Merge Technologies Incorporated Announces Record Third Quarter 2002 Results. Company delivers record revenues and earnings; launches new FUSION Server™ software solution; continues expanding distribution capabilities; completes successful integration of eFilm Medical.
Milwaukee, WI, October 31, 2002

Milwaukee, WI, October 31, 2002 - Merge Technologies Incorporated, d.b.a. Merge eFilm, (NASDAQ: MRGE), today announced financial results for the quarter and nine months ended September 30, 2002. Revenues for the quarter ended September 30, 2002, were $5,322,000, an increase of 32% over revenues of $4,036,000 in the quarter ended September 30, 2001, and a sequential increase of 27% over revenues of $4,183,000 in the quarter ended June 30, 2002. In the quarter ended September 30, 2002, net income was $1,046,000, generating $0.09 diluted EPS compared to $0.05 diluted EPS in the quarter ended September 30, 2001. Net income was $2,350,000 and diluted EPS was $0.22 in the nine months ended September 30, 2002, compared to net income of $589,000 and diluted EPS of $0.07 in the nine months ended September 30, 2001.

As a result of the eFilm Medical acquisition on June 28, 2002, the Company has presented costs associated with service revenues as a component of cost of sales. All periods presented have been conformed to the current presentation, and net income does not change in any period. After applying this change, gross margin in the quarter ended September 30, 2002, was 61%. Had the company continued its previous presentation of classifying service costs as operating expenses, the gross margin would have been 70% for the quarter ended September 30, 2002. The Company's operating margin, defined as operating income divided by net sales, was up substantially in the quarter ended September 30, 2002, to 19%, compared to 12% in the quarter ended September 30, 2001. Operating margins also increased significantly for the nine months ended September 30, 2002, to 17%, compared to 5% in the nine months ended September 30, 2001.

Analysis of Results:
"I'm very pleased with Merge eFilm's progress on several important fronts: financial performance, product innovation, distribution expansion, acquisition integration and executive management team development," said Richard A. Linden, Merge eFilm's President and Chief Executive Officer. "Of particular importance was that each distribution channel and product group delivered strong financial results, demonstrating continued strength in our historical business. Additionally, we are pleased to announce that the eFilm acquisition reached accretion in the third quarter. These results validated the tactical and strategic value proposition of combining the Merge and eFilm organizations, and demonstrated the ability to effectively execute and integrate an acquisition."

"One of the successful results from our Merge eFilm integration plan was the convergence of product development and the launch of the FUSION Server™ software platform. FUSION Server software digitally integrates medical images and patient information on a single software platform. This technology allows radiologists and other clinicians to securely access the images and information they need, independent of their location, using a consistent image visualization software application, either on a private network or via the Web. Operationally, this modular solution provides our target market - small to mid-sized healthcare organizations - with a scalable suite of functionality that meets their unique needs and deploys in a manner consistent with their desired speed for operational change. Financially, this cost-effective software solution improves the affordability of a film-to-filmless transition in Radiology. This software-based solution is distinct in the marketplace because it is flexible, scalable and easily distributed throughout the customer's organization, unlike the traditional high-cost, hardware-dependant PACS systems," said Linden. "FUSION Server software was created through the strength of a combined Merge eFilm organization, and the eight new FUSION Server software platform customers in the third quarter represent an endorsement of Merge eFilm's strategy and market positioning."

Commenting on the Company's distribution strategy, Linden said, "Expanding our distribution capability is a top priority. We successfully added new direct sales staff to our North American sales team, formed new VAR Partnerships, and leveraged our extensive customer base across the combined Merge eFilm organization. We anticipate adding direct sales staff on a quarterly basis, in addition to forming complementary VAR Partnerships in North America that are designed to expand market coverage. This expansion coincides with the growing volume of sales leads and FUSION Server software opportunities from prospecting the extensive eFilm customer base, and leveraging the brand awareness of both Merge and eFilm. Internationally, the four new VAR Partners in Europe and one in Japan provide local market knowledge and presence to bring Merge eFilm solutions to their healthcare customers. We are pleased with the growing pipeline and revenues these international partnerships have generated, and we anticipate expanding this model moving forward."

Linden continued, "We have strengthened the executive management team as our growth and market presence has accelerated. Gregory Couch, who served as CEO of eFilm Medical, is now leading our product innovation as Chief Technology Officer. Catherine McCallum, who served as eFilm's COO, now brings global leadership to the position of Vice-President, Professional Services. Mr. Couch and Ms. McCallum bring years of clinical and technical innovation experience to Merge eFilm. Additionally, Mr. Scott Veech joined the Company as Chief Financial Officer. These additions to our executive management team represent an important step toward strengthening the leadership that will drive our accelerated growth through this year and beyond," said Linden.

"Finally, we are encouraged by market conditions and independent healthcare IT studies suggesting continued growth in capital spending to digitize patient care operations, with particular emphasis on clinical specialties such as radiology information systems and PACS. In alignment with these market conditions, we continue to evolve from a technology components company to a software solutions organization. We have solidly demonstrated that evolution by the strength of our financial results, and the reception of our target market to the expanded capabilities of the Merge eFilm organization," said Linden.

Guidance:
The Company reiterates its guidance of 30% year-over-year growth, which translates to $21 million in revenue, generating $0.31 to $0.34 diluted EPS for 2002, excluding charges associated with the acquisitions.

Click Here For Quarter 3, 2002 Statement of Operations and Summary Balance Sheet Data (85kb PDF)

Press Contact
Attn: Beth Frost-Johnson Merge Healthcare 6737 West Washington St. Suite 2250 Milwaukee, WI 53214		Phone: 1-(414) 977-4254
Email Address: marketing@merge.com
Except for the historical information herein, the matters discussed in this news release include forward-looking statements that may involve a number of risks and uncertainties. When used in this press release, the words “will,” “believes,” “intends,” “anticipates,” “expects” and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from those expressed in, or implied by, the forward-looking statements based on a number of factors, including, but not limited to, the uncertainty created by, the adverse impact on relationships with customers, potential customers, suppliers and investors potentially resulting from, and other risks associated with, the changes in the Company’s senior management; costs, risks and effects of the investigation by the Audit Committee of the Board of Directors; the impact of the restatement of financial statements of the Company and other actions that may be taken or required as a result of such restatement; the Company's inability to timely file reports with the Securities and Exchange Commission; risks associated with the Company's inability to meet the requirements of The NASDAQ Stock Market for continued listing, including possible delisting; costs, risks and effects of legal proceedings and investigations, including the informal, non-public inquiry being conducted by the Securities and Exchange Commission and class action, derivative, and other lawsuits; risks in product and technology development, market acceptance of new products and continuing product demand, the impact of competitive products and pricing, ability to integrate acquisitions, changing economic conditions, credit and payment risks associated with end-user sales, dependence on major customers, dependence on key personnel, and other risk factors detailed in the Company’s filings with the Securities and Exchange Commission. Except as expressly required by the federal securities laws, the Company undertakes no obligation to update such factors or to publicly announce the results of any of the forward-looking statements contained herein to reflect future events, developments, or changed circumstances, or for any other reason.