minimum lease payment commitment decreased $240,000.


(7)  SHAREHOLDERS' EQUITY

(a)	Common stock

     In October 2001, the Company received subscriptions for $1,183,651, net
of selling expenses of $66,351, as consideration for 806,452 shares of common
stock.  In conjunction with the sale of common stock, the Company also issued
warrants to purchase 403,224 shares of common stock.  The warrants are
exercisable six months from the date of issuance for shares of the Company's
common stock at a price of $2.00 per share and have a term of four years.  The
Company may demand exercise of the warrants within 30 days after notice when
the closing bid price of its common stock is at least $4.00 for 30 consecutive
trading days and the underlying shares of common stock have been registered
under federal securities law.

     In October and July 2001, the Company issued an aggregate of 30,171 shares
of common stock to Series A Preferred Stock shareholders as payment for
dividends.

     In September and July 2001, the Company issued an aggregate of 20,163
shares of common stock to non-employee directors as consideration for meeting
fees.


<PAGE>  30


     In March 2001, the Company issued 23,459 shares of common stock to one
individual, which were subscribed for in 2000, in consideration for services
rendered in 2000.

     In February 2001, 30,473 shares of common stock were sold to William C.
Mortimore, Chairman and Chief Strategy Officer, in connection with his
employment agreement.


(b)	Preferred Stock

     In September 1999, the Company issued one share of preferred stock to its
transfer agent, which serves as a trustee in voting matters on behalf of the
exchangeable shareholders of the Company's Canadian subsidiary.


(c)	Series A Preferred Stock

     In February 2001, the Company issued 24,000 shares of Series A Preferred
Stock to one individual and one director in consideration for $9,000 in cash
and $15,000 in services rendered.  In conjunction with the issuance of Series
A Preferred Stock, the Company also issued warrants to purchase 12,000 shares
of common stock.  The warrants are immediately exercisable for shares of the
Company's common stock at a price of $1.00 per share and have a term of the
years. The Company may demand exercise of the warrants within 30 days after
notice when the closing bid price of its common stock is at least $4.00 for 30
consecutive trading days and the underlying shares of common stock have been
registered under federal securities law.

     In December 2000, the Company received subscriptions from two individuals
for a total of $525,000 as consideration for 613,236 shares of Series A
Preferred Stock.  In conjunction with the sale of the Series A Preferred Stock,
the Company also issued warrants to purchase 306,618 shares of common stock.
The warrants are immediately exercisable for shares of the Company's common
stock at a price of $1.00 per share and have a term of three years.  The
Company may demand exercise of the warrants within 30 days after notice when
the closing bid price of its common stock is at least $4.00 for 30 consecutive
trading days and the underlying shares of common stock have been registered
under federal securities law.

     In November 2000, the Company amended its Articles to designate
1,000,000 shares of its authorized preferred shares as Series A Preferred
Stock.  The Series A Preferred Stock is subject to an 8% cumulative cash
dividend and has preference rights in the event of a liquidation.  Each share
of Series A Preferred Stock may be converted into one share of the Company's
common stock at any time.  The Company may demand conversion of the Series A
Preferred Stock to shares of common stock when the closing bid price of its
common stock is at least $4.00 for 30 consecutive trading days and the
underlying shares of common stock have been registered under federal securities
law.

(d)	Stock Option Plan

     The Company maintains a stock option plan for employees of Merge which
provides for the grant of a maximum of 2,015,826 shares of common stock.
Under this plan, options have an exercise price equal to the fair market
value of the stock at the date of grant.  The majority of the options vested
25% immediately with the remaining vesting over a three-year period.  The
options granted under this plan expire six years from the date of grant.

     In 1998, the Company established a stock option plan for non-employee
directors of Merge which provided for the granting of a maximum of 100,000
options to purchase common stock.  In May 2000, shareholders of the Company
voted to increase the number of shares of common stock subject to the director
stock option plan to 300,000. Under this plan, options have an exercise price
equal to the fair market value of the stock at the date of grant.  The majority
of options granted under this plan vest as to one third of such shares on each
of the first, second and third anniversaries of the date of issuance.  The
options granted under this plan expire ten years and one day from the date
of grant.


<PAGE>  31


     The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:


		     Expected
	 	      Option
	  Year of      Life	  Expected   Dividend	  Risk-free
	   Grant    (in years)   Volatility    Yield	Interest Rate
	----------  ----------  ----------  ----------  -------------
	   1999	      6 - 10	    50%		0%	5.83% - 6.49%
	   2000	      6 - 10     50% - 70%      0%      5.73% - 6.50%
	   2001	      6 - 10 	    50%  	0%	3.90% - 5.41%


     The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans.  All stock options under the plans have been granted
at exercise prices of not less than the market value at the date of the grant.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net loss
would have been increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
							    2001          2000	        1999
							------------  ------------  ------------
<S>							<C>	      <C>	    <C>
Net income (loss) available to common shareholders
  As reported.......................................... $1,086,242    $(5,847,674)  $(2,933,821)
  Pro forma............................................    801,689     (6,217,850)   (3,237,034)

Net income (loss) per share
  Basic as reported.................................... $     0.18    $     (1.01)  $     (0.51)
  Diluted as reported..................................       0.15          (1.01)        (0.51)

  Basic pro forma......................................	$     0.13    $     (1.07)  $     (0.56)
  Diluted pro forma....................................       0.11          (1.07)        (0.56)
</TABLE>



<PAGE>  32


A summary of stock options is as follows:

<TABLE>
<CAPTION>
										   WEIGHTED
								  WEIGHTED	   AVERAGE
								  AVERAGE	  FAIR VALUE
								  EXERCISE	  OF OPTIONS
						   NUMBER	    PRICE	   GRANTED
						------------	------------	------------
<S>						<C>		<C>		<C>
Options outstanding, December 31, 1998.........	     968,806    $       2.80
Options granted................................      493,000            1.25 	        0.69
Options forfeited..............................      (52,480)	        4.08
						------------	------------
Options outstanding, December 31, 1999.........    1,409,326	$       2.21

Options granted................................	     589,028	        1.78	        1.02
Options exercised..............................	     (23,867)	        1.48
Options forfeited..............................	    (167,824)	        1.88
						------------	------------
Options outstanding, December 31, 2000.........	   1,806,663	$       2.09

Options granted................................	     185,000		1.60		0.89
Options exercised..............................	     (23,422)		1.29
Options forfeited..............................	    (123,967)		2.63
						------------	------------
Options outstanding, December 31, 2001.........	   1,844,274    $       2.01
						============	============
Options exercisable, December 31, 2001.........	   1,220,876    $       2.19
						============	============
</TABLE>


<PAGE>  33


The following table summarizes information about stock options outstanding at
December 31, 2001:

<TABLE>
<CAPTION>

	            OPTIONS OUTSTANDING				    OPTIONS EXERCISABLE
----------------------------------------------------------	---------------------------
				 WEIGHTED
				 AVERAGE	 WEIGHTED			  WEIGHTED
 RANGE OF	  NUMBER	 REMAINING	 AVERAGE	  NUMBER	  AVERAGE
 EXERCISE	    OF		CONTRACTUAL	 EXERCISE	   oF		  EXERCISE
  PRICES	  SHARES	   LIFE		  PRICE		  SHARES	   PRICE
----------	----------	----------	----------	----------	----------
<S>		<C>		<C>		<C>		<C>		<C>
$1.00		   247,750	      4.98	      1.00	    43,375	      1.00
 1.03		   147,500	      3.87	      1.03	   112,500	      1.03
 1.06		    33,000	      3.82	      1.06	    16,500	      1.06
 1.40		    30,000	      9.39	      1.40	    30,000	      1.40
 1.47		   153,500	      3.53	      1.47	   118,936	      1.47
 1.48		   571,430	      0.79	     $1.48 	   571,430	     $1.48
 1.51		    12,500	      5.75	      1.51    	     -----	     -----
 2.00		   362,278	      4.67	      2.00	    90,569	      2.00
 2.13		    22,500	      8.10	      2.13	    22,500	      2.13
 2.19		     2,500	      7.90	      2.19	     2,500	      2.19
 2.75		    42,500	      5.72	      2.75	    23,750	      2.75
 4.00		    30,000	      5.92	      4.00	     -----	     -----
 6.00		   188,816	      2.27	      6.00	   188,816	      6.00
		----------	----------	----------	----------	----------
		 1,844,274	      3.26  	     $2.01	 1,220,876	     $2.19
</TABLE>


(e)	Stock Purchase Plan

     In July 2000, the Company instituted an employee stock purchase plan which
allows employees to purchase stock at 85% of the lesser of the stock price at
the start of the plan year or the end of each calendar quarter.  Contributions
to the employee stock purchase plan are made through payroll deductions.

     Employees contributed $70,365 and $31,311 during 2001 and 2000,
respectively, to purchase shares of the Company's common stock under the
employee stock purchase plan.

(f)	Warrants

     In October 2001, in conjunction with the sale of common stock, the
Company issued warrants to purchase 403,225 shares of common stock at $2.00 per
share. The warrants will expire in October 2005. The grant-date fair values of
warrants calculated using the Black Scholes model ranged from $.84 to $1.87 per
warrant.

     In January and February 2001, the Company issued warrants to purchase
25,267 shares of common stock at $1.00 per share to two employees in
conjunction with a bank guarantee. The warrants were valued using the Black-
Scholes option-pricing model with the following assumptions:  expected life
of 3 years, expected volatility of 50%, dividend yield of 0% and a risk free
interest rate of 5.77% and 5.90%.  The warrants will expire in January and
February 2004. The grant-date fair value of warrants calculated using the Black
Scholes model was $0.35 and $0.44 per warrant.

     In February 2001, the Company issued warrants to purchase 12,000 shares of
common stock at $1.00 per share to one individual and one director in
conjunction with the sale of Series A Preferred Stock. The warrants were valued
using the Black-Scholes option-pricing model with the following assumptions:
expected life of 3 years, expected volatility of 50%, dividend yield of 0% and
a risk free interest rate of 4.71% and 4.72%.  The warrants will expire in
February 2004. The grant-date fair value of warrants calculated using the Black
Scholes model was $0.38 and $0.22 per warrant.


<PAGE>  34


     In December 2000, in conjunction with the sale of Series A Preferred
Stock, the Company issued warrants to purchase 306,618 shares of common stock
at $1.00 per share.  The warrants were valued using the Black-Scholes
option-pricing model with the following assumptions:  expected life of 3
years, expected volatility of 50%, dividend yield of 0% and a risk free
interest rate of 5.04% and 5.11%.  The warrants will expire in December 2003.
The grant-date fair value of warrants calculated using the Black Scholes model
was $0.18 per warrant.

     In October 2000, the Company issued to one person warrants to purchase
100,000 shares of common stock at $1.156 per share in connection with a
financial advisory agreement.  The warrants were valued using the Black-Scholes
option-pricing model with the following assumptions:  expected life of 5 years,
expected volatility of 50%, dividend yield of 0% and a risk free interest rate
of 5.66%.  The warrants will expire in October 2005.  The grant-date fair value
of options calculated using the Black-Scholes model was $0.57 per warrant.

     At December 31, 2001, the following warrants to purchase the Company's
common stock were outstanding.  All of the warrants issued prior to October
2001 were exercisable.  The warrants issued in October 2001 will be exercisable
in April 2002.
				          SHARES
	    ISSUE        EXPIRATION	  UNDER	       EXERCISE
	    DATE	    DATE	 WARRANTS        PRICE
	--------------  -------------  ------------  ------------
	January, 1998 	January, 2003 	  190,000    $    7.800
	October, 2000   October, 2005	  100,000	  1.156
	December, 2000  December, 2003	  294,118	  1.000
	January, 2001	January, 2004	   13,600	  1.000
	February, 2001	February, 2004	   23,667	  1.000
	October, 2001	October, 2005	  403,225	  2.000
				       ------------
			TOTAL		1,024,610


(g)	Exchange Rights

     As part of its acquisition of Interpra, the Company granted rights for
the issuance of 420,000 shares of common stock to holders of Interpra
exchangeable shares.  Exchangeable shareholders also have the right to
require the Company to purchase the exchangeable shares at $4.50 per share
from August 31, 2004 through September 30, 2004.



(8)  GEOGRAPHIC, BUSINESS AND CREDIT CONCENTRATION

     At December 2001, the Company had a long term accounts receivable balance
from one customer in the amount of $193,475.  Monthly payments due over 63
months to commence in March 2002.  The receivable bears interest at a rate
of 6.3%.

     Foreign sales, denominated in U.S. dollars, accounted for approximately
36%, 41%, and 39% of the Company's net sales for the years ended December 31,
2001, 2000, and 1999, respectively.  For the years ended December 31, 2001,
2000 and 1999, sales in foreign currency represented 5%, 4%, and 7%,
respectively, of the Company's net sales.

     The Company's  European sales office is in Nuenen, the Netherlands.
Revenues are attributed to countries based on the originating office of the
related orders.  Net sales for the Netherlands sales office were approximately
$4,440,000, $4,139,000 and $3,800,000 in the years ended December 31, 2001,
2000 and 1999, respectively.  The value of long-lived assets in service at the
Nuenen sales office was not material in 2001 and 2000.

     The Company had one customer and two distributors that comprised 16%, 13%
and 10% of net sales for the year ended December 31, 2001.  For the year ended
December 31, 2000 the Company had one distributor that


<PAGE>  35


comprised for 14% and one distributor and one customer that comprised for 12%
each of net sales.  Two customers represented for 18% and 16% of accounts
receivable at December 31, 2001.  For the year ended December 31, 2000, accounts
receivable from two distributors and two customers accounted for 14%, 13%, 13%
and 12%, respectively, of accounts receivable.

     In October 2000, the Company established a sales office in Tokyo, Japan.
Orders from customers in Japan are processed in the U.S. and are considered
U.S. based sales.  The value of long-lived assets in service at the Tokyo
office was not material in 2001 and 2000.



(9)  RELATED PARTY TRANSACTIONS

     In November 2001, the Company forgave $25,000 of a $50,000 note receivable
for a stock subscription from Richard A. Linden, President and CEO.  The loan
forgiveness occurred pursuant to Mr. Linden's employment contract.

     In March 2001, the Company entered into a consulting arrangement with a
director who received $35,000 in compensation for consulting services provided
in 2001.  The consulting services consist of marketing, strategic planning and
investor relations.  The consulting agreement ended in December 2001.

     In February 2001, the Company sold 30,473 shares of non-registered
common stock to William C. Mortimore, Chairman and Chief Strategy Officer, in
connection with his employment agreement.  In consideration for these shares,
Mr. Mortimore paid $10,000 in cash and issued a promissory note in the amount
of $10,000.  The promissory note is a full recourse note with a term of six
years.  Interest is payable monthly at 5.07% per annum.

     In December 2000, the Company sold 145,350 shares of non-registered
common stock to Richard A. Linden, President and Chief Executive Officer,
in connection with his employment agreement.  In consideration for these
shares, Mr. Linden paid $50,000 cash and issued a promissory note in the
amount of $50,000.  The promissory note is a full recourse note with a
term of six years.  Interest is payable monthly at 5.87 per annum.

     In January 2000, the Company entered into a one-year consulting agreement
with two of its directors.  In consideration for their services, the Company
issued options to purchase 30,000 shares of common stock, 22,500 of which have
an exercise price of $2.125 per share and 7,500 of which have an exercise price
of $2.75 per share.  One of the directors also received a monthly fee of
$2,500 for 12 months.



Item 8.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
	FINANCIAL DISCLOSURE

	None.


<PAGE>  36


                                     PART III


     Certain information required by Part III is omitted from this Report
because the Registrant will file its definitive proxy statement pursuant to
Section 240.14a-101 (the "Proxy Statement") not later than 120 days after the
end of the year covered by this Report, and certain information included
therein is incorporated herein by reference.


Item 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
	 COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

     The information required by this item is incorporated by reference to the
information set forth under the caption "Management" in the Company's Proxy
Statement for the 2002 Annual Meeting of Stockholders.


Item 10.  EXECUTIVE COMPENSATION

     The information required by this item is incorporated by reference to the
information set forth under the caption "Management - Executive Compensation"
in the Company's Proxy Statement for the 2002 Annual Meeting of Stockholders.


Item 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is incorporated by reference to the
information set forth under the caption "Management - Executive Compensation"
in the Company's Proxy Statement for the 2002 Annual Meeting of Stockholders.


Item 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is incorporated by reference to
the information set forth under the caption "Directors and Executive Officers"
in the Company's Proxy Statement for the 2002 Annual Meeting of Stockholders.


<PAGE>  37


Item 13.  EXHIBITS AND REPORTS ON FORM 8K

(a)  Exhibit No.
----------------

	3.1	Articles of Incorporation of Registrant (2), Articles of
		Amendment as of June 16, 1998 (3), Articles of Amendment as of
		September 1, 1999 (6), and Articles of Amendment as of November
		29, 2000 (6).

	3.2	Amended and Restated By-Laws of Registrant as of February 3,
		1998 (1)

	10.2	Employment Agreement entered into as of November 29, 2001
		between Registrant and Richard A. Linden

	10.3	Employment Agreement entered into as of December 21, 2001
		between Registrant and William C. Mortimore

	10.5	1996 Stock Option Plan for Employees of Registrant dated
		May 13, 1996 (2)

	10.6	Office Lease for West Allis Center dated May 24, 1996 between
		Registrant and Whitnall Summit Company, LLC, Supplemental
		Office Lease dated July 3, 1997 (1), Supplemental Office Space
		Lease dated January 30, 1999 (2), Supplemental Office Space
		Lease for 1126 West Allis Operating Associates Limited
		Partnership dated April 11, 2000 (4) and Second Amendment to
		Lease dated January 11, 2002 between Registrant and 1126 West
		Allis Operating Associates, Limited Partnership

	10.8	1999 Stock Option Plan For Directors (1)

	10.9	Merge Technologies Incorporated 2000 Employee Stock Purchase
		Plan (5)

- - - - - - - - - - - - - - - -

	  (1)	Incorporated by reference to Annual Report on Form 10-KSB for
		the fiscal year ended December 31, 1997.

	  (2)	Incorporated by reference to Registration Statement on Form
		SB-2 (No. 333-39111) effective January 29, 1998.

	  (3)	Incorporated by reference to Quarterly Report on Form 10-QSB
		for the three months ended March 31, 1999.

	  (4)	Incorporated by reference to Quarterly Report on Form 10-QSB
		for the three months ended March 31, 2000.

	  (5)	Incorporated by reference to Proxy Statement for 2000 Annual
		Mailing of Shareholders dated May 9, 2000.

	  (6)	Incorporated by reference to Annual Report on Form 10-KSB for
		the fiscal year ended December 31, 2000.


<PAGE>  38



                                    SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                    	REGISTRANT
                          		MERGE TECHNOLOGIES INCORPORATED


Date:   March 29, 2002			By:  /s/
					Richard A. Linden
					President and Chief Executive Officer

Date:   March 29, 2002			By:  /s/
					Colleen M. Doan
					Chief Financial Officer, Treasurer and
					Secretary

In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.


Date:   March 29, 2002			By:  /s/
					William C. Mortimore
					Director and Chairman

Date:   March 29, 2002			By:  /s/
					Robert A. Barish, M.D.
					Director

Date:   March 29, 2002			By:  /s/
					Michael D. Dunham
					Director

Date:   March 29, 2002			By:  /s/
					Robert T. Geras
					Director

Date:   March 29, 2002			By:  /s/
					Anna M. Hajek
					Director

Date:   March 29, 2002			By:  /s/
					John D. Halamka, M.D.
					Director

Date:   March 29, 2002			By:  /s/
					Hymie S. Negin
					Director


<PAGE>  39


EXHIBIT 10.2

                                EMPLOYMENT AGREEMENT

	THIS AGREEMENT ("Agreement") is made and entered into as of November
29, 2001, by and between RICHARD A. LINDEN (the "Executive") and MERGE
TECHNOLOGIES INCORPORATED, a Wisconsin corporation (the "Company").  The terms
of this Agreement shall supercede the terms of the Employment Agreement between
the Executive and the Company dated September 1, 2000.

                                  R E C I T A L S:

	A.	The Company is engaged in the provision of medical diagnostic
imaging connectivity hardware, software and consulting solutions for healthcare
facilities.  The business in which the Company is engaged in time-to-time
during the term of this Agreement, inclusive of those new lines of business,
if any, in which the Company is working toward entering from time-to-time are
hereinafter collectively referred to as the "Business"; and

	B.	The Company desires to employ the Executive and the Executive
desires to accept such employment;

	NOW THEREFORE, in consideration of the promises, mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Executive do hereby agree as follows:

	1.	Employment and Duties. On the terms and subject to the
conditions set forth in this Agreement, the Company agrees to employ the
Executive as the President and Chief Executive Officer of the Company to
perform such duties as are consistent with such position(s) as may be assigned,
from time to time, by the Board of Directors of the Company (the "Board") and
to render such additional services and discharge such other responsibilities
as the Board may, from time to time, stipulate.

	2.	Performance. The Executive accepts the employment described in
Section 1 of this Agreement and agrees to devote substantially all of his
working time and efforts to the faithful and diligent performance of the
services described herein, including the performance of such other services
and responsibilities as the Board may, from time to time, stipulate.

	3.	Term. The term of employment commenced on September 1, 2000 as
was described in the initial Employment Agreement letter dated September 1,
2000 (the "Commencement Date").  The term of employment shall remain in effect
until terminated by either Executive or the Company by giving thirty (30) days
written notice of termination.  The period of time in which Executive is
employed shall constitute the "Employment Period," and each calendar year or
portion of a calendar year during the Employment Period is hereinafter
sometimes referred to as a "Year."  The parties agree that this Agreement may
be terminated subject to the aforesaid notice requirement by either party
without cause or good reason at any time, and if by mutual consent without the
obligation to pay any severance.  The Board of Directors will review the
Employment Agreement at its sole discretion, but no less frequently than every
three (3) years subsequent to the date of this agreement.

	4.	Salary. For all the services to be rendered by the Executive
hereunder, the Company agrees to pay a salary at a rate of no less than sixteen
thousand six hundred sixty-six and 67/100 dollars ($16,666.67) per month
("Salary"), payable in the manner and frequency in which the Company's payroll
is customarily handled, and subject to annual review at the time annual reviews
of the salaries of other senior executive officers are to be conducted.

	5.	Bonus. The Executive shall be eligible for an annual
performance bonus of up to  thirty percent (30%)of Salary, dependent on
achievement of defined performance targets.  These targets will be mutually
agreed upon by the Executive and the Executive Committee of the Board within
sixty (60) days after commencement of each Year.  For each Year the annual
performance bonus is to be paid, it shall be paid within thirty (30) days of


<PAGE>  1


the completion of the year-end financial statements for that Year, but in no
event later than May 31 of the following year. The Board of Directors in its
sole discretion may change the bonus target annually and any dispute as to
whether Executive met the performance targets for a Year shall be determined
conclusively by the Executive Committee of the Board.

	6.	Paid Time Off. The Executive shall be entitled to paid time
off for vacation, illness, holiday and personal reasons in accordance with the
Company's paid time off policy at the rate offered to the most senior employees
of the Company with the longest tenure.

	7.	Relocation Allowance.  Should the Executive move his permanent
residence at least thirty-five (35) miles closer to the Company's offices in
Milwaukee, then the Company will reimburse Executive's relocation costs.

	8.	Insurance. During the Employment Period, the Company shall be
entitled to procure life insurance for the Company's sole benefit and at the
Company's sole cost and the Executive agrees to cooperate in obtaining such
insurance.

	9.	Disability Benefit. If at any time during the Employment Period
the Executive is unable to perform fully the material and substantial duties
hereunder by reason of illness, accident, or other disability (as confirmed by
competent medical evidence by a physician selected by the Executive Committee),
the Executive shall be entitled to receive periodic payments of Salary to which
he would otherwise be entitled pursuant to Section 4 of this Agreement by
reason of his employment for a period of ninety (90) days. Notwithstanding the
foregoing provision (i) the amounts payable to the Executive pursuant to this
Section 9 shall be reduced by any amounts received by the Executive with
respect to any such incapacity pursuant to any insurance policy, plan, or
other employee benefit provided to the Executive by the Company; and (ii) in
no event will the terms of this Agreement supersede any health or disability
benefit to which Executive is entitled under applicable state or federal law.

	10.	Executive Options.  On November 29, 2001 (the "Award Date") the
Executive shall be granted non-qualified options to acquire 30,000 shares of
the Company's common stock at the closing market price (the "Strike Price") at
the end of the day on the date of issuance.  These options will vest at the
rate of twenty-five percent (25%) of the total number of shares subject to
options (or seven thousand five hundred (7,500) shares) beginning one year
after the Award Date and thereafter an additional twenty-five percent (25%) of
such number of shares will vest on each of the second, third and fourth year
anniversaries of the Award Date. The options will be exercisable for a period
of six (6) years from the Award Date, subject to the terms of the Company's
Employee Stock Option Plan (the "Plan"). Additional options may be granted in
succeeding years, in the sole discretion of the Board.

	In the event Executive is terminated following the first anniversary of
the Commencement Date all of the options granted through the date of his
termination shall immediately vest, and in the sole discretion of the Board,
the Executive shall receive an amount equal to the difference between the
Purchase Price and the closing market price on the date of termination
multiplied by the number of options awarded adjusted by an amount necessary to
compensate Executive for the fact that such payment will be taxed as ordinary
income by the Internal Revenue Service and not as capital gains.  The Executive
shall receive the amount of money to be paid pursuant to the preceding sentence
within thirty (30) days of his termination.

	11.	Change in Control. In the event of a "change in control" of
the Company ("change in control" of the Company shall mean a change in the
ownership of fifty percent (50%) or more of the outstanding stock of the
Company in a single transaction or a change of fifty percent (50%) or more of
the members of the Board in a single transaction, other than pursuant to
nomination of a new slate of directors where there has been no material change
in beneficial ownership of the Company within 180 days preceding such
nomination), all of the options will immediately vest and become exercisable.
In the event of a change in control as (described above) and the Executive is:
(i) involuntarily terminated within 120 days following the change in control;
or (ii) voluntarily terminates his employment with the Company within 120 days,
following either:  (a) any reduction in Executive's responsibilities or
authority with respect to the Business; (b) a reduction in Executive's


<PAGE>  2


compensation package, including Salary, in effect immediately prior to the
change in control; or (c) the relocation of the Company's principal place of
business more than 30 miles further from Executive's residence as of the date
of this Agreement; then the Executive will be entitled to twelve (12) months
Salary as a change in control allowance, to be paid in a single payment within
thirty (30) days of the termination of Executive's employment.

	12.	 Share Purchase and Loan. During the first six (6) months
following the Commencement Date, the Executive was entitled to purchase up to
two hundred thousand dollars ($200,000) of shares of common stock from the
Company's treasury ("Shares") at the closing price(s) of the Company's common
stock on the date(s) of purchase. The Company agreed to loan up to fifty
percent (50%) of the funds invested to purchase the Shares (up to one hundred
thousand dollars ($100,000) as a full recourse loan bearing interest at the
Applicable Federal Rate at the time of the Loan and secured by a first security
interest in the Shares.  In addition to the Promissory Note (the form of which
is attached as Exhibit A) and Security Agreement, Executive was required to
deliver to the Company at the time of the Loan assignments separate from
certificate duly endorsed in blank by the Executive. Executive was required to
pay interest monthly. The principal amount of the loan must be repaid by
Executive upon the earliest to occur of (i) sale of any of the Shares, (ii)
termination of Executive's employment with the Company, or (iii) six (6) years
from the date the loan is issued.

	On December 21, 2000, the Executive borrowed $50,000 from the Company
to purchase shares of common stock.  He has complied with the provisions of
that loan as stated above.  Notwithstanding the above, the Board of Directors
in its sole discretion has agreed to forgive 1/2 of this loan ($25,000) on or
before January 1, 2002 and in the Fourth Quarter of fiscal year 2002 will
consider forgiving the second half of the loan ($25,000) on or before January
1, 2003.  Until the loan is either fully forgiven or paid in full by Mr.
Linden, he will continue to pay the interest on the reduced loan and the
clauses regarding the Promissory Note, Security Agreement and repayment of
the remaining principal amount of the loan will remain in effect.  The
forgiven amounts will be considered ordinary income to Mr. Linden on the
dates of forgiveness.

	13.	Other Benefits. Except as otherwise specifically provided
herein, during the Employment Period, the Executive shall be eligible for all
non-wage benefits the Company provides generally for its other salaried
employees.

	14.	Business Expenses.

	(a)	Reimbursement.  The Company shall reimburse the Executive for
the reasonable, ordinary, and necessary business expenses incurred by him in
connection with the performance of his duties hereunder, including, but not
limited to, ordinary and necessary travel expenses and entertainment expenses
and mobile phone expenses.

	(b)	Accounting.  The Executive shall provide the Company with an
accounting of his expenses, which accounting shall clearly reflect which
expenses are reimbursable by the Company. The Executive shall provide the
Company with such other supporting documentation and other substantiation of
reimbursable expenses as will conform to Internal Revenue Service or other
requirements. All such reimbursements shall be payable by the Company to the
Executive promptly after receipt by the Company of appropriate documentation
therefor.

	15.	Severance.  In the event that the Executive is terminated for
any reason other than gross negligence, commission of a felony in connection
with his employment or material violation of any established Company policies,
the Company shall pay the Executive, as a severance allowance, an amount equal
to six (6) months of his then current salary.    The amount of the severance
allowance provided for in this Section 15 shall be paid in a single lump sum
within thirty (30) days of the termination of the Executive's employment.
From time to time after November 29, 2001, the Executive's severance allowance
shall be subject to review and adjustment at the time reviews and adjustments
of the severance allowance for other senior executives of Company are to be
conducted.  Notwithstanding anything to the contrary contained herein, in the
event the Executive elects to receive (pursuant to the operation of Section 11)
twelve (12) months' Salary following a change in control event and Executive's
voluntary or involuntary termination, then Executive shall not be entitled to
any payment of severance pursuant to this Section 15.  In the event a change

<PAGE>  3


in control occurs and the Executive is not entitled to twelve (12) months'
Salary pursuant to Section 11, then the Executive shall continue to be entitled
to receive severance payments per this Section 15.

	16.	Surrender of Properties. Upon termination of the Executive's
employment with the Company, regardless of the cause therefor, the Executive
shall promptly surrender to the Company all property provided him by the
Company for use in relation to his employment, and, in addition, the Executive
shall surrender to the Company any and all confidential sales materials, lists
of customers and prospective customers, price lists, files, patent
applications, records, models, or other materials and information of or
pertaining to the Company or its customers or prospective customers or the
products, Business, and operations of the Company in his possession.

	17.	Inventions and Secrecy. Except as otherwise provided in this
Section 17, the Executive:

	(a)	shall hold in a fiduciary capacity for the benefit of the
Company all secret or confidential information, knowledge, or data of the
Company or its Business or production operations obtained by the Executive
during his employment by the Company, which shall not be generally known to
the public or recognized as standard practice (whether or not developed by the
Executive) and shall not, during his employment by the Company and after the
termination of such employment for any reason, communicate or divulge any such
information, knowledge or data to any person, firm or corporation other than
the Company or persons, firms or corporations designated by the Company;

	(b)	shall promptly disclose to the Company all inventions, ideas,
devices, and processes made or conceived by him alone or jointly with others,
from the time of entering the Company's employ until such employment is
terminated, relevant or pertinent in any way, whether directly or indirectly,
to the Company's Business or production operations or resulting from or
suggested by any work which he may have done for the Company or at its request;

	(c)	shall, at all times during his employment with the Company,
assist the Company (entirely at the Company's expense) to obtain and develop
for the Company's benefit patents on such inventions, ideas, devices and
processes, whether or not patented; and

	(d)	shall do all such acts and execute, acknowledge and deliver
all such instruments as may be necessary or desirable in the opinion of the
Company to vest in the Company the entire interest in such inventions, ideas,
devices, and processes referred to above.

	The foregoing to the contrary notwithstanding, the Executive shall not
be required to assign or offer to assign to the Company any of the Executive's
rights in any invention for which no equipment, supplies, facility, or trade
secret information of the Company was used and which was developed entirely on
the Executive's own time, unless:  (A) the invention related to (i) the
Business of the Company; or (ii) the Company's actual or demonstrably
anticipated (with the realistic prospect of occurring) research or development;
or (B) the invention results from any work performed by the Executive for the
Company. The Executive acknowledges his prior receipt of written notification
of the limitation set forth in the preceding sentence on the Executive's
obligation to assign or offer to assign to the Company the Executive's rights
in inventions.

	18.	Confidentiality of Information: Duty of Non-Disclosure.

	(a)	The Executive acknowledges and agrees that his employment by
the Company under this Agreement necessarily involves his understanding of and
access to certain trade secrets and confidential information pertaining to the
Business of the Company. Accordingly, the Executive agrees that after the date
of this Agreement at all times he will not, directly or indirectly, without
the express consent of the Company, disclose to or use for the benefit of any
person, corporation or other entity, or for himself any and all files, trade
secrets or other confidential information concerning the internal affairs of
the Company, including, but not limited to, information pertaining to its
customers, prospective customers, services, products, earnings, finances,
operations, methods or other activities, provided, however, that the foregoing


<PAGE>  4


shall not apply to information which is of public record or is generally known,
disclosed or available to the general public or the industry generally, or
known by Executive prior to his employment with the Company. Further, the
Executive agrees that he shall not, directly or indirectly, remove or retain,
without the express prior written consent of the Company, and upon termination
of this Agreement for any reason shall return to the Company, any confidential
figures, calculations, letters, papers, records, computer disks, computer
print-outs, lists, documents, instruments, drawings, designs, programs,
brochures, sales literature, or any copies thereof, or any information or
instruments derived therefrom, or any other similar information of any type
or description, however such information might be obtained or recorded,
arising out of or in any way relating to the Business of the Company or
obtained as a result of his employment by the Company. The Executive
acknowledges that all of the foregoing are proprietary information, and are
the exclusive property of the Company. The covenants contained in this Section
18 shall survive the termination of this Agreement.

	(b)	The Executive agrees and acknowledges that the Company does
not have any adequate remedy at law for the breach or threatened breach by the
Executive of his covenant, and agrees that the Company shall be entitled to
injunctive relief to bar the Executive from such breach or threatened breach
in addition to any other remedies which may be available to the Company at
law or in equity.

	19.	Covenant Not to Compete.

	(a)	During Employment Period.  During the Employment Period, the
Executive shall not, without the prior written consent of the Company, which
consent may be withheld at the sole and reasonable discretion of the Company,
engage in any other business activity for gain, profit, or other pecuniary
advantage (excepting the investment of funds in such form or manner as will
not require any services on the part of the Executive in the operation of the
affairs of the companies in which such investments are made) or engage in or
in any manner be connected or concerned, directly or indirectly, whether as an
officer, director, stockholder, partner, owner, employee, creditor, or
otherwise, with the operation, management, or conduct of any business that
competes with the Business of the Company.

	(b)	Following Termination of Employment Period.  Within the one
(1) year period immediately following the end of the Employment Period,
regardless of the reason therefore, the Executive shall not, without the
prior written consent of the Company, which consent may be withheld at the
sole discretion of the Company: (A) engage in or in any manner be connected
or concerned, directly or indirectly, whether as an officer, director,
stockholder, partner, owner, employee, creditor, or otherwise with the
operation, management, or conduct of any business similar to the Business
being conducted at the time of such termination within a 100-mile radius
from Milwaukee, Wisconsin; (B) directly solicit, contact, interfere with, or
divert any customer served by the Company for the Business, or any
prospective customer identified by or on behalf of the Company, during the
Executive's employment with the Company; or (C) directly solicit any employee
then employed by the Company or previously employed by the Company within the
one year period preceding termination of the Executive's employment with the
Company to join the Executive, whether as a partner, agent, employee or
otherwise, in any enterprise engaged in a business similar to the Business of
the Company being conducted at the time of such termination.

	(c)	Acknowledgment.  The Executive acknowledges that the
restrictions set forth in Section 19 are reasonable in scope and essential to
the preservation of the Business of the Company and proprietary properties and
that the enforcement thereof will not in any manner preclude the Executive, in
the event of the Executive's termination of employment with the Company, from
becoming gainfully employed in such manner and to such extent as to provide a
standard of living for himself, the members of his family, and those dependent
upon him of at least the sort and fashion to which he and they have become
accustomed and may expect.

	(d)	Severability.  The covenants of the Executive contained in
Section 19 of this Agreement shall each be construed as an agreement
independent of any other provision in this Agreement, and the existence of
any claim or cause of action of the Executive against the Company, whether
predicated on this Agreement or otherwise, shall not constitute a defense to


<PAGE>  5


the enforcement by the Company of such covenants. Both parties hereby
expressly agree and contract that it is not the intention of either party to
violate any public policy, or statutory or common law, and that if any
sentence, paragraph, clause, or combination of the same of this Agreement is
in violation of the law, such sentence, paragraph, clause or combination of
the same shall be void, and the remainder of such paragraph and this Agreement
shall remain binding on the parties to make the covenants of this Agreement
binding only to the extent that it may be lawfully done. In the event that
any part of any covenant of this Agreement is determined by a court of law to
be overly broad thereby making the covenant unenforceable, the parties hereto
agree, and it is their desire, that such court shall substitute a judicially
enforceable limitation in its place, and that as so modified the covenant shall
be binding upon the parties as if originally set forth herein.

	20.	Arbitration.

	(a)	Subject to the terms of Section 21(h) below, upon presentation
of a written claim or claims (collectively "Claims") arising out of or relating
to this Agreement, or the breach hereof, by an aggrieved party, the other party
shall have thirty (30) days in which to make such inquiries of the aggrieved
party and conduct such investigations as it believes reasonably necessary to
determine the validity of the Claims. At the end of such period of
investigation, the complained of party shall either pay the amount of the
Claims or the arbitration proceeding described in Section 20(b) shall be
invoked, subject to the terms of Section 20(g) below.

	(b)	In the event that the Claims are not settled by the procedure
set forth in Section 20(a), the Claims shall be submitted to arbitration
conducted in accordance with the Commercial Arbitration Rules ("Rules") of the
American Arbitration Association ("AAA") except as amplified or otherwise
varied hereby.

	(c)	The parties shall submit the dispute to the Milwaukee,
Wisconsin regional office of the AAA and the situs of the arbitration shall
be Milwaukee, Wisconsin.

	(d)	The arbitration shall be conducted by a single arbitrator.
The parties shall appoint the single arbitrator to arbitrate the dispute
within ten (10) business days of the submission of the dispute.  In the absence
of agreement as to the identity of the single arbitrator to arbitrate the
dispute within such time, the AAA is authorized to appoint an arbitrator in
accordance with the rules, except that the arbitrator shall have as his
principal place of business the Milwaukee, Wisconsin metropolitan area.

	(e)	The single arbitrator selected by AAA shall be an attorney
licensed to practice by the State of Wisconsin.

	(f)	Anything in the Rules to the contrary notwithstanding, the
arbitration award shall be made in accordance with the following procedure:
(i) in the event the dispute involves monetary relief, each party shall, at
the commencement of the arbitration hearing, submit an initial statement of
the amount each party proposes be selected by the arbitrator as the arbitration
award ("Settlement Amount"). During the course of the arbitration, each party
may vary its proposed Settlement Amount. At the end of the arbitration hearing,
each party shall submit to the arbitrator its final Settlement Amount ("Final
Settlement Amount"), and the arbitrator shall be required to select either one
or the other Final Settlement Amounts as the arbitration award without
discretion to select any other amount as the award. The arbitration award
shall be paid within thirty (30) business days after the award has been made,
together with interest from the date of award at the rate of nine percent (9%).
Judgment upon the award may be entered in any federal or state court having
jurisdiction over the parties; (ii) in the event the dispute involves the
interpretation of this Agreement, each party shall submit an initial statement
of the interpretation each party proposes be selected by the arbitrator as the
arbitration award ("Proposed Interpretation"). During the course of the
arbitration, each party may vary its Proposed Interpretation. At the end of
the arbitration hearing, each party shall submit to the arbitrator its final
Proposed Interpretation, and the arbitrator shall select either one or the
other final Proposed Interpretations, or a reasonable alternative, as the
arbitration award. Judgment upon the award may be entered in any federal or
state court having jurisdiction over the parties.


<PAGE>  6


	(g)	Notwithstanding anything to the contrary contained herein,
any matter which pursuant to the terms of this Agreement is to be resolved by
the Board or the Executive Committee of the Board in its sole discretion shall
be so resolved without arbitration.

	21.	General Provisions.

	(a)	Goodwill. The Company has invested substantial time and
money in the development of its products, services, territories, advertising
and marketing thereof, soliciting clients and creating goodwill. By accepting
employment with the Company, the Executive acknowledges that the customers
are the customers of the Company, and that any goodwill created by the
Executive belongs to and shall inure to the benefit of the Company.

	(b)	Notices.  Any notice required or permitted hereunder shall
be made in writing (i) either by actual delivery of the notice into the
hands of the party thereunder entitled, or (ii) by depositing the notice
with a nationally recognized overnight delivery service, all shipping costs
prepaid and addressed to the party to whom the notice is to be given at the
party's respective address set forth below, or such other address as the
parties may from time to time designate by written notice as herein provided.

As addressed to the Company:

	Merge Technologies Incorporated
	1126 South 70th Street
	Milwaukee, Wisconsin 53214-3151
	Attention:  Chief Financial Officer

With a copy to:

	Shefsky & Froelich Ltd.
	444 North Michigan Avenue
	Suite 2500
	Chicago, Illinois 60611
	Attention: Mitchell D. Goldsmith, Esq.

As addressed to the Executive:

	Mr. Richard A. Linden
	1003 Oakland Court
	Barrington, Illinois 60010

With a copy to:

	Michael  Best and Friedrich
	401 North Michigan Avenue
	Suite 1900
	Chicago, Illinois 60611
	Attention: Thomas Y. Mandler, Esq.

The notice shall be deemed to be received on the date of its actual receipt
by the party entitled thereto.

	(c)	Amendment and Waiver.  No amendment or modification of this
Agreement shall be valid or binding upon the Company unless made in writing
and signed by an officer of the Company duly authorized by the Board or upon
the Executive unless made in writing and signed by him. The waiver by the
Company of the breach of any provision of this Agreement by the Executive
shall not operate or be construed as a waiver of any subsequent breach by him.

	(d)	Entire Agreement.  This Agreement constitutes the entire
Agreement between the parties with respect to the Executive's duties and
compensation as an executive of the Company, and there are no representations,
warranties, agreements or commitments between the parties hereto with respect
to his employment except as set forth herein.  No presumption shall be made in
favor or against either party based upon who has served as draftsman of this
Agreement.

	(e)	Governing Law.  This Agreement shall be governed by and
construed in accordance with the internal laws (and not the law of conflicts)
of the State of Illinois.

	(f)	Severability.  If any provision of this Agreement shall, for
any reason, be held unenforceable, such provision shall be severed from this
Agreement unless, as a result of such severance, the Agreement fails to reflect
the basic intent of the parties. If the Agreement continues to reflect the


<PAGE>  7


basic intent of the parties, then the invalidity of such specific provision
shall not affect the enforceability of any other provision herein, and the
remaining provisions shall remain in full force and effect.

	(g)	Assignment.  The Executive may not under any circumstances
delegate any of his rights and obligations hereunder without first obtaining
the prior written consent of the Company.   This Agreement and all of the
Company's rights and obligations hereunder may be assigned or transferred by
it, in whole or in part, to be binding upon and inure to the benefit of any
subsidiary or successor of the Company, provided either the successor has a
net worth greater than the Company at the time of assignment or the Company
remains primarily liable with respect to the obligations so assigned.

	(h)	Costs of Enforcement, Litigation.  In the event of any suit
or proceeding seeking to enforce the terms, covenants, or conditions of this
Agreement, the prevailing party shall, in addition to all other remedies and
relief that may be available under this Agreement or applicable law, recover
his or its reasonable attorneys' fees and costs as shall be determined and
awarded by the court.  Notwithstanding anything to the contrary contained in
Section 20 above or elsewhere herein any controversy or dispute with respect
to the terms of Section 16, 17, 18 or 19 of this Agreement will survive
termination of this Agreement and shall be litigated in the state of federal
courts of competent jurisdiction situated in Milwaukee, Wisconsin, to which
jurisdiction and venue all parties consent.

	(i)	Mitigation.  The Executive shall be obligated to mitigate
his damages as a result of voluntary or involuntary termination of employment
with the Company.  Should the Executive be entitled to change in control
payments pursuant to Section 11 or severance payments pursuant to Section
15, then, to the extent that during the twelve (12) month period following
change in control termination of employment or during the period of time for
which severance payments are paid out, the Executive receives or accrues
direct or indirect compensation for the provision of services (whether an
employee, consultant, independent contractor or otherwise, either directly
or to an entity controlled by or otherwise affiliated with the Executive),
then all such compensation shall be credited dollar-for-dollar to reduce the
change in control or severance obligation of the Company to the Executive
pursuant to the terms of Section 11 or Section 15, respectively.


<PAGE>  8


IN WITNESS WHEREOF, this Agreement is entered into as of the day and year
first above written.


				COMPANY:

				MERGE TECHNOLOGIES INCORPORATED


				By:  /s/

				Anna Marie Hajek, Chairman

				Compensation Committee of the
				Board of Directors



				EXECUTIVE:


				By:  /s/

				RICHARD A. LINDEN



<PAGE>  9


EXHIBIT 10.3

                                EMPLOYMENT AGREEMENT

	THIS AGREEMENT ("Agreement") is made and entered into as of
December 21, 2001 by and between WILLIAM C. MORTIMORE (the "Executive") and
MERGE TECHNOLOGIES INCORPORATED, a Wisconsin corporation (the "Company").
The terms of this Agreement shall supercede the terms of the Employment
Agreement between the Executive and the Company dated September 1, 2000.

                                  R E C I T A L S:

	A.	The Company is engaged in the provision of medical
diagnostic imaging connectivity hardware, software and consulting solutions
for healthcare facilities.  The business in which the Company is engaged in
time-to-time during the term of this Agreement, inclusive of those new lines
of business, if any, in which the Company is working toward entering from
time-to-time are hereinafter collectively referred to as the "Business"; and

	B.	The Company desires to employ the Executive and the Executive
desires to accept such employment;

	NOW THEREFORE, in consideration of the promises, mutual covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Company and
the Executive do hereby agree as follows:

	1.	Employment and Duties. On the terms and subject to the
conditions set forth in this Agreement, the Company agrees to employ the
Executive as the Chairman of the Company, to perform such duties as may be
assigned, from time to time, by the Board of Directors of the Company (the
"Board") and to render such additional services and discharge such other
responsibilities as the Board may, from time to time, stipulate.

	2.	Performance. The Executive accepts the employment described
in Section 1 of this Agreement and agrees to devote substantially all of his
working time and efforts to the faithful and diligent performance of the
services described herein, including the performance of such other services
and responsibilities as the Board may, from time to time, stipulate.

	3.	Term. The term of employment under this Agreement commenced on
September 1, 2000 as was described in the initial Employment Agreement letter
dated September 1, 2000 (the "Commencement Date").  The term of employment
shall remain in effect until terminated by either Executive or the Company by
giving thirty (30) days written notice of termination.  The period of time in
which Executive is employed shall constitute the "Employment Period," and each
calendar year or portion of a calendar year during the Employment Period is
hereinafter sometimes referred to as a "Year."  The parties agree that this
Agreement may be terminated subject to the aforesaid notice by either party
without cause or good reason at any time, and if by mutual consent without
the obligation to pay any severance. The Board of Directors will review the
Employment Agreement at its sole discretion, but no less frequently than
every three (3) years subsequent to the date of this Agreement

	4.	Salary. For all the services to be rendered by the Executive
hereunder, the Company agrees to pay an annual salary for 2002 at a rate of
no less than fourteen thousand five hundred eighty-three and 33/100 dollars
($14,583.33) per month ("Salary"), payable in the manner and frequency in
which the Company's payroll is customarily handled, and subject to annual
review at the time annual reviews of the salaries of other senior executive
officers are to be conducted.

	5.	Bonus. The Executive shall be eligible for an annual
performance bonus of up to twenty-five percent (25%) of Salary, dependent on
achievement of defined performance targets.  These targets will be mutually
agreed upon by the Executive and the Executive Committee of the Board within
sixty (60) days after commencement of each Year.  For each Year the annual
performance bonus is to be paid, it shall be paid within thirty (30) days of
the completion of the year-end financial statements for that Year, but in no
event later than May 31 of the following year.  The Board of Directors in its


<PAGE>  10


sole discretion may change the bonus target annually and any dispute as to
whether Executive met the performance targets for a Year shall be determined
conclusively by the Executive Committee of the Board.

	6.	Paid Time Off. The Executive shall be entitled to paid time off
for vacation, illness, holiday and personal reasons in accordance with the
Company's paid time off policy at the rate offered to the most senior employees
of the Company with the longest tenure.

	7.	Insurance. During the Employment Period, the Company shall be
entitled to procure life insurance for the Company's sole benefit and at the
Company's sole cost and the Executive agrees to cooperate in obtaining such
insurance.

	8.	Disability Benefit. If at any time during the Employment Period
the Executive is unable to perform fully the material and substantial duties
hereunder by reason of illness, accident, or other disability (as confirmed by
competent medical evidence by a physician selected by the Executive Committee),
the Executive shall be entitled to receive periodic payments of Salary to which
he would otherwise be entitled pursuant to Section 4 of this Agreement by reason
of his employment for a period of ninety (90) days. Notwithstanding the
foregoing provision (i) the amounts payable to the Executive pursuant to this
Section 8 shall be reduced by any amounts received by the Executive with
respect to any such incapacity pursuant to any insurance policy, plan, or
other employee benefit provided to the Executive by the Company; and (ii) in
no event will the terms of this Agreement supersede any health or disability
benefit to which Executive is entitled under applicable state or federal law.

	9.	Executive Options. The Executive currently holds options to
acquire two hundred twenty thousand (220,000) shares of the Company's common
stock, one hundred ten thousand seven hundred ninety-two (110,792) of which
are presently vested and one hundred nine thousand two hundred eight (109,208)

of which vest from 2002 through 2004.  Additional options may be granted in
succeeding years in the sole discretion of the Board.

	In the event Executive is terminated following the first anniversary of the
Commencement Date, all  options granted on the Commencement Date (options to
purchase one hundred forty-two thousand two hundred seventy-eight (142,278)
shares) shall immediately vest, and in the sole discretion of the Board, the
Executive shall receive an amount equal to the difference between the Purchase
 Price and the closing market price on the date of termination multiplied by
the number of options awarded adjusted by an amount necessary to compensate
Executive for the fact that such payment will be taxed as ordinary income by
the Internal Revenue Service and not as capital gains.  The Executive shall
receive the amount of money to be paid pursuant to the preceding sentence
within thirty (30) days of his termination.

	10.	Change in Control. In the event of a "change in control" of
the Company ("change in control" of the Company shall mean a change in the
ownership of fifty percent (50%) or more of the outstanding stock of the
Company in a single transaction or a change of fifty percent (50%) or more
of the members of the Board in a single transaction, other than pursuant to
nomination of a new slate of directors where there has been no material change
in beneficial ownership of the Company within 180 days preceding such
nomination), all of the options granted as of the Commencement Date (options
to purchase one hundred forty-two thousand two hundred seventy-eight (142,278)
shares) will immediately vest and become exercisable.  In the event of a
change in control (as described above) and the Executive is:  (i) involuntarily
terminated within 120 days following the change in control; or (ii) voluntarily
terminates his employment with the Company within 120 days, following either:
(a) any reduction in Executive's responsibilities or authority with respect to
the Business; (b) a reduction in Executive's compensation package, including
Salary, in effect immediately prior to the change in control; or (c) the
relocation of the Company's principal place of business more than 30 miles
further from Executive's residence as of the date of this Agreement; then the
Executive will be entitled to twelve (12) months  Salary as a change in
control allowance, to be paid in a single payment within thirty (30) days of
the termination of Executive's employment.

	11.	Other Benefits. Except as otherwise specifically provided
herein, during the Employment Period, the Executive shall be eligible for
all non-wage benefits the Company provides generally for its other salaried
employees.


<PAGE>  11


	12.	Business Expenses.

	(a)	Reimbursement.  The Company shall reimburse the Executive for
 the reasonable, ordinary, and necessary business expenses incurred by him in
connection with the performance of his duties hereunder, including, but not
limited to, ordinary and necessary travel expenses and entertainment expenses
and mobile phone expenses.

	(b)	Accounting.  The Executive shall provide the Company with an
accounting of his expenses, which accounting shall clearly reflect which
expenses are reimbursable by the Company. The Executive shall provide the
Company with such other supporting documentation and other substantiation of
reimbursable expenses as will conform to Internal Revenue Service or other
requirements. All such reimbursements shall be payable by the Company to the
Executive promptly after receipt by the Company of appropriate documentation
therefor.

	13.	Severance.  In the event that the Executive is terminated for
any reason other than gross negligence, commission of a felony in connection
with his employment or material violation of any established Company policies,
the Company shall pay the Executive, as a severance allowance, an amount equal
to six (6) months of his then current salary.  The amount of the severance
allowance provided for in this Section 13 shall be paid in a single lump sum
within thirty (30) days of the termination of the Executive's employment.
From time to time after December 21, 2001, the Executive's severance allowance
shall be subject to review and adjustment at the time reviews and adjustments
of the severance allowance for other senior executives of Company are to be
conducted.  Notwithstanding anything to the contrary contained herein, in the
event the Executive elects to receive (pursuant to the operation of Section 10)
twelve (12) months' Salary following a change in control event and Executive's
voluntary or involuntary termination, then Executive shall not be entitled to
any payment of severance pursuant to this Section 13.  In the event a change in
control occurs and the Executive is not entitled to twelve (12) months' Salary
pursuant to Section 10, then the Executive shall continue to be entitled to
receive severance payments per this Section 13.

	14.	Surrender of Properties. Upon termination of the Executive's
employment with the Company, regardless of the cause therefor, the Executive
shall promptly surrender to the Company all property provided him by the
Company for use in relation to his employment, and, in addition, the
Executive shall surrender to the Company any and all confidential sales
materials, lists of customers and prospective customers, price lists, files,
patent applications, records, models, or other materials and information of
or pertaining to the Company or its customers or prospective customers or
the products, Business, and operations of the Company in his possession.

	15.	Inventions and Secrecy. Except as otherwise provided in this
Section 15, the Executive:

	(a)	shall hold in a fiduciary capacity for the benefit of the
k.jll;Company all secret or confidential information, knowledge, or data of the
Company or its Business or production operations obtained by the Executive
during his employment by the Company, which shall not be generally known to the
public or recognized as standard practice (whether or not developed by the
Executive) and shall not, during his employment by the Company and after the
termination of such employment for any reason, communicate or divulge any such
information, knowledge or data to any person, firm or corporation other than
the Company or persons, firms or corporations designated by the Company;

	(b)	shall promptly disclose to the Company all inventions, ideas,
devices, and processes made or conceived by him alone or jointly with others,
from the time of entering the Company's employ until such employment is
terminated, relevant or pertinent in any way, whether directly or indirectly,
to the Company's Business or production operations or resulting from or
suggested by any work which he may have done for the Company or at its request;

	(c)	shall, at all times during his employment with the Company,
assist the Company (entirely at the Company's expense) to obtain and develop
for the Company's benefit patents on such inventions, ideas, devices and
processes, whether or not patented; and


<PAGE>  12


	(d)	shall do all such acts and execute, acknowledge and deliver
all such instruments as may be necessary or desirable in the opinion of the
Company to vest in the Company the entire interest in such inventions, ideas,
devices, and processes referred to above.

The foregoing to the contrary notwithstanding, the Executive shall not be
required to assign or offer to assign to the Company any of the Executive's
rights in any invention for which no equipment, supplies, facility, or trade
secret information of the Company was used and which was developed entirely
on the Executive's own time, unless:  (A) the invention related to (i) the
Business of the Company; or (ii) the Company's actual or demonstrably
anticipated (with the realistic prospect of occurring) research or development;
or (B) the invention results from any work performed by the Executive for the
Company. The Executive acknowledges his prior receipt of written notification
of the limitation set forth in the preceding sentence on the Executive's
obligation to assign or offer to assign to the Company the Executive's rights
in inventions.

	16.	Confidentiality of Information: Duty of Non-Disclosure.

	(a)	The Executive acknowledges and agrees that his employment by
the Company under this Agreement necessarily involves his understanding of and
access to certain trade secrets and confidential information pertaining to the
Business of the Company. Accordingly, the Executive agrees that after the date
of this Agreement at all times he will not, directly or indirectly, without the
express consent of the Company, disclose to or use for the benefit of any
person, corporation or other entity, or for himself any and all files, trade
secrets or other confidential information concerning the internal affairs of
the Company, including, but not limited to, information pertaining to its
customers, prospective customers, services, products, earnings, finances,
operations, methods or other activities, provided, however, that the foregoing
shall not apply to information which is of public record or is generally known,
disclosed or available to the general public or the industry generally, or
known by Executive prior to his employment with the Company. Further, the
Executive agrees that he shall not, directly or indirectly, remove or retain,
without the express prior written consent of the Company, and upon termination
of this Agreement for any reason shall return to the Company, any confidential
figures, calculations, letters, papers, records, computer disks, computer
print-outs, lists, documents, instruments, drawings, designs, programs,
brochures, sales literature, or any copies thereof, or any information or
instruments derived therefrom, or any other similar information of any type
or description, however such information might be obtained or recorded,
arising out of or in any way relating to the Business of the Company or
obtained as a result of his employment by the Company. The Executive
acknowledges that all of the foregoing are proprietary information, and
are the exclusive property of the Company. The covenants contained in this
Section 16 shall survive the termination of this Agreement.

	(b)	The Executive agrees and acknowledges that the Company does not
have any adequate remedy at law for the breach or threatened breach by the
Executive of his covenant, and agrees that the Company shall be entitled to
injunctive relief to bar the Executive from such breach or threatened breach
in addition to any other remedies which may be available to the Company at law
or in equity.

	17.	Covenant Not to Compete.

	(a)	During Employment Period.  During the Employment Period, the
Executive shall not, without the prior written consent of the Company, which
consent may be withheld at the sole and reasonable discretion of the Company,
engage in any other business activity for gain, profit, or other pecuniary
advantage (excepting the investment of funds in such form or manner as will
not require any services on the part of the Executive in the operation of the
affairs of the companies in which such investments are made) or engage in or
in any manner be connected or concerned, directly or indirectly, whether as an
officer, director, stockholder, partner, owner, employee, creditor, or
otherwise, with the operation, management, or conduct of any business that
competes with the Business of the Company.

	(b)	Following Termination of Employment Period.  Within the  two
(2) year period immediately following the end of the Employment Period,


<PAGE>  13


regardless of the reason therefor, the Executive shall not, without the prior
written consent of the Company, which consent may be withheld at the sole
discretion of the Company: (A) engage in or in any manner be connected or
concerned, directly or indirectly, whether as an officer, director,
stockholder, partner, owner, employee, creditor, or otherwise with the
operation, management, or conduct of any business similar to the Business
being conducted at the time of such termination within a 100-mile radius
from Milwaukee, Wisconsin; (B) directly solicit, contact, interfere with,
or divert any customer served by the Company for the Business, or any
prospective customer identified by or on behalf of the Company, during the
Executive's employment with the Company; or (C) directly solicit any employee
then employed by the Company or previously employed by the Company within the
one year period preceding termination of the Executive's employment with the
Company to join the Executive, whether as a partner, agent, employee or
otherwise, in any enterprise engaged in a business similar to the Business
of the Company being conducted at the time of such termination.

	(c)	Acknowledgment.  The Executive acknowledges that the
restrictions set forth in Section 17 are reasonable in scope and essential
to the preservation of the Business of the Company and proprietary properties
and that the enforcement thereof will not in any manner preclude the Executive,
in the event of the Executive's termination of employment with the Company,
from becoming gainfully employed in such manner and to such extent as to
provide a standard of living for himself, the members of his family, and those
dependent upon him of at least the sort and fashion to which he and they have
become accustomed and may expect.

	(d)	Severability.  The covenants of the Executive contained in
Section 17 of this Agreement shall each be construed as an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of the Executive against the Company, whether
predicated on this Agreement or otherwise, shall not constitute a defense to
the enforcement by the Company of such covenants. Both parties hereby
expressly agree and contract that it is not the intention of either party to
violate any public policy, or statutory or common law, and that if any
sentence, paragraph, clause, or combination of the same of this Agreement is
in violation of the law, such sentence, paragraph, clause or combination of
the same shall be void, and the remainder of such paragraph and this Agreement
shall remain binding on the parties to make the covenants of this Agreement
binding only to the extent that it may be lawfully done. In the event that
any part of any covenant of this Agreement is determined by a court of law to
be overly broad thereby making the covenant unenforceable, the parties hereto
agree, and it is their desire, that such court shall substitute a judicially
enforceable limitation in its place, and that as so modified the covenant
shall be binding upon the parties as if originally set forth herein.

	18.	Arbitration.

	(a)	Subject to the terms of Section 19(h) below, upon presentation
of a written claim or claims (collectively "Claims") arising out of or relating
to this Agreement, or the breach hereof, by an aggrieved party, the other
party shall have thirty (30) days in which to make such inquiries of the
aggrieved party and conduct such investigations as it believes reasonably
necessary to determine the validity of the Claims. At the end of such period
of investigation, the complained of party shall either pay the amount of the
Claims or the arbitration proceeding described in Section 18(b) shall be
invoked, subject to the terms of Section 18(g) below.

	(b)	In the event that the Claims are not settled by the procedure
set forth in Section 18(a), the Claims shall be submitted to arbitration
conducted in accordance with the Commercial Arbitration Rules ("Rules") of the
American Arbitration Association ("AAA") except as amplified or otherwise
varied hereby.

	(c)	The parties shall submit the dispute to the Milwaukee,
Wisconsin regional office of the AAA and the situs of the arbitration shall be
Milwaukee, Wisconsin.

	(d)	The arbitration shall be conducted by a single arbitrator.
The parties shall appoint the single arbitrator to arbitrate the dispute
within ten (10) business days of the submission of the dispute.  In the
absence of agreement as to the identity of the single arbitrator to arbitrate
the dispute within such time, the AAA is authorized to appoint an arbitrator


<PAGE>  14


in accordance with the rules, except that the arbitrator shall have as his
principal place of business the Milwaukee, Wisconsin metropolitan area.

	(e)	The single arbitrator selected by AAA shall be an attorney
licensed to practice by the State of Wisconsin.

	(f)	Anything in the Rules to the contrary notwithstanding, the
arbitration award shall be made in accordance with the following procedure:
(i) in the event the dispute involves monetary relief, each party shall, at
the commencement of the arbitration hearing, submit an initial statement of
the amount each party proposes be selected by the arbitrator as the arbitration
award ("Settlement Amount"). During the course of the arbitration, each party
may vary its proposed Settlement Amount. At the end of the arbitration hearing,
each party shall submit to the arbitrator its final Settlement Amount ("Final
Settlement Amount"), and the arbitrator shall be required to select either one
or the other Final Settlement Amounts as the arbitration award without
discretion to select any other amount as the award. The arbitration award
shall be paid within thirty (30) business days after the award has been made,
together with interest from the date of award at the rate of nine percent (9%).
Judgment upon the award may be entered in any federal or state court having
jurisdiction over the parties; (ii) in the event the dispute involves the
interpretation of this Agreement, each party shall submit an initial statement
of the interpretation each party proposes be selected by the arbitrator as the
arbitration award ("Proposed Interpretation"). During the course of the
arbitration, each party may vary its Proposed Interpretation. At the end of
the arbitration hearing, each party shall submit to the arbitrator its final
Proposed Interpretation, and the arbitrator shall select either one or the
other final Proposed Interpretations, or a reasonable alternative, as the
arbitration award. Judgment upon the award may be entered in any federal or
state court having jurisdiction over the parties

	(g)	Notwithstanding anything to the contrary contained herein,
any matter which pursuant to the terms of this Agreement is to be resolved
by the Board or the Executive Committee of the Board in its sole discretion
shall be so resolved without arbitration.

	19.	General Provisions.

	(a)	Goodwill. The Company has invested substantial time and money
in the development of its products, services, territories, advertising and
marketing thereof, soliciting clients and creating goodwill. By accepting
employment with the Company, the Executive acknowledges that the customers
are the customers of the Company, and that any goodwill created by the
Executive belongs to and shall inure to the benefit of the Company.

	(b)	Notices.  Any notice required or permitted hereunder shall
be made in writing (i) either by actual delivery of the notice into the hands
of the party thereunder entitled, or (ii) by depositing the notice with a
nationally recognized overnight delivery service, all shipping costs prepaid
and addressed to the party to whom the notice is to be given at the party's
respective address set forth below, or such other address as the parties may
from time to time designate by written notice as herein provided.

As addressed to the Company:

	Merge Technologies Incorporated
	1126 South 70th Street
	Milwaukee, Wisconsin 53214-3151
	Attention:  Chief Financial Officer

With a copy to:

	Shefsky & Froelich Ltd.
	444 North Michigan Avenue
	Suite 2500
	Chicago, Illinois 60611
	Attention: Mitchell D. Goldsmith, Esq.

As addressed to the Executive:

	Mr. William C. Mortimore
	S76 W13054 Cambridge Court West
	Muskego, Wisconsin 53150


<PAGE>  16


The notice shall be deemed to be received on the date of its actual receipt
by the party entitled thereto.

	(c)	Amendment and Waiver.  No amendment or modification of this
Agreement shall be valid or binding upon the Company unless made in writing and
signed by an officer of the Company duly authorized by the Board or upon the
Executive unless made in writing and signed by him. The waiver by the Company
of the breach of any provision of this Agreement by the Executive shall not
operate or be construed as a waiver of any subsequent breach by him.

	(d)	Entire Agreement.  This Agreement constitutes the entire
Agreement between the parties with respect to the Executive's duties and
compensation as an executive of the Company, and there are no representations,
warranties, agreements or commitments between the parties hereto with respect
to his employment except as set forth herein.  No presumption shall be made in
favor or against either party based upon who has served as draftsman of this
Agreement.

	(e)	Governing Law.  This Agreement shall be governed by and
construed in accordance with the internal laws (and not the law of conflicts)
of the State of Illinois.

	(f)	Severability.  If any provision of this Agreement shall, for
any reason, be held unenforceable, such provision shall be severed from this
Agreement unless, as a result of such severance, the Agreement fails to
reflect the basic intent of the parties. If the Agreement continues to reflect
the basic intent of the parties, then the invalidity of such specific provision
shall not affect the enforceability of any other provision herein, and the
remaining provisions shall remain in full force and effect.

	(g)	Assignment.  The Executive may not under any circumstances
delegate any of his rights and obligations hereunder without first obtaining
the prior written consent of the Company.   This Agreement and all of the
Company's rights and obligations hereunder may be assigned or transferred by
it, in whole or in part, to be binding upon and inure to the benefit of any
subsidiary or successor of the Company, provided either the successor has a
net worth greater than the Company at the time of assignment or the Company
remains primarily liable with respect to the obligations so assigned.

	(h)	Costs of Enforcement, Litigation.  In the event of any suit or
proceeding seeking to enforce the terms, covenants, or conditions of this
Agreement, the prevailing party shall, in addition to all other remedies and
relief that may be available under this Agreement or applicable law, recover
his or its reasonable attorneys' fees and costs as shall be determined and
awarded by the court.  Notwithstanding anything to the contrary contained in
Section 18 above or elsewhere herein any controversy or dispute with respect
to the terms of Section 14, 15, 16 or 17 of this Agreement will survive
termination of this Agreement and shall be litigated in the state of federal
courts of competent jurisdiction situated in Milwaukee, Wisconsin, to which
jurisdiction and venue all parties consent.

	(i)	Mitigation.  The Executive shall be obligated to mitigate his
damages as a result of voluntary or involuntary termination of employment
with the Company.  Should the Executive be entitled to change in control
payments pursuant to Section 10 or severance payments pursuant to Section 13,
then, to the extent that during the twelve (12) month period following change
in control termination of employment or during the period of time for which
severance payments are paid out, the Executive receives or accrues direct or
indirect compensation for the provision of services (whether an employee,
consultant, independent contractor or otherwise, either directly or to an
entity controlled by or otherwise affiliated with the Executive), then all
such compensation shall be credited dollar-for-dollar to reduce the change
in control or severance obligation of the Company to the Executive pursuant
to the terms of Section 10 or Section 13, respectively.


<PAGE  17>


IN WITNESS WHEREOF, this Agreement is entered into as of the day and year
first above written.


				COMPANY:


				MERGE TECHNOLOGIES INCORPORATED


				By:   /s/

				Anna Marie Hajek, Chairman

				Compensation Committee of the
				Board of Directors



				EXECUTIVE:


				By:   /s/

				WILLIAM C. MORTIMORE



<PAGE>  18


EXHIBIT 10.6

                                 SECOND AMENDMENT TO LEASE


	THIS AGREEMENT is made this 11th day of January, 2002, by and between
1126 WEST ALLIS OPERATING ASSOCIATES, Limited Partnership ("Lessor") and MERGE
TECHNOLOGIES, INC., a Wisconsin corporation ("Lessee").


R E C I T A L S

	A.	Whitnall Summit Company, LLC, leased office space to Lessee
under a Lease Agreement dated May 24, 1996 (as amended, the "Lease").

	B.	Lessor has succeeded to the right, title and interest of
Whitnall Summit Company, LLC.

	C.	The Lease has been modified by various Supplemental Office
Space Leases to provide for Lessee's use and occupancy of storage space.

	D.	Lessor and Lessee desire to modify the Lease as described
below.


A G R E E M E N T

	NOW THEREFORE, in consideration of the mutual covenants contained
herein and in said Lease, the parties hereto agree as follows:

	1.	Surrender of Space. Under an Amendment to Lease dated April
11, 2000 (the "First Amendment"), the Premises were to be expanded to include
the "Expanded Premises" defined in the First Amendment.  Among the expansions
and contemplated expansions were the additions, pursuant to Sections 1.b and
1.c of the First Amendment, and effective June 16, 2001 and June 16, 2002,
respectively, of 5,500 ("Phase II A") and 5,545 ("Phase II B") rentable square
feet.  Contemporaneously with the execution of this Amendment, Lessee has
surrendered Phase II A to Lessor, and Phase II B shall no longer be added to
the Expanded Premises.  Consequently, the Expanded Premises is reduced to
5,500 rentable square feet, all of which has already been added to the
Premises.  The future rent charges for the Expanded Premises are revised as
follows:

		a.	Effective February 1, 2002, the rental rate for the
Expanded Premises shall be $12.60 per square foot, a monthly rental of
$5,775.00, payable each month for the period June 16, 2002 through June 15,
2002.

		b.	Effective June 16, 2002, the rental rate for the
Expanded Premises shall be $13.10 per square foot, a monthly rental of
$6,058.75, payable each month for the period June 16, 2002 through June 15,
2003.

		c.	Effective June 16, 2003, the rental rate for the
Expanded Premises shall be $13.60 per square foot, a monthly rental of
$6,290.00, payable each month for the period June 16, 2003 through June 15,
2004.

		d.	Effective June 16, 2004, the rental rate for the
Expanded Premises shall be $14.10 per square foot, a monthly rental of
$6,521.25, payable each month for the period June 16, 2004 through June 15,
2005.

	2.	Surrender Fee.   Lessee has paid Lessor an $15,597.39 fee
in connection with the foregoing surrender.

	3.	Release.  Lessor and Lessee release each other from all
further obligations in connection with Phases II A and II B including any
and all remaining Tenant Improvement Allowances.


<PAGE>  19


	All remaining terms and conditions of the Leases shall remain in
full force and effect with no alterations or modifications other than those
outlined above.

	IN WITNESS WHEREOF, Lessor and Lessee have executed this Agreement
as of the day and year first above written.


LESSOR:						LESSEE:

1126 WEST ALLIS OPERATING ASSOCIATES, 		MERGE TECHNOLOGIES INC.
LIMITED PARTNERSHIP				A Wisconsin Corporation

By:	BGK West Allis LLC, General Partner	By:	/s/
						Colleen M. Doan
						Chief Financial Officer

	By:	/s/
		Cheryl S. Willoughby
		Senior Vice President


END OF DOCUMENT

<PAGE>  20