(12)	Net Income Per Share Attributable to Common Shareholders of Merge

We apply the two-class method of calculating basic net income per share. Under the two-class method, net income is reduced by Preferred Stock dividends and dividend equivalents related to Preferred Stock accretion and residual earnings are allocated between common stock and participating securities based upon their participation rights. Our Preferred Stock is a participating security and shares in common stock dividends if declared. The Preferred Stock was not outstanding in the comparable prior year period.

Basic net income per share is computed by dividing net income attributable to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing net income attributable to common shareholders by the weighted average number of shares of common stock outstanding during the period adjusted for the effects of potentially dilutive common stock equivalents which are comprised of; stock options, except for stock options with an exercise price of more than the average market price of our common stock during the period as such exercise would be anti-dilutive, restricted stock awards assuming the potential lapse of restrictions using the treasury stock method and convertible Preferred Stock using the if-converted method or the treasury stock method, whichever produces the greater dilution. The following table sets forth the computation of basic and diluted net income per share.

	Three Months Ended March 31,
	2015			2014
Numerator
Net income attributable to Merge	$	17,771		$	323
Convertible preferred stock dividends and dividend equivalents related to accretion		(5,328	)		-
Allocation of earnings to participating securities		(1,357	)		-
Net income attributable to common shareholders of Merge - basic and diluted	$	11,086		$	323

Denominator
Weighted average number of common shares outstanding - basic		96,616,916			94,656,786
Effect of dilutive securities:
Stock options		-			1,051,999
Unvested restricted stock awards		-			287,780
Dilutive potential common shares		-			1,339,780
Weighted average number of common shares outstanding - diluted		96,616,916			95,996,566

Net income (loss) per share attributable to common shareholders of Merge
Basic	$	0.11		$	0.00
Diluted	$	0.11		$	0.00

The following table sets forth the number of anti-dilutive shares excluded from the calculation of diluted net income per share attributable to common shareholders for the periods indicated.

	Three Months Ended March 31,
	2015		2014
Stock options		5,863,493		5,337,925
Unvested restricted stock awards		1,834,525		-
Convertible preferred stock		12,077,500		-

Total number of shares excluded from net income per share attributable to common shareholders		19,775,518		5,337,925

The application of the if-converted method of determining diluted net income per share relative to our convertible preferred stock requires an adjustment to the numerator for the allocation of undistributed earnings which are used in the determination of basic earnings per share in the two-class method. This leads to anti-dilutive effects in determining diluted earnings per share for three months ended March 31, 2015. Therefore, diluted earnings per share excludes the incremental shares from the assumed exercise of employee stock options, the potential lapse of restrictions on outstanding restricted stock awards and the potential conversion of convertible preferred stock as their inclusion would have been anti-dilutive. For the three months ended March 31, 2014, the dilutive effect of incremental shares from the assumed exercise of employee stock options, and the potential lapse of restrictions on outstanding restricted stock awards totaling 1,051,999 and 287,780 shares, respectively, have been included in the calculation of diluted net income per share as their inclusion was dilutive. In the three months ended March 31, 2014, options to purchase 5,337,925 shares of our common stock had exercise prices greater than the average market price of our common stock, and, therefore, are not considered in the calculations of diluted net income per share.

Potentially dilutive common stock equivalent securities, including securities that may be considered in the calculation of diluted earnings per share outstanding as of March 31, 2015 and 2014, were 19,775,518 and 9,682,925, respectively.