MERGE TECHNOLOGIES INC, SB-2, 1998-07-13

MERGE TECHNOLOGIES INC
SB-2, 1998-07-13
COMPUTER STORAGE DEVICES

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As filed with the Securities and Exchange Commission on July 13, 1998

Registration No. 333-__________

WASHINGTON, D.C. 20549

FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

MERGE TECHNOLOGIES INCORPORATED
----------------------------------------------------------
(Name of small business issuer as specified in its charter)

WISCONSIN 3669 39-1600938
- ------------------------ ----------------- -----------------
(State of Incorporation) (Primary Standard (I.R.S. Employer
Industrial Identification
Classification Number)
Code Number)

1126 SOUTH 70TH STREET
SUITE S107B
MILWAUKEE, WISCONSIN 53214-3151
(414) 475-4300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

WILLIAM C. MORTIMORE
PRESIDENT
1126 SOUTH 70TH STREET
SUITE S107B
MILWAUKEE, WISCONSIN 53214-3151
(414) 475-4300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

COPY TO:

MITCHELL D. GOLDSMITH, ESQ.
Shefsky & Froelich Ltd.
444 N. Michigan Avenue, Suite 2500
Chicago, IL 60611
(312)527-4000

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effectiveness of this registration statement but not
before August 1, 1998.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended, check the following box: [ X ]

<PAGE>

<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>

TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO AMOUNT TO OFFERING PRICE AGGREGATE OFFERING REGISTRATION
BE REGISTERED BE REGISTERED PER SHARE (1) PRICE FEE
- ------------------ ------------- --------------- ------------------ ------------
<S> <C> <C> <C> <C>

Common Stock 108,942 $3.50 $381,297 $112.48

<FN>

(1) Estimated solely for the purpose of determining the registration fee pursuant to Rule 457 promulgated
under the Securities Act of 1933, as amended.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS
EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF
1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SAID SECTION 8(a), MAY DETERMINE.

</TABLE>

<PAGE>

PROSPECTUS

108,942 Shares

Merge Technologies Incorporated
Common Stock

This Prospectus relates to the resale of up to an aggregate of 108,942
shares (the "Shares") of common stock, par value $.01 per share (the
"Common Stock"), of Merge Technologies Incorporated, a Wisconsin
corporation (the "Company"), which may be offered (the "Offering") for sale
by Sirrom Capital Corporation ("Sirrom" or the "Selling Stockholder"), as
described in this Prospectus. Unless the context otherwise requires, the
terms "Merge" and the "Company" include Merge Technologies Incorporated, a
Wisconsin corporation, and its subsidiary, Signal Stream, Inc., a Wisconsin
corporation ("SSI"). The Common Stock offered hereby was acquired by
Sirrom when it exercised a warrant issued for nominal consideration as part
of a private financing transaction between the Company and Sirrom. See
"Certain Relationships and Related Transactions." The Common Stock is
included for quotation on the Nasdaq SmallCap Market under the symbol
"MRGE." On July 10, 1998, the last reported price for the Common Stock as
reported by Nasdaq was $3.50 per share. As of July 10, 1998, the Company
had a total of 5,778,216 shares of Common Stock outstanding.

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 3.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) DISCOUNT (2) SIRROM (3)

Per Share . . . . . . $3.50 n/a $3.50
Total . . . . . . . . $381,297 n/a $381,297

(1) Reflects the last reported closing price of the Common Stock on
the Nasdaq SmallCap Market prior to the date of this Registration
Statement. The actual price at which Common Stock will be sold may vary.
(2) This Offering does not involve an underwriter.
(3) Reflects the last reported closing price of the Common Stock on the
Nasdaq SmallCap Market prior to the date of this Registration Statement.
The expenses of the Offering, estimated to be $15,612, including legal,
accounting and registration fees, are payable by the Company. See "Plan of
Distribution."

The date of this Prospectus is ______ __, 1998.

<PAGE>

ADDITIONAL INFORMATION

The Company is subject to the reporting and other requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and files
reports, proxy materials and other information with the Securities and
Exchange Commission (the "Commission"). The Company has filed with the
Commission a Registration Statement (of which this Prospectus is a part)
(File No. 333-_____) (the "Registration Statement") under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus as to the content of
any contract or other document are not necessarily complete, and in each
instance reference is made to a copy of such contract or other document
filed as an exhibit to the Registration Statement or otherwise filed with
the Commission, each such statement being qualified in all respects by such
reference. For further information, reference is hereby made to the
Registration Statement and to the schedules and exhibits thereto, which can
be inspected and copied at the public reference facilities of the
Commission at its principal office at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at the Commission's regional
offices at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and at 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of each such document may be obtained at prescribed rates
from the Public Reference Section of the Commission at its principal office
at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549. In addition, such material can also be obtained from the
Commission's Web site at http://www.sec.gov. The Common Stock is included
for quotation on the Nasdaq SmallCap Market and copies of reports and
other material concerning the Company can be inspected at the offices of
the National Association of Securities Dealers, Inc. at 1801 K Street,
N.W., 8th Floor, Washington, D.C. 20006.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company incorporates by reference herein the following documents
filed pursuant to the Exchange Act under the Company's Exchange Act File
No. 0-29486: (i) the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1997; (ii) the Company's quarterly report on Form
10-QSB for the quarter ended March 31, 1998; and (iii) the Company's Proxy
Statement dated May 18, 1998. All reports and other documents filed by the
Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus also shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of
filing these reports and documents. Any statement incorporated or deemed
to be incorporated herein shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that any statement contained
herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes this
statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this
Prospectus. The Company will not update this Prospectus for events
occurring subsequent to the date of this Prospectus.

The Company hereby undertakes to provide without charge to each
person to whom a copy of this Prospectus has been delivered, upon written
or oral request of the person, a copy of any or all of the foregoing
documents incorporated herein by reference (other than exhibits to
documents, unless these exhibits are specifically incorporated by reference
into the document). Requests for these documents should be made to the
Investor Relations Department at the Company's principal executive offices
located at 1126 South 70th Street, Suite S107B, Milwaukee, Wisconsin
53214-3151; telephone number (414) 475-4300.

MergeMVP [trademark], MergeXPI [trademark], MergeAPS [trademark],
MergeARK [trademark], MergeCOM-3 [trademark], MergeLINK [trademark],
MergeWorks [trademark], CaseWorks [trademark], MergeVPI [trademark],
MergeDPI [trademark], MergeXPI [trademark], MergeReader [trademark],
MergeBOX [trademark] and ReportManager [trademark], among other marks, are
trademarks or service marks of the Company.

RISK FACTORS

PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS.

LACK OF CONSISTENT PROFITABILITY; HISTORY OF OPERATING LOSSES AND WORKING
CAPITAL DEFICITS; SUBSTANTIAL INTANGIBLE ASSETS

Although the Company experienced significant revenue growth from
fiscal 1995 through fiscal 1997, it incurred net losses of approximately
$209,000 in fiscal 1997, $114,000 in fiscal 1996 and approximately $574,000
in fiscal 1995, respectively. The Company incurred a net loss of
approximately $57,000 for the three months ended March 31, 1998 and
approximately $45,000 for the three months ended March 31, 1997. There can
be no assurance that revenue growth will continue or that the Company will
consistently achieve profitability in the future. As of March 31, 1998, the
Company had working capital of approximately $9,340,000. However, the
Company experienced working capital deficits of approximately $1,972,000
in 1997, $438,000 in 1996 and $1,243,000 in 1995. The Company had
intangible assets of approximately $3,057,000 as of March 31, 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

OPERATING RESULTS MAY FLUCTUATE

The Company's operating results are subject to quarterly and other
fluctuations due to a variety of factors. A significant portion of the
Company's business is derived from orders placed by OEMs, and the timing of
such orders could cause material fluctuations in the Company's business and
operating results. Other factors that may cause the Company's operating
results to fluctuate include changes in sales volumes through the Company's
distribution channels, changes in the mix of products sold, the timing of
new product announcements and introductions by the Company and its
competitors, market acceptance of new or enhanced versions of the Company's
products, availability and cost of products from the Company's suppliers,
competitive pricing pressures, the gain or loss of significant customers,
increased research and development expense associated with new product
introductions and economic conditions generally or in various geographic
areas. All of the above factors are difficult for the Company to forecast,
and these or other factors can materially affect the Company's operating
results for one quarter or series of quarters. In addition, the Company's
gross margins may decrease in the future as a result of increasing sales of
lower margin products and volume discounts. The Company expects to continue
to increase its operating expenses for personnel and new product
development. If the Company does not achieve increased levels of sales
commensurate with these increased levels of operating expenses, the
Company's business and operating results will be materially adversely
affected. There can be no assurance that the Company will be profitable on
a quarterly or annual basis. Fluctuations in operating results may also
result in fluctuations in the price of the Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

INCREASED CREDIT AND PAYMENT RISKS ASSOCIATED WITH END-USER SALES

The Company currently markets and sells a significant portion of its
products to OEMs. The Company has not, in the past, experienced significant
nonpayment or delays in payment on receivables from these customers.
Increased direct sales to end-users, such as hospitals, may create delays
in payment of receivables to the Company and may also increase the risk of

<PAGE>

nonpayment of receivables. The Company may bear increased interest expense
if it experiences delays in receipt of payment on receivables as a result
of increased sales directly to end-users as a percentage of total sales.

COMPANY MUST RESPOND TO TECHNOLOGICAL CHANGE; RISKS OF COMPANY'S
INVOLVEMENT WITH RAPIDLY DEVELOPING TECHNOLOGY

The markets for the Company's products are characterized by rapid
technological advances, product obsolescence, changes in customer
requirements and evolving regulatory requirements and industry standards.
The Company's future prospects will depend in part on its ability to
enhance its medical image networking and management products in a timely
manner and to identify, develop and achieve market acceptance of new
products that address new technologies and standards and meet customer
needs in the medical imaging network market. There can be no assurance that
the Company will be able to respond to technological advances, changes in
customer requirements or changes in regulatory requirements or industry
standards or that the Company will be able to develop and market new
products successfully. Any failure by the Company to anticipate or to
respond adequately to technological developments in its industry, changes
in customer requirements, or changes in regulatory requirements or industry
standards, or any significant delays in the development, introduction or
shipment of products, could have a material adverse effect on the Company's
business and operating results. In anticipation of new product
introductions by the Company or its competitors, customers could refrain
from purchasing the Company's existing products. New products could render
certain of the Company's existing products obsolete. Any of these events
could materially adversely affect the Company's business and operating
results. In addition, third-party payors, such as governmental programs and
private insurance plans, can indirectly affect the pricing or relative
attractiveness of the Company's products by regulating the maximum amount
of reimbursement that they will provide for the taking, storing and
interpretation of medical images. A decrease in the reimbursement amounts
for radiological procedures may decrease the amount which physicians,
clinics and hospitals are able to charge patients for such services. As a
result, the rate of adoption of new technologies may decrease as capital
investment budgets are reduced, thereby significantly reducing the demand
for the Company's products.

BROAD CONTROL BY MANAGEMENT AND DIRECTORS

The executive officers of the Company and members of the Company's
Board of Directors, own 1,832,619 shares (inclusive of vested options to
acquire an additional 362,142 shares) of the Company's issued and
outstanding Common Stock. Consequently, the executive officers and
Directors control 30% of the total voting power of the Company's Common
Stock. By virtue of such ownership, the executive officers and Directors
voting as a group may be able to influence significantly certain matters
with respect to the Company, including without limitation: (i) the election
of all of the Directors; (ii) increases in authorized capital stock; (iii)
the dissolution or merger of the Company or the sale of the Company's
assets; and (iv) discretion over the day-to-day affairs of the Company. See
"Management" and "Principal Shareholders."

COMPANY DEPENDS ON MAJOR CUSTOMERS

The Company sells a majority of its products to a relatively limited
number of OEMs, VARs and dealers. Aggregate sales to the Company's ten
largest customers represented approximately 68% , 74% and 77% of the
Company's net sales in 1996, 1997 and for the quarter ended March 31, 1998,
respectively. During 1996, Picker, Philips and Siemens accounted for
approximately 26%, 15% and 10%, respectively, of the Company's net sales.
For 1997, Picker and Philips accounted for approximately 23% and 14%,

<PAGE>

respectively, of the Company's net sales. For the quarter ended March 31,
1998, Konica and Picker accounted for approximately 38% and 17%,
respectively, of the Company's net sales. There can be no assurance that
the Company's current customers will continue to place orders with the
Company or that the Company will be able to obtain orders from new
customers. The loss of any one or more of the Company's major customers
could materially adversely affect the Company's business and operating
results. None of the Company's customers is subject to any minimum purchase
requirements, and many of the Company's VAR and OEM customers offer
competitive systems manufactured by third parties. Each of the Company's
VAR and OEM customers and dealers can cease marketing the Company's
products at its respective option, and the loss of one or more significant
customers could materially adversely affect the Company's business and
operating results. See "Business -- Sales, Marketing and Distribution."

EXPANSION OF INTERNATIONAL SALES EFFORTS; CURRENCY RISK

An important component of the Company's business plan includes
increasing its sales to customers outside the United States, which
represented 36% of the Company's net sales during fiscal 1997 and 31% of
the Company's net sales for the three months ended March 31, 1998. Sales in
foreign currency represented approximately 6.7% of the Company's net sales
during fiscal 1997 and 5.0% of the Company's net sales for the three
months ended March 31, 1998; however, the Company anticipates that this
percentage may increase in the future. The Company does not hedge against
risks associated with receipt of foreign currency. The Company does,
however, anticipate that if sales outside the United States increase in the
future, the Company may deem it advisable to hedge against risks associated
with receipt of foreign currency. No assurance can be given that such
hedging, if undertaken, will prevent the Company from incurring losses due
to currency fluctuation.

In order to increase foreign sales, it may be necessary or desirable
for the Company to expand its sales force, or establish additional offices
outside the United States. The increased costs of hiring new personnel or
establishing offices could have a material adverse effect on the Company's
results of operations and financial condition.

DEPENDENCE UPON KEY PERSONNEL

The Company's continued success will depend to a significant degree
upon the efforts and abilities of its senior management, in particular,
William C. Mortimore, its President and Chief Executive Officer, William L.
Stafford, Vice President -- Sales, David M. Noshay, Vice President --
Marketing, Dwight A. Simon, Vice President -- Engineering, Colleen M. Doan,
Chief Financial Officer and Michael J. Franco, Chief Technical Officer. Of
these key personnel, only Mr. Mortimore has an employment agreement with
the Company. See "Management -- Employment Agreements." The loss of the
services of any of these officers could have a material adverse effect on
the Company. The Company maintains term life insurance policies covering
the life of Mr. Mortimore in the amount of $2,000,000 and covering the
lives of each of Mr. Stafford, Mr. Noshay, Mr. Simon and Ms. Doan in the
amount of $500,000, the proceeds of which would be payable to the Company.

POTENTIAL DIFFICULTY IN HIRING ADDITIONAL SALES AND ENGINEERING PERSONNEL

The Company's ability to carry out its business plan depends in part
upon its ability to hire and retain skilled sales and marketing
professionals and engineering specialists. Although the Company believes it
will be able to hire qualified personnel for such purposes, an inability to

<PAGE>

do so could materially adversely affect the Company's ability to market,
sell and enhance its product lines. The market for qualified experienced
sales and marketing professionals and engineering specialists has
historically been, and the Company expects that it will continue to be,
intensely competitive. The inability to recruit and retain qualified
employees could materially adversely affect the Company's results of
operations and financial condition.

PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

Although on April 14, 1998 the Company received U.S. patent number
5,740,248 for CaseWorks, a product currently in development, and has also
submitted foreign patent applications on CaseWorks, the Company generally
does not rely on patent protection with respect to its products. Instead,
the Company 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. There can be no assurance, however, that applicable copyright
or trade secret laws or these agreements will provide meaningful protection
of the Company's copyrights, trade secrets, know-how or other proprietary
information in the event of any unauthorized use, misappropriation or
disclosure of such copyrights, trade secrets, know-how or other proprietary
information. In addition, the laws of certain foreign countries do not
protect the Company's intellectual property rights to the same extent as do
the laws of the United States. There can be no assurance that third parties
will not assert patent, copyright or other intellectual property
infringement claims against the Company with respect to its products or
technology or other matters. Any such claims against the Company, with or
without merit, as well as claims initiated by the Company against third
parties, can be time-consuming and expensive to defend or prosecute and
resolve. To date, the Company has not initiated any intellectual property
infringement claims, and no such claims have been asserted against it. See
"Business -- Intellectual Property."

GOVERNMENT REGULATION

The manufacturing and marketing of the Company's products are subject
to government regulation as medical devices in the United States by the
United States Food and Drug Administration (the "FDA") and in other
countries by corresponding foreign regulatory authorities. The process of
obtaining and maintaining required regulatory clearances and approvals is
uncertain and is often lengthy and expensive. The Company believes that its
success depends upon commercial sales of improved versions of its products,
certain of which cannot be marketed in the United States and other
regulated markets unless and until the Company obtains clearance or
approval from the FDA and its foreign counterparts. Failure to comply with
applicable regulatory requirements could result, among other things, in
warning letters, seizures of the Company's products, total or partial
suspension of the Company's production operations, refusal of the
government to grant market clearance or pre-market approval, withdrawal of
approvals or criminal prosecution.

The Company is also subject to other federal, state and local laws
and regulations relating to safe working conditions and manufacturing
practices. In addition, sales of the Company's products outside the United
States are subject to various foreign regulatory requirements. The extent
of government regulation that might result from any future legislation or
administrative action cannot be predicted. Failure to comply with domestic
regulatory requirements or to obtain any necessary foreign certifications
or regulatory approvals, or any other failure to comply with regulatory
requirements outside the United States could have a material adverse effect
on the Company's business, financial condition and results of operations.
See "Business -- Government Regulation."

<PAGE>

PRODUCT LIABILITY; RISK OF PRODUCT DEFECTS

The Company has licensing agreements with certain of its customers,
which typically contain provisions designed to limit the Company's exposure
to potential product liability claims. However, it is possible that the
limitation of liability provisions contained in the Company's license
agreements may not be effective under the laws of certain jurisdictions.
Furthermore, although the Company tries to include provisions limiting its
exposure to product liability in its sales agreements, the Company is not
always successful in doing so. Moreover, some of the Company's products are
sold without agreements addressing product liability claims at all.
Although the Company has not experienced any product liability claims to
date, the sale and support of products by the Company may entail the risk
of such claims, and there can be no assurance that the Company will not be
subject to such claims in the future. Although the Company has procured
product liability insurance, there can be no assurance that it will
continue to obtain such insurance on favorable terms or that such insurance
will be sufficient to fully protect the Company against a successful
product liability claim. A successful product liability claim brought
against the Company could have a material adverse effect on the Company's
business, results of operations and financial condition. Software products
such as those offered by the Company occasionally contain errors or
failures, especially when first introduced or when new versions are
released. Although the Company conducts extensive product testing, the
Company could in the future lose or delay recognition of revenues as a
result of software errors or defects, the failure of its products to meet
customer specifications or otherwise. Although to date, the Company's
business has not been materially adversely affected by any such errors,
defects or failure to meet specifications, there can be no assurance that
defects will not be found in new or existing products or releases after
commencement of commercial shipments or that such products will meet
customer specifications, resulting in loss or deferral of revenues,
diversion of resources, damage to the Company's reputation, or increased
service and warranty and other costs, any of which could have a material
adverse effect upon the Company's business, operating results and financial
condition. See "Business -- Products Under Development."

SIGNIFICANT UNALLOCATED NET PROCEEDS OF INITIAL PUBLIC OFFERING; BROAD
DISCRETION OF MANAGEMENT

A significant portion of the remaining proceeds of the initial public
offering (the "IPO") of the Common Stock completed in the quarter ended
March 31, 1998 have not been allocated for specific uses by the Company.
The Company intends to use some of the remaining net proceeds of the IPO to
fund increases in accounts receivable, to increase sales and marketing and
research and development, to hire additional personnel and for other
working capital and general corporate purposes. In addition, the Company
may use a portion of the remaining net proceeds of the IPO to acquire
businesses, products or technologies complementary to its business,
although the Company has no present plans, intentions, understandings,
commitments or agreements, nor is it currently engaged in any negotiations,
with respect to any possible acquisitions. Pending such uses, the Company
has invested the remaining net proceeds from the IPO in short-term,
investment-grade, interest-bearing securities. The Company has no other
specific uses for the remaining proceeds of the IPO, and the exact use of
the proceeds will be subject to the discretion of management.

MARKETS FOR THE COMPANY'S PRODUCTS ARE HIGHLY COMPETITIVE

The markets for the Company's products are highly competitive. Many
of the Company's customers purchase products from both the Company and its
competitors. The Company has one primary competitor in the imaging
acquisition network business, which includes the Company's MergeMVP
product. In the DICOM software package business, the Company primarily
competes directly and indirectly with a number of other entities, including

<PAGE>

the Radiological Society of North America, which offers a version of DICOM
(originally developed by Mallinckrodt Institute of Radiology) as "freeware"
available to be downloaded without charge from the Internet, but which
offers more limited features and no user support. The Company also faces
competition from picture archiving and communication systems ("PACS")
manufacturers. See "Business -- Competition."

In the application of MergeWorks Connectivity Products specifically
for hardcopy film networks, which include the MergeAPS print server and the
MergeXPI printer interface, the Company competes with multiple film
vendors. However, since the MergeAPS print server works with any of the
laser film printers available from these vendors, these companies also have
purchased products from the Company when they have needed to interface with
other competing manufacturers' products. The Company expects competition to
increase in the future from existing competitors and from other companies
that may enter the Company's existing or future markets. The Company could
also face competition from networking equipment and telecommunications
manufacturers if such companies were either to develop DICOM capability for
their products, or purchase from one of the Company's competitors products
that provide DICOM capability. Many of the Company's current and potential
competitors have greater resources than those of the Company in areas
including finance, research and development, intellectual property and
marketing. Many of these competitors also have broader product lines and
longer standing relationships with customers in the medical imaging field
than those of the Company.

The Company believes that its ability to compete successfully depends
on a number of factors both within and outside of its control, including:
applications innovation; product quality and performance; price;
experienced sales, marketing and service organizations; 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 its competitors. There can be no
assurance that the Company will be able to compete successfully with
existing or new competitors.

POSSIBILITY OF NASDAQ QUOTATION TERMINATION OR SUSPENSION AND DECREASE IN
STOCK PRICE

Continued trading of the Common Stock on the Nasdaq SmallCap Market
is conditioned upon maintaining certain asset, capital and surplus,
earnings and stock price tests. To maintain eligibility on the Nasdaq
SmallCap Market, the Company must, among other things, maintain compliance
with one of the following three tests: (i) net tangible assets in excess of
$2,000,000; (ii) market capitalization of $35,000,000; or (iii) net income
of $500,000 in the latest fiscal year or in two of the last three fiscal
years. If the Company fails all of these tests or if the Company fails to
maintain an average bid price of at least $1.00 per Share, the Common Stock
may be suspended or terminated from inclusion on the Nasdaq SmallCap
Market. The effects of suspension or termination include the limited
release of the market prices of the Common Stock and limited news coverage
of the Company. Suspension or termination may restrict investors' interest
in the Common Stock and materially adversely affect the trading market and
prices for such securities and the Company's ability to issue additional
securities or to secure additional financing. In addition to the risk of
volatility of stock prices and possible suspension or termination, low
price stocks are subject to additional risks of additional federal and
state regulatory requirements and the potential loss of effective trading
markets. In particular, if trading of the Common Stock on the Nasdaq
SmallCap Market was to be suspended or terminated and the trading price of
the Common Stock was less than $5.00 per share, such Common Stock could be
subject to Rule 15g-9 under the Exchange Act, which, among other things,
requires that broker/dealers satisfy special sales practice requirements,
including making individualized written suitability determinations and
receiving any purchaser's written consent prior to any transaction. In such

<PAGE>

case, the Common Stock could also be deemed "penny stock" under the
Securities Enforcement and Penny Stock Reform Act of 1990, which would
require additional disclosure in connection with trades in the Common
Stock, including the delivery of a disclosure schedule explaining the
nature and risks of the penny stock market. Such requirements could
severely limit the liquidity of the Common Stock and the ability of
purchasers in this Offering to sell their Common Stock in the secondary
market. See "Risk Factors-Recent IPO" and "-Potential Adverse Impact on
Market Price of Shares Eligible for Future Sale and Registration Rights."

RECENT IPO

Prior to the IPO there was no market for the Common Stock. Although
the Common Stock is included for quotation on the Nasdaq SmallCap Market,
there can be no assurance that an active trading market will develop for
the Common Stock, or, if developed, that it will be maintained. Certain
factors, such as subsequent sales of Common Stock into the market by
existing shareholders, including Sirrom, and market conditions generally,
could cause the market price of the Common Stock to vary substantially. In
addition, H.C. Wainwright & Co. Inc, the Underwriter of the IPO and the
Representative of the several underwriters of the IPO (the "Underwriter" or
the "Representative", as applicable) has registration rights for the Common
Stock it owns or may acquire and accordingly, will have the ability to
exercise these rights and sell these shares substantially free of
securities law restrictions,. Also, certain existing shareholders have
held their shares for over one year and will be able to sell these shares
substantially free of securities law restrictions, subject to contractual
agreements not to sell these shares prior to certain dates. See "Risk
Factors-Lack of Consistent Profitability; History of Operating Losses and
Working Capital Deficits; Substantial Intangible Assets," "Certain
Relationships and Related Transactions" and "Shares Eligible for Future
Sale."

ADDITIONAL FUNDING MAY BE NECESSARY

The Company believes that the remaining net proceeds from the IPO,
together with current cash and cash equivalent balances and internally
generated funds, will satisfy the Company's projected requirements for the
twelve months following the date of this Prospectus for sales and
distribution, research and development, working capital and commitments
under its employment agreements with its European employees (all of which
the Company believes to be at fair market wages) and with Mr. Mortimore,
the Company's President and Chief Executive Officer. Thereafter, if cash
generated from operations is insufficient to satisfy the Company's
projected requirements, or if the Company subsequently elects to use funds
for acquisitions or other matters, the Company may be required to sell
additional equity or debt securities or obtain additional bank or other
credit facilities. There can be no assurance that the Company will be able
to sell such securities or obtain such credit facilities on acceptable
terms in the future, if at all. This potential sale of additional equity or
debt securities could result in further dilution to the Company's
shareholders. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

NO INTENTION TO DECLARE OR PAY DIVIDENDS

The Company does not currently intend to declare or pay any cash
dividends on the Common Stock in the foreseeable future and anticipates
that earnings, if any, will be used to finance the development and
expansion of its business. The Company also anticipates that it may in the
future seek to obtain a loan, revolving credit agreement or other financing
arrangement, the terms of which, although not known to the Company at this

<PAGE>

time, may prohibit the declaration and payment of dividends without prior
lender approval. Any payment of future dividends and the amounts thereof
will be dependent upon the Company's earnings, financial requirements and
other factors deemed relevant by the Company's Board of Directors,
including the Company's contractual obligations. See "Dividend Policy."

POTENTIAL ADVERSE IMPACT OF PREFERRED STOCK ON RIGHTS OF COMMON STOCK

The Company's Articles of Incorporation authorize the issuance of
"blank check" preferred stock with such designations, rights and
preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Company's Board of Directors will have the
authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences and privileges of those shares
without any further vote or action by the shareholders. The rights of the
holders of Common Stock will be subject to, and may be materially adversely
affected by, the rights of the holders of any Preferred Stock that may be
issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. Although the Company has no present plans to issue shares of
Preferred Stock, there can be no assurance that the Company will not do so
in the future. See "Description of Securities."

ANTITAKEOVER MEASURES

The Company's Articles of Incorporation and By-Laws, along with
Wisconsin statutory law, contain provisions that could discourage potential
acquisition proposals and might delay or prevent a change in control of the
Company. Such provisions could result in the Company being less attractive
to a potential acquiror and could result in the shareholders receiving less
for their Common Stock than otherwise might be available in the event of a
takeover attempt. See "Description of Securities -- Certain Statutory and
Other Provisions."

POTENTIAL ADVERSE IMPACT ON MARKET PRICE OF SHARES ELIGIBLE FOR FUTURE SALE
AND REGISTRATION RIGHTS

The Company has outstanding 5,778,216 shares of Common Stock.
Currently, 2,185,000 shares of Common Stock are freely tradeable without
restriction or further limitation under the Securities Act, except for any
shares purchased by an "affiliate" of the Company, which will be subject to
the limitations imposed on "affiliates" of the Company under Rule 144
promulgated under the Securities Act ("Rule 144"). The 108,942 shares of
Common Stock offered hereby are currently "restricted securities" within
the meaning of Rule 144 and may not be resold except pursuant to a
registration statement effective under the Securities Act or pursuant to an
exemption therefrom, including the exemption provided by Rule 144. Sirrom
has agreed with the Company not to sell, pledge, encumber or otherwise
dispose of any of the 108,942 shares of Common Stock offered hereby until
August 1, 1998. After August 1, 1998, the 108,942 shares of Common Stock
offered hereby may be sold without restriction or further limitation under
the Securities Act. The remaining 3,484,274 outstanding shares of Common
Stock are "restricted securities." Pursuant to the Company's 1996 Stock
Option Plan, options to acquire up to 924,043 shares of Common Stock are
held by employees and pursuant to the Company's 1998 Stock Option Plan for
Directors, options to acquire 60,000 shares of Common Stock are held by
directors; if exercised, the shares so issued shall be freely tradeable
subject to certain limitations imposed by Rule 701, including limitations
under Rule 144, promulgated under the Securities Act. In addition, the
Representative owns warrants that entitle the Representative to purchase an
aggregate of 190,000 shares of Common Stock at an initial exercise price

<PAGE>

per share equal to $7.80 per share (the "Representative's Warrants"). The
Representative's Warrants will be exercisable through January 28, 2002 and
contain certain demand and incidental registration rights relating to the
underlying Common Stock. The holders of the Representative's Warrants may
sell shares of Common Stock acquired by exercise of the Representative's
Warrants after one year from the date of exercise thereof without
registration subject to the limitations of Rule 144.

In general, under Rule 144, a person (or persons whose shares are
aggregated) who has satisfied a one-year holding period may, subject to
certain restrictions, sell within any three-month period a number of shares
which does not exceed the greater of: (i) 1% of the then outstanding shares
of Common Stock; or (ii) the average weekly trading volume during the four
calendar weeks preceding the date on which notice of the sale is filed with
the Commission as required by Rule 144. Rule 144 also permits the sale of
shares without any volume limitation by a person who is not an affiliate of
the Company and who has satisfied a two-year holding period. The one-year
holding period with respect to 3,484,274 outstanding shares of Common Stock
has expired or, with respect to shares issued upon the exercise of options
granted under the Company's 1996 Stock Option Plan, is no longer
applicable.

In connection with the IPO, holders of Common Stock and outstanding
stock options holding approximately 67% of the Company's outstanding Common
Stock and outstanding options agreed not to offer, pledge, sell, contract
to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any securities of the Company they currently hold
without the prior written consent of the Underwriter for the following
periods: (i) shareholders holding approximately 62% of the Company's
outstanding Common Stock have agreed to such restrictions with respect to
all of their current stockholdings, and shares they may obtain by
exercising options currently held by them, through October 31, 1998 (275
days following the IPO) and, with respect to 50% of their current
stockholdings, and shares they may obtain by exercising options currently
held by them through April 29, 1999 (455 days following the IPO); and (ii)
Sirrom and Alpha Capital Venture Partners, Limited ("Alpha"), who hold, in
the aggregate, approximately 4% of the Company's outstanding Common Stock,
have agreed to such restrictions with respect to all of their current
stockholdings through August 1, 1998 (180 days following the IPO). In
addition, in order to register the Common Stock for sale in certain states
the Company's directors prior to the IPO, and all of the Company's
executive officers, entered into "lock-in" agreements which prohibit the
sale, pledge or encumbrance of all or a substantial majority of their
respective shares owned prior to the IPO through January 28, 2000 (two
years following the IPO), subject to the right to (i) sell up to 2.5% of
the subject shares per quarter during the second year of such agreement,
and (ii) continue existing pledges of Common Stock to secure personal
borrowings in place prior to the effectiveness of the IPO in the case of
two of such individuals. Since directors of the Company who were not
directors prior to the IPO did not enter into such "lock-in" agreements,
their shares are not subject to these restrictions. In order to register
the Common Stock for sale in certain states, except for options to purchase
60,000 shares of Common Stock issued under the 1998 Stock Option Plan for
Directors granted immediately following the closing of the IPO, the Company
will not grant options or warrants in excess of 15% of the number of
outstanding shares of Common Stock to officers, directors, employees,
holders of 5% or more of the Common Stock or affiliates through January 28,
1999 (one year following the IPO).

Prior to the IPO, there was no market for the Common Stock. Further
sales of Common Stock under Rule 144 in the public market could adversely
affect the market price of the Common Stock or the ability of the Company
to raise money through a public offering of its equity securities.

<PAGE>

FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

This Prospectus contains certain forward-looking statements
including: (i) anticipated trends in the Company's financial condition and
results of operations, including expected changes in the Company's gross
profit, sales and marketing expense, product research and development
expense, general and administrative expense and professional expenses; (ii)
the Company's business strategy for future growth in the market, including
the Company's plans regarding anticipated hiring; and (iii) the Company's
ability to distinguish itself from its current and future competitors. When
used in the Prospectus, the words "believes," "intends," "anticipates,"
"expects," and similar expressions are intended to identify forward-looking
statements. These forward-looking statements are based largely on the
Company's current expectations and are subject to a number of risks and
uncertainties. In addition to the other risks described elsewhere in this
"Risk Factors" Section, important factors to consider in evaluating such
forward-looking statements include: (i) changes in external competitive
market factors which might impact trends in the Company's results of
operations; (ii) unanticipated working capital and other cash requirements;
(iii) general changes in the industries in which the Company competes; and
(iv) various other competitive factors that may prevent the Company from
competing successfully in the marketplace. In light of these risks and
uncertainties, many of which are described in greater detail elsewhere in
this "Risk Factors" Section, actual results could differ materially from
the forward-looking statements contained in this Prospectus.

THE COMPANY

The Company is a Wisconsin corporation and was incorporated on
November 25, 1987. The Company's principal executive offices are located at
1126 South 70th Street, Suite S107B, Milwaukee, Wisconsin 53214-3151, its
telephone number is (414) 475-4300 and its Internet address is
www.merge.com.

USE OF PROCEEDS

This Prospectus relates to Shares being offered and sold for the
account of the Selling Stockholder. The Company will not receive any
proceeds from the sale of the Shares. The Company has agreed to pay all
expenses related to the registration of the Shares. See "Plan of
Distribution."

SELLING STOCKHOLDER

The Selling Stockholder beneficially owns an aggregate of 108,942
shares of Common Stock as of the date of this Prospectus, or 1.9% of the
total number of Shares outstanding. Because the Selling Stockholder may
offer all or a portion of the Shares, no estimate can be made of the number
of Shares that the Selling Stockholder will beneficially own upon
completion of the Offering. The Company previously has entered into
financing transactions with the Selling Stockholder. See "Certain
Relationships and Related Transactions."

<PAGE>

DILUTION

This Offering, which consists solely of Shares previously issued by
the Company, is being made for the account of the Selling Stockholder and
will not result in dilution to purchasers of the Shares.

DIVIDEND POLICY

The Company has not paid any cash dividends on its Common Stock since
its formation. The Company does not currently intend to declare or pay any
cash dividends on the Common Stock in the foreseeable future and
anticipates that earnings, if any, will be used to finance the development
and expansion of its business. The Company also anticipates that it may in
the future seek to obtain a loan, revolving credit agreement or other
financing arrangement, the terms of which may prohibit the declaration and
payment of dividends without prior lender approval. Any payment of future
dividends and the amounts thereof will be dependent upon the Company's
earnings, financial requirements and other factors deemed relevant by the
Company's Board of Directors, including the Company's contractual
obligations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

PLAN OF DISTRIBUTION

The Shares may be sold or distributed from time to time by the
Selling Stockholder, or by pledgees, donees or transferees of, or other
successors in interest to, the Selling Stockholder, directly to one or more
purchasers (including pledgees) or through brokers, dealers or underwriters
who may act solely as agents or may acquire Shares as principals, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at negotiated prices, or at fixed prices, which may be
changed. The distribution of the Shares may be effected by one or more of
the following methods: (i) ordinary brokers' transactions, which may
include long or short sales; (ii) transactions involving cross or block
trades or otherwise on the Nasdaq SmallCap Market; (iii) purchases by
brokers, dealers or underwriters as principals and resale by such
purchasers for their own accounts pursuant to this Prospectus; (iv) "at the
market" to or through market makers or into an existing market for the
Common Stock; (v) in other ways not involving market makers or established
trading markets, including direct sales to purchasers or sales effected
through agents; (vi) through transactions in options, swaps or other
derivatives (whether exchange-listed or otherwise), or (vii) any
combination of the foregoing, or by any other legally available means. In
addition, the Selling Stockholder or its successors in interest may enter
into hedging transactions with broker-dealers who may engage in short sales
of Common Stock in the course of the hedging positions they assume with the
Selling Stockholder. The Selling Stockholder or its successors in interest
may also enter into option or other transactions with broker-dealers that
require the delivery to such broker-dealers of the Shares, which shares may
be resold thereafter pursuant to this Prospectus.

Brokers, dealers, underwriters or agents participating in the
distribution of the Shares as agent may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholder (and, if
they act as agent for the purchaser of such Shares, from such purchaser).
Such discounts, concessions or commissions as to a particular broker,
dealer, underwriter or agent might be greater or less than those customary
in the type of transaction involved.

<PAGE>

The Selling Stockholder and any such brokers, dealers or other agents
that participate in such distribution may be deemed to be "underwriters"
within the meaning of the Securities Act, and any discounts, commissions or
concessions received by the Selling Stockholder and any such brokers,
dealers or other agents might be deemed to be underwriting discounts and
commissions under the Securities Act. Neither the Company nor the Selling
Stockholder can presently estimate the amount of any such compensation.
The Company knows of no existing arrangements between the Selling
Stockholder and any broker, dealer or other agent relating to the sale or
distribution of the Shares.

Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of any of the Shares may not
simultaneously engage in market activities with respect to the Common Stock
for the applicable period under Regulation M prior to the commencement of
such distribution. In addition, and without limiting the foregoing, the
Selling Stockholder will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including without
limitation Rules 10b-5 and Regulation M, which may limit the timing of
purchases and sales of any of the Shares by the Selling Stockholder. All
of the foregoing may affect the marketability of the Common Stock.

The Company will pay substantially all of the expenses incident to
the registration of the Shares. The Selling Stockholder may indemnify any
broker, dealer, or other agent that participates in transactions involving
sales of the Shares against certain liabilities, including liabilities
arising under the Securities Act.

In order to comply with certain states' securities laws, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The information required by this item is incorporated by reference to
the information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997 and the
Company's Quarterly Report on Form 10-QSB for the quarter ended March 31,
1998.

BUSINESS

The information required by this item is incorporated by reference to
the information set forth under the caption "Business" in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997.

PROPERTIES

The Company's principal facilities are located in Milwaukee,
Wisconsin, in an approximately 14,000 square-foot facility leased through
September 2004 at a rate of approximately $203,000 per year. The Company
also leases a sales, administrative and service support office in Nuenen,
The Netherlands. The Company anticipates that additional space will be
required as its business expands and believes that it will be able to
obtain suitable space as needed. The Company anticipates that it will need
to acquire additional office space in fiscal 1998.

<PAGE>

EMPLOYEES

As of March 31, 1998, the Company had 80 employees, including 33
employees in research and development, nine in manufacturing, 10 in quality
control, service and support, 12 in sales, five in marketing and sales
support activities and 11 in general administration and finance. Seven of
the Company's full-time employees reside in Europe performing sales and
technical customer support roles. The Company also relies on several
part-time employees and consultants. None of the Company's employees is
represented by a collective bargaining agreement nor has the Company
experienced a work stoppage. Management believes that the Company's
relationship with its employees is good.

LEGAL PROCEEDINGS

The Company is not involved in any material legal proceedings.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

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 dated May 18, 1998.

EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to
the information set forth under the caption "Management - Compensation of
Directors and Executive Officers" in the Company's Proxy Statement dated
May 18, 1998.

MARKET FOR COMMON STOCK

The Common Stock is included for quotation on the Nasdaq SmallCap
Market. The high bid price for the Common Stock, as reported by Nasdaq,
for the quarter ended March 31, 1998 was $6.375. The low bid price for the
Common Stock, as reported by Nasdaq, for the quarter ended March 31, 1998
was $6.00. These quotations reflect inter-dealer prices, without retail
mark-up, mark down or commission and may not represent actual transactions.

As of the date of this Prospectus, there were 5,778,216 shares of Common
Stock, held of record by ___ persons, and no shares of Preferred Stock
outstanding.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to
the information set forth under the caption "Certain Relationships and
Related Transactions" in the Company's Proxy Statement dated May 18, 1998.

<PAGE>

PRINCIPAL SHAREHOLDERS

The information required by this item is incorporated by reference to
the information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement dated
May 18, 1998.

DESCRIPTION OF SECURITIES

The authorized capital stock of the Company consists of 30,000,000
shares of Common Stock, par value $0.01 per share, and 5,000,000 shares of
Preferred Stock, par value $0.01 per share.

The following description of the capital stock of the Company is a
summary and is qualified in its entirety by the provisions of the Company's
Articles of Incorporation (the "Articles") and By-Laws, copies of which are
filed as exhibits to the Registration Statement of which this Prospectus
forms a part.

COMMON STOCK

Holders of Common Stock are entitled to one vote per share of Common
Stock beneficially owned on each matter submitted to a vote at a meeting of
shareholders, subject to Section 180.1150 of the WBCL (described below
under "Certain Statutory and Other Provisions"). The Common Stock does not
have cumulative voting rights, which means that the holders of a majority
of voting shares voting for the election of Directors can elect all of the
members of the Board of Directors. The Common Stock has no preemptive
rights and no redemption or conversion privileges. Subject to any
preferences of any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive dividends out of assets legally available at such
times and in such amounts as the Board of Directors may, from time to time,
determine, and upon liquidation and dissolution are entitled to receive all
assets available for distribution to the shareholders. The Company's
Articles state that a majority vote of shares represented at a meeting at
which a quorum is present is sufficient for all actions that require the
vote of shareholders. However, under the WBCL, certain actions require
enhanced approval by either a supermajority of two-thirds of all
outstanding shares entitled to vote and certain actions require a majority
of all outstanding shares entitled to vote. See "Certain Statutory and
Other Provisions." All of the outstanding shares of the Common Stock are,
and the shares to be sold by Sirrom pursuant to this Offering were legally
issued, fully paid and nonassessable, except for certain statutory
liabilities which may be imposed by Section 180.0622(2)(b) of the WBCL for
unpaid employee wages.

PREFERRED STOCK

Pursuant to the Articles, the Company's Board of Directors may,
without further action by the Company's shareholders, from time to time,
issue shares of the Preferred Stock in series and may, at the time of
issuance, determine the rights, preferences, and limitations of each
series. Any dividend preference of any Preferred Stock which may be issued
would reduce the amount of funds available for the payment of dividends on
Common Stock. Also, holders of the Preferred Stock would normally be
entitled to receive a preference payment in the event of any liquidation,
dissolution, or winding-up of the Company before any payment is made to the
holders of Common Stock. The issuance of preferred stock will be approved
by a majority of the Company's independent directors who do not have an
interest in the transaction and who have access, at the Company's expense,
to the Company's or independent legal counsel. Under certain circumstances,

<PAGE>

the issuance of such Preferred Stock may discourage bids for the Common
Stock at a premium or otherwise adversely affect the market price of the
Common Stock or may render more difficult or tend to discourage a merger,
tender offer, proxy contest, the assumption of control by a holder of a
large block of the Company's securities or the removal of incumbent
management. Although the Company presently has no plans to issue any of its
shares of the Preferred Stock, the Board of Directors of the Company,
without shareholder approval, may issue the Preferred Stock with voting and
conversion rights which could adversely affect the holders of Common Stock.

LIMITATION OF DIRECTOR LIABILITY

Section 180.0828 of the WBCL provides that officers and directors of
domestic corporations may be personally liable only for intentional
breaches of fiduciary duties, criminal acts, transactions from which the
director derived an improper personal profit and wilful misconduct. These
provisions may have the effect of reducing the likelihood of derivative
litigation against directors and may discourage or deter shareholders or
management from bringing a lawsuit against directors for breach of their
duty of care, even though such an action, if successful, might otherwise
have benefitted the Company and its shareholders. The employment agreements
of certain directors and officers contain a provision similar to the
provisions of the WBCL.

INDEMNIFICATION

Under the WBCL, directors and officers of the Company are entitled to
mandatory indemnification from the Company against certain liabilities and
expenses (a) to the extent such officers or directors are successful in the
defense of a proceeding and (b) in proceedings in which the director or
officer is not successful in the defense thereof, unless (in the latter
case only) it is determined that the director or officer breached or failed
to perform his or her duties to the Company and such breach or failure
constituted: (i) a wilful failure to deal fairly with the Company or its
shareholders in connection with a matter in which the director or officer
had a material conflict of interest; (ii) a violation of the criminal law
unless the director or officer had reasonable cause to believe his or her
conduct was lawful or had no reasonable cause to believe his or her conduct
was unlawful; (iii) a transaction from which the director or officer
derived an improper personal profit; or (iv) wilful misconduct. The WBCL
allows a corporation to limit its obligation to indemnify officers and
directors by providing so in its articles of incorporation. The Company's
By-Laws provide for indemnification of directors and officers to the
fullest extent permitted by Wisconsin law.

CERTAIN STATUTORY AND OTHER PROVISIONS

The provisions of the Company's By-Laws and the WBCL described in
this section may delay or make more difficult acquisitions or changes of
control of the Company not approved by the Company's Board of Directors.
Such provisions have been implemented to enable the Company, particularly
(but not exclusively) in the initial years of its existence as a
publicly-traded company, to develop its business in a manner which will
foster its long-term growth without disruption caused by the threat of a
takeover not deemed by its Board of Directors to be in the best interests
of the Company and its shareholders. Such provisions could have the effect
of discouraging third parties from making proposals involving an
acquisition or change of control of the Company, although such proposals,
if made, might be considered desirable by a majority of the Company's
shareholders. Such provisions may also have the effect of making it more
difficult for third parties to cause the replacement of the current
management of the Company without the concurrence of the Board of
Directors.

<PAGE>

NUMBER OF DIRECTORS; REMOVAL; VACANCIES. The By-Laws currently
provide that the number of Directors shall be not less than three nor
greater than eleven. The Company currently has seven Directors. The
authorized number of Directors may be changed by amendment of the By-Laws.
The By-Laws also provide that the Company's Board of Directors shall have
the exclusive right to fill vacancies on the Board of Directors, including
vacancies created by expansion of the Board or removal of a Director, and
that any Director elected to fill a vacancy shall serve until the next
annual meeting of shareholders. The By-Laws further provide that Directors
may be removed by the shareholders only by the affirmative vote of the
holders of at least a majority of the votes then entitled to be cast in an
election of Directors. This provision, in conjunction with the provisions
of the By-Laws authorizing the Board to fill vacant Directorships, could
prevent shareholders from removing incumbent Directors and filling the
resulting vacancies with their own nominees.

AMENDMENTS TO THE ARTICLES OF INCORPORATION. The WBCL provides
authority to the Company to amend its Articles at any time to add or change
a provision that is required or permitted to be included in the Articles or
to delete a provision that is not required to be included in the Articles.
The Company's Board of Directors may propose one or more amendments to the
Company's Articles for submission to shareholders and may condition its
submission of the proposed amendment on any basis if the Board of Directors
notifies each shareholder, whether or not entitled to vote, of the
shareholders' meeting at which the proposed amendment will be voted upon.

CONSTITUENCY OR STAKEHOLDER PROVISION. Under Section 180.0827 of the
WBCL (the "Wisconsin Stakeholder Provision"), in discharging his or her
duties to the Company and in determining what he or she believes to be in
the best interests of the Company, a director or officer may, in addition
to considering the effects of any action on shareholders, consider the
effects of the action on employees, suppliers, customers, the communities
in which the Company operates and any other factors that the director or
officer considers pertinent.

WISCONSIN ANTITAKEOVER STATUTES. Sections 180.1140 to 180.1144 of
the WBCL (the "Wisconsin Business Combination Statute") regulate the broad
range of "business combinations" between a "resident domestic corporation"
(such as the Company) and an "interested stockholder." The Wisconsin
Business Combination Statute defines a "business combination" to include a
merger or share exchange, or a sale, lease, exchange, mortgage, pledge,
transfer or other disposition of assets equal to at least 5% of the market
value of the stock or assets of the corporation or 10% of its earning
power, or the issuance of stock or rights to purchase stock with a market
value equal to at least 5% of the outstanding stock, the adoption of a plan
of liquidation or dissolution and certain other transactions involving an
"interested stockholder," defined as a person who beneficially owns 10% of
the voting power of the outstanding voting stock of the corporation or who
is an affiliate or associate of the corporation and beneficially owned 10%
of the voting power of the then outstanding voting stock within the last
three years. Section 180.1141 of the Wisconsin Business Combination Statute
prohibits a corporation from engaging in a business combination (other than
a business combination of a type specifically excluded from the coverage of
the statute) with an interested stockholder for a period of three years
following the date such person becomes an interested stockholder, unless
the board of directors approved the business combination or the acquisition
of the stock that resulted in a person becoming an interested stockholder
before such acquisition. Accordingly, the Wisconsin Business Combination
Statute's prohibition on business combinations cannot be avoided during the
three-year period by subsequent action of the board of directors or
shareholders. Business combinations after the three-year period following
the stock acquisition date are permitted only if (i) the board of directors
approved the acquisition of the stock by the interested stockholder prior
to the acquisition date, (ii) the business combination is approved by a

<PAGE>

majority of the outstanding voting stock not beneficially owned by the
interested stockholder, or (iii) the consideration to be received by
shareholders meets certain requirements of the statute with respect to form
and amount.

In addition, the WBCL provides in Sections 180.1130 to 180.1133, that
business combinations involving a "significant shareholder" (as defined
below) and a "resident domestic corporation" (such as the Company) are
subject to a two-thirds supermajority vote of shareholders (the "Wisconsin
Fair Price Statute"), in addition to any approval otherwise required. A
"significant shareholder," with respect to a resident domestic corporation,
is defined as a person who beneficially owns, directly or indirectly, 10%
or more of the voting stock of the corporation, or an affiliate of the
corporation which beneficially owned, directly or indirectly, 10% or more
of the voting stock of the corporation within the last two years. The
Company is an "issuing public corporation" within the meaning of such term
under the WBCL. Under Section 180.1131 and Section 180.1132 of the WBCL,
the business combinations described above must be approved by 80% of the
voting power of the corporation's stock and at least two-thirds of the
voting power of the corporation's stock not beneficially held by the
significant shareholder who is party to the relevant transaction or any of
its affiliates or associates, in each case voting together as a single
group, unless the following fair price standards have been met: (i) the
aggregate value of the per share consideration is equal to the higher of
(a) the highest price paid for any common stock of the corporation by the
significant shareholder in the transaction in which it became a significant
shareholder of within two years before the date of the business
combination, (b) the market value of the corporation's shares on the date
of commencement of any tender offer by the significant shareholder, the
date on which the person became a significant shareholder or the date of
the first public announcement of the proposed business combination,
whichever is highest, or (c) the highest liquidation or dissolution
distribution to which holders of the shares would be entitled, and
(ii) either cash, or the form of consideration used by the significant
shareholder to acquire the largest number of shares, is offered.

Section 180.1134 of the WBCL (the "Wisconsin Defensive Action
Restrictions") provides that, in addition to the vote otherwise required by
law or the articles of incorporation of an issuing public corporation, the
approval of the holders of a majority of the shares entitled to vote is
required before such corporation can take certain action while a takeover
offer is being made or after a takeover offer has been publicly announced
and before it is concluded. Under the Wisconsin Defensive Action
Restrictions, shareholder approval is required for the corporation to
(i) acquire more than 5% of the outstanding voting shares at a price above
the market price from any individual who or organization which owns more
than 3% of the outstanding voting shares and has held such shares for less
than two years, unless a similar offer is made to acquire all voting
shares, or (ii) sell or option assets of the corporation which amount to at
least 10% of the market value of the corporation, unless the corporation
has at least three independent directors (directors who are not officers or
employees) and a majority of the independent directors vote not to have
this provision apply to the corporation. The restrictions described in
clause (i) above may have the effect of deterring a shareholder from
acquiring shares of the Common Stock with the goal of seeking to have the
Company repurchase such shares at a premium over the market price.

Section 180.1150 of the WBCL provides that the voting power of shares
of public Wisconsin corporations such as the Company held by any person or
persons acting as a group in excess of 20% of the voting power in the
election of directors is limited to 10% of the full voting power of those
shares. This statutory voting restriction does not apply to shares acquired
directly from the Company or in certain specified transactions or shares
for which full voting power has been restored pursuant to a vote of
shareholders.

<PAGE>

CERTAIN ANTITAKEOVER EFFECTS. Certain provisions of the Company's
Articles and By-Laws may have significant antitakeover effects, including
the ability of the remaining directors to fill vacancies, and the ability
of the Board of Directors to issue "blank check" preferred stock which, in
turn, allows the directors to adopt a so-called "rights plan" which would
entitle shareholders (other than a hostile bidder) to acquire stock of the
Company at a discount.

The explicit grant in the Wisconsin Stakeholder Provision of
discretion to directors to consider nonshareholder constituencies could, in
the context of an "auction" of the Company, have antitakeover effects in
situations where the interests of stakeholders of the Company, including
employees, suppliers, customers and communities in which the Company does
business, conflict with the short-term maximization of shareholder value.

The Wisconsin Fair Price Statute may discourage any attempt by a
shareholder to squeeze out other shareholders without offering an
appropriate premium purchase price. In addition, the Wisconsin Defensive
Action Restrictions may have the effect of deterring a shareholder from
acquiring the Common Stock with the goal of seeking to have the Company
repurchase the Common Stock at a premium. The WBCL statutory provisions and
the Company's Articles and By-Law provisions referenced above are intended
to encourage persons seeking to acquire control of the Company to initiate
such an acquisition through arms-length negotiations with the Company's
Board of Directors, and to ensure that sufficient time for consideration of
such a proposal, and any alternatives, is available. Such measures are also
designed to discourage investors from attempting to accumulate a
significant minority position in the Company and then use the threat of a
proxy contest as a means to pressure the Company to repurchase shares of
Common Stock at a premium over the market value. To the extent that such
measures make it more difficult for, or discourage, a proxy contest or the
assumption of control by a holder of a substantial block of the Common
Stock, they could increase the likelihood that incumbent Directors will
retain their positions, and may also have the effect of discouraging a
tender offer or other attempt to obtain control of the Company, even though
such attempt might be beneficial to the Company and its shareholders.

TRANSFER AGENT AND REGISTRAR

Firstar Trust Company is the Transfer Agent and Registrar for the
Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE

<PAGE>

acquire up to 924,043 shares of Common Stock are held by employees and
pursuant to the Company's 1998 Stock Option Plan for Directors, options to
acquire 60,000 shares of Common Stock are held by directors; if exercised,
the shares so issued shall be freely tradeable subject to certain
limitations imposed by Rule 701, including limitations under Rule 144,
promulgated under the Securities Act. In addition, the Representative owns
the Representative's Warrants, which entitle the Representative to purchase
an aggregate of 190,000 shares of Common Stock at an initial exercise price
per share equal to $7.80 per share. The Representative's Warrants will be
exercisable through January 28, 2002 and contain certain demand and
incidental registration rights relating to the underlying Common Stock. The
holders of the Representative's Warrants may sell shares of Common Stock
acquired by exercise of the Representative's Warrants after one year from
the date of exercise thereof without registration subject to the
limitations of Rule 144.

Holders of Common Stock and outstanding stock options holding
approximately 67% of the Company's outstanding Common Stock and outstanding
options have agreed not to offer, pledge, sell, contract to sell, grant any
option for the sale of, or otherwise dispose of, directly or indirectly,
any securities of the Company they currently hold without the prior written
consent of the Underwriter for the following periods: (i) shareholders
holding approximately 62% of the Company's outstanding Common Stock have
agreed to such restrictions with respect to all of their current
stockholdings, and shares they may obtain by exercising options currently
held by them, through October 31, 1998 (275 days following the IPO) and,
with respect to 50% of their current stockholdings, and shares they may
obtain by exercising options currently held by them through April 29, 1999
(455 days following the IPO); and (ii) Sirrom and Alpha, who hold, in the
aggregate, approximately 4% of the Company's outstanding Common Stock, have
agreed to such restrictions with respect to all of their current
stockholdings through August 1, 1998 (180 days following the IPO). In
addition, in order to register the Common Stock for sale in certain states,
the Company's directors prior to the IPO, and all of the Company's
officers, entered into "lock-in" agreements which prohibit the sale, pledge
or encumbrance of all or a substantial majority of their respective shares
owned prior to the IPO through January 28, 2000 (two years following the
IPO), subject to the right to (i) sell up to 2.5% of the subject shares per
quarter during the second year of such agreement, and (ii) continue
existing pledges of Common Stock to secure personal borrowings in place
prior to the effectiveness of the IPO in the case of two of such
individuals. Since directors of the Company who were not directors prior
to the IPO did not enter into such "lock-in" agreements, their shares are
not subject to these restrictions. In order to register the Common Stock
for sale in certain states, except for options to purchase 60,000 shares of
Common Stock issued under the 1998 Stock Option Plan for Directors granted
immediately following the closing of the IPO, the Company will not grant
options or warrants in excess of 15% of the number of outstanding shares of
Common Stock to officers, directors, employees, holders of 5% or more of
the Common Stock or affiliates through January 28, 1999 (one year following
the IPO).

<PAGE>

No predictions can be made as to the effect, if any, that sales of
shares of Common Stock under Rule 144 will have on the market price of the
Common Stock; sales of Common Stock under Rule 144 in the public market
could adversely affect the market price of the Common Stock or the ability
of the Company to raise money through a public offering of its equity
securities. See "Risk Factors -- Potential Adverse Impact on Market Price
of Shares Eligible for Future Sale and Registration Rights."

LEGAL MATTERS

The validity of the Shares of Common Stock offered hereby will be
passed upon for the Company by Shefsky & Froelich Ltd., Chicago, Illinois.

As of the date of this Prospectus, a member of Shefsky & Froelich Ltd.
beneficially owns 40,247 shares of Common Stock.

EXPERTS

The consolidated balance sheets of the Company as of December 31,
1996 and 1997 and the consolidated statements of operations, shareholders'
equity, and cash flows for each of the years in the three year period
ending December 31, 1997 have been incorporated herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, incorporated herein by
reference, and upon the authority of said firm as experts in accounting and
auditing.

FINANCIAL STATEMENTS

The information required by this item is incorporated by reference to
the information set forth under the caption "Financial Statements" in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1997
and the Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1998.

<PAGE>

108,942 Shares

Merge Technologies Incorporated

Common Stock

______________________________

PROSPECTUS
______________________________

__________, 1998

<PAGE>

No dealer, salesperson, or any other person has been authorized to give any
information or make any representations not contained in this Prospectus
and, if given or made, such information or representations must not be
relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
securities other than those to which it relates or an offer to sell, or a
solicitation of an offer to buy any securities, by any person in any
jurisdiction where such offer or solicitation would be unlawful. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that the information contained
herein is correct as of any time subsequent to the date hereof.

TABLE OF CONTENTS
Page

Additional Information. . . . . . . . . . . . . . . . . . . . . . . .2
Incorporation of Certain Documents by Reference . . . . . . . . . . .2
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Forward - Looking Statements and Associated Risks . . . . . . . . . 12
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Selling Stockholder . . . . . . . . . . . . . . . . . . . . . . . . 12
Dilution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . . . 13
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . 14
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Market for Common Stock . . . . . . . . . . . . . . . . . . . . . . 15
Certain Relationships and Related Transactions. . . . . . . . . . . 15
Principal Shareholders. . . . . . . . . . . . . . . . . . . . . . . 16
Description of Securities . . . . . . . . . . . . . . . . . . . . . 16
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . . 21
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 22

UNTIL __________, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

<PAGE>

PART II - INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 180.0851 of the WBCL allows a Wisconsin corporation to limit
its obligation to indemnify officers and directors by providing so in the
articles of incorporation. The Company's By-Laws provide for
indemnification of directors and officers to the fullest extent permitted
by Wisconsin law.

Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding is asserted by such director, officer or
controlling person in connection with the securities being registered), the
Registrant will, unless, in the opinion of counsel, the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the WBCL and will be governed by the final
adjudication of such issue.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following is a schedule of the estimated expenses to be incurred
by the Company in connection with the registration of the securities
offered hereby.

Registration Fee $ 112
Accounting Fees and Expenses $ 5,000
Legal Fees and Expenses $10,000
Miscellaneous $ 500

Total $15,612
=======

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

Effective May 1996, the Company converted $222,712 of $686,064
subordinated and junior subordinated notes of indefinite maturity and
bearing interest at a rate equal to the prime rate plus 3% for the
subordinated notes and prime rate plus 4% for the junior subordinated notes
payable to Mr. Robert T. Geras, Mr. Warren B. Cozzens, Mr. Mitchell D.
Goldsmith, Mr. Phillip J. Hanrahan, Mr. Thomas Jennings, Ms. Mary Jennings,
Mr. Christopher Kalmus, Mr. Henry Kuehn, Mr. Jeffrey Lane, Mr. Michael
Lechter, Terry Mikkelson, Mr. Michael Regenfuss, Mr. Luke E. Sims, and Mr.
Frederick P. Stratton, Jr. (the "Shareholder Notes") and related accrued
interest into 191,766 shares of Common Stock. In addition, the Company
discharged the remaining $463,352 of the Shareholder Notes and related
accrued interest with the issuance of 33,861 shares of Common Stock and a
cash payment of $375,000. This sale was exempt from registration as a
non-public offering of securities under Regulation D, promulgated under
Section 4(2) of the Securities Act. Each of the purchasers in the
transactions described above was given access to financial and
non-financial information about the Company and was a sophisticated
investor capable of understanding the merits and risks of his or her
investment.

<PAGE>

In 1995, the Company issued 111,741 shares of Common Stock in a
private placement at $1.34 per share, for aggregate consideration of
$150,000. In connection with this private placement, Robert T. Geras, a
Director of the Company, and Warren B. Cozzens, a former Director,
purchased 22,348 and 89,393 shares of Common Stock, respectively. All
Common Stock was paid for with cash. There were no underwriting discounts
or commissions in this sale. This sale was exempt from registration as a
non-public offering of securities under Regulation D, promulgated under
Section 4(2) of the Securities Act. No general solicitation or general
advertising was made in connection with this private placement, and each of
the purchasers in this private placement had the opportunity to ask
questions of officers of, and to obtain information from, the Company.

In 1995 and 1996, the Company issued an aggregate of 1,229,148 shares
of its Common Stock to 45 accredited investors in a private placement at
$1.48 per share. The Company received consideration in connection with this
private placement of $205,000 in 1995 and $1,610,000 in 1996. In connection
with such private offering, Mr. Geras, a director of the Company, purchased
182,848 shares at the same price offered to other investors. Mr. Cozzens, a
former director, also purchased 257,342 shares in this private offering.
These amounts reflect the total offering price. There were no underwriting
discounts or commissions in this sale. This sale was exempt from
registration as a non-public offering of securities under Regulation D,
promulgated under Section 4(2) of the Securities Act. No general
solicitation or general advertising was made in connection with this
private placement, and each of the purchasers in this private placement had
the opportunity to ask questions of officers of, and to obtain information
from, the Company.

Effective July 7, 1996, the Company's shareholders approved and
adopted the 1996 Stock Option Plan for employees of the Company (the "1996
Plan") which currently provides for the grant of options to purchase, in
the aggregate, up to 2,015,826 shares of Common Stock. The 1996 Plan
provides for the grant to employees of incentive stock options ("ISOs") and
non-qualified stock options. As of the date hereof, options to purchase
924,043 shares of Common Stock have been granted and are outstanding under
the 1996 plan at exercise prices ranging from $1.48 to $6.00 per share. The
transaction described above was exempt from registration under Rule 701,
promulgated under Section 3(b) of the Securities Act.

In January 1998 the Board of Directors approved the Company's 1998
Stock Option Plan for Directors (the "Director Plan"). As of February 4,
1998, each of the six non-employee Directors of the Company was granted an
option to purchase 10,000 Common Shares at an exercise price equal to the
IPO price of $6.00 per share. The Company is currently authorized to issue
up to an additional 40,000 shares of Common Stock under the Director Plan.
One-third of the Directors' options will vest on each of the first, second
and third anniversaries of the date of the grant. The transaction
described above was exempt from registration under Rule 701, promulgated
under Section 3(b) of the Securities Act.

On June 30, 1997, the Company borrowed $2,000,000 from Sirrom Capital
Corporation ("Sirrom"), a third-party institutional "mezzanine" lender,
pursuant to a note (the "Sirrom Note") and related security agreement. The
Sirrom Note required payments of interest only, computed at 13.5% per
annum, payable monthly in arrears through maturity (June 30, 2002).
Approximately $1,007,000 of the proceeds of the Sirrom Note were applied by
the Company in June 1997 toward the repayment of the bank indebtedness and
the balance toward working capital. No principal payments were required
prior to maturity. Prepayment in whole or part was permitted without
penalty. The Sirrom Note was secured by a first lien on all of the
Company's assets, subject to Sirrom's agreement to subordinate its lien to
a senior revolving credit facility in an amount not to exceed $2,500,000
provided that initially permitted borrowings under such facility was not to
exceed $1,500,000, subject to increase if the Company achieved certain
income targets.

<PAGE>

As a condition to issuance of the Sirrom Note, the Company issued a
warrant, which granted Sirrom the right to acquire for nominal
consideration a base amount of 145,256 Common Shares (the "Sirrom
Warrant"). The base amount of Common Shares purchasable under the Sirrom
Warrant was determined through arms-length negotiations between Sirrom and
the Company. Under the terms of the Sirrom Warrant, in the event the loan
was outstanding in whole or in part on the third, fourth and fifth
anniversaries of the initial loan funding, additional Shares could be
purchased pursuant to the Sirrom Warrant for nominal consideration. The
Sirrom Warrant prohibited the sale of shares by the Company to third
parties at below fair market value without concomitant antidilution
protection to Sirrom, but expressly permitted the issuance of up to
1,354,434 shares pursuant to the 1996 Plan.

The Sirrom Warrant granted Sirrom the right to attend (but not vote
at) Directors' meetings until such time as the Sirrom Note was paid in
full. The Sirrom Warrant granted Sirrom a put right for a period of 30 days
immediately prior to its expiration at "Fair Market Value," which was to be
determined by agreement of the parties or, in the absence of agreement, by
two independent appraisers. Sirrom was granted piggyback registration
rights in connection with certain registered offerings of the Common Shares
and rights of co-sale to participate in sales of the Common Shares by
Robert T. Geras or William C. Mortimore.

By agreement dated October 30, 1997, the Company and Sirrom agreed
that upon the expected closing of the IPO: (i) the Sirrom Note would be
paid in full; (ii) the Sirrom Warrant would be exercised as to 75%
(108,942) of the original number of shares issuable under it; (iii) Sirrom
would not offer, pledge, sell, contract to sell, grant any option for the
sale of, or otherwise dispose of, directly or indirectly, any securities of
the Company for a period of 180 days following the date of the IPO without
the prior written consent of the Representative; (iv) Sirrom's right to
purchase 25% (36,314) of the original number of shares issuable under the
Sirrom Warrant would be terminated; (v) the put option in favor of Sirrom
would be canceled; (vi) a termination fee (which ultimately totaled
$196,095.60) would be paid to Sirrom; and (vii) the Company agreed to file
a registration statement to register shares issued to Sirrom pursuant to
the Sirrom Warrant within 120 days (extended to 165 days by amendment dated
May 29, 1998) of the Closing of the IPO, provided in no event would such
registration statement be declared effective until at least 180 days
following the initial closing of an initial public offering of the Common
Shares. The amount of the Sirrom Termination Fee was determined through
arm's length negotiations between the Company and Sirrom based on factors
including the Company's interest in eliminating uncertainty with respect to
its future equity-related liabilities and Sirrom's interest in receiving
cash in return for relinquishing its put option. Upon the closing of the
IPO the Sirrom Warrant was exercised under the terms of the October 30,
1997 agreement.

The issuance of the Sirrom Note and the Sirrom Warrant were exempt
from registration under Section 4(2) of the Securities Act.

Except as otherwise indicated, the transactions described above were
exempt from registration under Section 4(2) of the Securities Act. No
general solicitation or general advertising was made in connection with any
of the transactions described above, and each of the purchasers in these
transactions had the opportunity to ask questions of officers of, and to
obtain information from, the Company.

<PAGE>

ITEM 27. EXHIBITS
EXHIBIT INDEX
EXHIBIT NO.
- -----------

3.1 Articles of Incorporation of Registrant (1)

3.2 Amended and Restated By-Laws of Registrant as of February 3, 1998 (2)

4.1 Form of Lock-Up Agreement (1)

4.2 Common Stock Certificate (1)

4.3 Representative's Warrant (2)

5.1 Opinion of Shefsky & Froelich Ltd. regarding legality

10.1 Employment Agreement dated September 1, 1997 between Registrant and
William C. Mortimore (1)

10.2 Merge/Sirrom Revised Modification Agreement dated as of October 30,
1997 (1), and Amendment dated May 29, 1998

10.3 OEM Purchase Agreement between Registrant and Philips Medical Systems
Nederland B.V. dated September 24, 1994 and First Amendment dated June 4,
1996 (1)

10.4 Distribution Agreement with Picker International, Inc. (1)

10.5 1996 Stock Option Plan for Employees of Registrant dated May 13, 1996
(1)

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) and Supplemental Office Space (2) Lease dated
January 30, 1998 (2)

10.7 Alpha Capital Venture Partners Limited Agreement dated March 1, 1997
(1)

10.8 1998 Stock Option Plan For Directors (2)

13.1 Annual Report on Form 10-KSB for the fiscal year ended December 31,
1997

13.2 Quarterly Report on Form 10-QSB for the quarter ended March 31, 1998

21 Subsidiaries of Registrant (1)

23.1 Consent of Shefsky & Froelich Ltd. (see Exhibit 5.1)

23.2 Consent of KPMG Peat Marwick LLP

24 Power of Attorney

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

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

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

<PAGE>

ITEM 28. UNDERTAKINGS

A. SUPPLEMENTARY AND PERIODIC INFORMATION, DOCUMENTS AND REPORTS.

Subject to the terms and conditions of Section 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant hereby
undertakes to continue to file with the Securities and Exchange Commission
such supplementary and periodic information, documents and reports as may
be prescribed by any rule or regulation of the Commission heretofore or
hereafter duly adopted pursuant to authority in that Section.

B. INDEMNIFICATION.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
or persons controlling the Registrant pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless, in the opinion of counsel, the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

C. UNDERTAKINGS PURSUANT TO RULE 415.

The Registrant will (1) file, during any period in which offers or
sales of securities are made under this Registration Statement, a post-
effective amendment to this Registration Statement to: (i) include any
prospectus required by Section 10(a)(3) of the Act; (ii) reflect in the
prospectus any facts or events which, individually or together, represent a
fundamental change in the information in this Registration Statement; and
(iii) include any additional or changed material information on the plan of
distribution; (2) for purposes of determining liability under the Act,
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be
the initial bona fide offering; and (3) file a post-effective amendment to
remove from registration any of the securities that remain unsold at the
end of the offering.

<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in
the City of Milwaukee, State of Wisconsin, on July 13, 1998.

MERGE TECHNOLOGIES INCORPORATED
(Registrant)

By: /s/ William C. Mortimore
------------------------------
William C. Mortimore
President, Chief Executive Officer
and Director

In accordance with the requirements of the Securities Act, this
Registration Statement was signed by the following persons in the
capacities indicated this 13th day of July, 1998.

Name Position Date
- ---- -------- ----

/s/ William C. Mortimore President, July 13, 1998
- --------------------------- Chief Executive Officer,
William C. Mortimore and Director
(Principal Executive
Officer)

/s/ Colleen M. Doan Chief Financial Officer, July 13, 1998
- --------------------------- Secretary and Treasurer
Colleen M. Doan (Principal Accounting
Officer and Principal
Financial Officer)

The entire Board of Directors:

William C. Mortimore
Robert T. Geras
Robert A. Barish, M.D.
Dennis Brown
Michael D. Dunham
Douglas S. Harrington, M.D.
Kevin E. Moley

By /s/ William C. Mortimore July 13, 1998
---------------------------
William C. Mortimore,
as Attorney-in-fact

EXHIBIT 5.1
- -----------

July 13, 1998

Merge Technologies Incorporated
1126 South 70th Street
Suite 5107B
Milwaukee, WI 53214

Re: Registration Statement on Form SB-2

Ladies and Gentlemen:

We have examined the Registration Statement on Form SB-2 to be filed
by you with the Securities and Exchange Commission on or about July 13,
1998 (the "Registration Statement") and the form of Prospectus included
therein (the "Prospectus"), in connection with the registration under the
Securities Act of 1933, as amended, of 108,942 shares of your common stock,
$.01 par value, (the "Shares") to be sold by the Selling Stockholder. As
your legal counsel, we have examined (a) the Registration Statement; (b)
the Articles of Incorporation and By-laws of the Company; (c) resolutions
of the Company's Board of Directors relating to the authorization of the
issuance and registration of the Shares covered by the Registration
Statement; and (d) such other proceedings, documents and records as we have
deemed necessary to enable us to render this opinion.

It is our opinion that the Shares are, and following sale by the
Selling Stockholder pursuant to the Registration Statement will remain,
legally and validly issued, fully paid and nonassessable, except with
respect to debts owing to employees of the Company for services performed,
but not exceeding six months' service in any one case, as provided in
Section 180.0622(2)(b) of the Wisconsin Business Corporation Law.

We consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to the use of our name wherever
appearing in the Registration Statement, including any Prospectus
constituting a part hereof, and any amendments thereto.

Very truly yours,

/s/ Shefsky & Froelich Ltd.

SHEFSKY & FROELICH LTD.

EXHIBIT 10.2
- ------------

AMENDMENT TO SIRROM/MERGE AGREEMENT
-----------------------------------

FIRST AMENDMENT dated this 29th day of May, 1998 amending that
certain agreement dated as of October 30, 1997 ("Agreement"), by and
between Sirrom Funding Corporation ("Lender") and Merge Technologies
Incorporated, a Wisconsin corporation ("Merge"). Capitalized terms used
herein and not otherwise defined shall have the same meaning as set forth
in the Agreement.

RECITALS
--------

A. Lender loaned $2,000,000 to Merge and in connection with such
loan obtained a warrant to purchase up to 145,256 shares of Merge's Common
Stock for nominal consideration.

B. The Agreement provides among other things for the reduction in
the number of shares purchasable per the warrant to 108,942 shares ("Lender
Shares"), payment of a termination fee and for Merge to submit a
registration statement for the registration of the Lender Shares, and use
its best efforts to cause such registration statement to be declared
effective, no earlier than 180 days following the initial closing of the
initial public offering of the IPO of Merge's common stock.

C. The Closing Date of the IPO was February 3, 1998 and Merge has
met its obligations to date under the Agreement. The parties are desirous
of extending the dates for the registration of the Lender Shares as set
forth below.

NOW THEREFORE, in consideration of the premises herein, payment of
$1.00 from Merge to Lender, receipt of which is acknowledged, and other
good and valuable consideration, the parties agree that the first sentence
of Section 2d of the Agreement is amended and restated as follows:

The Borrower shall file a registration statement under Form SB-2 no
later than 165 days following the Closing Date, to register the Lender
Shares and shall use its best efforts to cause such registration statement
to be declared effective as quickly as possible, but in no event prior to
180 days following the Closing Date, and Lender further agrees to not sell,
pledge, encumber or otherwise dispose of any of its Lender Shares or its
interest in the Warrant or in any rights in said securities for a period of
180 days following the Closing Date.

IN WITNESS WHEREOF, the undersigned have executed this First
Amendment as of the date first set forth above.

SIRROM FUNDING CORPORATION MERGE TECHNOLOGIES INCORPORATED

By: /S/ John Dyslin

Its: Vice President /S/ William C. Mortimore, President

SIRROM CAPITAL CORPORATION

By: /S/ John Dyslin, Vice President

EXHIBIT 23.2
- ------------

CONSENT OF INDEPENDENT ACCOUNTANTS

The Board of Directors
Merge Technologies Incorporated:

We consent to the use of our report incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the Prospectus.

KPMG PEAT MARWICK LLP

Chicago, Illinois
July 13, 1998

EXHIBIT 24
- ----------

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints
William C. Mortimore his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments
to the Registration Statement on Form SB-2 (including post-effective
amendments), and to file the same, with all exhibits thereto, and all
documents in connection therewith, with the Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.

Name Position Date
- ---- -------- ----

/s/ Colleen M. Doan Chief Financial July 13, 1998
- ------------------------------- Officer, Secretary
Colleen M. Doan and Treasurer

/s/ Robert T. Geras Director July 13, 1998
- -------------------------------
Robert T. Geras

/s/ ROBERT A. BARISH, M.D. Director July 13, 1998
- -------------------------------
Robert A. Barish, M.D.

/s/ DENNIS BROWN Director July 13, 1998
- -------------------------------
Dennis Brown

/s/ MICHAEL D. DUNHAM Director July 13, 1998
- -------------------------------
Michael D. Dunham

/s/ DOUGLAS S. HARRINGTON, M.D. Director July 13, 1998
- -------------------------------
Douglas S. Harrington, M.D.

/s/ KEVIN E. MOLEY Director July 13, 1998
- -------------------------------
Kevin E. Moley