September 25, 1997



Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
ATTN:  Filing Desk


         RE:      Network Imaging Corporation
                  Form S-1 related to the
                  Company's registration of 10,000,000 shares of Common Stock


Ladies and Gentlemen:

         On behalf of Network  (the  "Company),  there are  enclosed  for filing
pursuant to the  Securities  Act of 1933,  as amended,  Form S-1 which  contains
exhibits.

         If you have any questions  regarding  this filing,  please  contact the
undersigned at (703) 904-3109.

                                                              Sincerely,

                                                              /s/ Julia A. Bowen
                                                              Julia A. Bowen












<PAGE>


As filed with the Securities and Exchange Commission on  September ___, 1997

                                                       Registration No. 333-
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM S-1
                             REGISTRATION STATEMENT
                                      UNDER
                           THE SECURITIES ACT OF 1933

                           NETWORK IMAGING CORPORATION
             (Exact name of Registrant as specified in its charter)

     Delaware                      7373                       54-1590649
(State or other             (Primary Standard             (I.R.S. Employer
jurisdiction of                 Industrial             Indentification Number)  
incorporation or         Code Classification Number)   
organization)    



                             500 Huntmar Park Drive
                             Herndon, Virginia 20170
                                 (703) 478-2260
               (Address, including zip code, and telephone number,
        including area code, of Registrant's principal executive offices)



                              Julia A. Bowen, Esq.
                       Vice President and General Counsel
                           Network Imaging Corporation
                             500 Huntmar Park Drive
                             Herndon, Virginia 20170
                                 (703) 478-2260
            (Name, address, including zip code, and telephone number,
                   including area code, of agent for service)


                                    Copy to:
                               Cary J. Meer, Esq.
                           Kirkpatrick & Lockhart LLP
                         1800 Massachusetts Avenue, N.W.
                             Washington, D.C. 20036
                                 (202) 778-9000

Approximate  date of commencement  of  proposed  sale to the public:  As soon as
practicable  after the effective date of this Registration Statement.
If any of the  securities  being  registered in this Form are to be offered on a
delayed  or  continuous  basis pursuant to Rule 415 under  the Securities Act of
1933, check the following box. [X]
<TABLE>

                         CALCULATION OF REGISTRATION FEE
<CAPTION>
------------------------------- -------------- ------------------ ------------------- ------------------
                                               Proposed Maximum    Proposed Maximum
    Title of Each Class of      Amount To Be    Offering Price        Aggregate           Amount of
 Securities To Be Registered     Registered      Per Share(1)     Offering Price(1)     Registration
                                                                                           Fee(1)
------------------------------- -------------- ------------------ ------------------- ------------------
<S>                             <C>            <C>                <C>                 <C>
------------------------------- -------------- ------------------ ------------------- ------------------
Common Stock                    10,000,000(3)        $1.55           $15,500,000         $4,697
(par value $.0001 per
share)(2)
------------------------------- -------------- ------------------ ------------------- ------------------

</TABLE>

(1)  Estimated  pursuant  to  Rule  457  for  the  purpose  of  calculating  the
registration  fee only;  based upon the average of the high and low sales prices
for the Common  Stock on  September  18, 1997.  Registration  fee is  calculated
pursuant to Rule 457.

(2) Pursuant to Rule 416 also includes such  indeterminate  number of additional
shares  of  Common  Stock  as  may  become   issuable  upon  conversion  of  the
registrant's  Series K Convertible  Preferred Stock and exercise of warrants (a)
to prevent dilution  resulting from stock splits,  stock  dividends,  or similar
transactions  or (b) by  reason of  reductions  in the  Conversion  Price of the
Series K  Convertible  Preferred  Stock in  accordance  with the terms  thereof,
including  the terms which cause  reductions  as the bid price of the  Company's
Common Stock decreases.

(3) The number of shares of Common Stock  registered  hereunder  represents  the
registrant's  Includes  shares of Common Stock  issuable on conversion of and as
premium on the  Company's  Series K  Convertible  Preferred  Stock and shares of
Common  Stock  issuable on exercise  of warrants  granted to Zanett  Lombardier,
Ltd., Capital Ventures International and The Zanett Securities Corporation.


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

The registrant hereby amends this  registration  statement on such date or dates
as may be necessary to delay its effective date until the registrant  shall file
a further amendment which specifically  states that this registration  statement
shall  thereafter  become  effective  in  accordance  with  Section  8(a) of the
Securities  Act of  1933  or  until  the  registration  statement  shall  become
effective on such date as the Commission,  acting pursuant to said Section 8(a),
may determine.


<PAGE>


PROSPECTUS

                    SUBJECT TO COMPLETION, ___________, 1997

                                10,000,000 SHARES

                           NETWORK IMAGING CORPORATION

                                  COMMON STOCK

         All of the 10,000,000  shares  ("Shares" or Offered  Shares") of Common
Stock,  $0.0001  par value per share  ("Common  Stock"),  that  Network  Imaging
Corporation  (the  "Company")  is seeking to register and can be offered  hereby
will be sold by Zanett  Lombardier,  Ltd.  and  Capital  Ventures  International
("Purchasers") and The Zanett Securities Corporation  ("Zanett")  (collectively,
the  Purchasers and Zanett are referred to as the "Selling  Stockholders").  The
Shares are  issuable  in  connection  with the  Company's  Series K  Convertible
Preferred  Stock  ("Series K Stock") issued to the Purchasers and on exercise of
warrants held by the Purchasers  and Zanett.  See "Plan of  Distribution."  This
Prospectus  relates to the resale of such shares of Common Stock by such Selling
Stockholders.  See  "Plan  of  Distribution"  and  "Selling  Stockholders."  The
Company's  Common  Stock is quoted on the  National  Association  of  Securities
Dealers,   Inc.  Automated  Quotation  System  ("Nasdaq")  National  Market.  On
September  2, 1997,  the last  reported  sale price for the Common  Stock on the
Nasdaq National Market was $1.50 per share.

         None of the proceeds from the sale of the Offered Shares by the Selling
Stockholders will be received by the Company.  However, the Company will receive
proceeds  from the exercise of the Warrants if the Warrants are  exercised.  The
Company will pay  substantially all of the expenses with respect to the offering
and the sale of the Offered Shares to the public, including the costs associated
with  registering  the Offered Shares under the Securities Act and preparing and
printing  this  Prospectus.  Normal  underwriting  commissions  and broker fees,
however, as well as any applicable  transfer taxes, are payable  individually by
the Selling Stockholders.

         See "Risk  Factors"  beginning  on page 4 for a  discussion  of certain
factors that should be considered in connection  with the purchase of securities
hereunder.

                     ---------------------------------------
   THESE  SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
  EXCHANGE COMMISSION OR ANY STATE SECURITIES  COMMISSION NOR HAS THE SECURITIES
  AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
    UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE 
                     CONTRARY IS A CRIMINAL OFFENSE.
                     ---------------------------------------
  INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR  AMENDMENT. A REGIST-
RATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY 
BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
 TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
 SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
           QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
                     ---------------------------------------




<PAGE>

                               PROSPECTUS SUMMARY

         The following summary is qualified in its entirety by the more detailed
information  and financial  statements,  including the notes thereto,  appearing
elsewhere in this  Prospectus.  The Common Stock offered hereby  involves a high
degree of risk. See "Risk Factors."


                                   THE COMPANY

         Network  Imaging  Corporation  ("Network  Imaging"  or  the  "Company")
provides  software  products  supporting  storage,  management and distribution.
These products provide businesses and government organizations with an automated
method of  electronically  storing,  managing and distributing  large volumes of
structured data (text) and unstructured data (diagrams, documents, photos, voice
and full-motion video).

         The  Company is a  recognized  worldwide  leader in content and storage
management for all unstructured  information.  Its flagship  product,  the 1View
suite,  manages the  storage,  access and  distribution  of any  multimedia  (or
unstructured)  data,  such  as  diagrams,  documents,  photographs,  voice,  and
full-motion  video.  1View is a unique  solution  for use in  distributed,  high
transaction,   high  volume  mission   critical   applications   across  legacy,
client/server and  Internet/intranet  based environments.  The Company is also a
software  developer  for mainframe  and PC based  Computer  Output to Laser Disk
("COLD")  systems and a developer  and marketer of storage  management  software
systems.  1View, InfoAccess(TM), Treev+(TM) and the Company logo are  trademark
of Network Imaging Corporation. All other product and brand names are trademarks
or registered trademarks of their respective companies.

         The Company's  executive offices are located at 500 Huntmar Park Drive,
Herndon, Virginia 20170. The Company's telephone number is (703) 478-2260.

<TABLE>
                             SUMMARY FINANCIAL DATA
                      (in thousands, except per share data)
<CAPTION>
STATEMENT OF OPERATIONS DATA                       Quarter Ended
                                ------------------------------------------------
                                 Dec. 31,     Sept. 30,    June 30,     Mar. 31
                                   1995         1995         1995         1995

<S>                             <C>          <C>          <C>          <C>
Net revenue                     $ 12,791     $ 16,042     $ 20,270     $ 20,048
Costs and expenses:
Costs of revenue                   8,103        7,995       12,811       13,555
Product development                1,536        1,448        1,972        2,176
Selling, general and
 administration                    7,048        7,473       10,777       10,247
Settlement with
 stockholders                       --           --            892          750
Loss on closure and
 sale of subsidiaries,              --           (147)       9,906         (492)
     net
Restructuring costs                 (396)        (946)        (286)         195


<PAGE>
<CAPTION>
STATEMENT OF OPERATIONS DATA                       Quarter Ended
                                ------------------------------------------------
                                   Dec. 31,    Sept. 30,   June 30,     Mar. 31
                                    1995         1995        1995         1995

<S>                             <C>          <C>          <C>          <C>
(Loss) before interest
 income and income                (3,500)         219      (15,802)      (6,383)
 taxes
Interest income
 (expense), net                       17          318         (167)          55
(Loss) before income
 taxes                            (3,483)         537      (15,969)      (6,328)
Income tax (benefit)
 expense                            (256)         157           72         (253)
Net (loss)                        (3,227)         380      (16,041)      (6,075)

Preferred stock
 preferences                      (6,874)      (1,020)      (1,020)      (1,020)
                                ========     ========     ========     ========
Net loss applicable
 to common shares               $(10,101)    $   (640)    $(17,061)    $ (7,095)
                                ========     ========     ========     ========

Net loss per common
 share                          $  (0.60)    $  (0.05)    $  (1.25)    $  (0.52)
                                ========     ========     ========     ========

Weighted average
 shares outstanding               16,945       13,780       13,628       13,628

</TABLE>

<TABLE>
<CAPTION>

STATEMENT OF OPERATIONS DATA                     Quarter Ended,
                               -------------------------------------------------
                                 Dec. 31,     Sept. 30,    June 30,     Mar. 31
                                   1996         1996         1996         1996

<S>                             <C>          <C>         <C>           <C>

Net revenue                     $ 10,428     $  9,379     $  9,129     $ 10,542
Costs and expenses:
Costs of revenue                   5,594        5,536        6,838        7,244
Product development                1,401        1,410        1,327        1,734
Selling, general and
 administration                    5,520        5,379        7,453        6,394
Exchange fee and gain
 on sale of asset, net              --           --           --            619
Loss on closure and
 sale of subsidiaries,              --            921         --           --
 net
Restructuring costs                 --           --            (19)        (156)

                                --------     --------     --------     --------
(Loss) before interest
 income and income                (2,087)      (3,867)      (6,470)      (5,293)
 taxes
Interest income
 (expense), net                      121           41           87           59
                                --------     --------     --------     --------
(Loss) before income
 taxes                            (1,996)      (3,826)      (6,383)      (5,234)
Income tax (benefit)
 expense                              21          (77)        (114)         102
                                --------     --------     --------     --------
Net (loss)                        (1,987)      (3,749)      (6,269)      (5,336)

Preferred stock
 preferences                        (981)        (865)        (865)      (1,020)
                                ========     ========     ========     ========
Net loss applicable
 to common shares               $ (2,968)    $ (4,614)    $ (7,134)    $ (6,356)
                                ========     ========     ========     ========

Net loss per common
 share                          $  (0.13)    $  (0.22)    $  (0.35)    $  (0.34)
                                =========    =========    =========    ========

<PAGE>

Weighted average
 shares outstanding               22,470       21,113       20,209       18,911

</TABLE>
<TABLE>
<CAPTION>
                 STATEMENT OF OPERATIONS DATA               Quarter Ended,
                                                     --------------------------
                                                       June 30,         Mar. 31,
                                                        1997              1997
<S>                                                  <C>               <C>

Net revenue                                          $  9,334          $  9,119
Costs and expenses:
Costs of revenue                                        6,132             5,840
Product development                                     1,266             1,042
Selling, general and
 administration                                         5,329             5,223
Gain from extinguishment
 of debt                                                 --                (267)

                                                     --------          --------
Loss before interest
 income and income taxes                               (3,393)           (2,719)
Interest income (expense),
 net                                                      (64)               31
                                                     --------          --------
Loss before income taxes                               (3,457)           (2,688)
Income tax (benefit)
 expense                                                   61                (6)
                                                     --------          --------
Net loss                                               (3,518)           (2,682)

Preferred stock preferences                              (930)             (976)
                                                     ========          ========
Net loss applicable to
 common shares                                       $ (4,448)         $ (3,658)
                                                     ========          ========

Net loss per common share                            $  (0.18)         $  (0.15)
                                                     ========          ========

Weighted average shares
 outstanding                                           24,964            24,464
</TABLE>


                       CERTAIN FORWARD-LOOKING STATEMENTS

         This  Prospectus  contains  or  may  contain  certain   forward-looking
statements  and  information  as well as estimates and  assumptions  made by the
Company's management. When used in this Prospectus,  words such as "anticipate,"
"believe,"   "estimate,"   "expect,"  "future,"  "intend,"  "plan"  and  similar
expressions, as they relate to the Company or the Company's management, identify
forward-looking  statements.  Such  statements  reflect the current views of the
Company  with  respect  to future  events  and are  subject  to  certain  risks,
uncertainties and assumptions  relating to the Company's  operations and results
of operations, shifts in market demand, the timing of product releases, economic
conditions  in foreign  countries,  competitive  products  and pricing and other
risks and uncertainties including, in addition to any uncertainties specifically
identified in the text surrounding such statements,  uncertainties  with respect
to changes or  developments in social,  economic,  business,  industry,  market,
legal and regulatory  circumstances  and conditions and actions taken or omitted
to be taken by third parties,  including the Company's stockholders,  customers,
suppliers, business partners, competitors, and legislative, regulatory, judicial
and other  governmental  authorities and officials.  Should one or more of these
risks or  uncertainties  materialize,  or should  the  underlying  estimates  or
assumptions prove incorrect,  actual results or outcomes may vary  significantly
from those anticipated, believed, estimated, expected, intended or planned.

                                  RISK FACTORS

         An  investment in the  Company's  securities  involves a high degree of
risk. In evaluating the Company and its business,  prospective purchasers of the
Shares  offered  hereby  should  carefully  consider  the risk factors set forth
below, as well as the other  information  included in this Prospectus,  prior to
making an investment.

Lack of Profitability

         The Company has had net losses in each period of its operations, except
for one quarter,  and it had an  accumulated  deficit at June 30, 1997 of $119.3
million.  Net losses  applicable  to common shares were $8.1 million for the six
months ended June 30, 1997,  $21.1 million for the year ended December 31, 1996,
and $34.9 million for the year ended December 31, 1995. The losses have resulted
primarily from non-recurring  charges (including in 1994, a non-recurring charge
of  $8.8  million  for  purchased  in-process  research  and  development  and a
write-off of $8.7 million in capitalized  software that related to products that
were abandoned in favor of 1View, and in 1995, non-recurring net charges of $9.3
million in connection with the IBZ bankruptcy, a company that had been purchased
by the Company as a wholly owned subsidiary,  and business divestitures) as well
as the delay in the commercial release of the Company's 1View product,  the lead
time to close  sales and  recognize  revenues,  increasing  sales and  marketing
efforts  and  costs  associated  with  product  research  and  development.  See
"Business."

Continued Adverse Results of Operations Through 1997

         The adverse  results of operations  that the Company has experienced is
expected to continue at least for the  remainder of 1997.  The Company  believes
that its existing cash,  together with the current proceeds from the convertible
notes,  a debt  offering  the Company  effected  in July 1997 (the  "Convertible
Notes"),  current  and  future  proceeds  from  the sale of  Series K Stock  and
warrants,  and the  anticipated  cash  flows  from  operations,  should  provide
sufficient  resources  to fund its  activities  through the next twelve  months.
However,  there can be no assurance that the Company will be able to satisfy the
conditions  precedent to the issuance of additional shares of Series K Stock and
warrants.  Anticipated cash flows from operations are largely dependent upon the
Company's ability to achieve its sales and gross profit objectives for its 1View
and other products.  If the Company is unable to meet these objectives,  it will
consider  alternative  sources of  liquidity,  such as  additional  offerings of
equity  securities.  Although  the  Company  believes  that it can  successfully
implement its operating plan and, if necessary,  raise additional capital, there
can be no assurance that  implementation  of the plan will be successful or that
financing, if sought, will be available.

Continued Listing on the Nasdaq National Market

         At June 30, 1997, the Company had not maintained net tangible assets of
at least $4 million,  which is one of the quantitative  maintenance criteria for
continued  inclusion of the Company's  securities on the Nasdaq National Market.
To remedy this short fall and offset any  adverse  impact,  the Company  issued,
during July 1997,  3,300 shares of Series K Stock to the Purchasers and warrants
to the Selling Stockholders and received net proceeds of $2.9 million.  Pursuant
to the  terms  of the  offering,  the  Purchasers  are  also  required  to  make
additional  purchases  of Series K Stock and  warrants for $3.0 million upon the
Company's achievement of certain performance  milestones and the satisfaction of
certain  other  conditions  and an  additional  $4.7 million at the  Purchasers'
option. See "Plan of Distribution" and "Description of Capital Stock." There can
be no assurance  that the Company will meet these  performance  milestones or be
able to satisfy the other conditions.  Although the Company believes that it can
maintain  the  required  net  tangible  assets  of at least $4  million  through
additional  issuances  of its Series K Stock and  warrants  or other  additional
offerings of equity securities,  there can be no assurance that the Company will
complete such offerings or that, if completed,  they will be on terms  favorable
to the Company or in an amount  sufficient  to permit the Company to continue to
maintain net tangible assets of at least $4 million.

         On August 21,  1997,  the  Company  received  a letter  from the Nasdaq
National Market  indicating  that the Company may not have sufficient  assets to
continue its listing on the Nasdaq National Market. The Company has responded to
that  inquiry  and after  further  correspondence  with  Nasdaq has  requested a
hearing before the Nasdaq National  Market's  Hearing  Department to explain its
plan  for  achievement  and  maintenance  of the  minimum  net  tangible  assets
requirement.  The Company was granted that hearing and it is presently scheduled
for October 30, 1997.




Inadequate Dividend Coverage

The  annual  dividend   requirements  on  the  Company's   Series  A  Cumulative
Convertible  Preferred  Stock  ("Series  A  Stock")  is  $3.2  million  (payable
quarterly).  and Series H Convertible  Preferred  Stock ("Series H Stock") is 8%
per annum  payable on  conversion  or redemption of the Series H Stock either in
cash or stock at the sole option of the Company.  All quarterly dividends on the
Series A Preferred  Stock have been paid through April 1997.  The Company failed
to pay its  quarterly  dividend  on the Series A Stock due in July 1997 of $0.50
per share or $803,000 in the  aggregate.  Failure to pay any quarterly  dividend
has resulted in a reduction in the  conversion  price and failure to pay a total
of four  quarterly  dividends  will entitle the holders of the Series A Stock to
elect one director. (Because the sole holder of all of the outstanding shares of
Series F Convertible  Preferred  Stock ("Series F Stock") has agreed to sell all
of such  shares to the Company  for a set price,  the Company no longer  accrues
dividends on the outstanding shares of Series F Stock.) By law, dividends may be
paid from  surplus or net profits  for the fiscal year in which the  dividend is
declared and/or the preceding fiscal year. There can be no assurance that future
surplus or earnings,  if any, will be adequate to pay dividends on the preferred
stock. See "Description of Capital Stock."

European Operations

         The Company's  European  operations are conducted through the Company's
subsidiary  Dorotech,  S.A.  ("Dorotech") and accounted for approximately 46% of
its revenue in 1996. and  approximately  43% of the Company's revenue during the
first six months of 1997.The  Company's  business in European markets is subject
to  the  risks  customarily  associated  with  overseas  operations,   including
fluctuations  in  foreign  currency   exchange  rates  and  controls,   tariffs,
expropriation,  nationalization and other economic,  tax and regulatory policies
of foreign governments. Since Dorotech conducts virtually all of its business in
currencies other than the U.S. dollar,  foreign currency fluctuations may affect
the  Company's  asset  valuations  and net  income.  The  Company  has not  used
financial  instruments with off-balance  sheet risk in managing foreign currency
fluctuation  risks.  The  Company's  results  will also be  affected by any laws
affecting its ability to repatriate  foreign profits,  if any, and by changes in
foreign  tax  laws  and tax  rates,  as well as  changes  in  international  tax
treaties. There can be no assurance that these and similar factors will not have
a negative impact on the Company's operations.

         On  December 31, 1996,  the Company  entered  into  a  purchase  agree-
ment  with  CDR  Enterprises  ("CDRE")  for the sale and  purchase  of  Series F
Convertible  Preferred  Stock  ("Series  F  Stock").  Pursuant  to the  purchase
agreement  with CDRE,  as amended on May 30,  1997,  the Company is obligated to
repurchase the remaining  792,186  outstanding  shares of the Company's Series F
Stock (all of which are held by CDRE) by January 31, 1998 for an aggregate  cash
payment of $6,400,000 plus interest in the amount of $400,000. (Because the sole
holder of all of the outstanding shares of Series F Stock has agreed to sell all
of such  shares to the Company  for a set price,  the Company no longer  accrues
dividends on the outstanding  shares of Series F Stock.) The Company has granted
CDRE a first ranking pledge on all of the outstanding  stock of Dorotech and, if
the Company  fails to make the payments to CDRE when due,  CDRE is at liberty to
sell all of the  Dorotech  shares  owned by the  Company  and may  withhold  all
amounts due and payable to CDRE before paying back excess money,  if any, to the
Company. See "--Guarantee of ATG Lease Payment" and "Description of Securities -
Acquisition  Preferred  Stock." The Company cannot  repurchase  the  outstanding
shares of Series F Stock from CDRE unless and until all accrued dividends on the
Series A Stock  have  been  paid.  See "--  Inadequate  Dividend  Coverage"  and
"Description  of Capital  Stock  --Series  A  Cumulative  Convertible  Preferred
Stock."

        The Company is endeavoring to sell all of the outstanding stock of Doro-
tech to a third party.  There can be no assurance  that the Company will be able
to do so by January 31, 1998 or at all or on favorable terms.

Guarantee of ATG Lease Payments

         Prior to the acquisition of Dorotech by the Company,  Dorotech's parent
(which was merged into Dorotech prior to the acquisition)  signed a guarantee of
lease payments by an affiliated company,  ATG Gigadisc SA ("ATG"),  under a sale
and leaseback of land and buildings by ATG. At December 31, 1995,  the remaining
lease payments due by ATG totaled approximately $6.1million,  including interest
of  approximately  $1.8  million.  On May 31,  1996,  ATG filed  for  bankruptcy
protection  with the Court of Commerce in Toulouse,  France,  and officials were
appointed by the Court to supervise  the  operations  of ATG. In July 1996,  the
lessor  notified  Dorotech  that ATG was in  default  with  respect to one lease
payment,  that, as a result, it was filing a claim with one of the officials for
accelerated payment of all remaining amounts due under the lease and that it was
requesting from Dorotech the amount due under the guarantee.  The Company is not
itself a party to the guarantee;  however,  if Dorotech were to become obligated
to  fulfill  the  guarantee,  there  could be a material  adverse  effect on the
Company's results of operations and financial  condition.  On December 31, 1996,
the  Company  entered  into a  purchase  agreement  with  CDRE  for the sale and
purchase  of the  Series F  Stock.  See  "--European  Operations."  The  Company
understands that CDRE is endeavoring to obtain a release of the lease guarantee.
To date,  neither the Company nor  Dorotech  has received a release of the lease
guarantee.

         Dorotech believes it has meritorious defenses to, and intends to defend
vigorously  against,  any  action  that may be  brought  against it based on the
guarantee.  There can be no assurance,  however,  that Dorotech would prevail if
such action were brought.

Competition; Rapid Technological Change

         The computer industry,  including the information  access,  imaging and
optical disk storage segments,  is highly  competitive,  and is characterized by
rapid and  continuous  technological  change,  short  product  cycles,  frequent
product innovations and new product introductions,  evolving industry standards,
and changes in customer  requirements  and  preferences.  The  Company's  future
profitability  will depend,  among other things, on wide-scale market acceptance
of the Company's  products,  the Company's  ability to demonstrate the potential
advantages  of its  products  over other  types of similar  products  and on the
Company's  ability to  develop  in a timely  fashion  enhancements  to  existing
products or new products that are  responsive to the demands of the  marketplace
for information access,  imaging and optical disk storage systems.  There can be
no assurance  that the Company will be able to market  successfully  its current
products,  develop and market enhancements to existing products or introduce new
products.  In addition,  the Company faces existing  competitors that are larger
and more established and have substantially  greater resources than the Company.
Because of the rapid  expansion of the information  access,  imaging and optical
disk storage market,  the Company will also face  competition from new entrants,
possibly   including   the   Company's   customers,   suppliers  or   resellers.
Technological  advances by any of the  Company's  current or future  competitors
could render  obsolete or less  competitive  the products  being  offered by the
Company.  The Company believes that the principal  competitive factors affecting
the market for  information  access,  imaging and optical disk storage  products
include effectiveness,  scope of product offerings,  technical features, ease of
use, reliability,  customer service and support, name recognition,  distribution
resources and price. Current and potential competitors have established,  or may
establish  in the  future,  strategic  alliances  to increase  their  ability to
compete for the Company's  prospective  customers.  Accordingly,  it is possible
that new  competitors  or alliances may emerge and rapidly  acquire  significant
market  share.  Such  competition  could have a material  adverse  effect on the
Company's business, financial condition and results of operations.

Risks of Defects and Development Delays

         The Company's  development of enhancements to existing  products and of
new products is subject to the kinds of problems  and delays that are  routinely
encountered  in the  development  of  software.  For  example,  the  Company may
experience schedule overruns in software  development  triggered by factors such
as insufficient staffing or the unavailability of development-related  software,
hardware  or  technologies.  Further,  during the  development  of new  software
products,  or the enhancement of existing  products,  the Company's  development
schedules  may be  altered  as a  result  of the  discovery  of  software  bugs,
performance  problems  or changes to the  product  specification  in response to
customer requirements, market developments or Company initiated changes. Changes
in product  specifications  may delay completion of documentation,  packaging or
testing,  which may, in turn,  affect the release  schedule of the  product.  In
connection  with complex  software  products,  the  technology  market may shift
during the development cycle,  requiring the Company either to enhance or change
a product's  specifications  to meet a customer's  changing needs.  Any of these
factors  may cause a product  to enter the  market  behind  schedule,  which may
adversely affect market acceptance of the product, or place it at a disadvantage
to a  competitor's  product  that has  already  gained  market  share or  market
acceptance during the delay. The Company does not believe,  however,  that it is
practicable  to  quantify  the impact that such delays have had or in the future
may have on its operating  results.  There can be no assurance  that the Company
will  not  experience   difficulties  that  will  interrupt  the  marketing  and
distribution  of its current  products or that the Company  will not  experience
difficulties in the future that could materially delay or prevent the successful
development of other products.

Dependence on Key Personnel

         The Company is  substantially  dependent on the business and  technical
expertise and business relationships of certain key personnel and on its ability
to attract and retain key  management  and  technical  employees  in the future.
Competition for such employees is intense.  The loss of current key employees or
the Company's  inability to attract and retain other  employees  with  necessary
business or technical  skills in the future would have a material adverse effect
on the Company's business.

Dependence on Suppliers

         The Company relies  exclusively  on outside  suppliers for the hardware
components  of its products  such as scanners,  printers,  computers and optical
disk drives and jukeboxes.  Most parts and  components  are currently  available
from  multiple  sources at  competitive  prices.  To date,  the  Company has not
experienced  significant  delays in obtaining parts and components and, although
there can be no assurance, the Company does not expect to experience such delays
in the future.  Lack of availability of certain  components  could require minor
redesign of the Company's products and result in production delays.

Evolving Distribution Channels

         The Company has  developed a  distribution  strategy  that involves the
development   of  strategic   alliances   with   resellers,   integrators,   and
international  distributors  to enable  the  Company  to  achieve  broad  market
penetration. The Company's reseller distribution channel is established, and the
Company intends to expand that channel. There can be no assurance, however, that
the Company will be able to continue to attract  distributors and resellers that
will be able to market the Company's products  effectively and will be qualified
to provide timely and cost-effective  customer support and service.  The Company
ships products to distributors and resellers on a purchase-order  basis, and its
distributors,  integrators and resellers may, in some instances, carry competing
product  lines.  Therefore,  there  can be no  assurance  that any  distributor,
integrator,  or reseller will continue to represent the Company's products.  The
inability to recruit,  or the loss of, important sales personnel,  distributors,
integrators  or  resellers  could  materially  adversely  affect  the  Company's
business, financial condition and results of operations in the future.

Long Sales Cycle; Seasonality

         Sales  of  the  Company's  products  sometimes  involve  a  significant
commitment  of  capital  by  customers,  with the  attendant  delays  frequently
associated  with large capital  expenditures.  Prior to such sales,  the Company
often  permits  customers to evaluate  products  being  considered  for license,
generally involving a small license fee. In addition,  the type of software that
the Company  manufactures  and sells is of the type that requires  businesses to
re-engineer  their processes,  and completion of this may be arduous.  For these
and other reasons,  the sales cycle  associated  with the Company's  products is
likely to be lengthy and subject to a number of significant risks over which the
Company has little or no control and, as a result, the Company believes that its
quarterly  results are likely to vary  significantly in the future.  The Company
may be  required  to  ship  products  shortly  after  it  receives  orders  and,
consequently,  order  backlog,  if  any,  at the  beginning  of any  period  may
represent only a small portion of that period's expected revenues.  As a result,
product revenues in any period will be substantially  dependent on orders booked
and shipped in that  period.  The Company  plans its  production  and  inventory
levels  based  on  internal  forecasts  of  customer  demand,  which  is  highly
unpredictable and can fluctuate  substantially.  If revenues fall  significantly
below  anticipated  levels,  the  Company's  financial  condition and results of
operations could be materially and adversely affected. In addition,  the Company
has  experienced  significant  seasonality  in its  business,  and the Company's
financial  condition and results of operations may be affected by such trends in
the  future.  Such trends may  include  higher  revenues in the third and fourth
quarters of the year and lower  revenues in the first and second  quarters.  The
Company believes that revenues may tend to be higher in the third quarter due to
the fiscal year end of the U.S.  government and higher in the fourth quarter due
to year-end budgetary pressures on the Company's commercial customers.

Intellectual Property Rights; Infringement Claims

The Company  regards its software as proprietary  and relies  principally on the
protection  afforded  by  trade  secret,  copyright  and  trademark  laws and by
routinely requiring all of its employees, consultants, suppliers and others with
access to the Company's  proprietary  information  to enter into  non-disclosure
agreements  that require such  persons to maintain the  confidentiality  of such
information. The Company filed two patent applications in 1995, one of which was
granted  in July  1997,  and  expects to file  several  more in the near  future
covering  key  components  of the  1View  suite.  Prosecution  of  these  patent
applications,   and  any  other  patent   applications   that  the  Company  may
subsequently  determine  to file,  may require the  expenditure  of  substantial
resources.  The  issuance of a patent from a patent  application  may require 24
months or longer.  There can be no assurance that the Company's  technology will
not become  obsolete while the Company's  applications  for patents are pending.
There also can be no  assurance  that any pending or future  patent  application
will be granted, that any future patents will not be challenged,  invalidated or
circumvented  or that the rights  granted  thereunder  will  provide  meaningful
competitive  advantages  to the  Company.  Further,  the Company has not pursued
patent protection outside of the United States for the technology covered by the
Company's existing patent and pending patent applications. The Company currently
intends  to pursue  patent  protection  outside  of the  United  States  for the
technology  covered  by  such  patent  applications,  although  there  can be no
assurance that any such protection will be granted or, if granted,  that it will
adequately protect the technology covered thereby. In addition,  there can be no
assurance that others will not  independently  develop  similar  technologies or
duplicate any technology  developed by the Company or that its  technology  will
not infringe upon  patents,  copyrights or other  intellectual  property  rights
owned by others.

         Further,  the Company may be subject to additional  risk as the Company
enters into transactions in countries where  intellectual  property laws are not
well developed or are poorly enforced. Legal protections of the Company's rights
may be  ineffective in foreign  markets and technology  developed by the Company
may not be  protectable in such foreign  jurisdictions  in  circumstances  where
protection is ordinarily available in the United States.

         The  Company  believes  that,  due to the rapid  pace of  technological
innovation for the Company's imaging and optical storage products, the Company's
ability to  establish  and, if  established,  maintain a position of  technology
leadership in the industry is dependent more upon the skills of its  development
personnel  than  upon  legal   protections   afforded  its  existing  or  future
technology.

         As the  number of  information  access,  imaging  and  optical  storage
products in the  industry  increases  and the  functionality  of these  products
further overlap,  software developers may become subject to infringement claims.
There can be no assurance that third parties will not assert infringement claims
against the Company in the future  with  respect to current or future  products.
The Company  also may desire or be required  to obtain  licenses  from others in
order to develop,  produce and market commercially viable products  effectively.
Failure to obtain those  licenses  could have a material  adverse  effect on the
Company's  ability to market its  software  products.  There can be no assurance
that such licenses will be obtainable on  commercially  reasonable  terms, if at
all,  that the  patents  (if any)  underlying  such  licenses  will be valid and
enforceable  or  that  the  proprietary  nature  of  the  unpatented  technology
underlying such licenses will remain proprietary.

         Any claims or litigation,  with or without  merit,  could be costly and
could  result in a  diversion  of  management's  attention,  which  could have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.  Furthermore,  there can be no assurance that the Company
will have adequate  resources to prosecute or defend such claims or  litigation,
or that the Company's  proprietary  rights,  including patents,  if any, will be
upheld.  Adverse  determinations  in such claims or litigation could also have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

Fluctuations in Financial Performance

         Timing and volume differences in the shipment of the Company's products
and  the  performance  of  services  under  contracts  can  produce  significant
fluctuations  in  quarter-to-quarter  and  year-to-year  financial  performance.
Factors  that could affect such timing  include,  among other  things,  customer
purchasing   patterns,   new   product   transitions,   delays  in  new  product
introductions  and shortages of system  components.  Past financial  performance
should not be considered to be a reliable indicator of future performance in any
particular fiscal period.

Control of the Company

         The executive  officers and directors of the Company  beneficially  own
approximately 8% of the Company's  outstanding  Common Stock, other officers and
employees of the Company beneficially own at least another 6% of the outstanding
shares and  officers  and  employees  may,  in the future,  acquire  substantial
additional  amounts of Common Stock upon the exercise of stock options which are
not currently  exercisable.  Although  there are no  arrangements  requiring the
executive officers and other employees of the Company to vote their Common Stock
collectively, those persons may exert considerable influence over the outcome of
matters  requiring  stockholder  votes,  including the election of directors and
proposals to sell, merge or liquidate the Company.

Dividend Policy

         The  Company  has not paid  dividends  on its  Common  Stock  since its
inception,  and it does not anticipate paying cash dividends on its Common Stock
in the  foreseeable  future.  The Company may not declare  dividends  payable to
holders of Common Stock unless and until all accrued cash dividends  through the
most recent past dividend  payment date have been paid in full to holders of the
Series A Stock,  the Company's  Series F Stock and the Company's Series H Stock.
The Company  failed to pay its  quarterly  dividend on the Series A Stock due in
July 1997 of $0.50 per share or  $803,000 in the  aggregate.  In  addition,  the
purchase agreement for the Series K Stock required that the Company not make the
quarterly  dividend  payments to the Series A  stockholders.  See  "--Inadequate
Dividend Coverage," "Dividend and Market Price Information," and "Description of
Capital Stock -- Common Stock."


Shares  Eligible  for Future  Sale;  Effect on Market Price of  Common Stock and
         the Ability of the Company to Raise Additional Capital

         As of September 2, 1997, the Company had outstanding  25,177,743 shares
of Common Stock, of which 3,495,003 shares were "restricted  securities" as that
term is defined under Rule 144 of the Securities Act ("Rule 144), which were not
covered by an  effective  registration  statement  under the  Securities  Act or
eligible  for sale  pursuant to Rule 144(k).  Of those  shares,  1,747,502  were
otherwise eligible for sale under Rule 144.

         As of  September  2, 1997,  the  Company  had  outstanding  options and
warrants  that were  exercisable  for  9,856,816  shares of  Common  Stock.  The
exercise prices of the options and warrants range from $1.00 to $14.88 per share
(subject  to  adjustment  pursuant  to  the  anti-dilution   provisions  of  the
respective  instruments  and based  upon the  closing  sale and bid price of the
Company's  Common Stock on  September  8, 1997).  The number of shares of Common
Stock into which the Company's  convertible  securities  convert could  increase
significantly depending upon a number of factors,  including the market price of
the  Company's  Common  Stock at the time of  conversion  or  redemption  of the
convertible  securities  and the adoption of certain  amendments to the terms of
Series A Stock. See "Risk Factors -- Series A Stock; Amendment to Certificate of
Incorporation."  The options and warrants  expire at various time through August
24,  2007.  As of  September 2, 1997,  the Company had  outstanding  convertible
securities (including the Convertible Notes, and the Series A, H and K Preferred
Stock) that were  convertible  into 6,231,990 shares of Common Stock (subject to
adjustment   pursuant  to  the   anti-dilution   provisions  of  the  respective
instruments). (The Common Stock issuable on conversion of the Series F Stock has
not been  included as the holder of the Series F Stock is  obligated to sell the
Series F Stock to the Company at a set price.  See "Description of Capital Stock
--  Acquisition  Preferred  Stock.).  The conversion  prices of the  convertible
securities  range  from $1.49 to $12.61  per  share.  The shares of  convertible
securities  may convert at various  times through July 8, 2001.  Those  options,
warrants and convertible  securities that are not subject to registration rights
may,  upon  exercise  or  conversion,  be  sold  pursuant  to Rule  144  or,  if
applicable,  Rule 144(k). In addition,  the Company is obligated to issue to the
Purchasers  and Zanett  additional  shares of Series K Stock and  warrants  that
would be convertible into or exercisable for 4,427,500 shares of Common Stock in
certain  circumstances.  See "Plan of Distribution"  and "Description of Capital
Stock -- Series K Convertible Preferred Stock."

         The Company has  registration  commitments  with  respect to  6,569,176
shares  ("Registrable  Shares")  of  Common  Stock in  connection  with  certain
options,  warrants and convertible  securities that the Company has issued (does
not include  4,427,500 shares of Common Stock issuable on conversion of Series K
Stock and warrants that the Company may be obligated to issue to the  Purchasers
and Zanett in certain circumstances. See "Description of Capital Stock -- Series
K Convertible Preferred Stock."). The Company has filed registration  statements
with the Securities and Exchange  Commission  ("SEC")  covering in the aggregate
14,994,884 of the Registrable Shares (including the 10,000,000 shares covered by
this  Registration  Statement),  which may be  offered  from time to time by the
stockholders  named in such  registration  statements or that may be sold by the
Company upon exercise or conversion of certain outstanding warrants,  options or
convertible securities. In addition, the Company has registered 8,100,000 shares
of Common Stock that may be issued pursuant to stock option plans. The Company's
obligations  generally are to maintain such registration  statements for varying
periods  ranging  from  nine  months  to two years at its  expense,  except  for
commissions and legal costs incurred by selling stockholders.

         The Company  believes  that the  existence of  convertible  securities,
options  and  warrants,  with  conversion  or  exercise  prices  less  than  the
prevailing  market price of the Common Stock, and the possibility of, as well as
actual, sales of shares of Common Stock under Rule 144, pursuant to registration
statements  and otherwise in all  likelihood has had and may continue to have an
adverse  effect on the  market  price of the Common  Stock and on the  Company's
ability to raise future equity capital. In addition, if the Selling Stockholders
or the others, individually or in the aggregate, were to offer a large amount of
Common  Stock in the  market,  the  market  price of the  Common  Stock  and the
Company's ability to raise additional capital could be adversely  affected.  See
"Selling Stockholders" and "Plan of Distribution."

Amendment to Certificate of Designations of Series A Stock

         The Company is in the process of proposing an amendment to the terms of
the  Certificate  of  Designations  of  Series A Stock  pursuant  to which  each
outstanding share of Series A Stock would  automatically  convert into shares of
Common Stock at a rate of three shares of Common Stock for every share of Series
A Stock currently  outstanding,  rather than at the current rate of 1.986 shares
of Common Stock for every share of Series A Stock outstanding. If this amendment
to the terms of the  Certificate of  Designations  is approved by the holders of
Common  Stock  and the  holders  of  Series  A Stock  at a  special  meeting  of
stockholders  currently anticipated to be held on November 17, 1997, the Company
will issue three shares of Common Stock to the holders Series A Stock  effective
on the day immediately following the special meeting.


Series A Stock; Amendment to Certificate of Incorporation

         Prior to the  Company's  issuance  in July  1997 of  shares of Series K
Stock and the Convertible Notes (see "Certain Transactions" for a description of
the  Convertible   Notes),  the  outstanding  shares  of  Series  A  Stock  were
convertible into 1.9826 shares of Common Stock in the aggregate.  As a result of
anti-dilution  provisions to which the shares of Series A Stock are subject, the
issuance of shares of Series K Stock and the issuance of the  Convertible  Notes
will  entitle  the  holders  of Series A Stock to receive  additional  shares of
Common  Stock.   See  "Description  of  Capital  Stock  -  Series  A  Cumulative
Convertible Preferred Stock." The number of additional shares of Common Stock to
which the holders of Series A Stock  would be  entitled  to receive  will depend
upon the conversion prices of the Series K Stock and the Convertible  Notes. The
conversion prices of the Series K Stock and the Convertible Notes are not fixed;
they vary based on formulas  tied to the market price of the Common Stock at the
time of conversion of the Series K Stock and the redemption or conversion of the
Convertible Notes and on the date of conversion or redemption.  See "Description
of Capital Stock - Series K Convertible  Preferred Stock Conversion  Rights" and
"Certain Transactions."  Accordingly,  because these conversion prices vary, the
Company cannot ascertain  definitively the number of additional shares of Common
Stock that the holders of Series A Stock may receive as a result of the Series A
Stock  anti-dilution  provisions until the shares of Series A Stock are actually
converted.  The Company is also obligated to issue additional shares of Series K
Stock in certain  circumstances.  See "Plan of Distribution."  Nonetheless,  the
holders of Series A Stock will be  entitled to receive a  significant  number of
additional shares Common Stock as a result of such anti-dilution provisions.

         The number of shares of Common Stock that each holder of Series A Stock
will receive may be limited, however, as a result of a resolution adopted by the
Board  of  Directors  of  the  Company  that  provides  for  amendments  to  the
Certificate  of  Designations  of Series A Stock  Cumulative  Convertible  Stock
("Series A Amendment").  The proposed changes to the Certificate of Designations
would (i) amend  Section 8(i) to change the rate at which the Company  exchanges
shares  of Common  Stock for  shares of Series A Stock to three for one and (ii)
provide  that the  dividends on the Series A Stock ceased to accrue on April 30,
1997. If the stockholders approve the Series A Amendment at a special meeting of
holders of Common Stock and Series A Stock  currently  anticipated to be held on
November 17, 1997, the  anti-dilution  provisions of the Series A Stock would no
longer be in effect and each share of Series A Stock would automatically convert
into  three  shares of Common  Stock as of the  close of  business  on the first
business day following the special meeting. In addition,  the shares of Series A
Stock would no longer be outstanding for any purpose and all rights with respect
to such shares would  cease,  except for the rights of holders of Series A Stock
to receive  shares of Common Stock upon the  exchange.  Approval of the Series A
Amendment  requires the approval of a majority of the voting power of all of the
outstanding  shares of Common Stock voting  separately as a class and a majority
of the voting  power of all of the  outstanding  shares of Series A Stock voting
separately as a class.  There are no assurances that the Series A Amendment will
be adopted by the stockholders.  If the stockholders do not approve the Series A
Amendment,  the Company will be required to issue a significant number of shares
of Common Stock to the holders of Series A Stock as  described in the  preceding
paragraph.

Certain Anti-takeover Provisions of  Certificate  of  Incorporation and Delaware
         Law

         The  Company's  Board of  Directors  has the  authority  to issue up to
20,000,000  shares  of  preferred  stock and to  determine  the  price,  rights,
preferences,  privileges  and  restrictions,  including  voting  rights of those
shares,  without any further vote or action by the Company's  shareholders.  The
rights of the holders of Common  Stock will be subject to, and may be  adversely
affected by, the rights of the holders of preferred  stock that has already been
issued and that may be issued in the future.  The issuance of  preferred  stock,
while providing desirable  flexibility in connection with possible  acquisitions
and other corporate purposes,  could have the effect of making it more difficult
for a third party to acquire a majority of the voting stock of the  Company.  As
of September 2, 1997, the Company had outstanding  1,605,025  shares of Series A
Stock,  792,186 shares of Series F Stock,  10 shares of H Stock and 3,300 shares
of Series K Stock.  The Company may issue  additional  shares of Series K Stock.
See "Plan of Distribution."

         The Company is subject to Section 203 of the Delaware  General  Corpor-
ation  Law,  which  places  certain  restrictions  on the  ability  of  Delaware
corporations to engage in business  combinations  with interested  shareholders.
See "Description of Capital Stock."

Impact of Offerings and Acquisitions on Net Operating Loss Carryforwards

         As a result of the  issuance  of the Series A Stock,  the  issuance  of
securities in acquisitions and the sale of shares by certain  stockholders,  the
utilization of the Company's net operating loss  carryforward  of  approximately
$53 million at December 31, 1996 is subject to the  limitations  and  expiration
periods  imposed by Section 382 and other  provisions  of the  Internal  Revenue
Code, thereby increasing the probability that all or a portion may expire before
utilization.


                                 USE OF PROCEEDS

         There will be no proceeds to the Company from the sale of the Shares by
Zanett and the  Purchasers.  Any proceeds of sales of Common  Stock  received by
Zanett or the Purchasers  will be retained by Zanett or the  Purchasers,  as the
case may be. If all of the  warrants  issued to the  Selling  Stockholders  were
exercised,   the  Company  would  receive   gross   proceeds  of   approximately
$858,813.06.  Which  proceeds the Company  expects to use for general  corporate
purposes. There can be no assurance that any of such warrants will be exercised.


                      DIVIDEND AND MARKET PRICE INFORMATION

         The Company's  Common Stock is quoted on Nasdaq  National  Market under
the symbol IMGX. The following table  indicates,  for each calendar quarter from
January 1, 1995,  the high and low sales prices for the Common Stock as reported
by Nasdaq.






<PAGE>

    PERIOD                                     HIGH       LOW
    1995     -First Quarter                    4 3/4      2 5/8
             -Second Quarter                   5 7/16     3 1/8
             -Third Quarter                    7 3/4      4 7/8
             -Fourth Quarter                   5 1/8      2 13/16

    1996     -First Quarter                    5 7/8      3 3/4
             -Second Quarter                   5 5/8      3 7/16
             -Third Quarter                    5 1/16     3 1/16
             -Fourth Quarter                   4 5/32     2 11/16

    1997     -First Quarter                    3 1/2      2 9/16
             -Second Quarter                   2 29/32    1 11/16
             -Third Quarter                    2 1/32     1 1/4
        (through September 2, 1997)

         On  September  2, 1997,  the closing sale price for the Common Stock as
reported by Nasdaq was 1 1/2. As of that date, the Company had approximately 385
holders of record of its Common  Stock,  and based on  information  supplied  by
certain of such holders of record,  the Company  estimates  that as of such date
there were approximately 7,600 beneficial owners of its Common Stock.

         The Company has not paid any cash  dividends  on its Common Stock since
its inception and does not  anticipate  paying any cash  dividends on its Common
Stock in the foreseeable  future.  The Company may not declare dividends payable
to holders of Common Stock unless and until all accrued cash  dividends  through
the most recent past dividend  payment date have been paid in full to holders of
the  Series A Stock,  the  Series F Stock and the  Series H Stock.  The  Company
failed to pay its  quarterly  dividend on the Series A Stock due in July 1997 of
$0.50 per share or $803,000 in the aggregate.  The Company's future earnings, if
any, may not be adequate for the payment of dividends on its  preferred  stocks.
In addition,  the purchase  agreement  for the Series K Stock  requires that the
Company not make its quarterly dividend payments to the Series A stockholders.

         At June 30, 1997, the Company had not maintained net tangible assets of
at least $4 million,  which is one of the quantitative  maintenance criteria for
continued  inclusion of the Company's  securities on the Nasdaq National Market.
To remedy this short fall and offset any  adverse  impact,  the Company  issued,
during July 1997,  3,300 shares of Series K Stock to the Purchasers and warrants
to the Selling Stockholders and received net proceeds of $2.9 million.  Pursuant
to the  terms  of the  offering,  the  Purchasers  are  also  required  to  make
additional  purchases  of Series K Stock and  warrants for $3.0 million upon the
Company's achievement of certain performance  milestones and the satisfaction of
certain  other  conditions  and an  additional  $4.7 million at the  Purchasers'
option. See "Plan of Distribution" and "Description of Capital Stock." There can
be no assurance  that the Company will meet these  performance  milestones or be
able to satisfy the other conditions.  Although the Company believes that it can
maintain  the  required  net  tangible  assets  of at least $4  million  through
additional  issuances  of its Series K Stock and  warrants  or other  additional
offerings of equity securities,  there can be no assurance that the Company will
complete such offerings or that, if completed,  they will be on terms  favorable
to the Company or in an amount  sufficient  to permit the Company to continue to
maintain net tangible assets of at least $4 million.

                                 CAPITALIZATION

         The following table sets forth, as of June 30, 1997, the capitalization
of the Company (including loan capital). The table does not include the issuance
of the Series K Stock or the Convertible Notes.


                                                  June 30, 1997 (unaudited)
                                            (in thousands, except share amounts)
Short-Term Debt:
 Bank credit facilities. . . . . . . . . . . .              $213  
 Other notes payable. . . . . . . . . . . . ..             1,030
                                                           -----
   Total Short-Term Debt. . . . . . . . . . ..             1,243
Long-Term Debt and Obligations
  Under Capital Leases. . . . . . . . . . . .              5,186
Series F Preferred Stock, 792,186
  shares outstanding . . . . . . . . . . . . .             6,357
Stockholders' Equity:
 Preferred stock, par value $.0001 per share,
  20,000,000 shares authorized;. . . . . . . .
   1,605,125 shares outstanding.
 Common stock, par value $.0001 per share,
  50,000,000 shares authorized; 25,177,743
  shares outstanding . . . . . . . . . . . . .                 3

 Additional paid in capital. . . . . . . . . .           122,709

 Accumulated deficit. . . . . . . . . . . . .           (119,298)
Translation adjustment . . . . . . . . . . . .              (504)
                                                          ------
  Stockholders' Equity. . . . . . . . . . . .              2,910
                                                          ------

  Total Capitalization. . . . . . . . . . . .            $15,696
                                                          ======


                             SELECTED FINANCIAL DATA

         The following selected financial data for the five years ended December
31,  1996 are derived  from the audited  consolidated  financial  statements  of
Network  Imaging  Corporation.  The financial  data as of and for the six months
ended  June 30,  1997 are  derived  from the  unaudited  consolidated  financial
statements of Network Imaging  Corporation.  The unaudited financial  statements
include all adjustments,  consisting of normal recurring accruals, which Network
Imaging Corporation considers necessary for a fair presentation of the financial
position and results of operations  for this period.  Operating  results for the
six months  ended June 30, 1997 are not  necessarily  indicative  of the results
that may be expected  for the entire year ending  December  31,  1997.  The data
should  be read in  conjunction  with  the  consolidated  financial  statements,
related notes, and other financial information included in this Prospectus.

<TABLE>
<CAPTION>

STATEMENT OF OPERATIONS DATA                                                       Year ended December 31,
----------------------------                                   --------------------------------------------------------------------
                                                                  1996           1995           1994           1993           1992
<S>                                                            <C>            <C>            <C>            <C>            <C>    

Net revenue                                                    $ 39,477       $ 69,151       $ 67,028       $ 34,069       $ 27,961
Costs and expenses:
Costs of revenue                                                 24,374         42,398         48,189         25,094         21,366
Product development                                               6,500          7,058          4,666          1,315            310
Selling, general and administration                              24,956         35,679         36,765         11,886          6,697
Exchange fee and gain on sale of asset, net                         619           --             --             --             --
Purchased in-process research and development                      --             --            8,821         24,550           --
Settlement with stockholders                                       --            1,642           --             --             --
Loss on closure and sale of subsidiaries, net                       921          9,274           --             --             --
Restructuring costs                                                (175)        (1,433)         1,654          1,646           --
Capitalized software write-off                                     --             --            8,743            286

(Loss) before interest income and income taxes                  (17,718)       (25,467)       (41,810)       (30,708)          (412)
Interest income (expense), net                                      309            224            579             77           (106)
                                                               --------       --------       --------       --------       --------
(Loss) before income taxes                                      (17,409)       (25,243)       (41,231)       (30,631)          (518)
Income tax (benefit) expense                                        (68)          (280)        (1,606)           186            (53)
                                                               --------       --------       --------       --------       --------
Net (loss)                                                      (17,341)       (24,963)       (39,625)       (30,817)          (465)

Preferred stock preferences                                      (3,730)        (9,933)        (4,496)          (604)          --
                                                               ========       ========       ========       ========       ========
Net loss applicable to common shares                           $(21,071)      $(34,896)      $(44,121)      $(31,421)      $   (465)
                                                               ========       ========       ========       ========       ========

Net loss per common share                                             $       $  (2.41)             $              $       $  (0.13)
                                                                                                (1.02)         (3.56)         (4.48)
                                                               ========       ========       ========       ========       ========

Weighted average shares outstanding                              20,682         14,502         12,391          7,015          3,486
</TABLE>

                                      -18-
<PAGE>
<TABLE>
<CAPTION>

      STATEMENT OF OPERATIONS DATA                     Six Months Ended June 30,
                                                       ------------------------- 
                                                            1997          1996
<S>                                                      <C>           <C>

Net revenue                                              $ 18,453      $ 19,671
Costs and expenses:
Costs of revenue                                           11,972        14,082
Product development                                         2,308         3,061
Selling, general and administration                        10,552        13,847
Exchange fee and gain on sale of asset, net                  --             619
Gain from extinguishment of debt                             (267)         --
Restructuring costs                                          --            (175)
(Loss) before interest income and income taxes             (6,112)      (11,763)
Investment and interest income (expense), net                 (33)         (146)
                                                         --------      --------
(Loss) before income taxes                                 (6,145)      (11,617)
Income tax (benefit) expense                                   55           146
                                                         --------      --------
Net (loss)                                                 (6,200)      (11,605)

Preferred stock preferences                                (1,906)       (1,884)
                                                         ========      ========
Net loss applicable to common shares                     $ (8,106)     $(13,489)
                                                         ========      ========

Net loss per common share                                $  (0.33)     $  (0.69)
                                                         ========      ========

Weighted average shares outstanding                        24,715        19,560
</TABLE>

<TABLE>
<CAPTION>
BALANCE SHEET DATA                                June 30,                               Year ended December 31,
                                                  -------        -------------------------------------------------------------------
                                                    1997           1996           1995          1994            1993        1992

<S>                                               <C>            <C>            <C>            <C>            <C>            <C>
Cash and cash equivalents                         $ 1,845        $ 7,601        $ 9,359        $ 3,989        $39,764        $ 3,385
Working capital                                     4,546          9,893         13,454         17,513         45,859          3,823
Current assets                                     19,194         24,709         35,718         46,051         59,516         10,230
Intangible assets, net                              5,969          7,050          9,098         19,874         12,855          2,546
Total assets                                       29,439         36,778         49,964         71,871         75,519         13,738
Current liabilities                                14,648         14,816         22,264         28,538         13,657          6,407
Long term liabilities                               5,524            388          2,037          3,568          3,442            287
Redeemable preferred stock                          6,357          9,857         15,478         14,609         15,626           --
Total stockholders equity                         $ 2,910        $11,717        $10,185        $25,156        $42,794        $ 7,044
</TABLE>


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

         This  Prospectus  contains,  in  addition  to  historical  information,
forward-looking  statements  that involve risks and  uncertainty.  The Company's
actual  results  could differ  significantly  from the results  discussed in the
forward-looking  statements.  Factors  that could  cause or  contribute  to such
differences include those discussed in "Risk Factors" as well as those discussed
elsewhere in this Prospectus.

Results of Operations for the Years Ended December 31, 1996, 1995 and 1994



         Revenue.  Product  revenue  includes  sales of  software  licenses  and
computer  equipment.  Product  revenue  is  recognized  upon  delivery  or,  for
contracts with significant  completion services requiring attainment of customer
acceptance,   upon  customer  acceptance.   Service  revenue  includes  software
maintenance  contracts,  installation  and  customization.  Service  revenue  is
recognized over the terms of the related contracts as the services are completed
or under the percentage of completion method where appropriate.

         Total  revenue  was $39  million in 1996,  $69  million in 1995 and $67
million in 1994. The decrease in total revenue in 1996 over 1995 of $30 million,
or 43%, resulted from decreases in product revenues of $29.2 million, or 61%, to
$18.3 million, and in service revenue of $500,000,  or 2%, to $21.1 million. The
increase in total revenue in 1995 over 1994 of $2 million,  or 3%, resulted from
increases in service revenue of $4.5 million, or 26% to $21.6 million, offset by
a decrease in product revenue of $2.4 million, or 5% to $47.5 million.

         During 1994, the Company  committed  itself to a plan of  restructuring
that was designed to improve  operating  results by concentrating  the Company's
resources on the marketing and continued development of its 1View suite and COLD
software  products.  In connection  with its  restructuring  plan,  the Company,
during  1995  and  1996,   disposed  of  a  number  of   operating   units  (the
"Divestitures"),  which  were  not  considered  complimentary  to the  Company's
business. The decrease in product revenue in 1996 of $29.2 million was primarily
attributable  to the  Divestitures,  which  reduced  product  revenue  by  $19.9
million,  and a major installation  project in 1995 for $9.3 million,  which was
not duplicated in 1996.

         The decrease in product  revenue in 1995 of $2.4 million was  primarily
attributable  to the  Divestitures,  which  reduced  product  revenue  by  $10.6
million,  offset by an increase of $8.2 million in 1View and comparable  Company
product  revenue.  The increase in 1View  product  revenue was  attributable  to
licenses provided for a major installation project,  involving  approximately 40
servers   and   3,000   clients,   in  more  than  50   districts   of  a  major
telecommunications  company. This project accounted for approximately 15 percent
of the Company's revenues in 1995.

         The decrease in service revenue in 1996 of $500,000 was attributable to
the  Divestitures,  which reduced service revenue by $2.9 million,  offset by an
increase of $2.4 million in 1View and comparable  Company service  revenue.  The
increase in 1View and comparable  Company  service  revenue was  attributable to
increased  staffing  and  management  emphasis  on  the  professional   services
business.  The increase in service revenue in 1995 of $4.5 million was primarily
attributable both to Dorotech, the Company's French subsidiary,  and to domestic
COLD storage maintenance services.

         Profit Margins.  Profit margins for product sales improved in 1996 over
1995 as the  cost of  products  sold  decreased  from 62% to 54% of  sales.  The
increase in product sales margins was due to the  continued  increased  sales of
the Company's  internally developed products and due to the dispositions in 1995
of the Company's CAD/CAM resellers. Profit margins for product sales improved in
1995 over  1994 as the cost of  products  sold  decreased  from 74% to 62%.  The
significant  increase in product  sales  margins was also due  primarily  to the
increased  sales of the Company's  internally  developed 1View product suite and
the  dispositions  of the  Company's  WildSoft and Hunt Valley  divisions and PE
Systems.  Microsouth,  Tekgraf,  IBZ Digital  Production and NIC UK subsidiaries
during 1995, which primarily occurred in the second and third quarters.

         Profit  margins for service  sales  decreased  in 1996 over 1995 as the
cost of  products  sold  increased  from 61% to 68% of sales.  The  decrease  in
service sales margins was primarily  attributable  to the increased  staffing in
the professional services business. Profit margins for service sales improved in
1995 as compared to 1994,  as the cost of service  sales  decreased  from 67% to
61%. The increase in service sales  margins was due  primarily to  customization
and  maintenance  service  sales of the  Company's  internally  developed  1View
product  suite,  an  increase  in  COLD  storage  maintenance  margins  and  the
Divestitures.

         Research  and  Development.  The  Company's  expenditures  on  software
research and development  activities ("R&D") in 1996 were $8.5 million, of which
$2.0 million was capitalized and $6.5 million was expensed.  The slight increase
in  capitalization  between  1996  and 1995  was due to the  development  of the
Company's next  generation  mainframe and PC-based COLD products.  The Company's
expenditures on software R&D activities in 1995 were $8.7 million, of which $1.7
million  was   capitalized   and  $7.0  million  was  expensed.   The  Company's
expenditures  on  software  research  and  development  activities  and  for the
acquisition of software licenses and the software in 1994 were $11.6 million, of
which $7.0  million  was  capitalized  and $4.6  million was  expensed.  The 48%
increase  in  product  development  expense  from $4.6  million  in 1994 to $6.8
million  in 1995  was  primarily  attributable  to the  general  release  of the
Company's  1View product suite in early 1995,  whereas in 1994,  the R&D efforts
for the  1View  product  suite  were  still in the  development  stage.  The net
decrease in total R&D expenditures from $11.6 million in 1994 to $8.5 million in
1995, or $3.1 million, was primarily attributable to the Divestitures; a reduced
focus on the Company's network attachable storage products,  which resulted in a
$770,000  reduction  in R&D  expenditures;  an  increased  focus  on  Dorotech's
engineering   services,   which   resulted  in  a  $810,000   reduction  in  R&D
expenditures;  a net $200,000 reduction in software license  acquisitions;  and,
increased domestic  engineering services for installation and maintenance of the
Company's 1View product suite.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative expenses ("SG&A") were $25.0 million, or 63% of revenue, in 1996,
$35.7 million,  or 52% of revenue, in 1995, $36.8 million, or 55% of revenue, in
1994.  The decrease in 1996  compared to 1995 of $10.7  million,  or 30% was the
result of the  Divestitures,  which  accounted  for a $8.7  million  decrease in
addition  to a $2.0  million  decrease  in  SG&A  expenses  from  the  Company's
continuing 1View, COLD and French  operations.  The decrease in 1995 compared to
1994 of $900,000, or 2%, is due to the Divestitures,  which reduced SG&A expense
an aggregate of $5.0 million, offset by increases in sales and marketing efforts
of $4.1 million.

         Exchange Fee and Gain on Sale of Asset,  Net.  During 1996, the Company
paid a fee of $650,000 plus $80,000 of expenses in connection with the extension
of the redemption date of the Company's  Dorotech  Acquisition  Preferred Stock.
See  "Descriptions  of Capital  Stock--Acquisition  of Preferred  Stock." During
1996,  the  Company  realized  a  $111,000  gain  on the  disposition  of  stock
distributed to the Company by its medical insurance provider.

         Purchased  In-Process  R&D. In connection  with the  acquisition of DCR
("TREEV"),  now a division of the Company,  during 1994, the Company  incurred a
charge totaling $8.8 million  relating to the expensing of purchased  in-process
research and development.

         Settlement with Stockholders. Operating expenses in 1995 include a $1.6
million expense related to settlement of obligations with former stockholders of
IBZ and TREEV for $750,000 and $892,000,  respectively. The Company entered into
an agreement with the former principle  stockholder of IBZ whereby,  in exchange
for  an  aggregate  of  $750,000,   the  former  principle  shareholder  of  IBZ
relinquished  rights to a loan  guarantee.  During  1995,  the  Company and four
former  stockholders  of  TREEV,  entered  into  agreements  to settle a dispute
arising from the  acquisition  of DCR in exchange for  extensions  of employment
agreements and an aggregate of 175,000  additional shares of Common Stock of the
Company, valued at approximately $892,000.

         Restructuring Charges and Capitalized Software Write-Offs.  At December
31, 1996,  the 1994  restructuring  plan,  whereby excess  personnel,  duplicate
facilities  and products to be  discontinued  were  identified,  whereby  excess
personnel,  duplicate facilities and products to be discontinued were identified
(the "Plan") was complete.  Under the Plan, the Company incurred a net change in
estimate of $175,000 in 1996.

         During 1995, the Company incurred additional charges under the Plan for
items that exceeded its original estimates  totaling $297,000.  These additional
charges were offset by $1.4 million  reflecting a decrease in estimated  charges
for impairment of inventory and maintenance spare parts.  During 1995,  $322,000
of the  1993  restructuring  plan  costs  were  reversed  after  a  release  was
negotiated from the landlord for vacated property.

         The Company incurred a $2.0 million  restructuring  charge in 1994 when
establishing the Plan. In conjunction with the 1994  restructuring,  the Company
also expensed  capitalized  software of $5.3 million,  in 1994, which related to
products that were abandoned in favor of the 1View suite.  During 1994, $300,000
of costs  from the 1993  restructuring  plan were  adjusted  due to  changes  in
estimate.

         Investment and Interest Income.  Net investment and interest income was
$309,000 in 1996, $224,000 in 1995 and $579,000 in 1994. The $85,000 increase in
net  investment  and  interest  income  between  1996  and  1995  was  primarily
attributable  to the interest earned for the cash received and invested from the
private  placement  offerings  of Common  Stock and Series H, I and J  Preferred
Stock done during the first three quarters of 1996. The $355,000 decrease in net
investment and interest income between 1995 and 1994 was primarily  attributable
to a decrease in cash,  cash  equivalents  and  short-term  investment  balances
during the same period and to increased interest expense from capital leases and
the lines of credit.

         Income  Taxes.  The Company  incurred  income tax  benefits of $68,000,
$280,000  and $1.6  million in 1996,  1995 and 1994,  respectively.  The $68,000
income  tax  benefit  incurred  in 1996 was the result of net  operating  losses
generated  by  Dorotech's  operations  offset by a decrease  in  Dorotech's  net
deferred tax  liabilities.  The $280,000 income tax benefit incurred in 1995 was
primarily  the result of a decrease of net  deferred tax  liabilities  resulting
from the divestiture of IBZ's European  operations and other purchase accounting
adjustments.  The $1.6  million  income tax  benefit in 1994 was  primarily  the
result of income tax credits generated by Dorotech's European operations for R&D
expenditures and net operating losses generated by Dorotech's and IBZ's European
operations.

         Net Loss.  The  Company's  net loss was $17.3  million  in 1996,  $25.0
million in 1995 and $39.6 million in 1994. The $7.6 million decrease in net loss
between 1996 and 1995 was due to the 1995 losses from the  Divestitures  of $9.3
million,  the $1.6 million settlement with  stockholders,  and the $10.7 million
reduction in SG&A expenses in 1996.  These reductions in expenses were offset by
a  $11.7  million  reduction  in  gross  margin  in  1996,  the  loss on sale of
subsidiary  in 1996 of  $921,000,  and the change in estimate of $1.4 million in
restructuring costs in 1995.

         The $14.7  million  decrease in net loss  between 1995 and 1994 was due
primarily to significantly improved margins on product and service sales of $7.8
million,  the 1994  expenses  incurred  for  purchased  in-process  research and
development,  of  $8.8  million,  restructuring  charges  of  $1.7  million  and
capitalized  software  write-offs,  of $8.7 million,  offset by the 1995 loss on
closure and sales of subsidiaries of $9.3 million,  settlement expenses, of $1.6
million, and reversals of restructuring costs, of $1.4 million.



         Excluding the impact of the write-off of purchased  in-process  R&D and
the write-off of capitalized  software,  the entities  divested in 1995 and 1996
contributed a net loss of  approximately  $1.1 million in 1996,  $4.3 million in
1995 and $14.4 million in 1994.

         Net Loss  Applicable to Common  Shares.  Net loss  applicable to common
shares  includes  adjustments  for dividends,  accretion and redemption  amounts
related to the  Company's  preferred  stock.  The net loss  applicable to common
shares was $21.1 million,  or $1.02 per share, in 1996; $34.9 million,  or $2.41
per share, in 1995; $44.1 million,  or $3.56 per share, in 1994. The decrease in
1995 over 1994 is  attributable  to the decrease in net loss described above and
the  reduction  in  accretion  to  redemption  value of the  Company's  Series B
Convertible  Preferred  Stock of $417,000  offset by the cost of  redemption  of
Series D Preferred Stock of $5.9 million.

Liquidity and Capital Resources for the Years Ended December 31, 1996 and 1995

         As of December 31, 1996,  the Company had $7.6 million in cash and cash
equivalents  compared  to $9.4  million  in cash and cash  equivalents  and $3.0
million in restricted  short-term  investments,  or a total of $12.4 million, at
December 31, 1995. Net working capital decreased to $9.9 million at December 31,
1996 from $13.2 million at December 31, 1995;  however,  the  Company's  working
capital ratio improved from 1.6:1 to 1.7:1.

         At December 31, 1996, the Company had outstanding debt of $2.2 million,
$2.1 million of which is due within one year.  This  compares  with debt of $6.6
million at December 31, 1995, $5.4 million of which was due within one year. The
decrease in debt of $4.4 million primarily arose from net repayments of maturing
obligations. See Note 9 to the Consolidated Financial Statements.

         For  1996,  the $1.8  million  decrease  in cash  and cash  equivalents
resulted  from a $11.9  million  use of cash  from  operating  activities,  $2.6
million used in investing  activities  and the  generation of $12.7 million from
financing  activities.  The $11.9  million use of cash in  operating  activities
arose  primarily  from the $17.3  million  loss from  operations  offset by $5.8
million in  depreciation  and  amortization  charges.  The $2.6  million to fund
investing  activities  arose with respect to  capitalized  software  development
costs and the purchase of fixed  assets.  The $12.7  million in cash provided by
financing  activities  arose  primarily from the $6.0 million  proceeds from the
issuance  of Common  Stock and  $10.9  million  proceeds  from the  issuance  of
Convertible  Preferred  Stock,  Series H, I and J,  offset  by the $3.2  million
payment of Series A Stock  dividends and net payments in debt and capital leases
of $1.2 million.

         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
31, 1995,  $2.5 million of the $3.1 million  restricted  short-term  investments
served as collateral for this line of credit.  The Company negotiated a new line
of credit  during the fourth  quarter  of 1996,  see Note 9 to the  Consolidated
Financial Statements.

         For  1995,  the $5.4  million  increase  in cash  and cash  equivalents
resulted from a $9 million use of cash from operating activities, the generation
of $9.6 million from  investing  activities,  and the generation of $4.7 million
from financing  activities.  The $9 million use of cash in operating  activities
arose  primarily  from  the $25  million  net loss  offset  by $6.3  million  in
depreciation  and  amortization  charges and a $9.3  million loss on the sale of
subsidiaries.  The $9.6 million raised from investing activities arose primarily
from  the  sale  of  short-term   investments  offset  by  capitalized  software
development  costs and purchases of fixed assets.  The $4.7 million  raised from
financing  activities  arose primarily from the $28.1 proceeds from the issuance
of Preferred Stocks, Series D, E and G, and the issuance of Common Stock, offset
by the $15.6  million  redemption  cost for the Series D Preferred  Stock,  $3.2
million in dividend payments on the Series A Stock, $2.3 million net payments in
debt and capital  lease  financings,  and $3.1  million  purchase of  restricted
short-term investments.  In 1995, the Company divested seven operating units for
which the Company received $1.2 million in cash.

         As a result  of stock  offerings  in 1996,  the  Company  received  net
proceeds  of  approximately  $16.9  million  which  included  offering  costs of
approximately $500,000. Under the offerings, the Company issued 1,760,285 shares
of Common Stock and 1,100 shares of Series H, I and J Preferred  Stock . The net
proceeds of the offerings were used for working capital purposes.

         The annual dividend  requirements on the Company's preferred stocks are
as  follows:  Series A Stock - $3.2  million  (payable  quarterly)  and Series H
Convertible  Preferred  Stock  ("Series H Stock") is 8% payable on conversion or
redemption of the Series H Stock,  payable either in cash or Common Stock at the
option of the Company. (Because the sole holder of all of the outstanding shares
of Series F Convertible  Preferred  Stock  ("Series F Stock") has agreed to sell
all of such shares to the Company for a set price, the Company no longer accrues
dividends  on the  outstanding  shares of  Series F  Stock.).  Dividends  on the
Company's Series H Preferred Stock is payable in cash or Common Stock.

Results of Operations for the Six Months Ended June 30, 1997 and 1996

         Revenues.  Total  revenues were $18.5 million and $19.7 million for the
six months ended June 30, 1997 and 1996, respectively. The $1.2 million decrease
in revenue was the result of decreases in product  revenue of $1.0  million,  or
28%,  and a decrease  in service  revenue of  $194,000,  or 6%. The  decrease in
product  revenue  was  primarily  attributable  to the  disposition  in  1996 of
Symmetrical Technologies,  Inc. ("STI"), which reduced the Company's revenues by
$1.5 million. The decrease in service revenue of $194,000 was also primarily the
result of the disposition of STI, which contributed $170,000 of the decrease.

         Profit Margins.  Profit margins for product sales increased 12% for the
first  six  months  of 1997  over the same  period  in 1996 as cost of  products
decreased  from 62% to 50% of sales.  The increase in product  sales margins was
primarily due to the disposition  during 1996 of STI. Profit margins for service
sales increased 3% for the six months ended June 30, 1997 as compared to 1996 as
the cost of services decreased from 80% to 77% of sales. The increase in service
sales  margins from 20% to 23% was due to the Company's  increasing  emphasis on
its custom development services.

         Sales and Marketing.  Sales and marketing expenses were $7.3 million or
39% of revenue for the six months ended June 30, 1997  compared to $8.3 million,
or 42% of revenue in 1996.  The decrease of $1.1 million,  or 13%, was primarily
the result of the Company's disposition of STI during 1996.

         General and Administrative.  General & Administrative  ("G&A") expenses
were $3.3  million,  or 18% of revenue,  for the six months  ended June 30, 1997
compared to $5.5  million,  or 28% of  revenue,  in 1996.  The  decrease of $2.2
million,  or 40%,  was  primarily  the result of the  Company's  efforts in cost
reductions in the Company's continuing operations.

         Product  Development.  The Company's  expenditures on software research
and  development  activities  for the six months  ended June 30,  1997 were $3.0
million,  of which $0.7 million was  capitalized  and $2.3 million was expensed.
Software  research and  development  expenditures  for the 1996 period were $4.2
million,  of which $1.1 million was  capitalized  and $3.1 million was expensed.
The  $1.2  million   decrease  in  research  and  development   expenditures  is
attributable to the Company's 1996 plan to consolidate the various 1View product
development  groups into a common  product  development  organization  operating
under a single senior manager.  During 1996, the Company  consolidated  its COLD
product development groups from three separate locations to one, and vacated the
excess  office  space.  The  Company's  disposition  of STI also  resulted  in a
reduction of $116,000 in research and development expenditures.

         Gain on  Extinguishment  of  Debt.  The  Company's  French  subsidiary,
Dorotech, realized a $267,000 gain in connection with the partial forgiveness of
a grant made by a French government agency.

         Income Taxes. The Company's income tax expense for the six months ended
June 30, 1997 of $55,000  resulted from income  generated by Dorotech that could
not  be  offset  by  operating  losses  or  carryforwards   available  in  other
jurisdictions.  The Company had income tax benefit for the six months ended June
30, 1996 of $12,000,  which was primarily the result of taxable losses generated
by Dorotech.

         Net Loss. The Company's net loss for the six months ended June 30, 1997
was $6.2 million as compared to a net loss of $11.6  million for the  comparable
period of 1996.  The net loss  decrease of $5.4 million for the first six months
of 1997 as  compared  to the same  period in 1996 is due  primarily  to the $2.2
million reduction in G&A expenses, $1.1 million reduction in sales and marketing
expenses,  $1.1 million  reduction in product  development  expenses,  increased
profit margins resulting in $890,000  additional gross margin,  and the exchange
fee incurred in 1996.

         Net Loss Applicable to Common Stock.  The net loss applicable to common
shares includes  adjustments for dividends and accretion  amounts related to the
Company's  Series A and F Preferred  stock.  The net loss  applicable  to common
shares was $8.1 million,  or ($.33) per share, for the six months ended June 30,
1997 as compared to $13.5 million or ($.69) per share, for the comparable period
of 1996.  The decrease is  attributable  to the  decrease in net loss  described
above.

Liquidity and Capital Resources for the Six Months Ended June 30, 1997

         As of June 30,  1997,  the  Company  had $1.8  million in cash and cash
equivalents,  as  compared  to $7.6  million  in cash  and cash  equivalents  at
December  31,  1996.  Net working  capital was $4.5 million at June 30, 1997 and
$9.9 million at December 31, 1996.

         During the first six months of 1997,  the  Company  redeemed  1,000,000
shares of  Series F Stock  for  $3,500,000  by using  proceeds  from its line of
credit. In addition, the Company drew the remaining $1,500,000 from its domestic
line of credit. See "--Recent Events."

         Pursuant to the  purchase  agreement  with CDRE,  as amended on May 30,
1997, the Company is obligated to repurchase the remaining  792,186  outstanding
shares  of the  Company's  Series  F Stock  (all of  which  are held by CDRE) by
January 31, 1998 for an aggregate  cash payment of  $6,400,000  plus interest in
the  amount of  $400,000.  (Because  the sole  holder of all of the  outstanding
shares of Series F Stock has  agreed to sell all of such  shares to the  Company
for a set price,  the Company no longer  accrues  dividends  on the  outstanding
shares of Series F Stock.) The Company has granted CDRE a first  ranking  pledge
on all of the  outstanding  stock of Dorotech  and, if the Company fails to make
the  payments to CDRE when due,  CDRE is at liberty to sell all of the  Dorotech
shares owned by the Company and may withhold all amounts due and payable to CDRE
before  paying back excess  money,  if any, to the  Company.  See "Risk  Factors
-European  Operations" and "Description of Capital Stock - Acquisition Preferred
Stock." The Company cannot  repurchase the outstanding  shares of Series F Stock
from CDRE unless and until all accrued dividends on the Series A Stock have been
paid. The Company failed to pay its quarterly dividend on the Series A Stock due
in July 1997 of $0.50 per share or $803,000 in the aggregate.  See  "Description
of Capital Stock --Series A Cumulative Convertible Preferred Stock."

         The  Company is  endeavoring  to sell all of the  outstanding  stock of
Dorotech to a third party.  There can be no  assurance  that the Company will be
able to do so by January 31, 1998 or at all or on favorable terms.

         For the six months  ended June 30, 1997,  the $5.8 million  decrease in
cash and cash equivalents  resulted from the use of $3.3 million in cash to fund
operating activities, $1.2 million to fund investing activities and $1.2 million
in cash to fund financing activities.

         The  $3.3  million  in cash  used to fund  operating  activities  arose
primarily  with  respect to a net loss in  operations.  The $1.2 million in cash
used to fund investing  activities  arose with respect to  capitalized  software
development  costs and the  purchase of fixed  assets.  The $1.2 million in cash
used by financing  activities  arose  primarily from the $1.8 million payment of
preferred stock  dividends and the principle  payments on debt and capital lease
obligations  offset by proceeds of $5.0 million from  borrowing from the line of
credit.

         The adverse  results of operations  that the Company has experienced is
expected to continue at least for the  remainder of 1997.  The Company  believes
that its existing cash,  together with the current proceeds from the convertible
notes,  a debt  offering  the Company  effected  in July 1997 (the  "Convertible
Notes"),  current  and  future  proceeds  from  the sale of  Series K Stock  and
warrants,  and the  anticipated  cash  flows  from  operations,  should  provide
sufficient  resources to fund its activities  through the next twelve months and
to maintain net tangible assets of at least $4.0 million,  which is required for
continued  inclusion of the  Company's  securities  on Nasdaq  National  Market.
However,  there can be no assurance that the Company will be able to satisfy the
conditions  precedent to the issuance of additional shares of Series K Stock and
warrants.  Anticipated cash flows from operations are largely dependent upon the
Company's ability to achieve its sales and gross profit objectives for its 1View
and other products.  If the Company is unable to meet these objectives,  it will
consider  alternative  sources of  liquidity,  such as  additional  offerings of
equity  securities.  Although  the  Company  believes  that it can  successfully
implement its operating plan and, if necessary,  raise additional capital, there
can be no assurance that  implementation  of the plan will be successful or that
financing, if sought, will be available.  See "Risk Factors -- Continued Listing
on the Nasdaq National Market."

         The adverse results of operations which the Company experienced in 1996
have been  declining and are expected to reverse in the first part of 1998.  The
Company  believes that its existing cash, the proceeds of its private  placement
with  Zanett  Securities,  and the  anticipated  cash  flows  from 1997 and 1998
operations,  should provide sufficient  resources to fund its activities in 1997
and 1998.

Recent Events

         On December 31, 1996, the Company  entered into a restricted $5 million
line of credit agreement with Fred E. Kassner ("Loan  Agreement") to finance the
buy back of the Series F  Preferred  Stock.  The line of credit  bears a rate of
interest rate at 2% above a commercial lender's fluctuating prime rate. The line
of credit was initially  secured by a lien against all of the domestic  accounts
receivable of the Company pursuant to a security  agreement with the stockholder
("Security  Agreement").  In  connection  with the line of credit,  the  Company
issued to the stockholder warrants to purchase 100,000 shares of Common Stock at
an  exercise  price of $3.06 per share  ("$3.06  Warrants"),  and the Company is
further obligated to issue to the stockholder  warrants to purchase 5,000 shares
of Common Stock, exercisable at the market rate upon the date of borrowing under
the line of credit, for each $500,000 that the Company borrows under the line of
credit.  In  connection  with  the  $3.06  Warrants,  the  Company  granted  the
stockholder with one demand and two piggyback  registration  rights,  which will
become effective on January 1, 1998.

         On June 8,  1997,  the  Company  and the  stockholder  entered  into an
amendment to the Loan Agreement pursuant to which the stockholder  permitted the
Company to use the  proceeds  of the loan for  general  corporate  purposes  and
entered  into  an  amendment  to the  Security  Agreement,  which  expanded  the
stockholder's security to cover,  including without limitation,  (1) all leases,
licenses,  permits (2) all software products  intellectual property now owned or
hereafter  developed  by the  Company,  (3) all  inventory,  (4)  all  accounts,
contract rights, chattel paper, instruments, general intangibles,  documents and
other obligations, (5) all trade or service


names,  trademarks,  service marks, logos and all patents,  patent applications,
copyrights,  licensing  agreements  and royalty  payments,  (6)  proceeds of the
foregoing, and (7) all of the capital stock of Dorotech.

         On July 9, 1997,  the  Company  issued to  nominees  for Mark Shoom and
Charles G. Kucey  (collectively  referred to as  "Noteholders")  8%  convertible
notes ("Convertible  Notes") that are due on July 8, 2002. Pursuant to the terms
of the Convertible Notes, the Company was obligated to register the Common Stock
issuable in connection with the Convertible Notes by September 12, 1997. The net
proceeds  of the  Convertible  Notes ($1.8  million)  have been used for working
capital and general  corporate  purposes.  The Company  also issued  warrants to
purchase 36,000 shares of Common Stock, in the aggregate,  to the Noteholders at
an  exercise  price of $1.875 per share  ("Note  Warrants").  The Note  Warrants
expire on July 8, 2000.

         Interest on the Convertible Notes is payable at a rate of 8% per annum,
compounded semi-annually.  The Company has the option of paying interest in cash
or Common Stock at the redemption or conversion price described below.

         The  holders  of the  Convertible  Notes have a  security  interest  in
accounts receivable,  inventory, the intellectual property of the 1View Software
and  on  the  stock  of the  Company's  subsidiary,  Dorotech.  The  payment  of
principal,   premium,   if  any,  and  interest  on  the  Convertible  Notes  is
subordinated  to the senior  indebtedness of the Company held by Fred E. Kassner
who has  granted a line of credit to the  Company.  As of August 31,  1997,  the
amount of outstanding  indebtedness (including accrued and unpaid interest) owed
by the Company to Mr. Kassner under this line of credit was $5.036 million.

         Pursuant  to the  terms  of the  Convertible  Notes,  the  Company  was
obligated to file a registration statement with the SEC by September 12, 1997 to
register the Common Stock issuable on conversion of the Notes. This registration
statement has been filed with, but has not been declared effective by, the SEC.

         The Convertible  Notes are  convertible  into shares of Common Stock 45
days beginning after issue (August 23, 1997) at a conversion price of $1.875 per
share.

         The Convertible Notes may not be redeemed prior to October 30, 1997. On
or after October 30, 1997, the holders have the right to redeem the  Convertible
Notes at face value plus accrued  interest on one  business  days' notice to the
Company in cash or shares of Common  Stock,  at the  Company's  election.  On or
after  October 30,  1997,  the  Company has the right to redeem the  Convertible
Notes at face value plus  accrued  interest on 30 days' notice to the holders in
cash or share of Common  Stock,  at the holders'  election.  If shares of Common
Stock  are used,  Common  Stock is  issued  at a rate of 90% of the  previous  5
trading days average closing bid price on the Nasdaq National Market.





                                    BUSINESS

         Network Imaging  Corporation  ("Network  Imaging" or the "Company") was
incorporated  in Delaware in May 1991. The Company  provides  software  products
supporting  storage,   management  and  distribution.   These  products  provide
businesses   and   government   organizations   with  an  automated   method  of
electronically  storing,  managing and distributing  large volumes of structured
data  (text) and  unstructured  data  (diagrams,  documents,  photos,  voice and
full-motion video).

         The Company is a  recognized  leader in content and storage  management
for all unstructured information. Its flagship product, the 1View suite, manages
the storage,  access and distribution of any multimedia (or unstructured)  data,
such as diagrams, documents, photographs, voice, and full-motion video. 1View is
a  solution  for use in  distributed,  high  transaction,  high  volume  mission
critical applications across legacy,  client/server and Internet/intranet  based
environments.  The  Company  is also a  software  developer  for  mainframe  and
PC-based  COLD  systems  and a  developer  and  marketer  of storage  management
software  systems.  1View,  InfoAccess(TM),  Treev+(TM) and the Company logo are
trademarks of Network Imaging Corporation.

         United States operations are conducted in Herndon,  Virginia (primarily
the development, marketing and sales activities of the 1View suite and mainframe
COLD products), Minneapolis,  Minnesota and Denver, Colorado (PC COLD products).
European  operations  are  conducted  primarily in Paris,  France  (hierarchical
storage management ("HSM") software and related storage products and engineering
services).

         Traditional  manual filing,  retrieval,  and  distribution  methods are
labor intensive,  slow, require bulky file storage, allow only one person to use
a file at a time and often  result in  misfiled,  damaged or lost  items.  Large
commercial and government  organizations must continually  process large volumes
of  documents  stored in hard copy paper  files  where  there is a need for more
efficient movement of information throughout the enterprise. The information may
take the form of documents,  database  records,  graphics,  video clips,  audio,
computer  aided  design  ("CAD")  and  engineering  drawings,   and  other  such
"information objects" which are distributed  throughout a multi-site enterprise.
To  address  this need for  information  storage,  retrieval,  and  distribution
management, the Company has developed its principal products: the 1View software
application  suite, a family of COLD products,  and the  Doro-family of products
for HSM applications.

         The Company uses advances in object management  software to capture and
store  "information  objects" with more advanced indexing and retrieval features
than those  available for paper  documents or "structured  data".  The Company's
information access, object management,  and storage management systems have been
designed to support "open systems standards," which permit hardware and software
from different vendors to operate together on a network.




1View

         The Company's 1View suite is designed to answer the information  access
needs of large  organizations.  1View's object  enabling suite of software tools
contains flexible and layered  application  program interfaces  ("APIs"),  which
allow  developers  to  select  the  appropriate  level  of API to suit  customer
solution requirements, provide a bridge to "legacy" systems previously used, and
allow for easy  customization of software systems in comparison to standard file
structures.  1View is an  independent  platform  and can work on top of any data
base in the marketplace.

         The 1View suite consists of the following:


         1View: Object Manager is an API toolkit that provides a unique solution
for storing,  managing,  and distributing any type of multimedia document object
in  high  transaction,   high  volume,   client/server   and   Internet/intranet
environments.  It can manage information that originates from a large variety of
sources,  including  scanned  documents,  computer  output,  word  processor  or
spreadfile  sheets,  audio/voice or full motion clips, and photographic  images.
1View:    Object   Manager   helps   companies    seamlessly   and   efficiently
multimedia-enable  existing or new database  applications while preserving their
investments  in legacy  information  systems,  hardware  equipment and personnel
training.

         1View: EDM (Engineering Document Management) is a software product with
an  application  that  solves  the  document   management   problems  unique  to
engineering  organizations.  Target customers include manufacturing,  utilities,
transportation and other engineering-based  corporations.  It supports a variety
of document types including  oversized  engineering and architectural  drawings,
project plans, specifications and blueprints - indexing the documents  according
to end-user criteria.

         1View:  Workflow is a software product with an easy-to-implement  suite
of  software  tools  designed  to  automate   complex   business   processes  in
client/server  and Web  environments.  It is a rules-based  workflow  management
system designed to allow  successful  integration and automation of work process
management  applications into mainstream business practices  associated with any
business  application.   1View:Workflow  provides  the  ability  to  graphically
represent and control business processes by linking together a variety of people
and software elements to automate the flow of documents (objects)  throughout an
enterprise.

         1View:  WebMOM (Web Multimedia  Object  Manager) is a software  product
that allows companies to build customer  Internet/intranet  applications  easily
and  cost-effectively  using the  1View:Object  Manager  as a  back-end  storage
repository.  It delivers  high  performance  access from Web browsers due to its
caching capabilities, while protecting confidentiality of data by linking to Web
security  mechanisms.  Upon  requests  from Web users,  it locates  the  object,
retrieves  it, adds a MIME header to it, and finally  transfers  it back through
the Web server to the Web browser.  1View:WebMOM supports all major Web browsers
and  servers,  such as Netscape  Navigator,  Netscape  Web  Server,  MS Internet
Explorer, and MS Internet Information Server.


         1View:  COLD/ES is a report  storage and  retrieval  system that offers
high volume,  high speed mission critical print data handling.  It lets the user
maximize  the  power  and  extensive  resources  of the  mainframe  computer  by
off-loading  report management  operations to a cost-effective  dedicated server
and its associated high efficiency data storage subsystem.

         1View:  Unity  is a  software  product  that  provides  a  storage  and
retrieval  system for scanned images and other  documents.  It provides a simple
and  consistent  way to find  and view  information  regardless  of its  storage
location or internal format.  In most cases,  documents are added to this system
using a batch scanning process. 1View:Unity is an end-user application that runs
with 1View:Object Manager.  1View:Object Manager handles the physical management
of documents as they are being  scanned into the system and after they have been
stored on storage  media  while  1View:Unity  allows the  end-user  to  organize
documents  electronically  in a structure that is meaningful to the end-user and
retrieves information rapidly.

Other Products

         A significant  portion of the Company's product emphasis is on packaged
software  solutions.  Computer  output to laser  disk  ("COLD")  software  is an
important  component of several of these  products.  COLD  technology  is widely
accepted  as a way to  permanently  archive and  provide  for the  retrieval  of
permanent  business  reports  produced  by  computers  (computer  output).  COLD
typically  replaces printed paper reports and Computer Output Microfiche (COM or
"microfiche") with high capacity optical disks. Once written permanently to this
unalterable  media,  COLD provides for on-line  viewing of  information  such as
banking and brokerage  statements,  utility bills, payroll reports and corporate
financial journals and reports.  COLD technology  provides a more economical way
to store the information as well as a faster method to retrieve reports. Optical
disk is much less expensive  storage medium than microfiche or paper. By putting
reports  back   on-line   utilizing  an   organization's   standard   terminals,
workstations,  and networks,  productivity  is increased as compared to manually
handling  physical  paper and  microfiche.  The  Company  is one of the  largest
commercial providers of COLD technology.

         The TREEV Division of the Company's  U.S.  operations has developed and
markets  PC-based COLD systems used in over 2,000  community  banks.  TREEV also
markets imaging products to the community bank  marketplace  including the UNITY
product  repackaged  as TREEV  Voyager II. TREEV  Division  provides  "turn-key"
hardware and software  solutions,  maintenance  services for its client systems,
consulting, training, and high quality optical supplies.

         The Company's  French  subsidiary,  Dorotech,  headquartered  in Paris,
develops  and markets a family of  software  products  designed to manage  large
volumes of information and provide professional engineering services. Dorotech's
software products include DoroStore,  DoroFile,  Doro-JB,  Dorokey,  and Dorodoc
(the  "DoroStore  suite").  The  DoroStore  suite  implements  advanced data and
storage  management  solutions for enterprises  with complex  networks and large
numbers of servers and  workstations.  The  capabilities  of the DoroStore suite
include: (1) centralized administration capability to implement uniform data and
storage  policies  throughout a  distributed  network,  (2) advanced  backup and
restore  processes to protect and secure data from disasters,  and provide users
with a direct link to retrieving  their  individual  files, (3) On-Line Database
Backup/Restore  (ODBR) to manage the  backup  and  recovery  of  databases,  (4)
advanced  archiving  methods  that  allow  retrieval  of files  using  keywords,
phrases, and date ranges,  thereby reducing costly processes involving users and
administrators searching for specific files, (5) hierarchical storage management
for  transparently  and  automatically  storing  data onto  lower  cost  storage
subsystems,  providing  virtually  limitless  network  capacity,  and  (6)  full
security  protection for all  operations.  The DoroStore suite provides a single
utility for administering  heterogeneous  environments in terms of storage space
and data  protection  across networks on any scale, up to and including the very
largest  networks.  The Company is  endeavoring  to sell all of the  outstanding
stock of Dorotech to a third party.  There can be no assurance  that the Company
will be able to do so by January 31, 1998 or at all or on favorable terms.

Product Development

         The Company's plan to consolidate the various 1View product development
groups into a common product development organization was completed in 1996. The
unified team now operates  under a single  senior  manager and is located at the
Company's   headquarters  in  Herndon,   VA.  This   consolidation   allows  the
organization to operate under a common shared strategy,  which includes both the
1View product suite's  technical  vision and software  development  methodology.
During 1997,  the product  development  group will focus on  completing  product
release plans that are responsive to the market and support the Company's  short
term revenue goals.

         The strategic direction for the products is to provide a cohesive suite
of 1View products that will deliver innovative,  intelligent, multimedia content
management  solutions to enable the Company's customers and business partners to
leverage  existing  applications  and exploit  emerging  business  opportunities
across the  Internet/intranet.  This vision has been  accomplished by leveraging
the existing 1View suite of products and adapting them to the Web environment as
well as to database  vendor products such as Sybase's  OmniConnect.  The Company
was an early adopter of the Microsoft's  ActiveX technology and will continue to
migrate  the  existing  toolkits  and API  into  components  that can be used to
rapidly  build new  enterprise  wide  applications  and easily  integrated  into
existing customer applications.

         The Company views the product  development  organization  as one of its
key assets and will  continue to invest in building the group's  infrastructure,
refining the group's  software  development  methodology,  and  implementing the
1View, COLD and storage management products strategy.

Assembly; Sources of Supply

         The  Company  assembles  its  products  at its  facilities  in Herndon,
Virginia, Denver, Colorado, and Paris, France. The Company relies exclusively on
outside suppliers for the hardware  components of its products such as scanners,
printers,  computers  and  optical  disk  drives and  jukeboxes.  Most parts and
components are currently  available from multiple sources at competitive prices.
To date, the Company has not experienced  significant  delays in obtaining parts
and  components,  and although  there can be no assurance,  the Company does not
expect to experience such delays in the future.

Warranty and Service

         Warranties  for hardware sold by the Company are generally  provided by
the  manufacturer.  The Company  typically  provides for its  software  products
warranties  for ninety days and service  contracts  for support and  maintenance
that  usually  cover one year  periods.  The Company  recognizes  revenue  under
service contracts ratably over the contract period.

Competition

         Management  believes  that  the  Company's  1View  product  line is the
broadest,  most innovative  solution available for enterprise  scaleable content
and storage  management in the industry today.  When companies have a clear need
for  storing,  managing  and  distributing  multimedia  objects  such  as  large
drawings,  photographs,  documents,  video clips, and audio clips that must: (a)
scale to many terabytes, (b) serve thousands of users and (c) work with existing
and new applications,  application  databases or universal database platforms in
distributed  heterogeneous  environments,  there is no direct  competition  from
other companies. When only some, but not all, of these requirements must be met,
there  is  competition  from  companies  such  as  FileNet  Corporation,   Wang,
Recognition  International,  Eastman Kodak and other vendors in the  traditional
imaging  and  document  management   markets.   For  smaller  scale  systems  in
centralized  environments  with low  performance  requirements,  the competitive
issue becomes price or company size and stability.
         With increasing recognition by companies such as Sybase,  Informix, Sun
Microsystems,  and  Microsoft of the unique  capability  of the Network  Imaging
product  suite,  many  of  those  issues  have  become  less  important  from  a
competitive perspective.
         There is,  however,  the potential for  competition  from the database,
application and storage vendors who in some cases are Network Imaging partners.
         The new Universal Server initiatives from Oracle,  Informix and IBM all
seem to  indicate  support to store and manage  the same  multimedia  content in
markets that Network Imaging serves.
         Scaleability  of  content  storage  requirements,   complexity  of  the
environment (i.e., distributed content base, multiplatform, multiple application
content  access),  and cost  management of the storage  resources  (hierarchical
storage environments) are real and significant issues in this industry.  None of
the  database  vendors  completely  solve  these  issues  and most of them  have
recognized  that and are working  with  Network  Imaging on large  scale  system
proposals. Importantly, Sybase has entered into a reseller agreement to remarket
the 1View  solution as part of their  adaptive  server  initiative.  The Network
Imaging  partner  marketing  program is  targeted to address  these  competitive
issues and make partners of the apparent competitors.
         In the  future,  the  systems  management  companies  such as  Computer
Associates  and Tivoli are  expected  to  recognize  the need for  comprehensive
content and storage management for multimedia as a part of their overall systems
management architecture. Their option to cooperate or compete will depend on how
rapidly they want to enter this market. In a market segment  (Internet/intranet)
poised for explosive  growth,  Network  Imaging has  significant  time to market
advantage over their competitors' software technology.

Backlog Orders

         As of September 2, 1997, the Company's  TREEV division had a backlog of
orders  for  $1,000,000,  whereas on  September  2, 1996,  the  Company's  TREEV
division  had a backlog  of  $800,000.  The  Company  expects  that it will fill
approximately 80% of the current backlog within the current fiscal year.

Marketing and Sales
         The Company  sells its products  directly,  through its own sales force
and  indirectly,   through  value  added  resellers,  system  integrators,   and
distributors.  The Company  maintains  sales offices in locations in or near New
York, Boston, Washington D.C., Atlanta, Charlotte, Denver, Detroit, Minneapolis,
Los Angeles, San Francisco, Dallas, Seattle and in Europe, near Paris, France.
         The Company has active programs to develop marketing  partnerships with
vendors of complementary  product  technologies such as companies who market and
manufacture  database,   application   development,   systems  management,   and
communication and connectivity middleware.
         The Company also focuses on vertical  market  segments that have proven
requirements  for the Company's  product  line.  These market  segments  include
Telecommunications  and Utilities,  Finance  Banking and Insurance,  Healthcare,
Manufacturing,  and the  Public  Sector.  The  Company  has  developed  vertical
business development programs in these segments to identify sales opportunities,
create product awareness,  and develop contacts for the Company's indirect sales
channels.
         The Company  advertises in numerous major  industries,  vertical market
and news  publications  and  participates  in  direct  mail  campaigns  with its
partners. The Company markets diverse products to multiple industries. It is not
dependent on any one customer or business  partner for a major percentage of its
business.

Business Dispositions

         During 1994, the Company  committed  itself to a plan of  restructuring
that was designed to improve  operating  results by concentrating  the Company's
resources on the marketing and continued development of its 1View suite and COLD
software  products.  In connection  with its  restructuring  plan,  the Company,
during  1995  and  1996,   disposed  of  a  number  of   operating   units  (the
"Divestitures"),  which  were  not  considered  complimentary  to the  Company's
business.

         As a  result  of the  Divestitures,  the  Company  recorded  losses  of
$921,000  and  $9.3  million  in 1996  and  1995,  respectively.  The  aggregate
consideration  received by the Company from the Divestitures was $1.6 million in
cash and $4.2  million in notes  receivable,  of which  $320,000 was reserved as
uncollectible at December 31, 1996.

         The  Company  sold  the  assets  and  liabilities  of  its  Symmetrical
Technologies,  Inc.  ("STI")  subsidiary  in September  1996.  During 1995,  the
Company  disposed of the following  operations:  Hunt Valley Division  (formerly
NSI, Inc.),  Network Imaging (UK Holdings) Limited,  Microsouth,  Inc., Tekgraf,
Inc., P E Systems, Inc., WildSoft Division, and IBZ Digital Production AG.

        The Company is endeavoring to sell all of the outstanding stock of Doro-
tech to a third party.  There can be no assurance  that the Company will be able
to do so by  January  31,  1998  or at  all or on  favorable  terms.  See  "Risk
Factors--European Operations."

License Agreements and Pricing

         The  Company's  software  product  revenues  consist  primarily of fees
generated from license of software products.  In consideration of the payment of
license  fees,  the  Company  generally  grants  nonexclusive,  nontransferable,
perpetual  licenses that are primarily  computer site or user specific.  License
fee arrangements vary depending upon the type of software product being licensed
and  on  the  number  of  users  or  locations  in  the  case  of  client/server
implementations  and on a per CPU basis in the case of mainframe  installations.
The United States list price for the Company's 1View products ranges from $5,000
for a single product to several million dollars.

         Customers may generally  obtain support services and maintenance for an
annual fee that is approximately 16% of the then-current annual license fee. The
support and  maintenance  fee is billed  monthly or  annually  and is subject to
changes in software  license list prices.  Resellers of the  Company's  software
products  are  generally  required to collect and remit to the Company 8% of the
Company's then-current annual license fees for maintenance and support services.
In such  cases,  the  Company  only  provides a certain  level of support to the
end-user and general maintenance and support, such as initial calls and queries,
are  performed  by the  reseller.  The Company  also  provides  pre-installation
assistance, systems administration, training and other product-related services,
generally on a time and materials basis.

Proprietary Rights and Licenses

         The  Company  regards  its  software  as  proprietary  and  relies on a
combination of trade secret,  copyright and trademark laws, license  agreements,
nondisclosure and other contractual provisions and technical measures to protect
its  proprietary  rights in its products.  The Company  distributes its software
products  under  reseller   agreements  and  software  license  agreements  that
typically  grant  customers  nonexclusive,   nontransferable   licenses  to  the
Company's products and have perpetual terms unless terminated for breach.  Under
these license agreements, the Company retains all rights to market its products.
Use of the licensed  software is usually  restricted to the customer's  internal
operations  on  designated  computers  at  specified  sites  unless the customer
obtains a site license,  which  restricts that use of the software to designated
users.  Use  is  subject  to  terms  and  conditions  prohibiting   unauthorized
reproduction or transfer of the software.  The Company also seeks to protect the
source code of its software as a trade secret and as an unpublished, copyrighted
work. See "Risk Factors--Intellectual Property Rights; Infringement Claims."


Facilities

         The   Company's   corporate   headquarters,   including  its  principal
administrative,  product development, product management, technical support, and
sales and  marketing  operations,  are  located in 25,600  square feet of office
space in a building in Herndon,  Virginia.  The Company occupies the space under
leases expiring in the year 2000. The Company also leases an aggregate of 55,000
square feet of space in or near Atlanta,  Georgia,  Charlotte,  North  Carolina,
Chicago,  Illinois,  Dallas, Texas, Denver,  Colorado, Los Angeles,  California,
Minneapolis,  Minnesota, New York New York, San Francisco,  California, Seattle,
Washington,  and Paris France. The Company believes that its existing facilities
are suitable and adequate for its present needs and that suitable  space will be
available as needed to accommodate any expansion of operations.

Employees

         As of  September  2, 1997,  the  Company had 226  full-time  employees,
including 71 employees  primarily  engaged in research  and  development,  51 in
technical support and services, 73 in sales and marketing, and 31 in operations,
finance and administration.

Legal Proceedings

         From time to time,  the Company is involved in  litigation  relating to
claims  arising  out of its  operation  in the normal  course of  business.  The
Company is not currently a party to any legal proceedings.


                                   MANAGEMENT


Executive Officers and Directors

        The executive officers and directors of the Company,  and their respec-
tive ages at September 2, 1997 are as follows:


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

James J. Leto (2)            53      President, Chief Executive Officer and
                                      Chairman of the Board

Jorge R. Forgues             42      Senior Vice President of Finance and
                                      Administration, Chief Financial Officer

John M. Flowers              47      Senior Vice President of Engineering

Brian H. Hajost              41      Senior Vice President of Marketing

Mark T. Wasilko              43      Senior Vice President of  Business 
                                      Alliances

Robert P. Bernardi (2)       46      Director and Secretary

John F. Burton (1)           46      Director

C. Alan Peyser               63      Director

Robert Ripp (1)(2)           56      Director

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


(1)      Member of the Audit Committee.


(2)      Member of the Compensation Committee.


         James J. Leto  became  President  and  Chief  Executive  Officer  and a
Director  of the  Company in May 1996 and became  Chairman  of the Board in June
1997. Mr. Leto served as the Chairman and Chief  Executive  Officer of PRC Inc.,
an information  technology company ("PRC"),  from January 1993 to February 1996,
and prior thereto in various capacities as an executive officer of that company.
From January 1989 until February 1992, Mr. Leto served as the Vice President and
General Manger of AT&T Federal  Systems  Computer  Division,  a division of AT&T
charged with developing a major system  integration and computer presence in the
federal marketplace.  Mr. Leto first joined AT&T in November 1977. Mr. Leto is a
director of Government Technology Systems, Inc.

         Jorge R. Forgues  became Chief  Financial  Officer,  Vice  President of
Finance and  Administration  and  Treasurer  of the  Company in April  1996.  In
January 1997,  Mr. Forgues was promoted to Senior Vice  President.  From October
1993  through  April  1996,  he  served  as the  Vice  President  of  Finance  &
Administration  and Chief  Financial  Officer  of  Globalink,  Inc.,  a computer
software developer that offers foreign language translation software.  From July
1992 to September  1993,  Mr. Forgues served as Director of Accounting at Spirit
Cruises,  Inc.,  and from June 1987 to June 1992 he served as the Vice President
of Finance of Best Programs, Inc., a computer software developer. Mr. Forgues is
a director of On-Site Sourcing Incorporated.

         John M. Flowers, Jr. was appointed Senior Vice President of Engineering
Services in April 1996.  From 1989 to April  1996,  he was with PRC,  serving in
various  capacities,  including  Manager of the Center for  Imaging  Technology,
Chief  Architect for Systems  Integration  Division,  Corporate  Director of the
Imaging Core Competency Program,  and Vice President and Chief Scientist for the
Information Systems Division.

         Brian H. Hajost joined the Company in March 1996, was appointed  Senior
Vice  President of Integrated  Products in April 1996 and was  appointed  Senior
Vice President of Marketing in May 1997.  Form 1985 to 1995, Mr. Hajost was with
Servantis Systems, Inc. (formerly Stockholder Systems,  Inc.) where he served in
various  capacities   including  Securities  Products  Group  Regional  Manager,
Securities  Products Group Regional Director Banking Sales,  Securities  Product
Group Vice President Sales Manager,  Imaging  Technologies  Group Vice President
Sales and  Marketing,  and Imaging  Technologies  Group  Senior  Vice  President
Business Unit Manager.

         Mark T. Wasilko  joined the Company in September  1995,  became  Senior
Vice  President of Marketing  for the Company in October 1995 and was  appointed
Senior Vice  President of Business  Alliances in May 1997.  From January 1994 to
August 1995, Mr.  Wasilko was Vice  President of Corporate  Marketing for Legent
Corporation  ("Legent"),  an independent  software  vendor.  Prior thereto,  Mr.
Wasilko was Senior Vice President for Corporate Marketing at Computer Associates
International, Inc., an independent software vendor, where he had held a variety
of sales and marketing positions since 1982.


         Robert P.  Bernardi  was a  co-founder  of the  Company  and has been a
Director of the Company (and its predecessor) since its inception.  He served as
Chairman of the Board of Directors  from  September  1995 through June 1997. Mr.
Bernardi  served as President of the Company from inception to February 1995 and
as Chief  Executive  Officer from inception to May 1996.  From 1988 to 1990, Mr.
Bernardi  was  an   independent   consultant   in  the   document   imaging  and
telecommunications  fields.  From March 1984 to December 1987, Mr.  Bernardi was
Chairman and Chief Executive Officer of Spectrum Digital Corporation, a publicly
held  telecommunications  equipment  manufacturing company ("Spectrum Digital"),
with overall management responsibilities including marketing, sales, engineering
and finance.


         John F. Burton was  appointed  to  the  Board of Directors in September
1995.  Mr. Burton became  Managing  Director of the Updata Group.  a mergers and
acquisitions investment bank, in March 1997. From October 1996 to February 1997,
he served as the President of Burton Technology Partners, a strategic consulting
and investment company.  Mr. Burton was President and Chief Executive Officer of
Nat Systems,  Inc., a provider of applications  development software from August
1995 to September  1996.  From January  1995 to August 1995,  Mr.  Burton was an
independent  consultant in the applications  software field.  From March 1992 to
January 1995,  Mr. Burton served as Chief  Executive  Officer,  and from 1989 to
January 1995 as President,  Chief Operating  Officer and a Director,  of Legent.
Mr. Burton is also a Director of Banyan Systems,  Inc., MapInfo  Corporation and
Netrix  Corporation.  Mr. Burton was a founding member of the Northern  Virginia
Technology Council.


         C. Alan Peyser became a Director of the Company in May 1996.  Mr.Peyser
was appointed  President and Chief Executive Officer of Cable & Wireless,  Inc.,
in October 1996.  From  September  1995 to October 1996,  Mr. Peyser served as a
consultant to Cable & Wireless,  Inc. He is also currently  President of Country
Long  Distance  Corporation  and a member  of the Board of  Directors  of Tridex
Corporation  and TCI  International,  Inc. Mr. Peyser  previously  served as the
Chief  Executive  Officer  and  President  of Cable & Wireless,  Inc.  from 1980
through September 1995.

         Robert Ripp has served as a Director  since October  1994.  Mr. Ripp is
Corporate  Vice  President  and  Chief  Financial   Officer  of  AMP,  Inc.,  an
electronics  manufacturer.  Prior  to  joining  AMP in 1994,  Mr.  Ripp was Vice
President and Treasurer of International Business Machines Corporation, where he
served in various  capacities as a finance  executive from 1964 to 1994. He is a
member of the board of directors of ACE, Limited.


Director Compensation


         At the Board's  quarterly  meeting on August 28, 1997,  the Board voted
and approved a motion to eliminate payment for service to the Board and adopted,
subject to shareholder approval,  the Directors Stock Option Plan (the "Director
Stock Option Plan").  Under the Director Stock Option Plan, each director who is
not an  executive  officer of the  Company  will  receive an option to  purchase
30,000  shares of Common Stock vested in 25% each quarter  following the date of
grant,  so that at upon the first  anniversary  of the stock option  grant,  the
option  grant will be fully  vested.  The option  price is equal to 100% of fair
market value on the date of the option grant. Messrs. Ripp, Burton,  Peyser, and
Bernardi were each granted an option for 30,000  shares of the Company's  Common
Stock under that plan  effective  July 1, 1997 with an  exercise  price equal to
100% of fair market value of the Common Stock on June 30, 1997.


         Prior  to  that  meeting,  each  director  of the  Company  who was not
currently employed by the Company,  received a fee of $1,000 for each meeting of
the Board or committee thereof that he attended in person and $250 for each such
meeting in which he  participated  by  telephone.  Prior to the  creation of the
Director Stock Option Plan,  Mr. Ripp has been granted  options on 21,675 shares
of Common Stock at $3.75 per share,  25,000  shares of Common Stock at $6.82 per
share, and 25,000 shares of Common Stock at $3.82 per share, each with a term of
10 years and each of which is  exercisable  on a cumulative  basis in four equal
installments on each of the first four  anniversaries  of the applicable date of
grant.  Mr. Burton has been granted an option on 100,000  shares of Common Stock
with an  exercise  price of $3.38 per share and a term of 10 years.  The  option
vests on May 2, 2002 or, earlier,  upon the Company's  entering into a strategic
partnership  agreement  with  a  major  software  company  as a  result  of  the
assistance of Mr. Burton. Mr. Peyser has been granted an option on 50,000 shares
of  Common  Stock  at  $3.69  per  share  with a term of 10  years  and  that is
exercisable  on a  cumulative  basis in four equal  installments  on each of the
first  four  anniversaries  of its date of  grant.  The  exercise  prices of the
options  granted to  directors  were set at the fair market  value of the Common
Stock at the time of grant.


Compensation Committee Interlocks and Insider Participation


         During the year ended  December 31, 1996,  the  Company's  Compensation
Committee was composed of directors  Robert P.  Bernardi,  the  Company's  Chief
Executive  Officer  until June 3, 1996 and  currently an employee of the Company
and Robert Ripp, an outside director.  As of September 2, 1997, the Compensation
Committee is composed of outside  directors  Robert P.  Bernardi and Robert Ripp
and James J. Leto, the Company's President and Chief Executive Officer.


         The Company has  entered  into  consulting  agreements  with BCG,  Inc.
("BCG") (of which Mr. Bernardi is the sole stockholder) that provides for BCG to
make the  services of Mr.  Bernardi  available to the  Company.  The  consulting
agreement is for an initial term ending January 31, 1999 and continues from year
to year thereafter unless terminated by either the Company or Mr. Bernardi.  The
agreement with BCG currently  provides for an annual consulting fee of $225,000,
subject to increase upon review by the Board of Directors.  The Company has also
agreed to employ Mr.  Bernardi as  Secretary at an annual  salary of $5,000.  In
determining the increases in consulting fees, the Board of Directors  intends to
consider  such factors as the levels of  compensation  of senior  executives  of
comparable   companies,   the  overall   performance  of  the  Company  and  the
contributions   of  Mr.   Bernardi  to  that   performance.   Apart  from  these
considerations,  no criteria have been  established that would limit the size of
increases in consulting fees. The agreement provides demand  registration rights
to Mr.  Bernardi with respect to securities of the Company owned by them or that
they may acquire upon exercise of options. Each registration right terminates on
the first anniversary  following  termination of the consulting  agreement.  The
consulting  agreement provides that Mr. Bernardi will devote his reasonable best
efforts to the business of the Company and the  furthering  of its interests and
that he is expected to devote up to 100 hours per month to the Company's affairs
as requested by the Company.  The Company expects that Mr. Bernardi will perform
duties  assigned to him by the Board of Directors.  The agreement  prohibits Mr.
Bernardi  during the term of the agreement  from certain  associations  with any
business that competes with the Company.


The agreement also provide that, if the consultant's  services are terminated by
the Company  for any reason  other than cause,  death or  disability,  or if the
consultant terminates the agreement for "good reason," the Company will pay in a
lump sum 97% of the full  amount of the fees and  benefits  that the  consultant
would have  received,  at the average rate in effect during the six month period
immediately  prior to  termination,  and of any  bonuses  that  would  have been
received,  at the rate of the bonus for the last full year prior to termination,
if the  consultant's  services  had  continued  for  the  remaining  term of the
agreement.  The term "good reason" means a failure by the Company to comply with
any material  provision of the agreement,  a change of control of the Company to
which the  consultant  has not  given  prior  written  consent  or a good  faith
determination  by the  consultant  that as a result of a change in control he is
unable to  discharge  effectively  his duties under the  agreement.  A change in
control is deemed to occur if  substantially  all the assets of the  Company are
sold, if the Company is merged or consolidated  with, or becomes a subsidiary of
another corporation, if any person or group acquires 20% or more of the combined
voting power of the  Company's  outstanding  securities  and is then the largest
holder of such  securities  or if during  any  period of two  consecutive  years
individuals  who at the  beginning  of  such  period  constitute  the  Board  of
Directors of the Company  cease for any reason to constitute at least a majority
thereof,  unless the  election  of each  director  who was not a director at the
beginning of such period has been approved in advance by directors  representing
at least two thirds of the  directors  then in office who were  directors at the
beginning of the period.


Summary Compensation Table


         The Summary  Compensation Table below lists the Chief Executive Officer
and the four other most  highly  compensated  executive  officers of the Company
(the  "Named  Executives")  as of the end of 1996  and  their  compensation  for
services in 1996, 1995 and 1994.


 <TABLE>
<CAPTION>
                                                                                            Long-Term
                                                                                          Compensation
                                                 Annual Compensation                          Awards
                                ----------------------------------------------------      --------------  
                                                                                            Securities        
                                                                        Other Annual        Underlying        All Other
 Name and Principal Position    Year      Salary($)       Bonus($)    Compensation($)(1)     Options(#)    Compensation ($)
 ---------------------------    ----      ---------      ---------    -----------------   --------------    ----------------       
<S>                             <C>       <C>            <C>            <C>               <C>               <C>
Robert P. Bernardi(2)........   1996    $   79,306      $   50,000                                   0      $  107,333(3)
  Chairman of the Board         1995       182,306          50,000                         1,148,325(4)
  and Chief Executive Officer   1994       175,000          64,000                           625,000(5)


James J. Leto................   1996      118,974(6)        34,066                             500,000
  President and Chief           1995
  Executive Officer (7)         1994

Russell D. Hale(8)...........   1996      165,000           11,050                                   0
  Senior Vice President,        1995      165,000           43,329                             250,000
  Federal Sales                 1994        28,135(9)                                                0

Mark T. Wasilko..............   1996      150,000           13,125                              50,000
  Senior Vice President,        1995        48,942(10)                                         125,000
  Marketing                     1994

Brian H. Hajost..............   1996      102,000(11)       26,978                             100,000         42,697(11)
  Senior Vice President,        1995
  Integrated Products           1994
--------------------
</TABLE>


(1)      Perquisites  and other  personal  benefits,  securities and property is
         less than the lesser of $50,000 and 10% of the total annual  salary and
         bonus for each Named Executive in each year shown.

(2)      Mr.  Bernardi  resigned  as  the   Company's  Chief  Executive  Officer
         effective May 29, 1996 and as the Company's Chairman  of  the Board  on
         June 3, 1997.

(3)      Mr.  Bernardi  became a consultant to the Company upon his  resignation
         as the Company's  Chief  Executive Officer.  $102,083  constitutes  the
         consulting fees paid to Mr. Bernardi in 1996 and $5,250 constitutes the
         automobile allowance for Mr. Bernardi.

(4)      The figures shown treat as newly issued in 1995 the replacement options
         that  were  exchanged  for  the  options  surrendered  by Mr.  Bernardi
         pursuant to the Company's 1995 Option Repricing  Program.  Mr. Bernardi
         received   replacement  options  on  938,325  shares  in  exchange  for
         surrendering  options  on the  1,125,000  shares  shown as having  been
         granted in 1993 and 1994. The Company's 1995 Option  Repricing  Program
         allowed  holders of  out-of-the-money  options to surrender them to the
         Company   and  receive  in  exchange   therefor   replacement   options
         exercisable  for fewer shares as  determined  by a formula  intended to
         achieve  approximate   economic  equivalence  between  the  surrendered
         options and the  replacement  options  and having an exercise  price of
         $3.75, the same vesting schedule as the surrendered  options and a term
         of ten years  commencing on the original grant date of the  surrendered
         option.


(5)      Terminated pursuant to the Company's 1995 Option Repricing Program.


(6)      Mr. Leto joined the Company as its Chief Executive Officer in May 1996.


(7)      Mr. Leto became Chairman of the Board of the Company on June 3, 1997.


(8)      Mr. Hale resigned as an officer of the Company effective April 1, 1997.


(9)      Mr. Hale joined the Company as an officer in October 1994.


(10)     Mr. Wasilko joined the Company as an officer in September 1995.


(11)     Mr. Hajost joined the Company as an officer in March 1996.


(12)     The amount shown constitutes  temporary  housing  benefits  and  moving
         expenses paid for Mr. Hajost in 1996.


Option Grants in Last Fiscal Year


         No stock options were granted to Messrs.  Bernardi or Hale during 1996.
The  following  table sets forth  certain  information  concerning  the grant of
options to the other Named  Executives in 1996.  The Company has not granted any
stock appreciation rights ("SARs").

<PAGE>
<TABLE>
<CAPTION>
                                   Individual Grants
                       ---------------------------------------------                         Potential Realizable
                                        Percent of                                             Value at Assumed
                       Number of           Total                                             Annual Rates of Stock
                       Securities         Options                                             Price Appreciation
                       Underlying       Granted to          Exercise                            for Option Term                   
                       Options         Employees in         or Base       Expiration       ------------------------
Name                   Granted(#)      Fiscal Year        Price($/Sh)         Date           5%                10%
----                   ----------     --------------      -----------      ---------    -----------       ------------       
<S>                    <C>            <C>                 <C>              <C>         <C>                <C>
James J. Leto........   500,000(1)            34%            $4.22          5/28/06     $ 1,327,000        $ 3,363,000
Mark T. Wasilko.....     50,000(1)             3%            $3.82          4/10/06     $   120,120        $   305,000
Brian H. Hajost......    50,000(1)             3%            $3.82          4/15/06     $   120,120        $   305,000
                         50,000(1)             3%            $3.13          9/22/06     $    98,500        $   249,500

--------------------
</TABLE>

(1)      Each of the  indicated  options was granted  pursuant to the  Company's
         Employee Incentive Stock Option Plan and vests four years from the date
         of grant, or, for the options held by Mr. Leto, upon the acquisition of
         the Company.


Aggregated Option Exercises in Last Year and Year End Option Values

         The  following  table  summarizes  the value  realized upon exercise of
outstanding  stock options and the value of the outstanding  options held by the
Chief Executive Officer and the other Named Executives.

<TABLE>
<CAPTION>

                                                            Number of Securities
                                                           Underlying Unexercised             Value of Unexercised
                                                              Options at Fiscal               In-the-Money Options
                                                                 Year-End(#)                at Fiscal-Year-end($)(1)
                          Shares                       ------------------------------    ---------------------------- 
                       Acquired on        Value
        Name           Exercise(#)     Realized($)     Exercisable      Unexercisable    Exercisable    Unexercisable
        ----           -----------     -----------     -----------      -------------    -----------    -------------

<S>                    <C>             <C>             <C>              <C>              <C>            <C>
Robert P. Bernardi..        0               0             680,582           667,743        $230,000              $0
James J. Leto.......        0               0                   0                 0         500,000               0
Russell M. Hale.....        0               0             125,000           125,000               0               0
Mark T. Wasilko.....        0               0              43,750           131,250               0               0
Brian H. Hajost.....        0               0                   0           100,000               0               0

--------------------
</TABLE>


(1)      Computed by multiplying the number of options by the difference between
         (i) the per share market value of the Common Stock on December 31, 1996
         and (ii) the exercise price per share.


OWNERSHIP OF NETWORK IMAGING CORPORATION STOCK


         The following table sets forth certain information,  as of September 2,
1997, with respect to the beneficial  ownership of shares of Common Stock by (i)
each  stockholder  known by the Company to be the beneficial  owner of more than
five percent (5%) of the outstanding  shares of Common Stock; (ii) each director
of the Company; (iii) each Named Executive;  and (iv) all executive officers and
directors as a group. Except as indicated in the footnotes to the table, persons
named in the table have sole  voting and  investment  power with  respect to all
shares of Common Stock that they respectively own beneficially.


         The address of each person who is an  executive  officer or director of
the Company is 500 Huntmar Park Drive, Herndon, Virginia 20170.



<TABLE>
<CAPTION>

                                                                              Number of Shares          Percent of
                 Name and Address of Beneficial Owner                      Beneficially Owned (1)          Class
                 ------------------------------------                      ----------------------          -----
<S>                                                                        <C>                          <C>

Fred E. Kassner(2).................................................                2,085,597                8.3
Robert P. Bernardi(3)..............................................                1,745,825                7.0
James J. Leto(4)...................................................                  126,267                0.5
Robert M. Sterling, Jr.(5).........................................                1,926,825                7.7
Mark T. Wasilko(6).................................................                   43,750                0.2
John F. Burton.....................................................                        0                 *
C. Alan Peyser(7)..................................................                   21,500                 *
Robert Ripp(8).....................................................                   22,088                 *
Russell D. Hale(9).................................................                  125,000                0.5
Brian H. Hajost(10)................................................                   14,504                 *
Directors and executive officers as a group (9) persons                            2,147,775                8.5
--------------------
</TABLE>


      Less than 1% of the outstanding Common Stock.


 (1)   Under  applicable  rules of the Securities and Exchange  Commission  (the
       "SEC"),  a person is deemed to be the beneficial owner of share of Common
       Stock if, among other  things,  he or she directly or  indirectly  has or
       shares  voting power or investment  power with respect to such shares.  A
       person is also considered to beneficially own shares of Common Stock that
       he or she does not actually own but has the right to acquire presently or
       within  the next  sixty  (60)  days,  by  exercise  of stock  options  or
       otherwise.


(2)    The address of Mr. Kassner is 69 Spring Street, Ramsey, New Jersey 07446.
       Of the total shares shown,  Mr. Kassner has shared voting and dispositive
       power  with  respect  to  1,207,857   shares,   including  80,000  shares
       underlying a warrant,  held by Liberty Travel,  Inc. of which Mr. Kassner
       is an officer, director, and stockholder. Of the shares reported as being
       held directly by Mr. Kassner, 154,000 are issuable upon the exercise of a
       warrant.


(3)    Includes 1,348,325 shares issuable upon exercise of options.


(4)    Includes 110,000 shares issuable upon exercise of options.


(5)    Includes 1,348,325  shares  issuable upon  exercise of options and 96,000
       shares  issuable  upon  exercise  of  Redeemable  Common  Stock  Purchase
       Warrants.


(6)    All shares are issuable upon exercise of options.


(7)    Includes 12,500 shares issuable upon exercise of options.


(8)    Includes 17,088 shares issuable upon exercise of options.


(9)    All shares are issuable upon exercise of options.


(10)   Includes 12,500 shares issuable upon exercise of options.


                              CERTAIN TRANSACTIONS


         The Company has  entered  into  consulting  agreements  with BCG,  Inc.
("BCG")  (of which  Mr.  Bernardi  is the sole  stockholder)  and with  Sterling
Capital  Group,  Inc.  ("Sterling  Capital") (of which Mr.  Sterling is the sole
stockholder)  that provide for BCG and Sterling  Capital to make the services of
Messrs.  Bernardi and Sterling available to the Company.  Each of the consulting
agreements  is for an initial term ending  January 31, 1999 and  continues  from
year to year  thereafter  unless  terminated  by either the Company or either of
Messrs.  Bernardi or  Sterling.  Each of the  agreements  with BCG and  Sterling
Capital currently provides for an annual consulting fee of $225,000,  subject to
increase upon review by the Board of  Directors.  The Company has also agreed to
employ Mr. Bernardi as Secretary and Mr. Sterling as Assistant  Secretary of the
Company  at an  annual  salary  of  $5,000.  In  determining  the  increases  in
consulting fees, the Board of Directors  intends to consider such factors as the
levels of compensation of senior executives of comparable companies, the overall
performance of the Company and the respective  contributions of Messrs. Bernardi
and Sterling to that performance.  Apart from these considerations,  no criteria
have been established that would limit the size of increases in consulting fees.
The  agreements  provide  demand  registration  rights to Messrs.  Bernardi  and
Sterling  with respect to  securities  of the Company owned by them or that they
may acquire upon exercise of options.  Each registration right terminates on the
first  anniversary  following  termination  of  the  consulting  agreement.  The
consulting  agreements  provide that Messrs.  Bernardi and Sterling  will devote
their  reasonable best efforts to the business of the Company and the furthering
of its interests and that each of them is expected to devote up to 100 hours per
month to the Company's affairs as requested by the Company.  The Company expects
that Mr.  Bernardi will perform duties assigned to him by the Board of Directors
and that Mr. Sterling will identify and pursue on behalf of the Company business
development projects, including acquisitions and, as needed, financings, perform
other  duties as  requested  by the Board and be  available  to consult with the
executive  officers on matters  affecting  the Company.  Each of the  respective
agreements  prohibits  Messrs.  Bernardi  and  Sterling  during  the term of the
agreement  from certain  associations  with any business  that competes with the
Company.


         The  agreements  also provide  that, if the  consultant's  services are
terminated by the Company for any reason other than cause,  death or disability,
or if the  consultant  terminates  the agreement for "good  reason," the Company
will pay in a lump sum 97% of the full amount of the fees and benefits  that the
consultant  would have  received,  at the average rate in effect  during the six
month period  immediately  prior to  termination,  and of any bonuses that would
have been  received,  at the rate of the  bonus for the last full year  prior to
termination,  if the consultant's  services had continued for the remaining term
of the  agreement.  The term "good  reason"  means a failure  by the  Company to
comply with any material provision of the agreement,  a change of control of the
Company to which the  consultant  has not given prior written  consent or a good
faith determination by the consultant that as a result of a change in control he
is unable to discharge  effectively his duties under the agreement.  A change in
control is deemed to occur if  substantially  all the assets of the  Company are
sold, if the Company is merged or consolidated  with, or becomes a subsidiary of
another corporation, if any person or group acquires 20% or more of the combined
voting power of the  Company's  outstanding  securities  and is then the largest
holder of such  securities  or if during  any  period of two  consecutive  years
individuals  who at the  beginning  of  such  period  constitute  the  Board  of
Directors of the Company  cease for any reason to constitute at least a majority
thereof,  unless the  election  of each  director  who was not a director at the
beginning of such period has been approved in advance by directors  representing
at least two thirds of the  directors  then in office who were  directors at the
beginning of the period.

                              PLAN OF DISTRIBUTION

         The Shares are being  offered  on behalf of the  Selling  Stockholders,
and,  except  for the  exercise  price of the  Investor  Warrants  and the Agent
Warrants,  the Company will not receive any  proceeds  from this  offering.  The
Shares may be sold or distributed from time to time by the Selling Stockholders,
or by pledgees, donees or tranferees of, or other successors in interest to, the
Selling Stockholders, directly to one or more purchasers (including pledgees) or
through  brokers,  dealers or  underwriters  who may act solely as agents or may
acquire Shares as principals,  at market prices  prevailing at the time of sale,
at prices related to such prevailing market prices, at negotiated  prices, or at
fixed  prices,  which may be  changed.  The  distribution  of the  Shares may be
effected  in one or  more  of  the  following  methods:  (1)  ordinary  brokers'
transactions,  which may include long or short sales; (2) transactions involving
cross or block trades or otherwise on the Nasdaq National Market;  (3) purchases
by brokers,  dealers or  underwriters as principal and resale by such purchasers
for their own accounts  pursuant to this  Prospectus;  (4) "at the market" to or
through  market makers or into an existing  market for the Common Stock;  (5) in
other ways not involving market makers or established trading markets, including
direct  sales to  purchasers  or sales  effected  through  agents;  (6)  through
transactions in options, swaps or other derivatives (whether  exchange-listed or
otherwise),  or (7) any  combination of the  foregoing,  or by any other legally
available  means. In addition,  the Selling  Stockholders or their successors in
interest may enter into hedging  transactions with broker-dealers who may engage
in short sales of shares of Common Stock in the course of hedging the  positions
they assume with the Selling  Stockholders.  The Selling  Stockholders  or their
successors  in interest  may also enter into option or other  transactions  with
broker-dealers  that require the delivery by such  broker-dealers of the Shares,
which Shares may be resold thereafter pursuant to this Prospectus.

         Brokers,   dealers,   underwriters  or  agents   participating  in  the
distribution  of the Shares as agents may  receive  compensation  in the form of
commissions,  discounts  or  concessions  from the Selling  Stockholders  and/or
purchasers of the Shares for whom such  broker-dealers  may act as agent,  or to
whom they may sell as principal,  or both (which compensation as to a particular
broker-dealer  may be less  than or in  excess of  customary  commissions).  The
Selling  Stockholders and any broker-dealers who act in connection with the sale
of Shares hereunder may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended  ("Securities Act"), and any commissions they
receive  and  proceeds  of any sale of Shares  may be deemed to be  underwriting
discounts and commissions  under the Securities Act. Neither the Company nor any
Selling Stockholder can presently estimate the amount of such compensation.  The
Company knows of no existing  arrangements  between any Selling  Stockholder and
any other shareholder, broker, dealer, underwriter or agent relating to the sale
or distribution of the Shares.

         The Company will pay  substantially all of the expenses incident to the
registration,  offering  and  sale  of the  Shares  to  the  public  other  than
commissions  or  discounts  of  underwriters,  broker-dealers  or agents and the
expenses of counsel to the Selling Stockholders.  Such expenses are estimated to
be $50,000.  The Company  has also  agreed to  indemnify  certain of the Selling
Stockholders and certain related persons against certain liabilities,  including
liabilities under the Securities Act.

                              SELLING STOCKHOLDERS

         The following table sets for the names of the Selling Stockholders, the
number of shares Common Stock beneficially owned by each Selling  Stockholder as
of  September  2, 1997 and the  number of Shares  that may be  offered  for sale
pursuant to this offering by each such Selling Stockholder.  None of the Selling
Stockholders has held any position,  office or other material  relationship with
the Company or any of its affiliates within the past three years other than as a
result of his or its  ownership  of shares of Common  Stock.  The  Shares may be
offered from time to time by the Selling Stockholders named below. However, such
Selling  Stockholders  are number under no obligation to sell all or any portion
of such  Shares,  nor are the Selling  Stockholders  obligated  to sell any such
Shares immediately pursuant to this registration statement.  Because the Selling
Stockholders  may sell all or part of their Shares,  no estimate can be given as
to the  number  of  shares of  Common  Stock  that  will be held by any  Selling
Stockholder upon termination of any offering made hereby.

         Pursuant to Rule 416 of the Securities Act,  Selling  Stockholders  may
also offer and sell shares of Common  Stock  issued with respect to the Series K
Stock,  the Investor  Warrants and the Agent  Warrants  (whether owned as of the
date of this  Prospectus  or hereafter  acquired)  as a result of  anti-dilution
provisions (including by reason of changes in the conversion price of the Series
K Stock in accordance with the terms thereof).

                                                       Common Stock Beneficially
                         Shares of Common               Owned After Offering(1)
                        Stock Beneficially             -------------------------
Name of Selling            Owned Prior    Common Stock              Percent of
Stockholder                to Offering   Offered Hereby    Number   Outstanding
-----------------       -------------------------------------------------------

Capital Ventures
International (2)          4,320,000(4)   4,320,000           0             0

Zanett
Lombardier, Ltd.(2)        5,280,000(4)   5,280,000           0             0

The Zanett Securities
Corporation (3)              310,000        310,000           0             0


(1)  Assumes the sale of all Shares.

(2)  Pursuant to the  Securities  Purchase  Agreement  dated as of July 28, 1997
     ("Securities  Purchase  Agreement")  among the  Company,  Capital  Ventures
     International  ("Capital  Ventures") and Zanett  Lombardier,  Ltd. ("Zanett
     Lombardier")  (collectively,  the  "Purchasers"),  the Company issued 3,300
     units  ("Units")  consisting  of (1) one  share of  Series K Stock  and (2)
     warrants  to purchase  75 shares of Common  Stock at an  exercise  price of
     $2.40 per share ("Investor Warrants").  Accordingly,  on July 28, 1997, the
     Company  issued  3,300  shares of Series K Stock and  Investor  Warrants to
     purchase  247,500  shares of Common Stock to the  Purchasers.  The Investor
     Warrants  expire  on July 27,  2002.  Provided  that the  Company  achieves
     certain  milestone  objectives,  the investors  will purchase an additional
     3,000 Units on the same basis as described herein.

(3)  As a result of the  issuance  of 3,300  Units,  the  Company  issued to The
     Zanett  Securities  Corporation  ("Zanett"),  for its services as placement
     agent,  warrants to purchase  162,462 shares of Common Stock at an exercise
     price of $1.625 per share ("Agent Warrants").  The Investor Warrants expire
     on July 27, 2002.  Under the Placement  Agency Agreement dated July 2, 1997
     between  the  Company  and  Zanett,  the  Company  is  obligated  to  issue
     additional  Agent  Warrants to Zanett to purchase  such number of shares of
     Common  Stock as is equal to 8% of the  quotient  obtained by dividing  the
     aggregate  purchase  price of the  shares of  Series K Stock  and  Investor
     Warrants  issued to the Purchasers at such additional  closings  divided by
     the initial  exercise  price of the Agent Warrants  ($1.625 per share).  If
     certain  milestones  are achieved by the Company,  and the investors  enter
     into  the  sale  of  an  additional  3,000  Units,  The  Zannet  Securities
     Corporation   will  receive  an  additional   147,538  warrants  under  the
     conditions described herein.

(4)  Represents  the pro rata  allocation  between  Capital  Ventures and Zanett
     Lombardier  of  10,000,000  shares  of Common  Stock  that the  Company  is
     registering   hereunder  pursuant  to  the  registration  rights  agreement
     attached as Exhibit  10.29  hereto.  The actual  number of shares of Common
     Stock issuable upon  conversion of the Series K Stock will equal the number
     of shares of Common Stock determined by dividing the initial purchase price
     of $1,000 by the  "Conversion  Price," which is the lesser of (a) the Fixed
     Conversion Price (which initially is $2.00) and (b) the lowest closing sale
     price for the Common Stock on any single trading day during the ten trading
     days  immediately  preceding the conversion  multiplied by the  "Conversion
     Percentage." The "Conversion  Percentage" is (a) 105% prior to the 61st day
     following July 28, 1997 (the "First Closing Date"),  (b) 96% for the period
     between the 61st and the 90th day following the First Closing Date, (c) 85%
     for the  period  between  the 91st and the  180th day  following  the First
     Closing Date,  and (d) 81% for the period after the 180th day following the
     First Closing  Date.  In the event the Company's  Common Stock is no longer
     designated for quotation on the Nasdaq  National  Market  ("Nasdaq") and is
     designated  for  quotation on the Nasdaq Small Cap Market,  the  Conversion
     Percentage for each of the periods set forth above is  permanently  reduced
     by  2%.  The   Conversion   Price  is  also   adjusted  in  certain   other
     circumstances.  See  "Description  of Capital  Stock - Series K Convertible
     Preferred Stock.

     Except under certain limited circumstances, no holder of the Series K Stock
     is entitled to convert or exercise  such  securities to the extent that the
     shares to be received by such holder upon such conversion or exercise would
     cause  such  holder to  beneficially  own more  than 4.9% of the  shares of
     Common  Stock.  Therefore,  the number of shares set forth herein and which
     the Purchasers  may sell pursuant to this  Prospectus may exceed the number
     of  shares of  Common  Stock  that  each  such  Purchaser  would  otherwise
     beneficially  own as  determined  pursuant to Section 13(d) of the Exchange
     Act.  Moreover,  the  Certificate of Designation of Series K Stock provides
     that in no event shall the total  number of shares of Common  Stock  issued
     upon  conversion of the Series K Stock exceed the maximum  number of shares
     of Common Stock that the Company may issue  pursuant to Rule 4460(i) of the
     Nasdaq or any successor  rule ("Cap  Amount").  The Cap Amount is allocated
     pro rata  among the  holders  of Series K Stock.  The  Company  is  seeking
     approval  from the holders of Common  Stock to issue shares of Common Stock
     in connection with the Series K Stock in excess of the amounts permitted by
     Nasdaq Rule  4460(i)(1)(D).  See  "Description  of Capital Stock - Series K
     Convertible Preferred Stock.


                          DESCRIPTION OF CAPITAL STOCK

         The following  statements with respect to the Company's  securities are
subject to, and  qualified  in their  entirety  by  reference  to, the  detailed
provisions  of the Company's  Certificate  of  Incorporation  and Bylaws and the
resolutions  adopted  by  the  Board  of  Directors  of  the  Company  ("Board")
establishing the rights,  preferences,  privileges and restrictions  relating to
Series A Stock, the Series F Stock, the Series H Stock and the Series K Stock as
filed under Delaware law (the "Certificates of Designations").

Authorized Stock

         The Company is authorized  to issue up to  50,000,000  shares of Common
Stock,  $.0001  par  value,  of which  25,177,743  shares  were  outstanding  at
September 2, 1997, and 20,000,000  shares of preferred  stock,  $.0001 par value
(the "Preferred  Stock"),  of which 1,605,025 shares of Series A Stock,  792,186
shares of Series F Stock,  10  shares  of  Series H Stock,  and 3,300  shares of
Series K Stock were outstanding on that date.

Common Stock

         All holders of Common  Stock are  entitled to one vote per share on any
matter coming before the stockholders for a vote,  unless the matter is one upon
which by express provision of law a different vote is required. The Common Stock
does not have cumulative voting rights,  which means, in effect, that holders of
more than 50% of the shares can generally elect all the directors.

         Each  holder  of Common  Stock is  entitled  to  receive  ratably  such
dividends  on the  Common  Stock as may be  declared  by the  Board out of funds
legally available therefor and, in the event of the liquidation,  dissolution or
winding up of the  Company,  is entitled  to share  ratably in all assets of the
Company  remaining  after payment of  liabilities  and payment of amounts due to
holders of capital stock senior to the Common  Stock.  The Board may not declare
dividends  payable to holders of Common  Stock unless and until all accrued cash
dividends  through the most recent past dividend  payment date have been paid in
full to holders of the Series A, F and H Stocks. Holders of Common Stock have no
conversion,  preemptive or other rights to subscribe for additional  shares, and
there are no redemption  rights or sinking fund  provisions  with respect to the
Common Stock. The outstanding  shares of Common Stock are validly issued,  fully
paid and nonassessable.

         The Company has never paid any  dividends  on the Common Stock and does
not anticipate paying any such dividends in the foreseeable future.

Preferred Stock

         The Certificate of Incorporation  authorizes the Board to establish and
designate the classes,  series,  voting powers,  designations,  preferences  and
relative,  participating,  optional or other  rights,  and such  qualifications,
limitations  and  restrictions  of the Preferred Stock as the Board, in its sole
discretion, may determine without further vote or action by the stockholders.

         The rights, preferences, privileges, and restrictions or qualifications
of  different  series of  Preferred  Stock may differ  with  respect to dividend
rates,  amounts  payable  on  liquidation,  voting  rights,  conversion  rights,
redemption  provisions,  sinking fund provisions and other matters. The issuance
of Preferred  Stock could  decrease the amount of earnings and assets  available
for distribution to holders of Common Stock or could adversely affect the rights
and powers, including voting rights, of holders of Common Stock.

         The existence of the Preferred Stock, and the power of the Board to set
its terms and issue a series of Preferred Stock at any time without  stockholder
approval,  could have certain anti-takeover  effects. These effects include that
of making the Company a less attractive  target for a "hostile"  takeover bid or
rendering  more  difficult  or  discouraging  the  making of a merger  proposal,
assumption of control  through the  acquisition of a large block of Common Stock
or removal of incumbent management,  even if such actions could be beneficial to
the stockholders of the Company.

Series A Cumulative Convertible Preferred Stock

         The  issuance  of up to  1,750,000  shares  of  Series A Stock has been
authorized  and  1,605,025  shares  are  outstanding.  The  Series A Stock has a
liquidation  preference  of  $25.00  per  share  plus  all  accrued  and  unpaid
dividends.

         The Series A Stock is  convertible  into Common stock at any time prior
to  redemption  or  exchange.  As of  September  2, 1997,  the Series A Stock is
convertible  at the rate of  1.9826  shares of  Common  Stock for each  share of
Series  A Stock  (an  effective  conversion  price of  $12.61  per  share).  The
conversion  rate and conversion  price are adjustable in certain  circumstances,
which are described in the Series A Certificate. Some of those circumstances are
described below.

         The Series A Stock, upon 30 days written notice after December 7, 1996,
is redeemable by the Company at $25.00 per share,  plus  accumulated  and unpaid
dividends,  and  exchangeable  by the Company for Common  Stock having a current
market  price of $25.00 per share,  provided in each case that the closing  sale
price of the Common  Stock for at least 20  consecutive  trading days ending not
more than 10 trading days prior to the date notice of the call for redemption or
notice of exchange is given is at least $18.00 per share,  or after  December 7,
1997, at the cash redemption prices (ranging from $26.75 to $25.00) set forth in
the Certificate of  Designations,  plus  accumulated and unpaid  dividends.  The
Company may not redeem by exchange unless all  accumulated and unpaid  dividends
have been paid or funds for payment have been set aside.

         If the  Company  sells  or  issues  Common  Stock or  rights,  options,
warrants or convertible  securities ("Rights") containing the right to subscribe
for or purchase  Common Stock and the sale or issue price of the Common Stock is
less than the lower of the  current  conversion  price or current  market  price
("Current  Price"),  the  conversion  price is adjusted  such that the number of
shares of Common Stock receivable upon conversion of the Series A Stock shall be
the number  determined by  multiplying  (1) the number of shares of Common Stock
receivable  upon  conversion  of the  Series A Stock  immediately  prior to such
issuance and (2) a fraction (not to be less than one) with a numerator  equal to
the product of the number of shares of Common  Stock  outstanding  after  giving
effect to such issuance  (assuming that such Rights had been fully  exercised or
converted)  and the Current Price and a denominator  equal to the sum of (a) the
product of the number of shares of Common Stock outstanding  immediately  before
such issuance and the Current Price and (b) the aggregate consideration received
or deemed  received by the Company for the shares of Common  Stock to be sold or
purchased upon exercise of the Rights.

         Cumulative  dividends  on the  Series A Stock at the rate of $2.00  per
share per annum are payable quarterly,  out of funds legally available therefor,
on January 31, April 30, July 31 and October 31 of each year, commencing January
31, 1994.  Failure to pay any  quarterly  dividend will result in a reduction of
$.50 per share in the conversion price. If the Company fails to pay dividends on
the  Series A Stock for four  quarterly  dividend  payment  periods,  holders of
Series A Stock  voting  separately  as a class  will be  entitled  to elect  one
director; such voting rights will be terminated as of the next annual meeting of
stockholders  following  payment of all  accrued  dividends.  In  addition,  the
Company  may not pay  dividends  on, or  redeem,  junior  securities  unless all
accrued and unpaid  dividends on the Series A Stock have been paid.  The Company
failed to pay the quarterly dividend on July 31, 1997.

         The affirmative vote of a majority of the outstanding  shares of Series
A Stock voting as a single  class is necessary to authorize  any class of senior
or parity  securities  unless,  at that time the Company has the right to redeem
the  Series A Stock  and such  redemption  occurs  before  the  senior or parity
securities are issued.

         The  Series A Stock is  senior to the  Series  F, H and K  Stocks.  The
Company is not subject to any  mandatory  redemption  or sinking fund  provision
with  respect  to  Series A Stock.  The  holders  of the  Series A Stock are not
entitled to  preemptive  rights to  subscribe  for or to purchase  any shares or
securities  of any class  which may at any time be issued,  sold or offered  for
sale by the Company.  Shares of Series A Stock redeemed or otherwise  reacquired
by the  Company  shall be retired by the Company  and shall be  unavailable  for
subsequent issuance as Series A Stock.

Acquisition Preferred Stock

         In connection  with the  acquisition  of Dorotech,  the Company  issued
2,092,186 shares of Series B Convertible Preferred Stock ("Series B Stock") to a
corporate  stockholder of Dorotech.  The Series B Stock was entitled to the same
cash dividends as were paid on the Common Stock,  if any, was  convertible  into
Common Stock commencing six months after it was issued on a share basis (subject
to anti-dilution  adjustments),  had a liquidation value of $9.00 per share, and
had no voting  rights,  except  those  required by law.  Four series of Series B
Stock were authorized,  and all had  substantially  the same terms.  Each of the
first three series provided that if it had not been  transferred by the original
holder to an unaffiliated third party prior to the time it became convertible at
the end of a  six-month  period  following  its  issuance,  it would  have  been
automatically exchanged for the next series, unless the holder elected otherwise
by prior  written  notice  to the  Company.  The  fourth  series  provided  that
immediately prior to the time it became convertible, it would have been redeemed
by the Company for $9.00 per share, unless the holder had transferred the shares
to an unaffiliated  third party or elected not to redeem by prior written notice
to the  Company.  Any  shares of any of the  Series B Stock  transferred  by the
original  holder to an  unaffiliated  third  party  would  thereafter  have been
redeemable by the Company for Common Stock at the  conversion  rate in effect at
the time of redemption. The Series B Stock was junior to the Series A Stock.

         The original holder converted 300,000 shares of the Series B Stock into
Common Stock in April 1994. In July 1994, the Company  entered into an agreement
with  the  holder  and an  affiliate  of the  holder,  which  was a  prospective
transferee of the Series B Stock and the Common  Stock,  in which the holder and
the affiliate agreed, among other things, to extend the cash redemption date for
the  Preferred  Stock from  October  1, 1995 to  October  1,  1996.  In order to
accomplish  the  extension,  the Company  agreed to offer to exchange a Series C
Stock  for the  Series B Stock  and the  holder  of the  Series B Stock  and its
affiliate  agreed to accept the exchange.  The  provisions of the Series C Stock
and the Series B Stock  (collectively,  the "Acquisition  Preferred Stock") were
the same in all material respects except for the cash redemption date.

         In March 1996, the Company and the holder of the Acquisition  Preferred
Stock exchanged the Acquisition Preferred Stock for 1,792,186 shares of Series F
Stock and in  connection  therewith  all  authorized  shares of the  Acquisition
Preferred Stock were returned to the status of authorized preferred stock of the
Company of no  designated  class or series.  The Series F Stock is junior to the
Series A Stock and senior to the Series H and K Stocks.  In connection  with the
exchange of the Acquisition  Preferred Stock for the Series F Stock, the Company
paid the holder a fee of $650,000 plus expenses and agreed to obtain the consent
of the holder prior to issuing any unsecured  long-term  debt.  The Company also
agreed to extend the holder's  registration  rights to June 30, 1999, assist the
holder with a private  placement  of the Series F Stock or the Common Stock into
which it is  convertible,  and extend observer rights to the holder with respect
to regular meetings of the Board.

         The Series F Stock has no voting  rights,  except that the  affirmative
vote of a  majority  of the  outstanding  shares of  Series F Stock  voting as a
single  class is  necessary  with  respect to the  amendment  of its terms,  the
issuance of senior and parity  securities,  the  redemption of parity and junior
securities and other matters required by law.

         The Series F Stock is convertible into Common Stock six months after it
is issued on a share for share basis (subject to antidilution adjustments). Four
series of Series F Stock have been authorized,  and all have  substantially  the
same terms.  Each of the first three series provides that, at the end of the six
month period following its issuance, it will be automatically  exchanged for the
next series,  unless the holder elects  otherwise by prior written notice to the
Company.  The fourth series  provides that it will be redeemed by the Company on
January  2,  1998 for $9 per  share  plus  accrued  and  unpaid  dividends  (the
"Redemption  Price"),  unless the holder  elects not to redeem by prior  written
notice to the Company.

Beginning  October 1, 1996, the Series F Stock is entitled to receive  dividends
in an amount  equal to the  greater of 10% per annum or the  annual  rate of any
dividend  paid on the  Company's  Common  Stock.  Dividends  accrue daily and be
payable on the last day of June,  September,  December and March  commencing  on
December 31, 1996.  Because the sole holder of all of the outstanding  shares of
Series F Stock has agreed to sell all of such  shares to the  Company  for a set
price,  the Company no longer  accrues  dividends on the  outstanding  shares of
Series F Stock.
See "Risk Factors -- European Operations."

         In the event of a change in control of the Company,  the Series F Stock
becomes  convertible  at the rate  described  above  and the then  holder of the
Series F Stock may elect to redeem at the Redemption Price;  provided,  however,
that, if the acquiror has a class of securities  registered  pursuant to Section
12 of the  Securities  Exchange Act of 1934, as amended  ("1934  Act"),  and has
outstanding  voting stock held by non-affiliates  with an aggregate market value
of at least $100 million and if the Company agrees to pay the holder in cash the
excess, if any, of the Redemption Price over the transaction consideration,  the
holder will not be entitled to redemption  and will be deemed to have elected to
convert  the  Series  F  Stock.  A  change  in  control  is  deemed  to occur if
substantially  all the assets of the Company are sold,  if the Company is merged
or consolidated with another corporation,  if any person acquires 50% or more of
the  Company's  outstanding  voting  securities  or if during  any period of two
consecutive years individuals who at the beginning of such period constitute the
Board cease for any reason to constitute at least a majority thereof, unless the
election of each director who was not a director at the beginning of such period
has been  approved in advance by directors  representing  at least a majority of
the  directors  who were  directors  at the  beginning  of the  period  or whose
election was  previously so approved.  For purposes of  conversion,  a change in
control is deemed to occur when the Company  enters into an  agreement to merge,
consolidate  or sell  substantially  all its  assets  or when a tender  offer is
commenced for 50% or more of the outstanding voting securities of the Company.


         The then  holders of the Series F Stock may also  redeem some or all of
the Series F Stock if the Company is in arrears  with  respect to two  quarterly
dividend  payments  or  defaults in its  agreements  relating to Board  observer
status,  the issuance of long-term debt or the extension of voting rights to the
holders of Series F Stock.

         On  December  31,  1996,  the  Company  and the holder  entered  into a
purchase  agreement  whereby  the  Company  agreed  to  repurchase  all  of  the
outstanding shares of Series F Stock. See "Risk  Factors--European  Operations."
That agreement provided for certain payment terms, and in the event that payment
is not made in accordance with those terms,  and the default is not cured within
five  business  days,  the holder has the right to realize on its first  ranking
pledge on all of the  outstanding  stock of  Dorotech.  If the  Company  has not
effected a sale of Dorotech by January 31,  1998,  and the Company is in default
to the holder, the holder is at liberty to sell all of the Dorotech shares owned
by the Company  and  withhold  all amounts due and payable to the holder  before
paying back excess money, if any, to the Company.

Series H Convertible Preferred Stock

         The  issuance  of up to 300  shares of  Series H Stock was  authorized.
Currently, 10 shares of Series H Stock are outstanding. The Series H Stock has a
per share liquidation preference,  subject to the liquidation preferences of the
Series A Stock and the Series F 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 Stock  has a  dividend  rate of 8% per  annum,  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 Company is not subject to any mandatory
redemption or sinking fund provision with respect to the Series H Stock.

         The Series H Stock has no voting rights, except the affirmative vote of
a  majority  of the  outstanding  shares of Series H Stock  voting as a separate
class  is  necessary  with  respect  to  the  amendments  of  the  Corporation's
Certificate of Incorporation  that adversely affects the powers,  preferences or
special rights of the Series H Stock.

          Shares of  Series H Stock  redeemed  or  otherwise  reacquired  by the
Company shall be retired by the Company and shall be unavailable  for subsequent
issuance as Series H Stock.

Series K Convertible Preferred Stock

         On July 28, 1997, the Company issued 3,300 units  ("Units")  consisting
of (1) one share of Series K Stock and (2)  warrants  to  purchase  75 shares of
Common  Stock at an  exercise  price of $2.40 per share  ("Investor  Warrants").
Accordingly, on July 28, 1997, the Company issued 3,300 shares of Series K Stock
and Investor Warrants to purchase 247,500 shares of Common Stock. As a result of
the  issuance  of 3,300  Units,  the  Company  issued to The  Zanett  Securities
Corporation  ("Zanett"),  for its  services  as  placement  agent,  warrants  to
purchase 162,462 shares of Common Stock at an exercise price of $1.625 per share
("Agent Warrants").  The Investor Warrants and the Agent Warrants expire on July
27, 2002. The terms of the Series K Stock,  the Investor  Warrants and the Agent
Warrants were determined by the Board.

         Pursuant to the terms of the Securities  Purchase Agreement dated as of
July 28,  1997  ("Securities  Purchase  Agreement")  among the  Company  and the
purchasers of the Units ("Purchasers"),  the Purchasers are required to purchase
3,000 additional Units if the Company  achieves certain  performance  milestones
and satisfies  certain other  conditions and the  Purchasers  have the option to
purchase an  additional  4,700 Units by February 15,  1998,  at two and possibly
three  additional  closings.  Under the Placement Agency Agreement dated July 2,
1997  between  the  Company  and  Zanett,  the  Company  is  obligated  to issue
additional  Agent Warrants to Zanett to purchase such number of shares of Common
Stock as is equal to 8% of the  quotient  obtained  by  dividing  the  aggregate
purchase price of the shares of Series K Stock and Investor  Warrants  issued to
the Purchasers at such additional closings divided by the initial exercise price
of the Agent Warrants ($1.625 per share).

         The net proceeds of the 3,300 Units ($2.9  million) have been,  and the
net  proceeds  of any  additional  issuance  of Units will be,  used for working
capital and general corporate purposes.

         Under the Registration Rights Agreement dated as of July 28, 1997 among
the Company, the Purchasers and Zanett  ("Registration  Rights Agreement"),  the
Company has granted each Purchaser and Zanett registration  rights,  whereby the
Company is obligated to file a  registration  statement  with the SEC as soon as
practicable  after  each  closing,  but in no  event  later  than  the  60th day
following  each such closing,  registering at least 135% of the shares of Common
Stock  issuable on conversion of, and as dividends on, the Series K Stock and on
exercise of the Investor  Warrants  and the Agent  Warrants.  This  registration
statement has been filed with, but has not been declared  effective by, the SEC.
Until such time as such  registration  statements are declared  effective by the
SEC, the holders of the Series K Stock  ("Holders") and the holders the Investor
Warrants and the Agent  Warrants may not transfer such  securities or the Common
Stock issuable in connection therewith unless they comply with an exemption from
such registration requirements.

         Conversion  Rights.  Each share of Series K Stock is convertible at the
option of the Holder  into the number of shares of Common  Stock  determined  by
dividing the initial  purchase price of $1,000 by the "Conversion  Price," which
is the lesser of (a) the Fixed  Conversion  Price (which initially is $2.00) and
(b) the lowest closing sale price for the Common Stock on any single trading day
during the ten trading days immediately  preceding the conversion  multiplied by
the "Conversion  Percentage."  The "Conversion  Percentage" is (a) 105% prior to
the 61st day following July 28, 1997 (the "First Closing Date"), (b) 96% for the
period  between the 61st and the 90th day following the First Closing Date,  (c)
85% for the  period  between  the 91st and the  180th  day  following  the First
Closing Date, and (d) 81% for the period after the 180th day following the First
Closing Date. In the event the  Company's  Common Stock is no longer  designated
for quotation on the Nasdaq  National  Market  ("Nasdaq")  and is designated for
quotation on the Nasdaq Small Cap Market, the Conversion  Percentage for each of
the periods set forth above is permanently reduced by 2%.

         If  (1) a  registration  statement  described  above  is  not  declared
effective by the SEC by the 150th day  following  the date it was required to be
filed under the Registration  Rights Agreement  ("Registration  Deadline"),  (2)
after the registration  statement is declared effective by the SEC, sales of the
shares of Common Stock  registered  thereunder  cannot be made or (3) the Common
Stock is not listed or included for  quotation  on Nasdaq,  the Nasdaq Small Cap
Market,  the New York Stock  Exchange  ("NYSE") or the American  Stock  Exchange
("AMEX"),  then each of the Conversion  Percentages are permanently reduced. The
Conversion Percentages are permanently reduced by an amount equal to the product
of (i) 2% and (ii) the sum of (a) the  number of months  (prorated  for  partial
months) after the  Registration  Deadline and prior to the date the registration
statement  is  declared  effective  by the  SEC and (b)  the  number  of  months
(prorated for partial months) that sales cannot be made pursuant to an effective
registration  statement  or the  Common  Stock is not  listed  or  included  for
quotation on Nasdaq,  the Nasdaq Small Cap Market,  the NYSE or the AMEX.  There
are certain  exceptions to this provision set forth in the  Registration  Rights
Agreement.  In addition,  the  aggregate  reductions  to each of the  Conversion
Percentages  for failure to have the Common Stock  listed on Nasdaq,  the Nasdaq
Small Cap Market, the NYSE or AMEX cannot exceed 10%.

         The  Conversion  Price is  adjusted  if there is a stock  split,  stock
dividend,  combination,  reclassification  or similar  event with respect to the
Common Stock,  if certain  distributions  with respect to shares of Common Stock
are made, if certain purchase rights are distributed and in the event of certain
mergers, certain consolidations, sale or transfer of all or substantially all of
the Company's assets and certain share exchanges.

         If a Holder  tenders his or her shares of Series K Stock for conversion
and does not receive certificates for all of the shares of Common Stock to which
such Holder is entitled (except in certain  specified  circumstances),  then the
Fixed Conversion Price is thereafter reduced to the lesser of (1) the then Fixed
Conversion Price (prior to the adjustment required by this sentence) and (2) the
lowest  Conversion Price in effect during the period beginning on the conversion
date and  ending on the date the  shares of Common  Stock are  delivered  to the
Holder.  If the Company states that it will not deliver freely  tradeable shares
of Common Stock on conversion of the Series K Stock (other than in circumstances
permitted by the Registration  Rights  Agreement),  then the Conversion Price is
thereafter  reduced to the lowest  Conversion Price in effect at any time during
the period  beginning  on the date of the default  occurs and ending on the date
such default is cured. In addition,  certain  conversion default payments accrue
under Article VI of the Series K Certificate.

         Subject to the  provisions  regarding  the Cap Amount and provided that
all shares of Common Stock issuable on conversion of all  outstanding  shares of
Series K Stock are authorized  and reserved for issuance,  registered for resale
under the Securities  Act of 1933, as amended,  and are eligible to be traded on
the Nasdaq,  the NYSE or the AMEX,  each share of Series K Stock  outstanding on
the fourth anniversary of the First Closing Date is automatically converted into
Common Stock.

         The  Series K Stock has a  liquidation  preference  of $1,000 per share
plus the accrued  "Premium." The Premium is 7% multiplied $1,000 multiplied by a
fraction  (1) the  numerator  is the number of days a share of Series K Stock is
outstanding  and (2) the  denominator of which is 365. The Premium is payable at
the time of conversion or redemption in cash or shares of Common Stock.

         The  Series K  Certificate  provides  that in no event  shall the total
number of shares of Common  Stock issued upon  conversion  of the Series K Stock
exceed the maximum  number of shares of Common  Stock that the Company may issue
pursuant to Rule 4460(i) of the Nasdaq or any successor rule ("Cap Amount"). The
Cap Amount is  allocated  pro rata  among the  Holders.  The  Company is seeking
approval  from the holders of Common  Stock to issue  shares of Common  Stock in
connection  with the Series K Stock and the  Warrants  in excess of the  amounts
permitted by Nasdaq Rule 4460(i)(1)(D).

         The  exercise  price of the Investor  Warrants  and the Agent  Warrants
(collectively,  "Warrants") is adjusted in the event the Company issues,  grants
or  sells  any  warrants,   rights  or  options   (whether  or  not  immediately
exercisable) to purchase Common Stock or securities that are convertible into or
exchangeable  for  Common  Stock at a price  per  share  that is not  based on a
percentage of the market price of the Common Stock  ("Fixed  Price") or that may
be converted  into or  exchanged  for Common Stock at a Fixed Price that is less
than the then exercise price of such Warrants. In such event, the exercise price
of the Warrants is reduced to such Fixed Price and the number of shares issuable
on exercise  of the  Warrants is adjusted so that it equals the number of shares
issuable under the Warrants  immediately  prior to the adjustment  multiplied by
the per share  exercise  price prior to the  adjustment  divided by the exercise
price after the adjustment.

         In  the  event  of  stock  split,  stock  dividend,   recapitalization,
reorganization,  reclassification  or other subdivision of the Common Stock, the
exercise price of the Warrants and the number of shares of Common Stock issuable
on exercise of the Warrants are proportionately  adjusted. The exercise price of
the Warrants and the number of shares  issuable on exercise are also adjusted in
the event of certain  mergers  and  consolidations,  in the event of any sale or
conveyance of all or substantially  all of the Company's assets, in the event of
certain  distributions  of its assets and in the event the  Company  distributes
certain purchase rights.


         Dividends.  The Series K Stock does not bear  dividends and there is no
provision for a sinking fund; accordingly, there are no provisions in the Series
K Certificate  restricting  repurchase or redemption of the Series K Stock while
there is a dividend or sinking fund arrearage.  However,  the Premium accrues as
noted above.

         Ranking.  Shares of Series K Stock rank  prior to the Common  Stock and
any class or series of capital  stock created after the creation of the Series K
Stock  (unless  consent of the  Holders is  obtained  as  described  below under
"Voting Rights") and ranks pari passu with any class or series created after the
creation of the Series K Stock that specifically states that it ranks pari passu
with the Series K Stock and where the Holders have approved the issuance of such
securities as described  below under  "Voting  Rights." The Series K Stock ranks
junior to the Series A Stock,  Series F-1,  F-2,  F-3 and F-4 Stock and Series H
Stock.

         Voting Rights. The Series K Stock generally has no voting rights except
as otherwise  provided by the Delaware  General  Corporation Law.  However,  the
approval of the holders of a majority of the then outstanding shares of Series K
Stock is required to: (1) alter or change the rights,  preferences or privileges
of the Series K Stock, (2) alter or change the rights, preferences or privileges
of any  capital  stock of the  Company  so as to  adversely  affect the Series K
Stock,  (3) create any new class or series of capital  stock ranking prior to or
pari passu with the Series K Stock, (4) increase the authorized number of shares
of Series K Stock, (5) issue any shares of Series K Stock other than pursuant to
the  Securities  Purchase  Agreement,  (6)  issue any  additional  shares of any
securities ranking senior to the Series K Stock or (7) redeem, or declare or pay
a cash dividend or distribution on, any securities junior to the Series K Stock.

         In the  event the  Holders  approve a change  described  in clause  (1)
above, a dissenting  Holder has the right for a period of 30 days to convert its
shares of Series K Stock  pursuant to the terms of the Series K  Certificate  as
they existed prior to the change.

         Except in the event of a required conversion at maturity,  no Holder is
entitled to receive  shares of Common Stock on  conversion of its Series K Stock
to the  extent  that the sum of (1) the  shares  of Common  Stock  owned by such
Holder  and its  affiliates  and (2) the  shares of  Common  Stock  issuable  on
conversion  of the Series K Stock would result in  beneficial  ownership by such
Holder and its affiliates of more than 4.9% of the outstanding  shares of Common
Stock.  Beneficial  ownership for this purpose is determined in accordance  with
Section  13(d) of the 1934 Act.  This  restriction  cannot be amended or deleted
unless the  holders of a majority of the Common  Stock and each Holder  approves
such amendment or deletion.

         Redemption  Rights.  In the event the unissued  portion of any Holder's
Cap  Amount  is less than 135% of the  number  of  shares of Common  Stock  then
issuable upon  conversion of such Holder's  Series K Stock and the Company fails
to eliminate  the  prohibitions  that have  resulted in the existence of the Cap
Amount within 90 days, then each Holder may (1) require (with the consent of the
holders  of 50% of the  outstanding  shares of Series K Stock)  the  Company  to
terminate  the  listing  of the  Common  Stock on Nasdaq and to cause the Common
Stock to be  eligible  for  trading  on the  Nasdaq  Small Cap  Market or on the
over-the-counter  electronic  bulletin  board,  at the option of the  requesting
Holder,  or (2) require the Company to issue Common Stock at a Conversion  Price
equal to the average of the closing prices of the Common Stock on the five prior
trading  days.  In addition,  the Holder has the right to require the Company to
redeem for cash at an amount equal to the  "Redemption  Amount" a portion of the
Holder's  Series K Stock such that,  after giving effect to such  purchase,  the
then  unissued  portion of the  Holder's  Cap Amount  exceeds  135% of the total
number of shares of Common  Stock then  issuable on  conversion  of its Series K
Stock. The Redemption  Amount per share of Series K Stock equals (1) $1,000 plus
the accrued  Premium plus all  conversion  default  payments  required under the
Series K Certificate,  multiplied by (2) the highest closing price of the Common
Stock  during  the period  beginning  on the date of the  redemption  notice and
ending on the date of redemption,  divided by (3) the Conversion Price in effect
on the date of the redemption notice.

         A Holder also has the right to require the Company to redeem its Series
K Stock at the  Redemption  Amount (1) if the Company  fails to issue  shares of
Common Stock on conversion of the Series K Stock other than in certain specified
circumstances,  (2) if the Common Stock is suspended  from trading on any of, or
is not listed on at least one of, the NYSE,  the AMEX,  the Nasdaq or the Nasdaq
Small Cap Market for an aggregate of ten trading days in any nine month  period,
(3) the  registration  statement  required  to be filed  under the  Registration
Rights  Agreement  is not  declared  effective by the SEC by January 31, 1998 or
cannot be utilized by the  Holders for an  aggregate  of more than 30 days after
June 30, 1998, (4) the Company fails to remove any restrictive  legend on shares
of Common Stock issued on  conversion of the Series K Stock when required by the
Securities Purchase Agreement or Registration Rights Agreement,  (5) the Company
states that it will not issue  shares of Common  Stock to Holders in  accordance
with the terms of the Series K Certificate  (other than in  circumstances  where
other  remedies  are provided in the Series K  Certificate),  or (6) the Company
shall (a) sell all or substantially all of its assets, (b) merger or consolidate
with another entity,  or (c) have 50% or more of the voting power of its capital
stock  owned  beneficially  by any one  person or group  within  the  meaning of
Section 13(d) of the 1934 Act.

         In the event the Company fails to pay any Holder its Redemption Amount,
then (1) the Holder is  entitled  to  interest on such amount at the rate of 24%
per annum until such Holder's Series K Stock is redeemed and (2) such Holder has
the right to require the Company to convert the  Redemption  Amount plus accrued
interest  into shares of Common Stock at the lowest  Conversion  Price in effect
during the period  beginning  on the date the Holder  submitted  its  redemption
notice and ending on the date of conversion.

         The  Company has the right to redeem all (but not less than all) of the
outstanding  Series K Stock  (other  than shares that are subject to a notice of
conversion) at any time when it is not in material  violation of its obligations
under  the  Series K  Certificate,  the  Securities  Purchase  Agreement  or the
Registration  Rights Agreement at the "Optional  Redemption Amount." The Company
can only exercise this right once. The Optional  Redemption  Amount per share of
Series K Stock is the  greater of (1) the sum of the face  amount,  the  accrued
Premium  and  all  conversion  default  payments  accrued  through  the  date of
redemption and (2) (a) the sum of $1,000, the accrued Premium and all conversion
default payments required under the Series K Certificate,  multiplied by (b) the
volume  weighted  average  sales  price of the Common  Stock on the  trading day
immediately  preceeding  the  optional  redemption  notice,  divided  by (c) the
Conversion Price in effect on the date of the optional redemption notice. In the
event the Company fails to pay any Holder its Optional  Redemption Amount,  then
(1) the Holder is  entitled  to  interest  on such amount at the rate of 24% per
annum  until  the  later  of the date  such  Holder's  Series K Stock  was to be
redeemed or until the Company  notifies  the Holder that it will not redeem such
Holder's Series K Stock and (2) such Holder has the right to require the Company
to  convert  such  Holder's  Series K Stock into  shares of Common  Stock at the
lowest  Conversion  Price in effect during the period  beginning on the date the
Company  elected  to redeem  such  shares and  ending on the 20th  trading  date
following the date such Series K Stock was to be redeemed.

Limitation of Liability

         Pursuant  to the  Company's  Certificate  of  Incorporation  and  under
Delaware law,  directors of the Company are not liable for monetary  damages for
breach  of their  fiduciary  duty as  directors  except  (i) for a breach of the
director's duty of loyalty to the Company or its stockholders,  (ii) for acts or
omissions  by the  director  not in good  faith  or  which  involve  intentional
misconduct  or a knowing  violation  of law,  (iii) for a willful  or  negligent
declaration  of an unlawful  dividend,  stock purchase or redemption or (iv) for
transactions from which the director derived an improper personal benefit.

Transfer Agent and Registrar

         The  Transfer  Agent and  Registrar  for the Common  Stock and Series A
Stock is American Stock Transfer & Trust Company,  40 Wall Street, New York, New
York 10005.


Anti-takeover Effects of Provisions of the Certificate of  Incorporation, Bylaws
       and Delaware Law

         The following provisions of the Company's  Certificate of Incorporation
and Bylaws could discourage potential  acquisition  proposals and could delay or
prevent a change in control of the Company.  Such  provisions  also may have the
effect of preventing changes in the management of the Company. See "Risk Factors
-Certain  Anti-takeover  Provisions of Certificate of Incorporation and Delaware
law."

         Preferred Stock. The Company's Certificate of Incorporation  authorizes
20,000,000  shares of Preferred Stock with a par value of $0.0001.  The Board of
Directors is  authorized  to provide for the issuance of the shares of Preferred
Stock in series,  and by filing a certificate  pursuant to the applicable law of
the State of Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designations,  powers,  preferences
and rights of the shares of each such series and the qualifications, limitations
or  restrictions  thereof.  In the event of a proposed  merger,  tender offer or
other  attempt to gain  control  of the  Company  of which  management  does not
approve,  it might be  possible  for the Board of  Directors  to  authorize  the
issuance of a series of preferred stock with rights and  preferences  that could
impede  the  completion  of such a  transaction.  See  "Risk  Factors  - Certain
Anti-takeover Provisions of Certificate of Incorporation and Delaware Law."

         Delaware  Anti-Takeover  Statute. The Company is subject to Section 203
of the Delaware General  Corporation Law, which,  subject to certain exceptions,
prohibits a Delaware  corporation from engaging in any business combination with
any interested  shareholder  for a period of three years following the date that
such shareholder  became an interested  shareholder,  unless:  (1) prior to such
date,  the board of directors of the  corporation  approved  either the business
combination  or the  transaction  that resulted in the  shareholder  becoming an
interested  shareholder;  (2) upon consummation of the transaction that resulted
in  the  shareholder   becoming  an  interested   shareholder,   the  interested
shareholder  owned  at  least  85%  of  the  voting  stock  of  the  corporation
outstanding  at the time the  transaction  commenced,  excluding for purposes of
determining the number of shares  outstanding  those shares owned (i) by persons
who are directors  and also  officers and (ii) by employee  stock plans in which
employee participants do not have the right to determine  confidentially whether
shares held subject to the plan will be tendered in a tender or exchange  offer,
or (3) on or subsequent to such date the business combination is approved by the
board  of  directors  and  authorized  at  an  annual  or  special   meeting  of
stockholders, and not by written consent, by the affirmative vote of at least 66
2/3% of the  outstanding  voting  stock  that  is not  owned  by the  interested
shareholder.

         Section 203 defines  business  combination  when used in reference to a
corporation  and any  interested  shareholder  to  include:  (i) any  merger  or
consolidation  of the  corporation  with the interested  shareholder or with any
other  corporation  if the merger or  consolidation  is caused by the interested
shareholder and, as a result of the  transaction,  Section 203(a) does not apply
to  the  surviving  corporation;  (ii)  any  sale,  lease,  exchange,  mortgage,
transfer,  pledge or other disposition  involving the interested  shareholder of
10% or  more  of the  assets  of  the  corporation;  (iii)  subject  to  certain
exceptions,  any  transaction  that  results in the  issuance or transfer by the
corporation of any stock of the corporation to the interested shareholder;  (iv)
any transaction  involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation owned
by the interested shareholder;  or (v) any receipt by the interested shareholder
of the benefit of any loans,  advances,  guarantees,  pledges or other financial
benefits provided by or through the corporation. In general, Section 203 defines
an interested  shareholder as any entity or person  beneficially owns, or within
three  years  did  own,  15% or  more of the  outstanding  voting  stock  of the
corporation  and  any  entity  or  person  affiliated  with  or  controlling  or
controlled by such entity or person.

                             INDEPENDENT ACCOUNTANTS

         The Board, upon the  recommendation  of the Audit Committee,  appointed
Ernst & Young  LLP,  independent  accountants,  as  auditors  of the  Company to
examine and report to stockholders on the consolidated  financial  statements of
the Company and it subsidiaries  for the year ended on December 31, 1996 and for
the year ending  December 31, 1997.  Ernst & Young LLP  currently  serves as the
Company's independent accountants.

         The Company  engaged Ernst & Young LLP on July 10, 1996 as  independent
accountants to examine the consolidated  financial statements of the Company for
the year ended December 31, 1996.  Ernst & Young LLP replaced  Price  Waterhouse
LLP.  The  Company's  decision  to  retain  Ernst & Young  LLP as the  Company's
principal  independent  accountants  and  discontinue  the  engagement  of Price
Waterhouse  LLP was  ratified,  confirmed  and approved by the  Company's  Audit
Committee at a meeting held on August 1, 1996.

         The  Company   dismissed  Price   Waterhouse  LLP  as  its  independent
accountants on July 10, 1996.  The reports of Price  Waterhouse LLP on financial
statements  for the fiscal years ended  December 31, 1995 and 1994  contained no
adverse  opinion or  disclaimer of opinion and were not qualified or modified as
to  uncertainty,  audit scope or accounting  principles.  In connection with its
audits for the fiscal years ended  December 31, 1995 and 1994,  and through July
10, 1996, there were no disagreements with Price Waterhouse LLP on any matter of
accounting principles or practices,  financial statement disclosure, or auditing
scope or procedure,  which  disagreements if not resolved to the satisfaction of
Price  Waterhouse LLP would have caused them to make reference  thereto in their
report on the financial statements for such years.

         During the fiscal  years ended  December  31, 1995 and 1994 and through
July 10, 1996,  Price  Waterhouse  LLP  communicated  certain  internal  control
matters to the Company that meet the definition of reportable events (as defined
in Regulation  S-K Item  304(a)(1)(iv)).  For the fiscal year ended December 31,
1994, such reportable  events involved  recommendations  that the Company should
ensure  compliance  with its revenue  recognition  policies  and should  further
ensure that  significant  and/or  unusual  accounting  and reporting  issues are
addressed and  documented on a timely basis.  Price  Waterhouse LLP has read the
above and is in agreement with the statements contained therein.

                                  LEGAL MATTERS

         The  legality of shares of Common Stock  offered  hereby will be passed
upon for the Company by Kirkpatrick & Lockhart LLP, Washington, D.C.

                                     EXPERTS

         The consolidated financial statements of Network Imaging Corporation at
December 31, 1996 and for the year  then ended,  appearing in the Prospectus and
Registration  Statement  have been  audited  by Ernst & Young  LLP,  independent
auditors as set forth in their reports thereon appearing  elsewhere herein,  and
are included in reliance  upon such reports  given the authority of such firm as
experts in accounting and auditing.


         The consolidated financial statements of Network Imaging Corporation at
December 31, 1995 and for each of the two years in the period ended December 31,
1995 have been audited by Price  Waterhouse LLP,  independent  auditors,  as set
forth in their reports thereon appearing  elsewhere herein,  and are included in
reliance  upon such  reports  given the  authority  of such firm as  experts  in
accounting and auditing.

                             ADDITIONAL INFORMATION

         This  Prospectus  does not contain all of the  information set forth in
the Registration  Statement and the exhibits and schedules  thereto.  Statements
contained  in this  Prospectus  as to the  contents of any contract or any other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such  contract or other  document  filed as an exhibit to
the Registration Statement,  each such statement being qualified in all respects
by such  reference.  Further  information  with  respect to the  Company and the
Common  Stock  offered  hereby is included or  incorporated  by reference in the
Registration Statement and exhibits.

         Network Imaging is subject to the informational  reporting requirements
of the Securities  Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports,  proxy statements and other information with
the SEC. Such reports,  proxy statements and other  information can be inspected
and copied at the public  reference  rooms of the SEC, 450 Fifth  Street,  N.W.,
Room 1024, Washington,  D.C. 20549, and copies of such materials can be obtained
by mail from the Public  Reference  Section of the SEC, 450 Fifth Street,  N.W.,
Room 1024, Washington,  D.C. 20549, at prescribed rates. In addition,  copies of
such  materials are  available for  inspection  and  reproduction  at the public
reference  facilities of the SEC at its New York regional  office, 7 World Trade
Center,   New  York,  New  York  10048  and  at  its  Chicago  regional  office,
Northwestern  Atrium  Center,  500 West  Madison  Street,  Suite 1400,  Chicago,
Illinois 60661-2511. The SEC also maintains a Web site (http://www.sec.gov) that
contains  reports,  proxy  and  information  statements  and  other  information
regarding  registrants  that file  electronically  with the SEC.  The  Company's
Common  Stock and  Series A Stock  are  listed on the  Nasdaq  National  Market.
Reports,  proxy statements and other information concerning the Company can also
be inspected at Nasdaq, 1735 K Street, N.W., Washington, D.C. 20036.






<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

                                                                        Page

Reports of Independent Accountants                                       F-2

Consolidated Balance Sheets as of December 31, 1996 and 1995             F-4

Consolidated Statements of Operations for the years ended
         December 31, 1996, 1995 and 1994                                F-5

Consolidated Statements of Changes in Stockholders' Equity
         for the years ended December 31, 1996, 1995 and 1994            F-6

Consolidated Statements of Cash Flows for the years ended
         December 31, 1996, 1995 and 1994                                F-7

Notes to Consolidated Financial Statements                               F-8

Consolidated Balance Sheets at June 30, 1997 (unaudited) and
         December 31, 1995                                               F-24

Consolidated Statements of Operations (unaudited) for the three
         months ended June 30, 1997 and 1996                             F-25

Consolidated Statements of Operations (unaudited) for the six
         months ended June 30, 1997 and 1996                             F-26

Consolidated Statements of Changes in Stockholders' Equity
         (unaudited) for the six months ended June 30, 1997              F-27

Consolidated Statement of Cash Flows (unaudited) for the six
         months ended June 30, 1997 and 1996                             F-28

Notes to Consolidated Financial Statements                               F-29


<PAGE>






                         Report of Independent Auditors

Board of Directors
Network Imaging Corporation


We have audited the accompanying  consolidated  balance sheet of Network Imaging
Corporation  (the  "Company"),   as  of  December  31,  1996,  and  the  related
consolidated  statement of operations,  stockholders'  equity and cash flows for
the year then ended.  These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audit.

We conducted our audit 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 out audit provides a reasonable basis for our opinion.

In our opinion, the financial statement referred to above present fairly, in all
material  respects,  the  consolidated  financial  position  of Network  Imaging
Corporation  at  December  31,  1996,  and the  consolidated  results  of  their
operations and their cash flows for the year ended in conformity  with generally
accepted accounting principles.


/S/ Ernst & Young, LLP
February 14, 1997












                                       F-2




                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Network Imaging Corporation

In our opinion,  the  accompanying  consolidated  balance  sheet and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all materials respects,  the financial position of
Network Imaging  Corporation and its  subsidiaries at December 31, 1995, and the
results  of their  operations  and their cash flows for each of the two years in
the period ended  December 31,  1995,  in  conformity  with  generally  accepted
accounting principles.  These financial statements are the responsibility of the
Company's  management;  our  responsibility  is to  express  an opinion on these
financial  statements  based on our  audits.  We  conducted  our audits of these
statements  in accordance  with  generally  accepted  auditing  standards  which
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,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial statement presentation.  We believe that our audits prove a reasonable
basis for the opinion expressed above.


/S/ Price Waterhouse, LLP
Washington, D.C.
March 29, 1996
















                                       F-3
<PAGE>
<TABLE>

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

<CAPTION>
                                                              December 31,
                                                           1996          1995
                                                         ---------    ---------
<S>                                                      <C>          <C>
                           ASSETS

Current assets:
 Cash and cash equivalents                               $   7,601    $   9,359
 Short-term investments - restricted                          --          3,052
 Accounts and notes receivable, net                         13,243       16,300
 Inventories                                                 1,503        3,464
 Prepaid expenses and other                                  2,362        3,543
                                                         ---------    ---------
   Total current assets                                     24,709       35,718
Fixed assets, net                                            2,887        3,769
Long-term notes receivable, net                              1,979        1,215
Software development costs and
 purchased technology, net                                   3,813        4,630
Goodwill, net                                                3,237        4,468
Other assets                                                   153          164
                                                         ---------    ---------
   Total assets                                          $  36,778    $  49,964
                                                         =========    =========


                  LIABILITIES & STOCKHOLDERS' EQUITY

Current liabilities:
 Current debt maturities and
  obligations under capital leases                       $   2,063    $   5,365
 Accounts payable                                            3,185        6,201
 Accrued compensation and related
  expenses                                                   1,891        2,638
 Deferred revenue                                            3,789        4,408
 Other accrued expenses                                      3,888        3,652
                                                         ---------    ---------
   Total current liabilities                                14,816       22,264
Long-term debt and obligations
 under capital leases                                           88        1,264
Deferred income taxes                                          300          773
                                                         ---------    ---------
   Total liabilities                                        15,204       24,301
Commitments
Redeemable Series F preferred
 stock, 1,792,186 shares issued
 and outstanding                                             9,857       15,478
Stockholders' equity:
 Preferred stock, $.0001 par
  value, 20,000,000 shares
  authorized; 1,605,675 and
  1,605,228 shares issued and
  outstanding
 Common stock, $.0001 par value,
  50,000,000 shares authorized;
  22,896,612 and 18,637,226
  shares issued and outstanding                                  2            2
 Additional paid-in-capital                                124,429      105,065
 Accumulated deficit                                      (113,098)     (95,757)
 Translation adjustment                                        384          875
                                                         ---------    ---------
   Total stockholders' equity                               11,717       10,185
                                                         ---------    ---------
   Total liabilities and stockholders' equity            $  36,778    $  49,964
                                                         =========    =========
</TABLE>


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

                                      F-4
<PAGE>
<TABLE>
                  NETWORK IMAGING CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                            Years ended December 31,
               (In thousands, except share and per share amounts)

<CAPTION>
                                       1996            1995            1994                  
                                   ------------    ------------    ------------
<S>                                <C>             <C>             <C>
 Revenue:
  Products                         $     18,336    $     47,508    $     49,867
  Services                               21,141          21,643          17,161
                                   ------------    ------------    ------------
                                         39,477          69,151          67,028
                                   ------------    ------------    ------------
Costs and expenses:
  Cost of products sold                   9,953          29,263          36,757
  Cost of services provided              14,421          13,135          11,432
  Product development                     6,500           7,058           4,666
  Selling, general and
   administrative                        24,956          35,679          36,765
  Exchange fee and gain on
   sale of asset, net                       619            --              --
  Purchased in-process
   research and development                --              --             8,821
  Settlement with stockholders             --             1,642            --
  Loss on closure and sale of
   subsidiaries, net                        921           9,274            --
  Restructuring costs                      (175)         (1,433)          1,654
  Capitalized software
   write-off                               --              --             8,743
                                   ------------    ------------    ------------
                                         57,195          94,618         108,838
                                   ------------    ------------    ------------
Loss before investment and
 interest income and income
  taxes                                 (17,718)        (25,467)        (41,810)
  Investment and interest
   income, net                              309             224             579
                                   ------------    ------------    ------------
Loss before income taxes                (17,409)        (25,243)        (41,231)
  Income tax benefit                        (68)           (280)         (1,606)
                                   ------------    ------------    ------------
Net loss                                (17,341)        (24,963)        (39,625)
                                   ------------    ------------    ------------

Preferred stock
 preferences                             (3,730)         (9,933)         (4,496)
                                   ------------    ------------    ------------
Net loss applicable to
 common shares                     $    (21,071)   $    (34,896)   $    (44,121)
                                   ============    ============    ============

Net loss per common share          $      (1.02)   $      (2.41)   $      (3.56)
                                   ============    ============    ============

Weighted average shares
 outstanding                         20,681,694      14,502,399      12,391,225
                                   ============    ============    ============
</TABLE>


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

                                      F-5
<PAGE>
<TABLE>
                  NETWORK IMAGING CORPORATION AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
              For the years ended December 31, 1996, 1995 and 1994
                      (In thousands, except share amounts)


<CAPTION>
                                                                                                         Additional
                                                  Preferred Stock                Common Stock              paid-in      Accumulated 
                                              Shares            Amt.        Shares            Amt.         capital        Deficit   
                                            -----------     -----------   -----------     -----------    -----------    -----------
<S>                                         <C>             <C>           <C>             <C>            <C>            <C>
Balance December 31, 1993                    1,400,000     $      --        10,542,105    $         1    $    74,153    $   (31,169)
Issuance of preferred stock,
 net of offering costs
 of $673                                       205,025                                                         4,453
Issuance of common stock,
net of offering costs of $39                                                 2,786,070                        19,184
Conversion of preferred stock                                                  300,000                         2,303
Accretion of preferred stock                                                                                  (1,286)
Dividends on preferred stock                                                                                  (3,210)
Translation adjustment
Net loss                                                                                                                    (39,625)
                                           -----------     -----------     -----------    -----------    -----------    -----------
Balance December 31, 1994                    1,605,025            --        13,628,175              1         95,597        (70,794)

Issuance of preferred stock,
 net of offering costs of $1,790                 2,174     $      --                                          19,949
Conversion of preferred stock                     (885)                      2,276,237
Redemption of preferred stock                   (1,086)                                                      (15,600)
Issuance of common stock, net
 of offering costs of $941                                                   2,732,814              1          9,198
Accretion of preferred stock                                                                                    (869)
Dividends on preferred stock                                                                                  (3,210)
Translation adjustment
Net loss                                                                                                                    (24,963)
                                           -----------     -----------     -----------    -----------    -----------    -----------
Balance December 31, 1995                    1,605,228            --        18,637,226              2        105,065        (95,757)
Issuance of common stock, net
 of offering costs of $376                                                   1,902,487                         6,149
Issuance of preferred stock,
 net of offering costs
 of $209                                         1,100     $      --                                          10,791
Issuance of warrants for
 line of credit                                                                                                  192
Buy-Back adjustment of
 Redeemable Series F
 preferred stock                                                                                               5,962
Conversion of preferred stock                     (653)                      2,356,899
Accretion of preferred stock                                                                                    (341)
Dividends on preferred stock                                                                                  (3,389)
Translation adjustment
Net loss                                                                                                                    (17,341)
                                           -----------     -----------     -----------    -----------    -----------    -----------
Balance December 31, 1996                    1,605,675     $      --        22,896,612    $         2    $   124,429    $  (113,098)
                                           ===========     ===========     ===========    ===========    ===========    ===========



                                                                 
                                                    Translation
                                                    Adjustment          Total
                                                    ----------        ---------
<S>                                                 <C>               <C>
Balance December 31, 1993                            $   (191)         $ 42,794
Issuance of preferred stock,
 net of offering costs
 of $673                                                                  4,453
Issuance of common stock,
net of offering costs of $39                                             19,184
Conversion of preferred stock                                             2,303
Accretion of preferred stock                                             (1,286)
Dividends on preferred stock                                             (3,210)
Translation adjustment                                    543               543
Net loss                                                                (39,625)
                                                     --------          --------
Balance December 31, 1994                                 352            25,156

Issuance of preferred stock,
 net of offering costs of $1,790                                         19,949
Conversion of preferred stock                                             --
Redemption of preferred stock                                           (15,600)
Issuance of common stock, net
 of offering costs of $941                                                9,199
Accretion of preferred stock                                               (869)
Dividends on preferred stock                                             (3,210)
Translation adjustment                                    523               523
Net loss                                                                (24,963)
                                                     --------          --------
Balance December 31, 1995                                 875            10,185

Issuance of common stock, net
 of offering costs of $376                                                6,149
Issuance of preferred stock,
 net of offering costs
 of $209                                                                 10,791
Issuance of warrants for
 line of credit                                                             192
Buy-Back adjustment of
 Redeemable Series F
 preferred stock                                                          5,962
Conversion of preferred stock                                              --
Accretion of preferred stock                                               (341)
Dividends on preferred stock                                             (3,389)
Translation adjustment                                   (491)             (491)
Net loss                                                                (17,341)
                                                     --------          --------
Balance December 31, 1996                            $    384          $ 11,717
                                                     ========          ========
</TABLE>




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

                                      F-6
<PAGE>
<TABLE>

                  NETWORK IMAGING CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            Years Ended December 31,
                                 (In thousands)

<CAPTION>
                                               1996         1995         1994
                                             --------     --------     --------
<S>                                          <C>          <C>          <C>
Cash flows from operating
 activities:
 Net loss                                    $(17,341)    $(24,963)    $(39,625)
 Adjustments to reconcile
  net loss to net cash
  used in operating activities:
   Depreciation and amortization                5,793        6,270        6,085
   Purchased in-process
    research and development                     --           --          8,821
   Restructuring costs                           (175)      (1,433)       1,654
   Loss on closure and sale
    of subsidiaries                               921        9,274         --
   Impairment of spare parts
    inventory                                    --            276         --
   Capitalized software
    write-off                                    --           --          8,743
   Goodwill write-off                            --           --            953
   Stock Settlement                              --            787         --
   Realized gain on sale of
    short-term investments                       (108)        (151)        --
   Unrealized holding loss on
    short-term investments                       --           --            437
   Changes in assets and
    liabilities:
    Accounts and notes receivable               1,871       (1,350)      (1,174)
    Inventories                                   313          988       (2,305)
    Prepaid expenses and other                    937       (1,681)        (694)
    Accounts payable                           (3,353)        (313)       1,433
    Accrued compensation and
     related expenses                              54        2,107       (3,540)
    Deferred revenues                            (449)       1,521        2,651
    Deferred income taxes                        (246)        (331)      (1,223)
                                             --------     --------     --------
Net cash used in operating
 activities                                   (11,783)      (8,999)     (17,784)
                                             --------     --------     --------

Cash flows from investing
 activities:
 Sale (purchase) of short-term
  investments                                     111       12,731      (12,973)
 Capitalized software
  development and license costs                (1,979)      (1,784)      (6,966)
 Purchases of fixed assets                     (1,068)      (1,522)      (3,559)
 Business divestitures/
  acquisitions and related costs                  299          154       (3,640)
                                             --------     --------     --------
Net cash (used in) provided by
 investing activities                          (2,637)       9,579      (27,138)
                                             --------     --------     --------

Cash flows from financing
 activities:
 Proceeds from issuance of
  common stock, net                             6,149        8,412        3,057
 Proceeds from issuance
  preferred stock, net                         10,791       19,949        4,453
 Redemption of Series D
  preferred stock                                --        (15,600)        --
 Cash dividends paid on
  Series A preferred stock                     (3,210)      (3,210)      (2,830)
 Proceeds from borrowings
  and purchase of short-term
  investments, net                               --           (869)       3,537
 Proceeds from sale and
  leaseback of fixed assets                       196          226        2,413
 Principal payments on capital
  lease obligations                              (913)        (817)         (87)
 Principal payments on debt                      (270)      (3,382)      (1,526)
                                             --------     --------     --------
Net cash provided by
 financing activities                          12,743        4,709        9,017
                                             --------     --------     --------

Effect of exchange rate changes
 on cash and cash equivalents                     (81)          81          130
Net (decrease) increase in
 cash and cash equivalents                     (1,758)       5,370      (35,775)
Cash and cash equivalents at
 beginning of year                              9,359        3,989       39,764
                                             --------     --------     --------
Cash and cash equivalents
 at end of year                              $  7,601     $  9,359     $  3,989
                                              ========     ========     ========

Supplemental Cash Flow
 Information:
  Interest paid                              $    278     $    712     $    490
  Income taxes paid                          $    209     $    151     $    401
</TABLE>





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

                                      F-7
<PAGE>


                  NETWORK IMAGING CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996, 1995 and 1994



Network Imaging Corporation  ("Network Imaging" or the "Company") is a developer
and  marketer  of content  and  storage  management  software  for  unstructured
information. Its  flagship  product,  the 1View(TM)  suite, manages the storage,
access and  distribution of any multimedia  data,  such as diagrams,  documents,
photographs,  voice,  and  full-motion  video.  1View is a  solution  for use in
distributed,  high transaction, high volume mission critical applications across
legacy,  client/server and Internet/intranet based environments.  The Company is
also a software  developer for mainframe and PC based  Computer  Output to Laser
Disk  ("COLD")  systems  and a  developer  and  marketer  of storage  management
software systems.

In 1996, the Company's  operations were approximately evenly divided between the
United States and Europe.  U.S.  operations  were  conducted in or near Herndon,
Virginia  (primarily  the  development  of the 1View  suite  and COLD  family of
storage  products),  Minneapolis,   Minnesota  and  Denver,  Colorado.  European
operations were conducted near Paris,  France  (hierarchical  storage management
software and related storage products and engineering services).


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principles of consolidation --

The consolidated  financial  statements  include the accounts of Network Imaging
Corporation and its subsidiaries.  All significant intercompany transactions and
balances have been eliminated.

         Cash equivalents and short-term investments --

The Company  considers  all highly  liquid debt  instruments  purchased  with an
original  maturity of three months or less to be cash  equivalents.  At December
31, 1995,  restricted  short-term  investments are categorized as "available for
sale"  securities whose carrying amount  approximates  fair value because of the
short-term maturity of the investments.

         Revenue recognition --

The Company  recognizes  software revenue in accordance with the AICPA Statement
of Position  91-1,  "Software  Revenue  Recognition".  Revenue from hardware and
software  sales  related to the Company's  1View(TM) and COLD software  products
is  recognized  when the  product is  delivered  to the  customer.  The  Company
accounts for insignificant  vendor obligations and post-contract  support at the
time of product delivery by accruing such costs at the time of sale.

                                       F-8

Revenue  from  hardware  and  software  contracts  with  significant  completion
services involving  technically  difficult issues for the attainment of customer
acceptance is  recognized  upon customer  acceptance.  Revenue from  maintenance
contracts is recognized ratably over the terms of the contracts.

For  labor  intensive   contracts  which  require   significant   production  or
customization,  the Company  accounts for such revenue in accordance  with AICPA
Statement of Position 81-1, "Accounting for Performance of Construction-type and
Certain  Production-type  Contracts," using the percentage of completion method.
Losses, if any, are recognized in the period that such losses are determined.

         Inventories --

Inventories  are  stated  at the  lower of  cost,  determined  on the  first-in,
first-out method, or market.

         Fixed assets --

Fixed assets are stated at cost, net of accumulated  depreciation.  Depreciation
is computed using  straight-line  and  accelerated  methods over the life of the
related asset,  generally three years. Leasehold improvements are amortized over
the shorter of the estimated useful life of the improvements or the terms of the
related lease.

         Software development and license costs --

The Company  capitalizes  certain software  development costs in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer  Software to Be Sold,  Leased or Otherwise  Marketed," ("SFAS 86"). The
Company  capitalizes  certain acquired  software licenses (see Note 5) which are
incorporated into the Company's products.  Amortization of software  development
and license costs is provided on an individual  product basis over the estimated
life of the  products of three years  beginning  when the related  products  are
available for general release. Costs for research and development incurred prior
to establishing  technological  feasibility of software products, or after their
commercial   release,   are  expensed  in  the  period  incurred.   The  Company
periodically   assesses   capitalized  software  amounts  and,  when  less  than
anticipated net realizable value, charges any such excess to expense.

         Goodwill --

The excess of the  purchase  price  over the fair value of the net  identifiable
tangible and intangible  assets of businesses  acquired is being  amortized on a
straight-line basis over seven to ten years.  Amortization expense in 1996, 1995
and  1994  was $1.1  million,  $1.3  million  and  $1.2  million,  respectively.
Accumulated  amortization  as of December 31, 1996 and 1995 was $3.1 million and
$1.9 million, respectively. In accordance with Statement of Financial Accounting
Standards No. 121, the Company routinely evaluates recoverability of goodwill by
comparing future  undiscounted cash flows to the recorded carrying value. During
1994,  the Company  determined  that  goodwill  from  certain  acquisitions  was
impaired and accordingly expensed $953,000.

                                       F-9

         Product warranty --

Warranties  for  hardware  sold by the  Company  are  generally  provided by the
manufacturer.  The Company provides warranties and service contracts for certain
products and accrues related expenses based on actual claims history.

         Income taxes --

The  Company's  income  taxes are  presented  in  accordance  with  Statement of
Financial  Accounting  Standards No. 109,  "Accounting  for Income Taxes" ("SFAS
109") which requires  recognition of deferred tax liabilities and assets for the
expected  future  tax  consequences  of events  that have been  included  in the
financial  statements or tax returns.  Under SFAS 109,  deferred tax liabilities
and  assets  are  determined  based  on the  difference  between  the  financial
statement  and tax basis of assets and  liabilities,  using enacted tax rates in
effect for the year in which the differences are expected to reverse.

         Foreign currency translation --

The  functional  currency of the Company's  foreign  operation is the applicable
local  currency.  Consequently,  for the  operation  outside the United  States,
assets and  liabilities are translated into United States dollars using exchange
rates in effect at the balance  sheet date and revenues  and expenses  using the
average  exchange rate during the period.  The gains and losses  resulting  from
such translations are included as a component of stockholders' equity. Since the
Company's  French  subsidiary  operates only within France,  exposure to foreign
exchange risk is limited.

         Net loss per common share --

Net loss  applicable  to  common  shares  includes  adjustments  for  dividends,
accretion and redemption  amounts related to the Company's  preferred stock. Net
loss per common share is computed  using the weighted  average  number of common
shares and common share equivalents, unless antidilutive, outstanding during the
year.

         Use of estimates--

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





                                      F-10

         Stock Based Compensation --

Effective January 1, 1996, the Company  adopted  Statement of Financial  Accoun-
ting Standards No. 123, "Accounting for Stock-Based  Compensation" ("SFAS 123"),
which allows companies

which have stock-based  compensation  arrangements with employees to adopt a new
fair-value  basis of accounting for stock options and other equity  instruments,
or  to  continue  to  apply  the  existing  accounting  rules  under  Accounting
Principles Board Opinion No. 25,  "Accounting for Stock Issued to Employees" but
with additional disclosure. The Company has adopted the disclosure provisions of
SFAS 123 and  therefore,  the effect of adopting SFAS 123 did not have impact on
its  financial  position,  results of operations or cash flows as of, or for the
year ended, December 31, 1996 (see Note 9).

         Reclassifications --

Certain  reclassifications have been made to the prior year financial statements
in order to conform to the current year presentation.

NOTE 2 - SHORT-TERM INVESTMENTS

Restricted short-term investments at December 31, 1995 consisted of certificates
of deposit,  which served  primarily as  collateral  for the  Company's  line of
credit that was repaid on March 31,  1996.  There was no  short-term  investment
balance at December 31, 1996.

NOTE 3 - RECEIVABLES

Receivables consist of the following:

                                                                December 31,
                                                        ------------------------
                                                          1996             1995
                                                        --------         -------
                                                               (in thousands)

Trade accounts receivable                               $ 9,814          $11,549
Unbilled receivables                                      3,488            3,538
Notes receivable                                          2,475            2,808
Employee receivables                                        112              614
Other receivables                                          188              539
                                                       -------          -------
                                                        16,077           19,048
Allowance for uncollectible
 accounts receivable                                      (535)            (183)
Allowance for uncollectible
 notes receivable                                         (320)          (1,350)
                                                       -------          -------
                                                        15,222           17,515
Less: Current receivables, net                         (13,243)         (16,300)
                                                       -------          -------
Long-term receivables, net                            $  1,979         $  1,215
                                                      ========         ========
                                      F-11

The  Company's  notes  receivable  balance of $2.5  million at December 31, 1996
includes $1,950,000 of notes resulting from the divestitures of previously owned
operating units (the  "Divestitures") made during 1995 and 1996 (see Note 6) and
$525,000 of notes receivable from former  stockholders of a subsidiary  acquired
in 1994.


NOTE 4 - FIXED ASSETS

Fixed assets consist of the following:

                                                                December 31,
                                                         ----------------------
                                                           1996           1995
                                                         -------        -------
                                                               (in thousands)

Computer and office equipment                            $ 4,953        $ 3,911
Furniture and leasehold improvements                       1,131          1,199
Furniture, fixtures and equipment
 under capital leases                                      2,482          2,559
                                                         -------        -------
                                                           8,566          7,669
Less: Accumulated depreciation                            (5,679)        (3,900)
                                                         -------        -------
                                                         $ 2,887        $ 3,769
                                                         =======        =======

Depreciation and amortization expense related to fixed assets in 1996, 1995, and
1994  totaled  $1.7  million,  $2.1  million,  and $1.7  million,  respectively.
Included in depreciation and amortization  expense in 1996, 1995 , and 1994 were
$580,000,  $704,000,  and $150,000 of  amortization  expense  related to capital
leases, respectively.


NOTE 5 - SOFTWARE DEVELOPMENT AND PURCHASED TECHNOLOGY

Capitalized  software  development  and  purchased  technology  consists  of the
following:
                                                            December 31,
                                                      -------------------------
                                                         1996             1995
                                                      --------         --------
                                                             (in thousands)

Internally developed                                  $  8,517         $  7,064
Purchased technology                                     3,149            2,910
                                                      --------         --------
                                                        11,666            9,974
Less:  Accumulated amortization                         (7,853)          (5,344)
                                                      --------         --------
                                                      $  3,813         $  4,630
                                                      ========         ========

During 1996, 1995 and 1994, amortization of capitalized software development and
license costs totaled $2.6 million, $2.7 million and $3.0 million, respectively,
and was included in cost of products sold. The Company  expensed $3.4 million of
purchased  technology  and $721,000 of  capitalized  software in 1995 due to the
Divestitures. During 1994, the Company also charged to

                                      F-12

expense  $8.7 million in  capitalized  software and  purchased  technology.  The
charge includes $5.3 million resulting from the 1994  restructuring plan related
to products  abandoned.  The remaining $3.4 million charge, in 1994,  relates to
net realizability adjustments.


NOTE 6 - DIVESTITURES OF BUSINESSES

During 1996 and 1995, the Company engaged in a series of Divestitures  resulting
in losses of  $921,000  and $9.3  million  in 1996 and 1995,  respectively.  The
Company received as consideration from the dispositions, cash and notes totaling
$1.5 million and $4.3 million in 1996 and 1995, respectively.

The following  unaudited pro forma information assumes that the 1996 disposition
of the Symmetrical  Technologies,  Inc. subsidiary occurred January 1, 1996. The
unaudited pro forma information is not necessarily  indicative of the results of
future  operations  or the  actual  results  that would  have  occurred  had the
transactions  taken  place at  January  1,  1996  (in  thousands,  except  share
amounts):

Revenue                                                          $ 37,812
Net loss                                                         $(16,251)
Net loss per common share                                        $  (0.97)


NOTE 7 - OTHER ACCRUED EXPENSES

Other accrued expenses consist of the following:


                                                                  December 31,
                                                             -------------------
                                                              1996         1995
                                                             ------       ------
                                                                (in thousands)

Accrued restructuring costs (see Note 12)                    $ --         $  324
Accrued preferred dividends                                     714          527
Accrued income and other taxes                                1,667        1,667
Other                                                         1,507        1,134
                                                             ------       ------
                                                             $3,888       $3,652
                                                             ======       ======

NOTE 8 - BORROWING ARRANGEMENTS

Borrowings consist of the following:

                                                              December 31,
                                                         ----------------------
                                                           1996           1995
                                                         -------        -------
                                                              (in thousands)

Lines of credit                                          $  --          $ 3,276

Capital lease obligations bearing
 interest ranging from 11.7% to 12.7%                        957          1,702

Term loans from French government
 agencies, non-interest bearing,
 due at various dates through 1997                         1,098          1,162

Term notes with financial institutions,
 bearing interest ranging from 8.8% to
 10%, due at various dates through 1997                       96            489
                                                         -------        -------
                                                           2,151          6,629
Less:  Amounts due in one year                            (2,063)        (5,365)
                                                         -------        -------
Long-term debt and capital lease
 obligations                                             $    88        $ 1,264
                                                         =======        =======

At December 31, 1996, the Company  maintained lines of credit which provided for
borrowings up to $6.0 million, of which $5.0 million was issued by a stockholder
of the Company and $1.0 million was issued by a French  governmental  agency. On
December 31,  1996,  the Company  entered  into a restricted  $5 million line of
credit  agreement  with a  stockholder  (the  "Stockholder  line of  credit") to
finance the buy back of the Series F Preferred  Stock.  The Stockholder  line of
credit bears interest at the prime rate (8.25% at December 31, 1996) plus 2% and
is secured by the domestic accounts  receivable of the Company,  $6.4 million at
December 31, 1996.  In connection  with the  Stockholder  line of credit,  which
expires on September 30, 1998, the Company  issued  warrants for the purchase of
129,000 shares of Common Stock. The fair value of the warrants is $192,000 which
will be amortized over the term of the Stockholder  line of credit as additional
interest expense.  The Company repaid and terminated its previous line of credit
with a bank on March 31, 1996.

The French Line of Credit is secured by  accounts  receivable  of the  Company's
French  operations and bears interest at the French  interbank  monetary  market
rate (3.29% at December 31, 1996) plus 3%. The line of credit terminates May 31,
1997.  At December 31, 1996,  there were no borrowings  outstanding  against the
line of credit.

The Company  leases  certain of its furniture and equipment  under capital lease
arrangements.  Future  minimum lease  payments  under these capital  leases are:
1997, $925,000; 1998, $88,000; 1999, $10,000 and 2000, $7,000. Of the $1,030,000
total lease payments, $73,000 represents interest.

NOTE 9 - STOCKHOLDERS' EQUITY

         Common stock --

In March 1996,  the Company  completed a private  placement of 934,634 shares of
Common Stock,  together with warrants to purchase an additional 64,000 shares of
Common Stock,
                                      F-14

pursuant to Regulation D under the Securities Act of 1933. Net proceeds from the
offering were $3.0 million. The Company subsequently registered the Common Stock
and Common Stock issuable upon exercise of the warrants under the Securities Act
of 1933.

In March and June 1996,  the  Company  also issued  421,040 and 404,611  shares,
respectively,  of Common Stock pursuant to Regulation S under the Securities Act
of 1933.  Proceeds  from the  offerings  were  $1.7  million  and $1.3  million,
respectively.

         Series A preferred stock --

The Series A  Cumulative  Convertible  Preferred  Stock  ("Series A  Preferred")
stockholders are entitled to cumulative dividends at the rate of $2.00 per year,
payable quarterly, and can convert to common stock at a rate of 1.8116 shares of
common for each share of Series A Preferred  (an effective  conversion  price of
$13.80),  subject to adjustment in certain  circumstances.  In 1996, the Company
paid $3.2  million in  dividends  to the Series A  Preferred  stockholders.  The
Series A Preferred  stockholders  vote as a class to approve or  disapprove  any
issuance  of any  securities  senior to or on parity with the Series A Preferred
with  respect  to  dividends  or  distributions.  The Series A  Preferred  has a
liquidation  preference of $25.00 per share, plus accumulated  unpaid dividends.
At December 31, 1996,  the Series A Preferred  was  convertible  into  2,907,663
shares of Common Stock.

         Series E and G Preferred Stock--

The three shares of Series E Convertible Preferred Stock outstanding at December
31, 1995 were converted  during 1996 into 10,389 shares of Common Stock.  During
1996, all 200 shares of Series G Convertible Preferred Stock were converted into
551,546 shares of Common Stock.

         Series H and I Preferred Stock --

In June 1996, the Company completed two offerings,  one 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 the other
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 have been 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.
At December 31, 1996, 40 shares of Series H Preferred  Stock had been  converted
into  116,082  shares of Common  Stock and all 300 shares of Series I  Preferred
Stock had been converted into 1,272,214  shares of Common Stock. At December 31,
1996, the remaining  shares of Series H Preferred  Stock were  convertible  into
885,956 shares of Common Stock.



                                      F-15

The Series H Preferred Stock has a per share liquidation preference, subordinate
to the  liquidation  preferences  of the other series of  previously  issued and
outstanding  Preferred Stocks of an amount per share equal to the sum of $10,000
plus 12% per annum simple  interest  thereon  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 had a per share liquidation preference, subordinate
to the  liquidation  preferences  of the other series of  previously  issued and
outstanding Preferred Stocks, 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 was 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 bid price.  The Series I Preferred  Stock had a dividend  rate of 6%
which was paid at the time of conversion into shares of Common Stock, as elected
by the Company.

         Series J Preferred Stock --

In September  1996, the Company  completed an offering  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 have been 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. At December 31, 1996,  110
shares of Series J Preferred  Stock had been  converted  into 406,668  shares of
Common  Stock  and the  remaining  shares  of  Series  J  Preferred  Stock  were
convertible into 1,295,372 shares of Common Stock.

The Series J Preferred Stock has a per share liquidation preference, subordinate
to the  liquidation  preferences  of the other series of  previously  issued and
outstanding Preferred Stocks, 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%


                                      F-16

of 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.

         Stock purchase warrants --

The Company has the following warrants outstanding at December 31, 1996:

<TABLE>

<CAPTION>
Warrants                                        Warrants          Exercise                              Outstanding  Shares Issuable
Issuance                                         Issued          Price Range   Expiration              Dec. 31, 1996   Upon Exercise
--------                                      ------------------------------  --------------           ------------- ---------------
<S>                                           <C>               <C>            <C>                     <C>           <C>

Pre-IPO                                          148,993        $     1.00     May 1997                      33,663           33,663
IPO Units                                      1,595,000        $     5.993    May 1997                     654,392          850,710
Placement                                        397,472        $5.71-$14.88   May 1997-Oct. 1998           307,472          467,082
Other                                            350,334        $3.063-$7.00   Jan. 1997-June 2001          275,334          275,334
Series A preferred                               140,000        $    22.77     December 1998                140,000          253,624
Series D preferred                               227,068        $     7.57     July 2000                     27,068          227,068
Series E preferred                                34,400        $     7.20     July 2000                     34,400           34,400
Private Placement                                179,400        $3.50-$4.00    Nov.-Dec. 2000               179,400          179,400
Series G preferred                                40,000        $     3.75     December 2000                 40,000           40,000
Series H Preferred                                80,000        $     3.50     June 2001                     80,000           80,000
                                              ----------                                                 ----------       ----------
                                               3,192,667                                                  1,971,729        2,441,281
                                              ==========                                                 ==========       ==========
</TABLE>

         Stock option plans --

During 1994,  1995 and 1996, the Company  granted options to buy Common Stock of
the Company under five stock option plans.  Certain options qualify as incentive
stock options under the Internal  Revenue Code. The vesting and the terms of any
option granted under the plans are determined by the Board of Directors with the
requirement  that the term of an  incentive  stock  option  shall not exceed ten
years. To date, options granted range from five- to ten-year terms. The exercise
price per share of Common Stock subject to an incentive stock option will not be
less than the fair  market  value at the time of  grant.  The  Company  has also
issued  non-qualified plan options. An aggregate of 9.1 million shares have been
authorized for issuance under the Company's stock option plans.

Pro forma information regarding net income and earnings per share is required by
SFAS 123,  and has been  determined  as if the  Company  had  accounted  for its
employee  stock options  under the fair value  method.  The fair value for these
options was estimated at the date of grant using a Black-Scholes  option pricing
model  with the  following  weighted-average  assumptions  for  1995  and  1996,
respectively: average risk-free interest rates of 6.6% and 6.7%; dividend yields
of 0.0%; volatility factors of the expected market price of the Company's common
stock of .63; and a weighted-average expected life of the option of 5 years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable. In addition, option
                                      F-17

valuation models require the input of highly  subjective  assumptions  including
the  expected  stock price  volatility.  Because the  Company's  employee  stock
options  have  characteristics  significantly  different  from  those of  traded
options,  and because changes in the subjective input assumptions can materially
affect the fair value estimate,  in management's opinion, the existing models do
not  necessarily  provide a  reliable  single  measure  of the fair value of its
employee stock options.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options'  vesting  period.  The  Company's  pro
forma loss is $35.6  million and $23.1  million for 1995 and 1996,  respectively
and pro forma loss per share is $2.46 and $1.12 for 1995 and 1996, respectively.
The effect of  applying  SFAS 123 on the 1995 and 1996 pro forma net loss is not
necessarily  representative of the effects on reported net loss and net loss per
share for future years due to, among other things,  1) the vesting period of the
stock options and the 2) fair value of additional stock options in future years.

The  following  table  summarizes  the activity in stock  options  issued by the
Company:

                                                           Exercise
                                                   Options              Price
                                                ------------       -------------
Balance, January 1, 1994                          3,183,250         $1.00-$12.38
Granted                                           2,967,000         3.38-12.38
Exercised                                          (321,658)        1.00-7.63
Canceled                                           (560,792)        1.00-12.13
                                                 -----------       -------------
Balance, December 31, 1994                        5,267,800         1.00-12.38
Granted                                           2,486,250         3.32-6.82
Exercised                                           (89,957)        2.25-3.75
Canceled                                         (1,163,769)        2.25-12.38
                                                 ----------         ------------
Balance, December 31, 1995                        6,500,324         1.00-12.38

Granted                                           1,454,000         2.69-4.50
Exercised                                           (88,869)        1.00-3.75
Canceled                                           (851,619)        1.00-6.82
                                                  ----------        ------------
Balance, December 31, 1996                        7,013,836         $1.00-$8.75
                                                  ==========        ============

At December 31, 1996,  options to purchase  3,125,102 shares had vested and were
exercisable  at a weighted  average  exercise price of $3.90 per share and had a
weighted average contractual life of 6.5 years.

NOTE 10 - REDEEMABLE PREFERRED STOCK

In December 1996,  the Company  entered into an agreement with the holder of the
Series F Preferred  Stock to redeem the shares for an  aggregate of $9.9 million
or $5.50 per share. The agreement requires the Company to make payments totaling
$6.6 million  through June 30, 1997,  and an additional  $3.6 million on January
31, 1998. The $3.6 million payment due on January


                                      F-18

31, 1998, is subject to certain acceleration terms that are under the control of
the  Company.  Under the  agreement,  the  outstanding  obligation  amount  will
compound  at 8% per annum,  commencing  October 1, 1996.  The  reduction  of the
Company's  Series F  redemption  obligation  under  the  terms of the  agreement
resulted in a $6.0 million increase in stockholders' equity.

NOTE 11 - INCOME TAXES

The source of the loss before income taxes was from the following jurisdictions:

                                                      Year Ended December 31,
                                                 ------------------------------
                                                    1996                  1995
                                                 --------              --------
                                                          (in thousands)

U.S.                                             $(16,332)             $(23,480)
Foreign                                            (1,077)               (1,763)
                                                 --------              --------
                                                 $(17,409)             $(25,243)
                                                 ========              ========

Deferred tax assets and liabilities are comprised of the following:

                                                         Year Ended December 31,
                                                         -----------------------
                                                          1996            1995
                                                         ------          ------
                                                              (in thousands)
Current tax expense (benefit):
U.S. Federal                                               $--            $  51
                                                           -----          -----
State and local                                             --             --
                                                           -----          -----
Foreign                                                     --             --
                                                           -----          -----

Deferred tax expense:
Foreign                                                      (68)          (331)
                                                           -----          -----
Total income tax                                           $ (68)         $(280)
                                                           =====          =====

Deferred tax assets and liabilities are comprised of the following:
                                                              December 31,
                                                       ------------------------
                                                         1996             1995
                                                       --------        -------- 
                                                             (in thousands)
Deferred tax assets:
 Net operating losses                                  $ 24,419        $ 12,180
 Other                                                    1,659           1,997
                                                       --------        --------
  Gross deferred tax assets                            $ 26,078        $ 14,177
                                                       ========        ========


                                      F-19

Deferred tax liabilities:
 Software development costs                              (1,372)         (1,661)
                                                       --------        --------
  Gross deferred tax liabilities                         (1,372)         (1,661)
Deferred tax asset valuation allowance                  (24,752)        (13,032)
                                                       --------        --------
                                                       $    (46)       $   (516)
                                                       ========        ========
Current deferred tax assets
 (included in prepaid and
 other current assets net
 of valuation allowance)                               $    254        $    257
Non current deferred tax liabilities                       (300)           (773)
                                                       --------        --------
                                                       $    (46)       $   (516)
                                                       ========        ========

Income tax expense (benefit) differs from the amount of income tax determined by
applying  the  applicable  U.S.  statutory  federal  income tax rate to the loss
before income taxes as a result of the following differences:


                                                         Year Ended December 31,
                                                         -----------------------
                                                          1996           1995
                                                         ------         ------
                                                              (in thousands)
Statutory U.S. tax rate benefit                          (34.0%)        (34.0%)
State income taxes, net                                   (4.0)          (4.0)
Operating losses and tax credits
 with no current tax benefit                              37.5           31.0
Other                                                      0.1            5.9
                                                         -------        -------
                                                          (0.4%)         (1.1%)
                                                         =======        =======

As of December 31,  1996,  the Company had net  operating  loss and research tax
credit carry forwards of approximately  $53 million and $913,000,  respectively,
for U.S.  income tax purposes  which expire in years through  2010.  The Company
experienced  changes in  ownership  during prior years which  triggered  certain
limitations   under  Internal  Revenue  Code  Section  382.   Accordingly,   the
utilization  of the net operating  loss and research tax credits will be limited
in future years due to the changes in ownership.

Provision  has  not  been  made  for  U.S.  or   additional   foreign  taxes  on
undistributed earnings of foreign subsidiaries.  The earnings have been and will
continue to be reinvested in those  subsidiaries.  These  earnings  could become
subject to  additional  tax if they were  remitted  as  dividends,  if they were
loaned to the Company or a U.S.  affiliate,  or if the Company sold its stock in
the subsidiaries. It is not practicable to estimate the amount of additional tax
that might be payable on the foreign  earnings;  however,  the Company  believes
that,  due to the operation of the foreign tax credits,  any foreign tax credits
would largely eliminate any U.S. tax and offset any foreign tax.




                                      F-20

NOTE 12 - RESTRUCTURING CHARGES AND CAPITALIZED SOFTWARE WRITE-OFFS

At December 31, 1996,  the Company's  1994  restructuring  plan (the "Plan") was
complete.  In accordance with the Plan, 90 employees had been terminated  and/or
resigned and the Company's  excess leased  property was sublet through the lease
termination  date.  Under the Plan, the Company incurred net changes in estimate
of  $175,000  and  $1.4  million  in  1996  and  1995,   respectively   and  net
restructuring charges of $1.7 million in 1994. In conjunction with the Plan, the
Company also expensed capitalized software of $5.3 million in 1994.

NOTE 13 - BUSINESS SEGMENTS

The Company sells its products and services through a single industry segment to
a wide variety of customers throughout the United States and Western Europe. The
Company  performs  ongoing  credit  evaluations  of  its  customers'   financial
condition and generally does not require collateral from its customers.

The following table sets forth summary information for the years ended  December
31,  1996,  1995 and 1994 (in thousands):

                                                    United              Western
                                                    States              Europe
                                                   ---------           ---------
1996:
     Revenue                                       $ 21,383            $ 18,094
     Net loss                                       (16,332)             (1,009)
     Total assets                                    22,718              14,060

1995:
     Revenue                                       $ 38,367            $ 30,784
     Net loss                                       (23,531)             (1,432)
     Total assets                                    30,654              19,310

1994:
     Revenue                                       $ 37,619            $ 29,409
     Net loss                                       (35,360)             (4,265)
     Total assets                                    43,963              27,908


Revenue in 1996  included  sales to the U.S.  Government  and French  Government
totaling $1.1 million and $10.3 million, respectively.  Revenue in 1995 included
sales to the U.S.  Government  and French  Government  totaling $1.7 million and
$9.6  million,  respectively.  Revenue  in  1994  included  sales  to  the  U.S.
Government  and  French  Government  totaling  $3.3  million  and $7.6  million,
respectively.



                                      F-21

NOTE 14 - COMMITMENTS

The Company leases its corporate office, sales offices,  assembly facilities and
certain equipment under non-cancelable operating leases certain of which provide
for  annual  escalations  that are  amortized  over the lease  term and pro rata
operating expense reimbursements.  Rent expense related to these leases was $1.6
million,  $2.7 million and $2.9  million for the years ended  December 31, 1996,
1995, and 1994, respectively.

Future  minimum lease  payments  under  non-cancelable  operating  leases are as
follows (in thousands):

 Year Ending
 December 31,
-------------
     1997                                              $1,328
     1998                                               1,076
     1999                                                 940
     2000                                                 363
     Thereafter                                           --
                                                     ---------
                                                       $3,707
                                                     =========

NOTE 15 - CONTINGENCIES

         Department of Justice, Securities and Exchange  Commission  and Company
internal investigations --

During  November  1996,  the Company  received a letter from the  Securities and
Exchange   Commission   advising  the  Company  that  it  was   terminating   an
investigation that it had been conducting.  In 1994, the Company learned that it
was the  subject of  investigation  by the  Commission  and the U.S.  Attorney's
Office in the  Southern  District of New York which the Company  understood  was
focused  on  certain   accounting  issues,   including   questions  relating  to
capitalization  of software and  pooling-of-interests  accounting  treatment for
certain acquisitions, and certain matters related to activities during the years
1992 and 1993. The Company has had no  communications  with the U.S.  Attorney's
Office from the date it received the letter from the SEC.

         Other --

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
December 1996 Series F Preferred Stock  redemption  agreement (See Note 10), the
holder of the Series F Preferred  Stock  agreed to use best  efforts to obtain a
release  from the  landlord.  During  March  1997,  the  holder of the  Series F
Preferred Stock  successfully  obtained a full and unconditional  release of the
guarantee obligations of Dorotech.
                                      F-22

The Company is also subject to other legal  proceedings  and claims which are in
the ordinary  course of business.  Management  believes that the outcome of such
matters will not have a material impact on the Company's  financial  position or
its result of operations.

NOTE 16 - RELATED PARTY TRANSACTIONS

         The Company has employment and consulting  agreements with  individuals
who are current or former  members of the Board of Directors and officers of the
Company.  The Company has five year agreements with the Chairman of the Board of
Directors and  Secretary and with the former  Chairman of the Board of Directors
and his consulting  firm. The Company also has a five year consulting  agreement
with another  former  Director and his consulting  firm. The Company  recognized
total  compensation  expense of approximately  $715,000 and $898,000 in 1996 and
1995, respectively, related to these employment and consulting agreements.

During  December  1996,  the Company and a  stockholder  entered  into a line of
credit  agreement.  At December 31, 1996,  there were no borrowings  against the
line of credit (see Note 8).

The  Company  holds two  notes  receivable  totaling  $525,000  from two  former
stockholders  of a subsidiary  acquired in 1994 due and payable  December  1998.
Interest accrues at 6.55% per annum.

NOTE 17 - EMPLOYEE PROFIT SHARING PLANS AND 401K PLAN

The  Company  has a  mandatory  and a voluntary  profit  sharing  plan  covering
substantially all employees in France. Contributions to the plans are based upon
earnings of the French  operations.  Plan contributions in 1996 totaled $28,000,
while there were no contributions made to the plans in 1995 and 1994.

The Company also sponsors,  in the United  States,  a 401K plan which covers all
full-time  employees.  Participants in the plan may make  contributions of up to
fifteen   percent  of  pre-tax  annual   compensation.   The  Company  may  make
discretionary  matching  contributions  at the option of the Board of Directors.
The Company made no contributions in 1996, 1995 or 1994.












                                      F-23

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

<CAPTION>
                                                         June 30,   December 31,
                                                           1997          1996
                                                        ----------- -----------
                                                        (Unaudited)
<S>                                                     <C>         <C>
                                ASSETS

Current assets:
 Cash and cash equivalents                               $   1,845    $   7,601
 Accounts and notes receivable, net                         13,482       13,243
 Inventories                                                 1,602        1,503
 Prepaid expenses and other                                  2,265        2,362
                                                         ---------    ---------
   Total current assets                                     19,194       24,709
Fixed assets, net                                            2,439        2,887
Long-term notes receivable, net                              1,697        1,979
Software development costs and
 purchased technology, net                                   3,496        3,813
Goodwill, net                                                2,473        3,237
Other assets                                                   140          153
                                                         ---------    ---------
   Total assets                                          $  29,439    $  36,778
                                                         =========    =========


                  LIABILITIES & STOCKHOLDERS' EQUITY

Current liabilities:
 Current debt maturities and
 obligations under capital leases                        $   1,243    $   2,063
 Accounts payable                                            3,326        3,185
 Accrued compensation and related
 expenses                                                    2,168        1,891
 Deferred revenue                                            4,329        3,789
 Other accrued expenses                                      3,582        3,888
                                                         ---------    ---------
   Total current liabilities                                14,648       14,816
Long-term debt and obligations
 under capital leases                                        5,186           88
Deferred income taxes                                          338          300
                                                         ---------    ---------
   Total liabilities                                        20,172       15,204
Commitments
Redeemable Series F preferred
 stock, 792,186 and 1,792,186
 shares issued and outstanding                               6,357        9,857
Stockholders' equity:
 Preferred stock, $.0001 par
  value, 20,000,000 shares
  authorized; 1,605,125 and
  1,605,675 shares issued and
  outstanding
 Common stock, $.0001 par value,
  50,000,000 shares authorized;
  25,177,743 and 22,896,612
  shares issued and outstanding                                  3            2
 Additional paid-in-capital                                122,709      124,429
 Accumulated deficit                                      (119,298)    (113,098)
 Translation adjustment                                       (504)         384
                                                         ---------    ---------
   Total stockholders' equity                                2,910       11,717
                                                         ---------    ---------
   Total liabilities and stockholders' equity            $  29,439    $  36,778
                                                         =========    =========
</TABLE>



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

                                      F-24
<PAGE>
<TABLE>

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

<CAPTION>
                                                   Three Months Ended June 30,
                                                     1997              1996
                                                 ------------      ------------
<S>                                              <C>               <C>
Revenue:
  Products                                       $      4,098      $      3,394
  Services                                              5,236             5,735
                                                 ------------      ------------
                                                        9,334             9,129
                                                 ------------      ------------
Costs and expenses:
  Cost of products sold                                 2,198             2,367
  Cost of services provided                             3,934             4,471
  Sales and marketing                                   3,640             4,351
  General and administrative                            1,689             3,102
  Product development                                   1,266             1,327
  Restructuring costs                                    --                 (19)
                                                 ------------      ------------
                                                       12,727            15,599
                                                 ------------      ------------
Loss before investment and
 interest income and income
 taxes                                                 (3,393)           (6,470)
  Investment and interest
   income (expense), net                                  (64)               87
                                                 ------------      ------------
Loss before income taxes                               (3,457)           (6,383)
  Income tax (benefit)
   provision                                               61              (114)
                                                 ------------      ------------
Net loss                                               (3,518)           (6,269)
                                                 ------------      ------------

Preferred stock preferences                              (930)             (865)
                                                 ------------      ------------
Net loss applicable to common shares             $     (4,448)     $     (7,134)
                                                 ============      ============

Net loss per common share                        $      (0.18)     $      (0.35)
                                                 ============      ============

Weighted average shares outstanding                24,963,956        20,208,855
                                                 ============      ============
</TABLE>








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

                                      F-25

<PAGE>
<TABLE>

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

<CAPTION>
                                                     Six Months Ended June 30,
                                                     1997              1996
                                                 ------------      ------------
<S>                                              <C>               <C>
Revenue:
  Products                                       $      8,366      $      9,390
  Services                                             10,087            10,281
                                                 ------------      ------------
                                                       18,453            19,671
                                                 ------------      ------------
Costs and expenses:
  Cost of products sold                                 4,156             5,807
  Cost of services provided                             7,816             8,275
  Sales and marketing                                   7,252             8,320
  General and administrative                            3,300             5,527
  Product development                                   2,308             3,061
  Gain from extinguishment
   of debt                                               (267)             --
  Exchange fee and gain on
   sale of asset, net                                    --                 619
  Restructuring costs                                    --                (175)
                                                 ------------      ------------
                                                       24,565            31,434
                                                 ------------      ------------
Loss before investment and
 interest income and income
 taxes                                                 (6,112)          (11,763)
  Investment and interest
   income (expense), net                                  (33)              146
                                                 ------------      ------------
Loss before income taxes                               (6,145)          (11,617)
  Income tax (benefit)
   provision                                               55               (12)
                                                 ------------      ------------
Net loss                                               (6,200)          (11,605)
                                                 ------------      ------------

Preferred stock preferences                            (1,906)           (1,884)
                                                 ------------      ------------
Net loss applicable to common shares             $     (8,106)     $    (13,489)
                                                 ============      ============

Net loss per common share                        $      (0.33)     $      (0.69)
                                                 ============      ============

Weighted average shares outstanding                24,715,116        19,560,045
                                                 ============      ============
</TABLE>






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

                                      F-26
<PAGE>
<TABLE>

                  NETWORK IMAGING CORPORATION AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                     For the six months ended June 30, 1997
                      (In thousands, except share amounts)
                                   (Unaudited)


<CAPTION>
                                                                                                          Additional
                                                  Preferred Stock                 Common Stock             paid-in     Accumulated 
                                                Shares         Amt.           Shares          Amt.         capital       Deficit    
                                              ------------------------      -------------------------    ------------  ------------
<S>                                           <C>            <C>            <C>            <C>           <C>           <C>
Balance December 31, 1996                     1,605,675      $     --       22,896,612     $        2     $  124,429     ($ 113,098)

Issuance of common stock
 upon exercise of warrants                                                      23,331                            23

Conversion of preferred
 stock                                             (550)                     2,257,800              1

Offering costs on issuance
 of preferred stock                                                                                              (25)

Issuance of warrants and
 extension                                                                                                       188

Dividends on preferred
 stock                                                                                                        (1,906)

Translation adjustment

Net loss                                                                                                                     (6,200)
                                             ----------      ----------     ----------     ----------     ----------     ----------

Balance June 30, 1997                         1,605,125            --       25,177,743     $        3        122,709       (119,298)
                                             ==========      ==========     ==========     ==========     ==========     ==========



                                                    Translation
                                                     Adjustment         Total
                                                    ------------       --------

Balance December 31, 1996                              $   384          $11,717

Issuance of common stock
 upon exercise of warrants                                                   23

Conversion of preferred
 stock                                                                        1

Offering costs on issuance
 of preferred stock                                                         (25)

Issuance of warrants and
 extension                                                                  188

Dividends on preferred
 stock                                                                   (1,906)

Translation adjustment                                    (888)            (888)

Net loss                                                                 (6,200)
                                                      --------          --------

Balance June 30, 1997                                     (504)         $ 2,910
                                                      ========          ========
</TABLE>



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

                                      F-27
<PAGE>
<TABLE>

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

<CAPTION>
                                                       Six months Ended June 30,
                                                        1997             1996
                                                      ---------        --------
                                                            (In thousands)
<S>                                                   <C>              <C>
Cash flows from operating activities:
 Net loss                                              $ (6,200)       $(11,605)
 Adjustments to reconcile net loss
  to net cash used in operating
  activities:
   Depreciation and amortization                          2,550           2,934
   Gain on sale of asset                                   --              (111)
   Restructuring costs                                     --              (175)
   Other non-cash items                                      10            --
   Changes in assets and
    liabilities:
     Accounts and notes receivable                         (836)          2,673
     Inventories                                           (182)            533
     Prepaid expenses and other                             190            (732)
     Accounts payable                                       474          (1,523)
     Accrued compensation and
      related expenses                                      418            (290)
     Accrued expenses, other                               (212)          2,053
     Deferred revenues                                      641            (792)
     Deferred income taxes                                   74             (91)
                                                       --------        --------
Net cash used in operating activities                    (3,073)         (7,126)
                                                       --------        --------

Cash flows from investing activities:
 Sale of short-term investments                            --               111
 Capitalized software development
  and license costs                                        (751)         (1,125)
 Purchases of fixed assets                                 (410)           (582)
                                                       --------        --------
Net cash used in investing activities                    (1,161)         (1,596)
                                                       --------        --------

Cash flows from financing activities:
 Proceeds from issuance of common
  and preferred stocks, net                                  (2)         11,902
 Cash dividends paid on Series A
  preferred stock                                        (1,605)         (1,605)
 Cash dividends paid on Series F
  preferred stock                                          (174)           --
 Payments on Mandatory Redeemable
  Preferred Stock                                        (3,500)           --
 Proceeds from borrowings and
  short-term investments                                  5,000            --
 Proceeds from sale and leaseback
  of fixed assets                                          --               196
 Proceeds from Notes Receivable
  related to business divestitures                           60            --
 Principal payments on capital
  lease obligations                                        (536)           (423)
 Principal payments on debt                                (633)           (213)
                                                       --------        --------
Net cash (used in) provided by
 financing activities                                    (1,390)          9,857
                                                       --------        --------

Effect of exchange rate changes on
 cash and cash equivalents                                 (132)            (81)
Net decrease in cash and cash
 equivalents                                             (5,756)          1,054
Cash and cash equivalents at
 beginning of year                                        7,601           9,359
                                                       --------        --------
Cash and cash equivalents at June 30,                  $  1,845        $ 10,413
                                                       ========        ========
</TABLE>

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

                                      F-28
<PAGE>





                  NETWORK IMAGING CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             June 30, 1997 and 1996

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,  1996,  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 six month period ended June 30,
1997 may not be  indicative  of the results  that may be  expected  for the year
ending December 31, 1997.

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


2.  NEW ACCOUNTING PRONOUNCEMENT

In February 1997, the Financial  Accounting Standards Board issued Statement No.
128,  Earnings per Share,  which is required to be adopted on December 31, 1997.
At that time,  the Company will be required to change the method  currently used
to compute  earnings per share and to restate all prior  periods.  Under the new
requirements for calculating  primary earnings per share, the dilutive effect of
stock options will be excluded.  The impact of Statement 128 on the  calculation
of the  primary  and fully  diluted  earnings  per share is not  expected  to be
material.


3.  REDEEMABLE PREFERRED STOCK

During the first  quarter of 1997,  the  Company  redeemed  1,000,000  shares of
Series F Preferred Stock for $3,500,000. The Company used proceeds from its line
of credit to finance the Series F Preferred share buy back.

During  the  second  quarter  of 1997,  the  Company  was to have  redeemed  the
remaining  792,186 shares of Series F Preferred Stock for  $2,772,651.  Under an
amendment to the December 1996 redemption  agreement,  the $2,772,651 payment is
now due on January 31, 1998,  subject to certain  acceleration  terms related to
the occurrence of certain events that are under the control of the Company.


                                      F-29


4.  LINE OF CREDIT

During the second  quarter of 1997,  the Company drew the  remaining  $1,500,000
from its $5,000,000 line of credit established to finance the Series F Preferred
share  buy  back.  As  part of the  additional  borrowing,  the use of  proceeds
restriction was amended to allow its use for general corporate  purposes and the
Company entered into an amendment to the security agreement,  which expanded the
lender's  security  interest to include all  personal  property of the  Company,
including without limitation,  (1) all personal property of the Company, (2) all
leases, licenses, permits, (3) all 1View software products intellectual property
now owned or  hereafter  developed by the Company,  (4) all  inventory,  (5) all
accounts,  contract rights,  chattel papers,  instruments,  general intangibles,
documents,  other obligations,  monies, revenues,  credits, claims, goodwill and
causes of action.  (6) all trade or service  names,  trademarks,  service marks,
logos and all patents, patent applications, copyrights, licensing agreements and
royalty  payments,  (7)  proceeds of the  foregoing,  and (8) all of the capital
stock of Dorotech, S.A.

5.  NASDAQ-NMS MAINTENANCE REQUIREMENTS

At June 30, 1997, the Company had not maintained 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.  To remedy the short-fall and offset
any adverse impact, the Company issued,  during July 1997 3,300 shares of Series
K Convertible  Preferred  Stock ("Series K Stock") and warrants and received net
proceeds of $2.9 million.  Pursuant to the terms of the offering, the purchasers
are also required to make  additional  purchases of shares for $3.0 million upon
the Company's achievement of certain performance milestones and the satisfaction
of certain other  conditions and an additional $4.7 million at their option (See
Note 6).  Although  the Company  believes  that it can maintain the required net
tangible  assets of at least $4  million  through  additional  issuances  of its
Series K Stock or other additional offerings of equity securities,  there can be
no  assurance  that the  Company  will  complete  such  offerings  or  that,  if
completed,  they  will be on terms  favorable  to the  Company  or in an  amount
sufficient to permit the Company to continue to maintain net tangible  assets of
at least $4 million.

6.  SUBSEQUENT EVENTS

During July 1997, the Company issued,  pursuant to a private placement exemption
under the Securities Act of 1933, as amended,  8% Convertible  Notes due July 8,
2002 totaling $1.8 million.  The notes are convertible into the Company's Common
Stock  beginning 45 days after issue at a conversion  price of $1.875 per share,
the price on the issue date.

On or after  October  30,  1997,  the  holders  have the  right  to  redeem  the
convertible  notes plus  accrued  interest on one  business  days' notice to the
Company in cash or shares of Common  Stock,  at the  Company's  election.  On or
after  October 30,  1997,  the  Company has the right to redeem the  convertible
notes plus accrued interest on 30 days' notice to

                                      F-30

the holders  in  cash  or  share  of  Common Stock, at the holders' election. If
shares of Common Stock are used,  Common Stock is issued at a rate of 90% of the
previous 5 trading days average  closing bid price.  The interest is  compounded
semi-annually  . The warrants  issued to the investors have an exercise price of
$1.875 per share and expire on July 8, 2000.

During  July 1997,  the  Company  agreed to issue up to 11,000  units  ("Units")
consisting  of one share of Series K Stock and  warrants to acquire 75 shares of
Common Stock at an exercise  price of $2.40 per share at the price of $1,000 per
Unit. On July 28, 1997, the Company issued 3,300 Units and received net proceeds
of $2.9 million.  The Company also issued warrants to purchase 162,462 shares of
Common Stock at $1.625 per share to the placement agent in the  transaction.  In
accordance with the terms of the offering, the proceeds will be used for working
capital and general corporate  purposes.  Pursuant to the terms of the offering,
the purchasers are required to make  additional  purchases of the units for $3.0
million upon the Company's achievement of certain performance milestones and the
satisfaction of certain other conditions and the remaining $4.7 million is to be
offered to the purchasers and the purchasers, at their option, may elect to make
purchases of the units.  In connection  with the sale of the units,  the Company
agreed  to  register  the  Common  Stock  issuable  upon the  conversion  of the
preferred stock and the execute of the warrants.

The Series K Preferred Stock has a per share liquidation preference,  subject to
the  liquidation  preferences of the Series A Preferred  Stock,  the Series F-1,
F-2, F-3 and F-4 Preferred  and the Series H Preferred  Stock of an amount equal
to the sum of $1,000 plus 7% 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 $1,000 by the lesser of (1) $2.00
and (2) the lowest  closing  sale price for the Common Stock for the ten trading
days  immediately   preceding  the  conversion  multiplied  by  the  "Conversion
Percentage."  The  "Conversion  Percentage"  is (a)  105%  prior to the 61st day
following  July 28,  1997 (the  "First  Closing  Date"),  (b) 96% for the period
between the 61st and the 90th day following the First Closing Date,  (c) 85% for
the period  between the 91st and the 180th day following the First Closing Date,
and (d) 81% for the period after the 180th day following the First Closing Date.
The Series K Stock has a dividend  rate of 7% per annum  which is payable at the
time of conversion  or redemption in cash or shares of Common Stock,  as elected
by the Company.

During July 1997,  the Company  announced  that it was  suspending  the dividend
payment to holders of Series A Cumulative Convertible Preferred Stock ("Series A
Stock").  Holders of Series A Stock did not  receive  dividends  payable for the
three months ended July 31, 1997 in the amount of $0.50 per share or $802,512.50
in the  aggregate.  In the event the Company  fails to pay a required  quarterly
dividend,  the impact of such failure is that the conversion price is reduced by
$0.50 per share.  Further, if the Company fails to pay four quarterly dividends,
the Series A  shareholders  are entitled to elect one director to the  Company's
Board of Directors.



                                      F-31
<PAGE>

                              FINANCIAL STATEMENTS





No  dealer,  salesperson  or any other  person has
been authorized to give any information or to make
any   representations   in   connection  with  the
Offering   other   than  those  contained  in this
Prospectus and, if given or made, such information
or representations  must  not  be  relied  upon as
having been authorized  by the   Company   or  any
Selling  Shareholder.  This  Prospectus  does  not         10,000,000 SHARES
constitute an offer to sell,  or a solicitation of
an offer to purchase,  any securities  other  than
the securities to which it relates  or an offer to
sell or the solicitation of an offer  to  buy  the  Network Imaging Corporation
Common  Stock  in  any circumstances in which such
offer or  solicitation  is  unlawful.  Neither the           COMMON STOCK
delivery  of  this  Prospectus  nor  any sale made
hereunder shall, under any  circumstances,  create
any implication  that  there has been no change in
the facts set forth in the  Prospectus  or  in the
affairs of the  Company  since  the date hereof or
that the information  contained  herein is correct
as of any time subsequent to the date hereof.


                                                          ---------------------
                        TABLE OF CONTENTS
                                            Page                PROSPECTUS
Prospectus Summary..............................          _____________________
Certain Forward Looking Statements..............
Risk Factors....................................
Use of Proceeds.................................
Dividend and Market Price Information...........
Capitalization..................................
Selected Financial Data.........................
Management's Discussion and Analysis of
  Financial Condition and Results of Operations.
Business........................................
Management......................................
Ownership of Network Imaging
  Corporation Stock.............................
Certain Transactions............................
Plan of Distribution............................
Selling Stockholders............................
Description of Capital Stock....................
Shares Eligible for Future Sale.................
Independent Accountants.........................
Legal Matters...................................
Experts.........................................
Additional Information..........................
Index to Financial Statements...................






                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

         The  following  table sets forth the  various  expenses  expected to be
incurred by the Registrant in connection  with the sale and  distribution of the
securities  being  registered  hereby.  All  amounts  are  estimated  except the
Securities and Exchange Commission registration fee.

SEC registration fee......................................  $
Listing fees..............................................
Accounting fees and expenses..............................
Legal fees and expenses...................................
Printing and engraving expenses...........................
Miscellaneous fees and expenses...........................
                                                            ==================
                                                            $
        Total............................................. 
                                                            ==================


ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS

         Section  145  of the  Delaware  General  Corporation  Law,  as  amended
("DGCL"),  provides that a corporation  may indemnify any person who was or is a
party  or is  threatened  to be  made a  party  to any  threatened,  pending  or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative  (other than an action by or in the right of the  corporation)  by
reason of the fact that the person is or was a  director,  officer,  employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director,  officer, employee or agent of another corporation,  partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees),  judgments,  fines and amounts paid in settlement actually and reasonably
incurred by the person in connection  with such action,  suit or proceeding,  if
the person acted in good faith and in a manner the person reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal  action or  proceeding,  had no reasonable  cause to believe the
person's  conduct was unlawful.  Section 145 further provides that a corporation
similarly may indemnify any such person  serving in any such capacity who was or
is a party or is  threatened  to be made a party to any  threatened,  pending or
completed  action or suit by or in the  right of the  corporation  to  procure a
judgment in its favor,  against  expenses  actually and  reasonably  incurred in
connection  with the defense or  settlement of such action or suit if the person
acted in good faith and in a manner the person  reasonably  believed to be in or
not  opposed  to the  best  interests  of the  corporation  and  except  that no
indemnification  shall be made in respect  of any  claim,  issue or matter as to
which such  person  shall  have been  adjudged  to be liable to the  corporation
unless and only to the extent that the  Delaware  Court of Chancery or the court
in which such action or suit was brought shall determine upon application  that,
despite the  adjudication of liability but in view of all the  circumstances  of
the case,  such person is fairly and  reasonably  entitled to indemnity for such
expenses that the Court of Chancery or such other court shall deem proper.

         Section  102(b)(7) of the DGCL permits a corporation  to include in its
certificate of  incorporation  a provision  eliminating or limiting the personal
liability  of a director to the  corporation  or its  stockholders  for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not  eliminate or limit the  liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders,  (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing  violation  of law,  (iii) under  Section 174 of the DGCL  (relating  to
unlawful  payment of dividends and unlawful stock purchases and  redemptions) or
(iv) for any transaction  from which the director  derived an improper  personal
benefit. Article SEVENTH of the Registrant's Amended and Restated Certificate of
Incorporation  contains a provision that so eliminates the personal liability of
the Registrant's directors.

         Article IX of the Registrant's  Bylaws provides for  indemnification by
the  Registrant of its directors  and officers  ("Indemnifiable  Party") if such
Indemnifiable  Party acted in good faith and in a manner the Indemnifiable Party
reasonably believed to be in or not opposed to the best interests of the Company
(and with respect to any criminal action or proceeding had not reasonable  cause
to believe his or her conduct was unlawful)  and except that no  indemnification
shall be made in  respect  of any  claim,  issue  or  matter  as to  which  such
Indemnifiable  Party shall have been adjudged to be liable to the Company unless
and only to the extent  that the Court of  Chancery  of the State of Delaware or
the  court  in which  such  action  or suit was  brought  shall  determine  upon
application  that,  despite the  adjudication  of  liability  but in view of all
circumstances  of the case,  such  person is fairly and  reasonably  entitled to
indemnity  for such  expenses  which the Court of  Chancery  or such other court
shall deem proper.


ITEM 15.  Recent Sales of Unregistered Securities

         In December 1996,  pursuant to Regulation D under the  Securities  Act,
the Company  issued  warrants to purchase  100,000  shares of Common Stock at an
exercise  price of $3.06 per share ("$3.06  Warrants")  to a stockholder  of the
Company  in  connection  with a $5  million  loan  from the  stockholder  to the
Company.
         In July 1997,  the Company  issued 3,300 shares of Series K Convertible
Preferred  Stock and warrants to purchase  247,500  shares of Common Stock at an
exercise  price of $2.40 per share to two investors  pursuant to Regulation D of
the  Securities  Act for an  aggregate  of  $3,300,000.  The Company also issued
warrants  to purchase  162,462  shares of Common  Stock at an exercise  price of
$1.625 per share,  valued at $264,000,  to a placement  agent in connection with
the above described offering in reliance on Regulation D of the Securities Act.

         In addition,  in July 1997,  the Company  issued to two 8%  convertible
notes  and  attached  36,000  warrants  to  purchase  Common  Stock  each to two
investors  for an aggregate  of $1.8 million in reliance on  Regulation D of the
Securities  Act. The notes are convertible  into shares of the Company's  Common
Stock at price of $1.875 per share and the  warrants are  exercisable  at $1.875
per share.

ITEM 16.  EXHIBITS.

         The  exhibits  listed  in the  Exhibit  Index  are  filed as part of or
incorporated by reference in this Registration Statement:

Exhibit No.       Description
2.1                 Agreement and Plan of Reorganization by and among  the Comp-
                    any,  Dorotech  France SA and the  stockholders  of Dorotech
                    France SA dated August 30, 1993 with the amendments  thereto
                    dated September 29, 1993 and October 1, 1993.  (Incorporated
                    by reference  to Exhibit 1 to  Company's  Report on Form 8-K
                    relating to such Agreement and Plan of Reorganization  filed
                    October 13, 1993.)

2.2                 Agreement for the Purchase and Sale of Assets of Symmetrical
                    Technologies,  Inc. as of September 30, 1996.  (Incorporated
                    by  reference  to Exhibit  10.a to the  Company's  Quarterly
                    Report  on Form  10-Q for the  period  ended  September  30,
                    1996.)

3.1                 Restated  Certificate  of  Incorporation as of September 22,
                    1997.

3.2                 Restated  Bylaws as of May 17, 1996  (Incorporated by refer-
                    ence to Exhibit  3.11 to  Amendment  No. 1 to the  Company's
                    Form 10-Q for the quarterly period ended June 30, 1997).

3.3                 Certificate  of   Designations   for  Series  A   Cumulative
                    Convertible  Preferred  Stock  filed with the  Secretary  of
                    State  of  the  State  of  Delaware  on  December  7,  1993.
                    (Incorporated  by reference to Exhibit 3.1c to the Company's
                    registration   statement  on  Form  SB-2  (Registration  No.
                    33-73164) filed December 20, 1993.)

3.4                 Certificates  of Designations for Series F-1,  F-2,  F-3 and
                    F-4 Convertible  Preferred Stock filed with the Secretary of
                    State  of  the  State  of  Delaware   on  March  29,   1996.
                    (Incorporated   by  reference  to  Exhibit   3.(ii)  to  the
                    Company's  Annual  Report on Form 10-K for the  fiscal  year
                    ended December 31, 1995.)


3.5                 Certificate of  Designations for Series H  Convertible  Pre-
                    ferred  Stock  filed  with  the  Secretary  of the  State of
                    Delaware on July 25,  1996.  (Incorporated  by  reference to
                    Exhibit  3(i).a to the  Company's  Quarterly  Report on Form
                    10-Q for the period ended June 30, 1996.)

3.6                 Certificate  of  Designation  of Series K  Convertible  Pre-
                    ferred  Stock of the  Company  filed in Delaware on July 28,
                    1997.  (Incorporated  by  reference  to Exhibit  3.12 to the
                    Company's Form 10-Q for the quarterly  period ended June 30,
                    1997.)

4.1                 Specimen Common Stock Certificate.(Incorporated by reference
                    to  Exhibit  4.2  to  Amendment   No.  1  to  the  Company's
                    registration   statement  on  Form  S-1   (Registration  No.
                    33-45721) filed April 10, 1992.)

5                   Opinion of Kirkpatrick & Lockhart LLP.*

10.1                Warrant Agreement between the  Company  and  American  Stock
                    Transfer  &  Trust  Co.   dated  as  of  February  1,  1993.
                    (Incorporated  by reference  to Exhibit 1 to  Post-Effective
                    Amendment No. 1 to Company's  registration statement on Form
                    S-1 (Registration No. 33-45721) filed April 1, 1993.)

10.2                Amendment  No. 1 dated as of April 15,  1993 to the  Warrant
                    Agreement  between the Company  and  American  Stock Trust &
                    Transfer  Co.  (Incorporated  by  reference  to Exhibit 2 to
                    Post-Effective  Amendment  No. 1 to  Company's  registration
                    statement  on Form S-1  (Registration  No.  33-45721)  filed
                    April 1, 1993.)

10.3                Warrant  Agreement  between  the  Company and American Stock
                    Transfer   &  Trust  Co.   dated  as  of  April  28,   1993.
                    (Incorporated  by  reference  to  Exhibit  4.4 to  Company's
                    registration   statement  on  Form  SB-2  (Registration  No.
                    33-64046) filed June 8, 1993.)

10.4                Specimen  Warrant  Certificate  (Public  Warrants).  (Incor-
                    porated by reference  to Exhibit 4.5 to  Amendment  No. 1 to
                    the   Company's   registration   statement   on   Form   S-1
                    (Registration No. 33-45721) filed April 10, 1992.)

10.5                Specimen  Warrant  Certificate   (International/Oakes  Fitz-
                    williams Series).  (Incorporated by reference to Exhibit 4.6
                    to the  Company's  Annual Report on Form 10-KSB for the year
                    ended December 31, 1992.)

10.6                Specimen  Warrant  Certificate  (International/Thomas  James
                    Series).  (Incorporated  by  reference  to  Exhibit  4.7  to
                    Company's  registration statement on Form SB-2 (Registration
                    No. 33-64046) filed June 8, 1993.)

10.7                Warrant to purchase 20,700 units issued  to Oakes,  Fitzwil-
                    liams & Co. Limited.  (Incorporated  by reference to Exhibit
                    4.8  to  Company's   registration  statement  on  Form  SB-2
                    (Registration No. 33-64046) filed June 8, 1993.)

10.8                Warrant to purchase 33,214 units issued  to Oakes,  Fitzwil-
                    liams & Co. Limited.  (Incorporated  by reference to Exhibit
                    4.9  to  Company's   registration  statement  on  Form  SB-2
                    (Registration No. 33-64046) filed June 8, 1993.)

10.9                Placement  Agent's  Warrant to  purchase  8,150 units issued
                    to Thomas James Associates,  Inc. (Incorporated by reference
                    to Exhibit 4.10 to Company's  registration statement on Form
                    SB-2 (Registration No. 33-64046) filed June 8, 1993.)

10.10               Representative's  Warrant issued to Thomas James Associates,
                    Inc. (Incorporated by reference to Exhibit 4.11 to Company's
                    registration   statement  on  Form  SB-2  (Registration  No.
                    33-64046) filed June 8, 1993.)

10.11               Warrant Agreement among the Company, American Stock Transfer
                    & Trust Co. and Thomas James  Associates,  Inc.  dated as of
                    May 8, 1992.  (Incorporated  by reference to Exhibit 4.12 to
                    the  Company's  Annual  Report on Form  10-KSB  for the year
                    ended December 31, 1992.)

10.12               Form of Amendment  to  Warrant  Agreement among the Company,
                    American  Stock  Transfer  &  Trust  Co.  and  Thomas  James
                    Associates,  Inc. dated as of May 8, 1992  (incorporated  by
                    reference  to  Exhibit  4.12.a  to  Amendment  No.  1 to the
                    Company's  registration statement on Form SB-2 (Registration
                    No. 33-64046) filed January 5, 1994).

10.13               Warrant to purchase 50,000 shares of Common  Stock to Oakes,
                    Fitzwilliams & Co.  Limited.  (Incorporated  by reference to
                    Exhibit   4.13  to   Amendment   No.  1  to  the   Company's
                    registration   statement  on  Form  SB-2  (Registration  No.
                    33-64046) filed January 5, 1994.)

10.14               Warrants to purchase an aggregate of 45,000 shares of Common
                    Stock  issued to American  Wealth  Management,  Inc.,  Edsel
                    Anderson, Harris Anderson and Eric Swartz.  (Incorporated by
                    reference  to  Exhibit  4.14  to  Amendment  No.  1  to  the
                    Company's  registration statement on Form SB-2 (Registration
                    No. 33-64046) filed January 5, 1994.)

10.15               Form of Warrant  issued in  connection  with  February  1992
                    debt financing.  (Incorporated by reference to Exhibit 4.6.b
                    to  the  Company's   registration  statement  on  Form  S-1.
                    (Registration No. 33-45721) filed February 13, 1992.)

10.16               Warrant to  purchase 227,068 shares of Common  Stock  issued
                    to Swartz  Investments  Inc.  (Incorporated  by reference to
                    Exhibit 4.17 to the Company's Annual Report on Form 10-K for
                    the fiscal year ended December 31, 1995.)

10.17               Warrant to purchase  34,400 shares of Common Stock issued to
                    Oakes,   Fitzwilliams  &  Co.  Limited.   (Incorporated   by
                    reference to Exhibit 4.18 to the Company's  Annual Report on
                    Form 10-K for the fiscal year ended December 31, 1995.)

10.18               Form  of  Warrants  issued  in connection with December 1995
                    Series G Convertible Preferred Stock offering. (Incorporated
                    by reference to Exhibit 4.19 to the Company's  Annual Report
                    on Form 10-K for the fiscal year ended December 31, 1995.)

10.19               Form of Warrants issued in connection with November/December
                    1995 Private  Placement of Common  Stock.  (Incorporated  by
                    reference to Exhibit 4.20 to the Company's  Annual Report on
                    Form 10-K for the fiscal year ended December 31, 1995.)

10.20               Warrant to purchase  25,000 shares of Common Stock issued to
                    Ed  Feldman  dated  November  7,  1995.   (Incorporated   by
                    reference to Exhibit 4.21 to the Company's  Annual Report on
                    Form 10-K for the fiscal year ended December 31, 1995.)

10.21               Warrant to purchase  4,000  shares of Common Stock issued to
                    Jarl  McDonald  dated  December 20, 1995.  (Incorporated  by
                    reference to Exhibit 4.22 to the Company's  Annual Report on
                    Form 10-K for the fiscal year ended December 31, 1995.)

10.22               Warrant to purchase 4,000 shares  of  Common Stock issued to
                    Christian Stackhouse dated December 20, 1995.  (Incorporated
                    by reference to Exhibit 4.23 to the Company's  Annual Report
                    on Form 10-K for the fiscal year ended December 31, 1995.)

10.23               Exchange Agreement between CDR Enterprises the Company dated
                    March 29, 1996.  (Incorporated  by reference to Exhibit 4.35
                    to the  Company's  Annual Report on Form 10-K for the fiscal
                    year ended December 31, 1995.)

10.24               Warrant to purchase  100,000  shares of Common Stock to Fred
                    E.  Kassner  dated  December  31,  1996.   (Incorporated  by
                    reference to Exhibit 4.36 to the Company's  Annual Report on
                    Form 10-K for the fiscal year ended December 31, 1996.)

10.25               Warrant to purchase up to 25,000 shares of Common  Stock  to
                    Damon  Testaverde  dated January 31, 1997.  (Incorporated by
                    reference to Exhibit 4.37 to the Company's  Annual Report on
                    Form 10-K for the fiscal year ended December 31, 1996.)

10.26               Warrant to purchase 4,000 shares of Common Stock to Susan G.
                    Kaufman dated December 31, 1996.  (Incorporated by reference
                    to Exhibit 4.38 to the Company's  Annual Report on Form 10-K
                    for the fiscal year ended December 31, 1996.)

10.27               Eight Percent (8%) Convertible  Note between Network Imaging
                    Corporation  and Wood  Gundy in trust  for RRSP 550 98866 19
                    and  Gundyco  in trust  for RRSP 550  99119 12 as of July 9,
                    1997 and attached  Schedule.  (Incorporated  by reference to
                    Exhibit 10.22 to the  Company's  Form 10-Q for the quarterly
                    period ended June 30, 1997.)

10.28               Securities  Purchase   Agreement   between  Network  Imaging
                    Corporation and Capital  Ventures  International  and Zanett
                    Lombardier,  Ltd.  as of July  28,  1997.  (Incorporated  by
                    reference to Exhibit  10.23 to the  Company's  Form 10-Q for
                    the quarterly period ended June 30, 1997.)

10.29               Registration    Rights  Agreement  between  Network  Imaging
                    Corporation and Capital  Ventures  International  and Zanett
                    Lombardier,  Ltd.  as of July  28,  1997.  (Incorporated  by
                    reference to Exhibit  10.24 to the  Company's  Form 10-Q for
                    the quarterly period ended June 30, 1997.)

10.30               Warrant to purchase 20,000 shares  of Common Stock issued to
                    Wood  Gundy in trust  for  RRSP 550  98866 19 dated  July 9,
                    1997.  (Incorporated  by reference  to Exhibit  10.25 to the
                    Company's Form 10-Q for the quarterly  period ended June 30,
                    1997.)

10.31               Warrant to  purchase 16,000 shares of Common Stock issued to
                    Gundyco  in trust for RRSP 550 99119 12 dated  July 9, 1997.
                    (Incorporated by reference to Exhibit 10.26 to the Company's
                    Form 10-Q for the quarterly period ended June 30, 1997.)

10.32               Warrant to purchase 112,500 shares of Common Stock issued to
                    Capital   Ventures   International   dated  July  28,  1997.
                    (Incorporated by reference to Exhibit 10.27 to the Company's
                    Form 10-Q for the quarterly period ended June 30, 1997.)

10.33               Warrant to purchase 135,000 shares of Common Stock issued to
                    Zanett Lombardier,  Ltd. dated July 28, 1997.  (Incorporated
                    by reference to Exhibit 10.28 to the Company's Form 10-Q for
                    the quarterly period ended June 30, 1997.)

10.34               Warrant to purchase 162,462 shares of Common Stock issued to
                    the  Zanett  Securities  Corporation  dated  July 28,  1997.
                    (Incorporated by reference to Exhibit 10.29 to the Company's
                    Form 10-Q for the quarterly period ended June 30, 1997.)

10.35               Placement Agency Agreement dated July 2, 1997  between  Net-
                    work   Imaging   Corporation   and  The  Zanett   Securities
                    Corporation.  (Incorporated by reference to Exhibit 10.30 to
                    the Company's Form 10-Q for the quarterly  period ended June
                    30, 1997.)

10.36               Security  Agreement  dated  as  of December 31, 1996 between
                    Network Imaging Corporation and Fred Kassner.  (Incorporated
                    by reference to Exhibit 10.31 to the Company's Form 10-Q for
                    the quarterly period ended June 30, 1997.)

10.37               Amendment No. 1  to Loan  Agreement dated as of June 8, 1997
                    between  Network  Imaging   Corporation  and  Fred  Kassner.
                    (Incorporated by reference to Exhibit 10.32 to the Company's
                    Form 10-Q for the quarterly period ended June 30, 1997.)

10.38               Amendment  No.  1 to  Security Agreement  dated  as of  June
                    8,  1997  between  Network  Imaging   Corporation  and  Fred
                    Kassner.  (Incorporated by reference to Exhibit 10.33 to the
                    Company's Form 10-Q for the quarterly  period ended June 30,
                    1997.)

10.39               Employment  Agreement  between  the  Company,  BCG, Inc. and
                    Robert P.  Bernardi  dated  May 28,  1996  (incorporated  by
                    reference  to Exhibit 10.a to the  Company's  report on Form
                    8-K filed August 2, 1996).

10.40               Form  of  Consulting  Agreement  by and between the Company,
                    Sterling  Capital Group,  Inc. and Robert M.  Sterling,  Jr.
                    effective  February 1, 1994.  (Incorporated  by reference to
                    Exhibit  10.4.b  to  Post-Effective  Amendment  No. 1 to the
                    Company's  registration statement on Form SB-2 (Registration
                    No. 33-73164) filed January 14, 1994.)

10.41               Amendment  dated October 1, 1995 by and between the Company,
                    Sterling  Capital Group,  Inc., and Robert M. Sterling,  Jr.
                    (Incorporated   by  reference  to  Exhibit   10.4.c  to  the
                    Company's  Annual  Report on Form 10-K for the  fiscal  year
                    ended December 31, 1995.)

10.42               Purchase Agreement by and between the Company and CDR Enter-
                    prises  for  the  repurchase  of  the  Company's   Series  F
                    Preferred  Stock dated December 31, 1996.  (Incorporated  by
                    reference to Exhibit 10.20 to the Company's Annual Report on
                    Form 10-K for the fiscal year ended December 31, 1996.)

10.43               Loan  Agreement by and between the Company and Fred E. Kass-
                    ner for a line of credit of  $5,000,000  dated  December 31,
                    1996.  (Incorporated  by reference  to Exhibit  10.21 to the
                    Company's  Annual  Report on Form 10-K for the  fiscal  year
                    ended December 31, 1996.)

10.44               Amendment dated January 1, 1996 among Network  Imaging  Cor-
                    poration, Sterling Capital Group and Robert M. Sterling, Jr

10.45               Amendment dated January 1, 1996 among Network  Imaging  Cor-
                    poration,  BCG,  Inc. and Robert P. Bernardi.

10.46               Amendment to Purchase Agreement effective May 30, 1997  bet-
                    ween Network Imaging  Corporation and CDR Enterprises.

22                  Subsidiaries.

23.1                Consent of Ernst & Young LLP, Independent Accountants.

23.2                Consent of Price Waterhouse LLP, Independent Accountants.

23.3                Consent of Kirkpatrick & Lockhart LLP (Contained in Exhibit
                    5.)

24                  Power of Attorney (see page ___).
 
27.1               Financial data schedule for the year ended December 31, 1994.

27.2               Financial data schedule for the year ended December 31, 1995.

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

* To be filed by amendment.


16.b.  Financials Statements Schedules

         The 1996 Valuation Allowance Schedule was not included in the Company's
Form 10-K for the fiscal year ended December 31, 1996. Such schedule was omitted
from that  form,  but the  information  therein  contained  is  included  in the
financial  statements  and notes  included  in the Form  10-K and the  financial
statements and notes included herein.


ITEM 17.  UNDERTAKINGS.

         (a) The undersigned registrant hereby undertakes:

         (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

         (i) To  include  any  prospectus  required  by  section 10(a)(3) of the
Securities Act of 1933;

         (ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration  statement (or the most recent post-effective
amendment  thereof)  which,  individually  or  in  the  aggregate,  represent  a
fundamental  change in the information set forth in the registration  statement.
Notwithstanding the foregoing,  any increase or decrease in volume of securities
offered (if the total dollar value of  securities  offered would not exceed that
which  was  registered)  and any  deviation  from  the  low or  high  end of the
estimated  maximum  offering  range may be reflected  in the form of  prospectus
filed with the  Commission  pursuant  to Rule 424(b) if, in the  aggregate,  the
changes in volume and price  represent  no more than a 20% change in the maximum
aggregate  offering price set forth in the  "Calculation  of  Registration  Fee"
table in the effective registration statement;

         (iii) To include any material  information  with respect to the plan of
distribution  not  previously  disclosed  in the  registration  statement or any
material change to such information in the registration statement;

         Provided,  however,  that  paragraphs  (a)(1)(i) and  (a)(1)(ii) do not
apply  if the  registration  statement  is on  Form  S-3 or  Form  S-8,  and the
information  required  to be  included in a  post-effective  amendment  by those
paragraphs is contained in periodic reports filed by the registrant  pursuant to
section  13 or section  15(d) of the  Securities  Exchange  Act of 1934 that are
incorporated by reference in the registration statement.

         (2) That,  for the  purpose  of  determining  any  liability  under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such  securities at that time shall be deemed to be the initial bona
fide offering thereof.

         (3) To remove from registration by means of a post-effective  amendment
any of the securities being registered which remain unsold at the termination of
the offering.

         (b)  Insofar  as  indemnification  for  liabilities  arising  under the
Securities Act of 1933 may be permitted to directors,  officers and  controlling
persons of the registrant  pursuant to the foregoing  provisions,  or otherwise,
the  registrant  has been  advised  that in the  opinion of the  Securities  and
Exchange  Commission such  indemnification is against public policy as expressed
in the Act and is,  therefore,  unenforceable.  In the  event  that a claim  for
indemnification  against  such  liabilities  (other  than  the  payment  by  the
registrant of expenses  incurred or paid by a director,  officer or  controlling
person of the  registrant  in the  successful  defense  of any  action,  suit or
proceeding)  is  asserted by such  director,  officer or  controlling  person in
connection with the securities being registered,  the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit  to a  court  of  appropriate  jurisdiction  the  question  whether  such
indemnification  by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.


<PAGE>


                                   SIGNATURES

         Pursuant  to the  requirements  of the  Securities  Act  of  1933,  the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and has duly caused this Registration
Statement  to be  signed  on its  behalf  by  the  undersigned,  thereunto  duly
authorized,  in the City of Herndon,  Commonwealth of Virginia, on this 25th day
of September, 1997.

                                   NETWORK IMAGING CORPORATION


                                   By:   /s/ James J. Leto
                                         -------------------- 
                                         James J. Leto
                                         President and Chief Executive Officer


                                POWER OF ATTORNEY

          Each of the  undersigned  hereby  appoints  James  J.  Leto,  Jorge R.
Forgues and Julia A. Bowen, and each of them (with full power to act alone),  as
attorneys and agents for the undersigned,  with full power of substitution,  for
and in the name, place and stead of the  undersigned,  to sign and file with the
Securities and Exchange  Commission under the Securities Act of 1933 any and all
amendments  and  exhibits  to  this  Registration  Statement  and  any  and  all
applications,  instruments  and other  documents to be filed with the Securities
and Exchange Commission pertaining to the registration of the securities covered
hereby,  with full power and  authority  to do and  perform any and all acts and
things whatsoever requisite or desirable.

          Pursuant  to the  requirements  of the  Securities  Act of 1933,  this
registration  statement  has been signed below by the  following  persons in the
capacities and on the dates indicated.

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

James J. Leto           President, Chief Executive         September 25, 1997
                        Officer and Chairman of the Board

Jorge R. Forgues        Senior Vice President of Finance   September 25, 1997
                        and Administration, Chief Financial
                        Officer

Robert P. Bernardi      Director and Secretary             September 25, 1997

John F. Burton          Director                           September 25, 1997

C. Alan Peyser          Director                           September 25, 1997

Robert Ripp             Director                           September 25, 1997


<PAGE>
[{"type": "S-1", "sequence": "1", "description": "NETWORK IMAGING CORPORATION S-1", "secsgml_size_bytes": 368077}]
{"company-data": {"conformed-name": "NETWORK IMAGING CORP", "cik": "0000883946", "assigned-sic": "7373", "irs-number": "541590649", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-36417", "film-number": "97685704"}, "business-address": {"street1": "500 HUNTMAR PARK DRIVE", "city": "HERNDON", "state": "VA", "zip": "22070", "phone": "7034782260"}, "mail-address": {"street1": "500 HUNTMAR PARK DRIVE", "city": "HERNDON", "state": "VA", "zip": "22070"}}
September 25, 1997

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
ATTN:  Filing Desk

         RE:      Network Imaging Corporation
                  Form S-1 related to the
                  Company's registration of 10,000,000 shares of Common Stock

Ladies and Gentlemen:

         On behalf of Network  (the  "Company),  there are  enclosed  for filing
pursuant to the  Securities  Act of 1933,  as amended,  Form S-1 which  contains
exhibits.

         If you have any questions  regarding  this filing,  please  contact the
undersigned at (703) 904-3109.

                                                              Sincerely,

                                                              /s/ Julia A. Bowen
                                                              Julia A. Bowen
As filed with the Securities and Exchange Commission on  September ___, 1997

                                                       Registration No. 333-
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM S-1
                             REGISTRATION STATEMENT
                                      UNDER
                           THE SECURITIES ACT OF 1933

                           NETWORK IMAGING CORPORATION
             (Exact name of Registrant as specified in its charter)

     Delaware                      7373                       54-1590649
(State or other             (Primary Standard             (I.R.S. Employer
jurisdiction of                 Industrial             Indentification Number)  
incorporation or         Code Classification Number)   
organization)    

                             500 Huntmar Park Drive
                             Herndon, Virginia 20170
                                 (703) 478-2260
               (Address, including zip code, and telephone number,
        including area code, of Registrant's principal executive offices)

                              Julia A. Bowen, Esq.
                       Vice President and General Counsel
                           Network Imaging Corporation
                             500 Huntmar Park Drive
                             Herndon, Virginia 20170
                                 (703) 478-2260
            (Name, address, including zip code, and telephone number,
                   including area code, of agent for service)

                                    Copy to:
                               Cary J. Meer, Esq.
                           Kirkpatrick & Lockhart LLP
                         1800 Massachusetts Avenue, N.W.
                             Washington, D.C. 20036
                                 (202) 778-9000

Approximate  date of commencement  of  proposed  sale to the public:  As soon as
practicable  after the effective date of this Registration Statement.
If any of the  securities  being  registered in this Form are to be offered on a
delayed  or  continuous  basis pursuant to Rule 415 under  the Securities Act of
1933, check the following box. [X]

                         CALCULATION OF REGISTRATION FEE
------------------------------- -------------- ------------------ ------------------- ------------------
                                               Proposed Maximum    Proposed Maximum
    Title of Each Class of      Amount To Be    Offering Price        Aggregate           Amount of
 Securities To Be Registered     Registered      Per Share(1)     Offering Price(1)     Registration
                                                                                           Fee(1)
------------------------------- -------------- ------------------ ------------------- ------------------
------------------------------- -------------- ------------------ ------------------- ------------------
Common Stock                    10,000,000(3)        $1.55           $15,500,000         $4,697
(par value $.0001 per
share)(2)
------------------------------- -------------- ------------------ ------------------- ------------------
(1)  Estimated  pursuant  to  Rule  457  for  the  purpose  of  calculating  the
registration  fee only;  based upon the average of the high and low sales prices
for the Common  Stock on  September  18, 1997.  Registration  fee is  calculated
pursuant to Rule 457.

(2) Pursuant to Rule 416 also includes such  indeterminate  number of additional
shares  of  Common  Stock  as  may  become   issuable  upon  conversion  of  the
registrant's  Series K Convertible  Preferred Stock and exercise of warrants (a)
to prevent dilution  resulting from stock splits,  stock  dividends,  or similar
transactions  or (b) by  reason of  reductions  in the  Conversion  Price of the
Series K  Convertible  Preferred  Stock in  accordance  with the terms  thereof,
including  the terms which cause  reductions  as the bid price of the  Company's
Common Stock decreases.

(3) The number of shares of Common Stock  registered  hereunder  represents  the
registrant's  Includes  shares of Common Stock  issuable on conversion of and as
premium on the  Company's  Series K  Convertible  Preferred  Stock and shares of
Common  Stock  issuable on exercise  of warrants  granted to Zanett  Lombardier,
Ltd., Capital Ventures International and The Zanett Securities Corporation.

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

The registrant hereby amends this  registration  statement on such date or dates
as may be necessary to delay its effective date until the registrant  shall file
a further amendment which specifically  states that this registration  statement
shall  thereafter  become  effective  in  accordance  with  Section  8(a) of the
Securities  Act of  1933  or  until  the  registration  statement  shall  become
effective on such date as the Commission,  acting pursuant to said Section 8(a),
may determine.
PROSPECTUS

                    SUBJECT TO COMPLETION, ___________, 1997

                                10,000,000 SHARES

                           NETWORK IMAGING CORPORATION

                                  COMMON STOCK

         All of the 10,000,000  shares  ("Shares" or Offered  Shares") of Common
Stock,  $0.0001  par value per share  ("Common  Stock"),  that  Network  Imaging
Corporation  (the  "Company")  is seeking to register and can be offered  hereby
will be sold by Zanett  Lombardier,  Ltd.  and  Capital  Ventures  International
("Purchasers") and The Zanett Securities Corporation  ("Zanett")  (collectively,
the  Purchasers and Zanett are referred to as the "Selling  Stockholders").  The
Shares are  issuable  in  connection  with the  Company's  Series K  Convertible
Preferred  Stock  ("Series K Stock") issued to the Purchasers and on exercise of
warrants held by the Purchasers  and Zanett.  See "Plan of  Distribution."  This
Prospectus  relates to the resale of such shares of Common Stock by such Selling
Stockholders.  See  "Plan  of  Distribution"  and  "Selling  Stockholders."  The
Company's  Common  Stock is quoted on the  National  Association  of  Securities
Dealers,   Inc.  Automated  Quotation  System  ("Nasdaq")  National  Market.  On
September  2, 1997,  the last  reported  sale price for the Common  Stock on the
Nasdaq National Market was $1.50 per share.

         None of the proceeds from the sale of the Offered Shares by the Selling
Stockholders will be received by the Company.  However, the Company will receive
proceeds  from the exercise of the Warrants if the Warrants are  exercised.  The
Company will pay  substantially all of the expenses with respect to the offering
and the sale of the Offered Shares to the public, including the costs associated
with  registering  the Offered Shares under the Securities Act and preparing and
printing  this  Prospectus.  Normal  underwriting  commissions  and broker fees,
however, as well as any applicable  transfer taxes, are payable  individually by
the Selling Stockholders.

         See "Risk  Factors"  beginning  on page 4 for a  discussion  of certain
factors that should be considered in connection  with the purchase of securities
hereunder.

                     ---------------------------------------
   THESE  SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
  EXCHANGE COMMISSION OR ANY STATE SECURITIES  COMMISSION NOR HAS THE SECURITIES
  AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
    UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE 
                     CONTRARY IS A CRIMINAL OFFENSE.
                     ---------------------------------------
  INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR  AMENDMENT. A REGIST-
RATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY 
BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
 TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
 SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
           QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
                     ---------------------------------------
PROSPECTUS SUMMARY

         The following summary is qualified in its entirety by the more detailed
information  and financial  statements,  including the notes thereto,  appearing
elsewhere in this  Prospectus.  The Common Stock offered hereby  involves a high
degree of risk. See "Risk Factors."

                                   THE COMPANY

         Network  Imaging  Corporation  ("Network  Imaging"  or  the  "Company")
provides  software  products  supporting  storage,  management and distribution.
These products provide businesses and government organizations with an automated
method of  electronically  storing,  managing and distributing  large volumes of
structured data (text) and unstructured data (diagrams, documents, photos, voice
and full-motion video).

         The  Company is a  recognized  worldwide  leader in content and storage
management for all unstructured  information.  Its flagship  product,  the 1View
suite,  manages the  storage,  access and  distribution  of any  multimedia  (or
unstructured)  data,  such  as  diagrams,  documents,  photographs,  voice,  and
full-motion  video.  1View is a unique  solution  for use in  distributed,  high
transaction,   high  volume  mission   critical   applications   across  legacy,
client/server and  Internet/intranet  based environments.  The Company is also a
software  developer  for mainframe  and PC based  Computer  Output to Laser Disk
("COLD")  systems and a developer  and marketer of storage  management  software
systems.  1View, InfoAccess(TM), Treev+(TM) and the Company logo are  trademark
of Network Imaging Corporation. All other product and brand names are trademarks
or registered trademarks of their respective companies.

         The Company's  executive offices are located at 500 Huntmar Park Drive,
Herndon, Virginia 20170. The Company's telephone number is (703) 478-2260.

                             SUMMARY FINANCIAL DATA
                      (in thousands, except per share data)
STATEMENT OF OPERATIONS DATA                       Quarter Ended
                                ------------------------------------------------
                                 Dec. 31,     Sept. 30,    June 30,     Mar. 31
                                   1995         1995         1995         1995
Net revenue                     $ 12,791     $ 16,042     $ 20,270     $ 20,048
Costs and expenses:
Costs of revenue                   8,103        7,995       12,811       13,555
Product development                1,536        1,448        1,972        2,176
Selling, general and
 administration                    7,048        7,473       10,777       10,247
Settlement with
 stockholders                       --           --            892          750
Loss on closure and
 sale of subsidiaries,              --           (147)       9,906         (492)
     net
Restructuring costs                 (396)        (946)        (286)         195
STATEMENT OF OPERATIONS DATA                       Quarter Ended
                                ------------------------------------------------
                                   Dec. 31,    Sept. 30,   June 30,     Mar. 31
                                    1995         1995        1995         1995
(Loss) before interest
 income and income                (3,500)         219      (15,802)      (6,383)
 taxes
Interest income
 (expense), net                       17          318         (167)          55
(Loss) before income
 taxes                            (3,483)         537      (15,969)      (6,328)
Income tax (benefit)
 expense                            (256)         157           72         (253)
Net (loss)                        (3,227)         380      (16,041)      (6,075)

Preferred stock
 preferences                      (6,874)      (1,020)      (1,020)      (1,020)
                                ========     ========     ========     ========
Net loss applicable
 to common shares               $(10,101)    $   (640)    $(17,061)    $ (7,095)
                                ========     ========     ========     ========

Net loss per common
 share                          $  (0.60)    $  (0.05)    $  (1.25)    $  (0.52)
                                ========     ========     ========     ========

Weighted average
 shares outstanding               16,945       13,780       13,628       13,628
STATEMENT OF OPERATIONS DATA                     Quarter Ended,
                               -------------------------------------------------
                                 Dec. 31,     Sept. 30,    June 30,     Mar. 31
                                   1996         1996         1996         1996
Net revenue                     $ 10,428     $  9,379     $  9,129     $ 10,542
Costs and expenses:
Costs of revenue                   5,594        5,536        6,838        7,244
Product development                1,401        1,410        1,327        1,734
Selling, general and
 administration                    5,520        5,379        7,453        6,394
Exchange fee and gain
 on sale of asset, net              --           --           --            619
Loss on closure and
 sale of subsidiaries,              --            921         --           --
 net
Restructuring costs                 --           --            (19)        (156)

                                --------     --------     --------     --------
(Loss) before interest
 income and income                (2,087)      (3,867)      (6,470)      (5,293)
 taxes
Interest income
 (expense), net                      121           41           87           59
                                --------     --------     --------     --------
(Loss) before income
 taxes                            (1,996)      (3,826)      (6,383)      (5,234)
Income tax (benefit)
 expense                              21          (77)        (114)         102
                                --------     --------     --------     --------
Net (loss)                        (1,987)      (3,749)      (6,269)      (5,336)

Preferred stock
 preferences                        (981)        (865)        (865)      (1,020)
                                ========     ========     ========     ========
Net loss applicable
 to common shares               $ (2,968)    $ (4,614)    $ (7,134)    $ (6,356)
                                ========     ========     ========     ========

Net loss per common
 share                          $  (0.13)    $  (0.22)    $  (0.35)    $  (0.34)
                                =========    =========    =========    ========
Weighted average
 shares outstanding               22,470       21,113       20,209       18,911
STATEMENT OF OPERATIONS DATA               Quarter Ended,
                                                     --------------------------
                                                       June 30,         Mar. 31,
                                                        1997              1997
Net revenue                                          $  9,334          $  9,119
Costs and expenses:
Costs of revenue                                        6,132             5,840
Product development                                     1,266             1,042
Selling, general and
 administration                                         5,329             5,223
Gain from extinguishment
 of debt                                                 --                (267)

                                                     --------          --------
Loss before interest
 income and income taxes                               (3,393)           (2,719)
Interest income (expense),
 net                                                      (64)               31
                                                     --------          --------
Loss before income taxes                               (3,457)           (2,688)
Income tax (benefit)
 expense                                                   61                (6)
                                                     --------          --------
Net loss                                               (3,518)           (2,682)

Preferred stock preferences                              (930)             (976)
                                                     ========          ========
Net loss applicable to
 common shares                                       $ (4,448)         $ (3,658)
                                                     ========          ========

Net loss per common share                            $  (0.18)         $  (0.15)
                                                     ========          ========

Weighted average shares
 outstanding                                           24,964            24,464
CERTAIN FORWARD-LOOKING STATEMENTS

         This  Prospectus  contains  or  may  contain  certain   forward-looking
statements  and  information  as well as estimates and  assumptions  made by the
Company's management. When used in this Prospectus,  words such as "anticipate,"
"believe,"   "estimate,"   "expect,"  "future,"  "intend,"  "plan"  and  similar
expressions, as they relate to the Company or the Company's management, identify
forward-looking  statements.  Such  statements  reflect the current views of the
Company  with  respect  to future  events  and are  subject  to  certain  risks,
uncertainties and assumptions  relating to the Company's  operations and results
of operations, shifts in market demand, the timing of product releases, economic
conditions  in foreign  countries,  competitive  products  and pricing and other
risks and uncertainties including, in addition to any uncertainties specifically
identified in the text surrounding such statements,  uncertainties  with respect
to changes or  developments in social,  economic,  business,  industry,  market,
legal and regulatory  circumstances  and conditions and actions taken or omitted
to be taken by third parties,  including the Company's stockholders,  customers,
suppliers, business partners, competitors, and legislative, regulatory, judicial
and other  governmental  authorities and officials.  Should one or more of these
risks or  uncertainties  materialize,  or should  the  underlying  estimates  or
assumptions prove incorrect,  actual results or outcomes may vary  significantly
from those anticipated, believed, estimated, expected, intended or planned.

                                  RISK FACTORS

         An  investment in the  Company's  securities  involves a high degree of
risk. In evaluating the Company and its business,  prospective purchasers of the
Shares  offered  hereby  should  carefully  consider  the risk factors set forth
below, as well as the other  information  included in this Prospectus,  prior to
making an investment.

Lack of Profitability

         The Company has had net losses in each period of its operations, except
for one quarter,  and it had an  accumulated  deficit at June 30, 1997 of $119.3
million.  Net losses  applicable  to common shares were $8.1 million for the six
months ended June 30, 1997,  $21.1 million for the year ended December 31, 1996,
and $34.9 million for the year ended December 31, 1995. The losses have resulted
primarily from non-recurring  charges (including in 1994, a non-recurring charge
of  $8.8  million  for  purchased  in-process  research  and  development  and a
write-off of $8.7 million in capitalized  software that related to products that
were abandoned in favor of 1View, and in 1995, non-recurring net charges of $9.3
million in connection with the IBZ bankruptcy, a company that had been purchased
by the Company as a wholly owned subsidiary,  and business divestitures) as well
as the delay in the commercial release of the Company's 1View product,  the lead
time to close  sales and  recognize  revenues,  increasing  sales and  marketing
efforts  and  costs  associated  with  product  research  and  development.  See
"Business."

Continued Adverse Results of Operations Through 1997

         The adverse  results of operations  that the Company has experienced is
expected to continue at least for the  remainder of 1997.  The Company  believes
that its existing cash,  together with the current proceeds from the convertible
notes,  a debt  offering  the Company  effected  in July 1997 (the  "Convertible
Notes"),  current  and  future  proceeds  from  the sale of  Series K Stock  and
warrants,  and the  anticipated  cash  flows  from  operations,  should  provide
sufficient  resources  to fund its  activities  through the next twelve  months.
However,  there can be no assurance that the Company will be able to satisfy the
conditions  precedent to the issuance of additional shares of Series K Stock and
warrants.  Anticipated cash flows from operations are largely dependent upon the
Company's ability to achieve its sales and gross profit objectives for its 1View
and other products.  If the Company is unable to meet these objectives,  it will
consider  alternative  sources of  liquidity,  such as  additional  offerings of
equity  securities.  Although  the  Company  believes  that it can  successfully
implement its operating plan and, if necessary,  raise additional capital, there
can be no assurance that  implementation  of the plan will be successful or that
financing, if sought, will be available.

Continued Listing on the Nasdaq National Market

         At June 30, 1997, the Company had not maintained net tangible assets of
at least $4 million,  which is one of the quantitative  maintenance criteria for
continued  inclusion of the Company's  securities on the Nasdaq National Market.
To remedy this short fall and offset any  adverse  impact,  the Company  issued,
during July 1997,  3,300 shares of Series K Stock to the Purchasers and warrants
to the Selling Stockholders and received net proceeds of $2.9 million.  Pursuant
to the  terms  of the  offering,  the  Purchasers  are  also  required  to  make
additional  purchases  of Series K Stock and  warrants for $3.0 million upon the
Company's achievement of certain performance  milestones and the satisfaction of
certain  other  conditions  and an  additional  $4.7 million at the  Purchasers'
option. See "Plan of Distribution" and "Description of Capital Stock." There can
be no assurance  that the Company will meet these  performance  milestones or be
able to satisfy the other conditions.  Although the Company believes that it can
maintain  the  required  net  tangible  assets  of at least $4  million  through
additional  issuances  of its Series K Stock and  warrants  or other  additional
offerings of equity securities,  there can be no assurance that the Company will
complete such offerings or that, if completed,  they will be on terms  favorable
to the Company or in an amount  sufficient  to permit the Company to continue to
maintain net tangible assets of at least $4 million.

         On August 21,  1997,  the  Company  received  a letter  from the Nasdaq
National Market  indicating  that the Company may not have sufficient  assets to
continue its listing on the Nasdaq National Market. The Company has responded to
that  inquiry  and after  further  correspondence  with  Nasdaq has  requested a
hearing before the Nasdaq National  Market's  Hearing  Department to explain its
plan  for  achievement  and  maintenance  of the  minimum  net  tangible  assets
requirement.  The Company was granted that hearing and it is presently scheduled
for October 30, 1997.

Inadequate Dividend Coverage

The  annual  dividend   requirements  on  the  Company's   Series  A  Cumulative
Convertible  Preferred  Stock  ("Series  A  Stock")  is  $3.2  million  (payable
quarterly).  and Series H Convertible  Preferred  Stock ("Series H Stock") is 8%
per annum  payable on  conversion  or redemption of the Series H Stock either in
cash or stock at the sole option of the Company.  All quarterly dividends on the
Series A Preferred  Stock have been paid through April 1997.  The Company failed
to pay its  quarterly  dividend  on the Series A Stock due in July 1997 of $0.50
per share or $803,000 in the  aggregate.  Failure to pay any quarterly  dividend
has resulted in a reduction in the  conversion  price and failure to pay a total
of four  quarterly  dividends  will entitle the holders of the Series A Stock to
elect one director. (Because the sole holder of all of the outstanding shares of
Series F Convertible  Preferred  Stock ("Series F Stock") has agreed to sell all
of such  shares to the Company  for a set price,  the Company no longer  accrues
dividends on the outstanding shares of Series F Stock.) By law, dividends may be
paid from  surplus or net profits  for the fiscal year in which the  dividend is
declared and/or the preceding fiscal year. There can be no assurance that future
surplus or earnings,  if any, will be adequate to pay dividends on the preferred
stock. See "Description of Capital Stock."

European Operations

         The Company's  European  operations are conducted through the Company's
subsidiary  Dorotech,  S.A.  ("Dorotech") and accounted for approximately 46% of
its revenue in 1996. and  approximately  43% of the Company's revenue during the
first six months of 1997.The  Company's  business in European markets is subject
to  the  risks  customarily  associated  with  overseas  operations,   including
fluctuations  in  foreign  currency   exchange  rates  and  controls,   tariffs,
expropriation,  nationalization and other economic,  tax and regulatory policies
of foreign governments. Since Dorotech conducts virtually all of its business in
currencies other than the U.S. dollar,  foreign currency fluctuations may affect
the  Company's  asset  valuations  and net  income.  The  Company  has not  used
financial  instruments with off-balance  sheet risk in managing foreign currency
fluctuation  risks.  The  Company's  results  will also be  affected by any laws
affecting its ability to repatriate  foreign profits,  if any, and by changes in
foreign  tax  laws  and tax  rates,  as well as  changes  in  international  tax
treaties. There can be no assurance that these and similar factors will not have
a negative impact on the Company's operations.

         On  December 31, 1996,  the Company  entered  into  a  purchase  agree-
ment  with  CDR  Enterprises  ("CDRE")  for the sale and  purchase  of  Series F
Convertible  Preferred  Stock  ("Series  F  Stock").  Pursuant  to the  purchase
agreement  with CDRE,  as amended on May 30,  1997,  the Company is obligated to
repurchase the remaining  792,186  outstanding  shares of the Company's Series F
Stock (all of which are held by CDRE) by January 31, 1998 for an aggregate  cash
payment of $6,400,000 plus interest in the amount of $400,000. (Because the sole
holder of all of the outstanding shares of Series F Stock has agreed to sell all
of such  shares to the Company  for a set price,  the Company no longer  accrues
dividends on the outstanding  shares of Series F Stock.) The Company has granted
CDRE a first ranking pledge on all of the outstanding  stock of Dorotech and, if
the Company  fails to make the payments to CDRE when due,  CDRE is at liberty to
sell all of the  Dorotech  shares  owned by the  Company  and may  withhold  all
amounts due and payable to CDRE before paying back excess money,  if any, to the
Company. See "--Guarantee of ATG Lease Payment" and "Description of Securities -
Acquisition  Preferred  Stock." The Company cannot  repurchase  the  outstanding
shares of Series F Stock from CDRE unless and until all accrued dividends on the
Series A Stock  have  been  paid.  See "--  Inadequate  Dividend  Coverage"  and
"Description  of Capital  Stock  --Series  A  Cumulative  Convertible  Preferred
Stock."

        The Company is endeavoring to sell all of the outstanding stock of Doro-
tech to a third party.  There can be no assurance  that the Company will be able
to do so by January 31, 1998 or at all or on favorable terms.

Guarantee of ATG Lease Payments

         Prior to the acquisition of Dorotech by the Company,  Dorotech's parent
(which was merged into Dorotech prior to the acquisition)  signed a guarantee of
lease payments by an affiliated company,  ATG Gigadisc SA ("ATG"),  under a sale
and leaseback of land and buildings by ATG. At December 31, 1995,  the remaining
lease payments due by ATG totaled approximately $6.1million,  including interest
of  approximately  $1.8  million.  On May 31,  1996,  ATG filed  for  bankruptcy
protection  with the Court of Commerce in Toulouse,  France,  and officials were
appointed by the Court to supervise  the  operations  of ATG. In July 1996,  the
lessor  notified  Dorotech  that ATG was in  default  with  respect to one lease
payment,  that, as a result, it was filing a claim with one of the officials for
accelerated payment of all remaining amounts due under the lease and that it was
requesting from Dorotech the amount due under the guarantee.  The Company is not
itself a party to the guarantee;  however,  if Dorotech were to become obligated
to  fulfill  the  guarantee,  there  could be a material  adverse  effect on the
Company's results of operations and financial  condition.  On December 31, 1996,
the  Company  entered  into a  purchase  agreement  with  CDRE  for the sale and
purchase  of the  Series F  Stock.  See  "--European  Operations."  The  Company
understands that CDRE is endeavoring to obtain a release of the lease guarantee.
To date,  neither the Company nor  Dorotech  has received a release of the lease
guarantee.

         Dorotech believes it has meritorious defenses to, and intends to defend
vigorously  against,  any  action  that may be  brought  against it based on the
guarantee.  There can be no assurance,  however,  that Dorotech would prevail if
such action were brought.

Competition; Rapid Technological Change

         The computer industry,  including the information  access,  imaging and
optical disk storage segments,  is highly  competitive,  and is characterized by
rapid and  continuous  technological  change,  short  product  cycles,  frequent
product innovations and new product introductions,  evolving industry standards,
and changes in customer  requirements  and  preferences.  The  Company's  future
profitability  will depend,  among other things, on wide-scale market acceptance
of the Company's  products,  the Company's  ability to demonstrate the potential
advantages  of its  products  over other  types of similar  products  and on the
Company's  ability to  develop  in a timely  fashion  enhancements  to  existing
products or new products that are  responsive to the demands of the  marketplace
for information access,  imaging and optical disk storage systems.  There can be
no assurance  that the Company will be able to market  successfully  its current
products,  develop and market enhancements to existing products or introduce new
products.  In addition,  the Company faces existing  competitors that are larger
and more established and have substantially  greater resources than the Company.
Because of the rapid  expansion of the information  access,  imaging and optical
disk storage market,  the Company will also face  competition from new entrants,
possibly   including   the   Company's   customers,   suppliers  or   resellers.
Technological  advances by any of the  Company's  current or future  competitors
could render  obsolete or less  competitive  the products  being  offered by the
Company.  The Company believes that the principal  competitive factors affecting
the market for  information  access,  imaging and optical disk storage  products
include effectiveness,  scope of product offerings,  technical features, ease of
use, reliability,  customer service and support, name recognition,  distribution
resources and price. Current and potential competitors have established,  or may
establish  in the  future,  strategic  alliances  to increase  their  ability to
compete for the Company's  prospective  customers.  Accordingly,  it is possible
that new  competitors  or alliances may emerge and rapidly  acquire  significant
market  share.  Such  competition  could have a material  adverse  effect on the
Company's business, financial condition and results of operations.

Risks of Defects and Development Delays

         The Company's  development of enhancements to existing  products and of
new products is subject to the kinds of problems  and delays that are  routinely
encountered  in the  development  of  software.  For  example,  the  Company may
experience schedule overruns in software  development  triggered by factors such
as insufficient staffing or the unavailability of development-related  software,
hardware  or  technologies.  Further,  during the  development  of new  software
products,  or the enhancement of existing  products,  the Company's  development
schedules  may be  altered  as a  result  of the  discovery  of  software  bugs,
performance  problems  or changes to the  product  specification  in response to
customer requirements, market developments or Company initiated changes. Changes
in product  specifications  may delay completion of documentation,  packaging or
testing,  which may, in turn,  affect the release  schedule of the  product.  In
connection  with complex  software  products,  the  technology  market may shift
during the development cycle,  requiring the Company either to enhance or change
a product's  specifications  to meet a customer's  changing needs.  Any of these
factors  may cause a product  to enter the  market  behind  schedule,  which may
adversely affect market acceptance of the product, or place it at a disadvantage
to a  competitor's  product  that has  already  gained  market  share or  market
acceptance during the delay. The Company does not believe,  however,  that it is
practicable  to  quantify  the impact that such delays have had or in the future
may have on its operating  results.  There can be no assurance  that the Company
will  not  experience   difficulties  that  will  interrupt  the  marketing  and
distribution  of its current  products or that the Company  will not  experience
difficulties in the future that could materially delay or prevent the successful
development of other products.

Dependence on Key Personnel

         The Company is  substantially  dependent on the business and  technical
expertise and business relationships of certain key personnel and on its ability
to attract and retain key  management  and  technical  employees  in the future.
Competition for such employees is intense.  The loss of current key employees or
the Company's  inability to attract and retain other  employees  with  necessary
business or technical  skills in the future would have a material adverse effect
on the Company's business.

Dependence on Suppliers

         The Company relies  exclusively  on outside  suppliers for the hardware
components  of its products  such as scanners,  printers,  computers and optical
disk drives and jukeboxes.  Most parts and  components  are currently  available
from  multiple  sources at  competitive  prices.  To date,  the  Company has not
experienced  significant  delays in obtaining parts and components and, although
there can be no assurance, the Company does not expect to experience such delays
in the future.  Lack of availability of certain  components  could require minor
redesign of the Company's products and result in production delays.

Evolving Distribution Channels

         The Company has  developed a  distribution  strategy  that involves the
development   of  strategic   alliances   with   resellers,   integrators,   and
international  distributors  to enable  the  Company  to  achieve  broad  market
penetration. The Company's reseller distribution channel is established, and the
Company intends to expand that channel. There can be no assurance, however, that
the Company will be able to continue to attract  distributors and resellers that
will be able to market the Company's products  effectively and will be qualified
to provide timely and cost-effective  customer support and service.  The Company
ships products to distributors and resellers on a purchase-order  basis, and its
distributors,  integrators and resellers may, in some instances, carry competing
product  lines.  Therefore,  there  can be no  assurance  that any  distributor,
integrator,  or reseller will continue to represent the Company's products.  The
inability to recruit,  or the loss of, important sales personnel,  distributors,
integrators  or  resellers  could  materially  adversely  affect  the  Company's
business, financial condition and results of operations in the future.

Long Sales Cycle; Seasonality

         Sales  of  the  Company's  products  sometimes  involve  a  significant
commitment  of  capital  by  customers,  with the  attendant  delays  frequently
associated  with large capital  expenditures.  Prior to such sales,  the Company
often  permits  customers to evaluate  products  being  considered  for license,
generally involving a small license fee. In addition,  the type of software that
the Company  manufactures  and sells is of the type that requires  businesses to
re-engineer  their processes,  and completion of this may be arduous.  For these
and other reasons,  the sales cycle  associated  with the Company's  products is
likely to be lengthy and subject to a number of significant risks over which the
Company has little or no control and, as a result, the Company believes that its
quarterly  results are likely to vary  significantly in the future.  The Company
may be  required  to  ship  products  shortly  after  it  receives  orders  and,
consequently,  order  backlog,  if  any,  at the  beginning  of any  period  may
represent only a small portion of that period's expected revenues.  As a result,
product revenues in any period will be substantially  dependent on orders booked
and shipped in that  period.  The Company  plans its  production  and  inventory
levels  based  on  internal  forecasts  of  customer  demand,  which  is  highly
unpredictable and can fluctuate  substantially.  If revenues fall  significantly
below  anticipated  levels,  the  Company's  financial  condition and results of
operations could be materially and adversely affected. In addition,  the Company
has  experienced  significant  seasonality  in its  business,  and the Company's
financial  condition and results of operations may be affected by such trends in
the  future.  Such trends may  include  higher  revenues in the third and fourth
quarters of the year and lower  revenues in the first and second  quarters.  The
Company believes that revenues may tend to be higher in the third quarter due to
the fiscal year end of the U.S.  government and higher in the fourth quarter due
to year-end budgetary pressures on the Company's commercial customers.

Intellectual Property Rights; Infringement Claims

The Company  regards its software as proprietary  and relies  principally on the
protection  afforded  by  trade  secret,  copyright  and  trademark  laws and by
routinely requiring all of its employees, consultants, suppliers and others with
access to the Company's  proprietary  information  to enter into  non-disclosure
agreements  that require such  persons to maintain the  confidentiality  of such
information. The Company filed two patent applications in 1995, one of which was
granted  in July  1997,  and  expects to file  several  more in the near  future
covering  key  components  of the  1View  suite.  Prosecution  of  these  patent
applications,   and  any  other  patent   applications   that  the  Company  may
subsequently  determine  to file,  may require the  expenditure  of  substantial
resources.  The  issuance of a patent from a patent  application  may require 24
months or longer.  There can be no assurance that the Company's  technology will
not become  obsolete while the Company's  applications  for patents are pending.
There also can be no  assurance  that any pending or future  patent  application
will be granted, that any future patents will not be challenged,  invalidated or
circumvented  or that the rights  granted  thereunder  will  provide  meaningful
competitive  advantages  to the  Company.  Further,  the Company has not pursued
patent protection outside of the United States for the technology covered by the
Company's existing patent and pending patent applications. The Company currently
intends  to pursue  patent  protection  outside  of the  United  States  for the
technology  covered  by  such  patent  applications,  although  there  can be no
assurance that any such protection will be granted or, if granted,  that it will
adequately protect the technology covered thereby. In addition,  there can be no
assurance that others will not  independently  develop  similar  technologies or
duplicate any technology  developed by the Company or that its  technology  will
not infringe upon  patents,  copyrights or other  intellectual  property  rights
owned by others.

         Further,  the Company may be subject to additional  risk as the Company
enters into transactions in countries where  intellectual  property laws are not
well developed or are poorly enforced. Legal protections of the Company's rights
may be  ineffective in foreign  markets and technology  developed by the Company
may not be  protectable in such foreign  jurisdictions  in  circumstances  where
protection is ordinarily available in the United States.

         The  Company  believes  that,  due to the rapid  pace of  technological
innovation for the Company's imaging and optical storage products, the Company's
ability to  establish  and, if  established,  maintain a position of  technology
leadership in the industry is dependent more upon the skills of its  development
personnel  than  upon  legal   protections   afforded  its  existing  or  future
technology.

         As the  number of  information  access,  imaging  and  optical  storage
products in the  industry  increases  and the  functionality  of these  products
further overlap,  software developers may become subject to infringement claims.
There can be no assurance that third parties will not assert infringement claims
against the Company in the future  with  respect to current or future  products.
The Company  also may desire or be required  to obtain  licenses  from others in
order to develop,  produce and market commercially viable products  effectively.
Failure to obtain those  licenses  could have a material  adverse  effect on the
Company's  ability to market its  software  products.  There can be no assurance
that such licenses will be obtainable on  commercially  reasonable  terms, if at
all,  that the  patents  (if any)  underlying  such  licenses  will be valid and
enforceable  or  that  the  proprietary  nature  of  the  unpatented  technology
underlying such licenses will remain proprietary.

         Any claims or litigation,  with or without  merit,  could be costly and
could  result in a  diversion  of  management's  attention,  which  could have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.  Furthermore,  there can be no assurance that the Company
will have adequate  resources to prosecute or defend such claims or  litigation,
or that the Company's  proprietary  rights,  including patents,  if any, will be
upheld.  Adverse  determinations  in such claims or litigation could also have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

Fluctuations in Financial Performance

         Timing and volume differences in the shipment of the Company's products
and  the  performance  of  services  under  contracts  can  produce  significant
fluctuations  in  quarter-to-quarter  and  year-to-year  financial  performance.
Factors  that could affect such timing  include,  among other  things,  customer
purchasing   patterns,   new   product   transitions,   delays  in  new  product
introductions  and shortages of system  components.  Past financial  performance
should not be considered to be a reliable indicator of future performance in any
particular fiscal period.

Control of the Company

         The executive  officers and directors of the Company  beneficially  own
approximately 8% of the Company's  outstanding  Common Stock, other officers and
employees of the Company beneficially own at least another 6% of the outstanding
shares and  officers  and  employees  may,  in the future,  acquire  substantial
additional  amounts of Common Stock upon the exercise of stock options which are
not currently  exercisable.  Although  there are no  arrangements  requiring the
executive officers and other employees of the Company to vote their Common Stock
collectively, those persons may exert considerable influence over the outcome of
matters  requiring  stockholder  votes,  including the election of directors and
proposals to sell, merge or liquidate the Company.

Dividend Policy

         The  Company  has not paid  dividends  on its  Common  Stock  since its
inception,  and it does not anticipate paying cash dividends on its Common Stock
in the  foreseeable  future.  The Company may not declare  dividends  payable to
holders of Common Stock unless and until all accrued cash dividends  through the
most recent past dividend  payment date have been paid in full to holders of the
Series A Stock,  the Company's  Series F Stock and the Company's Series H Stock.
The Company  failed to pay its  quarterly  dividend on the Series A Stock due in
July 1997 of $0.50 per share or  $803,000 in the  aggregate.  In  addition,  the
purchase agreement for the Series K Stock required that the Company not make the
quarterly  dividend  payments to the Series A  stockholders.  See  "--Inadequate
Dividend Coverage," "Dividend and Market Price Information," and "Description of
Capital Stock -- Common Stock."

Shares  Eligible  for Future  Sale;  Effect on Market Price of  Common Stock and
         the Ability of the Company to Raise Additional Capital

         As of September 2, 1997, the Company had outstanding  25,177,743 shares
of Common Stock, of which 3,495,003 shares were "restricted  securities" as that
term is defined under Rule 144 of the Securities Act ("Rule 144), which were not
covered by an  effective  registration  statement  under the  Securities  Act or
eligible  for sale  pursuant to Rule 144(k).  Of those  shares,  1,747,502  were
otherwise eligible for sale under Rule 144.

         As of  September  2, 1997,  the  Company  had  outstanding  options and
warrants  that were  exercisable  for  9,856,816  shares of  Common  Stock.  The
exercise prices of the options and warrants range from $1.00 to $14.88 per share
(subject  to  adjustment  pursuant  to  the  anti-dilution   provisions  of  the
respective  instruments  and based  upon the  closing  sale and bid price of the
Company's  Common Stock on  September  8, 1997).  The number of shares of Common
Stock into which the Company's  convertible  securities  convert could  increase
significantly depending upon a number of factors,  including the market price of
the  Company's  Common  Stock at the time of  conversion  or  redemption  of the
convertible  securities  and the adoption of certain  amendments to the terms of
Series A Stock. See "Risk Factors -- Series A Stock; Amendment to Certificate of
Incorporation."  The options and warrants  expire at various time through August
24,  2007.  As of  September 2, 1997,  the Company had  outstanding  convertible
securities (including the Convertible Notes, and the Series A, H and K Preferred
Stock) that were  convertible  into 6,231,990 shares of Common Stock (subject to
adjustment   pursuant  to  the   anti-dilution   provisions  of  the  respective
instruments). (The Common Stock issuable on conversion of the Series F Stock has
not been  included as the holder of the Series F Stock is  obligated to sell the
Series F Stock to the Company at a set price.  See "Description of Capital Stock
--  Acquisition  Preferred  Stock.).  The conversion  prices of the  convertible
securities  range  from $1.49 to $12.61  per  share.  The shares of  convertible
securities  may convert at various  times through July 8, 2001.  Those  options,
warrants and convertible  securities that are not subject to registration rights
may,  upon  exercise  or  conversion,  be  sold  pursuant  to Rule  144  or,  if
applicable,  Rule 144(k). In addition,  the Company is obligated to issue to the
Purchasers  and Zanett  additional  shares of Series K Stock and  warrants  that
would be convertible into or exercisable for 4,427,500 shares of Common Stock in
certain  circumstances.  See "Plan of Distribution"  and "Description of Capital
Stock -- Series K Convertible Preferred Stock."

         The Company has  registration  commitments  with  respect to  6,569,176
shares  ("Registrable  Shares")  of  Common  Stock in  connection  with  certain
options,  warrants and convertible  securities that the Company has issued (does
not include  4,427,500 shares of Common Stock issuable on conversion of Series K
Stock and warrants that the Company may be obligated to issue to the  Purchasers
and Zanett in certain circumstances. See "Description of Capital Stock -- Series
K Convertible Preferred Stock."). The Company has filed registration  statements
with the Securities and Exchange  Commission  ("SEC")  covering in the aggregate
14,994,884 of the Registrable Shares (including the 10,000,000 shares covered by
this  Registration  Statement),  which may be  offered  from time to time by the
stockholders  named in such  registration  statements or that may be sold by the
Company upon exercise or conversion of certain outstanding warrants,  options or
convertible securities. In addition, the Company has registered 8,100,000 shares
of Common Stock that may be issued pursuant to stock option plans. The Company's
obligations  generally are to maintain such registration  statements for varying
periods  ranging  from  nine  months  to two years at its  expense,  except  for
commissions and legal costs incurred by selling stockholders.

         The Company  believes  that the  existence of  convertible  securities,
options  and  warrants,  with  conversion  or  exercise  prices  less  than  the
prevailing  market price of the Common Stock, and the possibility of, as well as
actual, sales of shares of Common Stock under Rule 144, pursuant to registration
statements  and otherwise in all  likelihood has had and may continue to have an
adverse  effect on the  market  price of the Common  Stock and on the  Company's
ability to raise future equity capital. In addition, if the Selling Stockholders
or the others, individually or in the aggregate, were to offer a large amount of
Common  Stock in the  market,  the  market  price of the  Common  Stock  and the
Company's ability to raise additional capital could be adversely  affected.  See
"Selling Stockholders" and "Plan of Distribution."

Amendment to Certificate of Designations of Series A Stock

         The Company is in the process of proposing an amendment to the terms of
the  Certificate  of  Designations  of  Series A Stock  pursuant  to which  each
outstanding share of Series A Stock would  automatically  convert into shares of
Common Stock at a rate of three shares of Common Stock for every share of Series
A Stock currently  outstanding,  rather than at the current rate of 1.986 shares
of Common Stock for every share of Series A Stock outstanding. If this amendment
to the terms of the  Certificate of  Designations  is approved by the holders of
Common  Stock  and the  holders  of  Series  A Stock  at a  special  meeting  of
stockholders  currently anticipated to be held on November 17, 1997, the Company
will issue three shares of Common Stock to the holders Series A Stock  effective
on the day immediately following the special meeting.

Series A Stock; Amendment to Certificate of Incorporation

         Prior to the  Company's  issuance  in July  1997 of  shares of Series K
Stock and the Convertible Notes (see "Certain Transactions" for a description of
the  Convertible   Notes),  the  outstanding  shares  of  Series  A  Stock  were
convertible into 1.9826 shares of Common Stock in the aggregate.  As a result of
anti-dilution  provisions to which the shares of Series A Stock are subject, the
issuance of shares of Series K Stock and the issuance of the  Convertible  Notes
will  entitle  the  holders  of Series A Stock to receive  additional  shares of
Common  Stock.   See  "Description  of  Capital  Stock  -  Series  A  Cumulative
Convertible Preferred Stock." The number of additional shares of Common Stock to
which the holders of Series A Stock  would be  entitled  to receive  will depend
upon the conversion prices of the Series K Stock and the Convertible  Notes. The
conversion prices of the Series K Stock and the Convertible Notes are not fixed;
they vary based on formulas  tied to the market price of the Common Stock at the
time of conversion of the Series K Stock and the redemption or conversion of the
Convertible Notes and on the date of conversion or redemption.  See "Description
of Capital Stock - Series K Convertible  Preferred Stock Conversion  Rights" and
"Certain Transactions."  Accordingly,  because these conversion prices vary, the
Company cannot ascertain  definitively the number of additional shares of Common
Stock that the holders of Series A Stock may receive as a result of the Series A
Stock  anti-dilution  provisions until the shares of Series A Stock are actually
converted.  The Company is also obligated to issue additional shares of Series K
Stock in certain  circumstances.  See "Plan of Distribution."  Nonetheless,  the
holders of Series A Stock will be  entitled to receive a  significant  number of
additional shares Common Stock as a result of such anti-dilution provisions.

         The number of shares of Common Stock that each holder of Series A Stock
will receive may be limited, however, as a result of a resolution adopted by the
Board  of  Directors  of  the  Company  that  provides  for  amendments  to  the
Certificate  of  Designations  of Series A Stock  Cumulative  Convertible  Stock
("Series A Amendment").  The proposed changes to the Certificate of Designations
would (i) amend  Section 8(i) to change the rate at which the Company  exchanges
shares  of Common  Stock for  shares of Series A Stock to three for one and (ii)
provide  that the  dividends on the Series A Stock ceased to accrue on April 30,
1997. If the stockholders approve the Series A Amendment at a special meeting of
holders of Common Stock and Series A Stock  currently  anticipated to be held on
November 17, 1997, the  anti-dilution  provisions of the Series A Stock would no
longer be in effect and each share of Series A Stock would automatically convert
into  three  shares of Common  Stock as of the  close of  business  on the first
business day following the special meeting. In addition,  the shares of Series A
Stock would no longer be outstanding for any purpose and all rights with respect
to such shares would  cease,  except for the rights of holders of Series A Stock
to receive  shares of Common Stock upon the  exchange.  Approval of the Series A
Amendment  requires the approval of a majority of the voting power of all of the
outstanding  shares of Common Stock voting  separately as a class and a majority
of the voting  power of all of the  outstanding  shares of Series A Stock voting
separately as a class.  There are no assurances that the Series A Amendment will
be adopted by the stockholders.  If the stockholders do not approve the Series A
Amendment,  the Company will be required to issue a significant number of shares
of Common Stock to the holders of Series A Stock as  described in the  preceding
paragraph.

Certain Anti-takeover Provisions of  Certificate  of  Incorporation and Delaware
         Law

         The  Company's  Board of  Directors  has the  authority  to issue up to
20,000,000  shares  of  preferred  stock and to  determine  the  price,  rights,
preferences,  privileges  and  restrictions,  including  voting  rights of those
shares,  without any further vote or action by the Company's  shareholders.  The
rights of the holders of Common  Stock will be subject to, and may be  adversely
affected by, the rights of the holders of preferred  stock that has already been
issued and that may be issued in the future.  The issuance of  preferred  stock,
while providing desirable  flexibility in connection with possible  acquisitions
and other corporate purposes,  could have the effect of making it more difficult
for a third party to acquire a majority of the voting stock of the  Company.  As
of September 2, 1997, the Company had outstanding  1,605,025  shares of Series A
Stock,  792,186 shares of Series F Stock,  10 shares of H Stock and 3,300 shares
of Series K Stock.  The Company may issue  additional  shares of Series K Stock.
See "Plan of Distribution."

         The Company is subject to Section 203 of the Delaware  General  Corpor-
ation  Law,  which  places  certain  restrictions  on the  ability  of  Delaware
corporations to engage in business  combinations  with interested  shareholders.
See "Description of Capital Stock."

Impact of Offerings and Acquisitions on Net Operating Loss Carryforwards

         As a result of the  issuance  of the Series A Stock,  the  issuance  of
securities in acquisitions and the sale of shares by certain  stockholders,  the
utilization of the Company's net operating loss  carryforward  of  approximately
$53 million at December 31, 1996 is subject to the  limitations  and  expiration
periods  imposed by Section 382 and other  provisions  of the  Internal  Revenue
Code, thereby increasing the probability that all or a portion may expire before
utilization.

                                 USE OF PROCEEDS

         There will be no proceeds to the Company from the sale of the Shares by
Zanett and the  Purchasers.  Any proceeds of sales of Common  Stock  received by
Zanett or the Purchasers  will be retained by Zanett or the  Purchasers,  as the
case may be. If all of the  warrants  issued to the  Selling  Stockholders  were
exercised,   the  Company  would  receive   gross   proceeds  of   approximately
$858,813.06.  Which  proceeds the Company  expects to use for general  corporate
purposes. There can be no assurance that any of such warrants will be exercised.

                      DIVIDEND AND MARKET PRICE INFORMATION

         The Company's  Common Stock is quoted on Nasdaq  National  Market under
the symbol IMGX. The following table  indicates,  for each calendar quarter from
January 1, 1995,  the high and low sales prices for the Common Stock as reported
by Nasdaq.
PERIOD                                     HIGH       LOW
    1995     -First Quarter                    4 3/4      2 5/8
             -Second Quarter                   5 7/16     3 1/8
             -Third Quarter                    7 3/4      4 7/8
             -Fourth Quarter                   5 1/8      2 13/16

    1996     -First Quarter                    5 7/8      3 3/4
             -Second Quarter                   5 5/8      3 7/16
             -Third Quarter                    5 1/16     3 1/16
             -Fourth Quarter                   4 5/32     2 11/16

    1997     -First Quarter                    3 1/2      2 9/16
             -Second Quarter                   2 29/32    1 11/16
             -Third Quarter                    2 1/32     1 1/4
        (through September 2, 1997)

         On  September  2, 1997,  the closing sale price for the Common Stock as
reported by Nasdaq was 1 1/2. As of that date, the Company had approximately 385
holders of record of its Common  Stock,  and based on  information  supplied  by
certain of such holders of record,  the Company  estimates  that as of such date
there were approximately 7,600 beneficial owners of its Common Stock.

         The Company has not paid any cash  dividends  on its Common Stock since
its inception and does not  anticipate  paying any cash  dividends on its Common
Stock in the foreseeable  future.  The Company may not declare dividends payable
to holders of Common Stock unless and until all accrued cash  dividends  through
the most recent past dividend  payment date have been paid in full to holders of
the  Series A Stock,  the  Series F Stock and the  Series H Stock.  The  Company
failed to pay its  quarterly  dividend on the Series A Stock due in July 1997 of
$0.50 per share or $803,000 in the aggregate.  The Company's future earnings, if
any, may not be adequate for the payment of dividends on its  preferred  stocks.
In addition,  the purchase  agreement  for the Series K Stock  requires that the
Company not make its quarterly dividend payments to the Series A stockholders.

         At June 30, 1997, the Company had not maintained net tangible assets of
at least $4 million,  which is one of the quantitative  maintenance criteria for
continued  inclusion of the Company's  securities on the Nasdaq National Market.
To remedy this short fall and offset any  adverse  impact,  the Company  issued,
during July 1997,  3,300 shares of Series K Stock to the Purchasers and warrants
to the Selling Stockholders and received net proceeds of $2.9 million.  Pursuant
to the  terms  of the  offering,  the  Purchasers  are  also  required  to  make
additional  purchases  of Series K Stock and  warrants for $3.0 million upon the
Company's achievement of certain performance  milestones and the satisfaction of
certain  other  conditions  and an  additional  $4.7 million at the  Purchasers'
option. See "Plan of Distribution" and "Description of Capital Stock." There can
be no assurance  that the Company will meet these  performance  milestones or be
able to satisfy the other conditions.  Although the Company believes that it can
maintain  the  required  net  tangible  assets  of at least $4  million  through
additional  issuances  of its Series K Stock and  warrants  or other  additional
offerings of equity securities,  there can be no assurance that the Company will
complete such offerings or that, if completed,  they will be on terms  favorable
to the Company or in an amount  sufficient  to permit the Company to continue to
maintain net tangible assets of at least $4 million.

                                 CAPITALIZATION

         The following table sets forth, as of June 30, 1997, the capitalization
of the Company (including loan capital). The table does not include the issuance
of the Series K Stock or the Convertible Notes.

                                                  June 30, 1997 (unaudited)
                                            (in thousands, except share amounts)
Short-Term Debt:
 Bank credit facilities. . . . . . . . . . . .              $213  
 Other notes payable. . . . . . . . . . . . ..             1,030
                                                           -----
   Total Short-Term Debt. . . . . . . . . . ..             1,243
Long-Term Debt and Obligations
  Under Capital Leases. . . . . . . . . . . .              5,186
Series F Preferred Stock, 792,186
  shares outstanding . . . . . . . . . . . . .             6,357
Stockholders' Equity:
 Preferred stock, par value $.0001 per share,
  20,000,000 shares authorized;. . . . . . . .
   1,605,125 shares outstanding.
 Common stock, par value $.0001 per share,
  50,000,000 shares authorized; 25,177,743
  shares outstanding . . . . . . . . . . . . .                 3

 Additional paid in capital. . . . . . . . . .           122,709

 Accumulated deficit. . . . . . . . . . . . .           (119,298)
Translation adjustment . . . . . . . . . . . .              (504)
                                                          ------
  Stockholders' Equity. . . . . . . . . . . .              2,910
                                                          ------

  Total Capitalization. . . . . . . . . . . .            $15,696
                                                          ======

                             SELECTED FINANCIAL DATA

         The following selected financial data for the five years ended December
31,  1996 are derived  from the audited  consolidated  financial  statements  of
Network  Imaging  Corporation.  The financial  data as of and for the six months
ended  June 30,  1997 are  derived  from the  unaudited  consolidated  financial
statements of Network Imaging  Corporation.  The unaudited financial  statements
include all adjustments,  consisting of normal recurring accruals, which Network
Imaging Corporation considers necessary for a fair presentation of the financial
position and results of operations  for this period.  Operating  results for the
six months  ended June 30, 1997 are not  necessarily  indicative  of the results
that may be expected  for the entire year ending  December  31,  1997.  The data
should  be read in  conjunction  with  the  consolidated  financial  statements,
related notes, and other financial information included in this Prospectus.
STATEMENT OF OPERATIONS DATA                                                       Year ended December 31,
----------------------------                                   --------------------------------------------------------------------
                                                                  1996           1995           1994           1993           1992
Net revenue                                                    $ 39,477       $ 69,151       $ 67,028       $ 34,069       $ 27,961
Costs and expenses:
Costs of revenue                                                 24,374         42,398         48,189         25,094         21,366
Product development                                               6,500          7,058          4,666          1,315            310
Selling, general and administration                              24,956         35,679         36,765         11,886          6,697
Exchange fee and gain on sale of asset, net                         619           --             --             --             --
Purchased in-process research and development                      --             --            8,821         24,550           --
Settlement with stockholders                                       --            1,642           --             --             --
Loss on closure and sale of subsidiaries, net                       921          9,274           --             --             --
Restructuring costs                                                (175)        (1,433)         1,654          1,646           --
Capitalized software write-off                                     --             --            8,743            286

(Loss) before interest income and income taxes                  (17,718)       (25,467)       (41,810)       (30,708)          (412)
Interest income (expense), net                                      309            224            579             77           (106)
                                                               --------       --------       --------       --------       --------
(Loss) before income taxes                                      (17,409)       (25,243)       (41,231)       (30,631)          (518)
Income tax (benefit) expense                                        (68)          (280)        (1,606)           186            (53)
                                                               --------       --------       --------       --------       --------
Net (loss)                                                      (17,341)       (24,963)       (39,625)       (30,817)          (465)

Preferred stock preferences                                      (3,730)        (9,933)        (4,496)          (604)          --
                                                               ========       ========       ========       ========       ========
Net loss applicable to common shares                           $(21,071)      $(34,896)      $(44,121)      $(31,421)      $   (465)
                                                               ========       ========       ========       ========       ========

Net loss per common share                                             $       $  (2.41)             $              $       $  (0.13)
                                                                                                (1.02)         (3.56)         (4.48)
                                                               ========       ========       ========       ========       ========

Weighted average shares outstanding                              20,682         14,502         12,391          7,015          3,486
-18-
STATEMENT OF OPERATIONS DATA                     Six Months Ended June 30,
                                                       ------------------------- 
                                                            1997          1996
Net revenue                                              $ 18,453      $ 19,671
Costs and expenses:
Costs of revenue                                           11,972        14,082
Product development                                         2,308         3,061
Selling, general and administration                        10,552        13,847
Exchange fee and gain on sale of asset, net                  --             619
Gain from extinguishment of debt                             (267)         --
Restructuring costs                                          --            (175)
(Loss) before interest income and income taxes             (6,112)      (11,763)
Investment and interest income (expense), net                 (33)         (146)
                                                         --------      --------
(Loss) before income taxes                                 (6,145)      (11,617)
Income tax (benefit) expense                                   55           146
                                                         --------      --------
Net (loss)                                                 (6,200)      (11,605)

Preferred stock preferences                                (1,906)       (1,884)
                                                         ========      ========
Net loss applicable to common shares                     $ (8,106)     $(13,489)
                                                         ========      ========

Net loss per common share                                $  (0.33)     $  (0.69)
                                                         ========      ========

Weighted average shares outstanding                        24,715        19,560
BALANCE SHEET DATA                                June 30,                               Year ended December 31,
                                                  -------        -------------------------------------------------------------------
                                                    1997           1996           1995          1994            1993        1992
Cash and cash equivalents                         $ 1,845        $ 7,601        $ 9,359        $ 3,989        $39,764        $ 3,385
Working capital                                     4,546          9,893         13,454         17,513         45,859          3,823
Current assets                                     19,194         24,709         35,718         46,051         59,516         10,230
Intangible assets, net                              5,969          7,050          9,098         19,874         12,855          2,546
Total assets                                       29,439         36,778         49,964         71,871         75,519         13,738
Current liabilities                                14,648         14,816         22,264         28,538         13,657          6,407
Long term liabilities                               5,524            388          2,037          3,568          3,442            287
Redeemable preferred stock                          6,357          9,857         15,478         14,609         15,626           --
Total stockholders equity                         $ 2,910        $11,717        $10,185        $25,156        $42,794        $ 7,044
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

         This  Prospectus  contains,  in  addition  to  historical  information,
forward-looking  statements  that involve risks and  uncertainty.  The Company's
actual  results  could differ  significantly  from the results  discussed in the
forward-looking  statements.  Factors  that could  cause or  contribute  to such
differences include those discussed in "Risk Factors" as well as those discussed
elsewhere in this Prospectus.

Results of Operations for the Years Ended December 31, 1996, 1995 and 1994

         Revenue.  Product  revenue  includes  sales of  software  licenses  and
computer  equipment.  Product  revenue  is  recognized  upon  delivery  or,  for
contracts with significant  completion services requiring attainment of customer
acceptance,   upon  customer  acceptance.   Service  revenue  includes  software
maintenance  contracts,  installation  and  customization.  Service  revenue  is
recognized over the terms of the related contracts as the services are completed
or under the percentage of completion method where appropriate.

         Total  revenue  was $39  million in 1996,  $69  million in 1995 and $67
million in 1994. The decrease in total revenue in 1996 over 1995 of $30 million,
or 43%, resulted from decreases in product revenues of $29.2 million, or 61%, to
$18.3 million, and in service revenue of $500,000,  or 2%, to $21.1 million. The
increase in total revenue in 1995 over 1994 of $2 million,  or 3%, resulted from
increases in service revenue of $4.5 million, or 26% to $21.6 million, offset by
a decrease in product revenue of $2.4 million, or 5% to $47.5 million.

         During 1994, the Company  committed  itself to a plan of  restructuring
that was designed to improve  operating  results by concentrating  the Company's
resources on the marketing and continued development of its 1View suite and COLD
software  products.  In connection  with its  restructuring  plan,  the Company,
during  1995  and  1996,   disposed  of  a  number  of   operating   units  (the
"Divestitures"),  which  were  not  considered  complimentary  to the  Company's
business. The decrease in product revenue in 1996 of $29.2 million was primarily
attributable  to the  Divestitures,  which  reduced  product  revenue  by  $19.9
million,  and a major installation  project in 1995 for $9.3 million,  which was
not duplicated in 1996.

         The decrease in product  revenue in 1995 of $2.4 million was  primarily
attributable  to the  Divestitures,  which  reduced  product  revenue  by  $10.6
million,  offset by an increase of $8.2 million in 1View and comparable  Company
product  revenue.  The increase in 1View  product  revenue was  attributable  to
licenses provided for a major installation project,  involving  approximately 40
servers   and   3,000   clients,   in  more  than  50   districts   of  a  major
telecommunications  company. This project accounted for approximately 15 percent
of the Company's revenues in 1995.

         The decrease in service revenue in 1996 of $500,000 was attributable to
the  Divestitures,  which reduced service revenue by $2.9 million,  offset by an
increase of $2.4 million in 1View and comparable  Company service  revenue.  The
increase in 1View and comparable  Company  service  revenue was  attributable to
increased  staffing  and  management  emphasis  on  the  professional   services
business.  The increase in service revenue in 1995 of $4.5 million was primarily
attributable both to Dorotech, the Company's French subsidiary,  and to domestic
COLD storage maintenance services.

         Profit Margins.  Profit margins for product sales improved in 1996 over
1995 as the  cost of  products  sold  decreased  from 62% to 54% of  sales.  The
increase in product sales margins was due to the  continued  increased  sales of
the Company's  internally developed products and due to the dispositions in 1995
of the Company's CAD/CAM resellers. Profit margins for product sales improved in
1995 over  1994 as the cost of  products  sold  decreased  from 74% to 62%.  The
significant  increase in product  sales  margins was also due  primarily  to the
increased  sales of the Company's  internally  developed 1View product suite and
the  dispositions  of the  Company's  WildSoft and Hunt Valley  divisions and PE
Systems.  Microsouth,  Tekgraf,  IBZ Digital  Production and NIC UK subsidiaries
during 1995, which primarily occurred in the second and third quarters.

         Profit  margins for service  sales  decreased  in 1996 over 1995 as the
cost of  products  sold  increased  from 61% to 68% of sales.  The  decrease  in
service sales margins was primarily  attributable  to the increased  staffing in
the professional services business. Profit margins for service sales improved in
1995 as compared to 1994,  as the cost of service  sales  decreased  from 67% to
61%. The increase in service sales  margins was due  primarily to  customization
and  maintenance  service  sales of the  Company's  internally  developed  1View
product  suite,  an  increase  in  COLD  storage  maintenance  margins  and  the
Divestitures.

         Research  and  Development.  The  Company's  expenditures  on  software
research and development  activities ("R&D") in 1996 were $8.5 million, of which
$2.0 million was capitalized and $6.5 million was expensed.  The slight increase
in  capitalization  between  1996  and 1995  was due to the  development  of the
Company's next  generation  mainframe and PC-based COLD products.  The Company's
expenditures on software R&D activities in 1995 were $8.7 million, of which $1.7
million  was   capitalized   and  $7.0  million  was  expensed.   The  Company's
expenditures  on  software  research  and  development  activities  and  for the
acquisition of software licenses and the software in 1994 were $11.6 million, of
which $7.0  million  was  capitalized  and $4.6  million was  expensed.  The 48%
increase  in  product  development  expense  from $4.6  million  in 1994 to $6.8
million  in 1995  was  primarily  attributable  to the  general  release  of the
Company's  1View product suite in early 1995,  whereas in 1994,  the R&D efforts
for the  1View  product  suite  were  still in the  development  stage.  The net
decrease in total R&D expenditures from $11.6 million in 1994 to $8.5 million in
1995, or $3.1 million, was primarily attributable to the Divestitures; a reduced
focus on the Company's network attachable storage products,  which resulted in a
$770,000  reduction  in R&D  expenditures;  an  increased  focus  on  Dorotech's
engineering   services,   which   resulted  in  a  $810,000   reduction  in  R&D
expenditures;  a net $200,000 reduction in software license  acquisitions;  and,
increased domestic  engineering services for installation and maintenance of the
Company's 1View product suite.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative expenses ("SG&A") were $25.0 million, or 63% of revenue, in 1996,
$35.7 million,  or 52% of revenue, in 1995, $36.8 million, or 55% of revenue, in
1994.  The decrease in 1996  compared to 1995 of $10.7  million,  or 30% was the
result of the  Divestitures,  which  accounted  for a $8.7  million  decrease in
addition  to a $2.0  million  decrease  in  SG&A  expenses  from  the  Company's
continuing 1View, COLD and French  operations.  The decrease in 1995 compared to
1994 of $900,000, or 2%, is due to the Divestitures,  which reduced SG&A expense
an aggregate of $5.0 million, offset by increases in sales and marketing efforts
of $4.1 million.

         Exchange Fee and Gain on Sale of Asset,  Net.  During 1996, the Company
paid a fee of $650,000 plus $80,000 of expenses in connection with the extension
of the redemption date of the Company's  Dorotech  Acquisition  Preferred Stock.
See  "Descriptions  of Capital  Stock--Acquisition  of Preferred  Stock." During
1996,  the  Company  realized  a  $111,000  gain  on the  disposition  of  stock
distributed to the Company by its medical insurance provider.

         Purchased  In-Process  R&D. In connection  with the  acquisition of DCR
("TREEV"),  now a division of the Company,  during 1994, the Company  incurred a
charge totaling $8.8 million  relating to the expensing of purchased  in-process
research and development.

         Settlement with Stockholders. Operating expenses in 1995 include a $1.6
million expense related to settlement of obligations with former stockholders of
IBZ and TREEV for $750,000 and $892,000,  respectively. The Company entered into
an agreement with the former principle  stockholder of IBZ whereby,  in exchange
for  an  aggregate  of  $750,000,   the  former  principle  shareholder  of  IBZ
relinquished  rights to a loan  guarantee.  During  1995,  the  Company and four
former  stockholders  of  TREEV,  entered  into  agreements  to settle a dispute
arising from the  acquisition  of DCR in exchange for  extensions  of employment
agreements and an aggregate of 175,000  additional shares of Common Stock of the
Company, valued at approximately $892,000.

         Restructuring Charges and Capitalized Software Write-Offs.  At December
31, 1996,  the 1994  restructuring  plan,  whereby excess  personnel,  duplicate
facilities  and products to be  discontinued  were  identified,  whereby  excess
personnel,  duplicate facilities and products to be discontinued were identified
(the "Plan") was complete.  Under the Plan, the Company incurred a net change in
estimate of $175,000 in 1996.

         During 1995, the Company incurred additional charges under the Plan for
items that exceeded its original estimates  totaling $297,000.  These additional
charges were offset by $1.4 million  reflecting a decrease in estimated  charges
for impairment of inventory and maintenance spare parts.  During 1995,  $322,000
of the  1993  restructuring  plan  costs  were  reversed  after  a  release  was
negotiated from the landlord for vacated property.

         The Company incurred a $2.0 million  restructuring  charge in 1994 when
establishing the Plan. In conjunction with the 1994  restructuring,  the Company
also expensed  capitalized  software of $5.3 million,  in 1994, which related to
products that were abandoned in favor of the 1View suite.  During 1994, $300,000
of costs  from the 1993  restructuring  plan were  adjusted  due to  changes  in
estimate.

         Investment and Interest Income.  Net investment and interest income was
$309,000 in 1996, $224,000 in 1995 and $579,000 in 1994. The $85,000 increase in
net  investment  and  interest  income  between  1996  and  1995  was  primarily
attributable  to the interest earned for the cash received and invested from the
private  placement  offerings  of Common  Stock and Series H, I and J  Preferred
Stock done during the first three quarters of 1996. The $355,000 decrease in net
investment and interest income between 1995 and 1994 was primarily  attributable
to a decrease in cash,  cash  equivalents  and  short-term  investment  balances
during the same period and to increased interest expense from capital leases and
the lines of credit.

         Income  Taxes.  The Company  incurred  income tax  benefits of $68,000,
$280,000  and $1.6  million in 1996,  1995 and 1994,  respectively.  The $68,000
income  tax  benefit  incurred  in 1996 was the result of net  operating  losses
generated  by  Dorotech's  operations  offset by a decrease  in  Dorotech's  net
deferred tax  liabilities.  The $280,000 income tax benefit incurred in 1995 was
primarily  the result of a decrease of net  deferred tax  liabilities  resulting
from the divestiture of IBZ's European  operations and other purchase accounting
adjustments.  The $1.6  million  income tax  benefit in 1994 was  primarily  the
result of income tax credits generated by Dorotech's European operations for R&D
expenditures and net operating losses generated by Dorotech's and IBZ's European
operations.

         Net Loss.  The  Company's  net loss was $17.3  million  in 1996,  $25.0
million in 1995 and $39.6 million in 1994. The $7.6 million decrease in net loss
between 1996 and 1995 was due to the 1995 losses from the  Divestitures  of $9.3
million,  the $1.6 million settlement with  stockholders,  and the $10.7 million
reduction in SG&A expenses in 1996.  These reductions in expenses were offset by
a  $11.7  million  reduction  in  gross  margin  in  1996,  the  loss on sale of
subsidiary  in 1996 of  $921,000,  and the change in estimate of $1.4 million in
restructuring costs in 1995.

         The $14.7  million  decrease in net loss  between 1995 and 1994 was due
primarily to significantly improved margins on product and service sales of $7.8
million,  the 1994  expenses  incurred  for  purchased  in-process  research and
development,  of  $8.8  million,  restructuring  charges  of  $1.7  million  and
capitalized  software  write-offs,  of $8.7 million,  offset by the 1995 loss on
closure and sales of subsidiaries of $9.3 million,  settlement expenses, of $1.6
million, and reversals of restructuring costs, of $1.4 million.

         Excluding the impact of the write-off of purchased  in-process  R&D and
the write-off of capitalized  software,  the entities  divested in 1995 and 1996
contributed a net loss of  approximately  $1.1 million in 1996,  $4.3 million in
1995 and $14.4 million in 1994.

         Net Loss  Applicable to Common  Shares.  Net loss  applicable to common
shares  includes  adjustments  for dividends,  accretion and redemption  amounts
related to the  Company's  preferred  stock.  The net loss  applicable to common
shares was $21.1 million,  or $1.02 per share, in 1996; $34.9 million,  or $2.41
per share, in 1995; $44.1 million,  or $3.56 per share, in 1994. The decrease in
1995 over 1994 is  attributable  to the decrease in net loss described above and
the  reduction  in  accretion  to  redemption  value of the  Company's  Series B
Convertible  Preferred  Stock of $417,000  offset by the cost of  redemption  of
Series D Preferred Stock of $5.9 million.

Liquidity and Capital Resources for the Years Ended December 31, 1996 and 1995

         As of December 31, 1996,  the Company had $7.6 million in cash and cash
equivalents  compared  to $9.4  million  in cash and cash  equivalents  and $3.0
million in restricted  short-term  investments,  or a total of $12.4 million, at
December 31, 1995. Net working capital decreased to $9.9 million at December 31,
1996 from $13.2 million at December 31, 1995;  however,  the  Company's  working
capital ratio improved from 1.6:1 to 1.7:1.

         At December 31, 1996, the Company had outstanding debt of $2.2 million,
$2.1 million of which is due within one year.  This  compares  with debt of $6.6
million at December 31, 1995, $5.4 million of which was due within one year. The
decrease in debt of $4.4 million primarily arose from net repayments of maturing
obligations. See Note 9 to the Consolidated Financial Statements.

         For  1996,  the $1.8  million  decrease  in cash  and cash  equivalents
resulted  from a $11.9  million  use of cash  from  operating  activities,  $2.6
million used in investing  activities  and the  generation of $12.7 million from
financing  activities.  The $11.9  million use of cash in  operating  activities
arose  primarily  from the $17.3  million  loss from  operations  offset by $5.8
million in  depreciation  and  amortization  charges.  The $2.6  million to fund
investing  activities  arose with respect to  capitalized  software  development
costs and the purchase of fixed  assets.  The $12.7  million in cash provided by
financing  activities  arose  primarily from the $6.0 million  proceeds from the
issuance  of Common  Stock and  $10.9  million  proceeds  from the  issuance  of
Convertible  Preferred  Stock,  Series H, I and J,  offset  by the $3.2  million
payment of Series A Stock  dividends and net payments in debt and capital leases
of $1.2 million.

         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
31, 1995,  $2.5 million of the $3.1 million  restricted  short-term  investments
served as collateral for this line of credit.  The Company negotiated a new line
of credit  during the fourth  quarter  of 1996,  see Note 9 to the  Consolidated
Financial Statements.

         For  1995,  the $5.4  million  increase  in cash  and cash  equivalents
resulted from a $9 million use of cash from operating activities, the generation
of $9.6 million from  investing  activities,  and the generation of $4.7 million
from financing  activities.  The $9 million use of cash in operating  activities
arose  primarily  from  the $25  million  net loss  offset  by $6.3  million  in
depreciation  and  amortization  charges and a $9.3  million loss on the sale of
subsidiaries.  The $9.6 million raised from investing activities arose primarily
from  the  sale  of  short-term   investments  offset  by  capitalized  software
development  costs and purchases of fixed assets.  The $4.7 million  raised from
financing  activities  arose primarily from the $28.1 proceeds from the issuance
of Preferred Stocks, Series D, E and G, and the issuance of Common Stock, offset
by the $15.6  million  redemption  cost for the Series D Preferred  Stock,  $3.2
million in dividend payments on the Series A Stock, $2.3 million net payments in
debt and capital  lease  financings,  and $3.1  million  purchase of  restricted
short-term investments.  In 1995, the Company divested seven operating units for
which the Company received $1.2 million in cash.

         As a result  of stock  offerings  in 1996,  the  Company  received  net
proceeds  of  approximately  $16.9  million  which  included  offering  costs of
approximately $500,000. Under the offerings, the Company issued 1,760,285 shares
of Common Stock and 1,100 shares of Series H, I and J Preferred  Stock . The net
proceeds of the offerings were used for working capital purposes.

         The annual dividend  requirements on the Company's preferred stocks are
as  follows:  Series A Stock - $3.2  million  (payable  quarterly)  and Series H
Convertible  Preferred  Stock  ("Series H Stock") is 8% payable on conversion or
redemption of the Series H Stock,  payable either in cash or Common Stock at the
option of the Company. (Because the sole holder of all of the outstanding shares
of Series F Convertible  Preferred  Stock  ("Series F Stock") has agreed to sell
all of such shares to the Company for a set price, the Company no longer accrues
dividends  on the  outstanding  shares of  Series F  Stock.).  Dividends  on the
Company's Series H Preferred Stock is payable in cash or Common Stock.

Results of Operations for the Six Months Ended June 30, 1997 and 1996

         Revenues.  Total  revenues were $18.5 million and $19.7 million for the
six months ended June 30, 1997 and 1996, respectively. The $1.2 million decrease
in revenue was the result of decreases in product  revenue of $1.0  million,  or
28%,  and a decrease  in service  revenue of  $194,000,  or 6%. The  decrease in
product  revenue  was  primarily  attributable  to the  disposition  in  1996 of
Symmetrical Technologies,  Inc. ("STI"), which reduced the Company's revenues by
$1.5 million. The decrease in service revenue of $194,000 was also primarily the
result of the disposition of STI, which contributed $170,000 of the decrease.

         Profit Margins.  Profit margins for product sales increased 12% for the
first  six  months  of 1997  over the same  period  in 1996 as cost of  products
decreased  from 62% to 50% of sales.  The increase in product  sales margins was
primarily due to the disposition  during 1996 of STI. Profit margins for service
sales increased 3% for the six months ended June 30, 1997 as compared to 1996 as
the cost of services decreased from 80% to 77% of sales. The increase in service
sales  margins from 20% to 23% was due to the Company's  increasing  emphasis on
its custom development services.

         Sales and Marketing.  Sales and marketing expenses were $7.3 million or
39% of revenue for the six months ended June 30, 1997  compared to $8.3 million,
or 42% of revenue in 1996.  The decrease of $1.1 million,  or 13%, was primarily
the result of the Company's disposition of STI during 1996.

         General and Administrative.  General & Administrative  ("G&A") expenses
were $3.3  million,  or 18% of revenue,  for the six months  ended June 30, 1997
compared to $5.5  million,  or 28% of  revenue,  in 1996.  The  decrease of $2.2
million,  or 40%,  was  primarily  the result of the  Company's  efforts in cost
reductions in the Company's continuing operations.

         Product  Development.  The Company's  expenditures on software research
and  development  activities  for the six months  ended June 30,  1997 were $3.0
million,  of which $0.7 million was  capitalized  and $2.3 million was expensed.
Software  research and  development  expenditures  for the 1996 period were $4.2
million,  of which $1.1 million was  capitalized  and $3.1 million was expensed.
The  $1.2  million   decrease  in  research  and  development   expenditures  is
attributable to the Company's 1996 plan to consolidate the various 1View product
development  groups into a common  product  development  organization  operating
under a single senior manager.  During 1996, the Company  consolidated  its COLD
product development groups from three separate locations to one, and vacated the
excess  office  space.  The  Company's  disposition  of STI also  resulted  in a
reduction of $116,000 in research and development expenditures.

         Gain on  Extinguishment  of  Debt.  The  Company's  French  subsidiary,
Dorotech, realized a $267,000 gain in connection with the partial forgiveness of
a grant made by a French government agency.

         Income Taxes. The Company's income tax expense for the six months ended
June 30, 1997 of $55,000  resulted from income  generated by Dorotech that could
not  be  offset  by  operating  losses  or  carryforwards   available  in  other
jurisdictions.  The Company had income tax benefit for the six months ended June
30, 1996 of $12,000,  which was primarily the result of taxable losses generated
by Dorotech.

         Net Loss. The Company's net loss for the six months ended June 30, 1997
was $6.2 million as compared to a net loss of $11.6  million for the  comparable
period of 1996.  The net loss  decrease of $5.4 million for the first six months
of 1997 as  compared  to the same  period in 1996 is due  primarily  to the $2.2
million reduction in G&A expenses, $1.1 million reduction in sales and marketing
expenses,  $1.1 million  reduction in product  development  expenses,  increased
profit margins resulting in $890,000  additional gross margin,  and the exchange
fee incurred in 1996.

         Net Loss Applicable to Common Stock.  The net loss applicable to common
shares includes  adjustments for dividends and accretion  amounts related to the
Company's  Series A and F Preferred  stock.  The net loss  applicable  to common
shares was $8.1 million,  or ($.33) per share, for the six months ended June 30,
1997 as compared to $13.5 million or ($.69) per share, for the comparable period
of 1996.  The decrease is  attributable  to the  decrease in net loss  described
above.

Liquidity and Capital Resources for the Six Months Ended June 30, 1997

         As of June 30,  1997,  the  Company  had $1.8  million in cash and cash
equivalents,  as  compared  to $7.6  million  in cash  and cash  equivalents  at
December  31,  1996.  Net working  capital was $4.5 million at June 30, 1997 and
$9.9 million at December 31, 1996.

         During the first six months of 1997,  the  Company  redeemed  1,000,000
shares of  Series F Stock  for  $3,500,000  by using  proceeds  from its line of
credit. In addition, the Company drew the remaining $1,500,000 from its domestic
line of credit. See "--Recent Events."

         Pursuant to the  purchase  agreement  with CDRE,  as amended on May 30,
1997, the Company is obligated to repurchase the remaining  792,186  outstanding
shares  of the  Company's  Series  F Stock  (all of  which  are held by CDRE) by
January 31, 1998 for an aggregate  cash payment of  $6,400,000  plus interest in
the  amount of  $400,000.  (Because  the sole  holder of all of the  outstanding
shares of Series F Stock has  agreed to sell all of such  shares to the  Company
for a set price,  the Company no longer  accrues  dividends  on the  outstanding
shares of Series F Stock.) The Company has granted CDRE a first  ranking  pledge
on all of the  outstanding  stock of Dorotech  and, if the Company fails to make
the  payments to CDRE when due,  CDRE is at liberty to sell all of the  Dorotech
shares owned by the Company and may withhold all amounts due and payable to CDRE
before  paying back excess  money,  if any, to the  Company.  See "Risk  Factors
-European  Operations" and "Description of Capital Stock - Acquisition Preferred
Stock." The Company cannot  repurchase the outstanding  shares of Series F Stock
from CDRE unless and until all accrued dividends on the Series A Stock have been
paid. The Company failed to pay its quarterly dividend on the Series A Stock due
in July 1997 of $0.50 per share or $803,000 in the aggregate.  See  "Description
of Capital Stock --Series A Cumulative Convertible Preferred Stock."

         The  Company is  endeavoring  to sell all of the  outstanding  stock of
Dorotech to a third party.  There can be no  assurance  that the Company will be
able to do so by January 31, 1998 or at all or on favorable terms.

         For the six months  ended June 30, 1997,  the $5.8 million  decrease in
cash and cash equivalents  resulted from the use of $3.3 million in cash to fund
operating activities, $1.2 million to fund investing activities and $1.2 million
in cash to fund financing activities.

         The  $3.3  million  in cash  used to fund  operating  activities  arose
primarily  with  respect to a net loss in  operations.  The $1.2 million in cash
used to fund investing  activities  arose with respect to  capitalized  software
development  costs and the  purchase of fixed  assets.  The $1.2 million in cash
used by financing  activities  arose  primarily from the $1.8 million payment of
preferred stock  dividends and the principle  payments on debt and capital lease
obligations  offset by proceeds of $5.0 million from  borrowing from the line of
credit.

         The adverse  results of operations  that the Company has experienced is
expected to continue at least for the  remainder of 1997.  The Company  believes
that its existing cash,  together with the current proceeds from the convertible
notes,  a debt  offering  the Company  effected  in July 1997 (the  "Convertible
Notes"),  current  and  future  proceeds  from  the sale of  Series K Stock  and
warrants,  and the  anticipated  cash  flows  from  operations,  should  provide
sufficient  resources to fund its activities  through the next twelve months and
to maintain net tangible assets of at least $4.0 million,  which is required for
continued  inclusion of the  Company's  securities  on Nasdaq  National  Market.
However,  there can be no assurance that the Company will be able to satisfy the
conditions  precedent to the issuance of additional shares of Series K Stock and
warrants.  Anticipated cash flows from operations are largely dependent upon the
Company's ability to achieve its sales and gross profit objectives for its 1View
and other products.  If the Company is unable to meet these objectives,  it will
consider  alternative  sources of  liquidity,  such as  additional  offerings of
equity  securities.  Although  the  Company  believes  that it can  successfully
implement its operating plan and, if necessary,  raise additional capital, there
can be no assurance that  implementation  of the plan will be successful or that
financing, if sought, will be available.  See "Risk Factors -- Continued Listing
on the Nasdaq National Market."

         The adverse results of operations which the Company experienced in 1996
have been  declining and are expected to reverse in the first part of 1998.  The
Company  believes that its existing cash, the proceeds of its private  placement
with  Zanett  Securities,  and the  anticipated  cash  flows  from 1997 and 1998
operations,  should provide sufficient  resources to fund its activities in 1997
and 1998.

Recent Events

         On December 31, 1996, the Company  entered into a restricted $5 million
line of credit agreement with Fred E. Kassner ("Loan  Agreement") to finance the
buy back of the Series F  Preferred  Stock.  The line of credit  bears a rate of
interest rate at 2% above a commercial lender's fluctuating prime rate. The line
of credit was initially  secured by a lien against all of the domestic  accounts
receivable of the Company pursuant to a security  agreement with the stockholder
("Security  Agreement").  In  connection  with the line of credit,  the  Company
issued to the stockholder warrants to purchase 100,000 shares of Common Stock at
an  exercise  price of $3.06 per share  ("$3.06  Warrants"),  and the Company is
further obligated to issue to the stockholder  warrants to purchase 5,000 shares
of Common Stock, exercisable at the market rate upon the date of borrowing under
the line of credit, for each $500,000 that the Company borrows under the line of
credit.  In  connection  with  the  $3.06  Warrants,  the  Company  granted  the
stockholder with one demand and two piggyback  registration  rights,  which will
become effective on January 1, 1998.

         On June 8,  1997,  the  Company  and the  stockholder  entered  into an
amendment to the Loan Agreement pursuant to which the stockholder  permitted the
Company to use the  proceeds  of the loan for  general  corporate  purposes  and
entered  into  an  amendment  to the  Security  Agreement,  which  expanded  the
stockholder's security to cover,  including without limitation,  (1) all leases,
licenses,  permits (2) all software products  intellectual property now owned or
hereafter  developed  by the  Company,  (3) all  inventory,  (4)  all  accounts,
contract rights, chattel paper, instruments, general intangibles,  documents and
other obligations, (5) all trade or service

names,  trademarks,  service marks, logos and all patents,  patent applications,
copyrights,  licensing  agreements  and royalty  payments,  (6)  proceeds of the
foregoing, and (7) all of the capital stock of Dorotech.

         On July 9, 1997,  the  Company  issued to  nominees  for Mark Shoom and
Charles G. Kucey  (collectively  referred to as  "Noteholders")  8%  convertible
notes ("Convertible  Notes") that are due on July 8, 2002. Pursuant to the terms
of the Convertible Notes, the Company was obligated to register the Common Stock
issuable in connection with the Convertible Notes by September 12, 1997. The net
proceeds  of the  Convertible  Notes ($1.8  million)  have been used for working
capital and general  corporate  purposes.  The Company  also issued  warrants to
purchase 36,000 shares of Common Stock, in the aggregate,  to the Noteholders at
an  exercise  price of $1.875 per share  ("Note  Warrants").  The Note  Warrants
expire on July 8, 2000.

         Interest on the Convertible Notes is payable at a rate of 8% per annum,
compounded semi-annually.  The Company has the option of paying interest in cash
or Common Stock at the redemption or conversion price described below.

         The  holders  of the  Convertible  Notes have a  security  interest  in
accounts receivable,  inventory, the intellectual property of the 1View Software
and  on  the  stock  of the  Company's  subsidiary,  Dorotech.  The  payment  of
principal,   premium,   if  any,  and  interest  on  the  Convertible  Notes  is
subordinated  to the senior  indebtedness of the Company held by Fred E. Kassner
who has  granted a line of credit to the  Company.  As of August 31,  1997,  the
amount of outstanding  indebtedness (including accrued and unpaid interest) owed
by the Company to Mr. Kassner under this line of credit was $5.036 million.

         Pursuant  to the  terms  of the  Convertible  Notes,  the  Company  was
obligated to file a registration statement with the SEC by September 12, 1997 to
register the Common Stock issuable on conversion of the Notes. This registration
statement has been filed with, but has not been declared effective by, the SEC.

         The Convertible  Notes are  convertible  into shares of Common Stock 45
days beginning after issue (August 23, 1997) at a conversion price of $1.875 per
share.

         The Convertible Notes may not be redeemed prior to October 30, 1997. On
or after October 30, 1997, the holders have the right to redeem the  Convertible
Notes at face value plus accrued  interest on one  business  days' notice to the
Company in cash or shares of Common  Stock,  at the  Company's  election.  On or
after  October 30,  1997,  the  Company has the right to redeem the  Convertible
Notes at face value plus  accrued  interest on 30 days' notice to the holders in
cash or share of Common  Stock,  at the holders'  election.  If shares of Common
Stock  are used,  Common  Stock is  issued  at a rate of 90% of the  previous  5
trading days average closing bid price on the Nasdaq National Market.

                                    BUSINESS

         Network Imaging  Corporation  ("Network  Imaging" or the "Company") was
incorporated  in Delaware in May 1991. The Company  provides  software  products
supporting  storage,   management  and  distribution.   These  products  provide
businesses   and   government   organizations   with  an  automated   method  of
electronically  storing,  managing and distributing  large volumes of structured
data  (text) and  unstructured  data  (diagrams,  documents,  photos,  voice and
full-motion video).

         The Company is a  recognized  leader in content and storage  management
for all unstructured information. Its flagship product, the 1View suite, manages
the storage,  access and distribution of any multimedia (or unstructured)  data,
such as diagrams, documents, photographs, voice, and full-motion video. 1View is
a  solution  for use in  distributed,  high  transaction,  high  volume  mission
critical applications across legacy,  client/server and Internet/intranet  based
environments.  The  Company  is also a  software  developer  for  mainframe  and
PC-based  COLD  systems  and a  developer  and  marketer  of storage  management
software  systems.  1View,  InfoAccess(TM),  Treev+(TM) and the Company logo are
trademarks of Network Imaging Corporation.

         United States operations are conducted in Herndon,  Virginia (primarily
the development, marketing and sales activities of the 1View suite and mainframe
COLD products), Minneapolis,  Minnesota and Denver, Colorado (PC COLD products).
European  operations  are  conducted  primarily in Paris,  France  (hierarchical
storage management ("HSM") software and related storage products and engineering
services).

         Traditional  manual filing,  retrieval,  and  distribution  methods are
labor intensive,  slow, require bulky file storage, allow only one person to use
a file at a time and often  result in  misfiled,  damaged or lost  items.  Large
commercial and government  organizations must continually  process large volumes
of  documents  stored in hard copy paper  files  where  there is a need for more
efficient movement of information throughout the enterprise. The information may
take the form of documents,  database  records,  graphics,  video clips,  audio,
computer  aided  design  ("CAD")  and  engineering  drawings,   and  other  such
"information objects" which are distributed  throughout a multi-site enterprise.
To  address  this need for  information  storage,  retrieval,  and  distribution
management, the Company has developed its principal products: the 1View software
application  suite, a family of COLD products,  and the  Doro-family of products
for HSM applications.

         The Company uses advances in object management  software to capture and
store  "information  objects" with more advanced indexing and retrieval features
than those  available for paper  documents or "structured  data".  The Company's
information access, object management,  and storage management systems have been
designed to support "open systems standards," which permit hardware and software
from different vendors to operate together on a network.

1View

         The Company's 1View suite is designed to answer the information  access
needs of large  organizations.  1View's object  enabling suite of software tools
contains flexible and layered  application  program interfaces  ("APIs"),  which
allow  developers  to  select  the  appropriate  level  of API to suit  customer
solution requirements, provide a bridge to "legacy" systems previously used, and
allow for easy  customization of software systems in comparison to standard file
structures.  1View is an  independent  platform  and can work on top of any data
base in the marketplace.

         The 1View suite consists of the following:

         1View: Object Manager is an API toolkit that provides a unique solution
for storing,  managing,  and distributing any type of multimedia document object
in  high  transaction,   high  volume,   client/server   and   Internet/intranet
environments.  It can manage information that originates from a large variety of
sources,  including  scanned  documents,  computer  output,  word  processor  or
spreadfile  sheets,  audio/voice or full motion clips, and photographic  images.
1View:    Object   Manager   helps   companies    seamlessly   and   efficiently
multimedia-enable  existing or new database  applications while preserving their
investments  in legacy  information  systems,  hardware  equipment and personnel
training.

         1View: EDM (Engineering Document Management) is a software product with
an  application  that  solves  the  document   management   problems  unique  to
engineering  organizations.  Target customers include manufacturing,  utilities,
transportation and other engineering-based  corporations.  It supports a variety
of document types including  oversized  engineering and architectural  drawings,
project plans, specifications and blueprints - indexing the documents  according
to end-user criteria.

         1View:  Workflow is a software product with an easy-to-implement  suite
of  software  tools  designed  to  automate   complex   business   processes  in
client/server  and Web  environments.  It is a rules-based  workflow  management
system designed to allow  successful  integration and automation of work process
management  applications into mainstream business practices  associated with any
business  application.   1View:Workflow  provides  the  ability  to  graphically
represent and control business processes by linking together a variety of people
and software elements to automate the flow of documents (objects)  throughout an
enterprise.

         1View:  WebMOM (Web Multimedia  Object  Manager) is a software  product
that allows companies to build customer  Internet/intranet  applications  easily
and  cost-effectively  using the  1View:Object  Manager  as a  back-end  storage
repository.  It delivers  high  performance  access from Web browsers due to its
caching capabilities, while protecting confidentiality of data by linking to Web
security  mechanisms.  Upon  requests  from Web users,  it locates  the  object,
retrieves  it, adds a MIME header to it, and finally  transfers  it back through
the Web server to the Web browser.  1View:WebMOM supports all major Web browsers
and  servers,  such as Netscape  Navigator,  Netscape  Web  Server,  MS Internet
Explorer, and MS Internet Information Server.

         1View:  COLD/ES is a report  storage and  retrieval  system that offers
high volume,  high speed mission critical print data handling.  It lets the user
maximize  the  power  and  extensive  resources  of the  mainframe  computer  by
off-loading  report management  operations to a cost-effective  dedicated server
and its associated high efficiency data storage subsystem.

         1View:  Unity  is a  software  product  that  provides  a  storage  and
retrieval  system for scanned images and other  documents.  It provides a simple
and  consistent  way to find  and view  information  regardless  of its  storage
location or internal format.  In most cases,  documents are added to this system
using a batch scanning process. 1View:Unity is an end-user application that runs
with 1View:Object Manager.  1View:Object Manager handles the physical management
of documents as they are being  scanned into the system and after they have been
stored on storage  media  while  1View:Unity  allows the  end-user  to  organize
documents  electronically  in a structure that is meaningful to the end-user and
retrieves information rapidly.

Other Products

         A significant  portion of the Company's product emphasis is on packaged
software  solutions.  Computer  output to laser  disk  ("COLD")  software  is an
important  component of several of these  products.  COLD  technology  is widely
accepted  as a way to  permanently  archive and  provide  for the  retrieval  of
permanent  business  reports  produced  by  computers  (computer  output).  COLD
typically  replaces printed paper reports and Computer Output Microfiche (COM or
"microfiche") with high capacity optical disks. Once written permanently to this
unalterable  media,  COLD provides for on-line  viewing of  information  such as
banking and brokerage  statements,  utility bills, payroll reports and corporate
financial journals and reports.  COLD technology  provides a more economical way
to store the information as well as a faster method to retrieve reports. Optical
disk is much less expensive  storage medium than microfiche or paper. By putting
reports  back   on-line   utilizing  an   organization's   standard   terminals,
workstations,  and networks,  productivity  is increased as compared to manually
handling  physical  paper and  microfiche.  The  Company  is one of the  largest
commercial providers of COLD technology.

         The TREEV Division of the Company's  U.S.  operations has developed and
markets  PC-based COLD systems used in over 2,000  community  banks.  TREEV also
markets imaging products to the community bank  marketplace  including the UNITY
product  repackaged  as TREEV  Voyager II. TREEV  Division  provides  "turn-key"
hardware and software  solutions,  maintenance  services for its client systems,
consulting, training, and high quality optical supplies.

         The Company's  French  subsidiary,  Dorotech,  headquartered  in Paris,
develops  and markets a family of  software  products  designed to manage  large
volumes of information and provide professional engineering services. Dorotech's
software products include DoroStore,  DoroFile,  Doro-JB,  Dorokey,  and Dorodoc
(the  "DoroStore  suite").  The  DoroStore  suite  implements  advanced data and
storage  management  solutions for enterprises  with complex  networks and large
numbers of servers and  workstations.  The  capabilities  of the DoroStore suite
include: (1) centralized administration capability to implement uniform data and
storage  policies  throughout a  distributed  network,  (2) advanced  backup and
restore  processes to protect and secure data from disasters,  and provide users
with a direct link to retrieving  their  individual  files, (3) On-Line Database
Backup/Restore  (ODBR) to manage the  backup  and  recovery  of  databases,  (4)
advanced  archiving  methods  that  allow  retrieval  of files  using  keywords,
phrases, and date ranges,  thereby reducing costly processes involving users and
administrators searching for specific files, (5) hierarchical storage management
for  transparently  and  automatically  storing  data onto  lower  cost  storage
subsystems,  providing  virtually  limitless  network  capacity,  and  (6)  full
security  protection for all  operations.  The DoroStore suite provides a single
utility for administering  heterogeneous  environments in terms of storage space
and data  protection  across networks on any scale, up to and including the very
largest  networks.  The Company is  endeavoring  to sell all of the  outstanding
stock of Dorotech to a third party.  There can be no assurance  that the Company
will be able to do so by January 31, 1998 or at all or on favorable terms.

Product Development

         The Company's plan to consolidate the various 1View product development
groups into a common product development organization was completed in 1996. The
unified team now operates  under a single  senior  manager and is located at the
Company's   headquarters  in  Herndon,   VA.  This   consolidation   allows  the
organization to operate under a common shared strategy,  which includes both the
1View product suite's  technical  vision and software  development  methodology.
During 1997,  the product  development  group will focus on  completing  product
release plans that are responsive to the market and support the Company's  short
term revenue goals.

         The strategic direction for the products is to provide a cohesive suite
of 1View products that will deliver innovative,  intelligent, multimedia content
management  solutions to enable the Company's customers and business partners to
leverage  existing  applications  and exploit  emerging  business  opportunities
across the  Internet/intranet.  This vision has been  accomplished by leveraging
the existing 1View suite of products and adapting them to the Web environment as
well as to database  vendor products such as Sybase's  OmniConnect.  The Company
was an early adopter of the Microsoft's  ActiveX technology and will continue to
migrate  the  existing  toolkits  and API  into  components  that can be used to
rapidly  build new  enterprise  wide  applications  and easily  integrated  into
existing customer applications.

         The Company views the product  development  organization  as one of its
key assets and will  continue to invest in building the group's  infrastructure,
refining the group's  software  development  methodology,  and  implementing the
1View, COLD and storage management products strategy.

Assembly; Sources of Supply

         The  Company  assembles  its  products  at its  facilities  in Herndon,
Virginia, Denver, Colorado, and Paris, France. The Company relies exclusively on
outside suppliers for the hardware  components of its products such as scanners,
printers,  computers  and  optical  disk  drives and  jukeboxes.  Most parts and
components are currently  available from multiple sources at competitive prices.
To date, the Company has not experienced  significant  delays in obtaining parts
and  components,  and although  there can be no assurance,  the Company does not
expect to experience such delays in the future.

Warranty and Service

         Warranties  for hardware sold by the Company are generally  provided by
the  manufacturer.  The Company  typically  provides for its  software  products
warranties  for ninety days and service  contracts  for support and  maintenance
that  usually  cover one year  periods.  The Company  recognizes  revenue  under
service contracts ratably over the contract period.

Competition

         Management  believes  that  the  Company's  1View  product  line is the
broadest,  most innovative  solution available for enterprise  scaleable content
and storage  management in the industry today.  When companies have a clear need
for  storing,  managing  and  distributing  multimedia  objects  such  as  large
drawings,  photographs,  documents,  video clips, and audio clips that must: (a)
scale to many terabytes, (b) serve thousands of users and (c) work with existing
and new applications,  application  databases or universal database platforms in
distributed  heterogeneous  environments,  there is no direct  competition  from
other companies. When only some, but not all, of these requirements must be met,
there  is  competition  from  companies  such  as  FileNet  Corporation,   Wang,
Recognition  International,  Eastman Kodak and other vendors in the  traditional
imaging  and  document  management   markets.   For  smaller  scale  systems  in
centralized  environments  with low  performance  requirements,  the competitive
issue becomes price or company size and stability.
         With increasing recognition by companies such as Sybase,  Informix, Sun
Microsystems,  and  Microsoft of the unique  capability  of the Network  Imaging
product  suite,  many  of  those  issues  have  become  less  important  from  a
competitive perspective.
         There is,  however,  the potential for  competition  from the database,
application and storage vendors who in some cases are Network Imaging partners.
         The new Universal Server initiatives from Oracle,  Informix and IBM all
seem to  indicate  support to store and manage  the same  multimedia  content in
markets that Network Imaging serves.
         Scaleability  of  content  storage  requirements,   complexity  of  the
environment (i.e., distributed content base, multiplatform, multiple application
content  access),  and cost  management of the storage  resources  (hierarchical
storage environments) are real and significant issues in this industry.  None of
the  database  vendors  completely  solve  these  issues  and most of them  have
recognized  that and are working  with  Network  Imaging on large  scale  system
proposals. Importantly, Sybase has entered into a reseller agreement to remarket
the 1View  solution as part of their  adaptive  server  initiative.  The Network
Imaging  partner  marketing  program is  targeted to address  these  competitive
issues and make partners of the apparent competitors.
         In the  future,  the  systems  management  companies  such as  Computer
Associates  and Tivoli are  expected  to  recognize  the need for  comprehensive
content and storage management for multimedia as a part of their overall systems
management architecture. Their option to cooperate or compete will depend on how
rapidly they want to enter this market. In a market segment  (Internet/intranet)
poised for explosive  growth,  Network  Imaging has  significant  time to market
advantage over their competitors' software technology.

Backlog Orders

         As of September 2, 1997, the Company's  TREEV division had a backlog of
orders  for  $1,000,000,  whereas on  September  2, 1996,  the  Company's  TREEV
division  had a backlog  of  $800,000.  The  Company  expects  that it will fill
approximately 80% of the current backlog within the current fiscal year.

Marketing and Sales
         The Company  sells its products  directly,  through its own sales force
and  indirectly,   through  value  added  resellers,  system  integrators,   and
distributors.  The Company  maintains  sales offices in locations in or near New
York, Boston, Washington D.C., Atlanta, Charlotte, Denver, Detroit, Minneapolis,
Los Angeles, San Francisco, Dallas, Seattle and in Europe, near Paris, France.
         The Company has active programs to develop marketing  partnerships with
vendors of complementary  product  technologies such as companies who market and
manufacture  database,   application   development,   systems  management,   and
communication and connectivity middleware.
         The Company also focuses on vertical  market  segments that have proven
requirements  for the Company's  product  line.  These market  segments  include
Telecommunications  and Utilities,  Finance  Banking and Insurance,  Healthcare,
Manufacturing,  and the  Public  Sector.  The  Company  has  developed  vertical
business development programs in these segments to identify sales opportunities,
create product awareness,  and develop contacts for the Company's indirect sales
channels.
         The Company  advertises in numerous major  industries,  vertical market
and news  publications  and  participates  in  direct  mail  campaigns  with its
partners. The Company markets diverse products to multiple industries. It is not
dependent on any one customer or business  partner for a major percentage of its
business.

Business Dispositions

         During 1994, the Company  committed  itself to a plan of  restructuring
that was designed to improve  operating  results by concentrating  the Company's
resources on the marketing and continued development of its 1View suite and COLD
software  products.  In connection  with its  restructuring  plan,  the Company,
during  1995  and  1996,   disposed  of  a  number  of   operating   units  (the
"Divestitures"),  which  were  not  considered  complimentary  to the  Company's
business.

         As a  result  of the  Divestitures,  the  Company  recorded  losses  of
$921,000  and  $9.3  million  in 1996  and  1995,  respectively.  The  aggregate
consideration  received by the Company from the Divestitures was $1.6 million in
cash and $4.2  million in notes  receivable,  of which  $320,000 was reserved as
uncollectible at December 31, 1996.

         The  Company  sold  the  assets  and  liabilities  of  its  Symmetrical
Technologies,  Inc.  ("STI")  subsidiary  in September  1996.  During 1995,  the
Company  disposed of the following  operations:  Hunt Valley Division  (formerly
NSI, Inc.),  Network Imaging (UK Holdings) Limited,  Microsouth,  Inc., Tekgraf,
Inc., P E Systems, Inc., WildSoft Division, and IBZ Digital Production AG.

        The Company is endeavoring to sell all of the outstanding stock of Doro-
tech to a third party.  There can be no assurance  that the Company will be able
to do so by  January  31,  1998  or at  all or on  favorable  terms.  See  "Risk
Factors--European Operations."

License Agreements and Pricing

         The  Company's  software  product  revenues  consist  primarily of fees
generated from license of software products.  In consideration of the payment of
license  fees,  the  Company  generally  grants  nonexclusive,  nontransferable,
perpetual  licenses that are primarily  computer site or user specific.  License
fee arrangements vary depending upon the type of software product being licensed
and  on  the  number  of  users  or  locations  in  the  case  of  client/server
implementations  and on a per CPU basis in the case of mainframe  installations.
The United States list price for the Company's 1View products ranges from $5,000
for a single product to several million dollars.

         Customers may generally  obtain support services and maintenance for an
annual fee that is approximately 16% of the then-current annual license fee. The
support and  maintenance  fee is billed  monthly or  annually  and is subject to
changes in software  license list prices.  Resellers of the  Company's  software
products  are  generally  required to collect and remit to the Company 8% of the
Company's then-current annual license fees for maintenance and support services.
In such  cases,  the  Company  only  provides a certain  level of support to the
end-user and general maintenance and support, such as initial calls and queries,
are  performed  by the  reseller.  The Company  also  provides  pre-installation
assistance, systems administration, training and other product-related services,
generally on a time and materials basis.

Proprietary Rights and Licenses

         The  Company  regards  its  software  as  proprietary  and  relies on a
combination of trade secret,  copyright and trademark laws, license  agreements,
nondisclosure and other contractual provisions and technical measures to protect
its  proprietary  rights in its products.  The Company  distributes its software
products  under  reseller   agreements  and  software  license  agreements  that
typically  grant  customers  nonexclusive,   nontransferable   licenses  to  the
Company's products and have perpetual terms unless terminated for breach.  Under
these license agreements, the Company retains all rights to market its products.
Use of the licensed  software is usually  restricted to the customer's  internal
operations  on  designated  computers  at  specified  sites  unless the customer
obtains a site license,  which  restricts that use of the software to designated
users.  Use  is  subject  to  terms  and  conditions  prohibiting   unauthorized
reproduction or transfer of the software.  The Company also seeks to protect the
source code of its software as a trade secret and as an unpublished, copyrighted
work. See "Risk Factors--Intellectual Property Rights; Infringement Claims."

Facilities

         The   Company's   corporate   headquarters,   including  its  principal
administrative,  product development, product management, technical support, and
sales and  marketing  operations,  are  located in 25,600  square feet of office
space in a building in Herndon,  Virginia.  The Company occupies the space under
leases expiring in the year 2000. The Company also leases an aggregate of 55,000
square feet of space in or near Atlanta,  Georgia,  Charlotte,  North  Carolina,
Chicago,  Illinois,  Dallas, Texas, Denver,  Colorado, Los Angeles,  California,
Minneapolis,  Minnesota, New York New York, San Francisco,  California, Seattle,
Washington,  and Paris France. The Company believes that its existing facilities
are suitable and adequate for its present needs and that suitable  space will be
available as needed to accommodate any expansion of operations.

Employees

         As of  September  2, 1997,  the  Company had 226  full-time  employees,
including 71 employees  primarily  engaged in research  and  development,  51 in
technical support and services, 73 in sales and marketing, and 31 in operations,
finance and administration.

Legal Proceedings

         From time to time,  the Company is involved in  litigation  relating to
claims  arising  out of its  operation  in the normal  course of  business.  The
Company is not currently a party to any legal proceedings.

                                   MANAGEMENT

Executive Officers and Directors

        The executive officers and directors of the Company,  and their respec-
tive ages at September 2, 1997 are as follows:

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

James J. Leto (2)            53      President, Chief Executive Officer and
                                      Chairman of the Board

Jorge R. Forgues             42      Senior Vice President of Finance and
                                      Administration, Chief Financial Officer

John M. Flowers              47      Senior Vice President of Engineering

Brian H. Hajost              41      Senior Vice President of Marketing

Mark T. Wasilko              43      Senior Vice President of  Business 
                                      Alliances

Robert P. Bernardi (2)       46      Director and Secretary

John F. Burton (1)           46      Director

C. Alan Peyser               63      Director

Robert Ripp (1)(2)           56      Director

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

(1)      Member of the Audit Committee.

(2)      Member of the Compensation Committee.

         James J. Leto  became  President  and  Chief  Executive  Officer  and a
Director  of the  Company in May 1996 and became  Chairman  of the Board in June
1997. Mr. Leto served as the Chairman and Chief  Executive  Officer of PRC Inc.,
an information  technology company ("PRC"),  from January 1993 to February 1996,
and prior thereto in various capacities as an executive officer of that company.
From January 1989 until February 1992, Mr. Leto served as the Vice President and
General Manger of AT&T Federal  Systems  Computer  Division,  a division of AT&T
charged with developing a major system  integration and computer presence in the
federal marketplace.  Mr. Leto first joined AT&T in November 1977. Mr. Leto is a
director of Government Technology Systems, Inc.

         Jorge R. Forgues  became Chief  Financial  Officer,  Vice  President of
Finance and  Administration  and  Treasurer  of the  Company in April  1996.  In
January 1997,  Mr. Forgues was promoted to Senior Vice  President.  From October
1993  through  April  1996,  he  served  as the  Vice  President  of  Finance  &
Administration  and Chief  Financial  Officer  of  Globalink,  Inc.,  a computer
software developer that offers foreign language translation software.  From July
1992 to September  1993,  Mr. Forgues served as Director of Accounting at Spirit
Cruises,  Inc.,  and from June 1987 to June 1992 he served as the Vice President
of Finance of Best Programs, Inc., a computer software developer. Mr. Forgues is
a director of On-Site Sourcing Incorporated.

         John M. Flowers, Jr. was appointed Senior Vice President of Engineering
Services in April 1996.  From 1989 to April  1996,  he was with PRC,  serving in
various  capacities,  including  Manager of the Center for  Imaging  Technology,
Chief  Architect for Systems  Integration  Division,  Corporate  Director of the
Imaging Core Competency Program,  and Vice President and Chief Scientist for the
Information Systems Division.

         Brian H. Hajost joined the Company in March 1996, was appointed  Senior
Vice  President of Integrated  Products in April 1996 and was  appointed  Senior
Vice President of Marketing in May 1997.  Form 1985 to 1995, Mr. Hajost was with
Servantis Systems, Inc. (formerly Stockholder Systems,  Inc.) where he served in
various  capacities   including  Securities  Products  Group  Regional  Manager,
Securities  Products Group Regional Director Banking Sales,  Securities  Product
Group Vice President Sales Manager,  Imaging  Technologies  Group Vice President
Sales and  Marketing,  and Imaging  Technologies  Group  Senior  Vice  President
Business Unit Manager.

         Mark T. Wasilko  joined the Company in September  1995,  became  Senior
Vice  President of Marketing  for the Company in October 1995 and was  appointed
Senior Vice  President of Business  Alliances in May 1997.  From January 1994 to
August 1995, Mr.  Wasilko was Vice  President of Corporate  Marketing for Legent
Corporation  ("Legent"),  an independent  software  vendor.  Prior thereto,  Mr.
Wasilko was Senior Vice President for Corporate Marketing at Computer Associates
International, Inc., an independent software vendor, where he had held a variety
of sales and marketing positions since 1982.

         Robert P.  Bernardi  was a  co-founder  of the  Company  and has been a
Director of the Company (and its predecessor) since its inception.  He served as
Chairman of the Board of Directors  from  September  1995 through June 1997. Mr.
Bernardi  served as President of the Company from inception to February 1995 and
as Chief  Executive  Officer from inception to May 1996.  From 1988 to 1990, Mr.
Bernardi  was  an   independent   consultant   in  the   document   imaging  and
telecommunications  fields.  From March 1984 to December 1987, Mr.  Bernardi was
Chairman and Chief Executive Officer of Spectrum Digital Corporation, a publicly
held  telecommunications  equipment  manufacturing company ("Spectrum Digital"),
with overall management responsibilities including marketing, sales, engineering
and finance.

         John F. Burton was  appointed  to  the  Board of Directors in September
1995.  Mr. Burton became  Managing  Director of the Updata Group.  a mergers and
acquisitions investment bank, in March 1997. From October 1996 to February 1997,
he served as the President of Burton Technology Partners, a strategic consulting
and investment company.  Mr. Burton was President and Chief Executive Officer of
Nat Systems,  Inc., a provider of applications  development software from August
1995 to September  1996.  From January  1995 to August 1995,  Mr.  Burton was an
independent  consultant in the applications  software field.  From March 1992 to
January 1995,  Mr. Burton served as Chief  Executive  Officer,  and from 1989 to
January 1995 as President,  Chief Operating  Officer and a Director,  of Legent.
Mr. Burton is also a Director of Banyan Systems,  Inc., MapInfo  Corporation and
Netrix  Corporation.  Mr. Burton was a founding member of the Northern  Virginia
Technology Council.

         C. Alan Peyser became a Director of the Company in May 1996.  Mr.Peyser
was appointed  President and Chief Executive Officer of Cable & Wireless,  Inc.,
in October 1996.  From  September  1995 to October 1996,  Mr. Peyser served as a
consultant to Cable & Wireless,  Inc. He is also currently  President of Country
Long  Distance  Corporation  and a member  of the Board of  Directors  of Tridex
Corporation  and TCI  International,  Inc. Mr. Peyser  previously  served as the
Chief  Executive  Officer  and  President  of Cable & Wireless,  Inc.  from 1980
through September 1995.

         Robert Ripp has served as a Director  since October  1994.  Mr. Ripp is
Corporate  Vice  President  and  Chief  Financial   Officer  of  AMP,  Inc.,  an
electronics  manufacturer.  Prior  to  joining  AMP in 1994,  Mr.  Ripp was Vice
President and Treasurer of International Business Machines Corporation, where he
served in various  capacities as a finance  executive from 1964 to 1994. He is a
member of the board of directors of ACE, Limited.

Director Compensation

         At the Board's  quarterly  meeting on August 28, 1997,  the Board voted
and approved a motion to eliminate payment for service to the Board and adopted,
subject to shareholder approval,  the Directors Stock Option Plan (the "Director
Stock Option Plan").  Under the Director Stock Option Plan, each director who is
not an  executive  officer of the  Company  will  receive an option to  purchase
30,000  shares of Common Stock vested in 25% each quarter  following the date of
grant,  so that at upon the first  anniversary  of the stock option  grant,  the
option  grant will be fully  vested.  The option  price is equal to 100% of fair
market value on the date of the option grant. Messrs. Ripp, Burton,  Peyser, and
Bernardi were each granted an option for 30,000  shares of the Company's  Common
Stock under that plan  effective  July 1, 1997 with an  exercise  price equal to
100% of fair market value of the Common Stock on June 30, 1997.

         Prior  to  that  meeting,  each  director  of the  Company  who was not
currently employed by the Company,  received a fee of $1,000 for each meeting of
the Board or committee thereof that he attended in person and $250 for each such
meeting in which he  participated  by  telephone.  Prior to the  creation of the
Director Stock Option Plan,  Mr. Ripp has been granted  options on 21,675 shares
of Common Stock at $3.75 per share,  25,000  shares of Common Stock at $6.82 per
share, and 25,000 shares of Common Stock at $3.82 per share, each with a term of
10 years and each of which is  exercisable  on a cumulative  basis in four equal
installments on each of the first four  anniversaries  of the applicable date of
grant.  Mr. Burton has been granted an option on 100,000  shares of Common Stock
with an  exercise  price of $3.38 per share and a term of 10 years.  The  option
vests on May 2, 2002 or, earlier,  upon the Company's  entering into a strategic
partnership  agreement  with  a  major  software  company  as a  result  of  the
assistance of Mr. Burton. Mr. Peyser has been granted an option on 50,000 shares
of  Common  Stock  at  $3.69  per  share  with a term of 10  years  and  that is
exercisable  on a  cumulative  basis in four equal  installments  on each of the
first  four  anniversaries  of its date of  grant.  The  exercise  prices of the
options  granted to  directors  were set at the fair market  value of the Common
Stock at the time of grant.

Compensation Committee Interlocks and Insider Participation

         During the year ended  December 31, 1996,  the  Company's  Compensation
Committee was composed of directors  Robert P.  Bernardi,  the  Company's  Chief
Executive  Officer  until June 3, 1996 and  currently an employee of the Company
and Robert Ripp, an outside director.  As of September 2, 1997, the Compensation
Committee is composed of outside  directors  Robert P.  Bernardi and Robert Ripp
and James J. Leto, the Company's President and Chief Executive Officer.

         The Company has  entered  into  consulting  agreements  with BCG,  Inc.
("BCG") (of which Mr. Bernardi is the sole stockholder) that provides for BCG to
make the  services of Mr.  Bernardi  available to the  Company.  The  consulting
agreement is for an initial term ending January 31, 1999 and continues from year
to year thereafter unless terminated by either the Company or Mr. Bernardi.  The
agreement with BCG currently  provides for an annual consulting fee of $225,000,
subject to increase upon review by the Board of Directors.  The Company has also
agreed to employ Mr.  Bernardi as  Secretary at an annual  salary of $5,000.  In
determining the increases in consulting fees, the Board of Directors  intends to
consider  such factors as the levels of  compensation  of senior  executives  of
comparable   companies,   the  overall   performance  of  the  Company  and  the
contributions   of  Mr.   Bernardi  to  that   performance.   Apart  from  these
considerations,  no criteria have been  established that would limit the size of
increases in consulting fees. The agreement provides demand  registration rights
to Mr.  Bernardi with respect to securities of the Company owned by them or that
they may acquire upon exercise of options. Each registration right terminates on
the first anniversary  following  termination of the consulting  agreement.  The
consulting  agreement provides that Mr. Bernardi will devote his reasonable best
efforts to the business of the Company and the  furthering  of its interests and
that he is expected to devote up to 100 hours per month to the Company's affairs
as requested by the Company.  The Company expects that Mr. Bernardi will perform
duties  assigned to him by the Board of Directors.  The agreement  prohibits Mr.
Bernardi  during the term of the agreement  from certain  associations  with any
business that competes with the Company.

The agreement also provide that, if the consultant's  services are terminated by
the Company  for any reason  other than cause,  death or  disability,  or if the
consultant terminates the agreement for "good reason," the Company will pay in a
lump sum 97% of the full  amount of the fees and  benefits  that the  consultant
would have  received,  at the average rate in effect during the six month period
immediately  prior to  termination,  and of any  bonuses  that  would  have been
received,  at the rate of the bonus for the last full year prior to termination,
if the  consultant's  services  had  continued  for  the  remaining  term of the
agreement.  The term "good reason" means a failure by the Company to comply with
any material  provision of the agreement,  a change of control of the Company to
which the  consultant  has not  given  prior  written  consent  or a good  faith
determination  by the  consultant  that as a result of a change in control he is
unable to  discharge  effectively  his duties under the  agreement.  A change in
control is deemed to occur if  substantially  all the assets of the  Company are
sold, if the Company is merged or consolidated  with, or becomes a subsidiary of
another corporation, if any person or group acquires 20% or more of the combined
voting power of the  Company's  outstanding  securities  and is then the largest
holder of such  securities  or if during  any  period of two  consecutive  years
individuals  who at the  beginning  of  such  period  constitute  the  Board  of
Directors of the Company  cease for any reason to constitute at least a majority
thereof,  unless the  election  of each  director  who was not a director at the
beginning of such period has been approved in advance by directors  representing
at least two thirds of the  directors  then in office who were  directors at the
beginning of the period.

Summary Compensation Table

         The Summary  Compensation Table below lists the Chief Executive Officer
and the four other most  highly  compensated  executive  officers of the Company
(the  "Named  Executives")  as of the end of 1996  and  their  compensation  for
services in 1996, 1995 and 1994.
Long-Term
                                                                                          Compensation
                                                 Annual Compensation                          Awards
                                ----------------------------------------------------      --------------  
                                                                                            Securities        
                                                                        Other Annual        Underlying        All Other
 Name and Principal Position    Year      Salary($)       Bonus($)    Compensation($)(1)     Options(#)    Compensation ($)
 ---------------------------    ----      ---------      ---------    -----------------   --------------    ----------------
Robert P. Bernardi(2)........   1996    $   79,306      $   50,000                                   0      $  107,333(3)
  Chairman of the Board         1995       182,306          50,000                         1,148,325(4)
  and Chief Executive Officer   1994       175,000          64,000                           625,000(5)

James J. Leto................   1996      118,974(6)        34,066                             500,000
  President and Chief           1995
  Executive Officer (7)         1994

Russell D. Hale(8)...........   1996      165,000           11,050                                   0
  Senior Vice President,        1995      165,000           43,329                             250,000
  Federal Sales                 1994        28,135(9)                                                0

Mark T. Wasilko..............   1996      150,000           13,125                              50,000
  Senior Vice President,        1995        48,942(10)                                         125,000
  Marketing                     1994

Brian H. Hajost..............   1996      102,000(11)       26,978                             100,000         42,697(11)
  Senior Vice President,        1995
  Integrated Products           1994
--------------------
(1)      Perquisites  and other  personal  benefits,  securities and property is
         less than the lesser of $50,000 and 10% of the total annual  salary and
         bonus for each Named Executive in each year shown.

(2)      Mr.  Bernardi  resigned  as  the   Company's  Chief  Executive  Officer
         effective May 29, 1996 and as the Company's Chairman  of  the Board  on
         June 3, 1997.

(3)      Mr.  Bernardi  became a consultant to the Company upon his  resignation
         as the Company's  Chief  Executive Officer.  $102,083  constitutes  the
         consulting fees paid to Mr. Bernardi in 1996 and $5,250 constitutes the
         automobile allowance for Mr. Bernardi.

(4)      The figures shown treat as newly issued in 1995 the replacement options
         that  were  exchanged  for  the  options  surrendered  by Mr.  Bernardi
         pursuant to the Company's 1995 Option Repricing  Program.  Mr. Bernardi
         received   replacement  options  on  938,325  shares  in  exchange  for
         surrendering  options  on the  1,125,000  shares  shown as having  been
         granted in 1993 and 1994. The Company's 1995 Option  Repricing  Program
         allowed  holders of  out-of-the-money  options to surrender them to the
         Company   and  receive  in  exchange   therefor   replacement   options
         exercisable  for fewer shares as  determined  by a formula  intended to
         achieve  approximate   economic  equivalence  between  the  surrendered
         options and the  replacement  options  and having an exercise  price of
         $3.75, the same vesting schedule as the surrendered  options and a term
         of ten years  commencing on the original grant date of the  surrendered
         option.

(5)      Terminated pursuant to the Company's 1995 Option Repricing Program.

(6)      Mr. Leto joined the Company as its Chief Executive Officer in May 1996.

(7)      Mr. Leto became Chairman of the Board of the Company on June 3, 1997.

(8)      Mr. Hale resigned as an officer of the Company effective April 1, 1997.

(9)      Mr. Hale joined the Company as an officer in October 1994.

(10)     Mr. Wasilko joined the Company as an officer in September 1995.

(11)     Mr. Hajost joined the Company as an officer in March 1996.

(12)     The amount shown constitutes  temporary  housing  benefits  and  moving
         expenses paid for Mr. Hajost in 1996.

Option Grants in Last Fiscal Year

         No stock options were granted to Messrs.  Bernardi or Hale during 1996.
The  following  table sets forth  certain  information  concerning  the grant of
options to the other Named  Executives in 1996.  The Company has not granted any
stock appreciation rights ("SARs").
Individual Grants
                       ---------------------------------------------                         Potential Realizable
                                        Percent of                                             Value at Assumed
                       Number of           Total                                             Annual Rates of Stock
                       Securities         Options                                             Price Appreciation
                       Underlying       Granted to          Exercise                            for Option Term                   
                       Options         Employees in         or Base       Expiration       ------------------------
Name                   Granted(#)      Fiscal Year        Price($/Sh)         Date           5%                10%
----                   ----------     --------------      -----------      ---------    -----------       ------------
James J. Leto........   500,000(1)            34%            $4.22          5/28/06     $ 1,327,000        $ 3,363,000
Mark T. Wasilko.....     50,000(1)             3%            $3.82          4/10/06     $   120,120        $   305,000
Brian H. Hajost......    50,000(1)             3%            $3.82          4/15/06     $   120,120        $   305,000
                         50,000(1)             3%            $3.13          9/22/06     $    98,500        $   249,500

--------------------
(1)      Each of the  indicated  options was granted  pursuant to the  Company's
         Employee Incentive Stock Option Plan and vests four years from the date
         of grant, or, for the options held by Mr. Leto, upon the acquisition of
         the Company.

Aggregated Option Exercises in Last Year and Year End Option Values

         The  following  table  summarizes  the value  realized upon exercise of
outstanding  stock options and the value of the outstanding  options held by the
Chief Executive Officer and the other Named Executives.
Number of Securities
                                                           Underlying Unexercised             Value of Unexercised
                                                              Options at Fiscal               In-the-Money Options
                                                                 Year-End(#)                at Fiscal-Year-end($)(1)
                          Shares                       ------------------------------    ---------------------------- 
                       Acquired on        Value
        Name           Exercise(#)     Realized($)     Exercisable      Unexercisable    Exercisable    Unexercisable
        ----           -----------     -----------     -----------      -------------    -----------    -------------
Robert P. Bernardi..        0               0             680,582           667,743        $230,000              $0
James J. Leto.......        0               0                   0                 0         500,000               0
Russell M. Hale.....        0               0             125,000           125,000               0               0
Mark T. Wasilko.....        0               0              43,750           131,250               0               0
Brian H. Hajost.....        0               0                   0           100,000               0               0

--------------------
(1)      Computed by multiplying the number of options by the difference between
         (i) the per share market value of the Common Stock on December 31, 1996
         and (ii) the exercise price per share.

OWNERSHIP OF NETWORK IMAGING CORPORATION STOCK

         The following table sets forth certain information,  as of September 2,
1997, with respect to the beneficial  ownership of shares of Common Stock by (i)
each  stockholder  known by the Company to be the beneficial  owner of more than
five percent (5%) of the outstanding  shares of Common Stock; (ii) each director
of the Company; (iii) each Named Executive;  and (iv) all executive officers and
directors as a group. Except as indicated in the footnotes to the table, persons
named in the table have sole  voting and  investment  power with  respect to all
shares of Common Stock that they respectively own beneficially.

         The address of each person who is an  executive  officer or director of
the Company is 500 Huntmar Park Drive, Herndon, Virginia 20170.
Number of Shares          Percent of
                 Name and Address of Beneficial Owner                      Beneficially Owned (1)          Class
                 ------------------------------------                      ----------------------          -----
Fred E. Kassner(2).................................................                2,085,597                8.3
Robert P. Bernardi(3)..............................................                1,745,825                7.0
James J. Leto(4)...................................................                  126,267                0.5
Robert M. Sterling, Jr.(5).........................................                1,926,825                7.7
Mark T. Wasilko(6).................................................                   43,750                0.2
John F. Burton.....................................................                        0                 *
C. Alan Peyser(7)..................................................                   21,500                 *
Robert Ripp(8).....................................................                   22,088                 *
Russell D. Hale(9).................................................                  125,000                0.5
Brian H. Hajost(10)................................................                   14,504                 *
Directors and executive officers as a group (9) persons                            2,147,775                8.5
--------------------
Less than 1% of the outstanding Common Stock.

 (1)   Under  applicable  rules of the Securities and Exchange  Commission  (the
       "SEC"),  a person is deemed to be the beneficial owner of share of Common
       Stock if, among other  things,  he or she directly or  indirectly  has or
       shares  voting power or investment  power with respect to such shares.  A
       person is also considered to beneficially own shares of Common Stock that
       he or she does not actually own but has the right to acquire presently or
       within  the next  sixty  (60)  days,  by  exercise  of stock  options  or
       otherwise.

(2)    The address of Mr. Kassner is 69 Spring Street, Ramsey, New Jersey 07446.
       Of the total shares shown,  Mr. Kassner has shared voting and dispositive
       power  with  respect  to  1,207,857   shares,   including  80,000  shares
       underlying a warrant,  held by Liberty Travel,  Inc. of which Mr. Kassner
       is an officer, director, and stockholder. Of the shares reported as being
       held directly by Mr. Kassner, 154,000 are issuable upon the exercise of a
       warrant.

(3)    Includes 1,348,325 shares issuable upon exercise of options.

(4)    Includes 110,000 shares issuable upon exercise of options.

(5)    Includes 1,348,325  shares  issuable upon  exercise of options and 96,000
       shares  issuable  upon  exercise  of  Redeemable  Common  Stock  Purchase
       Warrants.

(6)    All shares are issuable upon exercise of options.

(7)    Includes 12,500 shares issuable upon exercise of options.

(8)    Includes 17,088 shares issuable upon exercise of options.

(9)    All shares are issuable upon exercise of options.

(10)   Includes 12,500 shares issuable upon exercise of options.

                              CERTAIN TRANSACTIONS

         The Company has  entered  into  consulting  agreements  with BCG,  Inc.
("BCG")  (of which  Mr.  Bernardi  is the sole  stockholder)  and with  Sterling
Capital  Group,  Inc.  ("Sterling  Capital") (of which Mr.  Sterling is the sole
stockholder)  that provide for BCG and Sterling  Capital to make the services of
Messrs.  Bernardi and Sterling available to the Company.  Each of the consulting
agreements  is for an initial term ending  January 31, 1999 and  continues  from
year to year  thereafter  unless  terminated  by either the Company or either of
Messrs.  Bernardi or  Sterling.  Each of the  agreements  with BCG and  Sterling
Capital currently provides for an annual consulting fee of $225,000,  subject to
increase upon review by the Board of  Directors.  The Company has also agreed to
employ Mr. Bernardi as Secretary and Mr. Sterling as Assistant  Secretary of the
Company  at an  annual  salary  of  $5,000.  In  determining  the  increases  in
consulting fees, the Board of Directors  intends to consider such factors as the
levels of compensation of senior executives of comparable companies, the overall
performance of the Company and the respective  contributions of Messrs. Bernardi
and Sterling to that performance.  Apart from these considerations,  no criteria
have been established that would limit the size of increases in consulting fees.
The  agreements  provide  demand  registration  rights to Messrs.  Bernardi  and
Sterling  with respect to  securities  of the Company owned by them or that they
may acquire upon exercise of options.  Each registration right terminates on the
first  anniversary  following  termination  of  the  consulting  agreement.  The
consulting  agreements  provide that Messrs.  Bernardi and Sterling  will devote
their  reasonable best efforts to the business of the Company and the furthering
of its interests and that each of them is expected to devote up to 100 hours per
month to the Company's affairs as requested by the Company.  The Company expects
that Mr.  Bernardi will perform duties assigned to him by the Board of Directors
and that Mr. Sterling will identify and pursue on behalf of the Company business
development projects, including acquisitions and, as needed, financings, perform
other  duties as  requested  by the Board and be  available  to consult with the
executive  officers on matters  affecting  the Company.  Each of the  respective
agreements  prohibits  Messrs.  Bernardi  and  Sterling  during  the term of the
agreement  from certain  associations  with any business  that competes with the
Company.

         The  agreements  also provide  that, if the  consultant's  services are
terminated by the Company for any reason other than cause,  death or disability,
or if the  consultant  terminates  the agreement for "good  reason," the Company
will pay in a lump sum 97% of the full amount of the fees and benefits  that the
consultant  would have  received,  at the average rate in effect  during the six
month period  immediately  prior to  termination,  and of any bonuses that would
have been  received,  at the rate of the  bonus for the last full year  prior to
termination,  if the consultant's  services had continued for the remaining term
of the  agreement.  The term "good  reason"  means a failure  by the  Company to
comply with any material provision of the agreement,  a change of control of the
Company to which the  consultant  has not given prior written  consent or a good
faith determination by the consultant that as a result of a change in control he
is unable to discharge  effectively his duties under the agreement.  A change in
control is deemed to occur if  substantially  all the assets of the  Company are
sold, if the Company is merged or consolidated  with, or becomes a subsidiary of
another corporation, if any person or group acquires 20% or more of the combined
voting power of the  Company's  outstanding  securities  and is then the largest
holder of such  securities  or if during  any  period of two  consecutive  years
individuals  who at the  beginning  of  such  period  constitute  the  Board  of
Directors of the Company  cease for any reason to constitute at least a majority
thereof,  unless the  election  of each  director  who was not a director at the
beginning of such period has been approved in advance by directors  representing
at least two thirds of the  directors  then in office who were  directors at the
beginning of the period.

                              PLAN OF DISTRIBUTION

         The Shares are being  offered  on behalf of the  Selling  Stockholders,
and,  except  for the  exercise  price of the  Investor  Warrants  and the Agent
Warrants,  the Company will not receive any  proceeds  from this  offering.  The
Shares may be sold or distributed from time to time by the Selling Stockholders,
or by pledgees, donees or tranferees of, or other successors in interest to, the
Selling Stockholders, directly to one or more purchasers (including pledgees) or
through  brokers,  dealers or  underwriters  who may act solely as agents or may
acquire Shares as principals,  at market prices  prevailing at the time of sale,
at prices related to such prevailing market prices, at negotiated  prices, or at
fixed  prices,  which may be  changed.  The  distribution  of the  Shares may be
effected  in one or  more  of  the  following  methods:  (1)  ordinary  brokers'
transactions,  which may include long or short sales; (2) transactions involving
cross or block trades or otherwise on the Nasdaq National Market;  (3) purchases
by brokers,  dealers or  underwriters as principal and resale by such purchasers
for their own accounts  pursuant to this  Prospectus;  (4) "at the market" to or
through  market makers or into an existing  market for the Common Stock;  (5) in
other ways not involving market makers or established trading markets, including
direct  sales to  purchasers  or sales  effected  through  agents;  (6)  through
transactions in options, swaps or other derivatives (whether  exchange-listed or
otherwise),  or (7) any  combination of the  foregoing,  or by any other legally
available  means. In addition,  the Selling  Stockholders or their successors in
interest may enter into hedging  transactions with broker-dealers who may engage
in short sales of shares of Common Stock in the course of hedging the  positions
they assume with the Selling  Stockholders.  The Selling  Stockholders  or their
successors  in interest  may also enter into option or other  transactions  with
broker-dealers  that require the delivery by such  broker-dealers of the Shares,
which Shares may be resold thereafter pursuant to this Prospectus.

         Brokers,   dealers,   underwriters  or  agents   participating  in  the
distribution  of the Shares as agents may  receive  compensation  in the form of
commissions,  discounts  or  concessions  from the Selling  Stockholders  and/or
purchasers of the Shares for whom such  broker-dealers  may act as agent,  or to
whom they may sell as principal,  or both (which compensation as to a particular
broker-dealer  may be less  than or in  excess of  customary  commissions).  The
Selling  Stockholders and any broker-dealers who act in connection with the sale
of Shares hereunder may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended  ("Securities Act"), and any commissions they
receive  and  proceeds  of any sale of Shares  may be deemed to be  underwriting
discounts and commissions  under the Securities Act. Neither the Company nor any
Selling Stockholder can presently estimate the amount of such compensation.  The
Company knows of no existing  arrangements  between any Selling  Stockholder and
any other shareholder, broker, dealer, underwriter or agent relating to the sale
or distribution of the Shares.

         The Company will pay  substantially all of the expenses incident to the
registration,  offering  and  sale  of the  Shares  to  the  public  other  than
commissions  or  discounts  of  underwriters,  broker-dealers  or agents and the
expenses of counsel to the Selling Stockholders.  Such expenses are estimated to
be $50,000.  The Company  has also  agreed to  indemnify  certain of the Selling
Stockholders and certain related persons against certain liabilities,  including
liabilities under the Securities Act.

                              SELLING STOCKHOLDERS

         The following table sets for the names of the Selling Stockholders, the
number of shares Common Stock beneficially owned by each Selling  Stockholder as
of  September  2, 1997 and the  number of Shares  that may be  offered  for sale
pursuant to this offering by each such Selling Stockholder.  None of the Selling
Stockholders has held any position,  office or other material  relationship with
the Company or any of its affiliates within the past three years other than as a
result of his or its  ownership  of shares of Common  Stock.  The  Shares may be
offered from time to time by the Selling Stockholders named below. However, such
Selling  Stockholders  are number under no obligation to sell all or any portion
of such  Shares,  nor are the Selling  Stockholders  obligated  to sell any such
Shares immediately pursuant to this registration statement.  Because the Selling
Stockholders  may sell all or part of their Shares,  no estimate can be given as
to the  number  of  shares of  Common  Stock  that  will be held by any  Selling
Stockholder upon termination of any offering made hereby.

         Pursuant to Rule 416 of the Securities Act,  Selling  Stockholders  may
also offer and sell shares of Common  Stock  issued with respect to the Series K
Stock,  the Investor  Warrants and the Agent  Warrants  (whether owned as of the
date of this  Prospectus  or hereafter  acquired)  as a result of  anti-dilution
provisions (including by reason of changes in the conversion price of the Series
K Stock in accordance with the terms thereof).

                                                       Common Stock Beneficially
                         Shares of Common               Owned After Offering(1)
                        Stock Beneficially             -------------------------
Name of Selling            Owned Prior    Common Stock              Percent of
Stockholder                to Offering   Offered Hereby    Number   Outstanding
-----------------       -------------------------------------------------------

Capital Ventures
International (2)          4,320,000(4)   4,320,000           0             0

Zanett
Lombardier, Ltd.(2)        5,280,000(4)   5,280,000           0             0

The Zanett Securities
Corporation (3)              310,000        310,000           0             0

(1)  Assumes the sale of all Shares.

(2)  Pursuant to the  Securities  Purchase  Agreement  dated as of July 28, 1997
     ("Securities  Purchase  Agreement")  among the  Company,  Capital  Ventures
     International  ("Capital  Ventures") and Zanett  Lombardier,  Ltd. ("Zanett
     Lombardier")  (collectively,  the  "Purchasers"),  the Company issued 3,300
     units  ("Units")  consisting  of (1) one  share of  Series K Stock  and (2)
     warrants  to purchase  75 shares of Common  Stock at an  exercise  price of
     $2.40 per share ("Investor Warrants").  Accordingly,  on July 28, 1997, the
     Company  issued  3,300  shares of Series K Stock and  Investor  Warrants to
     purchase  247,500  shares of Common Stock to the  Purchasers.  The Investor
     Warrants  expire  on July 27,  2002.  Provided  that the  Company  achieves
     certain  milestone  objectives,  the investors  will purchase an additional
     3,000 Units on the same basis as described herein.

(3)  As a result of the  issuance  of 3,300  Units,  the  Company  issued to The
     Zanett  Securities  Corporation  ("Zanett"),  for its services as placement
     agent,  warrants to purchase  162,462 shares of Common Stock at an exercise
     price of $1.625 per share ("Agent Warrants").  The Investor Warrants expire
     on July 27, 2002.  Under the Placement  Agency Agreement dated July 2, 1997
     between  the  Company  and  Zanett,  the  Company  is  obligated  to  issue
     additional  Agent  Warrants to Zanett to purchase  such number of shares of
     Common  Stock as is equal to 8% of the  quotient  obtained by dividing  the
     aggregate  purchase  price of the  shares of  Series K Stock  and  Investor
     Warrants  issued to the Purchasers at such additional  closings  divided by
     the initial  exercise  price of the Agent Warrants  ($1.625 per share).  If
     certain  milestones  are achieved by the Company,  and the investors  enter
     into  the  sale  of  an  additional  3,000  Units,  The  Zannet  Securities
     Corporation   will  receive  an  additional   147,538  warrants  under  the
     conditions described herein.

(4)  Represents  the pro rata  allocation  between  Capital  Ventures and Zanett
     Lombardier  of  10,000,000  shares  of Common  Stock  that the  Company  is
     registering   hereunder  pursuant  to  the  registration  rights  agreement
     attached as Exhibit  10.29  hereto.  The actual  number of shares of Common
     Stock issuable upon  conversion of the Series K Stock will equal the number
     of shares of Common Stock determined by dividing the initial purchase price
     of $1,000 by the  "Conversion  Price," which is the lesser of (a) the Fixed
     Conversion Price (which initially is $2.00) and (b) the lowest closing sale
     price for the Common Stock on any single trading day during the ten trading
     days  immediately  preceding the conversion  multiplied by the  "Conversion
     Percentage." The "Conversion  Percentage" is (a) 105% prior to the 61st day
     following July 28, 1997 (the "First Closing Date"),  (b) 96% for the period
     between the 61st and the 90th day following the First Closing Date, (c) 85%
     for the  period  between  the 91st and the  180th day  following  the First
     Closing Date,  and (d) 81% for the period after the 180th day following the
     First Closing  Date.  In the event the Company's  Common Stock is no longer
     designated for quotation on the Nasdaq  National  Market  ("Nasdaq") and is
     designated  for  quotation on the Nasdaq Small Cap Market,  the  Conversion
     Percentage for each of the periods set forth above is  permanently  reduced
     by  2%.  The   Conversion   Price  is  also   adjusted  in  certain   other
     circumstances.  See  "Description  of Capital  Stock - Series K Convertible
     Preferred Stock.

     Except under certain limited circumstances, no holder of the Series K Stock
     is entitled to convert or exercise  such  securities to the extent that the
     shares to be received by such holder upon such conversion or exercise would
     cause  such  holder to  beneficially  own more  than 4.9% of the  shares of
     Common  Stock.  Therefore,  the number of shares set forth herein and which
     the Purchasers  may sell pursuant to this  Prospectus may exceed the number
     of  shares of  Common  Stock  that  each  such  Purchaser  would  otherwise
     beneficially  own as  determined  pursuant to Section 13(d) of the Exchange
     Act.  Moreover,  the  Certificate of Designation of Series K Stock provides
     that in no event shall the total  number of shares of Common  Stock  issued
     upon  conversion of the Series K Stock exceed the maximum  number of shares
     of Common Stock that the Company may issue  pursuant to Rule 4460(i) of the
     Nasdaq or any successor  rule ("Cap  Amount").  The Cap Amount is allocated
     pro rata  among the  holders  of Series K Stock.  The  Company  is  seeking
     approval  from the holders of Common  Stock to issue shares of Common Stock
     in connection with the Series K Stock in excess of the amounts permitted by
     Nasdaq Rule  4460(i)(1)(D).  See  "Description  of Capital Stock - Series K
     Convertible Preferred Stock.

                          DESCRIPTION OF CAPITAL STOCK

         The following  statements with respect to the Company's  securities are
subject to, and  qualified  in their  entirety  by  reference  to, the  detailed
provisions  of the Company's  Certificate  of  Incorporation  and Bylaws and the
resolutions  adopted  by  the  Board  of  Directors  of  the  Company  ("Board")
establishing the rights,  preferences,  privileges and restrictions  relating to
Series A Stock, the Series F Stock, the Series H Stock and the Series K Stock as
filed under Delaware law (the "Certificates of Designations").

Authorized Stock

         The Company is authorized  to issue up to  50,000,000  shares of Common
Stock,  $.0001  par  value,  of which  25,177,743  shares  were  outstanding  at
September 2, 1997, and 20,000,000  shares of preferred  stock,  $.0001 par value
(the "Preferred  Stock"),  of which 1,605,025 shares of Series A Stock,  792,186
shares of Series F Stock,  10  shares  of  Series H Stock,  and 3,300  shares of
Series K Stock were outstanding on that date.

Common Stock

         All holders of Common  Stock are  entitled to one vote per share on any
matter coming before the stockholders for a vote,  unless the matter is one upon
which by express provision of law a different vote is required. The Common Stock
does not have cumulative voting rights,  which means, in effect, that holders of
more than 50% of the shares can generally elect all the directors.

         Each  holder  of Common  Stock is  entitled  to  receive  ratably  such
dividends  on the  Common  Stock as may be  declared  by the  Board out of funds
legally available therefor and, in the event of the liquidation,  dissolution or
winding up of the  Company,  is entitled  to share  ratably in all assets of the
Company  remaining  after payment of  liabilities  and payment of amounts due to
holders of capital stock senior to the Common  Stock.  The Board may not declare
dividends  payable to holders of Common  Stock unless and until all accrued cash
dividends  through the most recent past dividend  payment date have been paid in
full to holders of the Series A, F and H Stocks. Holders of Common Stock have no
conversion,  preemptive or other rights to subscribe for additional  shares, and
there are no redemption  rights or sinking fund  provisions  with respect to the
Common Stock. The outstanding  shares of Common Stock are validly issued,  fully
paid and nonassessable.

         The Company has never paid any  dividends  on the Common Stock and does
not anticipate paying any such dividends in the foreseeable future.

Preferred Stock

         The Certificate of Incorporation  authorizes the Board to establish and
designate the classes,  series,  voting powers,  designations,  preferences  and
relative,  participating,  optional or other  rights,  and such  qualifications,
limitations  and  restrictions  of the Preferred Stock as the Board, in its sole
discretion, may determine without further vote or action by the stockholders.

         The rights, preferences, privileges, and restrictions or qualifications
of  different  series of  Preferred  Stock may differ  with  respect to dividend
rates,  amounts  payable  on  liquidation,  voting  rights,  conversion  rights,
redemption  provisions,  sinking fund provisions and other matters. The issuance
of Preferred  Stock could  decrease the amount of earnings and assets  available
for distribution to holders of Common Stock or could adversely affect the rights
and powers, including voting rights, of holders of Common Stock.

         The existence of the Preferred Stock, and the power of the Board to set
its terms and issue a series of Preferred Stock at any time without  stockholder
approval,  could have certain anti-takeover  effects. These effects include that
of making the Company a less attractive  target for a "hostile"  takeover bid or
rendering  more  difficult  or  discouraging  the  making of a merger  proposal,
assumption of control  through the  acquisition of a large block of Common Stock
or removal of incumbent management,  even if such actions could be beneficial to
the stockholders of the Company.

Series A Cumulative Convertible Preferred Stock

         The  issuance  of up to  1,750,000  shares  of  Series A Stock has been
authorized  and  1,605,025  shares  are  outstanding.  The  Series A Stock has a
liquidation  preference  of  $25.00  per  share  plus  all  accrued  and  unpaid
dividends.

         The Series A Stock is  convertible  into Common stock at any time prior
to  redemption  or  exchange.  As of  September  2, 1997,  the Series A Stock is
convertible  at the rate of  1.9826  shares of  Common  Stock for each  share of
Series  A Stock  (an  effective  conversion  price of  $12.61  per  share).  The
conversion  rate and conversion  price are adjustable in certain  circumstances,
which are described in the Series A Certificate. Some of those circumstances are
described below.

         The Series A Stock, upon 30 days written notice after December 7, 1996,
is redeemable by the Company at $25.00 per share,  plus  accumulated  and unpaid
dividends,  and  exchangeable  by the Company for Common  Stock having a current
market  price of $25.00 per share,  provided in each case that the closing  sale
price of the Common  Stock for at least 20  consecutive  trading days ending not
more than 10 trading days prior to the date notice of the call for redemption or
notice of exchange is given is at least $18.00 per share,  or after  December 7,
1997, at the cash redemption prices (ranging from $26.75 to $25.00) set forth in
the Certificate of  Designations,  plus  accumulated and unpaid  dividends.  The
Company may not redeem by exchange unless all  accumulated and unpaid  dividends
have been paid or funds for payment have been set aside.

         If the  Company  sells  or  issues  Common  Stock or  rights,  options,
warrants or convertible  securities ("Rights") containing the right to subscribe
for or purchase  Common Stock and the sale or issue price of the Common Stock is
less than the lower of the  current  conversion  price or current  market  price
("Current  Price"),  the  conversion  price is adjusted  such that the number of
shares of Common Stock receivable upon conversion of the Series A Stock shall be
the number  determined by  multiplying  (1) the number of shares of Common Stock
receivable  upon  conversion  of the  Series A Stock  immediately  prior to such
issuance and (2) a fraction (not to be less than one) with a numerator  equal to
the product of the number of shares of Common  Stock  outstanding  after  giving
effect to such issuance  (assuming that such Rights had been fully  exercised or
converted)  and the Current Price and a denominator  equal to the sum of (a) the
product of the number of shares of Common Stock outstanding  immediately  before
such issuance and the Current Price and (b) the aggregate consideration received
or deemed  received by the Company for the shares of Common  Stock to be sold or
purchased upon exercise of the Rights.

         Cumulative  dividends  on the  Series A Stock at the rate of $2.00  per
share per annum are payable quarterly,  out of funds legally available therefor,
on January 31, April 30, July 31 and October 31 of each year, commencing January
31, 1994.  Failure to pay any  quarterly  dividend will result in a reduction of
$.50 per share in the conversion price. If the Company fails to pay dividends on
the  Series A Stock for four  quarterly  dividend  payment  periods,  holders of
Series A Stock  voting  separately  as a class  will be  entitled  to elect  one
director; such voting rights will be terminated as of the next annual meeting of
stockholders  following  payment of all  accrued  dividends.  In  addition,  the
Company  may not pay  dividends  on, or  redeem,  junior  securities  unless all
accrued and unpaid  dividends on the Series A Stock have been paid.  The Company
failed to pay the quarterly dividend on July 31, 1997.

         The affirmative vote of a majority of the outstanding  shares of Series
A Stock voting as a single  class is necessary to authorize  any class of senior
or parity  securities  unless,  at that time the Company has the right to redeem
the  Series A Stock  and such  redemption  occurs  before  the  senior or parity
securities are issued.

         The  Series A Stock is  senior to the  Series  F, H and K  Stocks.  The
Company is not subject to any  mandatory  redemption  or sinking fund  provision
with  respect  to  Series A Stock.  The  holders  of the  Series A Stock are not
entitled to  preemptive  rights to  subscribe  for or to purchase  any shares or
securities  of any class  which may at any time be issued,  sold or offered  for
sale by the Company.  Shares of Series A Stock redeemed or otherwise  reacquired
by the  Company  shall be retired by the Company  and shall be  unavailable  for
subsequent issuance as Series A Stock.

Acquisition Preferred Stock

         In connection  with the  acquisition  of Dorotech,  the Company  issued
2,092,186 shares of Series B Convertible Preferred Stock ("Series B Stock") to a
corporate  stockholder of Dorotech.  The Series B Stock was entitled to the same
cash dividends as were paid on the Common Stock,  if any, was  convertible  into
Common Stock commencing six months after it was issued on a share basis (subject
to anti-dilution  adjustments),  had a liquidation value of $9.00 per share, and
had no voting  rights,  except  those  required by law.  Four series of Series B
Stock were authorized,  and all had  substantially  the same terms.  Each of the
first three series provided that if it had not been  transferred by the original
holder to an unaffiliated third party prior to the time it became convertible at
the end of a  six-month  period  following  its  issuance,  it would  have  been
automatically exchanged for the next series, unless the holder elected otherwise
by prior  written  notice  to the  Company.  The  fourth  series  provided  that
immediately prior to the time it became convertible, it would have been redeemed
by the Company for $9.00 per share, unless the holder had transferred the shares
to an unaffiliated  third party or elected not to redeem by prior written notice
to the  Company.  Any  shares of any of the  Series B Stock  transferred  by the
original  holder to an  unaffiliated  third  party  would  thereafter  have been
redeemable by the Company for Common Stock at the  conversion  rate in effect at
the time of redemption. The Series B Stock was junior to the Series A Stock.

         The original holder converted 300,000 shares of the Series B Stock into
Common Stock in April 1994. In July 1994, the Company  entered into an agreement
with  the  holder  and an  affiliate  of the  holder,  which  was a  prospective
transferee of the Series B Stock and the Common  Stock,  in which the holder and
the affiliate agreed, among other things, to extend the cash redemption date for
the  Preferred  Stock from  October  1, 1995 to  October  1,  1996.  In order to
accomplish  the  extension,  the Company  agreed to offer to exchange a Series C
Stock  for the  Series B Stock  and the  holder  of the  Series B Stock  and its
affiliate  agreed to accept the exchange.  The  provisions of the Series C Stock
and the Series B Stock  (collectively,  the "Acquisition  Preferred Stock") were
the same in all material respects except for the cash redemption date.

         In March 1996, the Company and the holder of the Acquisition  Preferred
Stock exchanged the Acquisition Preferred Stock for 1,792,186 shares of Series F
Stock and in  connection  therewith  all  authorized  shares of the  Acquisition
Preferred Stock were returned to the status of authorized preferred stock of the
Company of no  designated  class or series.  The Series F Stock is junior to the
Series A Stock and senior to the Series H and K Stocks.  In connection  with the
exchange of the Acquisition  Preferred Stock for the Series F Stock, the Company
paid the holder a fee of $650,000 plus expenses and agreed to obtain the consent
of the holder prior to issuing any unsecured  long-term  debt.  The Company also
agreed to extend the holder's  registration  rights to June 30, 1999, assist the
holder with a private  placement  of the Series F Stock or the Common Stock into
which it is  convertible,  and extend observer rights to the holder with respect
to regular meetings of the Board.

         The Series F Stock has no voting  rights,  except that the  affirmative
vote of a  majority  of the  outstanding  shares of  Series F Stock  voting as a
single  class is  necessary  with  respect to the  amendment  of its terms,  the
issuance of senior and parity  securities,  the  redemption of parity and junior
securities and other matters required by law.

         The Series F Stock is convertible into Common Stock six months after it
is issued on a share for share basis (subject to antidilution adjustments). Four
series of Series F Stock have been authorized,  and all have  substantially  the
same terms.  Each of the first three series provides that, at the end of the six
month period following its issuance, it will be automatically  exchanged for the
next series,  unless the holder elects  otherwise by prior written notice to the
Company.  The fourth series  provides that it will be redeemed by the Company on
January  2,  1998 for $9 per  share  plus  accrued  and  unpaid  dividends  (the
"Redemption  Price"),  unless the holder  elects not to redeem by prior  written
notice to the Company.

Beginning  October 1, 1996, the Series F Stock is entitled to receive  dividends
in an amount  equal to the  greater of 10% per annum or the  annual  rate of any
dividend  paid on the  Company's  Common  Stock.  Dividends  accrue daily and be
payable on the last day of June,  September,  December and March  commencing  on
December 31, 1996.  Because the sole holder of all of the outstanding  shares of
Series F Stock has agreed to sell all of such  shares to the  Company  for a set
price,  the Company no longer  accrues  dividends on the  outstanding  shares of
Series F Stock.
See "Risk Factors -- European Operations."

         In the event of a change in control of the Company,  the Series F Stock
becomes  convertible  at the rate  described  above  and the then  holder of the
Series F Stock may elect to redeem at the Redemption Price;  provided,  however,
that, if the acquiror has a class of securities  registered  pursuant to Section
12 of the  Securities  Exchange Act of 1934, as amended  ("1934  Act"),  and has
outstanding  voting stock held by non-affiliates  with an aggregate market value
of at least $100 million and if the Company agrees to pay the holder in cash the
excess, if any, of the Redemption Price over the transaction consideration,  the
holder will not be entitled to redemption  and will be deemed to have elected to
convert  the  Series  F  Stock.  A  change  in  control  is  deemed  to occur if
substantially  all the assets of the Company are sold,  if the Company is merged
or consolidated with another corporation,  if any person acquires 50% or more of
the  Company's  outstanding  voting  securities  or if during  any period of two
consecutive years individuals who at the beginning of such period constitute the
Board cease for any reason to constitute at least a majority thereof, unless the
election of each director who was not a director at the beginning of such period
has been  approved in advance by directors  representing  at least a majority of
the  directors  who were  directors  at the  beginning  of the  period  or whose
election was  previously so approved.  For purposes of  conversion,  a change in
control is deemed to occur when the Company  enters into an  agreement to merge,
consolidate  or sell  substantially  all its  assets  or when a tender  offer is
commenced for 50% or more of the outstanding voting securities of the Company.

         The then  holders of the Series F Stock may also  redeem some or all of
the Series F Stock if the Company is in arrears  with  respect to two  quarterly
dividend  payments  or  defaults in its  agreements  relating to Board  observer
status,  the issuance of long-term debt or the extension of voting rights to the
holders of Series F Stock.

         On  December  31,  1996,  the  Company  and the holder  entered  into a
purchase  agreement  whereby  the  Company  agreed  to  repurchase  all  of  the
outstanding shares of Series F Stock. See "Risk  Factors--European  Operations."
That agreement provided for certain payment terms, and in the event that payment
is not made in accordance with those terms,  and the default is not cured within
five  business  days,  the holder has the right to realize on its first  ranking
pledge on all of the  outstanding  stock of  Dorotech.  If the  Company  has not
effected a sale of Dorotech by January 31,  1998,  and the Company is in default
to the holder, the holder is at liberty to sell all of the Dorotech shares owned
by the Company  and  withhold  all amounts due and payable to the holder  before
paying back excess money, if any, to the Company.

Series H Convertible Preferred Stock

         The  issuance  of up to 300  shares of  Series H Stock was  authorized.
Currently, 10 shares of Series H Stock are outstanding. The Series H Stock has a
per share liquidation preference,  subject to the liquidation preferences of the
Series A Stock and the Series F 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 Stock  has a  dividend  rate of 8% per  annum,  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 Company is not subject to any mandatory
redemption or sinking fund provision with respect to the Series H Stock.

         The Series H Stock has no voting rights, except the affirmative vote of
a  majority  of the  outstanding  shares of Series H Stock  voting as a separate
class  is  necessary  with  respect  to  the  amendments  of  the  Corporation's
Certificate of Incorporation  that adversely affects the powers,  preferences or
special rights of the Series H Stock.

          Shares of  Series H Stock  redeemed  or  otherwise  reacquired  by the
Company shall be retired by the Company and shall be unavailable  for subsequent
issuance as Series H Stock.

Series K Convertible Preferred Stock

         On July 28, 1997, the Company issued 3,300 units  ("Units")  consisting
of (1) one share of Series K Stock and (2)  warrants  to  purchase  75 shares of
Common  Stock at an  exercise  price of $2.40 per share  ("Investor  Warrants").
Accordingly, on July 28, 1997, the Company issued 3,300 shares of Series K Stock
and Investor Warrants to purchase 247,500 shares of Common Stock. As a result of
the  issuance  of 3,300  Units,  the  Company  issued to The  Zanett  Securities
Corporation  ("Zanett"),  for its  services  as  placement  agent,  warrants  to
purchase 162,462 shares of Common Stock at an exercise price of $1.625 per share
("Agent Warrants").  The Investor Warrants and the Agent Warrants expire on July
27, 2002. The terms of the Series K Stock,  the Investor  Warrants and the Agent
Warrants were determined by the Board.

         Pursuant to the terms of the Securities  Purchase Agreement dated as of
July 28,  1997  ("Securities  Purchase  Agreement")  among the  Company  and the
purchasers of the Units ("Purchasers"),  the Purchasers are required to purchase
3,000 additional Units if the Company  achieves certain  performance  milestones
and satisfies  certain other  conditions and the  Purchasers  have the option to
purchase an  additional  4,700 Units by February 15,  1998,  at two and possibly
three  additional  closings.  Under the Placement Agency Agreement dated July 2,
1997  between  the  Company  and  Zanett,  the  Company  is  obligated  to issue
additional  Agent Warrants to Zanett to purchase such number of shares of Common
Stock as is equal to 8% of the  quotient  obtained  by  dividing  the  aggregate
purchase price of the shares of Series K Stock and Investor  Warrants  issued to
the Purchasers at such additional closings divided by the initial exercise price
of the Agent Warrants ($1.625 per share).

         The net proceeds of the 3,300 Units ($2.9  million) have been,  and the
net  proceeds  of any  additional  issuance  of Units will be,  used for working
capital and general corporate purposes.

         Under the Registration Rights Agreement dated as of July 28, 1997 among
the Company, the Purchasers and Zanett  ("Registration  Rights Agreement"),  the
Company has granted each Purchaser and Zanett registration  rights,  whereby the
Company is obligated to file a  registration  statement  with the SEC as soon as
practicable  after  each  closing,  but in no  event  later  than  the  60th day
following  each such closing,  registering at least 135% of the shares of Common
Stock  issuable on conversion of, and as dividends on, the Series K Stock and on
exercise of the Investor  Warrants  and the Agent  Warrants.  This  registration
statement has been filed with, but has not been declared  effective by, the SEC.
Until such time as such  registration  statements are declared  effective by the
SEC, the holders of the Series K Stock  ("Holders") and the holders the Investor
Warrants and the Agent  Warrants may not transfer such  securities or the Common
Stock issuable in connection therewith unless they comply with an exemption from
such registration requirements.

         Conversion  Rights.  Each share of Series K Stock is convertible at the
option of the Holder  into the number of shares of Common  Stock  determined  by
dividing the initial  purchase price of $1,000 by the "Conversion  Price," which
is the lesser of (a) the Fixed  Conversion  Price (which initially is $2.00) and
(b) the lowest closing sale price for the Common Stock on any single trading day
during the ten trading days immediately  preceding the conversion  multiplied by
the "Conversion  Percentage."  The "Conversion  Percentage" is (a) 105% prior to
the 61st day following July 28, 1997 (the "First Closing Date"), (b) 96% for the
period  between the 61st and the 90th day following the First Closing Date,  (c)
85% for the  period  between  the 91st and the  180th  day  following  the First
Closing Date, and (d) 81% for the period after the 180th day following the First
Closing Date. In the event the  Company's  Common Stock is no longer  designated
for quotation on the Nasdaq  National  Market  ("Nasdaq")  and is designated for
quotation on the Nasdaq Small Cap Market, the Conversion  Percentage for each of
the periods set forth above is permanently reduced by 2%.

         If  (1) a  registration  statement  described  above  is  not  declared
effective by the SEC by the 150th day  following  the date it was required to be
filed under the Registration  Rights Agreement  ("Registration  Deadline"),  (2)
after the registration  statement is declared effective by the SEC, sales of the
shares of Common Stock  registered  thereunder  cannot be made or (3) the Common
Stock is not listed or included for  quotation  on Nasdaq,  the Nasdaq Small Cap
Market,  the New York Stock  Exchange  ("NYSE") or the American  Stock  Exchange
("AMEX"),  then each of the Conversion  Percentages are permanently reduced. The
Conversion Percentages are permanently reduced by an amount equal to the product
of (i) 2% and (ii) the sum of (a) the  number of months  (prorated  for  partial
months) after the  Registration  Deadline and prior to the date the registration
statement  is  declared  effective  by the  SEC and (b)  the  number  of  months
(prorated for partial months) that sales cannot be made pursuant to an effective
registration  statement  or the  Common  Stock is not  listed  or  included  for
quotation on Nasdaq,  the Nasdaq Small Cap Market,  the NYSE or the AMEX.  There
are certain  exceptions to this provision set forth in the  Registration  Rights
Agreement.  In addition,  the  aggregate  reductions  to each of the  Conversion
Percentages  for failure to have the Common Stock  listed on Nasdaq,  the Nasdaq
Small Cap Market, the NYSE or AMEX cannot exceed 10%.

         The  Conversion  Price is  adjusted  if there is a stock  split,  stock
dividend,  combination,  reclassification  or similar  event with respect to the
Common Stock,  if certain  distributions  with respect to shares of Common Stock
are made, if certain purchase rights are distributed and in the event of certain
mergers, certain consolidations, sale or transfer of all or substantially all of
the Company's assets and certain share exchanges.

         If a Holder  tenders his or her shares of Series K Stock for conversion
and does not receive certificates for all of the shares of Common Stock to which
such Holder is entitled (except in certain  specified  circumstances),  then the
Fixed Conversion Price is thereafter reduced to the lesser of (1) the then Fixed
Conversion Price (prior to the adjustment required by this sentence) and (2) the
lowest  Conversion Price in effect during the period beginning on the conversion
date and  ending on the date the  shares of Common  Stock are  delivered  to the
Holder.  If the Company states that it will not deliver freely  tradeable shares
of Common Stock on conversion of the Series K Stock (other than in circumstances
permitted by the Registration  Rights  Agreement),  then the Conversion Price is
thereafter  reduced to the lowest  Conversion Price in effect at any time during
the period  beginning  on the date of the default  occurs and ending on the date
such default is cured. In addition,  certain  conversion default payments accrue
under Article VI of the Series K Certificate.

         Subject to the  provisions  regarding  the Cap Amount and provided that
all shares of Common Stock issuable on conversion of all  outstanding  shares of
Series K Stock are authorized  and reserved for issuance,  registered for resale
under the Securities  Act of 1933, as amended,  and are eligible to be traded on
the Nasdaq,  the NYSE or the AMEX,  each share of Series K Stock  outstanding on
the fourth anniversary of the First Closing Date is automatically converted into
Common Stock.

         The  Series K Stock has a  liquidation  preference  of $1,000 per share
plus the accrued  "Premium." The Premium is 7% multiplied $1,000 multiplied by a
fraction  (1) the  numerator  is the number of days a share of Series K Stock is
outstanding  and (2) the  denominator of which is 365. The Premium is payable at
the time of conversion or redemption in cash or shares of Common Stock.

         The  Series K  Certificate  provides  that in no event  shall the total
number of shares of Common  Stock issued upon  conversion  of the Series K Stock
exceed the maximum  number of shares of Common  Stock that the Company may issue
pursuant to Rule 4460(i) of the Nasdaq or any successor rule ("Cap Amount"). The
Cap Amount is  allocated  pro rata  among the  Holders.  The  Company is seeking
approval  from the holders of Common  Stock to issue  shares of Common  Stock in
connection  with the Series K Stock and the  Warrants  in excess of the  amounts
permitted by Nasdaq Rule 4460(i)(1)(D).

         The  exercise  price of the Investor  Warrants  and the Agent  Warrants
(collectively,  "Warrants") is adjusted in the event the Company issues,  grants
or  sells  any  warrants,   rights  or  options   (whether  or  not  immediately
exercisable) to purchase Common Stock or securities that are convertible into or
exchangeable  for  Common  Stock at a price  per  share  that is not  based on a
percentage of the market price of the Common Stock  ("Fixed  Price") or that may
be converted  into or  exchanged  for Common Stock at a Fixed Price that is less
than the then exercise price of such Warrants. In such event, the exercise price
of the Warrants is reduced to such Fixed Price and the number of shares issuable
on exercise  of the  Warrants is adjusted so that it equals the number of shares
issuable under the Warrants  immediately  prior to the adjustment  multiplied by
the per share  exercise  price prior to the  adjustment  divided by the exercise
price after the adjustment.

         In  the  event  of  stock  split,  stock  dividend,   recapitalization,
reorganization,  reclassification  or other subdivision of the Common Stock, the
exercise price of the Warrants and the number of shares of Common Stock issuable
on exercise of the Warrants are proportionately  adjusted. The exercise price of
the Warrants and the number of shares  issuable on exercise are also adjusted in
the event of certain  mergers  and  consolidations,  in the event of any sale or
conveyance of all or substantially  all of the Company's assets, in the event of
certain  distributions  of its assets and in the event the  Company  distributes
certain purchase rights.

         Dividends.  The Series K Stock does not bear  dividends and there is no
provision for a sinking fund; accordingly, there are no provisions in the Series
K Certificate  restricting  repurchase or redemption of the Series K Stock while
there is a dividend or sinking fund arrearage.  However,  the Premium accrues as
noted above.

         Ranking.  Shares of Series K Stock rank  prior to the Common  Stock and
any class or series of capital  stock created after the creation of the Series K
Stock  (unless  consent of the  Holders is  obtained  as  described  below under
"Voting Rights") and ranks pari passu with any class or series created after the
creation of the Series K Stock that specifically states that it ranks pari passu
with the Series K Stock and where the Holders have approved the issuance of such
securities as described  below under  "Voting  Rights." The Series K Stock ranks
junior to the Series A Stock,  Series F-1,  F-2,  F-3 and F-4 Stock and Series H
Stock.

         Voting Rights. The Series K Stock generally has no voting rights except
as otherwise  provided by the Delaware  General  Corporation Law.  However,  the
approval of the holders of a majority of the then outstanding shares of Series K
Stock is required to: (1) alter or change the rights,  preferences or privileges
of the Series K Stock, (2) alter or change the rights, preferences or privileges
of any  capital  stock of the  Company  so as to  adversely  affect the Series K
Stock,  (3) create any new class or series of capital  stock ranking prior to or
pari passu with the Series K Stock, (4) increase the authorized number of shares
of Series K Stock, (5) issue any shares of Series K Stock other than pursuant to
the  Securities  Purchase  Agreement,  (6)  issue any  additional  shares of any
securities ranking senior to the Series K Stock or (7) redeem, or declare or pay
a cash dividend or distribution on, any securities junior to the Series K Stock.

         In the  event the  Holders  approve a change  described  in clause  (1)
above, a dissenting  Holder has the right for a period of 30 days to convert its
shares of Series K Stock  pursuant to the terms of the Series K  Certificate  as
they existed prior to the change.

         Except in the event of a required conversion at maturity,  no Holder is
entitled to receive  shares of Common Stock on  conversion of its Series K Stock
to the  extent  that the sum of (1) the  shares  of Common  Stock  owned by such
Holder  and its  affiliates  and (2) the  shares of  Common  Stock  issuable  on
conversion  of the Series K Stock would result in  beneficial  ownership by such
Holder and its affiliates of more than 4.9% of the outstanding  shares of Common
Stock.  Beneficial  ownership for this purpose is determined in accordance  with
Section  13(d) of the 1934 Act.  This  restriction  cannot be amended or deleted
unless the  holders of a majority of the Common  Stock and each Holder  approves
such amendment or deletion.

         Redemption  Rights.  In the event the unissued  portion of any Holder's
Cap  Amount  is less than 135% of the  number  of  shares of Common  Stock  then
issuable upon  conversion of such Holder's  Series K Stock and the Company fails
to eliminate  the  prohibitions  that have  resulted in the existence of the Cap
Amount within 90 days, then each Holder may (1) require (with the consent of the
holders  of 50% of the  outstanding  shares of Series K Stock)  the  Company  to
terminate  the  listing  of the  Common  Stock on Nasdaq and to cause the Common
Stock to be  eligible  for  trading  on the  Nasdaq  Small Cap  Market or on the
over-the-counter  electronic  bulletin  board,  at the option of the  requesting
Holder,  or (2) require the Company to issue Common Stock at a Conversion  Price
equal to the average of the closing prices of the Common Stock on the five prior
trading  days.  In addition,  the Holder has the right to require the Company to
redeem for cash at an amount equal to the  "Redemption  Amount" a portion of the
Holder's  Series K Stock such that,  after giving effect to such  purchase,  the
then  unissued  portion of the  Holder's  Cap Amount  exceeds  135% of the total
number of shares of Common  Stock then  issuable on  conversion  of its Series K
Stock. The Redemption  Amount per share of Series K Stock equals (1) $1,000 plus
the accrued  Premium plus all  conversion  default  payments  required under the
Series K Certificate,  multiplied by (2) the highest closing price of the Common
Stock  during  the period  beginning  on the date of the  redemption  notice and
ending on the date of redemption,  divided by (3) the Conversion Price in effect
on the date of the redemption notice.

         A Holder also has the right to require the Company to redeem its Series
K Stock at the  Redemption  Amount (1) if the Company  fails to issue  shares of
Common Stock on conversion of the Series K Stock other than in certain specified
circumstances,  (2) if the Common Stock is suspended  from trading on any of, or
is not listed on at least one of, the NYSE,  the AMEX,  the Nasdaq or the Nasdaq
Small Cap Market for an aggregate of ten trading days in any nine month  period,
(3) the  registration  statement  required  to be filed  under the  Registration
Rights  Agreement  is not  declared  effective by the SEC by January 31, 1998 or
cannot be utilized by the  Holders for an  aggregate  of more than 30 days after
June 30, 1998, (4) the Company fails to remove any restrictive  legend on shares
of Common Stock issued on  conversion of the Series K Stock when required by the
Securities Purchase Agreement or Registration Rights Agreement,  (5) the Company
states that it will not issue  shares of Common  Stock to Holders in  accordance
with the terms of the Series K Certificate  (other than in  circumstances  where
other  remedies  are provided in the Series K  Certificate),  or (6) the Company
shall (a) sell all or substantially all of its assets, (b) merger or consolidate
with another entity,  or (c) have 50% or more of the voting power of its capital
stock  owned  beneficially  by any one  person or group  within  the  meaning of
Section 13(d) of the 1934 Act.

         In the event the Company fails to pay any Holder its Redemption Amount,
then (1) the Holder is  entitled  to  interest on such amount at the rate of 24%
per annum until such Holder's Series K Stock is redeemed and (2) such Holder has
the right to require the Company to convert the  Redemption  Amount plus accrued
interest  into shares of Common Stock at the lowest  Conversion  Price in effect
during the period  beginning  on the date the Holder  submitted  its  redemption
notice and ending on the date of conversion.

         The  Company has the right to redeem all (but not less than all) of the
outstanding  Series K Stock  (other  than shares that are subject to a notice of
conversion) at any time when it is not in material  violation of its obligations
under  the  Series K  Certificate,  the  Securities  Purchase  Agreement  or the
Registration  Rights Agreement at the "Optional  Redemption Amount." The Company
can only exercise this right once. The Optional  Redemption  Amount per share of
Series K Stock is the  greater of (1) the sum of the face  amount,  the  accrued
Premium  and  all  conversion  default  payments  accrued  through  the  date of
redemption and (2) (a) the sum of $1,000, the accrued Premium and all conversion
default payments required under the Series K Certificate,  multiplied by (b) the
volume  weighted  average  sales  price of the Common  Stock on the  trading day
immediately  preceeding  the  optional  redemption  notice,  divided  by (c) the
Conversion Price in effect on the date of the optional redemption notice. In the
event the Company fails to pay any Holder its Optional  Redemption Amount,  then
(1) the Holder is  entitled  to  interest  on such amount at the rate of 24% per
annum  until  the  later  of the date  such  Holder's  Series K Stock  was to be
redeemed or until the Company  notifies  the Holder that it will not redeem such
Holder's Series K Stock and (2) such Holder has the right to require the Company
to  convert  such  Holder's  Series K Stock into  shares of Common  Stock at the
lowest  Conversion  Price in effect during the period  beginning on the date the
Company  elected  to redeem  such  shares and  ending on the 20th  trading  date
following the date such Series K Stock was to be redeemed.

Limitation of Liability

         Pursuant  to the  Company's  Certificate  of  Incorporation  and  under
Delaware law,  directors of the Company are not liable for monetary  damages for
breach  of their  fiduciary  duty as  directors  except  (i) for a breach of the
director's duty of loyalty to the Company or its stockholders,  (ii) for acts or
omissions  by the  director  not in good  faith  or  which  involve  intentional
misconduct  or a knowing  violation  of law,  (iii) for a willful  or  negligent
declaration  of an unlawful  dividend,  stock purchase or redemption or (iv) for
transactions from which the director derived an improper personal benefit.

Transfer Agent and Registrar

         The  Transfer  Agent and  Registrar  for the Common  Stock and Series A
Stock is American Stock Transfer & Trust Company,  40 Wall Street, New York, New
York 10005.

Anti-takeover Effects of Provisions of the Certificate of  Incorporation, Bylaws
       and Delaware Law

         The following provisions of the Company's  Certificate of Incorporation
and Bylaws could discourage potential  acquisition  proposals and could delay or
prevent a change in control of the Company.  Such  provisions  also may have the
effect of preventing changes in the management of the Company. See "Risk Factors
-Certain  Anti-takeover  Provisions of Certificate of Incorporation and Delaware
law."

         Preferred Stock. The Company's Certificate of Incorporation  authorizes
20,000,000  shares of Preferred Stock with a par value of $0.0001.  The Board of
Directors is  authorized  to provide for the issuance of the shares of Preferred
Stock in series,  and by filing a certificate  pursuant to the applicable law of
the State of Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designations,  powers,  preferences
and rights of the shares of each such series and the qualifications, limitations
or  restrictions  thereof.  In the event of a proposed  merger,  tender offer or
other  attempt to gain  control  of the  Company  of which  management  does not
approve,  it might be  possible  for the Board of  Directors  to  authorize  the
issuance of a series of preferred stock with rights and  preferences  that could
impede  the  completion  of such a  transaction.  See  "Risk  Factors  - Certain
Anti-takeover Provisions of Certificate of Incorporation and Delaware Law."

         Delaware  Anti-Takeover  Statute. The Company is subject to Section 203
of the Delaware General  Corporation Law, which,  subject to certain exceptions,
prohibits a Delaware  corporation from engaging in any business combination with
any interested  shareholder  for a period of three years following the date that
such shareholder  became an interested  shareholder,  unless:  (1) prior to such
date,  the board of directors of the  corporation  approved  either the business
combination  or the  transaction  that resulted in the  shareholder  becoming an
interested  shareholder;  (2) upon consummation of the transaction that resulted
in  the  shareholder   becoming  an  interested   shareholder,   the  interested
shareholder  owned  at  least  85%  of  the  voting  stock  of  the  corporation
outstanding  at the time the  transaction  commenced,  excluding for purposes of
determining the number of shares  outstanding  those shares owned (i) by persons
who are directors  and also  officers and (ii) by employee  stock plans in which
employee participants do not have the right to determine  confidentially whether
shares held subject to the plan will be tendered in a tender or exchange  offer,
or (3) on or subsequent to such date the business combination is approved by the
board  of  directors  and  authorized  at  an  annual  or  special   meeting  of
stockholders, and not by written consent, by the affirmative vote of at least 66
2/3% of the  outstanding  voting  stock  that  is not  owned  by the  interested
shareholder.

         Section 203 defines  business  combination  when used in reference to a
corporation  and any  interested  shareholder  to  include:  (i) any  merger  or
consolidation  of the  corporation  with the interested  shareholder or with any
other  corporation  if the merger or  consolidation  is caused by the interested
shareholder and, as a result of the  transaction,  Section 203(a) does not apply
to  the  surviving  corporation;  (ii)  any  sale,  lease,  exchange,  mortgage,
transfer,  pledge or other disposition  involving the interested  shareholder of
10% or  more  of the  assets  of  the  corporation;  (iii)  subject  to  certain
exceptions,  any  transaction  that  results in the  issuance or transfer by the
corporation of any stock of the corporation to the interested shareholder;  (iv)
any transaction  involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation owned
by the interested shareholder;  or (v) any receipt by the interested shareholder
of the benefit of any loans,  advances,  guarantees,  pledges or other financial
benefits provided by or through the corporation. In general, Section 203 defines
an interested  shareholder as any entity or person  beneficially owns, or within
three  years  did  own,  15% or  more of the  outstanding  voting  stock  of the
corporation  and  any  entity  or  person  affiliated  with  or  controlling  or
controlled by such entity or person.

                             INDEPENDENT ACCOUNTANTS

         The Board, upon the  recommendation  of the Audit Committee,  appointed
Ernst & Young  LLP,  independent  accountants,  as  auditors  of the  Company to
examine and report to stockholders on the consolidated  financial  statements of
the Company and it subsidiaries  for the year ended on December 31, 1996 and for
the year ending  December 31, 1997.  Ernst & Young LLP  currently  serves as the
Company's independent accountants.

         The Company  engaged Ernst & Young LLP on July 10, 1996 as  independent
accountants to examine the consolidated  financial statements of the Company for
the year ended December 31, 1996.  Ernst & Young LLP replaced  Price  Waterhouse
LLP.  The  Company's  decision  to  retain  Ernst & Young  LLP as the  Company's
principal  independent  accountants  and  discontinue  the  engagement  of Price
Waterhouse  LLP was  ratified,  confirmed  and approved by the  Company's  Audit
Committee at a meeting held on August 1, 1996.

         The  Company   dismissed  Price   Waterhouse  LLP  as  its  independent
accountants on July 10, 1996.  The reports of Price  Waterhouse LLP on financial
statements  for the fiscal years ended  December 31, 1995 and 1994  contained no
adverse  opinion or  disclaimer of opinion and were not qualified or modified as
to  uncertainty,  audit scope or accounting  principles.  In connection with its
audits for the fiscal years ended  December 31, 1995 and 1994,  and through July
10, 1996, there were no disagreements with Price Waterhouse LLP on any matter of
accounting principles or practices,  financial statement disclosure, or auditing
scope or procedure,  which  disagreements if not resolved to the satisfaction of
Price  Waterhouse LLP would have caused them to make reference  thereto in their
report on the financial statements for such years.

         During the fiscal  years ended  December  31, 1995 and 1994 and through
July 10, 1996,  Price  Waterhouse  LLP  communicated  certain  internal  control
matters to the Company that meet the definition of reportable events (as defined
in Regulation  S-K Item  304(a)(1)(iv)).  For the fiscal year ended December 31,
1994, such reportable  events involved  recommendations  that the Company should
ensure  compliance  with its revenue  recognition  policies  and should  further
ensure that  significant  and/or  unusual  accounting  and reporting  issues are
addressed and  documented on a timely basis.  Price  Waterhouse LLP has read the
above and is in agreement with the statements contained therein.

                                  LEGAL MATTERS

         The  legality of shares of Common Stock  offered  hereby will be passed
upon for the Company by Kirkpatrick & Lockhart LLP, Washington, D.C.

                                     EXPERTS

         The consolidated financial statements of Network Imaging Corporation at
December 31, 1996 and for the year  then ended,  appearing in the Prospectus and
Registration  Statement  have been  audited  by Ernst & Young  LLP,  independent
auditors as set forth in their reports thereon appearing  elsewhere herein,  and
are included in reliance  upon such reports  given the authority of such firm as
experts in accounting and auditing.

         The consolidated financial statements of Network Imaging Corporation at
December 31, 1995 and for each of the two years in the period ended December 31,
1995 have been audited by Price  Waterhouse LLP,  independent  auditors,  as set
forth in their reports thereon appearing  elsewhere herein,  and are included in
reliance  upon such  reports  given the  authority  of such firm as  experts  in
accounting and auditing.

                             ADDITIONAL INFORMATION

         This  Prospectus  does not contain all of the  information set forth in
the Registration  Statement and the exhibits and schedules  thereto.  Statements
contained  in this  Prospectus  as to the  contents of any contract or any other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such  contract or other  document  filed as an exhibit to
the Registration Statement,  each such statement being qualified in all respects
by such  reference.  Further  information  with  respect to the  Company and the
Common  Stock  offered  hereby is included or  incorporated  by reference in the
Registration Statement and exhibits.

         Network Imaging is subject to the informational  reporting requirements
of the Securities  Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports,  proxy statements and other information with
the SEC. Such reports,  proxy statements and other  information can be inspected
and copied at the public  reference  rooms of the SEC, 450 Fifth  Street,  N.W.,
Room 1024, Washington,  D.C. 20549, and copies of such materials can be obtained
by mail from the Public  Reference  Section of the SEC, 450 Fifth Street,  N.W.,
Room 1024, Washington,  D.C. 20549, at prescribed rates. In addition,  copies of
such  materials are  available for  inspection  and  reproduction  at the public
reference  facilities of the SEC at its New York regional  office, 7 World Trade
Center,   New  York,  New  York  10048  and  at  its  Chicago  regional  office,
Northwestern  Atrium  Center,  500 West  Madison  Street,  Suite 1400,  Chicago,
Illinois 60661-2511. The SEC also maintains a Web site (http://www.sec.gov) that
contains  reports,  proxy  and  information  statements  and  other  information
regarding  registrants  that file  electronically  with the SEC.  The  Company's
Common  Stock and  Series A Stock  are  listed on the  Nasdaq  National  Market.
Reports,  proxy statements and other information concerning the Company can also
be inspected at Nasdaq, 1735 K Street, N.W., Washington, D.C. 20036.
INDEX TO FINANCIAL STATEMENTS

                                                                        Page

Reports of Independent Accountants                                       F-2

Consolidated Balance Sheets as of December 31, 1996 and 1995             F-4

Consolidated Statements of Operations for the years ended
         December 31, 1996, 1995 and 1994                                F-5

Consolidated Statements of Changes in Stockholders' Equity
         for the years ended December 31, 1996, 1995 and 1994            F-6

Consolidated Statements of Cash Flows for the years ended
         December 31, 1996, 1995 and 1994                                F-7

Notes to Consolidated Financial Statements                               F-8

Consolidated Balance Sheets at June 30, 1997 (unaudited) and
         December 31, 1995                                               F-24

Consolidated Statements of Operations (unaudited) for the three
         months ended June 30, 1997 and 1996                             F-25

Consolidated Statements of Operations (unaudited) for the six
         months ended June 30, 1997 and 1996                             F-26

Consolidated Statements of Changes in Stockholders' Equity
         (unaudited) for the six months ended June 30, 1997              F-27

Consolidated Statement of Cash Flows (unaudited) for the six
         months ended June 30, 1997 and 1996                             F-28

Notes to Consolidated Financial Statements                               F-29
Report of Independent Auditors

Board of Directors
Network Imaging Corporation

We have audited the accompanying  consolidated  balance sheet of Network Imaging
Corporation  (the  "Company"),   as  of  December  31,  1996,  and  the  related
consolidated  statement of operations,  stockholders'  equity and cash flows for
the year then ended.  These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audit.

We conducted our audit 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 out audit provides a reasonable basis for our opinion.

In our opinion, the financial statement referred to above present fairly, in all
material  respects,  the  consolidated  financial  position  of Network  Imaging
Corporation  at  December  31,  1996,  and the  consolidated  results  of  their
operations and their cash flows for the year ended in conformity  with generally
accepted accounting principles.

/S/ Ernst & Young, LLP
February 14, 1997

                                       F-2

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Network Imaging Corporation

In our opinion,  the  accompanying  consolidated  balance  sheet and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all materials respects,  the financial position of
Network Imaging  Corporation and its  subsidiaries at December 31, 1995, and the
results  of their  operations  and their cash flows for each of the two years in
the period ended  December 31,  1995,  in  conformity  with  generally  accepted
accounting principles.  These financial statements are the responsibility of the
Company's  management;  our  responsibility  is to  express  an opinion on these
financial  statements  based on our  audits.  We  conducted  our audits of these
statements  in accordance  with  generally  accepted  auditing  standards  which
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,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial statement presentation.  We believe that our audits prove a reasonable
basis for the opinion expressed above.

/S/ Price Waterhouse, LLP
Washington, D.C.
March 29, 1996

                                       F-3
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
               (In thousands, except share and per share amounts)
December 31,
                                                           1996          1995
                                                         ---------    ---------
ASSETS

Current assets:
 Cash and cash equivalents                               $   7,601    $   9,359
 Short-term investments - restricted                          --          3,052
 Accounts and notes receivable, net                         13,243       16,300
 Inventories                                                 1,503        3,464
 Prepaid expenses and other                                  2,362        3,543
                                                         ---------    ---------
   Total current assets                                     24,709       35,718
Fixed assets, net                                            2,887        3,769
Long-term notes receivable, net                              1,979        1,215
Software development costs and
 purchased technology, net                                   3,813        4,630
Goodwill, net                                                3,237        4,468
Other assets                                                   153          164
                                                         ---------    ---------
   Total assets                                          $  36,778    $  49,964
                                                         =========    =========

                  LIABILITIES & STOCKHOLDERS' EQUITY

Current liabilities:
 Current debt maturities and
  obligations under capital leases                       $   2,063    $   5,365
 Accounts payable                                            3,185        6,201
 Accrued compensation and related
  expenses                                                   1,891        2,638
 Deferred revenue                                            3,789        4,408
 Other accrued expenses                                      3,888        3,652
                                                         ---------    ---------
   Total current liabilities                                14,816       22,264
Long-term debt and obligations
 under capital leases                                           88        1,264
Deferred income taxes                                          300          773
                                                         ---------    ---------
   Total liabilities                                        15,204       24,301
Commitments
Redeemable Series F preferred
 stock, 1,792,186 shares issued
 and outstanding                                             9,857       15,478
Stockholders' equity:
 Preferred stock, $.0001 par
  value, 20,000,000 shares
  authorized; 1,605,675 and
  1,605,228 shares issued and
  outstanding
 Common stock, $.0001 par value,
  50,000,000 shares authorized;
  22,896,612 and 18,637,226
  shares issued and outstanding                                  2            2
 Additional paid-in-capital                                124,429      105,065
 Accumulated deficit                                      (113,098)     (95,757)
 Translation adjustment                                        384          875
                                                         ---------    ---------
   Total stockholders' equity                               11,717       10,185
                                                         ---------    ---------
   Total liabilities and stockholders' equity            $  36,778    $  49,964
                                                         =========    =========
The accompanying notes are an integral part of these financial statements.

                                      F-4
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                            Years ended December 31,
               (In thousands, except share and per share amounts)
1996            1995            1994                  
                                   ------------    ------------    ------------
Revenue:
  Products                         $     18,336    $     47,508    $     49,867
  Services                               21,141          21,643          17,161
                                   ------------    ------------    ------------
                                         39,477          69,151          67,028
                                   ------------    ------------    ------------
Costs and expenses:
  Cost of products sold                   9,953          29,263          36,757
  Cost of services provided              14,421          13,135          11,432
  Product development                     6,500           7,058           4,666
  Selling, general and
   administrative                        24,956          35,679          36,765
  Exchange fee and gain on
   sale of asset, net                       619            --              --
  Purchased in-process
   research and development                --              --             8,821
  Settlement with stockholders             --             1,642            --
  Loss on closure and sale of
   subsidiaries, net                        921           9,274            --
  Restructuring costs                      (175)         (1,433)          1,654
  Capitalized software
   write-off                               --              --             8,743
                                   ------------    ------------    ------------
                                         57,195          94,618         108,838
                                   ------------    ------------    ------------
Loss before investment and
 interest income and income
  taxes                                 (17,718)        (25,467)        (41,810)
  Investment and interest
   income, net                              309             224             579
                                   ------------    ------------    ------------
Loss before income taxes                (17,409)        (25,243)        (41,231)
  Income tax benefit                        (68)           (280)         (1,606)
                                   ------------    ------------    ------------
Net loss                                (17,341)        (24,963)        (39,625)
                                   ------------    ------------    ------------

Preferred stock
 preferences                             (3,730)         (9,933)         (4,496)
                                   ------------    ------------    ------------
Net loss applicable to
 common shares                     $    (21,071)   $    (34,896)   $    (44,121)
                                   ============    ============    ============

Net loss per common share          $      (1.02)   $      (2.41)   $      (3.56)
                                   ============    ============    ============

Weighted average shares
 outstanding                         20,681,694      14,502,399      12,391,225
                                   ============    ============    ============
The accompanying notes are an integral part of these financial statements.

                                      F-5
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
              For the years ended December 31, 1996, 1995 and 1994
                      (In thousands, except share amounts)
Additional
                                                  Preferred Stock                Common Stock              paid-in      Accumulated 
                                              Shares            Amt.        Shares            Amt.         capital        Deficit   
                                            -----------     -----------   -----------     -----------    -----------    -----------
Balance December 31, 1993                    1,400,000     $      --        10,542,105    $         1    $    74,153    $   (31,169)
Issuance of preferred stock,
 net of offering costs
 of $673                                       205,025                                                         4,453
Issuance of common stock,
net of offering costs of $39                                                 2,786,070                        19,184
Conversion of preferred stock                                                  300,000                         2,303
Accretion of preferred stock                                                                                  (1,286)
Dividends on preferred stock                                                                                  (3,210)
Translation adjustment
Net loss                                                                                                                    (39,625)
                                           -----------     -----------     -----------    -----------    -----------    -----------
Balance December 31, 1994                    1,605,025            --        13,628,175              1         95,597        (70,794)

Issuance of preferred stock,
 net of offering costs of $1,790                 2,174     $      --                                          19,949
Conversion of preferred stock                     (885)                      2,276,237
Redemption of preferred stock                   (1,086)                                                      (15,600)
Issuance of common stock, net
 of offering costs of $941                                                   2,732,814              1          9,198
Accretion of preferred stock                                                                                    (869)
Dividends on preferred stock                                                                                  (3,210)
Translation adjustment
Net loss                                                                                                                    (24,963)
                                           -----------     -----------     -----------    -----------    -----------    -----------
Balance December 31, 1995                    1,605,228            --        18,637,226              2        105,065        (95,757)
Issuance of common stock, net
 of offering costs of $376                                                   1,902,487                         6,149
Issuance of preferred stock,
 net of offering costs
 of $209                                         1,100     $      --                                          10,791
Issuance of warrants for
 line of credit                                                                                                  192
Buy-Back adjustment of
 Redeemable Series F
 preferred stock                                                                                               5,962
Conversion of preferred stock                     (653)                      2,356,899
Accretion of preferred stock                                                                                    (341)
Dividends on preferred stock                                                                                  (3,389)
Translation adjustment
Net loss                                                                                                                    (17,341)
                                           -----------     -----------     -----------    -----------    -----------    -----------
Balance December 31, 1996                    1,605,675     $      --        22,896,612    $         2    $   124,429    $  (113,098)
                                           ===========     ===========     ===========    ===========    ===========    ===========

                                                                 
                                                    Translation
                                                    Adjustment          Total
                                                    ----------        ---------
Balance December 31, 1993                            $   (191)         $ 42,794
Issuance of preferred stock,
 net of offering costs
 of $673                                                                  4,453
Issuance of common stock,
net of offering costs of $39                                             19,184
Conversion of preferred stock                                             2,303
Accretion of preferred stock                                             (1,286)
Dividends on preferred stock                                             (3,210)
Translation adjustment                                    543               543
Net loss                                                                (39,625)
                                                     --------          --------
Balance December 31, 1994                                 352            25,156

Issuance of preferred stock,
 net of offering costs of $1,790                                         19,949
Conversion of preferred stock                                             --
Redemption of preferred stock                                           (15,600)
Issuance of common stock, net
 of offering costs of $941                                                9,199
Accretion of preferred stock                                               (869)
Dividends on preferred stock                                             (3,210)
Translation adjustment                                    523               523
Net loss                                                                (24,963)
                                                     --------          --------
Balance December 31, 1995                                 875            10,185

Issuance of common stock, net
 of offering costs of $376                                                6,149
Issuance of preferred stock,
 net of offering costs
 of $209                                                                 10,791
Issuance of warrants for
 line of credit                                                             192
Buy-Back adjustment of
 Redeemable Series F
 preferred stock                                                          5,962
Conversion of preferred stock                                              --
Accretion of preferred stock                                               (341)
Dividends on preferred stock                                             (3,389)
Translation adjustment                                   (491)             (491)
Net loss                                                                (17,341)
                                                     --------          --------
Balance December 31, 1996                            $    384          $ 11,717
                                                     ========          ========
The accompanying notes are an integral part of these financial statements.

                                      F-6
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            Years Ended December 31,
                                 (In thousands)
1996         1995         1994
                                             --------     --------     --------
Cash flows from operating
 activities:
 Net loss                                    $(17,341)    $(24,963)    $(39,625)
 Adjustments to reconcile
  net loss to net cash
  used in operating activities:
   Depreciation and amortization                5,793        6,270        6,085
   Purchased in-process
    research and development                     --           --          8,821
   Restructuring costs                           (175)      (1,433)       1,654
   Loss on closure and sale
    of subsidiaries                               921        9,274         --
   Impairment of spare parts
    inventory                                    --            276         --
   Capitalized software
    write-off                                    --           --          8,743
   Goodwill write-off                            --           --            953
   Stock Settlement                              --            787         --
   Realized gain on sale of
    short-term investments                       (108)        (151)        --
   Unrealized holding loss on
    short-term investments                       --           --            437
   Changes in assets and
    liabilities:
    Accounts and notes receivable               1,871       (1,350)      (1,174)
    Inventories                                   313          988       (2,305)
    Prepaid expenses and other                    937       (1,681)        (694)
    Accounts payable                           (3,353)        (313)       1,433
    Accrued compensation and
     related expenses                              54        2,107       (3,540)
    Deferred revenues                            (449)       1,521        2,651
    Deferred income taxes                        (246)        (331)      (1,223)
                                             --------     --------     --------
Net cash used in operating
 activities                                   (11,783)      (8,999)     (17,784)
                                             --------     --------     --------

Cash flows from investing
 activities:
 Sale (purchase) of short-term
  investments                                     111       12,731      (12,973)
 Capitalized software
  development and license costs                (1,979)      (1,784)      (6,966)
 Purchases of fixed assets                     (1,068)      (1,522)      (3,559)
 Business divestitures/
  acquisitions and related costs                  299          154       (3,640)
                                             --------     --------     --------
Net cash (used in) provided by
 investing activities                          (2,637)       9,579      (27,138)
                                             --------     --------     --------

Cash flows from financing
 activities:
 Proceeds from issuance of
  common stock, net                             6,149        8,412        3,057
 Proceeds from issuance
  preferred stock, net                         10,791       19,949        4,453
 Redemption of Series D
  preferred stock                                --        (15,600)        --
 Cash dividends paid on
  Series A preferred stock                     (3,210)      (3,210)      (2,830)
 Proceeds from borrowings
  and purchase of short-term
  investments, net                               --           (869)       3,537
 Proceeds from sale and
  leaseback of fixed assets                       196          226        2,413
 Principal payments on capital
  lease obligations                              (913)        (817)         (87)
 Principal payments on debt                      (270)      (3,382)      (1,526)
                                             --------     --------     --------
Net cash provided by
 financing activities                          12,743        4,709        9,017
                                             --------     --------     --------

Effect of exchange rate changes
 on cash and cash equivalents                     (81)          81          130
Net (decrease) increase in
 cash and cash equivalents                     (1,758)       5,370      (35,775)
Cash and cash equivalents at
 beginning of year                              9,359        3,989       39,764
                                             --------     --------     --------
Cash and cash equivalents
 at end of year                              $  7,601     $  9,359     $  3,989
                                              ========     ========     ========

Supplemental Cash Flow
 Information:
  Interest paid                              $    278     $    712     $    490
  Income taxes paid                          $    209     $    151     $    401
The accompanying notes are an integral part of these financial statements.

                                      F-7
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996, 1995 and 1994

Network Imaging Corporation  ("Network Imaging" or the "Company") is a developer
and  marketer  of content  and  storage  management  software  for  unstructured
information. Its  flagship  product,  the 1View(TM)  suite, manages the storage,
access and  distribution of any multimedia  data,  such as diagrams,  documents,
photographs,  voice,  and  full-motion  video.  1View is a  solution  for use in
distributed,  high transaction, high volume mission critical applications across
legacy,  client/server and Internet/intranet based environments.  The Company is
also a software  developer for mainframe and PC based  Computer  Output to Laser
Disk  ("COLD")  systems  and a  developer  and  marketer  of storage  management
software systems.

In 1996, the Company's  operations were approximately evenly divided between the
United States and Europe.  U.S.  operations  were  conducted in or near Herndon,
Virginia  (primarily  the  development  of the 1View  suite  and COLD  family of
storage  products),  Minneapolis,   Minnesota  and  Denver,  Colorado.  European
operations were conducted near Paris,  France  (hierarchical  storage management
software and related storage products and engineering services).

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principles of consolidation --

The consolidated  financial  statements  include the accounts of Network Imaging
Corporation and its subsidiaries.  All significant intercompany transactions and
balances have been eliminated.

         Cash equivalents and short-term investments --

The Company  considers  all highly  liquid debt  instruments  purchased  with an
original  maturity of three months or less to be cash  equivalents.  At December
31, 1995,  restricted  short-term  investments are categorized as "available for
sale"  securities whose carrying amount  approximates  fair value because of the
short-term maturity of the investments.

         Revenue recognition --

The Company  recognizes  software revenue in accordance with the AICPA Statement
of Position  91-1,  "Software  Revenue  Recognition".  Revenue from hardware and
software  sales  related to the Company's  1View(TM) and COLD software  products
is  recognized  when the  product is  delivered  to the  customer.  The  Company
accounts for insignificant  vendor obligations and post-contract  support at the
time of product delivery by accruing such costs at the time of sale.

                                       F-8

Revenue  from  hardware  and  software  contracts  with  significant  completion
services involving  technically  difficult issues for the attainment of customer
acceptance is  recognized  upon customer  acceptance.  Revenue from  maintenance
contracts is recognized ratably over the terms of the contracts.

For  labor  intensive   contracts  which  require   significant   production  or
customization,  the Company  accounts for such revenue in accordance  with AICPA
Statement of Position 81-1, "Accounting for Performance of Construction-type and
Certain  Production-type  Contracts," using the percentage of completion method.
Losses, if any, are recognized in the period that such losses are determined.

         Inventories --

Inventories  are  stated  at the  lower of  cost,  determined  on the  first-in,
first-out method, or market.

         Fixed assets --

Fixed assets are stated at cost, net of accumulated  depreciation.  Depreciation
is computed using  straight-line  and  accelerated  methods over the life of the
related asset,  generally three years. Leasehold improvements are amortized over
the shorter of the estimated useful life of the improvements or the terms of the
related lease.

         Software development and license costs --

The Company  capitalizes  certain software  development costs in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer  Software to Be Sold,  Leased or Otherwise  Marketed," ("SFAS 86"). The
Company  capitalizes  certain acquired  software licenses (see Note 5) which are
incorporated into the Company's products.  Amortization of software  development
and license costs is provided on an individual  product basis over the estimated
life of the  products of three years  beginning  when the related  products  are
available for general release. Costs for research and development incurred prior
to establishing  technological  feasibility of software products, or after their
commercial   release,   are  expensed  in  the  period  incurred.   The  Company
periodically   assesses   capitalized  software  amounts  and,  when  less  than
anticipated net realizable value, charges any such excess to expense.

         Goodwill --

The excess of the  purchase  price  over the fair value of the net  identifiable
tangible and intangible  assets of businesses  acquired is being  amortized on a
straight-line basis over seven to ten years.  Amortization expense in 1996, 1995
and  1994  was $1.1  million,  $1.3  million  and  $1.2  million,  respectively.
Accumulated  amortization  as of December 31, 1996 and 1995 was $3.1 million and
$1.9 million, respectively. In accordance with Statement of Financial Accounting
Standards No. 121, the Company routinely evaluates recoverability of goodwill by
comparing future  undiscounted cash flows to the recorded carrying value. During
1994,  the Company  determined  that  goodwill  from  certain  acquisitions  was
impaired and accordingly expensed $953,000.

                                       F-9

         Product warranty --

Warranties  for  hardware  sold by the  Company  are  generally  provided by the
manufacturer.  The Company provides warranties and service contracts for certain
products and accrues related expenses based on actual claims history.

         Income taxes --

The  Company's  income  taxes are  presented  in  accordance  with  Statement of
Financial  Accounting  Standards No. 109,  "Accounting  for Income Taxes" ("SFAS
109") which requires  recognition of deferred tax liabilities and assets for the
expected  future  tax  consequences  of events  that have been  included  in the
financial  statements or tax returns.  Under SFAS 109,  deferred tax liabilities
and  assets  are  determined  based  on the  difference  between  the  financial
statement  and tax basis of assets and  liabilities,  using enacted tax rates in
effect for the year in which the differences are expected to reverse.

         Foreign currency translation --

The  functional  currency of the Company's  foreign  operation is the applicable
local  currency.  Consequently,  for the  operation  outside the United  States,
assets and  liabilities are translated into United States dollars using exchange
rates in effect at the balance  sheet date and revenues  and expenses  using the
average  exchange rate during the period.  The gains and losses  resulting  from
such translations are included as a component of stockholders' equity. Since the
Company's  French  subsidiary  operates only within France,  exposure to foreign
exchange risk is limited.

         Net loss per common share --

Net loss  applicable  to  common  shares  includes  adjustments  for  dividends,
accretion and redemption  amounts related to the Company's  preferred stock. Net
loss per common share is computed  using the weighted  average  number of common
shares and common share equivalents, unless antidilutive, outstanding during the
year.

         Use of estimates--

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

                                      F-10

         Stock Based Compensation --

Effective January 1, 1996, the Company  adopted  Statement of Financial  Accoun-
ting Standards No. 123, "Accounting for Stock-Based  Compensation" ("SFAS 123"),
which allows companies

which have stock-based  compensation  arrangements with employees to adopt a new
fair-value  basis of accounting for stock options and other equity  instruments,
or  to  continue  to  apply  the  existing  accounting  rules  under  Accounting
Principles Board Opinion No. 25,  "Accounting for Stock Issued to Employees" but
with additional disclosure. The Company has adopted the disclosure provisions of
SFAS 123 and  therefore,  the effect of adopting SFAS 123 did not have impact on
its  financial  position,  results of operations or cash flows as of, or for the
year ended, December 31, 1996 (see Note 9).

         Reclassifications --

Certain  reclassifications have been made to the prior year financial statements
in order to conform to the current year presentation.

NOTE 2 - SHORT-TERM INVESTMENTS

Restricted short-term investments at December 31, 1995 consisted of certificates
of deposit,  which served  primarily as  collateral  for the  Company's  line of
credit that was repaid on March 31,  1996.  There was no  short-term  investment
balance at December 31, 1996.

NOTE 3 - RECEIVABLES

Receivables consist of the following:

                                                                December 31,
                                                        ------------------------
                                                          1996             1995
                                                        --------         -------
                                                               (in thousands)

Trade accounts receivable                               $ 9,814          $11,549
Unbilled receivables                                      3,488            3,538
Notes receivable                                          2,475            2,808
Employee receivables                                        112              614
Other receivables                                          188              539
                                                       -------          -------
                                                        16,077           19,048
Allowance for uncollectible
 accounts receivable                                      (535)            (183)
Allowance for uncollectible
 notes receivable                                         (320)          (1,350)
                                                       -------          -------
                                                        15,222           17,515
Less: Current receivables, net                         (13,243)         (16,300)
                                                       -------          -------
Long-term receivables, net                            $  1,979         $  1,215
                                                      ========         ========
                                      F-11

The  Company's  notes  receivable  balance of $2.5  million at December 31, 1996
includes $1,950,000 of notes resulting from the divestitures of previously owned
operating units (the  "Divestitures") made during 1995 and 1996 (see Note 6) and
$525,000 of notes receivable from former  stockholders of a subsidiary  acquired
in 1994.

NOTE 4 - FIXED ASSETS

Fixed assets consist of the following:

                                                                December 31,
                                                         ----------------------
                                                           1996           1995
                                                         -------        -------
                                                               (in thousands)

Computer and office equipment                            $ 4,953        $ 3,911
Furniture and leasehold improvements                       1,131          1,199
Furniture, fixtures and equipment
 under capital leases                                      2,482          2,559
                                                         -------        -------
                                                           8,566          7,669
Less: Accumulated depreciation                            (5,679)        (3,900)
                                                         -------        -------
                                                         $ 2,887        $ 3,769
                                                         =======        =======

Depreciation and amortization expense related to fixed assets in 1996, 1995, and
1994  totaled  $1.7  million,  $2.1  million,  and $1.7  million,  respectively.
Included in depreciation and amortization  expense in 1996, 1995 , and 1994 were
$580,000,  $704,000,  and $150,000 of  amortization  expense  related to capital
leases, respectively.

NOTE 5 - SOFTWARE DEVELOPMENT AND PURCHASED TECHNOLOGY

Capitalized  software  development  and  purchased  technology  consists  of the
following:
                                                            December 31,
                                                      -------------------------
                                                         1996             1995
                                                      --------         --------
                                                             (in thousands)

Internally developed                                  $  8,517         $  7,064
Purchased technology                                     3,149            2,910
                                                      --------         --------
                                                        11,666            9,974
Less:  Accumulated amortization                         (7,853)          (5,344)
                                                      --------         --------
                                                      $  3,813         $  4,630
                                                      ========         ========

During 1996, 1995 and 1994, amortization of capitalized software development and
license costs totaled $2.6 million, $2.7 million and $3.0 million, respectively,
and was included in cost of products sold. The Company  expensed $3.4 million of
purchased  technology  and $721,000 of  capitalized  software in 1995 due to the
Divestitures. During 1994, the Company also charged to

                                      F-12

expense  $8.7 million in  capitalized  software and  purchased  technology.  The
charge includes $5.3 million resulting from the 1994  restructuring plan related
to products  abandoned.  The remaining $3.4 million charge, in 1994,  relates to
net realizability adjustments.

NOTE 6 - DIVESTITURES OF BUSINESSES

During 1996 and 1995, the Company engaged in a series of Divestitures  resulting
in losses of  $921,000  and $9.3  million  in 1996 and 1995,  respectively.  The
Company received as consideration from the dispositions, cash and notes totaling
$1.5 million and $4.3 million in 1996 and 1995, respectively.

The following  unaudited pro forma information assumes that the 1996 disposition
of the Symmetrical  Technologies,  Inc. subsidiary occurred January 1, 1996. The
unaudited pro forma information is not necessarily  indicative of the results of
future  operations  or the  actual  results  that would  have  occurred  had the
transactions  taken  place at  January  1,  1996  (in  thousands,  except  share
amounts):

Revenue                                                          $ 37,812
Net loss                                                         $(16,251)
Net loss per common share                                        $  (0.97)

NOTE 7 - OTHER ACCRUED EXPENSES

Other accrued expenses consist of the following:

                                                                  December 31,
                                                             -------------------
                                                              1996         1995
                                                             ------       ------
                                                                (in thousands)

Accrued restructuring costs (see Note 12)                    $ --         $  324
Accrued preferred dividends                                     714          527
Accrued income and other taxes                                1,667        1,667
Other                                                         1,507        1,134
                                                             ------       ------
                                                             $3,888       $3,652
                                                             ======       ======

NOTE 8 - BORROWING ARRANGEMENTS

Borrowings consist of the following:

                                                              December 31,
                                                         ----------------------
                                                           1996           1995
                                                         -------        -------
                                                              (in thousands)

Lines of credit                                          $  --          $ 3,276

Capital lease obligations bearing
 interest ranging from 11.7% to 12.7%                        957          1,702

Term loans from French government
 agencies, non-interest bearing,
 due at various dates through 1997                         1,098          1,162

Term notes with financial institutions,
 bearing interest ranging from 8.8% to
 10%, due at various dates through 1997                       96            489
                                                         -------        -------
                                                           2,151          6,629
Less:  Amounts due in one year                            (2,063)        (5,365)
                                                         -------        -------
Long-term debt and capital lease
 obligations                                             $    88        $ 1,264
                                                         =======        =======

At December 31, 1996, the Company  maintained lines of credit which provided for
borrowings up to $6.0 million, of which $5.0 million was issued by a stockholder
of the Company and $1.0 million was issued by a French  governmental  agency. On
December 31,  1996,  the Company  entered  into a restricted  $5 million line of
credit  agreement  with a  stockholder  (the  "Stockholder  line of  credit") to
finance the buy back of the Series F Preferred  Stock.  The Stockholder  line of
credit bears interest at the prime rate (8.25% at December 31, 1996) plus 2% and
is secured by the domestic accounts  receivable of the Company,  $6.4 million at
December 31, 1996.  In connection  with the  Stockholder  line of credit,  which
expires on September 30, 1998, the Company  issued  warrants for the purchase of
129,000 shares of Common Stock. The fair value of the warrants is $192,000 which
will be amortized over the term of the Stockholder  line of credit as additional
interest expense.  The Company repaid and terminated its previous line of credit
with a bank on March 31, 1996.

The French Line of Credit is secured by  accounts  receivable  of the  Company's
French  operations and bears interest at the French  interbank  monetary  market
rate (3.29% at December 31, 1996) plus 3%. The line of credit terminates May 31,
1997.  At December 31, 1996,  there were no borrowings  outstanding  against the
line of credit.

The Company  leases  certain of its furniture and equipment  under capital lease
arrangements.  Future  minimum lease  payments  under these capital  leases are:
1997, $925,000; 1998, $88,000; 1999, $10,000 and 2000, $7,000. Of the $1,030,000
total lease payments, $73,000 represents interest.

NOTE 9 - STOCKHOLDERS' EQUITY

         Common stock --

In March 1996,  the Company  completed a private  placement of 934,634 shares of
Common Stock,  together with warrants to purchase an additional 64,000 shares of
Common Stock,
                                      F-14

pursuant to Regulation D under the Securities Act of 1933. Net proceeds from the
offering were $3.0 million. The Company subsequently registered the Common Stock
and Common Stock issuable upon exercise of the warrants under the Securities Act
of 1933.

In March and June 1996,  the  Company  also issued  421,040 and 404,611  shares,
respectively,  of Common Stock pursuant to Regulation S under the Securities Act
of 1933.  Proceeds  from the  offerings  were  $1.7  million  and $1.3  million,
respectively.

         Series A preferred stock --

The Series A  Cumulative  Convertible  Preferred  Stock  ("Series A  Preferred")
stockholders are entitled to cumulative dividends at the rate of $2.00 per year,
payable quarterly, and can convert to common stock at a rate of 1.8116 shares of
common for each share of Series A Preferred  (an effective  conversion  price of
$13.80),  subject to adjustment in certain  circumstances.  In 1996, the Company
paid $3.2  million in  dividends  to the Series A  Preferred  stockholders.  The
Series A Preferred  stockholders  vote as a class to approve or  disapprove  any
issuance  of any  securities  senior to or on parity with the Series A Preferred
with  respect  to  dividends  or  distributions.  The Series A  Preferred  has a
liquidation  preference of $25.00 per share, plus accumulated  unpaid dividends.
At December 31, 1996,  the Series A Preferred  was  convertible  into  2,907,663
shares of Common Stock.

         Series E and G Preferred Stock--

The three shares of Series E Convertible Preferred Stock outstanding at December
31, 1995 were converted  during 1996 into 10,389 shares of Common Stock.  During
1996, all 200 shares of Series G Convertible Preferred Stock were converted into
551,546 shares of Common Stock.

         Series H and I Preferred Stock --

In June 1996, the Company completed two offerings,  one 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 the other
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 have been 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.
At December 31, 1996, 40 shares of Series H Preferred  Stock had been  converted
into  116,082  shares of Common  Stock and all 300 shares of Series I  Preferred
Stock had been converted into 1,272,214  shares of Common Stock. At December 31,
1996, the remaining  shares of Series H Preferred  Stock were  convertible  into
885,956 shares of Common Stock.

                                      F-15

The Series H Preferred Stock has a per share liquidation preference, subordinate
to the  liquidation  preferences  of the other series of  previously  issued and
outstanding  Preferred Stocks of an amount per share equal to the sum of $10,000
plus 12% per annum simple  interest  thereon  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 had a per share liquidation preference, subordinate
to the  liquidation  preferences  of the other series of  previously  issued and
outstanding Preferred Stocks, 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 was 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 bid price.  The Series I Preferred  Stock had a dividend  rate of 6%
which was paid at the time of conversion into shares of Common Stock, as elected
by the Company.

         Series J Preferred Stock --

In September  1996, the Company  completed an offering  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 have been 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. At December 31, 1996,  110
shares of Series J Preferred  Stock had been  converted  into 406,668  shares of
Common  Stock  and the  remaining  shares  of  Series  J  Preferred  Stock  were
convertible into 1,295,372 shares of Common Stock.

The Series J Preferred Stock has a per share liquidation preference, subordinate
to the  liquidation  preferences  of the other series of  previously  issued and
outstanding Preferred Stocks, 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%

                                      F-16

of 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.

         Stock purchase warrants --

The Company has the following warrants outstanding at December 31, 1996:
Warrants                                        Warrants          Exercise                              Outstanding  Shares Issuable
Issuance                                         Issued          Price Range   Expiration              Dec. 31, 1996   Upon Exercise
--------                                      ------------------------------  --------------           ------------- ---------------
Pre-IPO                                          148,993        $     1.00     May 1997                      33,663           33,663
IPO Units                                      1,595,000        $     5.993    May 1997                     654,392          850,710
Placement                                        397,472        $5.71-$14.88   May 1997-Oct. 1998           307,472          467,082
Other                                            350,334        $3.063-$7.00   Jan. 1997-June 2001          275,334          275,334
Series A preferred                               140,000        $    22.77     December 1998                140,000          253,624
Series D preferred                               227,068        $     7.57     July 2000                     27,068          227,068
Series E preferred                                34,400        $     7.20     July 2000                     34,400           34,400
Private Placement                                179,400        $3.50-$4.00    Nov.-Dec. 2000               179,400          179,400
Series G preferred                                40,000        $     3.75     December 2000                 40,000           40,000
Series H Preferred                                80,000        $     3.50     June 2001                     80,000           80,000
                                              ----------                                                 ----------       ----------
                                               3,192,667                                                  1,971,729        2,441,281
                                              ==========                                                 ==========       ==========
Stock option plans --

During 1994,  1995 and 1996, the Company  granted options to buy Common Stock of
the Company under five stock option plans.  Certain options qualify as incentive
stock options under the Internal  Revenue Code. The vesting and the terms of any
option granted under the plans are determined by the Board of Directors with the
requirement  that the term of an  incentive  stock  option  shall not exceed ten
years. To date, options granted range from five- to ten-year terms. The exercise
price per share of Common Stock subject to an incentive stock option will not be
less than the fair  market  value at the time of  grant.  The  Company  has also
issued  non-qualified plan options. An aggregate of 9.1 million shares have been
authorized for issuance under the Company's stock option plans.

Pro forma information regarding net income and earnings per share is required by
SFAS 123,  and has been  determined  as if the  Company  had  accounted  for its
employee  stock options  under the fair value  method.  The fair value for these
options was estimated at the date of grant using a Black-Scholes  option pricing
model  with the  following  weighted-average  assumptions  for  1995  and  1996,
respectively: average risk-free interest rates of 6.6% and 6.7%; dividend yields
of 0.0%; volatility factors of the expected market price of the Company's common
stock of .63; and a weighted-average expected life of the option of 5 years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable. In addition, option
                                      F-17

valuation models require the input of highly  subjective  assumptions  including
the  expected  stock price  volatility.  Because the  Company's  employee  stock
options  have  characteristics  significantly  different  from  those of  traded
options,  and because changes in the subjective input assumptions can materially
affect the fair value estimate,  in management's opinion, the existing models do
not  necessarily  provide a  reliable  single  measure  of the fair value of its
employee stock options.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options'  vesting  period.  The  Company's  pro
forma loss is $35.6  million and $23.1  million for 1995 and 1996,  respectively
and pro forma loss per share is $2.46 and $1.12 for 1995 and 1996, respectively.
The effect of  applying  SFAS 123 on the 1995 and 1996 pro forma net loss is not
necessarily  representative of the effects on reported net loss and net loss per
share for future years due to, among other things,  1) the vesting period of the
stock options and the 2) fair value of additional stock options in future years.

The  following  table  summarizes  the activity in stock  options  issued by the
Company:

                                                           Exercise
                                                   Options              Price
                                                ------------       -------------
Balance, January 1, 1994                          3,183,250         $1.00-$12.38
Granted                                           2,967,000         3.38-12.38
Exercised                                          (321,658)        1.00-7.63
Canceled                                           (560,792)        1.00-12.13
                                                 -----------       -------------
Balance, December 31, 1994                        5,267,800         1.00-12.38
Granted                                           2,486,250         3.32-6.82
Exercised                                           (89,957)        2.25-3.75
Canceled                                         (1,163,769)        2.25-12.38
                                                 ----------         ------------
Balance, December 31, 1995                        6,500,324         1.00-12.38

Granted                                           1,454,000         2.69-4.50
Exercised                                           (88,869)        1.00-3.75
Canceled                                           (851,619)        1.00-6.82
                                                  ----------        ------------
Balance, December 31, 1996                        7,013,836         $1.00-$8.75
                                                  ==========        ============

At December 31, 1996,  options to purchase  3,125,102 shares had vested and were
exercisable  at a weighted  average  exercise price of $3.90 per share and had a
weighted average contractual life of 6.5 years.

NOTE 10 - REDEEMABLE PREFERRED STOCK

In December 1996,  the Company  entered into an agreement with the holder of the
Series F Preferred  Stock to redeem the shares for an  aggregate of $9.9 million
or $5.50 per share. The agreement requires the Company to make payments totaling
$6.6 million  through June 30, 1997,  and an additional  $3.6 million on January
31, 1998. The $3.6 million payment due on January

                                      F-18

31, 1998, is subject to certain acceleration terms that are under the control of
the  Company.  Under the  agreement,  the  outstanding  obligation  amount  will
compound  at 8% per annum,  commencing  October 1, 1996.  The  reduction  of the
Company's  Series F  redemption  obligation  under  the  terms of the  agreement
resulted in a $6.0 million increase in stockholders' equity.

NOTE 11 - INCOME TAXES

The source of the loss before income taxes was from the following jurisdictions:

                                                      Year Ended December 31,
                                                 ------------------------------
                                                    1996                  1995
                                                 --------              --------
                                                          (in thousands)

U.S.                                             $(16,332)             $(23,480)
Foreign                                            (1,077)               (1,763)
                                                 --------              --------
                                                 $(17,409)             $(25,243)
                                                 ========              ========

Deferred tax assets and liabilities are comprised of the following:

                                                         Year Ended December 31,
                                                         -----------------------
                                                          1996            1995
                                                         ------          ------
                                                              (in thousands)
Current tax expense (benefit):
U.S. Federal                                               $--            $  51
                                                           -----          -----
State and local                                             --             --
                                                           -----          -----
Foreign                                                     --             --
                                                           -----          -----

Deferred tax expense:
Foreign                                                      (68)          (331)
                                                           -----          -----
Total income tax                                           $ (68)         $(280)
                                                           =====          =====

Deferred tax assets and liabilities are comprised of the following:
                                                              December 31,
                                                       ------------------------
                                                         1996             1995
                                                       --------        -------- 
                                                             (in thousands)
Deferred tax assets:
 Net operating losses                                  $ 24,419        $ 12,180
 Other                                                    1,659           1,997
                                                       --------        --------
  Gross deferred tax assets                            $ 26,078        $ 14,177
                                                       ========        ========

                                      F-19

Deferred tax liabilities:
 Software development costs                              (1,372)         (1,661)
                                                       --------        --------
  Gross deferred tax liabilities                         (1,372)         (1,661)
Deferred tax asset valuation allowance                  (24,752)        (13,032)
                                                       --------        --------
                                                       $    (46)       $   (516)
                                                       ========        ========
Current deferred tax assets
 (included in prepaid and
 other current assets net
 of valuation allowance)                               $    254        $    257
Non current deferred tax liabilities                       (300)           (773)
                                                       --------        --------
                                                       $    (46)       $   (516)
                                                       ========        ========

Income tax expense (benefit) differs from the amount of income tax determined by
applying  the  applicable  U.S.  statutory  federal  income tax rate to the loss
before income taxes as a result of the following differences:

                                                         Year Ended December 31,
                                                         -----------------------
                                                          1996           1995
                                                         ------         ------
                                                              (in thousands)
Statutory U.S. tax rate benefit                          (34.0%)        (34.0%)
State income taxes, net                                   (4.0)          (4.0)
Operating losses and tax credits
 with no current tax benefit                              37.5           31.0
Other                                                      0.1            5.9
                                                         -------        -------
                                                          (0.4%)         (1.1%)
                                                         =======        =======

As of December 31,  1996,  the Company had net  operating  loss and research tax
credit carry forwards of approximately  $53 million and $913,000,  respectively,
for U.S.  income tax purposes  which expire in years through  2010.  The Company
experienced  changes in  ownership  during prior years which  triggered  certain
limitations   under  Internal  Revenue  Code  Section  382.   Accordingly,   the
utilization  of the net operating  loss and research tax credits will be limited
in future years due to the changes in ownership.

Provision  has  not  been  made  for  U.S.  or   additional   foreign  taxes  on
undistributed earnings of foreign subsidiaries.  The earnings have been and will
continue to be reinvested in those  subsidiaries.  These  earnings  could become
subject to  additional  tax if they were  remitted  as  dividends,  if they were
loaned to the Company or a U.S.  affiliate,  or if the Company sold its stock in
the subsidiaries. It is not practicable to estimate the amount of additional tax
that might be payable on the foreign  earnings;  however,  the Company  believes
that,  due to the operation of the foreign tax credits,  any foreign tax credits
would largely eliminate any U.S. tax and offset any foreign tax.

                                      F-20

NOTE 12 - RESTRUCTURING CHARGES AND CAPITALIZED SOFTWARE WRITE-OFFS

At December 31, 1996,  the Company's  1994  restructuring  plan (the "Plan") was
complete.  In accordance with the Plan, 90 employees had been terminated  and/or
resigned and the Company's  excess leased  property was sublet through the lease
termination  date.  Under the Plan, the Company incurred net changes in estimate
of  $175,000  and  $1.4  million  in  1996  and  1995,   respectively   and  net
restructuring charges of $1.7 million in 1994. In conjunction with the Plan, the
Company also expensed capitalized software of $5.3 million in 1994.

NOTE 13 - BUSINESS SEGMENTS

The Company sells its products and services through a single industry segment to
a wide variety of customers throughout the United States and Western Europe. The
Company  performs  ongoing  credit  evaluations  of  its  customers'   financial
condition and generally does not require collateral from its customers.

The following table sets forth summary information for the years ended  December
31,  1996,  1995 and 1994 (in thousands):

                                                    United              Western
                                                    States              Europe
                                                   ---------           ---------
1996:
     Revenue                                       $ 21,383            $ 18,094
     Net loss                                       (16,332)             (1,009)
     Total assets                                    22,718              14,060

1995:
     Revenue                                       $ 38,367            $ 30,784
     Net loss                                       (23,531)             (1,432)
     Total assets                                    30,654              19,310

1994:
     Revenue                                       $ 37,619            $ 29,409
     Net loss                                       (35,360)             (4,265)
     Total assets                                    43,963              27,908

Revenue in 1996  included  sales to the U.S.  Government  and French  Government
totaling $1.1 million and $10.3 million, respectively.  Revenue in 1995 included
sales to the U.S.  Government  and French  Government  totaling $1.7 million and
$9.6  million,  respectively.  Revenue  in  1994  included  sales  to  the  U.S.
Government  and  French  Government  totaling  $3.3  million  and $7.6  million,
respectively.

                                      F-21

NOTE 14 - COMMITMENTS

The Company leases its corporate office, sales offices,  assembly facilities and
certain equipment under non-cancelable operating leases certain of which provide
for  annual  escalations  that are  amortized  over the lease  term and pro rata
operating expense reimbursements.  Rent expense related to these leases was $1.6
million,  $2.7 million and $2.9  million for the years ended  December 31, 1996,
1995, and 1994, respectively.

Future  minimum lease  payments  under  non-cancelable  operating  leases are as
follows (in thousands):

 Year Ending
 December 31,
-------------
     1997                                              $1,328
     1998                                               1,076
     1999                                                 940
     2000                                                 363
     Thereafter                                           --
                                                     ---------
                                                       $3,707
                                                     =========

NOTE 15 - CONTINGENCIES

         Department of Justice, Securities and Exchange  Commission  and Company
internal investigations --

During  November  1996,  the Company  received a letter from the  Securities and
Exchange   Commission   advising  the  Company  that  it  was   terminating   an
investigation that it had been conducting.  In 1994, the Company learned that it
was the  subject of  investigation  by the  Commission  and the U.S.  Attorney's
Office in the  Southern  District of New York which the Company  understood  was
focused  on  certain   accounting  issues,   including   questions  relating  to
capitalization  of software and  pooling-of-interests  accounting  treatment for
certain acquisitions, and certain matters related to activities during the years
1992 and 1993. The Company has had no  communications  with the U.S.  Attorney's
Office from the date it received the letter from the SEC.

         Other --

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
December 1996 Series F Preferred Stock  redemption  agreement (See Note 10), the
holder of the Series F Preferred  Stock  agreed to use best  efforts to obtain a
release  from the  landlord.  During  March  1997,  the  holder of the  Series F
Preferred Stock  successfully  obtained a full and unconditional  release of the
guarantee obligations of Dorotech.
                                      F-22

The Company is also subject to other legal  proceedings  and claims which are in
the ordinary  course of business.  Management  believes that the outcome of such
matters will not have a material impact on the Company's  financial  position or
its result of operations.

NOTE 16 - RELATED PARTY TRANSACTIONS

         The Company has employment and consulting  agreements with  individuals
who are current or former  members of the Board of Directors and officers of the
Company.  The Company has five year agreements with the Chairman of the Board of
Directors and  Secretary and with the former  Chairman of the Board of Directors
and his consulting  firm. The Company also has a five year consulting  agreement
with another  former  Director and his consulting  firm. The Company  recognized
total  compensation  expense of approximately  $715,000 and $898,000 in 1996 and
1995, respectively, related to these employment and consulting agreements.

During  December  1996,  the Company and a  stockholder  entered  into a line of
credit  agreement.  At December 31, 1996,  there were no borrowings  against the
line of credit (see Note 8).

The  Company  holds two  notes  receivable  totaling  $525,000  from two  former
stockholders  of a subsidiary  acquired in 1994 due and payable  December  1998.
Interest accrues at 6.55% per annum.

NOTE 17 - EMPLOYEE PROFIT SHARING PLANS AND 401K PLAN

The  Company  has a  mandatory  and a voluntary  profit  sharing  plan  covering
substantially all employees in France. Contributions to the plans are based upon
earnings of the French  operations.  Plan contributions in 1996 totaled $28,000,
while there were no contributions made to the plans in 1995 and 1994.

The Company also sponsors,  in the United  States,  a 401K plan which covers all
full-time  employees.  Participants in the plan may make  contributions of up to
fifteen   percent  of  pre-tax  annual   compensation.   The  Company  may  make
discretionary  matching  contributions  at the option of the Board of Directors.
The Company made no contributions in 1996, 1995 or 1994.

                                      F-23
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
               (In thousands, except share and per share amounts)
June 30,   December 31,
                                                           1997          1996
                                                        ----------- -----------
                                                        (Unaudited)
ASSETS

Current assets:
 Cash and cash equivalents                               $   1,845    $   7,601
 Accounts and notes receivable, net                         13,482       13,243
 Inventories                                                 1,602        1,503
 Prepaid expenses and other                                  2,265        2,362
                                                         ---------    ---------
   Total current assets                                     19,194       24,709
Fixed assets, net                                            2,439        2,887
Long-term notes receivable, net                              1,697        1,979
Software development costs and
 purchased technology, net                                   3,496        3,813
Goodwill, net                                                2,473        3,237
Other assets                                                   140          153
                                                         ---------    ---------
   Total assets                                          $  29,439    $  36,778
                                                         =========    =========

                  LIABILITIES & STOCKHOLDERS' EQUITY

Current liabilities:
 Current debt maturities and
 obligations under capital leases                        $   1,243    $   2,063
 Accounts payable                                            3,326        3,185
 Accrued compensation and related
 expenses                                                    2,168        1,891
 Deferred revenue                                            4,329        3,789
 Other accrued expenses                                      3,582        3,888
                                                         ---------    ---------
   Total current liabilities                                14,648       14,816
Long-term debt and obligations
 under capital leases                                        5,186           88
Deferred income taxes                                          338          300
                                                         ---------    ---------
   Total liabilities                                        20,172       15,204
Commitments
Redeemable Series F preferred
 stock, 792,186 and 1,792,186
 shares issued and outstanding                               6,357        9,857
Stockholders' equity:
 Preferred stock, $.0001 par
  value, 20,000,000 shares
  authorized; 1,605,125 and
  1,605,675 shares issued and
  outstanding
 Common stock, $.0001 par value,
  50,000,000 shares authorized;
  25,177,743 and 22,896,612
  shares issued and outstanding                                  3            2
 Additional paid-in-capital                                122,709      124,429
 Accumulated deficit                                      (119,298)    (113,098)
 Translation adjustment                                       (504)         384
                                                         ---------    ---------
   Total stockholders' equity                                2,910       11,717
                                                         ---------    ---------
   Total liabilities and stockholders' equity            $  29,439    $  36,778
                                                         =========    =========
The accompanying notes are an integral part of these financial statements.

                                      F-24
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
               (In thousands, except share and per share amounts)
                                   (Unaudited)
Three Months Ended June 30,
                                                     1997              1996
                                                 ------------      ------------
Revenue:
  Products                                       $      4,098      $      3,394
  Services                                              5,236             5,735
                                                 ------------      ------------
                                                        9,334             9,129
                                                 ------------      ------------
Costs and expenses:
  Cost of products sold                                 2,198             2,367
  Cost of services provided                             3,934             4,471
  Sales and marketing                                   3,640             4,351
  General and administrative                            1,689             3,102
  Product development                                   1,266             1,327
  Restructuring costs                                    --                 (19)
                                                 ------------      ------------
                                                       12,727            15,599
                                                 ------------      ------------
Loss before investment and
 interest income and income
 taxes                                                 (3,393)           (6,470)
  Investment and interest
   income (expense), net                                  (64)               87
                                                 ------------      ------------
Loss before income taxes                               (3,457)           (6,383)
  Income tax (benefit)
   provision                                               61              (114)
                                                 ------------      ------------
Net loss                                               (3,518)           (6,269)
                                                 ------------      ------------

Preferred stock preferences                              (930)             (865)
                                                 ------------      ------------
Net loss applicable to common shares             $     (4,448)     $     (7,134)
                                                 ============      ============

Net loss per common share                        $      (0.18)     $      (0.35)
                                                 ============      ============

Weighted average shares outstanding                24,963,956        20,208,855
                                                 ============      ============
The accompanying notes are an integral part of these financial statements.

                                      F-25
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
               (In thousands, except share and per share amounts)
                                   (Unaudited)
Six Months Ended June 30,
                                                     1997              1996
                                                 ------------      ------------
Revenue:
  Products                                       $      8,366      $      9,390
  Services                                             10,087            10,281
                                                 ------------      ------------
                                                       18,453            19,671
                                                 ------------      ------------
Costs and expenses:
  Cost of products sold                                 4,156             5,807
  Cost of services provided                             7,816             8,275
  Sales and marketing                                   7,252             8,320
  General and administrative                            3,300             5,527
  Product development                                   2,308             3,061
  Gain from extinguishment
   of debt                                               (267)             --
  Exchange fee and gain on
   sale of asset, net                                    --                 619
  Restructuring costs                                    --                (175)
                                                 ------------      ------------
                                                       24,565            31,434
                                                 ------------      ------------
Loss before investment and
 interest income and income
 taxes                                                 (6,112)          (11,763)
  Investment and interest
   income (expense), net                                  (33)              146
                                                 ------------      ------------
Loss before income taxes                               (6,145)          (11,617)
  Income tax (benefit)
   provision                                               55               (12)
                                                 ------------      ------------
Net loss                                               (6,200)          (11,605)
                                                 ------------      ------------

Preferred stock preferences                            (1,906)           (1,884)
                                                 ------------      ------------
Net loss applicable to common shares             $     (8,106)     $    (13,489)
                                                 ============      ============

Net loss per common share                        $      (0.33)     $      (0.69)
                                                 ============      ============

Weighted average shares outstanding                24,715,116        19,560,045
                                                 ============      ============
The accompanying notes are an integral part of these financial statements.

                                      F-26
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                     For the six months ended June 30, 1997
                      (In thousands, except share amounts)
                                   (Unaudited)
Additional
                                                  Preferred Stock                 Common Stock             paid-in     Accumulated 
                                                Shares         Amt.           Shares          Amt.         capital       Deficit    
                                              ------------------------      -------------------------    ------------  ------------
Balance December 31, 1996                     1,605,675      $     --       22,896,612     $        2     $  124,429     ($ 113,098)

Issuance of common stock
 upon exercise of warrants                                                      23,331                            23

Conversion of preferred
 stock                                             (550)                     2,257,800              1

Offering costs on issuance
 of preferred stock                                                                                              (25)

Issuance of warrants and
 extension                                                                                                       188

Dividends on preferred
 stock                                                                                                        (1,906)

Translation adjustment

Net loss                                                                                                                     (6,200)
                                             ----------      ----------     ----------     ----------     ----------     ----------

Balance June 30, 1997                         1,605,125            --       25,177,743     $        3        122,709       (119,298)
                                             ==========      ==========     ==========     ==========     ==========     ==========

                                                    Translation
                                                     Adjustment         Total
                                                    ------------       --------

Balance December 31, 1996                              $   384          $11,717

Issuance of common stock
 upon exercise of warrants                                                   23

Conversion of preferred
 stock                                                                        1

Offering costs on issuance
 of preferred stock                                                         (25)

Issuance of warrants and
 extension                                                                  188

Dividends on preferred
 stock                                                                   (1,906)

Translation adjustment                                    (888)            (888)

Net loss                                                                 (6,200)
                                                      --------          --------

Balance June 30, 1997                                     (504)         $ 2,910
                                                      ========          ========
The accompanying notes are an integral part of these financial statements.

                                      F-27
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
Six months Ended June 30,
                                                        1997             1996
                                                      ---------        --------
                                                            (In thousands)
Cash flows from operating activities:
 Net loss                                              $ (6,200)       $(11,605)
 Adjustments to reconcile net loss
  to net cash used in operating
  activities:
   Depreciation and amortization                          2,550           2,934
   Gain on sale of asset                                   --              (111)
   Restructuring costs                                     --              (175)
   Other non-cash items                                      10            --
   Changes in assets and
    liabilities:
     Accounts and notes receivable                         (836)          2,673
     Inventories                                           (182)            533
     Prepaid expenses and other                             190            (732)
     Accounts payable                                       474          (1,523)
     Accrued compensation and
      related expenses                                      418            (290)
     Accrued expenses, other                               (212)          2,053
     Deferred revenues                                      641            (792)
     Deferred income taxes                                   74             (91)
                                                       --------        --------
Net cash used in operating activities                    (3,073)         (7,126)
                                                       --------        --------

Cash flows from investing activities:
 Sale of short-term investments                            --               111
 Capitalized software development
  and license costs                                        (751)         (1,125)
 Purchases of fixed assets                                 (410)           (582)
                                                       --------        --------
Net cash used in investing activities                    (1,161)         (1,596)
                                                       --------        --------

Cash flows from financing activities:
 Proceeds from issuance of common
  and preferred stocks, net                                  (2)         11,902
 Cash dividends paid on Series A
  preferred stock                                        (1,605)         (1,605)
 Cash dividends paid on Series F
  preferred stock                                          (174)           --
 Payments on Mandatory Redeemable
  Preferred Stock                                        (3,500)           --
 Proceeds from borrowings and
  short-term investments                                  5,000            --
 Proceeds from sale and leaseback
  of fixed assets                                          --               196
 Proceeds from Notes Receivable
  related to business divestitures                           60            --
 Principal payments on capital
  lease obligations                                        (536)           (423)
 Principal payments on debt                                (633)           (213)
                                                       --------        --------
Net cash (used in) provided by
 financing activities                                    (1,390)          9,857
                                                       --------        --------

Effect of exchange rate changes on
 cash and cash equivalents                                 (132)            (81)
Net decrease in cash and cash
 equivalents                                             (5,756)          1,054
Cash and cash equivalents at
 beginning of year                                        7,601           9,359
                                                       --------        --------
Cash and cash equivalents at June 30,                  $  1,845        $ 10,413
                                                       ========        ========
The accompanying notes are an integral part of these financial statements.

                                      F-28
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             June 30, 1997 and 1996

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,  1996,  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 six month period ended June 30,
1997 may not be  indicative  of the results  that may be  expected  for the year
ending December 31, 1997.

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

2.  NEW ACCOUNTING PRONOUNCEMENT

In February 1997, the Financial  Accounting Standards Board issued Statement No.
128,  Earnings per Share,  which is required to be adopted on December 31, 1997.
At that time,  the Company will be required to change the method  currently used
to compute  earnings per share and to restate all prior  periods.  Under the new
requirements for calculating  primary earnings per share, the dilutive effect of
stock options will be excluded.  The impact of Statement 128 on the  calculation
of the  primary  and fully  diluted  earnings  per share is not  expected  to be
material.

3.  REDEEMABLE PREFERRED STOCK

During the first  quarter of 1997,  the  Company  redeemed  1,000,000  shares of
Series F Preferred Stock for $3,500,000. The Company used proceeds from its line
of credit to finance the Series F Preferred share buy back.

During  the  second  quarter  of 1997,  the  Company  was to have  redeemed  the
remaining  792,186 shares of Series F Preferred Stock for  $2,772,651.  Under an
amendment to the December 1996 redemption  agreement,  the $2,772,651 payment is
now due on January 31, 1998,  subject to certain  acceleration  terms related to
the occurrence of certain events that are under the control of the Company.

                                      F-29

4.  LINE OF CREDIT

During the second  quarter of 1997,  the Company drew the  remaining  $1,500,000
from its $5,000,000 line of credit established to finance the Series F Preferred
share  buy  back.  As  part of the  additional  borrowing,  the use of  proceeds
restriction was amended to allow its use for general corporate  purposes and the
Company entered into an amendment to the security agreement,  which expanded the
lender's  security  interest to include all  personal  property of the  Company,
including without limitation,  (1) all personal property of the Company, (2) all
leases, licenses, permits, (3) all 1View software products intellectual property
now owned or  hereafter  developed by the Company,  (4) all  inventory,  (5) all
accounts,  contract rights,  chattel papers,  instruments,  general intangibles,
documents,  other obligations,  monies, revenues,  credits, claims, goodwill and
causes of action.  (6) all trade or service  names,  trademarks,  service marks,
logos and all patents, patent applications, copyrights, licensing agreements and
royalty  payments,  (7)  proceeds of the  foregoing,  and (8) all of the capital
stock of Dorotech, S.A.

5.  NASDAQ-NMS MAINTENANCE REQUIREMENTS

At June 30, 1997, the Company had not maintained 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.  To remedy the short-fall and offset
any adverse impact, the Company issued,  during July 1997 3,300 shares of Series
K Convertible  Preferred  Stock ("Series K Stock") and warrants and received net
proceeds of $2.9 million.  Pursuant to the terms of the offering, the purchasers
are also required to make  additional  purchases of shares for $3.0 million upon
the Company's achievement of certain performance milestones and the satisfaction
of certain other  conditions and an additional $4.7 million at their option (See
Note 6).  Although  the Company  believes  that it can maintain the required net
tangible  assets of at least $4  million  through  additional  issuances  of its
Series K Stock or other additional offerings of equity securities,  there can be
no  assurance  that the  Company  will  complete  such  offerings  or  that,  if
completed,  they  will be on terms  favorable  to the  Company  or in an  amount
sufficient to permit the Company to continue to maintain net tangible  assets of
at least $4 million.

6.  SUBSEQUENT EVENTS

During July 1997, the Company issued,  pursuant to a private placement exemption
under the Securities Act of 1933, as amended,  8% Convertible  Notes due July 8,
2002 totaling $1.8 million.  The notes are convertible into the Company's Common
Stock  beginning 45 days after issue at a conversion  price of $1.875 per share,
the price on the issue date.

On or after  October  30,  1997,  the  holders  have the  right  to  redeem  the
convertible  notes plus  accrued  interest on one  business  days' notice to the
Company in cash or shares of Common  Stock,  at the  Company's  election.  On or
after  October 30,  1997,  the  Company has the right to redeem the  convertible
notes plus accrued interest on 30 days' notice to

                                      F-30

the holders  in  cash  or  share  of  Common Stock, at the holders' election. If
shares of Common Stock are used,  Common Stock is issued at a rate of 90% of the
previous 5 trading days average  closing bid price.  The interest is  compounded
semi-annually  . The warrants  issued to the investors have an exercise price of
$1.875 per share and expire on July 8, 2000.

During  July 1997,  the  Company  agreed to issue up to 11,000  units  ("Units")
consisting  of one share of Series K Stock and  warrants to acquire 75 shares of
Common Stock at an exercise  price of $2.40 per share at the price of $1,000 per
Unit. On July 28, 1997, the Company issued 3,300 Units and received net proceeds
of $2.9 million.  The Company also issued warrants to purchase 162,462 shares of
Common Stock at $1.625 per share to the placement agent in the  transaction.  In
accordance with the terms of the offering, the proceeds will be used for working
capital and general corporate  purposes.  Pursuant to the terms of the offering,
the purchasers are required to make  additional  purchases of the units for $3.0
million upon the Company's achievement of certain performance milestones and the
satisfaction of certain other conditions and the remaining $4.7 million is to be
offered to the purchasers and the purchasers, at their option, may elect to make
purchases of the units.  In connection  with the sale of the units,  the Company
agreed  to  register  the  Common  Stock  issuable  upon the  conversion  of the
preferred stock and the execute of the warrants.

The Series K Preferred Stock has a per share liquidation preference,  subject to
the  liquidation  preferences of the Series A Preferred  Stock,  the Series F-1,
F-2, F-3 and F-4 Preferred  and the Series H Preferred  Stock of an amount equal
to the sum of $1,000 plus 7% 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 $1,000 by the lesser of (1) $2.00
and (2) the lowest  closing  sale price for the Common Stock for the ten trading
days  immediately   preceding  the  conversion  multiplied  by  the  "Conversion
Percentage."  The  "Conversion  Percentage"  is (a)  105%  prior to the 61st day
following  July 28,  1997 (the  "First  Closing  Date"),  (b) 96% for the period
between the 61st and the 90th day following the First Closing Date,  (c) 85% for
the period  between the 91st and the 180th day following the First Closing Date,
and (d) 81% for the period after the 180th day following the First Closing Date.
The Series K Stock has a dividend  rate of 7% per annum  which is payable at the
time of conversion  or redemption in cash or shares of Common Stock,  as elected
by the Company.

During July 1997,  the Company  announced  that it was  suspending  the dividend
payment to holders of Series A Cumulative Convertible Preferred Stock ("Series A
Stock").  Holders of Series A Stock did not  receive  dividends  payable for the
three months ended July 31, 1997 in the amount of $0.50 per share or $802,512.50
in the  aggregate.  In the event the Company  fails to pay a required  quarterly
dividend,  the impact of such failure is that the conversion price is reduced by
$0.50 per share.  Further, if the Company fails to pay four quarterly dividends,
the Series A  shareholders  are entitled to elect one director to the  Company's
Board of Directors.

                                      F-31
FINANCIAL STATEMENTS

No  dealer,  salesperson  or any other  person has
been authorized to give any information or to make
any   representations   in   connection  with  the
Offering   other   than  those  contained  in this
Prospectus and, if given or made, such information
or representations  must  not  be  relied  upon as
having been authorized  by the   Company   or  any
Selling  Shareholder.  This  Prospectus  does  not         10,000,000 SHARES
constitute an offer to sell,  or a solicitation of
an offer to purchase,  any securities  other  than
the securities to which it relates  or an offer to
sell or the solicitation of an offer  to  buy  the  Network Imaging Corporation
Common  Stock  in  any circumstances in which such
offer or  solicitation  is  unlawful.  Neither the           COMMON STOCK
delivery  of  this  Prospectus  nor  any sale made
hereunder shall, under any  circumstances,  create
any implication  that  there has been no change in
the facts set forth in the  Prospectus  or  in the
affairs of the  Company  since  the date hereof or
that the information  contained  herein is correct
as of any time subsequent to the date hereof.

                                                          ---------------------
                        TABLE OF CONTENTS
                                            Page                PROSPECTUS
Prospectus Summary..............................          _____________________
Certain Forward Looking Statements..............
Risk Factors....................................
Use of Proceeds.................................
Dividend and Market Price Information...........
Capitalization..................................
Selected Financial Data.........................
Management's Discussion and Analysis of
  Financial Condition and Results of Operations.
Business........................................
Management......................................
Ownership of Network Imaging
  Corporation Stock.............................
Certain Transactions............................
Plan of Distribution............................
Selling Stockholders............................
Description of Capital Stock....................
Shares Eligible for Future Sale.................
Independent Accountants.........................
Legal Matters...................................
Experts.........................................
Additional Information..........................
Index to Financial Statements...................

                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

         The  following  table sets forth the  various  expenses  expected to be
incurred by the Registrant in connection  with the sale and  distribution of the
securities  being  registered  hereby.  All  amounts  are  estimated  except the
Securities and Exchange Commission registration fee.

SEC registration fee......................................  $
Listing fees..............................................
Accounting fees and expenses..............................
Legal fees and expenses...................................
Printing and engraving expenses...........................
Miscellaneous fees and expenses...........................
                                                            ==================
                                                            $
        Total............................................. 
                                                            ==================

ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS

         Section  145  of the  Delaware  General  Corporation  Law,  as  amended
("DGCL"),  provides that a corporation  may indemnify any person who was or is a
party  or is  threatened  to be  made a  party  to any  threatened,  pending  or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative  (other than an action by or in the right of the  corporation)  by
reason of the fact that the person is or was a  director,  officer,  employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director,  officer, employee or agent of another corporation,  partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees),  judgments,  fines and amounts paid in settlement actually and reasonably
incurred by the person in connection  with such action,  suit or proceeding,  if
the person acted in good faith and in a manner the person reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal  action or  proceeding,  had no reasonable  cause to believe the
person's  conduct was unlawful.  Section 145 further provides that a corporation
similarly may indemnify any such person  serving in any such capacity who was or
is a party or is  threatened  to be made a party to any  threatened,  pending or
completed  action or suit by or in the  right of the  corporation  to  procure a
judgment in its favor,  against  expenses  actually and  reasonably  incurred in
connection  with the defense or  settlement of such action or suit if the person
acted in good faith and in a manner the person  reasonably  believed to be in or
not  opposed  to the  best  interests  of the  corporation  and  except  that no
indemnification  shall be made in respect  of any  claim,  issue or matter as to
which such  person  shall  have been  adjudged  to be liable to the  corporation
unless and only to the extent that the  Delaware  Court of Chancery or the court
in which such action or suit was brought shall determine upon application  that,
despite the  adjudication of liability but in view of all the  circumstances  of
the case,  such person is fairly and  reasonably  entitled to indemnity for such
expenses that the Court of Chancery or such other court shall deem proper.

         Section  102(b)(7) of the DGCL permits a corporation  to include in its
certificate of  incorporation  a provision  eliminating or limiting the personal
liability  of a director to the  corporation  or its  stockholders  for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not  eliminate or limit the  liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders,  (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing  violation  of law,  (iii) under  Section 174 of the DGCL  (relating  to
unlawful  payment of dividends and unlawful stock purchases and  redemptions) or
(iv) for any transaction  from which the director  derived an improper  personal
benefit. Article SEVENTH of the Registrant's Amended and Restated Certificate of
Incorporation  contains a provision that so eliminates the personal liability of
the Registrant's directors.

         Article IX of the Registrant's  Bylaws provides for  indemnification by
the  Registrant of its directors  and officers  ("Indemnifiable  Party") if such
Indemnifiable  Party acted in good faith and in a manner the Indemnifiable Party
reasonably believed to be in or not opposed to the best interests of the Company
(and with respect to any criminal action or proceeding had not reasonable  cause
to believe his or her conduct was unlawful)  and except that no  indemnification
shall be made in  respect  of any  claim,  issue  or  matter  as to  which  such
Indemnifiable  Party shall have been adjudged to be liable to the Company unless
and only to the extent  that the Court of  Chancery  of the State of Delaware or
the  court  in which  such  action  or suit was  brought  shall  determine  upon
application  that,  despite the  adjudication  of  liability  but in view of all
circumstances  of the case,  such  person is fairly and  reasonably  entitled to
indemnity  for such  expenses  which the Court of  Chancery  or such other court
shall deem proper.

ITEM 15.  Recent Sales of Unregistered Securities

         In December 1996,  pursuant to Regulation D under the  Securities  Act,
the Company  issued  warrants to purchase  100,000  shares of Common Stock at an
exercise  price of $3.06 per share ("$3.06  Warrants")  to a stockholder  of the
Company  in  connection  with a $5  million  loan  from the  stockholder  to the
Company.
         In July 1997,  the Company  issued 3,300 shares of Series K Convertible
Preferred  Stock and warrants to purchase  247,500  shares of Common Stock at an
exercise  price of $2.40 per share to two investors  pursuant to Regulation D of
the  Securities  Act for an  aggregate  of  $3,300,000.  The Company also issued
warrants  to purchase  162,462  shares of Common  Stock at an exercise  price of
$1.625 per share,  valued at $264,000,  to a placement  agent in connection with
the above described offering in reliance on Regulation D of the Securities Act.

         In addition,  in July 1997,  the Company  issued to two 8%  convertible
notes  and  attached  36,000  warrants  to  purchase  Common  Stock  each to two
investors  for an aggregate  of $1.8 million in reliance on  Regulation D of the
Securities  Act. The notes are convertible  into shares of the Company's  Common
Stock at price of $1.875 per share and the  warrants are  exercisable  at $1.875
per share.

ITEM 16.  EXHIBITS.

         The  exhibits  listed  in the  Exhibit  Index  are  filed as part of or
incorporated by reference in this Registration Statement:

Exhibit No.       Description
2.1                 Agreement and Plan of Reorganization by and among  the Comp-
                    any,  Dorotech  France SA and the  stockholders  of Dorotech
                    France SA dated August 30, 1993 with the amendments  thereto
                    dated September 29, 1993 and October 1, 1993.  (Incorporated
                    by reference  to Exhibit 1 to  Company's  Report on Form 8-K
                    relating to such Agreement and Plan of Reorganization  filed
                    October 13, 1993.)

2.2                 Agreement for the Purchase and Sale of Assets of Symmetrical
                    Technologies,  Inc. as of September 30, 1996.  (Incorporated
                    by  reference  to Exhibit  10.a to the  Company's  Quarterly
                    Report  on Form  10-Q for the  period  ended  September  30,
                    1996.)

3.1                 Restated  Certificate  of  Incorporation as of September 22,
                    1997.

3.2                 Restated  Bylaws as of May 17, 1996  (Incorporated by refer-
                    ence to Exhibit  3.11 to  Amendment  No. 1 to the  Company's
                    Form 10-Q for the quarterly period ended June 30, 1997).

3.3                 Certificate  of   Designations   for  Series  A   Cumulative
                    Convertible  Preferred  Stock  filed with the  Secretary  of
                    State  of  the  State  of  Delaware  on  December  7,  1993.
                    (Incorporated  by reference to Exhibit 3.1c to the Company's
                    registration   statement  on  Form  SB-2  (Registration  No.
                    33-73164) filed December 20, 1993.)

3.4                 Certificates  of Designations for Series F-1,  F-2,  F-3 and
                    F-4 Convertible  Preferred Stock filed with the Secretary of
                    State  of  the  State  of  Delaware   on  March  29,   1996.
                    (Incorporated   by  reference  to  Exhibit   3.(ii)  to  the
                    Company's  Annual  Report on Form 10-K for the  fiscal  year
                    ended December 31, 1995.)

3.5                 Certificate of  Designations for Series H  Convertible  Pre-
                    ferred  Stock  filed  with  the  Secretary  of the  State of
                    Delaware on July 25,  1996.  (Incorporated  by  reference to
                    Exhibit  3(i).a to the  Company's  Quarterly  Report on Form
                    10-Q for the period ended June 30, 1996.)

3.6                 Certificate  of  Designation  of Series K  Convertible  Pre-
                    ferred  Stock of the  Company  filed in Delaware on July 28,
                    1997.  (Incorporated  by  reference  to Exhibit  3.12 to the
                    Company's Form 10-Q for the quarterly  period ended June 30,
                    1997.)

4.1                 Specimen Common Stock Certificate.(Incorporated by reference
                    to  Exhibit  4.2  to  Amendment   No.  1  to  the  Company's
                    registration   statement  on  Form  S-1   (Registration  No.
                    33-45721) filed April 10, 1992.)

5                   Opinion of Kirkpatrick & Lockhart LLP.*

10.1                Warrant Agreement between the  Company  and  American  Stock
                    Transfer  &  Trust  Co.   dated  as  of  February  1,  1993.
                    (Incorporated  by reference  to Exhibit 1 to  Post-Effective
                    Amendment No. 1 to Company's  registration statement on Form
                    S-1 (Registration No. 33-45721) filed April 1, 1993.)

10.2                Amendment  No. 1 dated as of April 15,  1993 to the  Warrant
                    Agreement  between the Company  and  American  Stock Trust &
                    Transfer  Co.  (Incorporated  by  reference  to Exhibit 2 to
                    Post-Effective  Amendment  No. 1 to  Company's  registration
                    statement  on Form S-1  (Registration  No.  33-45721)  filed
                    April 1, 1993.)

10.3                Warrant  Agreement  between  the  Company and American Stock
                    Transfer   &  Trust  Co.   dated  as  of  April  28,   1993.
                    (Incorporated  by  reference  to  Exhibit  4.4 to  Company's
                    registration   statement  on  Form  SB-2  (Registration  No.
                    33-64046) filed June 8, 1993.)

10.4                Specimen  Warrant  Certificate  (Public  Warrants).  (Incor-
                    porated by reference  to Exhibit 4.5 to  Amendment  No. 1 to
                    the   Company's   registration   statement   on   Form   S-1
                    (Registration No. 33-45721) filed April 10, 1992.)

10.5                Specimen  Warrant  Certificate   (International/Oakes  Fitz-
                    williams Series).  (Incorporated by reference to Exhibit 4.6
                    to the  Company's  Annual Report on Form 10-KSB for the year
                    ended December 31, 1992.)

10.6                Specimen  Warrant  Certificate  (International/Thomas  James
                    Series).  (Incorporated  by  reference  to  Exhibit  4.7  to
                    Company's  registration statement on Form SB-2 (Registration
                    No. 33-64046) filed June 8, 1993.)

10.7                Warrant to purchase 20,700 units issued  to Oakes,  Fitzwil-
                    liams & Co. Limited.  (Incorporated  by reference to Exhibit
                    4.8  to  Company's   registration  statement  on  Form  SB-2
                    (Registration No. 33-64046) filed June 8, 1993.)

10.8                Warrant to purchase 33,214 units issued  to Oakes,  Fitzwil-
                    liams & Co. Limited.  (Incorporated  by reference to Exhibit
                    4.9  to  Company's   registration  statement  on  Form  SB-2
                    (Registration No. 33-64046) filed June 8, 1993.)

10.9                Placement  Agent's  Warrant to  purchase  8,150 units issued
                    to Thomas James Associates,  Inc. (Incorporated by reference
                    to Exhibit 4.10 to Company's  registration statement on Form
                    SB-2 (Registration No. 33-64046) filed June 8, 1993.)

10.10               Representative's  Warrant issued to Thomas James Associates,
                    Inc. (Incorporated by reference to Exhibit 4.11 to Company's
                    registration   statement  on  Form  SB-2  (Registration  No.
                    33-64046) filed June 8, 1993.)

10.11               Warrant Agreement among the Company, American Stock Transfer
                    & Trust Co. and Thomas James  Associates,  Inc.  dated as of
                    May 8, 1992.  (Incorporated  by reference to Exhibit 4.12 to
                    the  Company's  Annual  Report on Form  10-KSB  for the year
                    ended December 31, 1992.)

10.12               Form of Amendment  to  Warrant  Agreement among the Company,
                    American  Stock  Transfer  &  Trust  Co.  and  Thomas  James
                    Associates,  Inc. dated as of May 8, 1992  (incorporated  by
                    reference  to  Exhibit  4.12.a  to  Amendment  No.  1 to the
                    Company's  registration statement on Form SB-2 (Registration
                    No. 33-64046) filed January 5, 1994).

10.13               Warrant to purchase 50,000 shares of Common  Stock to Oakes,
                    Fitzwilliams & Co.  Limited.  (Incorporated  by reference to
                    Exhibit   4.13  to   Amendment   No.  1  to  the   Company's
                    registration   statement  on  Form  SB-2  (Registration  No.
                    33-64046) filed January 5, 1994.)

10.14               Warrants to purchase an aggregate of 45,000 shares of Common
                    Stock  issued to American  Wealth  Management,  Inc.,  Edsel
                    Anderson, Harris Anderson and Eric Swartz.  (Incorporated by
                    reference  to  Exhibit  4.14  to  Amendment  No.  1  to  the
                    Company's  registration statement on Form SB-2 (Registration
                    No. 33-64046) filed January 5, 1994.)

10.15               Form of Warrant  issued in  connection  with  February  1992
                    debt financing.  (Incorporated by reference to Exhibit 4.6.b
                    to  the  Company's   registration  statement  on  Form  S-1.
                    (Registration No. 33-45721) filed February 13, 1992.)

10.16               Warrant to  purchase 227,068 shares of Common  Stock  issued
                    to Swartz  Investments  Inc.  (Incorporated  by reference to
                    Exhibit 4.17 to the Company's Annual Report on Form 10-K for
                    the fiscal year ended December 31, 1995.)

10.17               Warrant to purchase  34,400 shares of Common Stock issued to
                    Oakes,   Fitzwilliams  &  Co.  Limited.   (Incorporated   by
                    reference to Exhibit 4.18 to the Company's  Annual Report on
                    Form 10-K for the fiscal year ended December 31, 1995.)

10.18               Form  of  Warrants  issued  in connection with December 1995
                    Series G Convertible Preferred Stock offering. (Incorporated
                    by reference to Exhibit 4.19 to the Company's  Annual Report
                    on Form 10-K for the fiscal year ended December 31, 1995.)

10.19               Form of Warrants issued in connection with November/December
                    1995 Private  Placement of Common  Stock.  (Incorporated  by
                    reference to Exhibit 4.20 to the Company's  Annual Report on
                    Form 10-K for the fiscal year ended December 31, 1995.)

10.20               Warrant to purchase  25,000 shares of Common Stock issued to
                    Ed  Feldman  dated  November  7,  1995.   (Incorporated   by
                    reference to Exhibit 4.21 to the Company's  Annual Report on
                    Form 10-K for the fiscal year ended December 31, 1995.)

10.21               Warrant to purchase  4,000  shares of Common Stock issued to
                    Jarl  McDonald  dated  December 20, 1995.  (Incorporated  by
                    reference to Exhibit 4.22 to the Company's  Annual Report on
                    Form 10-K for the fiscal year ended December 31, 1995.)

10.22               Warrant to purchase 4,000 shares  of  Common Stock issued to
                    Christian Stackhouse dated December 20, 1995.  (Incorporated
                    by reference to Exhibit 4.23 to the Company's  Annual Report
                    on Form 10-K for the fiscal year ended December 31, 1995.)

10.23               Exchange Agreement between CDR Enterprises the Company dated
                    March 29, 1996.  (Incorporated  by reference to Exhibit 4.35
                    to the  Company's  Annual Report on Form 10-K for the fiscal
                    year ended December 31, 1995.)

10.24               Warrant to purchase  100,000  shares of Common Stock to Fred
                    E.  Kassner  dated  December  31,  1996.   (Incorporated  by
                    reference to Exhibit 4.36 to the Company's  Annual Report on
                    Form 10-K for the fiscal year ended December 31, 1996.)

10.25               Warrant to purchase up to 25,000 shares of Common  Stock  to
                    Damon  Testaverde  dated January 31, 1997.  (Incorporated by
                    reference to Exhibit 4.37 to the Company's  Annual Report on
                    Form 10-K for the fiscal year ended December 31, 1996.)

10.26               Warrant to purchase 4,000 shares of Common Stock to Susan G.
                    Kaufman dated December 31, 1996.  (Incorporated by reference
                    to Exhibit 4.38 to the Company's  Annual Report on Form 10-K
                    for the fiscal year ended December 31, 1996.)

10.27               Eight Percent (8%) Convertible  Note between Network Imaging
                    Corporation  and Wood  Gundy in trust  for RRSP 550 98866 19
                    and  Gundyco  in trust  for RRSP 550  99119 12 as of July 9,
                    1997 and attached  Schedule.  (Incorporated  by reference to
                    Exhibit 10.22 to the  Company's  Form 10-Q for the quarterly
                    period ended June 30, 1997.)

10.28               Securities  Purchase   Agreement   between  Network  Imaging
                    Corporation and Capital  Ventures  International  and Zanett
                    Lombardier,  Ltd.  as of July  28,  1997.  (Incorporated  by
                    reference to Exhibit  10.23 to the  Company's  Form 10-Q for
                    the quarterly period ended June 30, 1997.)

10.29               Registration    Rights  Agreement  between  Network  Imaging
                    Corporation and Capital  Ventures  International  and Zanett
                    Lombardier,  Ltd.  as of July  28,  1997.  (Incorporated  by
                    reference to Exhibit  10.24 to the  Company's  Form 10-Q for
                    the quarterly period ended June 30, 1997.)

10.30               Warrant to purchase 20,000 shares  of Common Stock issued to
                    Wood  Gundy in trust  for  RRSP 550  98866 19 dated  July 9,
                    1997.  (Incorporated  by reference  to Exhibit  10.25 to the
                    Company's Form 10-Q for the quarterly  period ended June 30,
                    1997.)

10.31               Warrant to  purchase 16,000 shares of Common Stock issued to
                    Gundyco  in trust for RRSP 550 99119 12 dated  July 9, 1997.
                    (Incorporated by reference to Exhibit 10.26 to the Company's
                    Form 10-Q for the quarterly period ended June 30, 1997.)

10.32               Warrant to purchase 112,500 shares of Common Stock issued to
                    Capital   Ventures   International   dated  July  28,  1997.
                    (Incorporated by reference to Exhibit 10.27 to the Company's
                    Form 10-Q for the quarterly period ended June 30, 1997.)

10.33               Warrant to purchase 135,000 shares of Common Stock issued to
                    Zanett Lombardier,  Ltd. dated July 28, 1997.  (Incorporated
                    by reference to Exhibit 10.28 to the Company's Form 10-Q for
                    the quarterly period ended June 30, 1997.)

10.34               Warrant to purchase 162,462 shares of Common Stock issued to
                    the  Zanett  Securities  Corporation  dated  July 28,  1997.
                    (Incorporated by reference to Exhibit 10.29 to the Company's
                    Form 10-Q for the quarterly period ended June 30, 1997.)

10.35               Placement Agency Agreement dated July 2, 1997  between  Net-
                    work   Imaging   Corporation   and  The  Zanett   Securities
                    Corporation.  (Incorporated by reference to Exhibit 10.30 to
                    the Company's Form 10-Q for the quarterly  period ended June
                    30, 1997.)

10.36               Security  Agreement  dated  as  of December 31, 1996 between
                    Network Imaging Corporation and Fred Kassner.  (Incorporated
                    by reference to Exhibit 10.31 to the Company's Form 10-Q for
                    the quarterly period ended June 30, 1997.)

10.37               Amendment No. 1  to Loan  Agreement dated as of June 8, 1997
                    between  Network  Imaging   Corporation  and  Fred  Kassner.
                    (Incorporated by reference to Exhibit 10.32 to the Company's
                    Form 10-Q for the quarterly period ended June 30, 1997.)

10.38               Amendment  No.  1 to  Security Agreement  dated  as of  June
                    8,  1997  between  Network  Imaging   Corporation  and  Fred
                    Kassner.  (Incorporated by reference to Exhibit 10.33 to the
                    Company's Form 10-Q for the quarterly  period ended June 30,
                    1997.)

10.39               Employment  Agreement  between  the  Company,  BCG, Inc. and
                    Robert P.  Bernardi  dated  May 28,  1996  (incorporated  by
                    reference  to Exhibit 10.a to the  Company's  report on Form
                    8-K filed August 2, 1996).

10.40               Form  of  Consulting  Agreement  by and between the Company,
                    Sterling  Capital Group,  Inc. and Robert M.  Sterling,  Jr.
                    effective  February 1, 1994.  (Incorporated  by reference to
                    Exhibit  10.4.b  to  Post-Effective  Amendment  No. 1 to the
                    Company's  registration statement on Form SB-2 (Registration
                    No. 33-73164) filed January 14, 1994.)

10.41               Amendment  dated October 1, 1995 by and between the Company,
                    Sterling  Capital Group,  Inc., and Robert M. Sterling,  Jr.
                    (Incorporated   by  reference  to  Exhibit   10.4.c  to  the
                    Company's  Annual  Report on Form 10-K for the  fiscal  year
                    ended December 31, 1995.)

10.42               Purchase Agreement by and between the Company and CDR Enter-
                    prises  for  the  repurchase  of  the  Company's   Series  F
                    Preferred  Stock dated December 31, 1996.  (Incorporated  by
                    reference to Exhibit 10.20 to the Company's Annual Report on
                    Form 10-K for the fiscal year ended December 31, 1996.)

10.43               Loan  Agreement by and between the Company and Fred E. Kass-
                    ner for a line of credit of  $5,000,000  dated  December 31,
                    1996.  (Incorporated  by reference  to Exhibit  10.21 to the
                    Company's  Annual  Report on Form 10-K for the  fiscal  year
                    ended December 31, 1996.)

10.44               Amendment dated January 1, 1996 among Network  Imaging  Cor-
                    poration, Sterling Capital Group and Robert M. Sterling, Jr

10.45               Amendment dated January 1, 1996 among Network  Imaging  Cor-
                    poration,  BCG,  Inc. and Robert P. Bernardi.

10.46               Amendment to Purchase Agreement effective May 30, 1997  bet-
                    ween Network Imaging  Corporation and CDR Enterprises.

22                  Subsidiaries.

23.1                Consent of Ernst & Young LLP, Independent Accountants.

23.2                Consent of Price Waterhouse LLP, Independent Accountants.

23.3                Consent of Kirkpatrick & Lockhart LLP (Contained in Exhibit
                    5.)

24                  Power of Attorney (see page ___).
 
27.1               Financial data schedule for the year ended December 31, 1994.

27.2               Financial data schedule for the year ended December 31, 1995.

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

* To be filed by amendment.

16.b.  Financials Statements Schedules

         The 1996 Valuation Allowance Schedule was not included in the Company's
Form 10-K for the fiscal year ended December 31, 1996. Such schedule was omitted
from that  form,  but the  information  therein  contained  is  included  in the
financial  statements  and notes  included  in the Form  10-K and the  financial
statements and notes included herein.

ITEM 17.  UNDERTAKINGS.

         (a) The undersigned registrant hereby undertakes:

         (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

         (i) To  include  any  prospectus  required  by  section 10(a)(3) of the
Securities Act of 1933;

         (ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration  statement (or the most recent post-effective
amendment  thereof)  which,  individually  or  in  the  aggregate,  represent  a
fundamental  change in the information set forth in the registration  statement.
Notwithstanding the foregoing,  any increase or decrease in volume of securities
offered (if the total dollar value of  securities  offered would not exceed that
which  was  registered)  and any  deviation  from  the  low or  high  end of the
estimated  maximum  offering  range may be reflected  in the form of  prospectus
filed with the  Commission  pursuant  to Rule 424(b) if, in the  aggregate,  the
changes in volume and price  represent  no more than a 20% change in the maximum
aggregate  offering price set forth in the  "Calculation  of  Registration  Fee"
table in the effective registration statement;

         (iii) To include any material  information  with respect to the plan of
distribution  not  previously  disclosed  in the  registration  statement or any
material change to such information in the registration statement;

         Provided,  however,  that  paragraphs  (a)(1)(i) and  (a)(1)(ii) do not
apply  if the  registration  statement  is on  Form  S-3 or  Form  S-8,  and the
information  required  to be  included in a  post-effective  amendment  by those
paragraphs is contained in periodic reports filed by the registrant  pursuant to
section  13 or section  15(d) of the  Securities  Exchange  Act of 1934 that are
incorporated by reference in the registration statement.

         (2) That,  for the  purpose  of  determining  any  liability  under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such  securities at that time shall be deemed to be the initial bona
fide offering thereof.

         (3) To remove from registration by means of a post-effective  amendment
any of the securities being registered which remain unsold at the termination of
the offering.

         (b)  Insofar  as  indemnification  for  liabilities  arising  under the
Securities Act of 1933 may be permitted to directors,  officers and  controlling
persons of the registrant  pursuant to the foregoing  provisions,  or otherwise,
the  registrant  has been  advised  that in the  opinion of the  Securities  and
Exchange  Commission such  indemnification is against public policy as expressed
in the Act and is,  therefore,  unenforceable.  In the  event  that a claim  for
indemnification  against  such  liabilities  (other  than  the  payment  by  the
registrant of expenses  incurred or paid by a director,  officer or  controlling
person of the  registrant  in the  successful  defense  of any  action,  suit or
proceeding)  is  asserted by such  director,  officer or  controlling  person in
connection with the securities being registered,  the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit  to a  court  of  appropriate  jurisdiction  the  question  whether  such
indemnification  by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
SIGNATURES

         Pursuant  to the  requirements  of the  Securities  Act  of  1933,  the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and has duly caused this Registration
Statement  to be  signed  on its  behalf  by  the  undersigned,  thereunto  duly
authorized,  in the City of Herndon,  Commonwealth of Virginia, on this 25th day
of September, 1997.

                                   NETWORK IMAGING CORPORATION

                                   By:   /s/ James J. Leto
                                         -------------------- 
                                         James J. Leto
                                         President and Chief Executive Officer

                                POWER OF ATTORNEY

          Each of the  undersigned  hereby  appoints  James  J.  Leto,  Jorge R.
Forgues and Julia A. Bowen, and each of them (with full power to act alone),  as
attorneys and agents for the undersigned,  with full power of substitution,  for
and in the name, place and stead of the  undersigned,  to sign and file with the
Securities and Exchange  Commission under the Securities Act of 1933 any and all
amendments  and  exhibits  to  this  Registration  Statement  and  any  and  all
applications,  instruments  and other  documents to be filed with the Securities
and Exchange Commission pertaining to the registration of the securities covered
hereby,  with full power and  authority  to do and  perform any and all acts and
things whatsoever requisite or desirable.

          Pursuant  to the  requirements  of the  Securities  Act of 1933,  this
registration  statement  has been signed below by the  following  persons in the
capacities and on the dates indicated.

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

James J. Leto           President, Chief Executive         September 25, 1997
                        Officer and Chairman of the Board

Jorge R. Forgues        Senior Vice President of Finance   September 25, 1997
                        and Administration, Chief Financial
                        Officer

Robert P. Bernardi      Director and Secretary             September 25, 1997

John F. Burton          Director                           September 25, 1997

C. Alan Peyser          Director                           September 25, 1997

Robert Ripp             Director                           September 25, 1997