SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C.  20549

                                    FORM 10-Q

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

   For the quarterly period ended September 30, 1996


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


   Commission File Number 0-22970


                           NETWORK IMAGING CORPORATION
        (Exact name of small business issuer as specified in its charter)

               Delaware                                  54-1590649
         (State or other jurisdiction of                      (I.R.S. Employer
   Identification No.)
         incorporation or organization)

                 500 Huntmar Park Drive, Herndon, Virginia  20170
                     (Address of principal executive offices)


                                  (703) 478-2260
                           (Issuer's telephone number)


         Check  whether  the issuer (1) filed all reports required to be filed
   by  Section  13  or 15(d) of the Securities Exchange Act of 1934 during the
   past 12 months (or for such shorter period that the registrant was required
   to file such reports), and (2) has been subject to such filing requirements
   for the past 90 days.  YES [X]  [  ]


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

   The  number  of outstanding shares of the issuer's Common Stock, $.0001 par
   value, as of November 5, 1996 was 22,474,676.<PAGE>






                           NETWORK IMAGING CORPORATION

                                    Form 10-Q


                                Table of Contents



   PART I      FINANCIAL INFORMATION

   Item 1.     Financial Statements

               Consolidated Balance Sheets at September 30, 1996
               (unaudited) and December 31, 1995                     2

               Consolidated Statements of Operations (unaudited)
               for the three months ended September 30, 1996
                and 1995                                                   3

               Consolidated Statements of Operations (unaudited)
               for the nine months ended September 30, 1996 and
               1995                                                        4

               Consolidated Statement of Changes in Stockholders 
               Equity (unaudited) for the nine months ended
               September 30, 1996                                          5

               Consolidated Statements of Cash Flows (unaudited) 
               for the nine months ended September 30, 1996
                and 1995                                                   6

               Notes to Consolidated Financial Statements            7
               
   Item 2.     Management's Discussion and Analysis of Financial     
               Condition and Results of Operations             11


   PART II.    OTHER INFORMATION

   Item 1.     Legal Proceedings                                     17

   Item 6.     Exhibits and Reports on Form 8-K                      17<PAGE>





                   NETWORK IMAGING CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                (In thousands, except share and per share amounts)



   <TABLE>
   <CAPTION>

                                             September 30,           December 31,
                                                  1996                   1995    
                                             --------------          ------------
                                               (Unaudited)
   <S>                                       <C>                     <C>   
                     ASSETS

   Current assets:
    Cash and cash equivalents          $     10,567            $     9,359
    Short-term investments - 
     restricted                                   -                        3,052
    Accounts and notes receivable, net 12,189                16,300
    Inventories                                     1,461                  3,464
    Prepaid expenses and other                4,142                  3,543
                                             --------------          ------------
       Total current assets                        28,359                35,718
   Fixed assets, net                          3,126                  3,769
   Long-term notes receivable, net            2,599                  1,215
   Software development costs and 
    purchased technology, net                 3,880                  4,630
   Goodwill, net                                    3,509                  4,468
   Other assets                                       153                    164
                                             --------------          ------------
         Total assets                        $     41,626            $   49,964
                                             ==============          ============

         LIABILITIES & STOCKHOLDERS' EQUITY

   Current liabilities:
    Current debt maturities and 
     obligations under capital leases   $     2,663            $     5,365
    Accounts payable                          4,306                  6,201
    Accrued compensation and related
     expenses                                 2,017                  2,638
    Other accrued expenses                    7,421                  8,060
                                             --------------          -----------
       Total current liabilities             16,407                22,264
   Long-term debt and obligations
    under capital leases                        567                  1,264
   Deferred income taxes                        266                    773
                                             --------------          -----------
       Total liabilities                     17,240                24,301<PAGE>





   Commitments
   Redeemable Series F
    preferred stock                          15,819                15,478
   Stockholders' equity:
    Preferred stock, $.0001 par
     value, 20,000,000 shares authorized:
      Series A 1,605,025 shares issued
       and outstanding
      Series E 2 and 3 shares issued
       and outstanding
      Series G none and 200 shares
       issued and outstanding
      Series H 270 and none shares
       issued and outstanding
      Series I 275 and none shares
       issued and outstanding
      Series J 500 and none shares 
       issued and outstanding
    Common stock, $.0001 par
      value, 50,000,000
       shares authorized; 21,260,899
        and 18,637,226 shares issued
        and outstanding                            2                    2
    Additional paid-in-capital             119,253          105,065
    Accumulated deficit                   (111,111)               (95,757)
    Translation adjustment                      423                    875
                                             --------------          -----------
      Total stockholders' equity              8,567                10,185
                                             --------------          -----------
      Total liabilities and
       stockholders' equity                  $     41,626            $   49,964
                                             ==============         ============
   </TABLE>

   The accompanying notes are an integral part of these financial statements.<PAGE>





                   NETWORK IMAGING CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                (In thousands, except share and per share amounts)
                                   (Unaudited)



   <TABLE>
   <CAPTION>
                                             Three Months Ended September 30,
                                             --------------------------------
                                                   1996                    1995
                                             -------------           ------------
   <S>                                       <C>                     <C>
   Revenues:
     Products                          $     4,107       $     11,089
     Services                                5,272              4,953
                                             -------------           ------------
                                                   9,379             16,042
                                             -------------           ------------
   Costs and expenses:
     Cost of products sold                   2,169              5,228
     Cost of services provided               3,367              2,767
     Product development                     1,410              1,448
     Selling, general and administrative     5,379              7,473
     Loss (gain) on sale of subsidiaries       921               (147)
     Restructuring costs                     -                         (946)
                                             -------------           -----------
                                                 13,246              15,823
                                             -------------           -----------
   Loss before investment and 
    interest income and income taxes         (3,867)                    219
    Investment and interest income
     (expense), net                              41                     318
                                             -------------           -----------
   Loss before income taxes                        (3,826)                    537
     Income tax (benefit) provision             (77)                    157
                                             -------------           -----------
   Net loss                                  $     (3,749)           $        380
                                             =============           ===========

   Series A preferred stock - 
    cumulative preferred dividends             (803)                   (803)
   Series F preferred stock - 
    accretion to redemption value               (62)                  (217)
                                             -------------           ------------
   Net loss applicable to
    common shares                            $     (4,614)           $       (640)
                                             =============           ============
   Net loss per common share           $      -0.22            $      -0.05
                                             =============           ============<PAGE>





   Weighted average shares outstanding 21,112,811         13,779,517
                                             =============           ============
   </TABLE>

         The  accompanying  notes  are  an  integral  part  of these financial
   statements.                <PAGE>





                   NETWORK IMAGING CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                (In thousands, except share and per share amounts)
                                   (Unaudited)


   <TABLE>
   <CAPTION>
                                             Nine Months Ended September 30,
                                          ----------------------------------
                                                1996                   1995
                                    -------------        ------------
   <S>                                    <C>                        <C>
   Revenues:
     Products                        $   13,497                 $   39,925
     Services                             15,552                     16,435
                                          -------------        ------------
                                                29,049                     56,360
                                          -------------        ------------
   Costs and expenses:
     Cost of products sold                 7,976                     24,921
     Cost of services provided            10,804                     9,440
     Product development                   5,099                      5,596
     Selling, general and
      administrative                      19,436                     28,496
     Exchange fee and gain on
      sale of asset, net                      619                    -   
     Settlement with stockholders              -                      1,642
     Loss on closure and sale
      of subsidiaries                               921                     9,268
     Restructuring costs                    (175)              (1,037)
                                          -------------        -----------
                                                44,680                     78,326
                                          -------------        -----------
   Loss before investment and
    interest income and 
    income taxes                               (15,631)              (21,966)
     Investment and interest
      income (expense), net                         188                       207
                                          -------------        -----------
   Loss before income taxes                    (15,443)            (21,759)
     Income tax benefit                       (89)               (24)
                                          -------------        ------------
   Net loss                               $   (15,354)         $  (21,735)
                                          =============       ============

   Series A preferred stock -
    cumulative preferred
    dividends                             (2,408)               (2,408)
   Series F preferred stock - 
    accretion to redemption value            (341)              (652)<PAGE>





                                          -------------        -----------
   Net loss applicable to
    common shares                         $   (18,103)         $   (24,795)
                                          =============        ============

   Net loss per common share        $     -0.90              $     -1.81
                                          =============        ============

   Weighted average shares
    outstanding                            20,081,412                13,678,991
                                          =============        ============
   </TABLE>

         The  accompanying  notes  are  an  integral  part  of these financial
   statements.                <PAGE>





                   NETWORK IMAGING CORPORATION AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                   For the nine months ended September 30, 1996
                       (In thousands, except share amounts)
                                   (Unaudited)


   <TABLE>
   <CAPTION>
                                        Series A                Series E         
                                   Preferred Stock           Preferred Stock     
                                    Shares     Amt.           Shares  Amt.
                                   ----------------          ------------------
   <S>                             <C>  <C>              <C>       <C>
   BALANCE DECEMBER 31, 1995  1,605,025  $ --             3         $  --
   Issuance of common stock,
    net of offering costs
    of $376          
   Issuance of Series H
    preferred stock, net
    of offering costs of $30     
   Issuance of Series I 
    preferred stock, net of
    offering costs of $26
   Issuance of Series J
    preferred stock, net of
    offering costs of $27
   Common stock issued upon 
    exercise of options and
    warrants   
   Offering costs on issuance
    of Series G preferred stock        
   Conversion of Series E
    preferred stock                                       (1)  
   Conversion of Series G 
    preferred stock
   Conversion of Series H
    preferred stock
   Conversion of Series I
    preferred stock
   Accretion of redeemable 
    Series F preferred stock
   Dividends on Series A
    preferred stock
   Translation adjustment  
   Net loss                        
                                   ----------------          -----------------
   Balance September 30, 1996 1,605,025  $  --            2         $  --
                                   ================          =================
         <PAGE>









                                        Series G                Series H         
                                   Preferred Stock           Preferred Stock
                                    Shares     Amt.           Shares   Amt.
                                   ----------------          ------------------
   <S>                             <C>  <C>              <C>       <C>
   BALANCE DECEMBER 31, 1995  200        $  --  
   Issuance of common stock,
    net of offering costs
    of $376          
   Issuance of Series H
    preferred stock, net
    of offering costs of $30                              300       $  --
   Issuance of Series I 
    preferred stock, net of
    offering costs of $26
   Issuance of Series J
    preferred stock, net of
    offering costs of $27
   Common stock issued upon 
    exercise of options and
    warrants   
   Offering costs on issuance
    of Series G preferred stock        
   Conversion of Series E
    preferred stock                                            
   Conversion of Series G 
    preferred stock          (200)
   Conversion of Series H
    preferred stock                                       (30)
   Conversion of Series I
    preferred stock
   Accretion of redeemable 
    Series F preferred stock
   Dividends on Series A
    preferred stock
   Translation adjustment  
   Net loss                        
                                   ----------------          -----------------
   Balance September 30, 1996     0     $  --             270       $  --
                                   ================          =================<PAGE>











                                        Series I                Series J         
                                   Preferred Stock           Preferred Stock     
                                    Shares     Amt.           Shares   Amt.
                                   ----------------          ------------------
   <S>                             <C>  <C>              <C>       <C>
   BALANCE DECEMBER 31, 1995  
   Issuance of common stock,
    net of offering costs
    of $376          
   Issuance of Series H
    preferred stock, net
    of offering costs of $30     
   Issuance of Series I 
    preferred stock, net of
    offering costs of $26     300        $  --                             Issuance of Series J
    preferred stock, net of
    offering costs of $27                                 500        $  --
   Common stock issued upon 
    exercise of options and
    warrants   
   Offering costs on issuance
    of Series G preferred stock        
   Conversion of Series E
    preferred stock                                       
   Conversion of Series G 
    preferred stock
   Conversion of Series H
    preferred stock
   Conversion of Series I
    preferred stock           (25)
   Accretion of redeemable 
    Series F preferred stock
   Dividends on Series A
    preferred stock
   Translation adjustment  
   Net loss                        
                                   ----------------          -----------------
   Balance September 30, 1996  275      $  --             500       $  --
                                   ================          =================<PAGE>












                                                                Additional
                                   Common Stock                  paid-in   
                                    Shares     Amt.              capital
                                   ----------------            -----------------
   <S>                              <C>       <C>        <C>
   BALANCE DECEMBER 31, 1995  18,637,226     $2           $105,065 
   Issuance of common stock,
    net of offering costs
    of $376                         1,760,285                      5,986         
   Issuance of Series H
    preferred stock, net
    of offering costs of $30                                 2,970
   Issuance of Series I 
    preferred stock, net of
    offering costs of $26                                    2,974   
   Issuance of Series J
    preferred stock, net of
    offering costs of $27                                    4,973
   Common stock issued upon 
    exercise of options and
    warrants                          134,202                        155   
   Offering costs on issuance
    of Series G preferred stock                                (121)
   Conversion of Series E
    preferred stock               3,121                                          
         
   Conversion of Series G 
    preferred stock             551,546
   Conversion of Series H
    preferred stock               86,785
   Conversion of Series I
    preferred stock               87,734
   Accretion of redeemable                   
    Series F preferred stock                                   (341) 
   Dividends on Series A
    preferred stock                                          (2,408)
   Translation adjustment  
   Net loss                        
                                   ----------------          -----------------
   Balance September 30, 1996 21,260,899  $2         $119,253
                                   ================          =================<PAGE>














                                         Accumulated  Translation   
                                           Deficit   Adjustment  Total
                                          -----------     ------------ --------
   <S>                                    <C>             <C>            <C>     
   BALANCE DECEMBER 31, 1995        ($95,757)        $875            $10,185
   Issuance of common stock,
    net of offering costs
    of $376                                                                  5,986
   Issuance of Series H
    preferred stock, net
    of offering costs of $30                                     2,970
   Issuance of Series I 
    preferred stock, net of
    offering costs of $26                                            2,974
   Issuance of Series J
    preferred stock, net of
    offering costs of $27                                        4,973
   Common stock issued upon 
    exercise of options and
    warrants                                                       155
   Offering costs on issuance
    of Series G preferred stock                                  (121)
   Conversion of Series E
    preferred stock                                                   0
   Conversion of Series G 
    preferred stock                                                0
   Conversion of Series H
    preferred stock                                                0
   Conversion of Series I
    preferred stock                                                0
   Accretion of redeemable 
    Series F preferred stock                                     (341)
   Dividends on Series A
    preferred stock                                            (2,408)
   Translation adjustment                          (452)          (452)
   Net loss                               (15,354)                 (15,354)
                                         ----------   -----------  --------
   Balance September 30, 1996      ($111,111)        $423            $8,567
                                         ==========   ===========  ========
   </TABLE>    

   The accompanying notes are an integral part of these financial statements. <PAGE>





                         <PAGE>





                   NETWORK IMAGING CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)


   <TABLE>
   <CAPTION>
                                             Nine Months Ended September 30,
                                             -------------------------------
                                                  1996                    1995
                                             -------------            -----------
                                                         (In thousands)
           <S>                                     <C>                      <C>
   Cash flows from operating
    activities:
       Net loss                              $  (15,354)         $ (21,735)
       Adjustments to reconcile
        net loss to net cash
        used in operating
        activities:
          Depreciation and
            amortization                   4,465                4,113
          Restructuring costs                (175)             (1,037)
          Non-cash portion of
           loss on closure and
           sale of subsidiaries               921              8,704
          Impairment of spare
           parts inventory                   --                       276
          Capitalized software
           write-off                        --                         44
          Realized gain on sale of
           short-term investments            (111)              (201)
          Changes in assets and
           liabilities:
             Accounts and notes
              receivable                  3,147                       3,942
             Inventories                      358                    (915)
             Prepaid expenses
              and other                   (1,099)                (924)
             Other assets                    (4)                 (70)
             Accounts payable             (1,421)             (1,999)
             Accrued compensation
              and related expenses           (494)               355
             Other accrued expenses            51                   2,446
             Deferred income taxes           (235)              (155)
                                             ------------             -----------
   Net cash used in operating
    activities                            (9,951)             (7,156)
                                             ------------             -----------
   Cash flows from investing 
    activities:
     Sale of short-term <PAGE>





      investments                                   111                    12,737
     Capitalized software 
      development and license costs       (1,513)               (932)
     Purchases of fixed assets              (748)               (841)
     Business divestitures and 
      related costs                         --                        935
     Net cash acquired/(provided) in
      business acquisitions/
      divestitures                           (401)                54
                                             ------------             -----------
   Net cash (used) provided in
    investing activities                 (2,551)              11,953
                                             ------------             -----------
   Cash flows from financing 
     activities:
    Proceeds from issuance of
     common stock upon exercise of
     options and warrants                     155                       203
    Proceeds from issuance of
     common stock, net                           5,986                       --
    Proceeds from issuance of
     Series D preferred stock, net           --                      16,428
    Proceeds from issuance of
     Series E preferred stock, net           --                       2,325
    Offering costs from issuance of
     Series G preferred stock               (121)                  --
    Proceeds from issuance of
     Series H preferred stock, net         2,970                      --
    Proceeds from issuance of 
     Series I preferred stock, net         2,974                      --
    Proceeds from issuance of
     Series J preferred stock, net         4,973                      --
    Cash dividends paid on Series
     A preferred stock                        (2,408)               (2,408)
    Principal payments on bank debt
     and lines of credit, net               (271)             (1,357)
    Proceeds from term loans                 --                       813
    Proceeds from sale and leaseback
     of fixed assets                       196                        --
    Principal payments on capital
     lease obligations                          (667)                (618)
                                             ------------             -----------
   Net cash provided by financing
    activities                         13,787                     15,386
                                             ------------             -----------
   Effect of exchange rate changes
    on cash and cash equivalents             (77)                59
   Net increase in cash and cash
    equivalents                                  1,208                   20,242
   Cash and cash equivalents at
    beginning of year                            9,359                     3,989<PAGE>





                                             ------------             -----------
   Cash and cash equivalents at
    September 30,                             $ 10,567                 $ 24,231
                                             ============             ===========
   </TABLE>

   The accompanying notes are an integral part of these financial statements. 
                                            <PAGE>





                   NETWORK IMAGING CORPORATION AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 1996 and 1995 
         
   1.  BASIS OF PRESENTATION

   The  unaudited  financial statements presented herein have been prepared in
   accordance  with  the  instructions  to  Form  10-Q  and  should be read in
   conjunction with the financial statements and notes thereto included in the
   Company's  Annual  Report on Form 10-K for the year ended December 31, 1995
   which include information and note disclosures not included herein.  In the
   opinion of management all adjustments, which include only those of a normal
   recurring  nature,  necessary  to  fairly  present  the Company's financial
   position,  results  of  operations  and  cash  flows  have been made to the
   accompanying financial statements.  The results of operations for the three
   and  nine  month  periods ended September 30, 1996 may not be indicative of
   the results that may be expected for the year ending December 31, 1996.

   Net  loss per common share is computed using the weighted average number of
   common shares outstanding during the year.  Common share equivalents, which
   consist  of  common  stock  purchase  warrants, stock options and preferred
   stock,    are only included in the weighted average number of common shares
   outstanding if dilutive.

   Certain  reclassifications  have  been  made  to the prior period financial
   statements to conform to the current period presentation.

   2.  DIVESTITURES OF BUSINESSES

   During  the  third  quarter  of  1996,  the  Company  sold  the  assets and
   liabilities  of    Symmetrical  Technologies,  Incorporated, a wholly owned
   subsidiary  of the Company, to a group of current and former employees. The
   Company  received as consideration a promissory note totaling $1.5 million,
   of  which $500,000 was paid during November 1996.  The transaction resulted
   in  a $921,000 loss in the third quarter of 1996. The promissory note has a
   term of 5.25 years and bears interest at the Prime Rate. 

   3.  ISSUANCE OF COMMON STOCK

   In  March  1996,  the  Company  completed  a  private  placement  with  one
   accredited  investor  of  934,634  shares  of  Common  Stock, together with
   warrants  to purchase an additional 64,000 shares of Common Stock, pursuant
   to  Regulation  D  under  the  Securities  Act  of 1933.  Proceeds from the
   offering  were $3.2 million and offering costs were approximately $207,000.
   As  required  under  the  share  sale agreement, the Company registered the
   Common  Stock and Common Stock issuable upon exercise of the warrants under
   the Securities Act of 1933 for resale by the purchaser.

   In  March  1996,  the Company also issued 421,040 shares of Common Stock to
   two  investors  pursuant  to Regulation S under the Securities Act of 1933.
   Net proceeds from the offering were $1.7 million.<PAGE>





   In  June  1996,  the  Company  issued  404,611 shares of Common Stock to 10
   investors  pursuant  to Regulation S under the Securities Act of 1933.  Net
   proceeds from the offering were $1.3 million.

   4.  CONVERTIBLE PREFERRED STOCK OFFERINGS

   In  June  1996,  the  Company completed two offerings, one to two investors
   pursuant  to Regulation S under the Securities Act of 1933 of 300 shares of
   Series H Convertible Preferred Stock and warrants to purchase 80,000 shares
   of Common Stock, and one to one investor pursuant to Regulation D under the
   Securities  Act  of  1933  of  300 shares of Series I Convertible Preferred
   Stock,    both  at $10,000 per share from which it received net proceeds of
   $5.9  million.    The proceeds will be used for working capital and general
   corporate  purposes.    In  connection  with  the  sale  of  the  Series  I
   Convertible  Preferred  Stock,  the Company agreed to register the Series I
   Preferred  Stock  and the Common Stock issuable upon exercise of the Series
   I.

   The  Series  H  Preferred  Stock  has  a  per share liquidation preference,
   subject to the liquidation preferences of the Series A Preferred Stock, the
   Series E Preferred Stock and the Series F Preferred Stock, of an amount per
   share  equal  to  the  sum  of  $10,000  plus 12% per annum simple interest
   thereon  for  the  period  since  the  date  of  issuance.    Each share is
   convertible at the option of the holder into the number of shares of Common
   Stock  determined by dividing an amount equal to the initial purchase price
   of  $10,000  by  $3.50.    Commencing on December 27, 1996, the Company may
   redeem  the  shares  at  the initial purchase price, if the holder does not
   exercise  his  conversion  rights, and the holder may submit the shares for
   redemption  at  that  price, in which case the Company may elect to pay the
   cash  redemption price or issue a number of shares of Common stock equal to
   that  price,  with  the  value  of the Common Stock being determined by its
   average  closing  bid price for the five trading days immediately preceding
   the notice of redemption (the "Average Bid Price").  The Series H Preferred
   Stock  has a dividend rate of 8% which is payable at the time of conversion
   or redemption in cash or shares of Common Stock, as elected by the Company,
   with  the  value  of  the  Common Stock being determined by the Average Bid
   Price.

   The  Series  I  Preferred  Stock  has  a  per share liquidation preference,
   subject to the liquidation preferences of the Series A Preferred Stock, the
   Series  E  Preferred Stock , the Series F Preferred Stock, and the Series H
   Preferred Stock, of an amount per share equal to the sum of $10,000 plus an
   amount  equal  to  accrued but unpaid dividends per share since the date of
   issuance.    Each share is convertible at the option of the holder into the
   number  of  shares  of  Common  Stock  (  Conversion Shares ) determined by
   dividing  an  amount  equal to the initial purchase price of $10,000 by the
   lesser of $4.00 and 81% of the average closing bid for the Common Stock for
   the  five  trading  days immediately preceding the conversion (the "Average
   Bid  Price").    The  Company  may,  commencing  on  June 28, 1997, require
   conversion if the Series I Preferred Stock and underlying Common Stock have
   been  registered  under  the  Securities Act for at least ten trading days.<PAGE>





   When  the Average Bid Price is less than $4.00, the Company, subject to the
   rights  of  senior  securities  regarding  redemption, may redeem shares of
   Series  I  Preferred  Stock  submitted  for conversion at a price per share
   equal  to  the  amount  determined  by multiplying the number of Conversion
   Shares  by  the  Average  Bid  Price.    The Series I Preferred Stock has a
   dividend  rate  of  6%  which  is  payable  at  the  time  of conversion or
   redemption in cash or shares of Common Stock, as elected by the Company.

   In  September  1996,  the Company completed an offering with one accredited
   investor  pursuant  to Regulation D under the Securities Act of 1933 of 500
   shares  of  Series  J Convertible Preferred Stock at $10,000 per share from
   which  it received net proceeds of $5.0 million.  The proceeds will be used
   for working capital and general corporate purposes.  In connection with the
   sale  of  the  Series  J Convertible Preferred Stock, the Company agreed to
   register  the  Series  J Preferred Stock and the Common Stock issuable upon
   exercise of the Series J.

   The Series J Preferred Stock has a per share liquidation preference,
   subject to the liquidation preferences of the Series A Preferred Stock, the
   Series E Preferred Stock , the Series F Preferred Stock, the Series H
   Preferred Stock, and the Series I Preferred Stock of an amount per share
   equal to the sum of $10,000 plus an amount equal to accrued but unpaid
   dividends per share since the date of issuance.  Each share is convertible
   at the option of the holder into the number of shares of Common Stock
   ( Conversion Shares ) determined by dividing an amount equal to the initial
   purchase price of $10,000 by the lesser of $3.13 and 81% of the average
   closing bid for the Common Stock for the five trading days immediately
   preceding the conversion (the "Average Bid Price").  The Company may,
   commencing on September 30, 1997, require conversion if the Series J
   Preferred Stock and underlying Common Stock have been registered under the
   Securities Act for at least ten trading days.  When the Average Bid Price
   is less than $3.13, the Company, subject to the rights of senior securities
   regarding redemption, may redeem shares of Series J Preferred Stock
   submitted for conversion at a price per share equal to the amount
   determined by multiplying the number of Conversion Shares by the Average
   Bid Price.  The Series J Preferred Stock has a dividend rate of 6% which is
   payable at the time of conversion or redemption in cash or shares of Common
   Stock, as elected by the Company.

   5.  CONTINGENCIES

   Dorotech, which was acquired in October 1993, had previously co-guaranteed
   the lease payment of ATG Gigadisc SA ("ATG"), a former affiliated company,
   under a sale and leaseback of land and buildings ending April 2007.  As
   part of the Dorotech acquisition, best efforts were to be made by
   Dorotech s stockholders to obtain the release of the guarantee obligations
   of Dorotech.  The co-guarantor s guaranty is effective through April 1997. 
   On May 31, 1996 ATG filed for bankruptcy protection with the Court of
   Commerce in Toulouse, France.  A receiver was appointed by the Court to
   approve and supervise expenditures made by and on behalf of ATG.<PAGE>





   In July, 1996 Dorotech received notice from the lessor that ATG was in
   default with respect to certain of its lease payments, and that the lessor
   sought to enforce the guarantee against Dorotech.  The remaining lease
   payments due by ATG total approximately $9.0 million including interest.
   Based on consultation with its counsel, the Company does not believe that
   Dorotech is responsible for such liabilities and has meritorious defenses
   to any action that may be brought against it based on the guarantee and,
   therefore, no provision for this matter has been recorded in the financial
   statements.

   6.  RESTRUCTURING CHARGES

   At September 30, 1996, eighty-eight employees had been terminated and/or
   resigned and the remaining severance accrual balance of $43,000 related to
   severance costs for engineering  personnel.  The remaining employees will
   be terminated and the plan of restructuring will be completed by
   December,1996.  During the nine months ended September 30, 1996, $166,000
   in termination benefits were paid under the 1994 restructuring plan.

   7.  SUPPLEMENTAL CASH FLOW INFORMATION

   The  Company  paid  cash  for  interest  and  income  taxes of $231,000 and
   $170,000  and  $407,000 and $35,000 for the nine months ended September 30,
   1996  and  1995,  respectively.  During the first quarter 1996, the Company
   repaid its $2.5 million U.S. line of credit.<PAGE>





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

                
   The  Private  Securities  Litigation  Reform Act of 1995 (the  Reform Act )
   provides  a    safe  harbor    for  forward-looking statements to encourage
   companies to provide prospective information about their companies, so long
   as  those  statements are identified as forward-looking and are accompanied
   by  meaningful  cautionary  statements  identifying  important factors that
   could cause actual results to differ materially from those discussed in the
   statement.    The  Company  desires  to  take advantage of the  safe harbor
   provisions  of  the  Reform  Act.    Except  for the historical information
   contained  herein, the matters discussed in this Form 10-Q quarterly report
   are  forward-looking  statements  which  involve  risks  and uncertainties.
   Although  the  Company  believes  that  the  expectations reflected in such
   forward-looking  statements  are  based upon reasonable assumptions, it can
   give  no  assurance  that  its  expectations  will  be achieved.  Important
   factors  that  could  cause  actual   results to differ materially from the
   Company  s  expectations  are  disclosed  in  conjunction with the forward-
   looking statements or elsewhere herein. 

   The  following  discussion  of  the  financial  condition  and  results  of
   operations  of the Company should be read in conjunction with the Company's
   Consolidated Financial Statements and related notes included herein.<PAGE>





   The  following  table  sets  forth,  for  the  periods  indicated,  certain
   financial  data from the Company's consolidated statements of operations as
   a  percentage  of  total  revenue,  or as a percentage of the corresponding
   revenue  line  item,  and  the  percentage change in such items compared to
   corresponding prior period:

   <TABLE>
   <CAPTION>
                                         Three Months          Nine Months       
                                          Ending Sept 30,      Ending Sept 30,
                                         1996      1995              1996        1995
                                          <C>            <C>         <C>         <C>
   Revenues:

     Product                             44%               69%         46% 71% 
     Service                             56%               31%         54% 29%   

   Total revenue                         100%              100%        100%      100%
      
   Costs and Expenses

   Cost of products sold (1)             53%               47%         59%       62%
   Cost of services provided (1)         64%               56%         69%       57%
   Product development                   15%               9%          18%       10%
     Selling, general and
     administrative                      57%               47%         67%       51%
     Exchange Fee and 
     asset sale                          0%                0%          2%        0%
     Settlement with
     stockholders                        0%                0%          0%        3%
     Loss on closure and sale
     of subsidiaries, net                10%               (1)%        3%        16%
     Restructuring costs                 0%                (6)%        (1)%      (2% 
                                         141%              99%         154%      39%

   Loss before interest and
   income taxes                          (41)%             1%          (54)%     (39)%
   Investment (expense) income,     
   net                                   0%                2%          1%        0%
   Income tax benefit                    (1)%              1%          0%        0%

   Net loss                              (40)%             2%          (53)%     (39)%

   <CAPTION>
                            Percentage Change                1995-1994           
                               Three Months                Nine Months 
                                    
   <S>                                   <C>               <C>
   Revenues:

     Products                            (63)%             (66)%<PAGE>





     Services                            6%                             (5)%

   Total revenue                                (42)%                  (48)%
      
   Costs and Expenses

     Cost of products sold (1)                  (59)%                  (68)%
     Cost of services provided (1)              22%                        14%        
     Product development                        (3)%                       (9)%  
     Selling, general and
     administrative                             (28)%                  (32)%
     Exchange Fee and 
     asset sale                                  nm                        nm
   \  Settlement with
     stockholders                               nm                         nm    
     Loss on closure and sale
     of subsidiaries, net                       nm                         (90)%
     Restructuring costs                        nm                         83)%                   
                                                (16)%                  (43)%     

   Loss before interest and
   income taxes                                 (1866)%                    (29)%
   Investment (expense) income,     
   net                                          (87)%                      (9)%
   Income tax benefit                           (149)%                     271%  

   Net loss                                     (1087)%                    (29)%

   </TABLE>    

   nm = Not meaningful 


   (1)  This  line  item  is  expressed  as  a percentage of the corresponding
   revenue line item and not as a percentage of total revenue.<PAGE>





   Results of Operations - Nine months ended September 30, 1996 and 1995

                Revenues.  Total revenues were $29.0 million and $56.3 million
   for  the  nine months ended September 30, 1996 and 1995, respectively.  The
   $27.3  million  decrease  in revenue was the result of decreases in product
   revenue  of  $26.4  million,  or  66%,  and  decrease in service revenue of
   $900,000  or  5%.    The  decrease  in  product  and  service  revenue  was
   attributable  to  the  Company s disposition of several subsidiaries, which
   reduced the revenues by $22.2 million.  On a comparative basis, the Company
   had   a    decrease  of  $5.1  million  in  revenue,  which  was  primarily
   attributable  to  a  major  installation  project  in  the  prior year with
   revenues totaling $7.0 million through September, 1995.

                Profit  Margins.  Profit margins for product sales increased 3
   percentage  points  for  the  nine months ended September 30, 1996 over the
   same period in 1995 as cost of products decreased from 62% to 59% of sales.
   The  increase  in  product sales margins was primarily due to the increased
   sales   mix  of  the  Company  s  internally  developed  products  and  the
   dispositions  during  1995  of  the  Company  s  CAD/CAM  resellers,  which
   historically  had  lower  profit margins.  Profit margins for service sales
   declined  12 percentage points for the nine months ended September 30, 1996
   as  compared  to  1995 as the cost of services increased from 57% to 69% of
   sales.    The  decrease in service sales margins from 43% to 31% was due to
   the   Company  increasing  its  customer  service  infrastructure  and  the
   dispositions   during  1995  of  the  Company  s  CAD/CAM  resellers  which
   historically had higher service sales margins. 

                Product  development.   The Company's expenditures on software
   research and development activities for the nine months ended September 30,
   1996  were  $6.6  million,  of  which $1.5 million was capitalized and $5.1
   million  was  expensed.  Software research and development expenditures for
   the  1995  period  were $6.8 million, of which $1.2 million was capitalized
   and  $5.6  million was expensed.  Software capitalization has increased for
   the  nine  months  ended  September  30, 1996 over the same period in 1995,
   reflecting the Company s development effort of its next generation computer
   output to laser disc ( COLD ) and Workflow products.

                Selling,  general  and administrative expenses.  SG&A expenses
   were  $19.4  million or 67% of revenue, for the nine months ended September
   30,  1996  compared  to  $28.5  million,  or  51%  of revenue in 1995.  The
   decrease  of  $9.1  million,  or  32%,  was  the  result  of  the Company's
   dispositions  of various operating subsidiaries during 1995 which accounted
   for  a $8.1 million decrease in addition to a $1.0 million decrease in SG&A
   expenses from the Company s continuing 1View, COLD, and French operations.

                Exchange  fee  and  gain on sale of asset, net.  In connection
   with  the  exchange of the Company s Acquisition Preferred Stock for shares
   of  Series  F  Convertible  Preferred  Stock  ( Series F ) during the first
   quarter  of  1996,  the  Company  paid  the holder of the Series F a fee of
   $650,000  plus  $80,000 of expenses.  During the first quarter of 1996, the
   Company realized a $111,000 gain on the disposition of stock distributed to<PAGE>





   the  Company  by  its  medical  insurance  provider in connection with that
   provider s conversion from a mutual to a stock company. 
                            
                            Loss  on  closure  and  sale of subsidiaries, net.
   The  sale of the Company s Symmetrical Technologies, Inc. subsidiary during
   the third quarter resulted in a loss of $921,000.   
                
                Restructuring  costs.    During the first nine months of 1996,
   the  Company  recorded  a $175,000 decrease in estimated charges, including
   fixed  asset  impairment  of $118,000 and severance of $57,000.  During the
   first  nine  months of 1995, a net income of $1,037,000 was recorded due to
   changes  in  estimate  reductions for inventory offset by write down to net
   realizable  value  of  fixed assets, increased lease exit costs and certain
   severance costs.  

                Income  taxes.   The Company s income tax benefit for the nine
   months  ended September 30, 1996 of  $89,000 resulted from losses generated
   by  the  Company  s  French operations.  The Company incurred an income tax
   benefit  for  the nine months ended September 30, 1995 of $24,000 which was
   primarily the result of income tax credits generated by Dorotech's European
   operations  for R&D expenditures and a decrease of net deferred liabilities
   as a result of net operating losses generated by IBZ s European operations.

                Net  loss.    The Company's net loss for the nine months ended
   September  30,  1996 was $15.4 million as compared to $21.7 million for the
   comparable  period  of  1995.  The net loss decrease of $6.3 million in the
   nine months of 1996 as compared to the same period in 1995 is due primarily
   to:  the  loss on sale and closure of subsidiaries of $9.3 million and $1.6
   million settlement with stockholders in 1995; the $9.4 million reduction in
   SG&A  expenses described above offset by a $11.7 million reduction in gross
   margin  due  in  part  to  the  Company's dispositions of various operating
   subsidiaries  during  1995  and  1996;  the  loss  on sale of subsidiary of
   $921,000  in  1996  and  the  change  in  estimate  of    $1.0  million  in
   restructuring costs in 1995.
                
                Adverse  results  of  operations.    The  adverse  results  of
   operations  which  the  Company has experienced are expected to continue in
   declining  amounts  in  the  short  term  as the Company expands the sales,
   marketing  and  customer  support for its 1View suite of products.  For the
   longer  term,  the  Company  is relying on its expanded sales and marketing
   efforts  with  respect  to  its  internally  developed products to increase
   overall revenue levels. 


   Results of Operations - Three months ended September 30, 1996 and 1995

                Revenues.   Total revenues were $9.4 million and $16.0 million
   for  the three months ended September 30, 1996 and 1995, respectively.  The
   $6.6  million  decrease  in  revenue was the result of decreases in product
   revenue  of $7.0 million, or 63%, offset by an increase in  service revenue
   of  $319,000,  or  6%.  The net decrease in product and service revenue was<PAGE>





   attributable  to  the dispositions in 1995 and 1996 of several subsidiaries
   which  reduced  the  Company  s revenues by $3.5 million.  On a comparative
   basis, the Company experienced a decrease of $3.1 million in revenue, which
   was  primarily  attributable  to  a major installation project in the prior
   year with revenues totaling $5.0 million in the third quarter of 1995.

                Profit  Margins.    Profit margins for product sales decreased
   six  percentage points in the third quarter of 1996 over the same period in
   1995  as cost of products increased from 47% to 53% of sales.  The decrease
   in  product  sales  margins  from  53% to 47% was attributable to the major
   installation  project  described  above  in  Revenues.   Profit margins for
   service  sales  declined eight percentage points for the three months ended
   September  30,  1996  as compared to 1995 as the cost of services increased
   from  56%  to 64% of sales.  The decrease in service sales margins from 44%
   t o    3 6%  was  due  to  the  Company  increasing  its  customer  service
   infrastructure  and  the  dispositions during 1995 of the Company s CAD/CAM
   resellers which historically had higher service sales margins. 

                Product  development.   The Company's expenditures on software
   research and development activities in the three months ended September 30,
   1996  were  $1.8  million,  of  which $0.4 million was capitalized and $1.4
   million  was  expensed.  Software research and development expenditures for
   the  1995  period  were $1.9 million, of which $0.4 million was capitalized
   and $1.5 million was expensed.

                Selling,  general  and administrative expenses.  SG&A expenses
   were  $5.4  million or 57% of revenue, for the three months ended September
   30, 1996 compared to $7.5 million, or 47% of revenue in 1995.  The decrease
   of  $2.1  million,  or  28%,  was  primarily  the  result  of the Company's
   dispositions  of various operating subsidiaries during 1995 which accounted
   for  a  $1.2  million  decrease  in addition to a $880,000 decrease in SG&A
   expenses from the Company s continuing operations.

                Loss  on  closure  and sale of subsidiaries, net.  The sale of
   the  Company  s  Symmetrical Technologies, Inc. subsidiary during the third
   quarter resulted in a loss of $921,000.

                Income  taxes.  The Company s income tax benefit for the three
   months  ended September 30, 1996 of  $77,000 resulted from losses generated
   by  the  Company  s  French operations.  The Company incurred an income tax
   expense for the three months ended September 30, 1995 of $157,000 which was
   primarily the result of provisions made for Dorotech's European operations.

                Net  (loss)  income.    The  Company's  net loss for the three
   months  ended September 30, 1996 was $3.7 million as compared to net income
   of  $380,000  for  the comparable period of 1995.  The net loss increase of
   $3.2 million in the third quarter of 1996 as compared to the same period in
   1995  is  due  primarily to the $4.2 million reduction in gross margins and
   $921,000  loss  on  sale of subsidiary, offset by the change in estimate in
   restructuring  costs of $946,000 in 1995, and the $2.1 million reduction in
   SG&A expenses described above.<PAGE>





                

   Liquidity and Capital Resources

   As  of  September  30, 1996, the Company had $10.6 million in cash and cash
   equivalents,  as  compared to $9.4 million in cash and cash equivalents and
   $3.1  million  in short term investments at December 31, 1995.  Net working
   capital  was  $12.7  million  at  September  30,  1996 as compared to $13.5
   million at December 31, 1995. 

   During  the first quarter of 1996, the Company repaid its $2.5 million U.S.
   line of credit which had a termination date of March 31, 1996.  At December
   3 1 ,  1995,  $2.5  million  of  the  $3.1  million  restricted  short-term
   investments  served  as  collateral  for this line of credit.  Although the
   Company  plans  to  negotiate  a  new line of credit with another financial
   institution,   there  can  be  no  assurance  that  such  efforts  will  be
   successful.

   During  the  third  quarter  of  1996, the remaining $551,000 in restricted
   short-term investments, which represented a certificate of deposit securing
   a  line  of  credit  extended  by  a  UK  bank  to  the Company's former UK
   subsidiary, was called by the UK Bank. 

   For  the nine months ended September 30, 1996, the $1.2 million increase in
   cash and cash equivalents resulted from the use of $10.0 million in cash to
   fund operating activities and $2.6 million to fund investing activities and
   $13.8 million in cash provided by financing activities.

   The  Company s use of $10.0 million in operating activities arose primarily
   with  respect to the cash loss in operations related to product development
   expense  and  SG&A  expense.  The $2.6 million to fund investing activities
   arose  with  respect  to  capitalized  software  development  costs and the
   purchase  of fixed assets.  The $13.8 million in cash provided by financing
   activities arose primarily from the $5.9 million proceeds from the issuance
   of Common Stock and $10.9 million proceeds from the issuance of Series H, I
   and  J  Convertible  Preferred  Stock offset by the $2.4 million payment of
   Series  A Preferred Stock dividends.  See Notes 3 and 4 to the Consolidated
   Financial Statements.
                            
   In  order  to  offset  any  adverse  impact on its maintaining net tangible
   assets of at least $4 million, which is one of the quantitative maintenance
   criteria  for  inclusion  of  the  Company's  securities on NASDAQ-NMS, the
   Company  may  consider future offerings of equity securities.  There can be
   no  assurance,  however,  that any financing the Company might seek will be
   available.
                <PAGE>





   PART II.     OTHER INFORMATION

   Item 1.      Legal Proceedings

                              None

   Item 6.      Exhibits

                3(i).a      Certificate of Designation of Series J Convertible
                            Preferred  Stock  of the Company filed in Delaware
                            on September 30, 1996.

                4.a         Convertible  Preferred  Stock  Purchase  Agreement
                            between Network Imaging Corporation and Southbrook
                            International Investments,                     
                            Ltd. as of September 30, 1996.
                
                10.a        P u rchase  and  Sale  of  Assets  of  Symmetrical
                            Technologies, Inc. as of September 30, 1996.

                27          Financial Data Schedule

   (b)          Reports on Form 8-K

                The Company s current report as filed on July 17, 1996

                The Company s current report as filed on August 2, 1996<PAGE>





                                    SIGNATURES

                Pursuant to the requirements of the Securities Exchange Act of
   1934, the registrant has duly caused this report to be signed on its behalf
   by the undersigned hereunto duly authorized.


                                    NETWORK IMAGING CORPORATION
                                         (Registrant)


   Date:  November 14, 1996           By  /s/ James Leto
                                         James Leto    
                                         President and Chief Executive
   Officer 


   Date:  November 14, 1996           By /s/ Jorge R. Forgues
                                         Jorge R. Forgues
                                         Vice President of Finance and
                                         Administration, Chief Financial
   Officer
                                         and Treasurer<PAGE>