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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                       -----------------------------------

                                    FORM 10-K

[ ]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934
For the Fiscal Year Ended _______________

[X]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  
        EXCHANGE ACT OF 1934
For the transition  period from January 1, 1995 to September 30, 1995
                                ---------------    ------------------
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, 1995 (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):
$35,864,831.

      Number of shares of the Registrant's Common Stock, $.01 par value, 
outstanding as of December 31, 1995: 30,186,805.

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                                      INDEX
                                                                     Page No.

PART I   ...............................................................3
         Item 1.   Business.............................................3
         Item 2.   Properties..........................................17
         Item 3.   Legal Proceedings...................................17
         Item 4.   Submission of Matters To A Vote of Security Holders.18

PART II  ..............................................................19
         Item 5.   Market for Registrant's Common Equity and Related 
                   Stockholder Matters.................................19
         Item 6.   Selected Financial Data.............................20
         Item 7.   Management's Discussion and Analysis of Financial 
                   Conditions and Results of Operations................23
         Item 8.   Financial Statements and Supplementary Data.........25
         Item 9.   Changes and Disagreements with Accountants on 
                   Accounting and Financial Disclosure.................26

PART III ..............................................................27
         Item 10.  Directors and Executive Officers of the Registrant..27
         Item 11.  Executive Compensation..............................31
         Item 12.  Security Ownership of Certain Beneficial Owners and 
                   Management..........................................38
         Item 13.  Certain Relationships and Related Transactions......40

PART IV  ..............................................................42
         Item 14.  Exhibits, Financial Statement Schedules, and 
                   Reports on Form 8-K.................................42

SIGNATURES.............................................................79


<PAGE>


                                     PART I
                                     ------
ITEM I.           BUSINESS
                  --------

GENERAL

         Advanced  NMR  Systems,  Inc.  ("ANMR" or the  "Company"),  through its
Imaging  Systems  business,  develops,   manufactures  and  markets  technically
advanced magnetic  resonance  imaging ("MRI") systems for clinical  applications
and advanced research.  The Company is developing additional MRI-based products,
including  very high field  whole body  systems and lower  cost,  dedicated  MRI
systems for functional  neuro-imaging and orthopedic  applications.  ANMR has an
approximately  61%  ownership  interest in Advanced  Mammography  Systems,  Inc.
("AMS"),  a publicly-traded  company,  which has developed a dedicated MR Breast
Imaging  system  that is  pending  U. S.  Food and Drug  Administration  ("FDA")
clearance for commercial use. AMS is traded on the NASDAQ stock market under the
ticker symbol MAMO. On August 31, 1995, ANMR acquired Medical Diagnostics,  Inc.
("MDI"),  a provider of  diagnostic  imaging  and  rehabilitation  services  for
approximately  $30  million in cash and stock.  This unit is  referred to as the
Imaging and Rehabilitation Services business.

         ANMR was founded in 1983 to develop  echo planar  imaging  ("EPI"),  an
ultrafast MRI technology.  From its inception through November 1992, the Company
engaged  exclusively  in research  and  development  activities.  In 1992,  ANMR
received FDA clearance  for its  InstaScan(TM)  system and commenced  commercial
marketing activities to clinical  institutions.  In 1992, the Company formed AMS
as a subsidiary  for the purpose of financing the  development  of the MR Breast
Imaging system.  In early 1993, AMS completed its initial public  offering.  The
acquisition of MDI in August 1995  represents the initial phase of the Company's
strategy  to  penetrate  and expand  its  business  into MRI and  rehabilitation
services.

MAGNETIC RESONANCE IMAGING TECHNOLOGY

         A majority of the  Company's  business  is based on magnetic  resonance
imaging  technology.  MRI provides very high resolution  medical images of soft
tissue. When interpreted by a trained physician,  the images can be used in many
applications,  including  determining the extent and contour of tumors,  
assessing damage from brain  hemorrhage,  and detecting a wide variety of 
neurological and joint disorders. A technique called MR  angiography  is used 
for  noninvasively  imaging  blood flow  through  blood vessels.  More recent 
applications include EPI technology,  first commercialized by ANMR.  Due to 
the ultra fast  acquisition  of images,  EPI has  expanded  the applications
of MR to include  imaging of dynamic and  functional  processes as well as 
imaging moving anatomy without motion artifacts,  such as may be present in 
the heart or  abdomen  or with an  uncooperative  patient.  Current  research
applications  of EPI include  functional  brain studies for diagnosis of stroke,
evaluation of tumor  perfusion,  functional  brain mapping,  surgical  planning,
psychiatric evaluation, and for a wide variety of pharmaceutical research.

         MRI systems use large magnets,  digital  computers and controlled radio
waves to derive cross-sectional (two dimensional) and volume (three-dimensional)
high  resolution  images of the body's  internal  organs,  tissues and function.
Information  can be  displayed  either  on  film  or  video  monitor  about  the
concentration and the physical and chemical environment of atomic nuclei without
the need for invasive surgery. MRI systems present no known risks to patients in
contrast to other diagnostic  techniques that subject the patient to potentially
harmful ionizing  radiation  (including  Positron Emission  Tomography  ("PET"),
Computerized Axial Tomography ("CT") and conventional x-ray).

IMAGING SYSTEMS BUSINESS

         ANMR  manufactures  the  InstaScan  system,  an ultrafast  retrofit for
enhancing  conventional MRI systems. It is also the exclusive systems integrator
of very high field (3 and 4 Tesla) MRI  systems  using  components  provided  by
General Electric Medical Systems ("GEMS"),
 proprietary ANMR components and a magnet from another third party.

         The  Company  plans  to  build  on  its  proprietary   technologies  by
developing a multi-product line of dedicated,  low cost MR systems. It has built
a prototype of its first functional  neuroimaging  product known as the Gradient
Head Coil. The prototype was shipped to a functional  neuroimaging research site
at the University of Texas Health Science Center at San Antonio where it will be
used to develop product enhancements and other products in this field.

         ANMR maintains a network of university  collaborations.  These research
sites are used to gain clinical  experience  with products  prior to release for
commercial use, as well as to help define new product directions.  Data obtained
from these sites are often used in product submissions to the FDA.

         Massachusetts General Hospital ("MGH"), Boston, Massachusetts, has been
the Company's  premier research site for several years.  Currently,  MGH has two
InstaScan systems,  one in their MRI research facility and one that is used in a
clinical  setting in the hospital.  Additionally,  MGH has been very involved in
the continuous development of new applications.  For example, functional imaging
research at MGH has helped  spawn a new field of clinical  applications.  MGH is
also developing clinical protocols in use at the hospital for early diagnosis of
stroke.

         Other research sites using ANMR systems  include the University of Iowa
Hospitals and Clinics,  Memorial Sloan Kettering Cancer Center, Yale University,
McLean Hospital,  University of Pittsburgh Medical Center, Bowman Gray School of
Medicine, Duke University, and the University of Texas Health Science Center at 
San Antonio.

         MARKETING AND PRODUCT DEVELOPMENT

         The  Company  has  developed  the  InstaScan   system,   based  on  its
proprietary echo planar imaging technology,  which is significantly  faster than
other  commercially  available MRI systems and has demonstrated that the adverse
effects  of  any  motion,   voluntary  or  involuntary,   can  be  substantially
eliminated.  For clinicians,  InstaScan also provides an important  advantage by
saving  patient  billing  slots  with  uncooperative  or very ill  patients  who
otherwise could not complete exams.

         Currently, the InstaScan system is configured to GE Signa MRI machines.
The Company  believes  it has the  capability  to  reconfigure  InstaScan  to be
compatible with other  manufacturers' MRI systems.  To date, no other agreements
with other  manufacturers  are in effect,  although  the  Company  believes  the
possibility exists that a relationship with an Original  Equipment  Manufacturer
may be developed utilizing InstaScan technology.

         In July 1994, the Company concluded an agreement with GEMS for the sale
of 3T and 4T research MR systems to GEMS through June 1997. These systems, which
have not yet been submitted to the FDA for clearance for commercial use, will be
sold to research  institutions  throughout the world.  To date,  very high field
systems  utilizing  "InstaScan"  have been installed at University of Florida at
Gainsville and the University of California at Los Angeles ("UCLA"). Two systems
are expected to be shipped to universities in Japan during the second quarter of
fiscal 1996. In addition,  a 3T system installed at the University of Pittsburgh
and a 4T system at the  National  Institutes  of Health were  upgraded  with the
InstaScan product.

         The Company had marketed  InstaScan through joint marketing  agreements
with GEMS.  The 1993  Agreement  had provided for GEMS to purchase 100 InstaScan
units over a two year period which ended on December  31, 1994,  and if GEMS did
not  achieve  the  minimum  purchases  it was to have  paid  certain  liquidated
amounts.  In June 1994,  the 1993  Agreement  was  modified  to commit  revenues
realized  from the sale of 3T and 4T systems  through  December 31, 1995 towards
GEMS'  obligation  under  the 1993  Agreement.  As of  December  1995,  GEMS has
purchased 17 InstaScan  systems and two 3T/4T systems and two  additional  units
are expected to be delivered to sites in Japan during the second fiscal  quarter
of 1996. As of December 31, 1995, GEMS had not satisfied its minimum obligations
under the  InstaScan  contract.  The minimum  purchase  obligation is subject to
usual conditions of sale,  including changes in health care regulation  covering
MRI  products.  The Company is currently  negotiating  new terms with GEMS under
which it expects to continue to provide 3T and 4T systems to GEMS.

         MANUFACTURING

         The Company's  manufacturing facility in Wilmington,  Massachusetts has
sufficient  capacity to  manufacture  and  assemble all the products the Company
currently expects to produce for its imaging systems.  The components necessary 
to manufacture these systems are available from more than one source.

         The Company currently has 33 customer sites in the United States, Great
Britain, South America and Japan that utilize InstaScan or 3T systems. The field
service  organization  has  continued to work closely with the  engineering  and
manufacturing  organizations  to provide prompt response to all customer service
issues. The Company provides a one year warranty on major systems and components
and expects to provide or arrange for ongoing  equipment  maintenance  following
the end of the warranty period.

         As of  December  31,  1995,  there  was a  backlog  for two 3T  systems
including two InstaScan Whole Body and two InstaScan Neuro coils with a value of
$4.5 million.

         RESEARCH AND DEVELOPMENT

         The Company is  principally  engaged in the  development  of  MRI-based
products for use in clinical and research applications,  with an emphasis on the
further development of its proprietary  InstaScan  high-speed imaging system and
lower cost, dedicated MRI systems.  During 1995, the Company installed its first
advanced  gradient  wave shaping  ("AGW")  system,  delivered its first of a new
generation of EPI systems known as InstaScan Neuro to University of Texas Health
Sciences Center in San Antonio,  and delivered 3T systems to each of UCLA and to
the  University  of Florida  Gainsville.  During the nine  months  period  ended
September  30,  1995,  the Company  incurred  $1,243,000  of expense  related to
research and development, excluding $665,000 incurred by AMS.

         The  Company  continues  to  develop  a  third  generation  of its  AGW
technology that optimizes the anatomical presentation by enabling double oblique
EPI imaging (any plane orientation) as well as faster conventional  imaging. The
first of these  systems was  installed in the first  quarter of fiscal 1996 as a
research unit at Bowman Gray Medical Center in  Winston-Salem,  North  Carolina;
discussions  with  additional  sites are ongoing.  The primary use at the Bowman
Gray site will be cardiac imaging.

         Significant  applications using InstaScan EPI technology are developing
in the area of functional imaging of the brain and stroke assessment. As part of
the  Company's  efforts to continue to broaden its product  line,  ANMR has been
developing  a  dedicated   head  gradient   coil  to  address   these   emerging
applications.  The coil  promises to greatly  reduce the cost of providing  high
quality  EPI images of the brain by  eliminating  some of the higher  cost power
electronics in its conventional  EPI system.  The first of the coils was shipped
as a research unit to University of Texas Health  Sciences  Center.  The Company
expects to file a 510(k)  application  with the FDA in mid 1996 for clearance to
market the device.

         The Company is developing a new  configuration  of the basic  InstaScan
system for installation in mobile and transportable MR systems.

         Under the ANMR License  Agreement,  AMS holds an  exclusive  license to
proprietary  rights and  know-how,  including the rights to any patents owned by
the Company which relate to, or are useful in connection  with, the  development
of an MRI scanner for use in the field of breast imaging.

         MAJORITY-OWNED SUBSIDIARY

         Through its majority-owned subsidiary, AMS, the Company has developed a
dedicated  MR Breast  Imaging  system  known as  Aurora(TM).  AMS filed a 510(k)
application in February 1995 seeking FDA clearance to begin commercial marketing
activities for its breast imaging system.  The  application is pending.  AMS has
entered  into an  agreement  with the  University  of Texas  Medical  Branch  at
Galveston for the  installation  of the first breast imaging unit. The unit will
be shipped to the University's  Breast Imaging Clinic in February 1996, where it
is expected to be an important  adjunct to x-ray  mammography  and ultrasound in
the diagnostic workup of patients.  AMS is negotiating with several other breast
imaging centers to establish  additional beta test sites for this product and is
engaged in  pre-market  activities  to  educate  potential  customers  about the
product's  capabilities.  AMS plans to market the Aurora  system to  mammography
clinics and practices  where patient volume is sufficient to justify the cost of
adding MR Breast Imaging to the diagnostic workup of certain breast patients.

         AMS is  continuing  to develop the Aurora  dedicated MR Breast  Imaging
system. AMS has developed an imaging technique to suppress fat in breast images.
This technique is anticipated to be particularly helpful in imaging dense breast
tissue  that  is  often   difficult  to  interpret  using   conventional   x-ray
mammography. In addition to the patent pending imaging technique to suppress fat
in breast images,  the Company has begun  developmental  work to integrate a MR-
guided  localization and biopsy device.  MR Breast Imaging may also prove useful
as an adjunct  technology in the  evaluation  of the 15-20% of x-ray  mammograms
that are ambiguous or indeterminate,  for earlier diagnostic  intervention among
high risk individuals,  for  characterizing  breast lesions,  for staging cancer
treatment and for post surgery and post radiation follow-up.

         In June 1992,  the Company  licensed (the "ANMR License  Agreement") to
AMS the right to use ANMR's  technology in the development of a dedicated breast
imaging system (the "Field of Use").

         The Company expects to develop other dedicated MRI scanners in addition
to its breast imaging system.  With respect to future product  development,  AMS
has not been granted the right to use any technology  now or hereafter  obtained
by the Company in connection with any other dedicated use MRI scanners. However,
AMS has been granted a 50%  interest in any net profits,  as defined in the ANMR
License  Agreement (after  allocation of development  expenses),  derived by the
Company  from the sale or license of  dedicated  use MRI  scanners  utilizing or
based upon the Licensed Technology outside of the Field of Use. The ANMR License
Agreement  provides  that  (i) any  inventions  outside  the  Field  of Use
developed  solely by the Company or an ANMR entity shall be owned by the Company
or such ANMR entity and automatically licensed to AMS on an exclusive, worldwide
basis,  within the Field of Use,  (ii) any  inventions  developed  solely by AMS
shall be automatically licensed to the Company on an exclusive,  worldwide basis
for use solely  outside the Field of Use, and (iii) any  inventions  outside the
Field of Use jointly developed by the Company and AMS or an ANMR entity shall be
jointly  owned in equal  shares by the Company,  on the one hand,  and AMS or an
ANMR entity,  on the other hand,  and AMS or an ANMR entity shall  automatically
license  its  interest  to  the  Company  on  an  exclusive,   worldwide  basis.
Accordingly,  the Company would obtain the right to future technology  developed
by AMS for use in connection with mammography, and AMS shall obtain the right to
further technology developed by the Company for use outside the Field of Use.

         To optimize the Company's and AMS's operating  efficiency,  the Company
and AMS entered into a Shared Services Agreement as of January 25, 1993, whereby
the  companies  share common  expenses  and  functions,  for example,  executive
officers,  marketing,  field  service,  accounting,   regulatory  approval,  and
manufacturing  operations.  This  Agreement has been extended  through April 24,
1996. From an engineering and  manufacturing  perspective,  this Shared Services
Agreement has greatly  facilitated  development of the prototype  breast imaging
scanner and has also benefited the Company's  development of enhancements to its
InstaScan products.

IMAGING AND REHABILITATION SERVICES

         Through its 100% owned  subsidiary,  MDI, the Company provides advanced
radiology  services such as MRI,  Single  Photon  Emission  Computed  Tomography
("SPECT") and Computerized Axial Tomography ("CT") to patients in Massachusetts,
New York,  Virginia,  West Virginia and Tennessee  through a network of hospital
and clinic-affiliated and freestanding  facilities.  MDI believes its operations
are unique as to  utilization  rates achieved and,  further,  believes it is the
only operator of mobile radiology services in the United States that operates as
a  full-service  medical  provider  under its own  clinic  licenses  where  that
operation is allowed under state regulation.

         MDI often acts as a  full-service  medical  provider  in its  radiology
services  business,   particularly  MRI  services.  As  a  full-service  medical
provider,  MDI provides MRI and SPECT equipment and  technologists and typically
provides for the  necessary  physician  and support  personnel,  scheduling  and
screening  of  patients,   maintaining   medical  and  administrative   records,
establishing  charges and billing and  collecting  revenues  from  patients  and
third-party  payers. In these instances,  host hospitals generally function as a
landlord for the MDI subsidiary or affiliate operating the MRI or SPECT service.
By operating in this manner,  MDI is able to control the hours of operation  for
its units and manage  patient  scheduling,  permitting MDI to more fully utilize
its  equipment.  MDI is also able to expand demand for its services by marketing
directly  to  referring  physicians  and  third-party  payers,  the primary
sources of MRI patient  business,  including  physicians  who are not affiliated
with  the host  hospitals.  MDI  believes  that  controlling  all or most of the
radiology  services,   including  holding  the  required  clinic  licenses  when
possible,  enhances  its  ability to  negotiate  renewals or  extensions  of its
arrangements with the host hospitals.

         A majority of MDI's MRI services are provided under the  "full-service"
model.  SPECT  services are provided under both vendor and provider  models.  In
circumstances where MDI does not operate as a provider,  it endeavors to achieve
an equivalent level of operating control through contracted  services offered to
hospital and clinic customers.

         "FULL-SERVICE PROVIDER"

         MDI's MRI  facilities are generally open from 10 to 18 hours per day up
to  seven  days  per  week to  enhance  patient  convenience  and  increase  the
utilization of the MDI's medical equipment.
 On the scheduled examination date, the patient goes to the area in the hospital
where the MRI unit is located. MDI's MRI technologists,  or other professionals,
interview  patients  to  screen  them for  claustrophobia,  obesity,  electronic
implants or other  potential  problems and complete  the  necessary  paper work.
Patients are encouraged to view an educational  video about the procedure  prior
to the exam and are  offered  audio and video  entertainment  options to relieve
possible anxiety.

         MRI examinations  typically last 30 to 60 minutes.  Once the patient is
inside  the  scanner,  the  technologist  communicates  with him or her using an
intercom  system.  The patient  experiences  no physical  sensations  during the
procedure and hears only a knocking  sound as the gradients  within the magnetic
field are altered to generate the image. Once the MRI scans are generated,  they
are  reviewed  and  interpreted  by trained  radiologists.  Written  reports are
forwarded  to the  referring  physicians,  usually  within 48 to 78 hours of the
examination.

         Upon receipt of the written  report,  MDI  generates an invoice that is
sent to the patient's insurance company or other third-party payer and/or to the
patient,  completes any necessary insurance forms and follows up on and collects
the payment for the services rendered. Generally, MDI renders a bill that covers
the charges for its technical  services.  Total charges billed vary depending on
the type and duration of examination. Insurance reimbursements are normally less
than rates charged by MDI. In addition, MDI enters into contractual arrangements
with third-party payers that provide for volume or group discounts. Professional
service charges due to the  radiologists  who read and interpret the examination
results are generally billed separately by the radiologists.

         VENDOR-OPERATOR SERVICES

         When necessary or advantageous for competitive  reasons,  MDI functions
as a vendor-operator in dealing with medical service  providers that desire to
offer mobile  radiology  services.  When competing on this basis, MDI offers its
full range of  additional  services.  The medical  service  providers can select
those  services  that  they  find  most   troublesome  or  expensive  to  handle
internally,  including  patient  scheduling,  marketing,   transcription  and/or
billing.  Because MDI already  provides  these  services in connection  with its
full-service  provider operations,  it can offer these additional services as an
adjunct to  vendor-operator  arrangements  on a profitable  basis at  attractive
rates to the medical service providers.

         OPERATIONS AND EQUIPMENT

         MDI's  mobile  MRI and  SPECT  units  are  located  in  custom-designed
trailers that are driven to specially  prepared sites at hospitals,  clinics and
other appropriate sites according to a planned schedule.  MDI currently operates
or manages two  fixed-site  MRI  facilities  and 10 mobile MRI units  serving 43
hospital  customers and two free-standing  facilities,  three mobile SPECT units
that  serve 12  hospitals  and  clinics,  generally  under  three  to  five-year
agreements  with  each  facility,  and one  fixed CT  unit.  Two  hospitals  are
contracted  for  both  MRI and  SPECT  services  with  MDI and one  hospital  is
contracted  for both SPECT and CT services  with MDI. Of these  units,  MDI owns
six,  leases  eight  and  manages  two  others  for  a  non-affiliated  hospital
consortium.  MDI plans to  continue  to expand  its  operations  within its
present service area and extend its operations into other geographic  markets as
attractive opportunities are developed.

         CUSTOMERS

         Many  medical  service  providers  do not  own MRI or  SPECT  equipment
because  of  insufficient  patient  volume  to  justify  costs  associated  with
acquiring and operating such equipment.  Depending upon features and options 
selected,  a MRI unit similar to the units  operated by MDI costs between  
approximately  $700,000 and $1,700,000 plus siting and facility costs. Many 
medical service providers in rural or other small  hospitals and clinics cannot 
afford a capital  investment of this size or cannot utilize the equipment in a
cost-effective  manner.  Moreover,  a medical service provider that does not 
have sufficient  patient volume and resources may still wish to contract for 
services  with a  third-party  company like MDI for a variety  of  reasons,
including   avoidance  of  the  risk  of   technological obsolescence  of the
equipment,  elimination  of the need to recruit and employ qualified  
technologists,  elimination  of the  need  for  the  medical  service
providers  to expend  the time and  resources  necessary  to  obtain  
regulatory approval for a MRI unit,  where  applicable,  and  elimination  
of the costs and risks associated with billing and collecting from third-
party payers.

         MDI  generally  enters into three to five-year  affiliation  agreements
with  medical  service  providers  served  by its MRI  and  SPECT  units.  These
contracts are generally non-cancelable except for cause.

         MARKETING

         MDI has developed a multi-faceted  marketing strategy.  MDI markets its
services to referring  physicians  through  visits to  physicians'  offices,  by
exhibiting  MDI's  services at  professional  association  meetings  and through
direct mailings of MDI's quarterly newsletter, notices of equipment enhancements
and upgrades and reprints of pertinent articles from professional  journals. MDI
also  markets its  services to  physicians  by offering  seminars  and  training
programs.  MDI encourages appropriate referrals by promoting wider acceptance of
MRI and SPECT as diagnostic  tools among physicians and third-party  payers,  by
offering these physicians and third-party payers educational programs,  training
sessions, seminars and informational updates concerning the use of MRI and SPECT
technologies.

         In addition to its direct  marketing  efforts aimed at  physicians  and
hospitals,  MDI markets its services directly to third-party  payers,  including
insurance companies,  managed care entities, and government payers. By operating
regional  MRI  networks,  MDI is able to  offer  third-party  payers  aggressive
discount pricing schedules geared to the volume of examinations provided to each
third-party payer's subscriber population.

         In marketing its services,  MDI  emphasizes  its  commitment to quality
service,  and to  this  end  has  instituted  a  Quality  Council  comprised  of
interdepartmental employees. MDI places substantial emphasis on the training and
motivation  of  its   technologists   by  both  MDI's  personnel  and  equipment
manufacturers.  MDI  regularly  conducts  surveys of its  contracted  hospitals,
physicians  and patients to monitor  customer  satisfaction  and reports  survey
results to its Quality Council for action should that be required.

         EXPANSION OF MARKETS AND SERVICES

         MDI believes  that,  as imaging  technology  continues to develop,  new
applications should increase and the demand for diagnostic imaging as a means of
detecting  diseases at an earlier  stage will be greater.  Current  pressures on
utilization should be offset in the future as a result of an increased number of
cost-effective  new applications  for advanced imaging that replace  exploratory
surgeries and invasive  diagnostic  procedures,  as well as the increased demand
that  should  occur  from the  aging of a large  percentage  of the  population.
Further,  earlier detection of diseases,  particularly  through non-invasive and
minimally  invasive  imaging  technologies,  can help  reduce  medical  costs to
third-party  payers by reducing  treatment  costs and  malpractice  claims.  MDI
believes that, as physicians and  third-party  payers become more  knowledgeable
and familiar with advanced imaging  capabilities,  these services may become the
primary diagnostic tools for many additional clinical conditions.

         MDI plans to develop its radiology  services  business by expanding its
fleet of mobile MRI and SPECT units to service those  hospitals and other health
care  providers  who are not currently  able to provide these  services to their
patients and through the possible  acquisition  of  currently  existing  imaging
businesses in new geographic markets.

         EQUIPMENT; SUPPLIES

     Each of MDI's mobile MRI and SPECT units is  installed by the  manufacturer
in a custom-designed  trailer,  which is designed to provide medical  facilities
approximating those found in fixed-site MRI facilities.

         All of the  diagnostic  equipment  utilized  by MDI is  technologically
complex.  MDI contracts with equipment  manufacturers  and  third-party  service
organizations for comprehensive  maintenance and repair services for its MRI and
SPECT units to  minimize  the period of time  equipment  is  unavailable  during
scheduled use hours because of  unanticipated  malfunctions  or breakdowns.  MDI
also has extensive  relationships  with other vendors for maintenance and repair
of all of the related and  auxiliary  equipment on the units that are subject to
mechanical failures, such as on-board generators and air conditioning systems.

         A significant  portion of MDI's tangible  assets consists of diagnostic
imaging  equipment and  trailers.  Generally,  each trailer is moved,  sometimes
daily, or even during the day, from one location to another, and there is always
a risk that a  traffic  accident  or  trailer  breakdown  will  occur  while the
equipment is in transit.  Although MDI's major  equipment is insured against the
risks of damage in an accident, repairs to damaged equipment may not restore the
equipment to its original condition and level of performance. MDI also maintains
business  interruption  insurance  to offset lost  revenue that may occur in the
event of prolonged equipment  downtime.  However, no assurance can be given that
MDI would  receive  sufficient  insurance  proceeds  following any damage to its
equipment to fully compensate it for the losses resulting from such damage.

         There are at least three suppliers of FDA-approved  MRI contrast agents
used to enhance the images produced in certain types of  examinations.  Further,
several new organ-specific  contrast agents are in the FDA approval process that
are  expected  to  increase  abdominal  applications  for  MRI  which  may  have
significant  value in  diagnosing a variety of benign and  malignant  conditions
that would otherwise require  exploratory  surgery.  MDI has not experienced any
problems in obtaining  sufficient  quantities of contrast  agents.  In addition,
there are numerous suppliers of  radiopharmaceuticals  required to perform SPECT
imaging.

         REHABILITATION SERVICES

         MDI has  diversified a portion of its business in niche  rehabilitation
markets  through its  acquisition of a majority  interest in MVA  Rehabilitation
Associates.  Through the MVA centers, MDI provides comprehensive physician care,
physical  therapy and case management for motor vehicle accident  patients.  The
MVA Center has  developed a unique  system to  document  valid  personal  injury
claims and exclude false claims that enable it to provide more efficient patient
care. MDI intends that MVA Rehabilitation  Associates will be the model for
other MVA centers to be  established  in 1996 and  beyond.  MVA has current
commitments  to establish one new center and one satellite  center during fiscal
1996 in Massachusetts where the business is concentrated.

         MDI's rehabilitation  services business operates with lower fixed costs
than its radiology services, providing a lower risk diversification opportunity.

GOVERNMENT REGULATION AND REIMBURSEMENT

         The  Company's  operations  are subject to extensive  federal and state
regulations and are directly and indirectly  impacted by government  regulations
with respect to reimbursement for medical services.

         Magnetic   Resonance   Diagnostic   Devices  ("MRDD")  are  subject  to
regulation by the U. S. FDA and certain state and federal agencies that regulate
the  provision  of  health  care,   particularly   the  Health  Care   Financing
Administration  ("HCFA") and the  Environmental  Protection  Agency ("EPA").  In
addition,  providers of diagnostic imaging services are subject to various state
regulations that limits the acquisition of MRI equipment through  Certificate of
Need ("CON") and  "Determination of Need" ("DON") programs and other federal and
state regulation that is directed at cost containment.

         FDA REGULATION

         AMS has one application currently pending before the FDA for its Aurora
Breast Imaging system. The Company has several products in development for which
FDA 510(k) clearance will be required.

         In addition,  there are numerous  applications  for contrast agents and
pharmaceuticals currently pending before the FDA that have significant potential
to positively impact Company operations. New organ specific contrast agents will
enhance MRI sensitivity and specificity in diagnosing  disease.  Pharmaceuticals
in clinical trials show significant potential for stroke treatment.  MRI can not
only detect stroke within  minutes of onset,  but it can  differentiate  between
strokes  caused by blood clots and those caused by hemorrhage.  Strokes  arising
from clots can be treated with  thrombolytic  agents while  strokes that involve
bleeding are appropriately  treated with neuron protector drugs. MRI is the only
imaging  technology that can effectively  distinguish  between the two causes of
strokes.

         HCFA AND RELATED HEALTH CARE REGULATION

         Imaging Systems
         ---------------

         The market for MRI systems and  services is  significantly  affected by
the amount that  Medicare and  Medicaid,  or other third party payers  including
indemnity  insurance  and managed  care  organizations,  reimburse  providers of
diagnostic  imaging  procedures.  With the emphasis on limiting costs for health
care, MR manufacturers  must more clearly  demonstrate the clinical efficacy and
cost-effectiveness  of upgrades  and new MR systems in order to generate  sales.
The  Company's  focus on  developing  ultrafast  and  dedicated  MR systems  and
components  are directed  towards  reducing  costs for physician end users while
producing the highest  throughput  and greatest  efficacy for patients and third
party  payers.  In  addition,  the  Company  emphasizes  cost  reduction  in its
manufacturing operations to maximize the opportunity of offering its products at
the lowest possible cost.

         Imaging and Rehabilitation Services
         -----------------------------------

         In its  Imaging  Services  operations,  the  Company is subject to HCFA
Medicare and Medicaid  anti-fraud  and abuse  statutes  which  prohibit  bribes,
kickbacks,  rebates and any direct or indirect  remuneration  in connection with
providing services, items or equipment for which payment may be made in whole or
in part under  Medicare or Medicaid.  These statutes are intended to prevent the
improper  referral of patients for medical tests or treatment by health  service
providers  who may have a financial  interest in the entity which  provides such
services.  Violation  of these  provisions  may result in  significant  criminal
penalties and exclusion from participation in Medicare and Medicaid programs for
both the entity paying the kickback or rebate and the entity receiving it.

         The Company  believes that none of its  operations  are in violation of
the anti-fraud and abuse statutes.

         Congress has also enacted legislation generally prohibiting  physicians
from billing  Medicare and Medicaid for patients  referred by a physician to any
of a broad range of health services  (including  diagnostic imaging services) if
the physician has (i) an ownership or investment interest in the health service,
or (ii) otherwise  receives  compensation  (broadly  defined in the legislation)
from the health service. The legislative  prohibitions were effective January 1,
1995.  The Company  has no  physician  ownership  in its  businesses  that would
violate this statute.

         MDI currently  delivers  diagnostic  imaging services in Massachusetts,
New York, Virginia,  West Virginia and Tennessee and SPECT services in Virginia,
West Virginia and Tennessee. In New York, Virginia, West Virginia and Tennessee,
a Certificate of Need ("CON"),  and in  Massachusetts,  a Determination  of Need
("DON"), generally must be obtained by an MRI operator and/or the hospital where
services are provided in order for services to be provided at hospital  sites or
to  hospital  inpatients  and/or to receive  certain  third-party  reimbursement
payments.  The CON and DON  programs  of each of the five  states  in which  MDI
currently  conducts business vary  significantly from each other in the scope of
regulation. Generally, however,  the CON or DON authorizes the holder to 
provide, or in the instance of a hospital,  to receive,  services at specific 
sites and/or to acquire equipment to provide services. In Massachusetts, a 
DON is also required to obtain a clinic license. Where required, MDI holds all 
CONs and DONs necessary for it to conduct business where it currently operates.
In New York, MDI is presently  ineligible to  obtain  a  CON  as  state  law  
prohibits  publicly-held  corporations  from qualifying  for a  CON.  Thus,  
MDI  contracts  to  provide  MRI  equipment  andmanagement to a professional  
medical  corporation  ("P.C.") that is licensed to actually provide the MRI 
and other services.

         In  addition  to  its  DON  requirements,  Massachusetts  licenses  and
regulates  MDI's MRI  operations.  Massachusetts  clinic  licensure  regulations
establish  physical  plant  requirements  for each  MRI  service  site,  require
inspection of the MRI unit and require that certain  operational  policies be in
place,  in addition to other  standards.  MDI believes  that it is in compliance
with the Massachusetts licensure requirements.

         ENVIRONMENTAL PROTECTION AGENCY ("EPA") REGULATION

         The Company,  and any research facility which it operates,  is required
to comply with any applicable  federal and state  environmental  regulations and
other  regulations  related  to  hazardous  materials  used,  generated,  and/or
disposed  of in  the  course  of  its  operations.  The  Company  currently  has
registered as a Very Small  Quantity  Generator of hazardous  waste.  This means
that the Company is making an effort to reduce hazardous waste produced,  and to
track the waste generated.

         Future EPA  regulations  may impact Company  policies on air pollution,
waste management,  and radon testing.  While the Company does not expect to have
to incur  substantial  costs in order to comply with  existing  regulations,  no
assessment may be made as to the impact of future regulations upon operations of
the Company.

         NUCLEAR REGULATORY AGENCY REGULATION

         In providing SPECT services, the Company is also subject to the Nuclear
Regulatory  Commission  regulations  established  for  the  safe  use,  storage,
transport and disposal of radioisotopes.  The Company employs a Radiation Safety
Officer, as required, to monitor its compliance with applicable regulations.

COMPETITION

         The  health  care  industry  in general  and the market for  diagnostic
imaging equipment, in particular, is highly competitive.

         With  respect to the Imaging  Systems  business,  virtually  all of the
competitors  known to the Company possess  substantially  greater resources than
the Company.  Such  manufacturers  include General  Electric  Company;  Toshiba;
Bruker Medical Imaging Inc.; Elscint Ltd.; Siemens Corporation;  Philips Medical
Systems,  a  division  of  Philips   Industries,   N.V.;  Picker   International
Corporation;   Shimadzu;   and  Hitachi.   The  Company   competes   with  these
manufacturers as manufacturers of components and enhancements to MRI systems and
with these  manufacturers  and  others who  develop  and market  other  types of
diagnostic  imaging  systems.   Competitive   factors  include  price,   product
performance,  service and support  capabilities,  financing terms and brand name
recognition.

         With respect to the Imaging and Rehabilitation  Services business,  the
Company  competes  with  other MRI and SPECT  providers  at  hospitals,  private
clinics,  physician  practices and other independent  providers of MRI and SPECT
services  at fixed  sites.  Competitive  factors  include  the range of services
provided,  equipment  capabilities  and the  ability  to serve a broad  range of
patients.  Barriers  to entry into the  Company's  markets  include  the cost of
equipment,  hiring  of  qualified  technologists  and  management,   proprietary
business  practices  and,  where  applicable,  CON or DON  regulation  and other
regulatory constraints.

         Although the Company's  rehabilitation  services are also considered to
be in highly competitive  markets,  the Company believes the market sector it is
targeting,  (value-added  services for motor vehicle  accident victims and their
insurers)  is  unique.  The  Company  is  not  aware  of any  other  significant
participants in this industry.

PATENTS

          The Company  currently owns 18 U. S. patents  relating to MRI imaging.
Four additional  patents are in various stages of submission,  two were filed by
ANMR and two by AMS. All major  patents are  protected in Japan,  Canada and the
European Market countries.

EMPLOYEES

         As of December 31, 1995, the Imaging Systems business had a staff of 56
full time employees and 6 short-term contractors,  including 12 persons who were
full time employees of AMS.  Pursuant to a Shared  Services  Agreement with AMS,
ANMR  provides  the services of its  executives,  administrative  personnel  and
research scientists to AMS on an as-needed basis.

         As of  December  31,  1995,  the Imaging  and  Rehabilitation  Services
business  had 145 full time  employees  and 39 part-time  employees  including 7
senior management  personnel,  85 MRI technologists,  7 non-executive  employees
involved in marketing and development  and 85 employees  involved in general and
administrative activities, including patient scheduling and billing.

         None of the Company's  employees is represented by labor  organizations
and the Company is not aware of any activities  seeking such  organization.  The
Company considers its relations with employees to be good.


ITEM 2.           PROPERTIES
                  ----------

       The Company leases a facility in Wilmington,  Massachusetts  (the "Shared
Facility")  consisting of approximately  61,000 square feet of office,  research
and  development,  manufacturing  and warehouse space. The Company has exercised
its  option to renew its lease as of May 1996 for  another 5 year term at a base
monthly rental of approximately  $37,000.  The lease may be renewed for a second
five-year  term at an  increased  rental  rate.  As of December  31,  1995,  the
activities  of the  subsidiary  AMS  utilized  approximately  28% of the  Shared
Facility.  The Company believes that the space it currently occupies is adequate
for the Company's needs for the foreseeable future.

       MDI   maintains   its   principal   executive   offices  in   Burlington,
Massachusetts.  MDI leases approximately 8,400 square feet of office space under
a five-year  lease that  originally  expired on March 31, 1998. On September 15,
1995,  MDI exercised  its right under the lease to terminate it effective  March
31,  1996,  upon  delivery  of a payment of $35,000.  The current  rent for this
facility is $126,347 per annum,  plus  operating  expenses.  The Company and MDI
plan to move the  operations in the  Burlington,  Massachusetts  facility to the
Wilmington,  Massachusetts  facility in the second fiscal  quarter of 1996.  MDI
owns a facility in Roanoke,  Virginia  consisting of approximately  6,000 square
feet of office space. MDI also leases  approximately  2,000 square feet of space
in West  Springfield,  Massachusetts  at a current  rental  rate of $57,084  per
annum,  plus  operating  expenses under a lease that expires on August 31, 1996.
MDI has the option to extend this lease for two additional 10-year periods.

       MDI also leases  specially  prepared  sites and patient  waiting areas at
certain hospitals and other locations at which it operates its mobile MRI, SPECT
and CT  units.  These  leases  generally  are  for the  term  of the  hospital's
affiliation  agreement with MDI, with monthly rental payments  generally ranging
from approximately  $1,000 to $5,000. The rental amount is generally designed to
reimburse the hospital or landlord for its cost of preparing the site.

       MDI leases a facility for its  Rehabilitation  operations in Springfield,
Massachusetts.  This facility includes  approximately  7,400 square feet under a
six-year lease that expires on June 30, 2001. The current rent for this facility
is $142,200 per annum, plus operating expenses.


ITEM 3.           LEGAL PROCEEDINGS
                  -----------------

       MDI, as general  partner of Mass.  Mobile  Imaging  Venture  (MMIV),  and
Western  Massachusetts  Magnetic  Resonance  Services,   Inc.  (WMMRS)  filed  a
complaint  in September  1992 in Middlesex  County  Superior  Court,  Cambridge,
Massachusetts  against Medical  Imaging  Partners,  L.P. (MIP),  which is wholly
owned by Raytel Medical  Corporation  (Raytel),  and certain of its  affiliates,
seeking a  declaration,  damages  and  equitable  relief  relating to an alleged
breach by MIP of certain  fiduciary and contractual  obligations  with
respect to the business of MMIV. MIP has filed a  counterclaim  against MDI also
seeking a declaratory judgment,  damages and equitable relief on the basis of an
alleged breach of fiduciary and  contractual  obligations by MDI with respect to
the business of MMIV. The parties have nearly completed  pre-trial  proceedings,
including discovery. Several pre-trial motions have been argued and are awaiting
decision.  A trial  date has not yet been  set.  Although  the  outcome  of this
litigation  cannot be  predicted,  MDI does not believe that the results of this
litigation  will have a material  effect on MDI.

          On November  29, 1994,  Raytel filed a complaint in Delaware  Chancery
Court  naming MDI as a  defendant.  The  lawsuit  relates to matters  arising in
conjunction with a tender offer launched by Raytel to acquire MDI's predecessor.
Raytel  is  seeking   injunctive  relief  against  certain  actions  that  MDI's
predecessor  took or may have taken to defend  itself  against  Raytel's  tender
offer. On December 22, 1994,  Raytel filed an amended  complaint.  No trial date
has been set. On May 4, 1995,  Raytel  terminated its tender offer. MDI believes
that it has meritorious  defenses to this lawsuit and, if necessary,  intends to
defend this lawsuit vigorously.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
                  ---------------------------------------------------

       (a) On August 31,  1995,  the  Company  held its 1995  Annual  Meeting of
Stockholders.

       (b) The  following  persons were elected as directors for a term expiring
at the next  meeting for  election of directors  and their  successors  are duly
elected and qualified:

       Jack Nelson              Robert Spira                George A. Silver
       George Aaron             Leonard Toboroff            Sol Triebwasser
       Enrique Levy

       On August 31, 1995, upon  consummation  of the MDI merger,  the number of
directors was expanded to 10 persons,  and John A. Lynch,  Edward J. Connors and
Milton L. Glass were appointed as directors to fill the vacancies.

       (c) The following  additional matters were acted upon at the meeting (and
as to the  authorization  of the Preferred  Stock,  the meeting was adjourned to
September 21, 1995):

                                              Votes                 Broker
Matter                        Votes For      Against    Abstain     Non-Vote
------                        ---------      -------    -------     --------
MDI Merger                   13,674,292      405,953    218,157    8,563,797
Increase Common Stock        19,612,727    1,449,594    343,297    1,585,746
Authorize Preferred Stock    12,344,635    2,319,230    348,832    9,581,625
Amend Option Plan            17,491,390    3,569,660    798,783    2,872,013

   (d)  Not applicable.

<PAGE>

                                      PART II
                                      -------

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
          ---------------------------------------------------------------------

         (A) Since February  1994, the Company's  Common Stock has been included
in the NASDAQ National Market System under the symbol ANMR.  Prior thereto,  the
Common Stock traded in the over-the-counter  market and was listed on the Boston
Stock Exchange and the Pacific Stock Exchange.  Trading in the Warrants (NASDAQ:
ANMRW) commenced on August 31, 1995, after the closing of the MDI merger.

         The following  table sets forth the  quarterly  high and low bid prices
for the Common  Stock and the  Warrants  as  reported  by NASDAQ for the periods
indicated.  These prices are based on  quotations  between  dealers,  and do not
reflect retail mark-up, mark-down or commissions.

Common Stock                     High              Low
------------                     ----              ---

1995
----
January 1 through March 31       3 11/16          2 3/4
April 1 through June 30          3 1/4            2 1/8
July 1 through September 30      3 1/16           2 1/32

1994
----
January 1 through March 31       6 1/2            4 1/8
April 1 through June 30          5 1/4            2 5/8
July 1 through September 30      4                2 5/8
October 1 through December 31    4 1/4            2 1/4

1993
----
July 1 through September 30      8 1/2            2 7/8
October 1 through December 31    7 9/16           4 5/8

Warrants
--------

1995
----
August 31 through September 30   1/8              1/8

         (B) On December  31,  1995,  there were 1,125  holders of record of the
Common  Stock of the  Company.  Since  certain of the shares of Common Stock are
held in street name, it is believed that there are substantial additional 
beneficial holders of the Company's Common Stock. On December 31, 1995, there 
were 30,186,805 shares outstanding.

         (C) The Company  has paid no  dividends  on its shares of Common  Stock
since its  organization in July 1983. The Company is prohibited from the payment
of cash dividends  under the provisions of its credit  facility with its primary
lender.


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

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

         The selected financial  information for the nine months ended September
30, 1995,  and for each of the years ended  December 31, 1994,  1993,  1992, and
1991,  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.

<PAGE>
                                                                              

                                 Nine Months ended       Nine Months ended
                                 September 30, 1995      September 30, 1994     
REVENUES:                                                  (unaudited)
  System sales                       $ 6,643,090             $5,174,310         
  Net patient service revenue          1,934,322                     --         
  Management fees and other 
  revenue                                 40,220                 50,500         
                                    ------------            -----------         
TOTAL REVENUES                         8,617,632              5,224,810         
                                    ------------            -----------         
OPERATING EXPENSES:
Cost of goods sold                     4,124,354              1,956,611         
Cost of service operations             1,203,497                     --         
Research & development                 1,907,945              2,187,291         
Selling, general & administrative      4,162,585              3,115,186         
Provision for bad debt and 
collection costs                         162,377                     --         
                                    ------------            -----------         
TOTAL OPERATING EXPENSES              11,560,758              5,302,477         
                                    ------------            -----------         
LOSS FROM OPERATIONS                 (2,943,126)            (2,034,278)         
INTEREST EXPENSE                       (148,952)               (74,806)         
INTEREST INCOME                          265,208                278,497         
OTHER INCOME (EXPENSE)                   579,758                     --         
MINORITY INTEREST                        569,354                488,799         
                                    ------------            -----------         
NET LOSS                            $ (1,677,758)           $(1,341,788)        
                                    ============            ===========         
NET LOSS PER SHARE                  $       (.07)           $      (.06)        
                                    ============            ===========         

Weighted Average Number
of Common Shares                      24,243,902             23,543,842         
                                      ==========             ==========         

                                            Year Ended December 31,  
                             --------------------------------------------------
                                1994         1993          1992          1991  
                                                  
REVENUES:                    
  System sales               $ 5,237,700  $ 1,894,900   $   395,000  $      -- 
  Net patient service revenue         --           --            --         -- 
  Management fees and other                                                    
  revenue                         50,000       41,057        35,390    324,391  
                             -----------  -----------   -----------  ---------- 
TOTAL REVENUES                 5,288,200    1,935,957       430,390    324,391  
                                                                                
OPERATING EXPENSES:          -----------  -----------   -----------  ---------- 
Cost of goods sold                                                              
Cost of service operations     2,414,121    1,528,248       767,080          -- 
Research & development                --           --            --          -- 
Selling, general &             2,954,509    3,290,002     2,816,485   2,346,141 
administrative                 4,356,996    2,913,043     1,839,354   1,561,104 
Provision for bad debt and                                                      
collection costs                      --           --            --          -- 
                             -----------  -----------   -----------  ---------- 
TOTAL OPERATING EXPENSES       9,725,626    7,731,293     5,422,919   3,907,245 
                             -----------  -----------   -----------  ---------- 
LOSS FROM OPERATIONS         (4,437,426)  (5,795,336)   (4,992,529)   3,582,854)
INTEREST EXPENSE                (21,017)    (155,225)     (500,000)          -- 
INTEREST INCOME                  208,480      170,720            --          -- 
OTHER INCOME (EXPENSE)                --    (801,750)            --      43,675 
MINORITY INTEREST                702,965      414,641            --          -- 
                             -----------  -----------  ------------  ---------- 
NET LOSS                     $(3,546,998) $(6,166,950) $ (5,492,529)$(3,539,179)
                             ===========  ===========  ============ =========== 
NET LOSS PER SHARE           $      (.15) $      (.32) $       (.34)$      (.27)
                             ===========  ===========  ============ ============
                                                                                
                                                                                
Weighted Average Number       23,603,251   19,184,275    16,157,623  13,273,447 
of Common Shares             ===========  ===========  ============ =========== 
                               
                        
                                       
 
                                 BALANCE SHEET DATA:
                                 -------------------
                                                       December 31,
                                          --------------------------------------
                            September 30,
                                1995          1994         1993        1992     
                            ------------  -----------  ----------- ------------ 
 Working Capital (Deficit)  $ 11,083,145  $ 8,614,161  $12,452,896  $  (759,956)
 Total Assets                 58,431,709   12,692,152   15,864,126    2,685,896 
 Total Liabilities            27,799,636    2,511,853    2,335,099    2,659,378 
 Stockholders' Equity         28,017,966    9,698,924   12,551,838       26,518
 
 
                              December 31,                           
                            --------------              
                                      
                               1991   
                              --------
 Working Capital (Deficit)   1,778,322 
 Total Assets                2,819,324 
 Total Liabilities             461,738
 Stockholders' Equity        2,357,590 
                                                                               
 <PAGE>
 
 
 
 ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                   -------------------------------------------------
                   CONDITIONS AND RESULTS OF OPERATIONS
                   ------------------------------------
                                  
Nine Months Ended September 30, 1995 Compared to Nine Months Ended September 30,
--------------------------------------------------------------------------------
1994 (unaudited)
----------------

         Imaging  Systems sales increased to $6,643,000 in the nine months ended
September 30, 1995, a 28% increase from revenues of $5,174,000 in the comparable
1994 period.  The growth in system sales resulted from  increasing  sales of the
Company's high field 3T systems. The Company expects system sales to continue to
fluctuate  significantly  from  quarter to quarter as  products  continue  to be
commercialized.  However,  fluctuations  in ANMR's  revenues should be offset by
MDI's steadier revenue patterns.

         Net patient service revenue for September 30, 1995 represents one month
of operations from the Imaging and Rehabilitation  Services business acquired on
August 31, 1995. The cost of service  operations of $1,203,000 and provision for
bad debt and  collection  costs of  $162,000  similarly  represent  one month of
operations  of MDI.  The Company  expects that MDI will  contribute  significant
revenue  and  operating  income  in 1996  and  beyond,  which  earnings  will be
significantly  enhanced by the tax net operating  loss  carryforwards  available
from the Company.

         As a percentage of revenues,  cost of goods sold was  approximately 62%
in the nine months ended September 30, 1995 compared with 38% for the comparable
1994 period.  The increase was principally the result of system  shipments being
significantly  less than  forecast,  which  resulted in increased  manufacturing
variances due to higher fixed overhead costs.

         Research and  development  expenses as a percentage of Imaging  Systems
sales  decreased to 29% or  $1,908,000  (including  $665,000 by AMS) in the nine
months ended  September 30, 1995  compared with 42% of Imaging  Systems sales or
$2,187,000  (including  $717,000 by AMS) in the  comparable  1994 period.  These
spending  levels  reflect the Company's  investment in product  upgrades and new
products based on its proprietary EPI technology as well as software enhancement
and the  development  of a  localization  and biopsy device for the dedicated MR
Breast Imaging system of its subsidiary AMS.

         Selling, general, and administrative expenses increased from $3,115,000
to  $4,163,000,  respectively,  in the 1994 and 1995 nine  month  periods.  This
increase was primarily due to the one month of operations of MDI, which included
an accrual of  approximately  $500,000 for certain  severance  benefits due to a
former executive officer of MDI.

         The decrease of $13,000 in interest income reflects the reduced average
cash and short-term investment balances available due to cash used in operations
and the acquisition of MDI.

         Other  income  of  $580,000  consists  largely  of  $392,000  from  the
cancellation of certain stock options  previously  granted as consideration to a
consultant and $180,000 in proceeds from an insurance claim.

         Interest  expense  increased from $75,000 to $149,000  primarily due to
the financing of the MDI  acquisition,  effective  August 31, 1995 and MDI's one
month of operations.

         The increased  allocation of losses to minority interests is due to the
increase of the minority shareholders percentage ownership of AMS from 1994 as a
result of the exercise of $3.2 million in warrants and options, partially offset
by one months' allocation of income in certain subsidiaries of MDI.

Fiscal Year Ended  December 31, 1994 Compared to Fiscal Year Ended  December 31,
--------------------------------------------------------------------------------
1993
----

         Imaging  Systems  sales  increased  176%  from  $1,895,000  in  1993 to
$5,238,000  in 1994  primarily  as a result of  increases  in sales of InstaScan
systems, as the Company  transitioned from a development stage, and the start-up
of sales of the Company's 3T and 4T systems.

         Cost of goods sold was 46% of Imaging systems sales in 1994 compared to
80% in 1993 reflecting  higher  efficiencies  gained from an increased number of
systems manufactured.

         Research and development  expenses  decreased to $2,955,000  (including
$992,000 by AMS) in fiscal 1994  compared to $3,290,000  (including  $823,000 by
AMS) in fiscal 1993.  Research and development  represented almost 56 percent of
revenues  in fiscal  1994.  Since the  Company  was still in  transition  from a
development  stage  company  to a  manufacturing  entity in 1993,  research  and
development expenses of $3,290,000 represented 170 percent of revenues in fiscal
1993.  Research and  development  expenses  reflect the Company's  commitment to
continued  development of state of the art technology and the next generation of
EPI, enhancements to the existing InstaScan system and the inclusion of research
and  development  costs to complete a prototype of a dedicated MR Breast Imaging
system of its subsidiary AMS.

         The  increase  in  selling,  general and  administrative  expense  from
$2,914,000  in 1993 to  $4,356,000  in 1994  reflects  the  Company's  increased
marketing efforts to generate sales and enhance product visibility.

         The Company earned  $208,000 in interest  income in 1994 from its short
term  investments  compared  to $170,000  in 1993 due to higher  invested  funds
primarily attributable to the exercise of certain stock warrants and options.

Liquidity and Capital Resources
-------------------------------

         The Company has available  cash and cash  equivalents  of $7,543,000 at
September  30, 1995  (including  $3,119,000 at MDI and  $1,833,000 at AMS).  The
increase  is  primarily  due to cash  acquired  related to the MDI  acquisition.
However, as of September 30, 1995,  approximately $1,696,000 was estimated to be
required to complete the MDI  acquisition,  which included  common stock not yet
converted by former MDI shareholders and accrued merger costs.

         As part of the MDI acquisition,  the Company entered into a $15,000,000
bank credit  facility,  consisting of a $6,000,000  revolving  credit loan which
matures in August 1998, and a $9,000,000 term loan which expires in August 2001.
As of December 31, 1995,  $5,555,000  of the revolving  loan has been  utilized,
including  $800,000 for letters of credit securing certain MRI units operated by
MDI, and all of the term loan has been utilized.

         The  Company  expects  that 1)  liquidity  provided  by  existing  cash
balances,  2) revenues  expected to be generated by Imaging Systems sales and 3)
expected MDI profits,  which will be  substantially  sheltered from income taxes
due to the Company's  significant  net  operating  loss  carryforwards,  will be
sufficient to meet the Company's operating and related debt service requirements
in fiscal 1996.  In addition,  depending on market  conditions,  the Company may
seek to obtain funds through debt or additional equity placements.

         The  significant  cash flows  from  investing  activities  for the nine
months ended September 30, 1995 reflect the cash portion of the MDI acquisition,
net of MDI's cash balances  acquired.  Cash flows from financing  activities for
the nine months ended September 30, 1995 consists primarily of the proceeds from
the bank credit  facility  together  with  proceeds  from the  exercising of AMS
warrant holders.

Inflation
---------

         To date,  inflation  has not had a  material  effect  on the  Company's
business.  The  Company  believes  that the effects of future  inflation  may be
minimized by controlling costs and increasing  efficiency through an increase in
the volume of MRI examinations performed.


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.


ITEM 9.           CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ---------------------------------------------
                  ACCOUNTING AND FINANCIAL DISCLOSURE.
                  ------------------------------------

         No change in the Registrant's accountants occurred during the 24 months
prior to the date of the Registrant's most recent financial statements,  nor did
any disagreements  occur on any matter of accounting  principles or practices or
financial  statement  disclosure that would be required to be reported on a Form
8-K.


<PAGE>

                                    PART III
                                    --------

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
                  --------------------------------------------------

         The directors and executive officers of the Company are:

Name                      Age      Position
----                      ---      --------

Jack Nelson (1)(4)         45      Chairman of the Board,
                                   Chief Executive Officer
                                   and Treasurer

Robert Spira, MD(1)(4)     47      Vice Chairman of the Board

Enrique Levy (1)(4)        58      President, Chief Operating Officer
                                   and Director

Charles Moche              46      Chief Financial Officer

Robert Kwolyk              48      Vice President, Sales and Marketing

George Aaron(2)(3)         43      Director

Edward J. Connors (1)(4)   66      Director

John A. Lynch              49      Director

George A. Silver, MD(3)    82      Director

Sol Triebwasser, PhD(2)    74      Director
--------------------
(1)      Member of the Executive Committee.
(2)      Member of the Audit Committee.
(3)      Member of the Compensation/Option Committee.
(4)      Member of the Strategic Development Committee

         The principal  occupations  and brief summary of the background of each
Director and executive officer of ANMR during the past five years is as follows:

          Jack Nelson. Mr. Nelson has been Chairman of the Board since June 1991
          ------------
and Treasurer since November 1990. He has also been Chairman of the Board of AMS
since its formation in July 1992.  From 1976 through  1993,  Mr. Nelson had been
engaged in the private  practice of law in New York, New York, and for more than
five years prior to December 31, 1993, he had been a senior partner with the law
firm of  Zaslowsky,  Marx & Nelson.  Since  January  1994,  he has been employed
full-time  with the Company and AMS. Mr. Nelson serves on the Board of Directors
of ARC Capital,  a publicly traded company (NASDAQ:  ARCCA).  Mr. Nelson holds a
B.A.  degree from Yeshiva  University  and J.D.  degree from Hofstra  University
School of Law.

          Robert Spira,  M.D. Dr. Spira has been a director of the Company since
          -------------------
September  1990,  and Vice Chairman since February 1994, and a director and Vice
Chairman of AMS since August 1992.  Since October 1992, he has been the Director
of the Department of Gastroenterology at St. Michael's Medical Center in Newark,
New Jersey,  and for more than five years prior  thereto,  he served as Chief of
Gastrointestinal  Endoscopy  at St.  Michael's  Medical  Center.  Dr. Spira is a
graduate of New York  University  Medical  School,  a past  president of the New
Jersey Society for  Gastrointestinal  Endoscopy and  President-elect  of the New
Jersey  Society  of  Gastroenterology.  Dr.  Spira  is a  graduate  of New  York
University School of Medicine.

         Enrique Levy. Mr. Levy has been President and Chief  Operating  Officer
         -------------
of ANMR and AMS since  October  1995 and a Director of ANMR and AMS since August
31, 1995. From May 1994 to October 1995 he was Manager,  Manufacturing for Xerox
Graphic Systems, the manufacturer of Verde Digital Recording Film, Purchase, New
York,  a venture  of Xerox  Corporation.  From  April  1989 to May 1994,  he was
Executive  Vice  President of Worldwide  Process  Technologies,  Allendale,  New
Jersey,  a manufacturer of machinery and equipment for the web handling and film
and paper coating industries.  He holds a B.S. in Chemical  Engineering from the
Louisiana State University.

          Charles Moche,  CPA. Mr. Moche has been Chief Financial Officer of the
          --------------------
Company and AMS since January 1, 1994.  He has practiced  accounting in New York
with a  concentration  on tax planning and auditing from 1987 to 1993. Mr. Moche
holds an MBA in  Accountancy  from the  Bernard  M.  Baruch  Graduate  School of
Business, and a BA in Economics from Yeshiva University. He received an Advanced
Certificate  Degree in Taxation from the New York University  Graduate School of
Business.  He  is a  member  of  the  American  Institute  of  Certified  Public
Accountants,  the New York State Society of CPA's,  and the Board of Accountancy
of the State of New Jersey Consumer Affairs Division.

          Robert Kwolyk. Mr. Kwolyk has been Vice President, Sales and Marketing
          --------------
since May 1, 1994.  From 1988 through 1994,  Mr.  Kwolyk  served as Manager,  MR
Sales Planning and Sales Support and subsequently Manager, MR Market Development
of General Electric Medical Systems.  Mr. Kwolyk received his B.S. in Electrical
Engineering from Stevens Institute of Technology.

         George Aaron. Mr. Aaron has been a director of both the Company and AMS
         -------------
since August 1992.  He is the  President of Portman  Group Inc. in Fort Lee, New
Jersey,  an  investment  and  consulting  firm  primarily in the health care and
consumer goods  industries,  which he co-founded in 1981. He is a founder,  Vice
President and Chief Operating Officer of Portman Pharmaceuticals, Inc., which is
engaged in the research and development of therapeutic  and diagnostic  products
for  autoimmune  diseases  and  immunomodulation.  He  also  serves  in  various
capacities  with other private  health care  companies.  He is a graduate of the
University of Maryland.

         Edward J. Connors.  Mr.  Connors has served as a director of ANMR since
         ------------------
August 1995 and as a director  of MDI and its  predecessor  since June 1993.  He
served as President of Mercy Health Services,  a private diversified health care
system, from 1984 until his retirement in 1993. He also has been active with the
American Hospital Association  ("AHA"),  serving as Chairman of the Board of the
AHA in 1989.  He is an  elected  member  of the  Institute  of  Medicine  of the
National  Academy of Sciences  and Chairman of the Board of Trustees of Fletcher
Allen Health Care.  Mr.  Connors  holds a B.S.  degree in  Mathematics  from the
University of South Dakota and a Master's degree in Health  Administration  from
the University of Minnesota.

          John A.  Lynch.  Mr.  Lynch has served as a  director  of ANMR and AMS
          ---------------
since August 31, 1995. He was Senior Vice President of ANMR and Chief  Executive
Officer and  President  of MDI from August 1995 through  November  1995 when his
employment was terminated.  Previously,  he co-founded MDI's predecessor in 1984
and served as its Chairman of the Board, Chief Executive Officer,  President and
Treasurer  until 1995.  Mr. Lynch holds a B.A.  degree in American  History from
Boston College.

         George A. Silver,  M.D.  Dr.  Silver has been a director of the Company
         -----------------------
since June 1983 and a director of AMS since August 1992.  He is a Senior  Member
of the  Institute of Medicine of the National  Academy of Sciences,  a member of
the Medical Advisory Board of the Maternity  Center  Association and a member of
the National Council of the Federation of American  Scientists,  of which he was
Secretary.  Dr.  Silver  was a  Professor  of Public  Health at Yale  University
between  1969 and 1984 and a faculty  member of the  Institute  for  Social  and
Policy  Studies at Yale  University.  Dr.  Silver is the author of,  among other
books, "A Spy In The House Of Medicine" and Child Health:  America's Future," as
well as  twenty-five  chapters  in health  books and more than 170  articles  on
health care. Dr. Silver is a graduate of the University of Pennsylvania  (B.A.),
Thomas  Jefferson  Medical  College  (M.D.)  and the  Johns  Hopkins  University
(M.P.H.).

          Sol  Triebwasser,  Ph.D.  Dr.  Triebwasser  has been a director of the
          ------------------------
Company  since  July 1984 and a director  of AMS since  August  1992.  He is the
Director  of  Technical   Journals  and  Professional   Relations  for  the  IBM
Corporation in Thornwood,  New York.  Since  receiving his Ph.D. in physics from
Columbia  in 1952,  he has  managed  various  projects  in device  research  and
applications at IBM. Dr. Triebwasser is a fellow of the Institute for Electrical
and  Electronic  Engineers,  the  American  Physical  Society  and the  American
Association for the Advancement of Science.

         All directors hold office until the next annual meeting of stockholders
of the Company or until their  successors are elected and  qualified.  Executive
officers hold office until their  successors are chosen and qualify,  subject to
earlier  removal  by  the  Board  of  Directors.   The  annual  compensation  to
non-salaried Board members (four) is $10,000 plus stock options.  See Item 12. -
Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------

         The Board of Directors met, either in person or  telephonically,  seven
times in fiscal 1995.  Each of the directors  attended or participated in 75% or
more of the meetings.

         The Executive  Committee  exercises all the powers and authority of the
Board of Directors in the management and affairs of the Company between meetings
of the Board of Directors, to the extent permitted by law.

         The Audit Committee reviews with the Company's independent  accountants
the scope and timing of the  accountants'  audit services and any other services
they are asked to perform,  their report on the Company's  financial  statements
following  completion of their audit and the Company's  policies and  procedures
with respect to internal  accounting and financial  controls.  In addition,  the
Audit Committee reviews the independence of the independent  public  accountants
and makes annual  recommendations  to the Board of Directors for the appointment
of independent  public accountants for the ensuing year. The Audit Committee met
twice in fiscal 1995.

         The  Compensation/Option  Committee reviews and recommends to the Board
of  Directors  the  compensation  and  benefits of all  officers of the Company,
reviews  general  policy  matters  relating  to  compensation  and  benefits  of
employees of the Company and administers  the Company's Stock Option Plans.  The
Compensation/Option Committee met once in fiscal 1995.

         The Strategic Development Committee reviews and recommends to the Board
of  Directors  major  business  prospects  and future  planning as to  products,
marketing  and joint  ventures.  The Committee was organized on August 31, 1995,
and did not meet in fiscal 1995.


ITEM 11.          EXECUTIVE COMPENSATION
                  ----------------------

         The following table sets forth the aggregate cash  compensation paid by
the  Company  to (i) its  Chief  Executive  Officer  and (ii)  its  most  highly
compensated  officers  whose cash  compensation  exceeded  $100,000 for services
performed  during the nine month period ended September 30, 1995. The Company is
reimbursed by AMS for a portion of the executive salaries pursuant to the Shared
Services Agreement.

                              Annual Compensation                
                              -------------------                        
                                                                 
                                                                 
                                                   Other Annual  
Name and Principal            Salary      Bonus    Compensation  
     Position        Year      ($)         ($)         ($)         
------------------   ----     ------      -----    ------------ 

Jack Nelson(1)       1995(4)  $176,250        -0-      -0-       
              -
Chairman and CEO     1994      239,853        -0-      -0-       
                     1993       97,692   $115,000      -0-       

Charles Moche(2)     1995(4)   135,000        -0-      -0-       
CFO                  1994      120,000        -0-      -0-       

Robert Kwolyk        1995(4)   109,615        -0-      -0-       


                             Long-Term Compensation          
                             ----------------------                            
                             Awards         Payouts          
                             ------         -------
                                                                  
                                           Stock                              
                         Restricted       Options      LTIP      All Other      
Name and Principal       Stock Award(s)   Award(s)   Payouts   Compensation   
   Position                   ($)           (#)        ($)          ($)       
------------------       --------------   --------   -------    -----------
                      
Jack Nelson(1)                --            --        -0-        $12,150(3)
Chairman and CEO              --         300,000      -0-         18,900(3)
                              --         250,000      -0-          -0-          

Charles Moche(2)              --            --        -0-       6,000(3)        
CFO                           --         100,000      -0-       8,000(3)        
Robert Kwolyk                 --            --        -0-       4,500(3)        
                        


(1) Mr. Nelson became a full-time employee beginning January 1, 1994.
  
(2) Mr. Moche became Chief Financial Officer beginning January 1, 1994.
   
(3) Paid to Mr. Nelson for the purpose of reimbursing him for transportation and
other  expenses;  and to Mr. Moche and Mr. Kwolyk for the purpose of reimbursing
them for transportation.

(4) Salary,  all other  compensation  and stock options  awarded during the nine
months ended September 30, 1995.

Employment Agreements
---------------------

         As of  December  6,  1993,  the  Company  entered  into  an  employment
agreement with Jack Nelson (the "Nelson Employment Agreement"), employing him as
Chairman of the Board,  Chief  Executive  Officer and  Treasurer  of the Company
through  December 31, 1996 at a base salary of $235,000,  with a 10% increase in
base salary  effective  during the second year and an additional 10% increase in
base salary effective during the third year, such increases being subject to the
Company meeting revenue and net income budget projections. On December 20, 1995,
the Board of  Directors  authorized  an  extension  of Mr.  Nelson's  employment
contract  through  December  31,  2000,  under  terms  similar  to  his  present
employment agreement.

          Mr.  Nelson is entitled to receive  annual cash bonuses equal to 5% of
the Company's net income before interest and taxes.  Mr. Nelson also was granted
options to purchase  (i) 300,000  shares of the  Company's  Common  Stock,  with
100,000 shares to vest each year, provided that the Company  exceeds certain 
budget  projections,  and (ii) 150,000 shares of common stock of AMS,  with  
50,000  shares to vest each year,  provided  that AMS meets certain financial 
and performance  goals.  Neither company reached the projected goals for 1994 
or 1995. The Nelson Employment Agreement further provides that if Mr. Nelson
terminates his employment "for cause" or the Company  terminates his employment
"without  cause"  (as  each  such  term  is  defined  in the  Nelson
Employment Agreement),  or upon Mr. Nelson's death or disability,  Mr. Nelson or
his representative  shall receive his annual base salary for two full years from
the date of his  termination,  less any  amounts  received  under the  Company's
insurance  policies.  In the event that the Company,  without the consent of Mr.
Nelson, assigns its rights and obligations under the Nelson Employment Agreement
to any company  with or into which the Company may merge or  consolidate,  or to
which the Company may sell or transfer all or substantially all of its assets or
of which 50% or more of the  equity  investment  and of the  voting  control  is
owned,  directly or  indirectly,  by the  Company,  and if the  assignee was not
previously  part of a consolidated  group with the Company,  then Mr. Nelson may
terminate  the Nelson  Employment  Agreement  within thirty days after notice of
assignment, and he shall receive 2.99 times his full annual base salary plus any
bonuses, but not to exceed such amount which would result in an excise tax.

         As of January 1, 1994, the Company entered into an Employment Agreement
with Charles Moche (the "Moche  Employment  Agreement"),  employing him as Chief
Financial  Officer of the Company through  December 31, 1995 at a base salary of
$120,000  per annum and  $180,000  per annum for the second  year.  Mr.  Moche's
Employment  Agreement  has been extended  through March 31, 1996,  pending Board
approval of the  recommendations  by the  Compensation  Committee  to extend his
employment.

         Under the present agreement,  Mr. Moche was granted options to purchase
100,000 shares of the Company's  Common Stock to vest over a three-year  period.
The Moche Employment Agreement further provides that if Mr. Moche terminates his
employment  "for  cause"  (as  such  term is  defined  in the  Moche  Employment
Agreement),  or  upon  Mr.  Moche's  death  or  disability,  Mr.  Moche  or  his
representative  shall  receive his annual base salary for one full year less any
amounts received under the Company's insurance  policies.  In the event that the
Company,  without the consent of Mr. Moche,  assigns its rights and  obligations
under the Moche  Employment  Agreement  to any  company  with or into  which the
Company may merge or  consolidate,  or to which the Company may sell or transfer
all or  substantially  all of its  assets or of which 50% or more of the  equity
investment  and of the voting control is owned,  directly or indirectly,  by the
Company,  and if the assignee was not previously  part of a  consolidated  group
with the Company,  then Mr. Moche may terminate the Moche  Employment  Agreement
within thirty days after notice of  assignment,  and he shall receive 2.99 times
his full annual base salary, but not to exceed such amount which would result in
an excise tax.

         As of May 1, 1994,  the Company  entered into an  Employment  Agreement
with Robert Kwolyk (the "Kwolyk  Employment  Agreement"),  employing him as Vice
President,  Sales and Marketing of the Company through April 30, 1997, at a base
salary of $150,000 per annum with a $15,000 increase in base salary  effective 
on each anniversary  during its term.  Mr.  Kwolyk also received a $20,800  
"signing"  bonus and is entitled to receive annual cash bonuses based upon 
the recommendation of the Compensation Committee.  No bonuses were awarded 
for 1994 or 1995. Mr. Kwolyk was also granted options to purchase  (i) 200,000
shares of the Common  Stock of the Company to vest over a three year period 
and (ii) 50,000  shares of Common  Stock of AMS to vest over a three year 
period. The Kwolyk Employment  Agreement further provides that if Mr. Kwolyk
terminates  his  employment  "for cause" or the Company  terminates  his
employment  "without  cause" (as such term is  defined in the Kwolyk  Employment
Agreement),  or upon  Mr.  Kwolyk's  death  or  disability,  Mr.  Kwolyk  or his
representative  shall receive his annual base salary for two full years from the
date of his termination, less any amounts received under the Company's insurance
policies.  In the event that the  Company,  without the  consent of Mr.  Kwolyk,
assigns its rights and obligations under the Kwolyk Employment  Agreement to any
company with or into which the Company may merge or consolidate, or to which the
Company may sell or transfer all or substantially  all of its assets or of which
50% or more  of the  equity  investment  and of the  voting  control  is  owned,
directly or indirectly,  by the Company,  and if the assignee was not previously
part of a consolidated group with the Company, then Mr. Kwolyk may terminate the
Kwolyk Employment  Agreement within thirty days after notice of assignment,  and
he shall  receive 2.99 times his full annual base salary plus any  bonuses,  but
not to exceed such amount which would result in an excise tax.

         As of September 1995, the Company entered into an Employment  Agreement
with Enrique Levy (the "Levy Employment Agreement"),  employing him as President
and Chief Operating Officer of the Company  commencing  October 1, 1995, through
December 31, 2000, at a base salary of $225,000 per annum with a 10% increase in
base salary  effective  during the second year,  with any  additional  increases
during the third,  fourth and fifth years to be based upon increasing net income
of the  Company  and AMS in  excess of the  annual  budgeted  net  income of the
respective  companies.  Mr. Levy also received a $30,000  "signing" bonus and is
entitled  to  receive   annual  cash  bonuses  based  upon  Mr.  Levy's  overall
performance  including a comparison  of the actual annual  financial  results of
each of the Company  and AMS as  compared to budgets for the year.  Mr. Levy was
also granted  options to purchase (i) 250,000  shares of the Common Stock of the
Company to vest over a three year period and (ii) 100,000 shares of Common Stock
of AMS to vest over a three year period.  The Levy Employment  Agreement further
provides that if Mr. Levy  terminates his employment  "for cause" or the Company
terminates his employment  "without  cause" (as such term is defined in the Levy
Employment Agreement),  or upon Mr. Levy's death or disability,  Mr. Levy or his
representative  shall receive his annual base salary for two full years from the
date of his termination, less any amounts received under the Company's insurance
policies.  In the event that the  Company,  without  the  consent  of Mr.  Levy,
assigns its rights and obligations  under the Levy  Employment  Agreement to any
company with or into which the Company may merge or consolidate, or to which the
Company may sell or transfer all or substantially  all of its assets or of which
50% or more  of the  equity  investment  and of the  voting  control  is  owned,
directly or indirectly,  by the Company,  and if the assignee was not previously
part of a consolidated  group with the Company,  then Mr. Levy may terminate the
Levy Employment Agreement within thirty days after notice of assignment, and he 
shall receive  2.99 times his full annual base  salary  plus any  bonuses,  
but not to exceed such amount which would result in an excise tax.

         On May 2, 1995, John A. Lynch entered into an Employment Agreement (the
"Lynch Employment  Agreement") with ANMR and MDI that became effective on August
31,  1995,  the  effective  date of the MDI merger.  Under the Lynch  Employment
Agreement Mr. Lynch became the Chief Executive  Officer and President of MDI and
Senior Vice President of ANMR. The Lynch Employment  Agreement provided that Mr.
Lynch  would be an unpaid  director  of MDI as well as AMS and  ANMR,  including
serving as the co-chairman of ANMR's Executive Committee.

         Under the Lynch  Employment  Agreement,  Mr. Lynch's annual base salary
was  $375,000.  The Lynch  Employment  Agreement  was to  terminate on the fifth
anniversary  date of its August  31,  1995,  effective  date,  unless  otherwise
extended  in  accordance  with  its  terms.  Mr.  Lynch  also  was  entitled  to
performance-based  annual bonus payment based on the  percentage of budgeted net
income  actually  earned  by  MDI,  but  not to  exceed  $500,000,  as  well  as
participation  in a performance unit plan and certain payments upon a "change in
control" of the Company.

         Upon the effective date of the Lynch  Employment  Agreement,  Mr. Lynch
was granted non-qualified stock options to acquire 150,000 shares of ANMR Common
Stock, exercisable for ten years.

         In addition,  Mr. Lynch entered into a  Registration  Rights  Agreement
(the "Registration  Rights Agreement") dated as of May 2, 1995, with ANMR giving
him the right, subject to customary terms and conditions,  to include any shares
of ANMR  Common  Stock  owned by him  (except  for  shares  acquired  after  the
termination of his employment other than pursuant to options  outstanding on the
date of termination) in any  registration  statement filed by ANMR in connection
with the sale of ANMR Common  Stock (other than  registrations  on Forms S-4 and
S-8),  and to have  such  shares  included  as part  of an  underwritten  public
offering  of ANMR Common  Stock.  The  Registration  Rights  Agreement  contains
customary  indemnification and contribution  obligations on the part of ANMR and
Mr. Lynch.

         Effective  November  28, 1995,  ANMR  terminated  the Lynch  Employment
Agreement.  Upon such termination,  Mr. Lynch is receiving: (i) continuation for
thirty-six  months of welfare and  insurance  benefits,  (ii)  pro-rated  annual
performance   bonus  and  performance   unit  incentive   payments,   (iii)  the
supplemental retirement payment which would have been due and payable on January
1, 1996,  (iv) continued  accrual and vesting  credit under the pension  benefit
plans  maintained  by ANMR of the  surviving  corporation,  and (v)  accelerated
vesting and  exercisability of all stock options and certain other  equity-based
awards held by Mr. Lynch as of the date of termination.  In addition,  Mr. Lynch
agreed not to compete with ANMR and MDI for the  twelve-month  period  following
the  termination of his employment.  In  consideration  of this  non-competition
restriction, ANMR and MDI are obligated to pay Mr. Lynch the sum of $405,000,
50% has already  been paid to Mr.  Lynch and the balance is being paid in twelve
equal monthly installments of $16,875.

          Robert Spira,  M.D.  received $25,000 in fiscal 1995 in salary as Vice
Chairman of the Board.

         The Company does not have any annuity, retirement,  pension or deferred
compensation plan or other  arrangement  under which any executive  officers are
entitled to participate without similar participation by other employees.

STOCK OPTIONS
-------------

         In 1983,  the Company  adopted an  Incentive  and  Non-Qualified  Stock
Option Plan (the "1983 Plan")  (which was amended and restated as of February 1,
1988),  which  provided  for the  granting of options to purchase  not more than
1,000,000  shares of Common Stock.  The options could have been "incentive stock
options" within the meaning of the Internal Revenue Code of 1986 as amended (the
"Code"),  or non-qualified.  The 1983 Plan terminated on June 29, 1993.  Options
for an aggregate of 264,590  shares of Common Stock at exercise  prices  ranging
from  $0.65 to $4.38 were  outstanding  under the 1983 Plan as of  December  31,
1995.

         In November  1993,  the Company  adopted the 1993 Employee Stock Option
Plan (the "1993  Employee  Plan") and the 1993  Directors  Stock Option Plan for
Non-Employee Directors (the "1993 Directors Plan").

         1993 EMPLOYEE STOCK OPTION PLAN

         The 1993  Employee  Plan is open to all  employees  and officers of the
Company,  and certain  advisors or consultants to the Company as selected by the
Option Committee,  which administers the Plan. This Plan includes  Non-Qualified
Options and Incentive Options, as denominated under the Code. The maximum number
of shares  of Common  Stock  which may be issued by the  Company  under the 1993
Employee Plan is 2,250,000 shares.

         The Option Committee determines, subject to the provisions of the Plan,
to whom  options are granted,  the number of shares of Common  Stock  subject to
option, whether or not options shall be incentive stock options or non-qualified
stock options,  the exercise price of incentive  stock options granted under the
Plan must be at least equal the fair market value (110% of the fair market value
if the recipient owns more than 10% of the combined  voting power of all classes
of outstanding stock of the Company ("10%  Stockholder")) of the Common Stock on
the date of the grant.  The aggregate  fair market value  (determined  as of the
date of the grant) of the shares of Common Stock with respect to which incentive
stock  options  are  exercisable  for the first time by an  employee  during any
calendar  year may not exceed  $100,000.  The  exercise  price of  non-qualified
options may not be less than such fair market  value.  As of December  31, 1995,
incentive and non-qualified  stock options to purchase an aggregate of 1,811,850
shares of Common  Stock at per share  exercise  prices  ranging  from  $0.88 to 
$5.25 were outstanding under the Plan, and no options have been exercised under 
this Plan.

         Options and warrants assumed in the MDI Merger are exercisable for ANMR
Common Stock and warrants to purchase ANMR Common Stock.

         1993 DIRECTORS STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS

         The 1993 Directors Plan covers all directors of the Company who are not
employees of the Company. In 1994, this Plan was amended to reduce the number of
options to 15,000  shares from 25,000 shares of Common Stock a person is granted
upon  becoming a  director,  and  thereafter  annually if such person has been a
director of the Company for more than six months.  The maximum  number of shares
which may be issued under the 1993  Directors  Plan is 625,000.  At December 31,
1995, there were outstanding options under this Plan for the purchase of 327,192
shares of Common Stock at per share exercise prices ranging from $1.58 to $3.94.

         OTHER STOCK OPTIONS

         In  addition  to the above  plans,  at December  31,  1995,  there were
outstanding options and warrants to purchase 1,466,698 shares of Common Stock at
prices ranging from $0.79 to $10.63 per share exercisable through March 2005.


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

                     OPTION / SAR GRANTS IN LAST FISCAL YEAR
                                    Individual
                                    Grants                      

      (a)              (b)             (c)             (d)          (e)       
                                      % of
                                      Total
                      Number of       Options/
                      Securities      SARS
                      Underlying      Granted to     Exercise               
                      Options/        Employees      on Base                
                      SARs            in Fiscal      Price        Expiration  
Name                  Granted (#)     Year           ($/Sh)       Date        
-------------------------------------------------------------------------------

Jack Nelson             -0-

Charles Moche           -0-

Robert Kwolyk           -0-

                        Potential Realizable Value  Alternative
                        at Assumed Annual Rates  to (f) and (g)
                        of Stock Price Appreciation Grant Date
                             for Option Term          Value

                               (f)       (g)           (h)
                                                      Grant
                                                      Date
                                                      Present
Name                           5% ($)    10% ($)      Value $
-------------------------------------------------------------------------------
Jack Nelson   
              
Charles Moche 
              
Robert Kwolyk               
                   
                                            
-------------------------------------------------------------------------------
                      FISCAL YEAR END OPTION VALUE   
NAME                                                  Value of Unexercised
----                      NUMBER OF UNEXERCISED       In-the-Money Options
                        OPTIONS AT SEPT. 30, 1995      at Sept. 30, 1995
                        EXERCISABLE/UNEXERCISABLE         Exercisable 
                        -------------------------     --------------------  

Jack Nelson.......           275,000/100,000                $34,531


Charles Moche.....             33,333/66,667                  -0-

Robert Kwolyk.....            66,667/133,333                  -0-



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
         -----------------------------------------------
         AND MANAGEMENT
         --------------

          The  following  table sets forth,  as of December  31,  1995,  certain
information  regarding  the  beneficial  ownership  of Common  Stock by (i) each
person who is known by the Company to own beneficially more than five percent of
the outstanding  Common Stock, (ii) each director of the Company,  and (iii) all
directors and executive officers as a group:

                                            Amount and Nature       Percentage
Name and Address           Position with       of Beneficial         of Common
of Beneficial Owner        Company             Ownership (1)           Stock
-------------------        -------------    -----------------       ----------
J. Morton Davis            None               1,562,142 (2)           5.2%
44 Wall Street
New York, NY 10005

D.H. Blair Holdings, Inc.  None               1,562,142 (2)           5.2%
44 Wall Street
New York, NY 10005

Jack Nelson                Chairman of the      575,000 (3)           2.2%
                           Board; Chief
                           Executive Officer
                           Treasurer

Enrique Levy               President; Chief         -0- (4)           *
                           Operating Officer;
                           Director

George Aaron               Director              87,000 (5)           *

Edward Connors             Director              14,305 (6)           *

John A. Lynch              Director           1,335,081 (7)           4.4%

George A. Silver, MD       Director             112,500 (8)           *

Robert Spira, MD           Director              87,350 (9)           *

Sol Triebwasser, Ph.D.     Director              87,250 (10)          *

All directors and 
executive officers as                         2,298,486               7.5% 
a group (8 persons)                        (3)(4)(5)(6)(7)(8)(9)(10)


(1)    All shares of Advanced NMR Common Stock are  beneficially  owned, and the
       sole voting and investment power is held by the persons named,  except as
       set forth in the  notes  below.  A person is deemed to be the  beneficial
       owner of shares that can be  acquired  within 60 days of the date of this
       table upon exercise of options or warrants.

(2)    Includes (i) 1,291,242 shares held by D.H. Blair  Investment  Banking 
       Corp., an  investment  banking  firm of which  D.H.  Blair  Holdings  
       Inc. is the sole stockholder,  of which Mr. Davis is the Chairman and 
       sole stockholder, and (ii) 270,900 shares held by Engex,  Inc., a 
       closed-end  investment  company of which Mr. Davis is the  President 
       and Chairman of the Board and as to which Mr. Davis disclaims  beneficial
       ownership.  The information set forth with respect to the holdings of 
       J. Morton Davis is taken from Amendment No. 2 to Schedule 13G filed by 
       J. Morton Davis and D.H. Blair Investment  Banking Corp. ("D.H.  Blair")
       with the  Securities  and  Exchange  Commission  with  respect to their
       holdings  of Advanced NMR Common Stock.

(3)    Includes 250,000 shares underlying presently  exercisable options granted
       under the 1993  Employee  Plan.  Excludes  (i) 2,000  shares owned by Mr.
       Nelson's wife, as to which shares he disclaims beneficial ownership;  and
       (ii) 100,000 shares  underlying  options  granted under the 1993 Employee
       Plan which are subject to vesting thereunder.

(4)    Excludes   250,000  shares   underlying   options  granted  which  become
       exercisable subject to vesting thereunder.

(5)    Includes 85,000 shares underlying options presently exercisable under the
       1983  Plan  and the 1993  Directors  Plan,  and  excludes  30,000  shares
       underlying  options under the 1983 Plan and the 1993 Directors Plan which
       are not presently exercisable.

(6)    Includes 14,305 shares underlying options presently exercisable under the
       1993 Directors Plan, and excludes 15,000 shares underlying  options under
       the 1993 Directors Plan which are not presently exercisable.

(7)    Includes 411,363 shares underlying presently exercisable options granted
       under the 1993 Employee Plan.

(8)    Includes 66,250 shares underlying  presently  exercisable options granted
       under the 1983 Plan and the 1993  Directors  Plan,  and  excludes  13,750
       shares underlying options under the 1983 Plan and the 1993 Directors Plan
       which are not presently exercisable.

(9)    Includes 83,750 shares underlying options presently  exercisable  granted
       under the 1983  Plan and the 1993  Directors  Plan,  and  excludes  6,250
       shares  underlying  options  under the 1983 Plan which are not  presently
       exercisable.

(10)   Includes 66,250 shares underlying  presently  exercisable options granted
       under the 1983 Plan and the 1993  Directors  Plan,  and  excludes  13,750
       shares  underlying  options  granted  under  the  1983  Plan and the 1993
       Directors Plan which are not presently exercisable.


ITEM 13.         CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
                 ----------------------------------------------

         In July  1992,  the  Company  in forming  AMS as a  subsidiary  for the
purpose of financing the  development of MRI scanners for breast imaging entered
into the ANMR License  Agreement,  pursuant to which the Company licensed to AMS
the right to use the  Company's  technology  in the  development  of a dedicated
breast imaging system. In  consideration,  AMS paid $1,680,000 and issued to the
Company  4,000,000  shares of AMS Common Stock,  of which  2,750,000  shares are
subject to an escrow agreement described below.

          As of January 25, 1993,  the  effective  date of AMS'  initial  public
offering,  the Shared Services  Agreement with AMS became  effective.  Under the
Agreement,  (i) the Company makes available its research  scientists,  engineers
and other  personnel to AMS and, to the extent that more than 51% of the time of
any such individual is devoted to performing work for AMS, such person is deemed
a full time employee of AMS, (ii) the Company  causes its executive  officers to
serve as  executive  officers  of AMS,  and (iii) AMS  continues  to occupy  its
required office and research space at the Company's  facility and to utilize the
Company's  administrative  and  clerical  staff  and  services.  To  the  extent
feasible, if any non-administrative full-time employees of either the Company or
AMS perform  services for the other entity,  the Company or AMS, as the case may
be,  reimburses  the other entity for such  services  based upon an hourly rate,
calculated  as  provided  in the Shared  Services  Agreement  (which is based on
direct expenses and allocation of overhead).  The Shared Services  Agreement had
an initial term of one year expiring  January 24, 1994, and two one-year renewal
options.  These renewal  options have been  exercised and the Agreement has been
extended  to April 1996.  AMS also pays the  Company a monthly fee for  overhead
services,  which is  calculated  by  apportioning  the total amount spent by the
Company  on all  general  overhead  expenses,  based  on a fixed  percentage  of
overhead  expenses plus an allocation of compensation of the executive  officers
based upon the amount of time spent with the respective companies. The Company's
officers and employees are required by the Shared  Services  Agreement to devote
as much time to AMS business as they, in their discretion, consider appropriate.
The  Boards of  Directors  and the  President  of both the  Company  and AMS are
responsible  for  determining  the  appropriate  amount  of  time  spent  by the
Company's officers and employees pursuant to the Shared Services Agreement,  and
overseeing  the  provision  of such  services.  Seven  of the ten  officers  and
directors of AMS are also officers and  directors of the Company.  Any conflicts
will be resolved by Jack  Nelson,  Chairman of the Board of both the Company and
AMS,  and by the Board of  Directors  of each  company,  consistent  with  their
fiduciary duties.

         As of  September  30,  1995,  the  Company had made  advances  and been
reimbursed for expenses  incurred on behalf of AMS for research and  development
and other activities  relating to the development of AMS' MRI scanner for breast
imaging aggregating approximately $2,698,000.

         Also,  in  connection  with the public  offering,  the  Company  placed
2,750,000 of its  4,000,000  shares of AMS Common Stock into escrow.  The escrow
shares will be released based upon AMS achieving certain levels of pretax income
or share price in the future as follows:  (a) 916,667 escrow shares are released
if AMS's minimum  pretax income is at least $3.0 million during fiscal year 1995
and (b) the  remaining  1,833,333  escrow shares are released or, if none of the
escrowed shares have been released under (a), then all 2,750,000 of the escrowed
shares are released, if (i) AMS's minimum pretax income is at least $5.0 million
during fiscal year 1995;  or (ii) AMS's  minimum  pretax income is at least $8.0
million  during fiscal year 1996; or (iii)  beginning 19 months from January 25,
1993 and  ending 36 months  from the same date,  the bid price for AMS's  Common
Stock averages in excess of $20.00 per share for 30 consecutive  days. On May 1,
1997,  all  escrow  shares  not  released  from  escrow  will be  forfeited  and
contributed  to the  capital of AMS.  If and when the shares are  released  from
escrow,  AMS will incur an expense  based on the fair market value of AMS Common
Stock at the time they are released.  For  consolidation  purposes,  the Company
treats the escrow shares as if they were outstanding.

         The Company believes that the transactions between the Company and AMS,
its subsidiary,  described above were on terms not less favorable to the Company
than the terms that would have been  available from  unaffiliated  parties under
similar  circumstances.  Actual  comparisons  with  other  transactions  are not
possible, however.


<PAGE>


                                     PART IV
                                     -------

ITEM 14.         EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
                 -------------------------------------------------------
                 FORM 8-K
                 --------

(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)(2)   The following Financial  Statement  Schedules are filed herewith:  None
         All schedules have been omitted  because they are  inapplicable  or not
         required, or the information is included in the financial statements or
         notes thereto.

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



<PAGE>



Exhibit
  No.      Description
-------    -----------

           
2          Agreement  and Plan of  Merger  among  Registrant,  ANMR  Acquisition
           Corp.  and  Medical  Diagnostics,  Inc.  ("MDI"),  dated  May 2, 1995
           (incorporated   by   reference   to  Annex  A  to  the  Joint   Proxy
           Statement/Prospectus  to Registrant's  Registration Statement on Form
           S-4,    declared    effective    August    3,    1995    (File    No.
           33-95302)("Registrant's Form S-4")).
 3.1       Certificate of Incorporation of Registrant. (incorporated by 
           reference to Exhibit 3 filed with Registrant's Registration Statement
           on Form S-2, and amendments thereto, declared effective August 18, 
           1993 (File No. 2084785 ("Registrant's Form S-2"))
 3.2       Amendment  to  Certificate  of   Incorporation  of  Registrant  filed
           November  5,  1993  (incorporated  by  reference  to  Exhibit  3.2 to
           Registrant's Form S-4).
 3.3       Amendment to Certificate of Incorporation of Registrant, filed August
           31, 1995,  (incorporated  by reference to Exhibit 3.1 to Registrant's
           Form 8-K for an event of  August  31,  1995  (the  "August  1995 Form
           8-K")).
 3.4*      Amendment to Certificate of Incorporation of Registrant, filed
           September 21, 1995.
 3.5       Amended and Restated By-laws of Registrant (incorporated by reference
           to Exhibit 3.4 to Registrant's Form S-4).
 4.1.1     Form of Warrant Agreement between Registrant and American Stock
           Transfer & Trust Company, as Warrant Agent (incorporated by reference
           to Exhibit 4 to Registrant's August 1995 Form 8-K).
 4.1.2     Form of Warrant Certificate (incorporated by reference to Annex B to
           the Registrant's Joint Proxy Statement, dated August 31, 1995).
 4.2       Specimen  Certificate for Common Stock,  par value $.01 per share, of
           Registrant  (incorporated by reference to Exhibit 4.2 to Registrant's
           Form S-4).
 4.3.1     Form of Supplemental Agreement relating to Registrant's assumption of
           MDI's  Obligations  under the Warrant Agreement between MDI and First
           Albany Corporation and Janney Montgomery Scott, Inc. (incorporated by
           reference to Exhibit 4.3.1 to Registrant's Form S-4).
 4.3.2     Form of Supplemental Agreement relating to Registrant's assumption of
           MDI's  Obligations  under the Warrant Agreement between MDI and Jacob
           Agam (incorporated by reference to Exhibit 4.3.2 to Registrant's Form
           S-4).
 4.4       Form of Warrant  Certificate,  dated as of March 6,  1994,  issued to
           Dominick  &  Dominick  Incorporated  (incorporated  by  reference  to
           Exhibit 4.4 to Registrant's Form S-4).
10.1       Registrant's  1983  Incentive  and  Non-Qualified  Stock Option Plan,
           Amended and  Restated as of February 1, 1988,  and form of  incentive
           stock   option   (incorporated   by  reference  to  Exhibit  10.4  to
           Registrant's Form S-2).
10.2       Registrant's  1993  Employee  Stock  Option  Plan   (incorporated  by
           reference to Exhibit A of the Proxy Statement for  Registrant's  1993
           Annual Meeting of Stockholders (File No.
           0-11914)).


<PAGE>
                                       


Exhibit
  No.      Description
-------    -----------

10.3       Registrant's 1993 Directors Stock Option Plan for Non-Employee
           Directors (incorporated by reference to Exhibit B of the Proxy
           Statement for Registrant's 1993 Annual Meeting of Stockholders 
           (File No. 0-19914)).
10.4.1     Amended and Restated  Agreement  between the  Registrant  and General
           Electric Company,  dated November 30, 1989 (incorporated by reference
           to Exhibit 10.6 filed with  Registrant's  Annual  Report on Form 10-K
           for the fiscal year ended December 31, 1990 (File No. 0-19914)).
10.4.2     Amended 1989 Agreement with General Electric Company,  dated March 5,
           1993   (incorporated   by  reference  to  Exhibit  10.12  filed  with
           Registrant's  Annual  Report on Form 10-K for the  fiscal  year ended
           December 31, 1992 (File No. 0-11914)).
10.4.3     Amended 1993 Agreement with General Electric Company,  dated March 5,
           1993   (incorporated  by  reference  to  Exhibit  10.4.2  filed  with
           Registrant's  Annual  Report on Form 10-K for the  fiscal  year ended
           December 31, 1994 (File No. 0-11914) (the "ANMR 1994 Form 10-K")).
10.4.5     1994 Agreement between Registrant and General Electric Company, dated
           July 29,  1994  (incorporated  by  reference  to  Exhibit  10.4.5  to
           Registrant's Form S-4).
10.5       Employment  Agreement between Registrant and Jack Nelson, dated as of
           December 6, 1993  (incorporated  by  reference  to Exhibit 10.5 filed
           with the ANMR 1994 Form 10-K).
10.6*      Employment Agreement among Registrant, Advanced Mammography Systems,
           Inc. ("AMS") and Enrique Levy, dated September 17, 1995.
10.7       Employment  Agreement  between  Registrant and Charles  Moche,  dated
           November 22, 1993  (incorporated  by reference to Exhibit 10.7 to the
           1994 ANMR Form 10-K).
10.8       Employment  Agreement between Registrant and Robert L. Kwolyk,  dated
           as of April 25, 1994  (incorporated  by  reference to Exhibit 10.8 to
           Registrant's Form S-4).
10.9       Employment  Agreement among Registrant,  MDI and John A. Lynch, dated
           May 2,  1995  (incorporated  by  reference  to  Exhibit  47 to  MDI's
           Schedule 14D-9 (Amendment No. 18) filed on May 3, 1995).
10.10      Lease Agreement between Registrant and John T. Spinelli, dated May 5,
           1991   (incorporated   by   reference  to  Exhibit  10.9  filed  with
           Registrant's  Annual  Report on Form 10-K for the  fiscal  year ended
           December 31, 1995 (File No. 0-19914)).
10.11      License  Agreement  between  Registrant  and AMS, dated July 29, 1992
           (incorporated  by reference  to Exhibit  10.13 to  Registrant's  Form
           S-2).
10.12.1    Shared Services  Agreement  between  Registrant and AMS dated October
           28, 1992  (incorporated by reference to Exhibit 10.14 to Registrant's
           Form S-2).
10.12.2    Letter  Agreement,  dated  July 26,  1993  extending  term of  Shared
           Services  Agreement  between  Registrant  and  AMS  (incorporated  by
           reference to Exhibit 12.2 to Registrant's Form S-4).



<PAGE>



Exhibit
  No.      Description
-------    -----------

10.13      Escrow Agreement among Registrant,  AMS and American Stock Transfer &
           Trust  Company,  dated  December 1992  (incorporated  by reference to
           Exhibit 10.15 to Registrant's Form S-2).
10.14      Loan and Security Agreement, dated as of August 31, 1995, between MDI
           and Chemical Bank (without  exhibits)  (incorporated  by reference to
           Exhibit 10.2 to Registrant's August 1995 Form 8-K).
10.15      Guaranty and Security Agreement, dated as of August 31, 1995, between
           Registrant  and Chemical Bank  (without  exhibits)  (incorporated  by
           reference to Exhibit 10.3 to Registrant's August 1995 Form 8-K).
10.16      Guaranty and Security Agreement, dated as of August 31, 1995, between
           certain  subsidiaries  of MDI and Chemical  Bank  (without  exhibits)
           (incorporated  by reference to Exhibit  10.4 to  Registrant's  August
           1995 Form 8-K).
10.17      Pledge Agreement, dated as of August 31, 1995, between Registrant and
           Chemical  Bank   (incorporated   by  reference  to  Exhibit  10.5  to
           Registrant's August 1995 Form 8- K).
10.18      Pledge  Agreement,  dated as of  August  31,  1995,  between  MDI and
           Chemical  Bank   (incorporated   by  reference  to  Exhibit  10.6  to
           Registrant's August 1995 Form 8-K).
10.19      Amended and Restated  Joint Venture  Agreement  among MDI and Medical
           Imaging  Partners,  L.P.,  dated  August  6,  1990  (incorporated  by
           reference to Exhibit 10(b)(1) to MDI's Registration Statement on Form
           S-1 as amended on October 30, 1991 (File No.
           33-42748)) (the "MDI Registration Statement").
10.20      Restated  Management  Agreement  between MDI and Mass. Mobile Imaging
           Venture,  dated August 6, 1990  (incorporated by reference to Exhibit
           10(b)(2) to the MDI Registration Statement).
10.21      Restated and Amended Medical Imaging Lease and Services Agreement
           between Western Mass. Magnetic Resonance Services, Inc. and Mass. 
           Mobile Imaging Venture, dated August 6, 1990 (incorporated by
           reference to Exhibit 10(b)(3) to the MDI Registration Statement).
10.22      Medical  Imaging Lease and Services  Agreement  between Mobile MRI of
           Western  Massachusetts  Associates and Mass.  Mobile Imaging Venture,
           dated August 6, 1990  (incorporated  by reference to Exhibit 10(b)(4)
           to the MDI Registration Statement).
10.23      Lease Agreement between Medical Imaging Partners, L.P. and Mass. 
           Mobile Imaging Venture, dated December 31, 1986 (incorporated by
           reference to Exhibit 10(b)(9) to the MDI Registration Statement).
10.24      MRI Management Services Agreement between Merrimack Valley Health
           Services, Inc. and MDI dated October 1, 1990 (incorporated by
           reference to Exhibit 10(f)(1) to the MDI Registration Statement).


<PAGE>



Exhibit
  No.      Description
-------    -----------

10.25      Joint  Venture  Agreement  of  Mobile  MRI of  Western  Massachusetts
           Associates, between Mobile MRI of Western Massachusetts, Inc. and MRI
           Associates Inc.,  dated December 22, 1986  (incorporated by reference
           to Exhibit 10(h)(1) to the MDI Registration Statement).
10.26.1    Lease  Agreement  between  MDI and the  Trustees  of Six New  England
           Executive Park, dated January 22, 1988  (incorporated by reference to
           Exhibit 10(j) to the MDI Registration Statement).
10.26.2    First Amendment to Lease Agreement between MDI and the Trustees of
           Six New England Executive Park, dated October 15, 1992.
10.26.3    Second Amendment to Lease Agreement between MDI and the Trustees of
           Six New England Executive Park, dated April 6, 1993.
10.27      Severance Agreements between MDI and each of Judy C. Erbstein, David
           C. Gaynor, Steven J. James, Eileen H. Kirrane, Elaine H. McCarthy, 
           Ruselle W. Robinson and John F. Sweeney, each dated February 16,
           1995 (incorporated by reference to Exhibit 35 to MDI's Schedule 
           14D-9 (Amendment No. 13) filed with the Commission on February
           23, 1995).
10.28      Stock Purchase  Agreement  between MDI, John W. Hammer and Hi-Chicago
           Trust,  dated October 12, 1988  (incorporated by reference to Exhibit
           10(o) to the MDI Registration Statement).
10.29      Clinical License for MRI Services by Western Mass. Magnetic Resonance
           Services, Inc. (incorporated by reference to Exhibit 10(p)(1) to the
           MDI Registration Statement). 
10.30      Clinical   License  for  MRI   Services  by  Mobile  MRI  of  Western
           Massachusetts   Associates  (incorporated  by  reference  to  Exhibit
           (10(p)(2) to the MDI Registration Statement).
10.31      Clinical License for MRI Services by Central Mass. MRI Limited
           Partnership ("Central Mass.") (incorporated by reference to Exhibit 
           10(p)(4) to the MDI Registration Statement).
10.32      Clinical  License  for MRI  Services  by Greater  Boston MRI  Limited
           Partnership ("Greater Boston")  (incorporated by reference to Exhibit
           10(p)(3) to the MDI Registration Statement).
10.33.1    Determination  of Need  issued to Western  Mass.  Magnetic  Resonance
           Services,  Inc., to provide  Mobile MRI Services,  dated May 29, 1986
           (incorporated   by   reference   to  Exhibit   10(q)(1)  to  the  MDI
           Registration Statement).
10.33.2    Determination  of Need  issued to Western  Mass.  Magnetic  Resonance
           Services,  Inc., to provide  free-standing,  fixed site MRI services,
           dated April 3, 1989 (incorporated by reference to Exhibit 10(q)(2) to
           the MDI Registration Statement).
10.34      Determination  of Need issued to Central  Mass.,  dated July 20, 1988
           (incorporated   by   reference   to  Exhibit   10(q)(3)  to  the  MDI
           Registration Statement).


<PAGE>



Exhibit
  No.      Description
-------    -----------

10.35.1    Determination  of Need issued to Greater  Boston MRI Services,  Inc.
           ("Greater Boston"),  dated April 8, 1988,  with  letter  transferring
           ownership   of  the   Determination   of  Need  to   Greater   Boston
           (incorporated   by   reference   to  Exhibit   10(q)(4)  to  the  MDI
           Registration Statement).
10.35.2    Determination  of Need issued to Greater  Boston,  dated October 12,
           1989 (incorporated  by  reference  to  Exhibit  10(q)(5)  to the  MDI
           Registration Statement).
10.36      Determination of Need  issued to Mobile MRI of Western  Massachusetts
           Associates, dated  August 28,  1989  (incorporated  by  reference  to
           Exhibit 10(q)(6) to the MDI Registration Statement).
10.37      Agreement between Stephen O.Dell, Seacoast  Scanning,  Inc., MDI and
           Casco Bay MR  Services, Inc.,  dated June 20, 1987  (incorporated  by
           reference to Exhibit 10(u) to the MDI Registration Statement).
10.38      Agreement in principle between MDI and Toshiba America Medical
           Systems, Inc.,  dated November 8, 1991  (incorporated by reference to
           Exhibit 10(ae)(7) to the MDI Registration Statement).
10.39      "Maxiservice" MRI Lease Agreement between General Electric Company
           and  Mass.   Mobile   Imaging   Venture,  dated   February  21,  1991
           (incorporated   by  reference  to  Exhibit   10(af)(1)  to  the  MDI
           Registration Statement).
10.40      "Masterline" Van Lease Agreement between General Electric Company and
           Mass. Mobile Imaging Venture, dated February 21, 1991 (incorporated
           by reference to Exhibit 10(af)(2) to the MDI Registration Statement).
10.41      Asset  Purchase   Agreement  and  Support  Services   Agreement
           (incorporated  by reference to Exhibit E-1 and E-2 to MDI's Report on
           Form 8-K filed on November 17, 1993 (File No. 0-11914)).
10.42      Stock Purchase Agreement  and  First  Amendment  to  Stock  Purchase
           Agreement (incorporated  by reference to Exhibit E-1 and E-2 to MDI's
           Report on Form 8-K/A filed on July 25, 1994 (File No. 0-11914)). 
10.43      Amended License and Services Agreement between Burlington Imaging
           Associates,  Inc., P.C. and MDI (incorporated by reference to Exhibit
           10 to MDI's  Annual  Report on Form 10-K for the  fiscal  year  ended
           September 30, 1994 (File No. 0-19736)).
10.44      Purchase and Sale Agreement dated November 17, 1994 between MDI
           Rehab, Inc. and MVA Center for Rehabilitation, P.C.  (incorporated by
           reference  to Exhibit 2 to MDI's Report on Form 8-K filed on February
           15, 1995 (File No. 0-19736)).
 10.45     Amended Management Agreement between MDI and ICI dated October 30,
           1987 and amended October 1, 1991 (incorporated by reference to
           Exhibit 10(a)(1) and 10(a)(2) to the MDI Registration Statement).
 10.46     Key Employment Agreement between MVA Rehabilitation Associates and
           Eric T. Shebar,  M.D. dated as of January 31, 1995  (incorporated  by
           reference  to  Exhibit  10(b) to MDI's  Report  on Form 8-K  filed on
           February 15, 1995 (File No. 0-19736)).


Exhibit
-------
No.        Description
---        -----------

10.47      Amended  and  Restated   Agreement  of   Partnership   of  MVA
           Rehabilitation Associates (incorporated by reference to Exhibit 10(a)
           to MDI's  Report on Form 8-K filed on  February  15,  1995  (File No.
           0-19736)).
21.        List of Registrant's subsidiaries.
23.*       Consent of Richard A. Eisner & Company, LLP, independent public
           accountants for Registrant.


(b)        Reports on Form 8-K
           -------------------

           The Company filed a report  on Form 8-K for an  event of  August  31,
           1995, announcing the merger of Medical Diagnostics,  Inc. with the
           Company.  In  addition,  the Company  announced  the change in the
           Company's fiscal year to September 30 from December 31.



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

   *  Included herewith


<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, 1995 AND DECEMBER 31, 1994             F-3


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


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


     CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
     THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1995
     AND SEPTEMBER 30, 1994 (UNAUDITED) AND FOR EACH
     OF THE YEARS IN THE TWO-YEAR PERIOD 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, 1995 and
     December  31, 1994, and the  related consolidated statements of operations,
     stockholders'  equity, and  cash  flows for  the  nine month  period  ended
     September  30, 1995  and each  of the  years in  the two-year  period 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,
     1995 and December  31, 1994, and the results of  their operations and their
     cash flows for the nine month period  ended September 30, 1995 and for each
     of  the years in the two-year period  ended December 31, 1994 in conformity
     with generally accepted accounting principles.


     Richard A. Eisner & Company, LLP

     Cambridge, Massachusetts
     November 29, 1995


     <PAGE>


                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
                             CONSOLIDATED BALANCE SHEETS

                                                                 September 30,
     ASSETS                                                      1995
     ------                                                      ----
     Current assets:
          Cash and cash equivalents                               $7,542,508
          Accounts receivable, net of reserve for bad debts of
               $2,119,000 at September 30, 1995                    9,741,892
          Inventories:
               Work-in-process                                       907,128
               Raw materials                                       2,405,463
               Finished goods                                             --
                                                                  ----------
                                                                   3,312,591
                                                                  ----------
          Other current assets (Note D)                            1,972,871
                                                                  ----------
               Total current assets                               22,569,862
                                                                  ----------

     Equipment, building, furniture and leasehold
      improvements (Note C):
          Medical equipment                                        4,562,423
          Office furniture and equipment                             833,886
          Research and production equipment                        2,545,498
          Leasehold improvements                                   1,852,778
          Demonstration equipment                                    168,672
          Building                                                   210,739
                                                                  ----------
                                                                  10,173,996
          Less: accumulated depreciation and amortization          1,966,309
                                                                  ----------
                                                                   8,207,687
                                                                  ----------
     Patent costs, net of accumulated amortization                   205,754
                                                                  ----------
     Goodwill, net of accumulated amortization (Note J)           26,858,226
     Other                                                           590,180
                                                                  ----------
     TOTAL                                                       $58,431,709

     LIABILITIES AND STOCKHOLDERS' EQUITY
     ------------------------------------
     Current liabilities:
          Accounts payable                                        $1,001,130
          Accrued expenses (Note M)                                4,355,404
          Due to shareholders (Note J)                             1,696,102
          Customer deposits                                               --
          Current portion of long-term debt and capital
               lease obligations (Note C)                          4,274,110
          Current maturities of deferred revenue                     134,289
          Due to affiliates                                           25,682
                                                                  ----------
                    Total current liabilities                     11,486,717
                                                                  ----------

     Long-term debt and capital lease obligations,
          less current portion (Note C)                           16,279,352
     Deferred revenues, net of current                                33,567
     Minority interest in net assets of consolidated entities      2,614,107

     Commitments (Note E)

     Stockholders' equity (Note F):
          Preferred stock, $.01 par value;
           authorized, 1,000,000 shares;
           issued, none                                                   --
          Common stock, $.01 par value;
           authorized, 50,000,000 shares;
           issued, 30,151,821 shares in 1995
           and 23,779,539 in 1994                                    301,518
          Additional paid-in capital                              58,246,689
          Note receivable for stock issued (Note F)                       --
          Accumulated deficit                                    (30,527,991)
                                                                  ----------
                                                                  28,020,216
          Less: treasury stock, at cost - 225,000 common shares        2,250
                                                                  ----------
                    Total stockholders' equity                    28,017,966
     TOTAL                                                       $58,431,709
                                                                  ==========

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



                                                                 December 31,
     ASSETS                                                      1994
     ------                                                      ----
     Current assets:
          Cash and cash equivalents                               $5,599,855
          Accounts receivable, net of reserve for bad debts of
               $2,119,000 at September 30, 1995                    2,110,712
          Inventories:
               Work-in-process                                     1,683,260
               Raw materials                                       1,109,056
               Finished goods                                        159,540
                                                                  ----------
                                                                   2,951,856
                                                                  ----------
          Other current assets (Note D)                              125,182
                                                                  ----------
               Total current assets                               10,787,605
                                                                  ----------

     Equipment, building, furniture and leasehold
      improvements (Note C):
          Medical equipment                                               --
          Office furniture and equipment                             649,946
          Research and production equipment                        2,066,898
          Leasehold improvements                                     270,809
          Demonstration equipment                                    168,672
          Building                                                        --
                                                                  ----------
                                                                   3,156,325
          Less: accumulated depreciation and amortization          1,448,231
                                                                  ----------
                                                                   1,708,094
                                                                  ----------
     Patent costs, net of accumulated amortization                   148,511
                                                                  ----------
     Goodwill, net of accumulated amortization (Note J)                   --
     Other                                                            47,942
                                                                  ----------
     TOTAL                                                       $12,692,152

     LIABILITIES AND STOCKHOLDERS' EQUITY
     ------------------------------------
     Current liabilities:
          Accounts payable                                          $649,196
          Accrued expenses (Note M)                                  405,078
          Due to shareholders (Note J)                                    --
          Customer deposits                                        1,007,685
          Current portion of long-term debt and capital
               lease obligations (Note C)                            111,485
          Current maturities of deferred revenue                          --
          Due to affiliates                                               --
                                                                  ----------
                    Total current liabilities                      2,173,444
                                                                  ----------

     Long-term debt and capital lease obligations,
          less current portion (Note C)                              338,409
     Deferred revenues, net of current                                    --
     Minority interest in net assets of consolidated entities        481,375

     Commitments (Note E)

     Stockholders' equity (Note F):
          Preferred stock, $.01 par value;
           authorized, 1,000,000 shares;
           issued, none                                                   --
          Common stock, $.01 par value;
           authorized, 50,000,000 shares;
           issued, 30,151,821 shares in 1995
           and 23,779,539 in 1994                                    237,795
          Additional paid-in capital                              39,001,112
          Note receivable for stock issued (Note F)                 (687,500)
          Accumulated deficit                                    (28,850,233)
                                                                  ----------
                                                                   9,701,174
          Less: treasury stock, at cost - 225,000 common shares        2,250
                                                                  ----------
                    Total stockholders' equity                     9,698,924
     TOTAL                                                       $12,692,152
                                                                  ==========

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


     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF OPERATIONS


                                             Nine Months Ended
                                             September 30,
                                             ------------
                                             1995           1994
                                             ----           ----
     Revenues:                                              (unaudited)
       System sales                           $6,643,090     $5,174,310
       Net patient service revenue             1,934,322             --
       Management fees and other                  40,220         50,500
                                              ----------     ----------

       Total revenues                          8,617,632      5,224,810
                                              ----------     ----------

     Operating expenses:
       Cost of goods sold                      4,124,354      1,956,611
       Cost of service operations              1,203,497             --
       Research and development                1,907,945      2,187,291
       Selling, general and administrative     4,162,585      3,115,186
       Provision for bad debt and
         collection costs                        162,377             --
                                              ----------     ----------
         Total operating expenses             11,560,758      5,302,477
                                              ----------     ----------

     Loss from operations                     (2,943,126)    (2,034,278)

     Other income (expense) (Note F)             579,758             --
     Interest income                             265,208        278,497
     Interest expense                           (148,952)       (74,806)
                                              ----------     ----------

     Loss before minority interests           (2,247,112)    (1,830,587)

     Minority interests in net losses of
       consolidated entities                     569,354        488,799
                                              ----------     ----------

     Net loss                                $(1,677,758)   $(1,341,788)
                                             ===========    ===========

     Net loss per share                            $(.07)         $(.06)
                                                   =====          =====

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

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



                                             Year Ended
                                             December 31,
                                             -----------
                                             1994           1993
                                             ----           ----
     Revenues:
       System sales                           $5,237,700     $1,894,900
       Net patient service revenue                    --             --
       Management fees and other                  50,500         41,057
                                              ----------     ----------

       Total revenues                          5,288,200      1,935,957
                                              ----------     ----------

     Operating expenses:
       Cost of goods sold                      2,414,121      1,528,248
       Cost of service operations                     --             --
       Research and development                2,954,509      3,290,002
       Selling, general and administrative     4,356,996      2,913,043
       Provision for bad debt and
         collection costs                             --             --
                                              ----------     ----------

         Total operating expenses              9,725,626      7,731,293
                                              ----------     ----------

     Loss from operations                     (4,437,426)    (5,795,336)

     Other income (expense) (Note F)                  --       (801,750)
     Interest income                             208,480        170,720
     Interest expense                            (21,017)      (155,225)
                                              ----------     ----------

     Loss before minority interests           (4,249,963)    (6,581,591)

     Minority interests in net losses of
       consolidated entities                     702,965        414,641
                                              ----------     ----------

     Net loss                                $(3,546,998)   $(6,166,950)
                                              ==========     ========== 

     Net loss per share                            $(.15)         $(.32)
                                                   =====          =====

     Weighted average number of shares
       outstanding                            23,603,251     19,184,275
                                             ===========    ===========

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


     <PAGE>


                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                                                   
                                             Common Stock            Additional
                                             ------------             Paid-in
                                             Shares         Amount    Capital
                                             ------         ------    -------
     Balance - December 31, 1992             16,518,021     $165,180
     $18,999,873

       Increase in proportionate share of
         subsidiary's equity related to public
         offering of subsidiary's stock              --           --
     6,072,681
       Issuance of common stock and
         compensatory stock options for
         services (Note F)                      189,000        1,890            
     799,860
       Exercise of Class A warrants           3,096,504       30,965
     4,613,791
       Exercise of Class B warrants           3,166,242       31,662
     6,300,822
       Commissions paid upon warrant exercise        --           --   
     (382,630)
       Exercise of stock options                497,263        4,973
     1,218,256
       Net loss for the year                         --           --          --
                                             ----------     --------  ----------
     Balance - December 31, 1993             23,467,030      234,670  37,622,653

       Exercise of stock options                312,509        3,125     841,095
       Issuance of warrant (Note F)                  --           --      35,200
       Increase in proportionate share of
         subsidiary's equity related to sale
         of subsidiary's stock (Note F)              --           --     502,164
       Note received in exchange for
         stock issued (Note F)                       --           --          --
       Net loss for the year                         --           --          --
                                             ----------     --------  ----------
     Balance - December 31, 1994             23,779,539      237,795  39,001,112

       Exercise of stock options                 15,125          151      9,680
       Cancellation of common stock
        issued for services (Note F)            (63,000)        (630)  (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)                 (250,000)       2,500)  (685,000)
       Common stock issued related to
         service business acquisition 
         (Note J)                             6,670,157       66,702 18,543,258
       Net loss for the period                       --           --         --
                                             ----------     --------  ---------
     Balance - September 30, 1995            30,151,821     $301,518 $58,246,689
                                             ==========     ========  ==========

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


                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                                     Note
                                                     Receivable
                                                     For Stock      Accumulated
                                                     Issued         Deficit
                                                     ------         -------
     Balance - December 31, 1992                  $      --      $(19,136,285)

       Increase in proportionate share of
         subsidiary's equity related to public
         offering of subsidiary's stock                  --                --
       Issuance of common stock and
         compensatory stock options for
         services (Note F)                               --                --
       Exercise of Class A warrants                      --                --
       Exercise of Class B warrants                      --                --
       Commissions paid upon warrant exercise            --                --
       Exercise of stock options                         --                --
       Net loss for the year                             --        (6,166,950)
                                                -----------      ------------
     Balance - December 31, 1993                         --       (25,303,235)

       Exercise of stock options                         --                --
       Issuance of warrant (Note F)                      --                --
       Increase in proportionate share of
         subsidiary's equity related to sale
         of subsidiary's stock (Note F)                  --                --
       Note received in exchange for
         stock issued (Note F)                     (687,500)               --
       Net loss for the year                             --        (3,546,998)
                                                -----------      ------------
     Balance - December 31, 1994                   (687,500)      (28,850,233)

       Exercise of stock options                         --                --
       Cancellation of common stock
         issued for services (Note F)                    --                --
       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)                      687,500                --
       Common stock issued related to
         service business acquisition (Note J)           --                --
       Net loss for the period                           --        (1,677,758)
                                                -----------      ------------
     Balance - September 30, 1995               $        --      $(30,527,991)
                                                ===========      ============


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



                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY



                                              Treasury Stock
                                              --------------
                                             Shares    Amount         Total
                                             ------    ------         -----
     Balance - December 31, 1992             225,000   $(2,250)      $26,518

       Increase in proportionate share of
         subsidiary's equity related to public
         offering of subsidiary's stock           --        --     6,072,681
       Issuance of common stock and
         compensatory stock options for
         services (Note F)                        --        --       801,750
       Exercise of Class A warrants               --        --     4,644,756
       Exercise of Class B warrants               --        --     6,332,484
       Commissions paid upon warrant exercise     --        --      (382,630)
       Exercise of stock options                  --        --     1,223,229
       Net loss for the year                      --        --    (6,166,950)
                                             -------   -------    ----------
     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 stock (Note F)           --        --       502,164
       Note received in exchange for
         stock issued (Note F)                    --        --      (687,500)
       Net loss for the year                      --        --    (3,546,998)
                                             -------   -------    ----------
     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 period                    --        --    (1,677,758)
                                             -------   -------    ----------
     Balance - September 30, 1995            225,000   $(2,250)  $28,017,966


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


     <PAGE>


                ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                       Nine Months Ended
                                                       September 30,
                                                       ------------
                                                       1995           1994
                                                       ----           ----
     Cash flows from operating activities:                         (unaudited)
          Net loss                                $(1,677,758)   $(1,341,788)
          Adjustments to reconcile net loss 
            to net cash used in operating 
            activities:
          Minority interest in net loss of 
            subsidiaries                             (569,353)      (488,799)
          Depreciation and amortization               633,948        330,859
          Common stock and warrant issued 
            (cancelled) for services                 (392,250)            --
          Issuance of compensatory stock options           --             --
          Changes in assets and liabilities:
               Accounts receivable, net              (669,710)    (2,082,539)
               Inventories                           (360,735)      (154,603)
               Other assets                            25,193         24,312
               Accounts payable and accrued expenses  780,867       (525,314)
               Other liabilities                           --       (712,669)
                                                   ----------     ----------

          Net cash used in operating activities    (2,229,798)    (4,950,541)
                                                   ----------     ----------

     Cash flows from investing activities:
          Purchase of imaging and rehabilitation
               business (Note J)                  (12,055,201)            --
          Patent costs                                (91,057)       (83,465)
          Purchase of equipment, furniture and
               leaseholds improvements               (198,328)      (606,573)
          Other assets                                     --             --
                                                   ----------     ----------

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

     Cash flows from financing activities:
          Payment of notes payable                         --             --
          Public offering of subsidiary's stock            --             --
          Cost of subsidiary's public offering             --             --
          Exercise of stock options                     9,831         46,921
          Exercise of stock warrants, net of 
            commissions                                    --             --
          Proceeds from issuance of long-term 
            debt                                   13,500,000             --
          Repayment of long-term debt and capital 
            lease obligations                         222,772)      (110,948)
          Distributions to minority interests         (37,500)            --
          Contributions from minority interests        67,593             --
          Sale of warrant rights                           --             --
          Sale of subsidiary stock                  3,199,885        469,060
          Payments received on note receivable 
            (Note F)                                       --             --
                                                   ----------     ----------
          Net cash provided by financing 
            activities                             16,517,037        405,033
                                                   ----------     ----------

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

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

     CASH AND CASH EQUIVALENTS,
          END OF PERIOD                            $7,542,508     $6,907,841
                                                    =========      =========

     Supplemental disclosures of cash flow 
       information:
     Interest paid during the year                    $47,390     $       --
     Note received in exchange for stock (Note F)

     See Note J with respect to imaging and rehabilitation business acquired.
     See Note E with respect to noncash leasing transactions.

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


                                                            Year Ended
                                                            December 31,
                                                            -----------
                                                            1994           1993
                                                            ----           ----
     Cash flows from operating activities:
          Net loss                                     $(3,546,998) $(6,166,950)
          Adjustments to reconcile net loss to 
            net cash used in operating activities:
          Minority interest in net loss of 
            subsidiaries                                  (702,965)    (414,641)
          Depreciation and amortization                    475,918      475,854
          Common stock and warrant issued (cancelled)
               for services                                 35,000      614,250
          Issuance of compensatory stock options                --      187,500
          Changes in assets and liabilities:
               Accounts receivable, net                 (2,080,387)     246,175
               Inventories                                (925,153)    (840,845)
               Other assets                                (50,055)     (59,927)
               Accounts payable and accrued expenses       157,750      361,514
               Other liabilities                           126,506      673,432
                                                       -----------    ----------

          Net cash used in operating activities         (6,510,384)  (4,923,638)
                                                       -----------   -----------

     Cash flows from investing activities:
          Purchase of imaging and rehabilitation
               business (Note J)                                --            --
          Patent costs                                    (129,580)     (11,019)
          Purchase of equipment, furniture and
               leaseholds improvements                    (662,301)    (639,294)
          Other assets                                          --       59,726
                                                       -----------    ----------

     Net cash used in investing activities                (791,881)    (590,587)
                                                       -----------    ----------

     Cash flows from financing activities:
          Payment of notes payable                              --   (2,000,000)
          Public offering of subsidiary's stock                 --    8,901,129
          Cost of subsidiary's public offering                  --   (1,436,617)
          Exercise of stock options                         47,125    1,223,229
          Exercise of stock warrants, net of 
            commissions                                         --   10,594,610
          Proceeds from issuance of long-term debt              --           --
          Repayment of long-term debt and capital lease
               obligations                                (107,907)     (17,559)
          Distributions to minority interests                   --           --
          Contributions from minority interests                 --           --
          Sale of warrant rights                               200           --
          Sale of subsidiary stock                         709,315           --
          Payments received on note receivable (Note F)    110,000           --
                                                       -----------   ----------

          Net cash provided by financing activities        758,733   17,264,792
                                                       -----------   ----------

     NET INCREASE (DECREASE) IN CASH
          AND CASH EQUIVALENTS                          (6,543,532)  11,750,567

     CASH AND CASH EQUIVALENTS,
          BEGINNING OF PERIOD                           12,143,387      392,820
                                                       -----------   ----------

     CASH AND CASH EQUIVALENTS,
          END OF PERIOD                                 $5,599,855  $12,143,387
                                                        ==========   ===========


     Supplemental disclosures of cash flow information:
     Interest paid during the year                         $21,017     $103,400
     Note received in exchange for stock (Note F)          797,500

     See Note J with respect to imaging and rehabilitation business acquired.
     See Note E with respect to noncash leasing transactions.

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

 
     <PAGE>


                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1995
     (NOTE A) - Business:
     -------------------

          The Company  operates its  business under  two segments  consisting of
     Imaging Systems and  Imaging and  Rehabilitation Services.   The  Company's
     results of operations for  the nine months ended September 30, 1995 include
     only one month of Imaging and Rehabilitation Services operations.

          [1]  Imaging Systems
               ---------------

          The  Company  and  one   of  its  subsidiaries  are  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").

          On  July  2,  1992,  the  Company  formed  a  wholly-owned subsidiary,
     Advanced Mammography Systems, Inc.  ("AMS").  The subsidiary was  formed to
     develop  a dedicated MRI system.   AMS 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  imaging services and physical therapy services.  MDI's mobile MRI
     and SPECT 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  43 hospitals and  clinics with  three SPECT units,  8
     mobile MRI units,  two fixed MRI  centers and two  managed MRI units.   MDI
     currently operates one center  in Massachusetts that provides 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.


     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1995

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

          [1]  Principles of consolidation:
               ---------------------------
          The  consolidated financial  statements  include the  accounts of  the
     Company,   its  majority-owned   subsidiary,  AMS   and   its  wholly-owned
     subsidiary, MDI  (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.

          [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  (3 to 10 years),  or term of the lease,  if
     applicable.  Assets are written off when they become fully depreciated.


    <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1995

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

          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.

          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:
               -------

          Patent costs are being amortized on a straight-line basis over a five-
     year period.  Amortization charged  to operations was approximately $34,000
     and $51,000  for the nine month  periods ended September 30,  1995 and 1994
     and $58,000  and $46,000 for  the years ended  December 31, 1994  and 1993,
     respectively.

          [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 losses of consolidated entities
               ---------------------------------------------------------

          Minority interests  in net 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.


     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1995

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

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

       Term loan and revolver loan payable to a bank
          collateralized by substantially all the business
          assets of the Company                                  $13,500,000

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

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

       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                             156,817

       Other notes payable                                           313,405

       Capital lease obligations with interest rates ranging 
          primarily from 7.5% to 16%                                3,807,800
                                                                   ----------
       Total long-term debt and capital lease obligations          20,553,462
       Less: current maturities                                     4,274,110
                                                                   ----------
                                                                  $16,279,352
                                                                   ==========

               The Company  has outstanding letters of  credit totaling $800,000
     which guarantee certain MDI equipment financings.


     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1995

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

               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 is due  August 31, 1998 and  a $9,000,000 term
     loan which commenced on August  31, 1995.  The term loan is  required to be
     paid in  eighteen quarterly installments  of $500,000 commencing  March 31,
     1996.  As of September  30, 1995, there was $13,500,000 borrowed  under the
     Credit  Facility.  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  will 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, 1995, the Company was not in compliance with
     several covenants which have been waived by the bank through September  30,
     1996 or modified.

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

          Fiscal Year
          -----------
          1996                                    $1,904,188
          1997                                       949,976
          1998                                       724,052
          1999                                       542,047
          2000                                       221,478
          Thereafter                                      --
                                                  ----------
                                                   4,341,741
          Less: Amounts representing interest        533,941
                                                  ----------
                                                   3,807,800
          Less: Current maturities                 1,620,203
                                                  ----------
                                                  $2,187,597
                                                  ==========

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

               Fiscal Year
               -----------
               1996                               $ 4,274,110
               1997                                 3,721,231
               1998                                 8,067,359
               1999                                 2,767,796
               2000                                 1,722,966
               Thereafter                                  --
                                                  -----------
                                                  $20,553,462
                                                  ===========


      <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1995

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

          Property and equipment under capital lease at September 30, 1995 is as
     follows:

          Property and equipment             $3,050,822
          Less: Accumulated amortization        379,761
                                              ---------
                                             $2,671,061
                                              =========

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

               In February 1992, the Financial Accounting Standards Board issued
     Statement of  Financial Accounting Standards No. 109 (SFAS 109) "Accounting
     for Income  Taxes".  SFAS  109 requires  an asset and  liability method  of
     accounting for income  taxes.  As  of September 30,  1995 and December  31,
     1994,  after giving  effect to  SFAS  No. 109,  the components  of the  net
     deferred tax asset and liability are as follows:

                                          September 30, 1995  December 31, 1994
                                          ------------------  -----------------

     Deferred tax assets:
          Net operating loss carryforward        $9,000,000       $8,000,000
          Deferred gains                             57,000               --
          Stock option compensation                 322,000               --
          Capital lease                              59,000               --
          Other                                      88,000           10,000
          Valuation allowance                    (8,760,000)      (7,966,000)
                                                  ---------        ---------
                                                 $  766,000         $ 44,000
                                                  ---------        ---------
     Deferred tax liabilities:
          Depreciation                           $  420,000         $ 44,000
          Amortization                              137,000               --
                                                  ---------        ---------
                                                 $  557,000         $ 44,000
                                                  ---------        ---------
     Net deferred tax asset                      $  209,000         $     --
                                                  =========        =========

               At  September  30, 1995  and  December  31, 1994,  the  valuation
     allowance relates principally to uncertainty surrounding the realization of
     the net operating loss carryforward benefit.

               At  September 30,  1995 and  December 31,  1994, the  Company had
     available  net  operating loss  carryforwards  for  tax purposes,  expiring
     through 2010  of approximately $23,100,000 $20,200,000,  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.


     <PAGE>

 
                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                             NOTES TO FINANCIAL STATEMENTS
                                   SEPTEMBER 30, 1995


     (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:

                                                       Nine Months Ended
                                                       September 30,
                                                     1995           1994
                                                     ----           ----
                                                                 (unaudited)
     Pretax loss                                  $(1,677,758)   $(1,341,788)

     Loss attributable to AMS                       1,684,048      1,772,880
                                                  -----------    -----------

     Parent company pretax income (loss)               $6,290      $(431,092)
                                                  ===========    ===========

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

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

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

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


                                                       Year Ended
                                                       December 31,
                                                     1994           1993
                                                     ----           ----

     Pretax loss                                  $(3,546,998)   $(6,166,950)

     Loss attributable to AMS                       2,503,162      1,764,596
                                                  -----------    -----------

     Parent company pretax income (loss)          $(1,043,836)   $(4,402,354)
                                                  ===========    ===========

     Expected tax (benefit) at 34%                  $(355,000)   $(1,497,000)


     Adjustment due to increase in 
               valuation reserve                      355,000      1,497,000

     Utilization of available net operating loss
               carryforward                                --             --

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

          At September 30, 1995, other current assets include refundable federal
     and state taxes totaling approximately $709,000.


     (NOTE E) - Commitments:
     ----------------------

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

               The Company  leases facilities and equipment  under noncancelable
     operating leases expiring at various dates through fiscal 2000.  Facilities
     leases require the Company  to pay certain insurance, maintenance  and real
     estate taxes. Rental expenses  totalled approximately $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.


     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1995

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

               Future  basic rental  commitments under  operating leases  are as
     follows:

                    Fiscal Year
                    -----------
                    1996                     $1,721,875
                    1997                      1,365,966
                    1998                      1,024,384
                    1999                        447,524
                    2000                        264,864
                                              ---------
                        Total                $4,824,613
                                             ==========

     Hospital Sites
     --------------

               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
                    -----------
                    1996                     $  379,724
                    1997                        323,951
                    1998                        259,699
                    1999                        120,500
                    2000                         51,000
                    Thereafter                       --
                                              ---------
                    Total                    $1,134,874
                                              =========

               Hospital rental expenses for the  nine months ended September 30,
     1995 totalled $38,272.

          [2]  GE agreement:
               ------------

               During  1993, the Company entered into  an agreement with General
     Electric  Company   ("GE")  to   manufacture  and  distribute   its  option
     enhancement systems exclusively  for GE customers,  which terminated as  to
     exclusivity  on  December 31,  1994.   The  agreement provides  for certain
     royalties to  be paid  to GE  under  certain conditions  subsequent to  the
     period of  exclusivity.   Under the  above agreement,  GE  is obligated  to
     purchase certain equipment from the Company  through December 31, 1995.  As
     of December 31,  1995, GE had not  satisfied its minimum obligations  under
     the  above agreement.  The Company  is currently negotiating new terms with
     GE under which it expects to continue to provide systems to GE.


      <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1995

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

          [3]  Employment agreements:
               ---------------------

               The Company  has entered into employment  agreements with several
     of  its officers expiring at various dates  through December 31, 1996.  The
     agreements  provide  for  annual base  salaries  aggregating  approximately
     $421,000 for the nine months ended September 30, 1995.  The agreements also
     provide for certain bonuses including a bonus equal to 5%  of the Company's
     net  income before  interest and  taxes, and  certain death  and disability
     benefits.   Further, the agreements provide  for benefits in the  event, as
     defined, that the officers terminate their relationships with the Company.

          [4]  Other commitments:
               -----------------

               In June 1991, an  action was commenced alleging that  the Company
     breached  a written  agreement to  lease a  new facility.   The  action was
     settled in  1993.  Under the terms of the settlement, the Company agreed to
     pay a  total of $130,000,  of which $60,000 was  paid in 1993,  $35,000 was
     paid in 1994, and the remaining $35,000 was paid in 1995.

               The Company is 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.


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

          [1]  Warrants:
               --------

               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 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


     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1995

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

     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, has  been  recorded as  consulting  expense in  the  accompanying
     financial  statements for the  year ended December  31, 1993.   The Company
     cancelled 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 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.

          [2]  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 E.

          [3]  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.


     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1995

     (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, 1992    325,750        $ .65 - $3.31
          Granted in 1993                55,000             $3.13
          Exercised in 1993             (41,263)       $ .65 - $3.18
          Cancelled in 1993              (3,000)       $ .65 - $3.13
                                          -----
          Balance, December 31, 1993    336,487        $ .65 - $3.31
          Exercised in 1994             (12,409)       $ .65 - $3.18
          Cancelled in 1994              (2,438)       $ .65 - $3.18
                                          -----
          Balance, December 31, 1994    321,640        $ .65 - $3.31
          Granted in 1995                 6,000             $3.18
          Exercised in 1995             (15,125)            $ .65
          Cancelled in 1995             (16,300)       $3.13 - $3.18
                                         ------
          Balance, September 30, 1995   296,215        $ .65 - $3.31
                                        =======

               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:

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

          Granted in 1993 and outstanding
               at December 31, 1993          960,000        $3.13 - $3.25
          Granted in 1994                    849,000        $2.38 - $5.25
          Cancelled 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
          Cancelled in 1995                 (341,200)       $2.38 - $3.13
                                             -------
          Balance, September 30, 1995      2,239,042        $ .79 - $5.25
                                           =========


      <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1995

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

               Through  September 30,  1995,  options  to  purchase a  total  of
     1,235,318  shares of common stock (net of cancellations) not covered by the
     stock option plans  had been granted.  Stock transactions not covered under
     the stock option plans in 1995, 1994 and 1993 are as follows:

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

          Balance, December 31, 1992          633,750       $1.00 - $3.75
          Granted in 1993 (Note E[1])         250,000            $2.50
          Exercised in 1993                  (310,000)      $1.00 - $3.75
                                              -------
          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
          Cancelled in 1994                    (7,000)           $3.18
                                                -----
          Balance, December 31, 1994          276,750       $3.18 - $3.38
          Granted in 1995                     610,318       $ .79 - $2.01
          Cancelled in 1995                  (261,750)      $ .79 - $3.38
          Balance, September 30, 1995         625,318       $ .79 - $3.38
                                              =======

               Under all plan  and nonplan  stock options, as  of September  30,
     1995,  options to  purchase  10,958 shares  were  available for  grant  and
     options  to purchase 2,265,325 shares at  a weighted average price of $2.15
     per  share were  exercisable.   The outstanding  options expire  at various
     dates within ten years from the date of grant.

          [4]  Common stock reserved:
               ---------------------

               As of September 30, 1995, 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.

          [5]  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 cancelled and the stock issued
     was returned to the Company.


      <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1995

     (NOTE G) - Majority-Owned 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
     has been reduced to approximately 61% at September 30, 1995.

               Also in connection  with the 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 consolidation
     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 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 $5,000
     for the one month ended September 30, 1995.

               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.


     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1995

     (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 $44,170  for
     the  one  month ended  September  30,  1995.   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.

               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   $11,000  related  to   the  above
     transactions have been amortized  during the one month ended  September 30,
     1995.


     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1995

     (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, 1995, the  Company owed former
     MDI shareholders  approximately  $1,696,000 for  MDI common  stock not  yet
     converted.

               The following unaudited pro forma financial information  combines
     the results of the Company and the acquired entity as if these acquisitions
     had  occurred  on  January  1,  1994  and  1995,  after  giving  effect  to
     amortization of  goodwill and  deferred financing fees,  increased interest
     expense  on the borrowings, reversal  of direct acquisition costs, reversal
     of tax  benefit recorded and decreases  in interest income.   The pro forma
     financial information does not  purport to be indicative of what would have
     occurred had the acquisitions been  made as of January 1, 1994 and  1995 or
     results that may occur in the future.

                              Nine months ended        Twelve months ended
                              September 30, 1995       December 31, 1994
                              ------------------       -----------------

     Net revenues             $25,423,000              $26,312,000
     Net loss                 $(3,481,000)             $(4,420,000)
     Loss per share           $(0.12)                  $(0.15)

     (NOTE K) - Business Segment Information
     ---------------------------------------

               The nature  of  the  products  and  services  classified  in  the
     business  segments presented  herein  are described  in  Note A.    Imaging
     Systems  includes  revenues and  expenses  of  the Company's  manufacturing
     business and Imaging and Rehabilitation Services includes  the revenues and
     expenses of the Company's Services business.

               For the nine months ended September 30, 1995:

                                                  Imaging and
                                   Imaging        Rehabilitation
                                   Systems        Services       Consolidated
                                   -------        --------       ------------

     Sales                         $6,643,000     $1,975,000     $8,618,000
     Operating loss                (2,657,000)      (286,000)    (2,943,000)
     Identifiable assets           39,331,000     19,101,000     58,432,000
     Depreciation and amortization    397,000        237,000        634,000
     Capital expenditures             182,000         16,000        198,000


     <PAGE>

                     ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1995

     (NOTE L) - Subsequent Event
     ---------------------------

               Effective  November  28, 1995,  the  Company  terminated the  Key
     Employment Agreement,  dated May  2, 1995,  of  John A  Lynch, Senior  Vice
     President  of the Company and 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 The Key Employment Agreement.


      <PAGE>

                                      SIGNATURES
                                      ----------

          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 12th day of January 1996.

     ADVANCED NMR SYSTEMS, INC.


     By:  /s/ Enrique Levy
          ---------------------------
          Enrique Levy, President/COO

          Pursuant  to the requirements of  the Securities Exchange  Act of 1934
     this report has been signed by the following persons in  the capacities and
     on the dates indicated.

     Signature                               Title                    Date
     ---------                               -----                    ----

     /s/ Jack Nelson                  Chairman of the         January 12, 1996
     ------------------------------   Board
     Jack Nelson

     /s/ Enrique Levy                 President, Chief        January 12, 1996
     ------------------------------   Operating Officer
     Enrique Levy                     and Director

     /s/ Robert Spira, M.D.           Vice Chairman of        January 12, 1996
     ------------------------------   the Board
     Robert Spira, M.D.

     /s/ Charles Moche                Chief Financial and     January 12, 1996
     ------------------------------   Accounting Officer
     Charles Moche               

                                      Director                January   , 1996
     ------------------------------
     George Aaron

     /s/ Edward Connors               Director                January 12, 1996
     ------------------------------
     Edward Connors

                                      Director                January   , 1996
     ------------------------------
     John A. Lynch

     /s/ George A. Silver, M.D.       Director                January 12, 1996
     ------------------------------
     George A. Silver, M.D.

     /s/ Sol Triebwasser, Ph.D.       Director                January 12, 1996
     ------------------------------
     Sol Triebwasser, Ph.D.



    <PAGE>


                              EXHIBIT INDEX


      Exhibit
      -------

        3.4          Certificate of Amendment of Certificate of
                     Incorporation of Advanced NMR Systems, Inc.

       10.6          Employment Agreement of Enrique Levy

       21            Subsidiaries of the Registrant

       23            Independent Auditors' Consent

       27            Financial Data Schedule