=================================================================



                          SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C. 20549
                            -----------------------------
        
                                      FORM 10-K/A
         

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

          For the Fiscal Year Ended September 30, 1996
                                    ------------------

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

          For the transition period from _________ to ___________
          Commission File Number 0-11914


                              ADVANCED NMR SYSTEMS, INC.
                             ----------------------------
                (Exact name of Registrant as specified in its charter)

                       DELAWARE                               22-2457487   
          ---------------------------------                ---------------  
          (State or other jurisdiction                     (I.R.S. Employer
          of incorporation or organization)             Identification No.)

               46 JONSPIN ROAD
              WILMINGTON, MASSACHUSETTS                          01887     
          ----------------------------------                ---------------
          (Address of principal executive offices)            (Zip Code)   

      REGISTRANT'S TELEPHONE  NUMBER, INCLUDING AREA CODE:   (508) 657-8876

             SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                                         None

             SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                        Common Stock, $.01 par value per share
                        Warrants for purchase of Common Stock

               Indicate by check mark whether the  Registrant (1) has filed
          all reports  required to be filed  by Section 13 or  15(d) of the
          Securities  Exchange Act of  1934 during the  preceding 12 months
          (or for such shorter  period that the Registrant was  required to
          file  such  reports), and  (2) has  been  subject to  such filing
          requirement for the past 90 days.


                    YES  X    NO    
                        ----     ---

               Indicate by  check mark  if disclosure of  delinquent filers
          pursuant to Item 405  of Regulation S-K is not  contained herein,
          and  will not  be  contained, to  the  best of  the  Registrant's
          knowledge,   in  definitive   proxy  or   information  statements
          incorporated by  reference in Part III  of this Form 10-K  or any
          amendment to this Form 10-K. 

               The aggregate market value of the Registrant's Common Stock,
          $.01 par value, held  by non-affiliates computed by  reference to
          the average of the  closing bid and asked  prices as reported  by
          NASDAQ  on December 31, 1996 (based upon the assumption that each
          officer,  director and person who  is known by  the Registrant to
          own more than five percent of the outstanding common Stock of the
          Registrant is an affiliate of the Registrant for purposes of this
          computation): $9,531,551.

               Number of shares of the  Registrant's Common Stock, $.01 par
          value, outstanding as of December 31, 1996:  38,126,204

          =================================================================

     <PAGE>

        
                              AMENDMENT NO. 1
             

        
          The undersigned registrant hereby amends the following items,
          financial statements, exhibits or other portions of its Form 10-K
          for the Fiscal Year Ended September 30, 1996 as set forth in the 
          pages attached hereto:
         

        
                (list all such items, financial statements, exhibits
                            or other portions amended)
         

        
          1.   Items 6, 8 and 14 - Amended to reflect a change in accounting
               for the May 1996 issuance of the convertible preferred stock
               and debentures  (See Note A in Notes to Financial Statements.)
         

     <PAGE>

                                        INDEX

                                                                   Page No.
        
          PART II . . . . . . . . . . . . . . . . . . . . . . . . . . .  4

               Item 6.   Selected Financial Data  . . . . . . . . . . .  4

               Item 8.   Financial Statements and Supplementary Data  .  7

          PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . .  8

               Item 14.  Exhibits, Financial Statement Schedules. . . .  8

          SIGNATURES  . . . . . . . . . . . . . . . . . . . . . . . . .  10
         

                                     -3-
     <PAGE>

        
         

                                       PART II
                                       -------


          ITEM 6.   SELECTED FINANCIAL DATA
                    -----------------------

          Statement of Operations Data:
          -----------------------------

               The  selected  financial  information  for  the  year  ended
          September 30, 1996, the nine months ended September 30, 1995, and
          for each  of the years ended December 31, 1994, 1993 and 1992, is
          derived from the audited financial statements of the Company  and
          its subsidiaries, AMS and MDI.

        
               This  information  should  be   read  in  conjunction   with
          "Management's Discussion and Analysis of Financial  Condition and
          Results  of Operations"  and the  financial statements  and notes
          thereto included elsewhere in this Form 10-K/A.
        

                                      -4-
          <PAGE>

        
                            Year Ended        Year Ended     Nine Months ended
                        September 30, 1996 September 30, 1995 September 30, 1996
                        ------------------ ------------------ ------------------
         
                                              (unaudited)
     Revenues:
      Net patient
      service revenue          $25,480,813         $1,934,322         $1,934,322
       Management fees
       and other                   653,425             40,220             40,220
       revenue                ------------       ------------       ------------
     Total Revenues             26,134,238          1,974,542          1,974,542
                              ------------       ------------       ------------
     Operating
     Expenses:
       Cost of service
       operations               16,205,961          1,203,497          1,203,497
       Research &
       development                      --            940,141            664,786
       Selling, general
       & administrative          4,254,964          2,449,364          2,002,075
       Provision for
       bad debt &                2,126,471            162,377            162,377
       collection costs       ------------       ------------       ------------
     Total Operating
     Expenses                   22,587,396          4,755,379          4,032,735
                              ------------       ------------       ------------
     Income (Loss) from
     Continuing
     Operations                  3,546,842        (2,780,837)        (2,058,193)
     Interest expense          (1,847,910)          (139,020)          (139,020)
     Interest income               212,814            195,191            265,208
     Other Income                  126,263            579,758            579,758
     Minority interest         (1,005,831)            783,520            569,354
       
     Equity in loss of
     subsidiary                (2,373,580)                 --                 --
       
     Provision for                (42,288)                 --                 --
     income taxes             ------------       ------------       ------------
      
     Loss from
     Continuing
     Operations                (1,383,690)        (1,361,388)          (782,893)
      
     Loss from
     operations of
     Discontinued
        Division               (3,928,706)        (2,521,580)          (894,865)
     Loss on Disposal
     of Discontinued
     Division                  (3,510,563)                 --                 --
                              ------------       ------------       ------------
     
     Net Loss                 $(8,822,959)       $(3,882,968)       $(1,677,758)
                              ============       ============       ============
       
     Loss Per Share:
      
       Loss from
       continuing
       operations                   $(.05)             $(.06)             $(.03)
      
       Loss from
       operations of
       discontinued
       division                      (.13)              (.10)              (.04)
       Loss on disposal
       of discontinued               (.11)                 --                 --
       division               ------------       ------------       ------------
     
       Net loss per                 $(.29)             $(.16)             $(.07)
       share                  ============       ============       ============
      
     Weighted average
     number of common           30,583,320         24,020,652         24,243,902
     shares                   ============       ============       ============


       
                          Nine Months     
                             ended      Year Ended    Year Ended    Year Ended
                         September 30,  December 31,  December 31,  December 31,
                             1995          1994          1993          1992
                         -------------  -----------   -----------   -----------
      
                          (unaudited)
     Revenues:
      Net patient    
      service revenue        $         -- $         -- $         -- $         --
      Management fees 
        and other                      --           --           --           --
        revenue              ------------ ------------ ------------ ------------
     Total Revenues                    --           --           --           --
                             ------------ ------------ ------------ ------------
     Operating
     Expenses:
       Cost of
       service
        operations                     --           --           --           --
       Research &     
        development               717,010      992,365      822,994      239,423
       Selling,       
        general &     
       administrative           1,135,531    1,582,820      870,414           --
       Provision for 
        bad debt &
        collection                                                 
        costs                          --           --           --           --
                             ------------ ------------ ------------ ------------
     Total Operating
       Expenses                 1,852,541    2,575,185    1,693,408      239,423
                             ------------ ------------  -----------  -----------
     Income (loss)
     from 
     Continuing
     Operations               (1,852,541)  (2,575,185)  (1,693,408)    (239,423)
     Interest expense                  --           --           --           --
     Interest income              278,497      208,480      170,720           --
     Other Income                      --           --    (801,750)           --
     Minority                                                                   
     interest                     488,799      702,965      414,641           --
     Equity in loss
     of subsidiary                     --           --           --           --
     Provision for 
      income taxes                     --           --           --           --
                             ------------ ------------  -----------  -----------
     Loss from 
     Continuing 
     Operations               (1,085,245)  (1,663,740)  (1,909,797)    (239,423)
     Loss from
     operations of
     Discontinued
     Division                   (256,543)  (1,883,258)  (4,040,764)  (5,253,106)
     Loss on Disposal
     of Discontinued                                               
     Division                          --           --           --           --
                             ------------ ------------  -----------  -----------
     Net Loss                $(1,341,788) $(3,546,998) $(6,166,950) $(5,492,529)
                             ============ ============ ============ ============
     Loss Per Share: 
     Loss from 
       continuing
       operations                  $(.05)       $(.07)       $(.10)       $(.01)
       Loss from
       operations of 
       discoontinued
       division
                                    (.01)        (.08)        (.21)        (.33)
       Loss on
       disposal of   
       discontinued                    --           --           --           --
       division              ------------ ------------ ------------ ------------
       Net loss per
        share                      $(.06)       $(.15)       $(.32)       $(.34)
                             ------------ ------------ ------------ ------------
      Weighted
       average number
       of common               23,543,842   23,603,251   19,184,275   16,157,623
       shares.               ============ ============ ============ ============

                                      -5-
     <PAGE>


      BALANCE SHEET DATA:   September    September     December
      -------------------      30,          30,          31,
                              1996          1995         1994
                           -----------  -----------   ----------
      Working Capital      $(6,735,989)  $11,083,145  $ 8,614,161
      (Deficit)

      Total Assets           50,724,530   58,431,709   12,692,152

      Total Liabilities      26,906,107   27,799,636    2,511,853

      Stockholders'          23,818,423   28,017,966    9,698,924
      Equity



      BALANCE SHEET DATA:   December    December
      -------------------     31,          31,
                              1993        1992
                           ----------  ----------
      Working Capital      $12,452,896 $ (759,956)
      (Deficit)

      Total Assets          15,864,126   2,685,896

      Total Liabilities      2,335,099   2,659,378

      Stockholders'         12,551,838      26,518
      Equity

                                      -6-
     <PAGE>

        
         

     ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
               -------------------------------------------

          See  Item 14  and the  Index therein  for a  listing of  the financial
     statements and supplementary data as a part of this report.

        
         

                                      -7-
     <PAGE>

                                       PART IV
                                       -------
       
          ITEM 14.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
                    ------------------------------------------
        

          (a)(1)  The following financial statements are filed herewith:

                    Independent Auditors' Report

                    Consolidated Balance Sheets 

                    Consolidated Statements of Operations

                    Consolidated Statements of Stockholders' Equity 

                    Consolidated Statements of Cash Flows

                    Notes to Financial Statements

        
         

          (a)(3)    Exhibits, including those incorporated by reference.

        
          Exhibit Number:

          23*     Consent of Richard A. Eisner & Company, LLP independent
                  public accountant for the Company.



          ----------------------
          * Filed herewith
         

                                      -8-
     <PAGE>

                                                                 Exhibit 23


                            INDEPENDENT AUDITORS' CONSENT

        
               We consent to the incorporation by reference in Registration
          Statements No.  33-47517, 33-70834  and 33-78928 of  Advanced NMR
          Systems, Inc. (the  "Company") on  Form S-8 of  our report  dated
          November 22, 1996 on the consolidated financial statements of the
          Company and  its subsidiaries  for the  year ended  September 30,
          1996, the nine month period ended September 30, 1995 and the year
          ended December 31, 1994  appearing in this Annual Report  on Form
          10-K/A of the Company.
         

	                              /s/ Richard A. Eisner & Company, LLP
                                      Richard  A. Eisner  & Company, LLP

          Cambridge, Massachusetts
        
          August 1, 1997
         

                                      -9-
     <PAGE>

                                      SIGNATURE
                                      ---------
        
               Pursuant to the requirements  of the Section 13 or  15(d) of
          the  Securities Exchange  Act of  1934, the  registrant has  duly
          caused this report to be signed on its behalf by the undersigned,
          thereunto duly authorized on the 4th day of August, 1997.
         

        
                                         ADVANCED NMR SYSTEMS, INC.


           Dated:  August 4, 1997        By:  /s/ Steven J. James  
                                            ---------------------------
                                            Name:  Steven J. James
                                            Title:  Chief Financial Officer

         

                                      -10-
     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES



                                    - I N D E X -
                                   ---------------
                                                                      PAGE 
                                                                     NUMBER
                                                                    -------

          INDEPENDENT AUDITORS' REPORT                                  F-2


          CONSOLIDATED BALANCE SHEETS AS AT 
          SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995                     F-3


          CONSOLIDATED STATEMENTS OF OPERATIONS FOR 
          THE YEARS ENDED SEPTEMBER 30, 1996 AND
          SEPTEMBER 30, 1995 (UNAUDITED), THE NINE MONTH
          PERIODS ENDED SEPTEMBER 30, 1995 AND
          SEPTEMBER 30, 1994 (UNAUDITED) AND FOR THE YEAR
          ENDED DECEMBER 31, 1994                                       F-4


          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' 
          EQUITY FOR THE YEAR ENDED SEPTEMBER 30, 1996, THE
          NINE MONTH PERIOD ENDED SEPTEMBER 30, 1995 AND FOR
          THE YEAR ENDED DECEMBER 31, 1994                              F-5


          CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
          THE YEARS ENDED SEPTEMBER 30, 1996 AND 
          SEPTEMBER 30, 1995 (UNAUDITED), THE NINE 
          MONTH PERIODS ENDED SEPTEMBER 30, 1995 
          AND SEPTEMBER 30, 1994 (UNAUDITED) AND FOR THE
          YEAR ENDED DECEMBER 31, 1994                                  F-6


          NOTES TO FINANCIAL STATEMENTS                                 F-7


     <PAGE>

                             INDEPENDENT AUDITORS' REPORT

          The Board of Directors and Stockholders
          Advanced NMR Systems, Inc.

               We have audited the accompanying consolidated balance sheets
          of Advanced  NMR Systems, Inc.  and subsidiaries as  at September
          30,  1996 and September  30, 1995,  and the  related consolidated
          statements  of operations,  stockholders' equity, and  cash flows
          for  year ended September 30,  1996, the nine  month period ended
          September 30, 1995  and the year ended December 31,  1994.  These
          consolidated  financial statements are  the responsibility of the
          Company's  management.    Our  responsibility is  to  express  an
          opinion on  these consolidated financial statements  based on our
          audits.

               We  conducted  our  audits  in   accordance  with  generally
          accepted  auditing standards.   Those  standards require  that we
          plan and perform the  audit to obtain reasonable assurance  about
          whether   the  financial   statements   are   free  of   material
          misstatement.    An audit  includes examining,  on a  test basis,
          evidence supporting the amounts  and disclosures in the financial
          statements.   An  audit  also includes  assessing the  accounting
          principles used and significant  estimates made by management, as
          well as evaluating the  overall financial statement presentation.
          We believe that  our audits  provide a reasonable  basis for  our
          opinion.

               In  our  opinion,  the  consolidated   financial  statements
          enumerated above  present fairly,  in all material  respects, the
          consolidated financial position of Advanced NMR Systems, Inc. and
          subsidiaries  at September 30,  1996 and September  30, 1995, and
          the results of their operations and their cash flows for the year
          ended September 30,  1996, the nine month  period ended September
          30,  1995 and the year ended December 31, 1994 in conformity with
          generally accepted accounting principles.

               The accompanying  financial  statements have  been  prepared
          assuming  that  the Company  will  continue as  a  going concern.
          However, the  Company has experienced recurring  losses and based
          on  current estimates of  cash flow, management  does not believe
          that it will  have sufficient  cash flow to  make scheduled  term
          loan payments.  Accordingly,  the entire amount outstanding under
          the  bank credit facility of $11,855,000 has been classified as a
          current  liability in  the  accompanying  consolidated  financial
          statements resulting in a working capital deficiency at September
          30,  1996.   These  matters  raise  substantial doubt  about  the
          Company's ability to continue  as a going concern.   Management's
          plans in regard  to these matters are described in  Note L to the
          consolidated financial statements.   The financial statements  do
          not include any adjustments that might result from the outcome of
          this uncertainty.

               As  discussed  in  Note  G  to  the  consolidated  financial
          statements, the  Company has  switched from consolidation  to the
          equity method for one of its subsidiaries.


           /s/ Richard A. Eisner & Company, LLP
          ---------------------------------------
          Richard A. Eisner & Company, LLP
          Cambridge, Massachusetts
          November 22, 1996

        
          January 13, 1997 as
           to Note C and 
           March 13, 1997 as
           to Note A
         

                                      F-2
     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
                             CONSOLIDATED BALANCE SHEETS

                                       September 30,    September 30,
           ASSETS                          1996             1995
           ------                       -----------      -----------
           Current assets:
           Cash and cash equivalents 
                                        $3,287,880       $7,542,508
           Accounts receivable, net
           of reserve for bad debts
           of $2,459,000 at
           September 30, 1996 and
           $2,119,000 at September
           30, 1995  . . . . . . . .     8,015,083        9,741,892
           Inventories:
           Work-in-process . . . . .                        907,128

           Raw materials . . . . . .       526,597        2,405,463
                                       -----------      -----------
                                           526,597        3,312,591
                                       -----------      -----------
           Other current assets  . .     1,002,846        1,972,871
                                       -----------      -----------
           Total current assets  . .    12,832,406       22,569,862
                                       -----------      -----------

           Equipment, building,
           furniture and leasehold
           improvements (Note C):
           Medical equipment . . . .     8,633,505        4,562,423
           Office furniture and
           equipment . . . . . . . .       685,133          833,886

           Other equipment . . . . .       899,983        2,714,170
           Leasehold improvements  .     1,912,115        1,852,778
           Building  . . . . . . . .       210,739          210,739
                                        ----------       ----------
                                        12,341,475       10,173,996
           Less:  accumulated
           depreciation and
           amortization  . . . . . .     2,759,911        1,966,309
                                       -----------       ----------
                                         9,581,564        8,207,687
                                       -----------       ----------
           Patent costs, net of
           accumulated amortization  
                                                            205,754
                                       -----------       ----------
           Goodwill, net of
           accumulated amortization
           (Note J)  . . . . . . . .    26,205,525       26,858,226

           Investment in and
           advances to
           unconsolidated subsidiary
           (Note G)  . . . . . . . .     1,440,191                 
           Other . . . . . . . . . .       664,844          590,180
                                       -----------      -----------
           TOTAL . . . . . . . . . .   $50,724,530      $58,431,709
                                       ===========      ===========

           LIABILITIES AND
           STOCKHOLDERS'
           -------------------------
           EQUITY
           ------
           Current liabilities:
           Accounts payable  . . . .    $1,870,274       $1,001,130

           Accrued expenses  . . . .     2,335,028        3,644,211
           Accrued compensation  . .       762,028          711,193
           Due to shareholders 
           (Note J)  . . . . . . . .        46,102        1,696,102
           Current portion of long
           -term debt and capital
           lease obligations 
           (Note C)  . . . . . . . .    14,495,637        4,274,110
           Other current liabilities 
                                            59,326          159,971
                                       -----------      -----------
           Total current liabilities 
                                        19,568,395       11,486,717
                                       -----------      -----------

           Long-term debt and
           capital lease
           obligations, less current
           portion (Note C)  . . . .     5,682,719       16,279,352

           Deferred revenues . . . .                         33,567
           Minority interest in net
           assets of consolidated
           entities  . . . . . . . .     1,654,993        2,614,107

           Commitments and
            contingencies 
           (Note E)

           Stockholders' equity
           (Note F):
           Preferred stock, $.01 par
           value; authorized,
           1,000,000 shares; issued,
           2,194 shares in 1996 and
           none in 1995  . . . . . .            22                 
           Common stock, $.01 par
           value; authorized,
           50,000,000 shares;
           issued, 34,180,777 shares
           in 1996 and 30,151,821 in
           1995  . . . . . . . . . .       341,808          301,518
       
           Additional paid-in
            capital  . . . . . . . .    55,392,656       58,246,689
           Accumulated deficit . . .   (31,913,813)     (30,527,991)
                                       -----------      -----------
        
                                        23,820,673       28,020,216
           Less:  treasury stock, at
           cost -225,000 common
           shares  . . . . . . . . .         2,250            2,250
                                       -----------       ----------
           Total stockholders'
           equity  . . . . . . . . .    23,818,423       28,017,966
                                                        -----------
           TOTAL . . . . . . . . . .   $50,724,530      $58,431,709
                                       ===========      ===========

        The accompanying notes to financial statements are an integral
                                     part hereof.

                                      F-3
     <PAGE>


                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF OPERATIONS

                                                       Year Ended
                                                     September 30,
                                             -----------------------------
                                                  1996           1995
                                             -------------- --------------
                                                              (unaudited)
           Revenues:
              Net patient service revenue  . $25,480,813      $1,934,322
              Management fees and other  . .     653,425          40,220
                                             -----------     -----------

              Total revenues . . . . . . . .  26,134,238       1,974,542
                                             -----------     -----------

           Operating expenses:
             Cost of service operations  . .  16,205,961       1,203,497
             Research and development  . . .                     940,141
             Selling, general and
               administrative  . . . . . . .   4,254,964       2,449,364
             Provision for bad debt and        2,126,471         162,377
               collection costs  . . . . . . -----------     -----------

             Total operating expenses  . . .  22,587,396       4,755,379
                                             -----------     -----------

           Operating income (loss) from
             continuing operations . . . . .   3,546,842      (2,780,837)

           Other income (Note F) . . . . . .     126,263         579,758
           Interest income . . . . . . . . .     212,814         195,191
           Interest expense  . . . . . . . .  (1,847,910)       (139,020)
                                             -----------     -----------

           Income (loss) from continuing
             operations before
             minority interests, equity in
             loss of subsidiary
             and provision for income taxes  
                                               2,038,009      (2,144,908)

           Minority interests in net
             (income) losses of
             consolidated entities . . . . .  (1,005,831)        783,520
       
           Equity in loss of subsidiary  . .  (2,373,580)             --  
                                             -----------     -----------

           Loss from continuing operations
             before provision for income
             taxes . . . . . . . . . . . . .  (1,341,402)     (1,361,388)
         

           Provision for income taxes  . . .     (42,288)               
                                             -----------     -----------
       
           Loss from continuing operations .  (1,383,690)     (1,361,388)
        

           Discontinued operations (Note K)
           Loss from operations of
             discontinued division . . . . .  (3,928,706)     (2,521,580)

           Loss on disposal of discontinued
             division, including provision
             of $400,000 for operating
             losses during                    (3,510,563)               
             phase-out period  . . . . . . . -----------     -----------

       
           Net loss  . . . . . . . . . . . . $(8,822,959)    $(3,882,968)
                                             ===========     ===========

           Loss Per Common Share:
           Loss from continuing operations .       $(.05)          $(.06)
        
           Loss from operations of
             discontinued division . . . . .        (.13)           (.10)
           Loss on disposal of discontinued         (.11)               
             division  . . . . . . . . . . . -----------     -----------
       
           Net loss per share  . . . . . . .       $(.29)          $(.16)
                                             ===========     ===========
        

           Weighted average number of common  30,583,320      24,020,652
             shares outstanding              ===========     ===========


                                      Nine Months Ended           Year Ended
                                        September 30,            December 31,
                                ------------------------------ ---------------

                                     1995            1994            1994
                                --------------  -------------- ---------------
                                                 (unaudited)
           Revenues:
             Net patient
             service revenue .    $1,934,322    $                $          
             Management fees          40,220                                
             and other . . . .    ----------    -----------      -----------

             Total revenues  .     1,974,542                                
                                  ----------    -----------      -----------

           Operating expenses:
             Cost of service
             operations  . . .     1,203,497                                
             Research and
             development . . .       664,786        717,010          992,365
             Selling, general
             and administrative  
                                   2,002,075      1,135,531        1,582,820
             Provision for bad
             debt and                162,377                                
             collection costs     ----------    -----------      -----------

             Total operating       4,032,735      1,852,541        2,575,185
             expenses  . . . .    ----------    -----------      -----------

           Operating income
           (loss) from
           continuing
           operations  . . . .    (2,058,193)    (1,852,541)      (2,575,185)

           Other income
           (Note F)  . . . . .       579,758                                
           Interest income . .       265,208        278,497          208,480
           Interest expense  .      (139,020)                               
                                  ----------    -----------      -----------

           Income (loss) from
           continuing
           operations before
           minority interests,
           equity in loss of
           subsidiary and
           provision for income
           taxes . . . . . . .    (1,352,247)    (1,574,044)      (2,366,705)

           Minority interests
           in net (income)
           losses of
           consolidated
           entities  . . . . .       569,354        488,799          702,965
           Equity in loss of                                                
           subsidiary  . . . .    ----------    -----------      -----------

           Loss from continuing
           operations before
           provision for income
           taxes . . . . . . .      (782,893)    (1,085,245)      (1,663,740)

           Provision for income                                             
           taxes . . . . . . .    ----------    -----------      -----------

           Loss from continuing
           operations  . . . .      (782,893)    (1,085,245)      (1,663,740)

           Discontinued
           operations (Note K)
           Loss from operations
           of discontinued
           division  . . . . .      (894,865)      (256,543)      (1,883,258)

           Loss on disposal of
           discontinued
           division, including
           provision of
           $400,000 for
           operating losses
           during phase-out                                                 
           period  . . . . . .    ----------    -----------      -----------

           Net loss  . . . . .   $(1,677,758)   $(1,341,788)     $(3,546,998)
                                 ===========    ===========      ===========

           Loss Per Common
           Share:
           Loss from continuing
           operations  . . . .         $(.03)         $(.05)           $(.07)
           Loss from operations
           of discontinued
           division  . . . . .          (.04)          (.01)            (.08)
           Loss on disposal of
           discontinued                                                     
           division  . . . . .    ----------    -----------      -----------
           Net loss per share          $(.07)         $(.06)           $(.15)
                                  ==========    ===========      ===========

           Weighted average
           number of common       24,243,902     23,543,842       23,603,251
           shares outstanding     ==========    ===========      ===========


          The accompanying  notes to  financial statements are  an integral
                                     part hereof.

                                      F-4
     <PAGE>


                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                   Common Stock     Preferred Stock
                               ------------------------------------
                                 Shares     Amount   Shares  Amount
                               ----------- --------  ------- ------
          Balance - 
          December 31, 1993 .   23,467,030  $234,670     --   $  --  
            Exercise of stock
            options . . . . .      312,509     3,125     --      --     
            Issuance of
            warrant (Note F)            --        --     --      --    
            Increase in
            proportionate
            share of
            subsidiary's
            equity related
            to sale of
            subsidiary's
            equity related
            to sale of
            subsidiary's stock
            (Note F)  . . . .           --        --     --      --          
            Note received in
            exchange for stock
            issued (Note F) .           --        --     --      --         
            Net loss for the            --        --     --      --         
            year  . . . . . .   ----------  -------- -------   -----
          Balance - 
          December 31, 1994 .   23,779,539   237,795     --      --           

            Exercise of stock
            options . . . . .       15,125       151     --      --           
            Cancellation of
            common stock
            issued for
            services (Note F)     (63,000)     (630)     --      --     
            Increase in
            proportionate
            share of
            subsidiary's
            equity related to
            sale of
            subsidiary's stock
            (Note F)  . . . .          --        --      --      --        
            Cancellation of
            note received for
            stock issued
            (Note F)  . . . .    (250,000)   (2,500)     --      --     

            Common stock
            issued related to
            service business
            acquisition
            (Note J)  . . . .    6,670,157    66,702     --      --     
            Net loss for the            --        --     --      --           
            period  . . . . .   ----------  -------- -------   -----
          Balance - 
          September 30, 1995    30,151,821   301,518     --      --     

            Exercise of stock
            options . . . . .      107,487     1,075     --      --     
            Issuance of
            convertible
            preferred stock
            (Note F)  . . . .           --        --  3,700      37
            Increase in
            proportionate
            share of
            subsidiary's
            equity related to
            sale of
            subsidiary's stock
            (Note F)  . . . .           --       --      --      --         
            Cumulative effect
            of change in
            accounting for
            subsidiary from
            consolidation to
            the equity method
            (Note G)  . . . .           --       --      --      --         
            Conversion of
            preferred stock
            (Note F)  . . . .    3,921,469    39,215 (1,506)    (15)
       
            Deemed Preferred
            Stock Dividend
            Related to Beneficial 
            Conversion Feature 
            of Convertible 
            Preferred Stock .           --        --      --      --
            Increase in
            Proportionate
            Share of
            Subsidiaries 
            Capital . . . . .           --        --      --      --
            Net loss for the            --        --      --      --     
            period  . . . . .   ----------  -------- -------   -----
         
          Balance  -
          September 30, 1996
          as restated  . . . .  34,180,777  $341,808   2,194   $  22
                                ==========  ========   =====   =====
             


                                             Note
                              Additional  Receivable
                                Paid-in    For Stock  Accumulated
                                Capital     Issued      Deficit
                              ----------- ---------- -------------
          Balance -  
          December 31, 1993   $37,622,653  $      --  $(25,303,235)
            Exercise of
            stock options .       841,095         --            --     
            Issuance of
            warrant (Note F)  
                                   35,200         --            --     
            Increase in
            proportionate
            share of
            subsidiary's
            equity related
            to sale of
            subsidiary's
            equity related
            to sale of
            subsidiary's
            stock (Note F)        502,164         --            --     
            Note received in
            exchange for
            stock issued
            (Note F)  . . .            --   (687,500)           --   
            Net loss for the                            (3,546,998)
            year  . . . . .   -----------  ---------- -------------
          Balance -  
          December 31, 1994    39,001,112   (687,500)  (28,850,233)

            Exercise of
            stock options .         9,680         --            --     
            Cancellation of
            common stock
            issued for
            services
            (Note F)  . . .     (391,620)         --            --     
            Increase in
            proportionate
            share of
            subsidiary's
            equity related
            to sale of
            subsidiary's
            stock (Note F)      1,769,259         --            --     
            Cancellation of
            note received
            for stock issued
            (Note F)  . . .     (685,000)     687,500           --   
            Common stock
            issued related
            to service
            business
            acquisition
           (Note J) . . . .    18,543,258          --           --     
            Net loss for the           --          --   (1,677,758)
            period  . . . .   -----------  ---------- -------------
          Balance -  
          September 30, 1995   58,246,689          --  (30,527,991)

            Exercise of
            stock options .       129,592          --           --     
            Issuance of
            convertible
            preferred
            stock (Note F)      3,316,608          --           --     
            Increase in
            proportionate
            share of
            subsidiary's
            equity related
            to sale of
            subsidiary's
            stock (Note F)        633,404          --          --      
            Cumulative
            effect of change
            in accounting
            for subsidiary
            from
            consolidation to
            the equity
            method
            (Note G)  . . .   (8,670,367)          --    8,670,367
            Conversion of
            preferred stock
            (Note F)  . . .      (39,200)          --           --     
       
            Deemed Preferred
            Stock Dividend
            Related to Beneficial 
            Conversion Feature 
            of Convertible 
            Preferred Stock .  1,233,230           --   (1,233,230)  
            Increase in
            Proportionate
            Share of
            Subsidiaries 
            Capital . . . . .    542,700           --           --
            Net loss for the          --           --   (8,822,959)    
            period  . . . . .   ----------  ---------   ----------
         
          Balance -
          September 30, 1996
          as restated  . . . . $55,392,656  $      -- $(31,913,813)
                                ==========  ========= ============
             


                                 Treasury Stock
                              ---------------------
                                Shares     Amount       Total
                              ---------- ----------  -----------
          Balance -  
          December 31, 1993     225,000   $(2,250)   $12,551,838
            Exercise of
            stock options .          --        --        844,220
            Issuance of
            warrant (Note F)  
                                     --        --         35,200
            Increase in
            proportionate
            share of
            subsidiary's
            equity related
            to sale of
            subsidiary's
            equity related
            to sale of
            subsidiary's
            stock (Note F)           --        --        502,164
            Note received in
            exchange for
            stock issued
            (Note F)  . . .          --        --       (687,500)
            Net loss for the         --        --     (3,546,998)
            year  . . . . .     -------   -------    -----------
          Balance -  
          December 31, 1994     225,000    (2,250)     9,698,924

            Exercise of
            stock options .          --        --          9,831
            Cancellation of
            common stock
            issued for
            services
            (Note F)  . . .          --        --       (392,250)
            Increase in
            proportionate
            share of
            subsidiary's
            equity related
            to sale of
            subsidiary's
            stock (Note F)           --        --      1,769,259
            Cancellation of
            note received
            for stock issued
            (Note F)  . . .          --        --             --
            Common stock
            issued related
            to service
            business
            acquisition
            (Note J)  . . .          --        --     18,609,960
            Net loss for the         --        --     (1,677,758)
            period  . . . .     -------   -------    -----------
          Balance -  
          September 30, 1995    225,000    (2,250)    28,017,966

            Exercise of
            stock options .          --        --        130,667
            Issuance of
            convertible
            preferred
            stock (Note F)           --        --      3,316,645
            Increase in
            proportionate
            share of
            subsidiary's
            equity related
            to sale of
            subsidiary's
            stock (Note F)           --        --        633,404
            Cumulative
            effect of change
            in accounting
            for subsidiary
            from
            consolidation to
            the equity
            method (Note G)          --        --             --      
            Conversion of
            preferred stock
            (Note F)  . . .          --        --             --  
   
            Deemed Preferred
            Stock Dividend
            Related to Beneficial 
            Conversion Feature 
            of Convertible 
            Preferred Stock .        --        --             --
            Increase in
            Proportionate
            Share of
            Subsidiaries 
            Capital . . . . .        --        --        542,700    
            Net loss for the         --        --     (8,822,959)
            period  . . . .     -------   -------    -----------
         
          Balance -
          September 30, 1996
          as restated  . . . . $225,000   $(2,250)   $23,818,423
                               ========   =======    ===========
             


          The accompanying  notes to  financial statements are  an integral
          part hereof.

                                      F-5
     <PAGE>


                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                  Year Ended
                                                 September 30,
                                           -------------------------
                                               1996         1995
                                           ------------ ------------
                                                        (unaudited)

          Cash flows from operating
          activities:
        
             Net loss . . . . . . . . . .  $(8,822,959) $(3,882,968)
        
             Adjustments to reconcile net
             loss to net cash used in
             operating activities:
             Minority interest in net
             income (loss) of
             subsidiaries . . . . . . . .     1,005,831      783,520
       
             Equity in loss of
             unconsolidated subsidiary  .     2,373,580           --  
        
             Loss on disposal of
             discontinued operations  . .     3,510,563           --  
             Depreciation and
             amortization . . . . . . . .     3,373,278      779,007
    
             Gain on sale of assets . . .     (174,891)           --  
             Common stock and warrant
             issued (canceled) for
             services . . . . . . . . . .           --      (357,250)
             Changes in assets and
             liabilities:
                  Accounts receivable,
                  net . . . . . . . . . .     1,726,809    (667,558)
                  Inventories . . . . . .      (50,949)  (1,131,285)
                  Other assets  . . . . .       249,001     (49,174)
                  Accounts payable and
                  accrued expenses  . . .   (2,375,539)    1,463,931
                  Other liabilities . . .           --   (1,196,720)
                                           ------------ ------------

             Net cash provided (used) in        814,724  (4,258,497)
             operating activities . . . .  ------------ ------------

          Cash flows from investing
          activities:
             Purchase of imaging and
             rehabilitation business
             (Note J) . . . . . . . . . .     (254,249) (12,055,201)
             Proceeds from sale of
             equipment  . . . . . . . . .       344,527          --   
             Cash of formerly
             consolidated subsidiary
             (Note G) . . . . . . . . . .   (1,832,563)          --   
             Patent costs . . . . . . . .      (39,998)    (137,172)
             Purchase of equipment,
             furniture and leaseholds       (5,537,275)    (254,056)
             improvements . . . . . . . .  ------------ ------------

          Net cash used in investing        (7,319,558) (12,446,429)
          activities  . . . . . . . . . .  ------------ ------------

          Cash flows from financing
          activities:
             Exercise of stock options  .       130,667        9,831
             Proceeds from issuance of
             preferred stock (Note F) . .     3,316,645           --  
             Proceeds from issuance of
             long-term debt . . . . . . .     3,949,658   13,500,000
             Repayment of long-term debt
             and capital lease
             obligations  . . . . . . . .   (4,324,764)    (219,731)
             Distributions to minority
             interests  . . . . . . . . .     (822,000)     (37,500)
             Contributions from minority
             interests  . . . . . . . . .           --        67,593
             Sale of subsidiary stock . .           --     3,909,400
             Payments received on note              --       110,000
             receivable (Note F)  . . . .  ------------ ------------

             Net cash provided by             2,250,206   17,339,593
             financing activities . . . .  ------------ ------------

          NET (DECREASE) INCREASE IN CASH
          AND CASH EQUIVALENTS  . . . . .   (4,254,628)      634,667

          CASH AND CASH EQUIVALENTS,          7,542,508    6,907,841
          BEGINNING OF PERIOD . . . . . .  ------------ ------------

          CASH AND CASH EQUIVALENTS, END     $3,287,880   $7,542,508
          OF PERIOD . . . . . . . . . . .  ============ ============

          Supplemental disclosures of
          cash flow information:
          Interest paid during the period    $1,842,591      $50,584
          Note received in exchange for
          stock (Note F)  . . . . . . . .
      
          See statement of 
            stockholders equity
            for amount of non-cash
            charges related to
            conversion features . . . . .     1,233,230 

        

                                              Nine Months Ended
                                                September 30,        Year Ended
                                           ------------------------ December 31,
                                               1995        1994         1994
                                           ------------------------ ------------
                                                        (unaudited)
          Cash flows from operating
          activities:
             Net loss . . . . . . . . . .  $(1,677,758)$(1,341,788) $(3,546,998)
             Adjustments to reconcile net
             loss to net cash used in
             operating activities:
             Minority interest in net
             income (loss) of
             subsidiaries . . . . . . . .     (569,353)   (488,799)    (702,965)
             Equity in loss of
             unconsolidated subsidiary  .           --          --           --
             Loss on disposal of
             discontinued operations  . .           --          --           --
             Depreciation and
             amortization . . . . . . . .      633,948     330,859      475,918
             Gain on sale of assets . . .           --          --           --
             Common stock and warrant
             issued (canceled) for
             services . . . . . . . . . .     (392,250)         --       35,000
             Changes in assets and
             liabilities:
                  Accounts receivable,
                  net . . . . . . . . . .     (669,710) (2,082,539)  (2,080,387)
                  Inventories . . . . . .     (360,735)   (154,603)    (925,153)
                  Other assets  . . . . .        25,193      24,312     (50,055)
                  Accounts payable and
                  accrued expenses  . . .       780,867   (525,314)      157,750
                  Other liabilities . . .            --   (712,669)      126,506
                                           ------------ ----------- ------------

             Net cash provided (used) in
             operating activities . . . .   (2,229,798) (4,950,541)  (6,510,384)
          Cash flows from investing
          activities:
             Purchase of imaging and
             rehabilitation business
             (Note J) . . . . . . . . . .  (12,055,201)         --           --
             Proceeds from sale of
             equipment  . . . . . . . . .           --          --           --
             Cash of formerly
             consolidated subsidiary
             (Note G) . . . . . . . . . .           --          --           --
             Patent costs . . . . . . . .      (91,057)    (83,465)    (129,580)
             Purchase of equipment,
             furniture and leaseholds         (198,328)   (606,573)    (662,301)
             improvements . . . . . . . .  ------------ ----------- ------------

          Net cash used in investing       (12,344,586)   (690,038)    (791,881)
          activities  . . . . . . . . . .  ------------ ----------- ------------

          Cash flows from financing
          activities:
             Exercise of stock options  .         9,831      46,921       47,125
             Proceeds from issuance of
             preferred stock (Note F) . .            --          --           --
             Proceeds from issuance of
             long-term debt . . . . . . .    13,500,000          --           --
             Repayment of long-term debt
             and capital lease
             obligations  . . . . . . . .      (222,772)   (110,948)   (107,907)
             Distributions to minority
             interests  . . . . . . . . .       (37,500)         --           --
             Contributions from minority
             interests  . . . . . . . . .        67,593          --           --
             Sale of subsidiary stock . .     3,199,885     469,060      709,515
             Payments received on note               --          --      110,000
             receivable (Note F)  . . . .  ------------ ----------- ------------

             Net cash provided by            16,517,037     405,033      758,733
             financing activities . . . .  ------------ ----------- ------------

          NET (DECREASE) INCREASE IN CASH
          AND CASH EQUIVALENTS  . . . . .     1,942,653 (5,235,546)  (6,543,532)

          CASH AND CASH EQUIVALENTS,          5,599,855  12,143,387   12,143,387
          BEGINNING OF PERIOD . . . . . .  ------------ ----------- ------------

          CASH AND CASH EQUIVALENTS, END     $7,542,508  $6,907,841   $5,599,855
          OF PERIOD . . . . . . . . . . .  ============ =========== ============

          Supplemental disclosures of
          cash flow information:
          Interest paid during the period       $47,390  $      --       $21,017
          Note received in exchange for
          stock (Note F)  . . . . . . . .                                797,500
       
          See statement of 
            stockholders equity
            for amount of non-cash
            charges related to
            conversion features  . . . . .
         

          See Note J  with respect to  imaging and rehabilitation  business
            acquired.
          See Note E with respect to noncash leasing transactions.
          See Note  G with respect  to change  to equity method  for former
            consolidated subsidiary.


          The accompanying  notes to  financial statements are  an integral
                                    part hereof.

                                      F-6
     <PAGE>


                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1996

          (NOTE A) - Business:
          --------------------

               Through  September 1995, Advanced  NMR Systems, Inc. ("ANMR"
          or the "Company") operated  under two segments (one of  which was
          discontinued during fiscal 1996 see Note K) consisting of Imaging
          Systems and  Imaging and Rehabilitation Services.   The Company's
          results  of  operations  for  the  year  and  nine  months  ended
          September  30,  1995  include  only  one  month  of  Imaging  and
          Rehabilitation Services operations.  

        
               The accompanying financial statements heve been restated from
          those originally issued to reflect a change in accounting for the
          May 1996 issuance of the convertible preferred stock and debentures
          by ANMR and Advanced Mammography Systems, Inc. ("AMS") described 
          in Notes F and G to the financial statements.  The preferred stock
          and debentures may be converted at a discount to the traded market
          price of the common stock into which the securities are convertible.
          Previously, the measurement of the conversion features was 
          calculated assuming that the estimated fair value of the common 
          stock into which the securities are convertible was the quoted 
          market price adjusted to reflect transferability restrictions.  
          Accordingly, no portion of the proceeds of the issuances was 
          allocated to the intrinsic value of the "fixed discount."  In 
          March 1997, the Securities and Exchange Commission's ("SEC") 
          position was announced that a discount should be computed based 
          on the Company's quoted market price and an allocation of a portion
          of the proceeds should be recognized as a deemed dividend in the 
          case of the preferred stock and as additional interest expense in
          the case of the debentures.  The Company is restating its financial
          statements to comply with this accounting treatment.
         

        
               This amended Form 10-K should be read in conjunction with
          all subsequent filings with the SEC which disclose significant
          developments including the sale of an ANMR subsidiary and a
          proposed merger of ANMR and AMS.  The impact on the financial
          statements for the year ended September 30, 1996 was to
          increase the consolidated net loss by approximately $543,000,
          to increase dividends by approximately $1,233,000 and to
          increase loss per share from continuing operations and net loss
          per share by $.02.
         
               [1]  Imaging Systems
                    ---------------
               The  Company and one of its subsidiaries have engaged in the
          development, manufacture and  sale of Magnetic  Resonance Imaging
          ("MRI") systems.  In 1989, the Company completed fabrication of a
          high-speed imaging  option enhancement  package for existing  MRI
          systems.  In 1991, the Company commenced commercial manufacturing
          of the  option  enhancement system  and in  August 1992  received
          clearance  by  the United  States  Food  and Drug  Administration
          ("FDA").   Effective August 6, 1996, the Company discontinued its
          Imaging Systems operations (see Note K).

        
               On July 2, 1992, the Company formed AMS as a wholly-owned
          subsidiary.  The subsidiary was formed to develop a dedicated MRI
          system.   AMS

                                      F-7
     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1996


          obtained its mammography technology from the Company and retained
          certain  rights  to other  dedicated  MRI  systems utilizing  the
          technology  rights.   As  more fully  discussed  in Note  G,  AMS
          completed an initial public offering of its securities in 1993.

               In October 1992, the Company entered  into a Shared Services
          Agreement  with  AMS  that  commenced  on  January  25, 1993  and
          provides that (i)  the Company shall make available  its research
          scientists,  engineers, and  other  personnel  and, (ii)  provide
          executive officers  to AMS  and (iii)  allow AMS  the use  of its
          administrative and research facilities and clerical staff.  Costs
          are  allocated between  the companies  based on  estimated usage.
          Certain  of AMS's officers serve  as officers of  the Company and
          the  Company provides  management and  administrative support  to
          AMS.

               [2]  Imaging and Rehabilitation Services
                    -----------------------------------

               The Imaging and Rehabilitation  Services segment consists of
          Medical Diagnostics, Inc. ("MDI"),  which the Company acquired on
          August 31, 1995.  MDI is an operator and manager  of a network of
          mobile and  fixed MRI units in Massachusetts, New York, Virginia,
          West Virginia  and Tennessee.   MDI  also provides  Single Photon
          Emission  Computer  Tomography  ("SPECT")  nuclear  medicine  and
          Computerized  Axial   Tomography  ("CT")  imaging   services  and
          physical  therapy  services.   The MRI,  SPECT  and CT  units are
          technologically  advanced  medical diagnostic  devices  that  
          formulate images  of internal  anatomy and vascular blood  flow.
          The Company's mobile MRI,  SPECT and  CT units  are located  in 
          trailers  that can  be  driven  to  specially prepared  sites  at
          hospitals and  clinics according to  a predefined  schedule.  MDI
          currently serves 40 hospitals and clinics and  two free-standing
          sites with  three SPECT units, 10 mobile MRI units,  two fixed MRI
          centers and  two managed  MRI  units.   MDI  currently operates  
          three  centers in Massachusetts that provide comprehensive physician
          care, physical therapy and case management  for motor vehicle 
          accident patients.  MDI operates  much of  its business through
          various partnerships and joint ventures in  which MDI or a wholly-
          owned  subsidiary of MDI serves as a general partner.

          (NOTE B) - Summary of Significant Accounting Policies
          -----------------------------------------------------

               [1]  Principles of consolidation:
                    ---------------------------

               The consolidated  financial statements include  the accounts
          of the Company and its wholly-owned subsidiaries (including MDI's
          wholly-owned   subsidiaries   and   various   majority-owned   or
          controlled  partnerships  and joint  ventures).   All significant
          intercompany transactions have been eliminated  in consolidation.
          See  "Note G" with respect  to a change  in consolidated entities
          for fiscal 1996.

                                      F-8
     <PAGE>

                   ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1996

          (NOTE B) - Summary of Significant Accounting Policies - (Continued):
          -----------------------------------------------------         

               [2]  Revenue recognition:
                    --------------------

               The  Imaging  Systems segment  generally  recognizes revenue
          when  its  systems  and products  are  shipped  to  the customer.
          During  1994, a special order was received for a prototype system
          with  customer-determined  specifications  whereby   revenue  was
          recognized when the system was substantially complete.

               The Imaging and  Rehabilitation Services segment  recognizes
          revenue as services are  provided to patients. Reimbursements for
          services provided to patients  covered by Blue Cross/Blue Shield,
          Medicare, Medicaid, HMO's and other contracted insurance programs
          are   generally  less   than  rates   charged  by   the  Company.
          Differences  between  gross  charges  and  estimated  third-party
          payments are  recorded as  contractual allowances in  determining
          net  patient service revenue during the  period that the services
          are  provided.     MDI   provides  management  services   to  its
          subsidiaries,  affiliates   and  outside  parties.     Fees   for
          management  services are  generally based  on a  standard monthly
          amount plus a percentage  of net income, as defined.   Management
          fees are recognized  as revenue  during the period  in which  the
          services are provided.

               [3]  Cash equivalents:
                    -----------------
               The  Company considers  all  highly liquid  debt instruments
          purchased with  a maturity  of three  months or  less to  be cash
          equivalents.

               [4]  Inventories:
                    ------------
               Inventories are accounted for at the lower of cost or market
          using the first-in, first-out ("FIFO") method.

               [5]  Equipment, building, furniture and leasehold
                    ---------------------------------------------
                    improvements:
                    -------------

               Property,  equipment,  furniture and  leasehold improvements
          are recorded at  cost.  Expenditures for  repairs and maintenance
          are charged to expense as incurred, whereas major betterments are
          capitalized.   Depreciation and amortization are  computed by the
          straight-line method  over the estimated lives  of the applicable
          assets, or term of the lease,  if applicable.  Assets are written
          off when they become fully depreciated.

               Property  and equipment under capital lease is stated at the
          lower of  the fair market value  or the net present  value of the
          minimum   lease  payments   at  the   inception  of   the  lease.
          Capitalized lease equipment is amortized over the  shorter of the
          term of the lease or the estimated useful life.

                                      F-9
     <PAGE>
           
         
                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1996

          (NOTE B) - Summary of Significant Accounting Policies - (Continued):
          -----------------------------------------------------

               [5]  Equipment, building, furniture and leasehold
                    --------------------------------------------
                    improvements: - (Continued)
                    ------------

               Asset Classification                    Useful Lives
               --------------------                    ------------

               Medical and other equipment             5-8 years
               Office furniture and equipment          5 years
               Research and production equipment       5 years
               Leasehold improvements                  Term of lease
               Building                                30 years

               [6]  Patents:
                    --------
                All patent costs have  been written off in  connection with
          the discontinued Imaging Systems business segment.

               [7]  Net loss per share:
                    -------------------
               Net loss  per common share  was computed using  the weighted
          average common shares outstanding during the period.  Outstanding
          warrants  and  options  had  an  anti-dilutive  effect  and  were
          therefore excluded  from the computation  of net loss  per common
          share.

               [8]  Minority interests in net income (losses) of consolidated
                    ---------------------------------------------------------
                    entities
                    --------

               Minority interests in  net income  (losses) of  consolidated
          entities  represents the  allocation of  net losses  from certain
          consolidated  entities  to   the  respective  minority   interest
          shareholders and joint venture partners.

               [9]  Fiscal year end
                    ---------------

               During  1995,  the  Company  changed its  fiscal  year  from
          December 31 to September 30.

               [10]  Letters of credit
                     -----------------

               The  Company  utilizes letters  of  credit  to back  certain
          financing instruments.  The letters  of credit reflect fair value
          as a condition  of their  underlying purpose and  are subject  to
          fees competitively determined in the market place.

                                      F-10
     <PAGE>

                    ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1996


          (NOTE B) - Summary of Significant Accounting Policies - (Continued):
          -----------------------------------------------------

               [11]  Use of Estimates
                     ----------------

               The preparation  of financial statements in  conformity with
          generally accepted accounting  principles requires management  to
          make estimates  and assumptions that affect  the reported amounts
          of assets and liabilities and disclosure of contingent assets and
          liabilities  at  the date  of  the financial  statements  and the
          reported amounts  of revenues  and expenses during  the reporting
          period.  Actual results could differ from those estimates.

               [12]  Recent Pronouncements
                     ---------------------

               The   Financial  Accounting   Standards  Board   has  issued
          Statement of Financial Accounting Standards No. 123,  "Accounting
          for  Stock-Based Compensation"  ("SFAS 123").   The  Company will
          adopt  the  disclosure  requirements   of  SFAS  123  during  the
          Company's fiscal year ending September 30,  1997 but will account
          for its  employee stock option plans  under Accounting Principles
          Board  Opinion No. 25, "Accounting for Stock Issued to Employees"
          as permitted under SFAS 123.

               In addition, the Financial Accounting Standards Board issued
          Statement  of Financial Accounting Standards No. 121, "Accounting
          for the Impairment of Long-Lived Assets to be Disposed Of" ("SFAS
          121").  SFAS 121 is also  effective for the Company's fiscal year
          ending September 30, 1997.  The Company believes adoption of SFAS
          121 will not have a material impact on its financial statements.

                                      F-11
     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1996


          (NOTE C) Long-term Debt and Capital Lease Obligations
          -----------------------------------------------------

               Long-term debt  and capital  lease obligations  at September
          30, 1996 and 1995 consisted of the following:

                                                 1996          1995
                                             -----------    ----------
           Term loan and revolver loan
           payable to a bank,                  $11,855,000  $13,500,000
           collateralized by all    the
           business assets of the Company  

           Note payable to a leasing
           company, interest at 11.5%,
           monthly payments of principal
           and interest of $40,147 payable       1,803,000           --   
           through September 2000,
           collaterized by certain business
           assets of the Company . . . . .

           Note payable to a leasing
           company, interest at 9.5%,
           monthly payments of principal
           and interest of $55,762 payable       1,214,077    1,698,000
           through September 1998,
           collaterized by certain business
           assets of the Company . . . . .

           Note payable to a leasing
           company, interest at the prime
           rate plus 0.5%, monthly
           principal payments of $22,917
           payable through September 1999
           collaterized by certain business        804,061    1,077,440
           assets of the Company . . . . .

           Note payable to a bank, interest
           at 8.7%, monthly payments of
           principal and interest of
           $10,415 payable through January
           1997, collateralized by certain
           business assets of the Company           30,797      156,817

           Other notes payable . . . . . .         384,021      313,405

           Capital lease obligations with
           interest rates ranging primarily
           from 9.6% to 16%  . . . . . . .       4,086,510    3,807,800
                                                ----------  -----------
           Total long-term debt and capital
           lease obligations . . . . . . .      20,178,356   20,553,462

           Less:  Current maturities . . .      14,495,637    4,274,110
                                                ----------  -----------
                                                $5,682,719  $16,279,352
                                               ===========  ===========

                                      F-12
     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1996


          (NOTE C) - Long-term Debt and Capital Lease Obligations - Continued
          -------------------------------------------------------

               On  August 31, 1995, MDI entered into a bank credit facility
          to  borrow up  to  $15,000,000 (the  "Credit  Facility") under  a
          $6,000,000 revolving  credit loan  which expires August  31, 1998
          and a $9,000,000 term loan.  The term loan is required to be paid
          in eighteen  quarterly installments of $500,000  commencing March
          31,  1996.    As  of  September 30,  1996  and  1995,  there  was
          $4,355,000  and  $4,500,000,  respectively,  borrowed  under  the
          revolving   credit   loan    and   $7,500,000   and   $9,000,000,
          respectively, borrowed under the term loan.  Borrowings under the
          revolving  credit  loan bear  interest at  either 0.25%  over the
          prime rate or 2.5% over the  30 day LIBOR rate.  Borrowings under
          the term loan bear interest at either 0.5% over the prime rate or
          3.0% over  the 30 day LIBOR  rate.  A condition  of default would
          increase the term loan rate to 2% over the prime rate.

               The lenders have a security interest in substantially all of
          the  assets of the Company.  The Credit Facility contains various
          restrictive  operating and financial covenants typically included
          in bank  credit arrangements (including limitations  on incurring
          additional  indebtedness, paying  cash  dividends to  the  parent
          company,  and maintaining  certain financial  ratios and  default
          provisions).    At September  30, 1996,  the  Company was  not in
          compliance  with  several restrictive  covenants which  have only
          been  waived  by the  bank  only  through  March 31,  1997.    In
          addition, the bank  has deferred the December  31, 1996 scheduled
          term loan payment of $500,000 until March 31, 1997.  In addition,
          the bank has deferred  the December 31, 1996 scheduled  term loan
          payment  of $500,000  until  March 31,  1997.   Accordingly,  the
          entire amount under the bank  credit facility has been classified
          as current in the accompanying financial statements (see Note L).

               On  August 19, 1996, the Company amended its Credit Facility
          to reduce the revolving  credit loan to a maximum  of $5,555,000,
          including letters of credit  totaling $1,200,000.  Further, under
          the terms  of  the amendment,  ANMR  was required  to  contribute
          $500,000 to MDI.

               In  addition  to  the  $11,855,000  balance  outstanding  at
          September 30, 1996  under the  Credit Facility,  the Company  has
          outstanding letters of credit totaling $1,200,000 which guarantee
          certain MDI equipment financings.

                                      F-13
     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1996


          (NOTE C - Long-term Debt and Capital Lease Obligations - Continued
          ------------------------------------------------------

               Capital Lease Obligations
               --------------------------

               Future minimum lease payments, under capital leases, for the
          next five years and thereafter are as follows:

           Fiscal Year
           -----------
                1997                                         $1,608,195
                1998                                          1,223,072
                1999                                          1,041,067
                2000                                            752,175
                2001                                            159,071
                                                             ----------
                                                              4,783,580
           Less:  Amounts representing interest                 697,070
                                                             ----------
                                                              4,086,510
           Less:  Current maturities                          1,263,771
                                                             ----------
                                                             $2,822,739
                                                             ==========


          (NOTE C) - Long-term Debt and Capital Lease Obligations - Continued
          -------------------------------------------------------

               Maturities of long-term  debt and capital lease  obligations
          over the next five years and thereafter are as follows:

           Fiscal Year

                1997                                $14,495,637
                1998                                  2,286,060
                1999                                  1,574,319
                2000                                  1,155,231
                2001                                    667,109
                                                    -----------
                                                    $20,178,356
                                                    ===========


           Property and equipment under capital lease at September
           30, 1996 is as follows:

           Property and equipment      $4,976,000

           Less:  Accumulated           1,109,000
           amortization                ----------
                                       $3,867,000
                                      ===========

                                      F-14
     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1996


          (NOTE D) - Income Taxes:
          -----------------------

               As of September 30, 1996 and 1995, the components of the net
          deferred tax asset and liability are as follows:

                                         September 30,    September 30,
                                              1996            1995
                                         --------------   -------------
           Deferred tax assets:
                Net operating loss        $10,280,000      $9,000,000
           carryforward  . . . . . . .
           Provision for discontinued       1,404,000              --
           operations  . . . . . . . .
                Deferred gains . . . .         13,000          57,000
                Stock option                                  322,000
           compensation  . . . . . . .
                Capital lease  . . . .         22,000          59,000
                Other  . . . . . . . .         57,000)         88,000)
           Valuation Allowance . . . .    (11.260,000)     (8,760,000)
                                         ------------     -----------
                                             $516,000        $766,000
                                         ------------     -----------
           Deferred tax liabilities:
                Depreciation . . . . .       $296,000       $,420,000

                Amortization . . . . .        184,000         137,000
                                         ------------     -----------
                                             $480,000        $557,000
                                         ------------     -----------
                                              $36,000        $209,000
                                         ============     ===========


               At  September 30, 1996 and September 30, 1995, the valuation
          allowance  relates principally  to  uncertainty  surrounding  the
          realization of the net operating loss carryforward benefit.

               At September 30,  1996 and September  30, 1995, the  Company
          had available net operating  loss carryforwards for tax purposes,
          expiring   through   2011   of   approximately   $26,000,000  and
          $21,000,000,  respectively.  The  Internal Revenue  Code contains
          provisions which  may limit  the net operating  loss carryforward
          available for  use in any  given year  if significant changes  in
          ownership interest of the Company occur.

               The Company  and MDI file  a consolidated  tax return.   The
          Company and  AMS file separate income tax  returns.  Accordingly,
          losses incurred by AMS are not available to the Company to offset
          its future income.

                                      F-15
     <PAGE>


                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1996


          (NOTE D) - Income Taxes: - (Continued)
          -----------------------

               The  following table  reconciles the  tax provision  per the
          accompanying statements of operations with the expected provision
          obtained by applying statutory tax rates to the pretax loss:


                                                      Year Ended
                                                     September 30,
                                                1996             1995
                                          ---------------  -----------------
                                                              (unaudited)

           Pretax loss . . . . . . . . .   $(8,139,575)       $(3,882,968)

           Loss attributable to AMS  . .            --          2,414,331
                                           -----------        -----------

           Parent company pretax           $(8,139,575)       $(1,468,637)
                 income (loss) . . . . .   ===========        ===========

           Expected tax (benefit) 
                 at 34%  . . . . . . . .   $(2,767,456)         $(499,337)

           Adjustment due to increase
                in valuation reserve . .     2,767,456            499,337

           Other . . . . . . . . . . . .        42,288                 --  

           Utilization of available net
                operating loss                      --                 --
                carryforward . . . . . .   -----------        -----------

           Tax provision per financial     $    42,288        $        --  
                statements . . . . . . .   ===========        ===========

     
    
   
           Permanent Difference:

           Amortization of discount
                related to issuance of
                convertible debentures
                (Note C) . . . . . . . .   $   542,700                 --
          


                                           Nine Months Ended        Year Ended
                                             September 30,         September 30,
                                          1996           1995          1994
                                     -------------- -------------- -------------
                                                     (unaudited)

          Pretax loss . . . . . . .   $(1,677,758)   $(1,341,788)  $(3,546,998)

          Loss attributable to AMS      1,684,048      1,772,880     2,503,162
                                      -----------    -----------   -----------

          Parent company pretax            $6,290      $(431,092)  $(1,043,836)
                income (loss) . . .   ===========    ===========   ===========

          Expected tax (benefit)           $2,000      $(147,000)    $(355,000)
                at 34%  . . . . . .

          Adjustment due to increase           --        147,000       355,000
               in valuation reserve 

          Other . . . . . . . . . .            --             --            --

          Utilization of available         (2,000)            --            --
               net operating loss     -----------    -----------   -----------
               carryforward . . . .

          Tax provision per           $        --    $        --   $        --
               financial statements   ===========    ===========   ===========

        
          Permanent Difference:

           Amortization of discount
                related to issuance
                of convertible 
                debentures (Note C) . $   542,700
          

                                      F-16
     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1996


          (NOTE E) - Commitments and Contingencies:
          ----------------------------------------

               [1]  Operating leases:
                    ----------------

               The   Company  leases   facilities   and   equipment   under
          noncancelable operating  leases expiring at various dates through
          fiscal 2001. Facility  leases require the Company  to pay certain
          insurance, maintenance  and real  estate taxes.   Rental expenses
          totaled  approximately $2,349,000  and  $1,555,000 for  the years
          ended  September 30, 1996 and 1995, $485,000 and $300,000 for the
          nine month periods ended September 30, 1995 and 1994 and $398,000
          and  $370,000 for  the years  ended December  31, 1994  and 1993,
          respectively.

               Future basic rental  commitments under operating leases  are
          as follows:

                         Fiscal Year
                        -------------
                             1997                $1,828,087
                             1998                 1,426,630
                             1999                   847,086
                             2000                   618,138
                             2001                   172,318
                                                 ----------
                                 Total           $4,892,259
                                                 ==========

               The Company also leases specially prepared sites at  certain
          hospitals at  which it  operates its mobile  MRI units.  Space is
          also generally leased within the hospital facilities for  patient
          registration  and  clinical  and other  administrative  services.
          Lease agreements with the hospitals are typically for five years.

               Future   rentals  under  hospital  rent  agreements  are  as
          follows:

                         Fiscal Year
                         ------------
                             1997                  $471,417
                             1998                   435,581
                             1999                   249,801
                             2000                   135,401
                             2001                    11,167
                                                   --------
                                 Total           $1,303,367
                                                 ==========

               Hospital rental  expenses for the years  ended September 30,
          1996  and 1995  and  the  nine months  ended  September 30,  1995
          totaled $481,000, $38,000 and $38,000, respectively.            


                                      F-17
     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1996


          (NOTE E) - Commitments and Contingencies: - Continued
          ----------------------------------------

               [2]  Legal proceedings:
                    -----------------

               Effective  November  28,  1995,  ANMR  terminated   the  Key
          Employment Agreement, dated May 2,  1995, of John A. Lynch, Chief
          Executive Officer  of  MDI.   MDI's Chief  Operating Officer  was
          named  the Acting  President  of  MDI.   At  September 30,  1995,
          accrued  expenses  include  approximately $500,000  of  severance
          benefits  accrued  in  accordance  with  the  terms  of  the  Key
          Employment Agreement.  In March 1996,  the Company's former Chief
          Executive Officer filed  a demand  for  arbitration seeking  a  
          declaratory ruling, equitable relief  and damages related  to 
          claims  arising out of the Key  Employment Agreement.  Although the
          outcome  of this arbitration is uncertain, the Company does  not 
          believe that the results  of this arbitration  will have a material
          effect on the consolidated financial position or results of 
          operations of the Company.

               During 1996,  the Company became engaged  in litigation with
          one of its customers regarding the performance of its enhancement
          package  for  several  MRI  systems  sold  to  the  customer  for
          approximately  $1,500,000.    The  Company   believes  that  this
          situation was  exacerbated by  its  decision to  discontinue  its
          imaging systems operations (see Note  K).  The Company is seeking
          an  equitable resolution  to the  dispute.   The outcome  of this
          matter is  unpredictable, but the  Company does not  believe that
          the final outcome will have a material effect on the consolidated
          financial position or results of operations of the Company.

               The Company is also subject to legal proceedings and  claims
          that  arise  in  the  normal  course  of  business.    Management
          believes,  based  on consultation  with  counsel,  that any  such
          liabilities resulting  from these  matters  would not  materially
          affect the consolidated financial position of the Company  or its
          results of operations.

                                      F-18
     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1996

          (NOTE F) - Capital Transactions: 
          -------------------------------

               [1] Convertible Preferred Stock:

               In May  1996, the  Company closed  a private  placement (the
          "Placement")  of $3.7  million principal  amount of  newly issued
          Series  A  Convertible  Preferred  Stock, $.01  par  value,  (the
          "Preferred Stock").  Preferred Stock shareholders are entitled to
          receive  dividends at a rate of $40.00  per share per annum, when
          and as  declared by the  Board of Directors  of the Company.   At
          December 31, 1996, approximately  2,200 shares of Preferred Stock
          was  still  outstanding  after  certain  conversions.    The  net
          proceeds from  the Placement  of approximately  $3,320,000, after
          payment of fees and  related expenses, is being used  for working
          capital.

               Each  share of Preferred Stock is convertible into shares of
          common stock at a conversion price equal to the lesser of 125% of
          the market price on the issuance date, or 75% of the market price
          on the  conversion date.   The  market price,  as defined in  the
          agreement equals  the average  closing  bid price  of the  common
          stock  for  the  five  trading  days  immediately  preceding  the
          issuance  date or the conversion  date, as may  be applicable, as
          reported  by  the  National  Association  of  Securities  Dealers
          Automated  Quotation System  ("NASDAQ").   Through  September 30,
          1996,  a total  of  1,506 shares  of  Preferred Stock  have  been
          converted into a total of  39,215 shares of common stock.

               [2]  Warrants: - Continued
                    --------

               In  connection with the acquisition of MDI (see Note J), the
          Company issued 2,331,722 warrants to purchase the Company's stock
          at  a purchase price  of $3.75  per share at  any time up  to the
          expiration date on August 31, 2000.

               In  connection  with  various   debt  and  equity  financing
          arrangements prior to  1994, the Company  had issued warrants  to
          purchase  the Company's  common  stock.   During  1993, all  such
          outstanding  warrants  were either  exercised  or  expired.   The
          warrants exercised  resulted  in the  Company  issuing  6,262,746
          shares  of  common  stock   for  net  proceeds  of  approximately
          $10,600,000.

               In 1993, a consultant  was engaged to assist the  Company in
          connection with the exercise of the above warrants.  In lieu of a
          cash payment, the consultant was granted 189,000 shares of common
          stock and an option to purchase 250,000 shares of common stock at
          a purchase price of $2.50 per  share.  The difference between the
          fair  market value of the common stock  and the amount to be paid
          therefore,  amounting to  $801,750,  was  recorded as  consulting
          expense in the financial statements  for the year ended  December
          31, 1993.  The Company canceled all of the options  and 63,000 of
          the  shares  previously  granted  resulting in  other  income  of
          approximately $392,000 during the nine months ended September 30,
          1995.

               During  1994,  in  connection   with  an  agreement  with  a
          financial  advisory firm,  the Company  issued a  warrant  to the
          advisory firm to purchase 350,000  shares of the Company's common
          stock.  The warrant is exercisable at $5.00 per share at any time

                                      F-19
     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1996


          (NOTE F) - Capital Transactions: - Continued
          --------------------------------------------

          up to the expiration date on March 6, 2005.  The number of shares
          under  the   warrant  and  the  exercise  price  are  subject  to
          adjustment  in the  event  of stock  dividends  or splits.    The
          warrant was sold to the investment  advisor for $200 and has been
          valued  at $35,200 in the accompanying  financial statements.  In
          addition to the  warrant, the advisory firm received  a quarterly
          retainer fee  of  $15,000  and received  an  additional  fee  for
          specific   financing,  merger  or   acquisition  services.    The
          agreement is cancelable by either party at any time.

               [3]  Related-party transactions:
                    --------------------------

               One  of the Company's former directors who is the brother of
          the president and sole shareholder of the underwriting  firm used
          in the Company's initial  public offering in 1983 was  a director
          at the time  of the  offering.   The underwriting  firm has  also
          assisted the  Company in other  financing transactions, including
          the   public  offering   of  the   Company's  subsidiary.     The
          underwriting  firm has received substantial fees, commissions and
          expenses for  its services.   During 1993, the  underwriting firm
          exercised the remaining portion of a unit purchase option granted
          in connection with a private placement  of securities whereby the
          underwriter purchased 146,000 shares  of common stock and 146,000
          class  A warrants for $438,000.  The warrants were also exercised
          in 1993 as indicated in Note F [2].

               [4]  Stock options:
                    -------------

               The Company  has an Incentive and  Nonqualified Stock Option
          Plan which provides for  the granting of options to  purchase not
          more  than 1,000,000 shares of common stock.  Exercise prices for
          any incentive options are at prices not less than the fair market
          value   at  the  date   of  grant,  while   exercise  prices  for
          nonqualified options may be at any price in excess of $.01.  When
          fair market  value at the  date of issuance  is in excess  of the
          option  exercise price,  the excess  is recorded  as compensation
          expense.  The total  number of shares authorized for  grant under
          this  plan were reached during 1993 and no additional options can
          be granted.  During fiscal 1996 certain options were canceled and
          replaced with options exercisable at the then fair market value.

                                      F-20
     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1996


          (NOTE F) - Capital Transactions: - Continued
          --------------------------------------------

               Stock  option transactions under the above plan for the past
          three years are as follows:

                                        Number of     Option Price
                                         Shares         Per Share
                                       -----------  ----------------
           Balance, December 31, 1993       336,487        $.65 $4.38
           Exercised in 1994               (12,409)        $.65 $3.18
           Canceled in 1994                 (2,438)        $.65 $3.18
                                           --------
           Balance, December 31, 1994       321,640        $.65 $4.38
           Granted in 1995                    6,000             $3.18
           Exercised in 1995               (15,125)              $.65
           Canceled in 1995                (16,300)       $3.13 $3.18
                                          ---------
           Balance, September 30,           296,215        $.65 $4.38
           1995
           Exercised in 1996               (31,625)             $0.65
           Canceled in 1996               (112,500)       $2.63 $4.38
                                         ----------
           Balance, September 30,           152,090        $.65 $4.38
           1996                          ==========


               During 1993, the Company adopted a new employee stock option
          plan  and a  stock option  plan for  nonemployee directors.   The
          employee stock option plan  provides for the granting  of options
          to purchase not more  than 2,250,000 shares of common stock.  The
          options  issued under the  plan may be  incentive or nonqualified
          options.  The exercise price  for any incentive options cannot be
          less than  the fair market value of the stock  on the date of the
          grant, while the exercise price for nonqualified  options will be
          determined by the option committee.  The Directors' stock  option
          plan provides  for the granting  of options to purchase  not more
          than  625,000 shares  of common  stock.   The exercise  price for
          shares granted under the Directors'  plan cannot be less than the
          fair market value  of the stock on  the date of the grant.   Both
          plans expire May  25, 2003.  Stock option  transactions under the
          1993 plans are as follows:

                                      F-21
     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1996


          (NOTE F) - Capital Transactions: - Continued
          -------------------------------

                [4] Stock options: - Continued
                    ------------- 

                                        Number of     Option Price
                                         Shares         Per Share
                                       -----------    ------------
           Balance, December 31, 1993    960,000          $3.13 $3.25
           Granted in 1994               849,000          $2.38 $5.25
           Canceled in 1994             (100,000)               $5.25
                                     -----------
           Balance, December 31, 1994  1,709,000          $2.38 $5.25
           Granted in 1995               871,242           $.79 $3.94
           Canceled in 1995             (341,200)         $2.38 $3.13
                                    ------------
           Balance, September 30,      2,239,042           $.79 $5.25
           1995
           Granted in 1996               440,000           $.50 $2.19
           Exercised in 1996             (75,862)         $1.45 $2.56
           Canceled in 1996             (622,492)         $1.58 $5.25
                                      ----------
           Balance, September 30,      1,980,688           $.50 $5.25
           1996                       ==========


            Stock transactions not  covered under the option plans in 1996,
          1995 and 1994 are as follows:

                                        Number of     Option Price
                                         Shares         Per Share
                                       -----------

           Balance, December 31, 1993    573,750          $2.75 $3.38
           Granted in 1994                10,000                $2.75
           Exercised in 1994            (300,000)         $2.75 $3.18
           Canceled in 1994               (7,000)               $3.18
                                      ----------
           Balance, December 31, 1994    276,750          $3.18 $3.38
           Granted in 1995               860,318           $.79 $2.01
           Canceled in 1995             (261,750)          $.79 $3.38
                                     -----------
           Balance, September 30,        875,318           $.79 $3.38
           1995
           Granted in 1996               130,000           $.50 $1.41
           Canceled in 1996             (150,000)               $2.56
                                     -----------
           Balance, September 30,        855,318           $.79 $3.38
           1996                       ==========

               Under all  plan and nonplan  stock options, as  of September
          30, 1996, options to  purchase 894,312 shares were  available for
          grant  and options  to  purchase 2,988,096  shares at  a weighted
          average   price  of  $1.39  per  share  were  exercisable.    The
          outstanding options expire at various dates within ten years from
          the date of grant.

                                      F-22
     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1996


          (NOTE F) - Capital Transactions: - Continued
          -------------------------------

               [5]  Common stock reserved:
                    ---------------------

               As  of   September  30,  1996,  the   Company  has  reserved
          approximately 2,725,000 shares of  common stock for issuance upon
          the  exercise  of  the   outstanding  stock  options  granted  in
          accordance with  the stock  option plans  and  stock options  not
          covered by stock option plans.

               [6]  Note receivable from stock sale:
                    --------------------------------

               During  1994, a  former  employee of  the Company  exercised
          stock options in exchange for a note.  The note was a nonrecourse
          promissory  note  bearing interest  at  the  prime  rate and  was
          collateralized by the stock issued upon the exercise of the stock
          option.   Interest was payable annually and the principal was due
          upon the sale of the shares by the former employee.  During 1995,
          the note was  canceled and the  stock issued was returned  to the
          Company.


          (NOTE G) Unconsolidated Subsidiary (AMS):
          ----------------------------------------

               AMS  completed its initial public  offering of stock in 1993
          which  generated  net  cash  proceeds  to  AMS  of  approximately
          $7,400,000.    As  a  result  of  the   offering,  the  Company's
          percentage ownership  of AMS was  reduced to  73%.  Prior  to the
          offering,  AMS  issued bridge  notes  with  warrants to  purchase
          shares of common stock at a price of one-half the public offering
          price.   In  connection with  the offering,  AMS also  granted an
          option to the underwriter to purchase  shares at a price of  130%
          of  the public  offering  price.   AMS  has also  established  an
          employee stock option  plan under which certain options have been
          granted.    As  the  warrants  and  options  are  exercised,  the
          Company's percentage  ownership of  AMS will be  further reduced.
          During 1994 and 1995, most of the above warrants and options were
          exercised whereby  the Company's percentage ownership  of AMS was
          reduced to approximately 61% at September 30, 1995.

               On  May 15, 1996, AMS  closed a private  placement (the "AMS
          Placement") of  $3 million principal  4% convertible  debentures.
          Net proceeds from the  AMS Placement was approximately $2,752,000
          after payment of fees and related  expenses.  As of September 30,
          1996,  an additional 1,748,364  shares of  common stock  had been
          issued  in connection  with  the conversion  of these  debentures
          whereby  the  Company's  percentage  ownership of  AMS  has  been
          reduced to approximately 48% at September 30, 1996.  Accordingly,
          the  Company has switched from consolidation of AMS to the equity
          method of accounting.

               Also in connection with the AMS public offering, the Company
          agreed  to place 2,750,000 of  its 4,000,000 shares  of AMS stock
          into escrow.   The escrow shares will be released  based upon AMS
          achieving certain levels of  pretax income or share price  in the
          future.   If and when  the shares are  released from  escrow, AMS
          will  incur an expense  based on the  fair market value  of AMS's
          stock  at the time they  are released.   For accounting purposes,
          the Company treats the escrow shares as if they were outstanding.
          If  the  shares are  not  ultimately  released  from escrow,  the
          Company's future interest in the earnings or losses of AMS will be

                                      F-23
     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1996


          (NOTE G) - Unconsolidated Subsidiary (AMS):
          ------------------------------------------

          reduced.  The Company  does not  currently believe  that the escrow
          shares will be released. 


          (NOTE H) Related Party Transactions
          -----------------------------------

               MDI  has   a  management   agreement  with   a  professional
          corporation  owned   by   an   officer/director   of   MDI   (the
          "Professional   Corporation").     Pursuant  to   the  management
          agreement, MDI manages all business and administrative aspects of
          the  Professional  Corporation,  excluding  medical  and  related
          services.  Management fees under  this contract totaled   $15,000
          and $5,000  for the year  ended September  30, 1996 and  the nine
          months ended September 30, 1995, respectively.

               Certain of  the consolidated  entities have entered  into an
          agreement   with  the   Professional   Corporation  whereby   the
          Professional   Corporation   provided  overall   supervision  and
          direction  of  medical  services  provided  by  the  consolidated
          entities.  Each of the agreements was for a five-year period, and
          required the payment  of an  annual fee and  an initial  training
          fee.  Currently, each agreement renews automatically for one-year
          periods  unless  terminated  by  either  party  with  appropriate
          advance notice.


          (NOTE I) Joint Venture
          -----------------------

               MDI  and an  unrelated party  (the "Joint  Venture Partner")
          formed a joint venture (the  "Joint Venture") under an  agreement
          dated  December   31,  1986,  as  amended   (the  "Joint  Venture
          Agreement").  The Joint  Venture was organized to license  an MRI
          unit  to an MDI operating entity (the "MDI Operating Entity") and
          to  manage the MDI Operating  Entity.  The  Joint Venture Partner
          was  entitled to 46%  of the  net earnings  of the  Joint Venture
          during the ten-year term of the Joint Venture Agreement. 

               The  Joint  Venture  Partner  purchased,  for  approximately
          $2,620,000,   the  necessary  MRI   equipment/van  and  leasehold
          improvements which it licenses  to the Joint Venture.   The Joint
          Venture Agreement  requires licensing fees  to be paid  as weekly
          priority payments to  the Joint Venture Partner.   Licensing fees
          have aggregated  approximately $530,000 and $44,000  for the year
          ended  September 30, 1996 and one month ended September 30, 1995,
          respectively.    The  Joint   Venture  in  turn  sublicenses  the
          equipment/van  and leasehold  improvements  to the  MDI Operating
          Entity on the  same terms  under a Restated  and Amended  Medical
          Imaging  Lease and Services  Agreement dated  August 6,  1990 and
          expiring  on   December  31,   1996  (the  "Lease   and  Services
          Agreement").  These  transactions have been accounted for as a 
          capital lease in  the   accompanying  consolidated  financial  
          statements  and  are included in the disclosures in Note C.

                                      F-24
     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1996


          (NOTE I) - Joint Venture - Continued
          ------------------------

               In 1990,  the parties  agreed to amend  and restate  various
          existing  agreements  and to  sign  a Medical  Imaging  Lease and
          Services  Agreement  effective  June  1,  1990  and  expiring  on
          December  31, 1996  between the  Joint Venture  and a  second MDI
          operating entity.  Also, the Joint Venture Partner agreed to loan
          MDI  up to  $487,500  which amount  was,  on December  20,  1990,
          converted to purchase from  MDI an additional 5% interest  in the
          earnings  of  the  Joint  Venture.     In  connection  with  this
          transaction,  MDI  deferred  a  $445,730  gain,  which  is  being
          amortized on a straight-line basis over the remaining term of the
          Joint  Venture Agreement  as an  offset to  minority  interest in
          consolidated  partnerships'   net  income  in   the  accompanying
          consolidated statements of income.

               The Company  filed a complaint in September 1992 against the
          Joint Venture  Partner and certain  of its affiliates,  seeking a
          declaration, damages, and equitable relief relating to an alleged
          breach  by the  Joint  Venture Partner  of certain  fiduciary and
          contractual  obligations  with respect  to  the  business of  the
          Company.  The  Joint Venture Partner filed a counterclaim against
          the  Company  also seeking  damages  and  equitable relief  while
          alleging breach  of fiduciary and contractual  obligations by the
          Company.   Although the outcome of this  litigation is uncertain,
          the  Company does not believe that the results of this litigation
          will  have  a  material  effect  on  the  consolidated  financial
          position or results of operations of the Company.

               Deferred gains,  including $60,000  per year related  to the
          Joint  Venture Agreement, of  approximately $134,000  and $11,000
          related to the above transactions  have been amortized during the
          year ended September 30,  1996 and the one month  ended September
          30, 1995, respectively.


          (NOTE J) - Acquisition of Medical Diagnostics, Inc.
          ---------------------------------------------------

               Effective August 31, 1995, Medical Diagnostics, Inc. ("MDI")
          merged  (the  "Merger") with  a  wholly-owned  subsidiary of  the
          Company.  In connection with the Merger, MDI entered into  a loan
          and security agreement with a bank to finance the cash portion of
          the merger (see  Note C).  The acquisition has been accounted for
          under the purchase method of accounting and the purchase price of
          $29,806,000,  exclusive of  related costs,  consisted of  cash of
          approximately $11,196,000 and stock valued at approximately
          $18,610,000.   In addition,  2,331,722 warrants to  purchase ANMR
          stock at $3.75  per share  were issued to  MDI shareholders  (see
          Note  F).   The  purchase price  and  costs associated  with  the
          acquisition exceeded the fair value of the net assets acquired by
          approximately $26,933,000 which has been assigned to goodwill and
          is being  amortized on a  straight-line basis over  thirty years.
          At  September  30, 1996  and 1995,  the  Company owed  former MDI
          shareholders approximately $46,000 and  $1,696,000, respectively,
          for MDI common stock not yet converted.

                                      F-25
     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1996

          (NOTE K) - Discontinued Operations
          ----------------------------------

               In  August 1996, the Company's  Board of Directors adopted a
          formal plan to discontinue  its Imaging Systems business segment.
          The segment has been accounted for as  discontinued operations in
          accordance with  APB 30,  which among other  provisions, requires
          the plan of disposal to be carried out within one year.

               Included in the loss  from disposal of the  Imaging Services
          business segment  totaling $3,511,000 is a  provision of $400,000
          for future  expenses  to  be  incurred  in  connection  with  the
          disposal of the  discontinued business.  The operating results of
          the discontinued operations are summarized as follows:


                                                       Year Ended
                                                     September 30,
                                              ---------------------------
          Revenues:                                1996         1995
                                                   ----         ----
                                                             (unaudited)
              Imaging systems sales and other
                revenue . . . . . . . . . . . $ 4,847,648   $ 6,706,480
          Operating expenses:
              Cost of goods sold  . . . . . .   3,914,329     4,581,864
              Research and development  . . .   1,320,044     1,735,022
              Selling, general and              3,541,981     2,911,174
                administrative  . . . . . . . -----------   -----------
              Total operating expenses  . . .   8,776,354     9,228,060
                                              -----------   -----------
          Loss from discontinued operations . $(3,928,706)  $(2,521,580)
                                              ===========   ===========


                                         Nine Months Ended         Year Ended
                                           September 30,          December 31,
                                    ---------------------------  --------------
          Revenues:                     1995           1994           1994
                                        ----           ----           ----
                                                    (unaudited)

              Imaging systems       $6,643,090    $ 5,224,810     $ 5,288,200
                sales and other
                revenue . . . . .
          Operating expenses:
              Cost of goods sold     4,124,354      1,956,611       2,414,121
              Research and           1,243,159      1,470,281       1,962,144
                development . . .
              Selling, general and   2,170,442      2,054,461       2,795,193
                administrative  .  -----------    -----------     -----------
              Total operating        7,537,955      5,481,353       7,171,458
                expenses  . . . .  -----------    -----------     -----------
          Loss from discontinued   $  (894,865)   $  (256,543)    $(1,883,258)
          operations  . . . . . .  ===========    ===========     ===========


               The net assets of  discontinued operations are summarized as
          follows:

                                                   September 30, September 30,
                                                       1996           1995
                                                       ----           ----
          Current assets  . . . . . . . . . . . .   $3,263,394     $7,908,105
          Equipment, building, furniture and
             leasehold improvements, net  . . . .      511,109        922,728
          Other assets  . . . . . . . . . . . . .    1,487,367        201,363
          Current liabilities . . . . . . . . . .   (1,000,000)    (2,097,436)
          Provision for estimated loss on
             disposal of discontinued
             operations . . . . . . . . . . . . .     (400,000)              
          Long-term debt  . . . . . . . . . . . .     (133,440)      (252,116)
                                                   -----------    -----------
          Net assets of discontinued operations .   $3,351,189     $6,682,644
                                                   ===========    ===========

                                      F-26
     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1996


          (NOTE L) - Liquidity and Business Risks
          ---------------------------------------

               Based on current estimates of cash flow, management does not
          believe  that it will have sufficient cash to make mandatory term
          loan payments.  Accordingly,  the entire amount outstanding under
          the  bank credit facility of $11,855,000 has been classified as a
          current  liability  in  the accompanying  consolidated  financial
          statements.  The Company is continuing to actively pursue various
          funding options, including  the sale of  certain portions of  the
          Imaging  and Rehabilitation  services business  segment.   If the
          sale  is successful,  it will  generate sufficient  cash to  meet
          obligations as they come due through fiscal 1997 (See Note C).

                                      F-27