UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

               FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 1997

                                       OR

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

          FOR THE TRANSITION PERIOD FROM ____________ TO ____________.

                         COMMISSION FILE NUMBER: 1-14190

                        INTELLIGENT MEDICAL IMAGING, INC.

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

            DELAWARE                                     65-0136178
   (STATE OR OTHER JURISDICTION               (IRS EMPLOYER IDENTIFICATION  NO.)
   OF INCORPORATION OR ORGANIZATION)

     4360 NORTHLAKE BOULEVARD, SUITE 214, PALM BEACH GARDENS, FLORIDA 33410
              (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (561) 627-0344

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE  PRECEDING 12 MONTHS (OR FOR SUCH  SHORTER  PERIOD THAT THE  REGISTRANT  WAS
REQUIRED  TO FILE  SUCH  REPORTS),  AND  (2) HAS  BEEN  SUBJECT  TO SUCH  FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES __X__ NO __

AS OF  NOVEMBER  7, 1997,  THERE WERE  OUTSTANDING  11,012,738  SHARES OF COMMON
STOCK, PAR VALUE $.01, OF THE REGISTRANT.




<PAGE>


                        INTELLIGENT MEDICAL IMAGING, INC.

                        QUARTER ENDED SEPTEMBER 30, 1997

                                      INDEX

                                                                            PAGE

PART I - FINANCIAL INFORMATION

    ITEM 1.  FINANCIAL STATEMENTS                                              3

             CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1997
             AND DECEMBER 31, 1996                                             3
              

             CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE      4
             MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

             CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS         5
             ENDED SEPTEMBER 30, 1997 AND 1996

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                        6

    ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                 7
             CONDITION AND RESULTS OF OPERATIONS

PART II - OTHER INFORMATION                                                   11

    ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                 11

SIGNATURES                                                                    12


<PAGE>
<TABLE>
<CAPTION>


                         PART I - FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

                        INTELLIGENT MEDICAL IMAGING, INC.
                          CONSOLIDATED BALANCE SHEETS



                                                                                    SEPTEMBER 30,            DECEMBER 31,
                                                                                        1997                     1996
                                                                               ------------------------    ---------------------
                                                                                     (UNAUDITED)

ASSETS
Current assets:
<S>                                                                                           <C>                      <C>     
     Cash and cash equivalents                                                                $164,818                 $288,001
     Investments available for sale                                                         11,526,901               24,793,872
     Accounts receivable                                                                     1,428,516                  177,096
     Accrued interest receivable                                                               111,005                  159,427
     Inventory                                                                               5,999,654                3,541,993
     Prepaid expenses                                                                          135,947                   52,425
                                                                               ------------------------    ---------------------
Total current assets                                                                        19,366,841               29,012,814

Property and equipment, net                                                                  3,316,595                1,666,957

Other assets                                                                                   151,564                   52,252
                                                                               ------------------------    ---------------------
                                                                                           $22,835,000              $30,732,023
                                                                               ========================    =====================


LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
     Accounts payable                                                                       $1,055,530               $1,062,979
     Accrued salaries and benefits                                                             502,424                  319,217
     Accrued interest payable                                                                        0                  421,132
     Other accrued liabilities                                                                  58,156                        0
     Contingent settlement liabilities                                                         851,109                2,062,000
                                                                               ------------------------    ---------------------
Total current liabilities                                                                    2,467,219                3,865,328

STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Preferred stock, $.01 par value-authorized 2,000,000 shares;
     no shares issued or outstanding                                                                 0                        0
Common stock, $.01 par value-authorized 30,000,000 shares;
     issued and outstanding, 11,011,217 shares at September 30, 1997
     and 10,898,054 at December 31, 1996                                                       110,112                  108,981
Additional paid-in capital                                                                  42,534,719               42,425,306
Deferred compensation                                                                        (251,565)                (321,504)
Net unrealized investment gains                                                                 86,382                   58,027
Accumulated deficit                                                                       (22,111,867)             (15,404,115)
                                                                               ------------------------    ---------------------
Total stockholders' equity                                                                  20,367,781               26,866,695
                                                                               ------------------------    ---------------------
                                                                                           $22,835,000              $30,732,023
                                                                               ========================    =====================

See accompanying notes

</TABLE>



<PAGE>

<TABLE>
<CAPTION>

                                                             INTELLIGENT MEDICAL IMAGING, INC.
                                                            CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                         (UNAUDITED)




                                           THREE MONTHS          THREE MONTHS         NINE MONTHS          NINE MONTHS
                                               ENDED                ENDED                ENDED                ENDED
                                           SEPTEMBER 30,        SEPTEMBER 30,        SEPTEMBER 30,        SEPTEMBER 30,
                                               1997                  1996                1997                 1996
                                           ----------------------------------------------------------------------------

<S>                                            <C>                   <C>               <C>                  <C>       
Sales                                          $431,516              $258,702          $2,843,559           $3,324,785

Cost of sales                                   352,578                78,988           1,647,799            1,788,399
                                           ----------------------------------------------------------------------------
                                                 78,938               179,714           1,195,760            1,536,386

Operating expenses:
     Selling, general and administrative      2,469,323             1,004,391           6,042,245            2,260,847
     Research and development                   931,423               815,020           2,733,469            1,712,709
                                           ----------------------------------------------------------------------------
Total operating expenses                      3,400,746             1,819,411           8,775,714            3,973,556
                                           ----------------------------------------------------------------------------
Loss from operations                        (3,321,808)           (1,639,696)         (7,579,954)          (2,437,170)
Other income (expense):
     Other                                            0                     0                   0               76,475
     Investment and interest income             207,240               395,631             872,202              806,312
     Interest expense                                 0              (11,179)                   0            (141,149)
                                           ----------------------------------------------------------------------------
Other income                                    207,240               384,452             872,202              741,638
                                           ----------------------------------------------------------------------------

Net loss                                   $(3,114,568)          $(1,255,245)        $(6,707,752)         $(1,695,532)
                                           ============================================================================

Loss per common share                           $(0.28)               $(0.12)             $(0.61)              $(0.18)
                                           ============================================================================
Weighted average common
     shares outstanding                      10,975,109            10,836,254          10,930,096            9,616,735
                                           ============================================================================

See accompanying notes

</TABLE>
<PAGE>


<TABLE>
<CAPTION>

                                                INTELLIGENT MEDICAL IMAGING, INC.
                                             CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                           (UNAUDITED)

                                                                   NINE MONTHS                      NINE MONTHS
                                                                      ENDED                            ENDED
                                                                  SEPTEMBER 30,                    SEPTEMBER 30,
                                                                      1997                             1996

OPERATING ACTIVITIES
<S>                                                                     <C>                              <C>         
Net loss                                                                $(6,707,752)                     $(1,695,532)
Adjustments to reconcile net loss
     to net cash used in operating activities:
          Depreciation                                                       509,531                          206,768
          Services exchanged for common stock                                 69,939                           56,540
          Changes in operating assets and liabilities
               Accounts receivable                                       (1,251,420)                        (411,391)
               Inventory                                                 (3,432,376)                      (1,799,108)
               Prepaid expenses & accrued interest
                    receivable                                              (35,100)                        (334,258)
               Other assets                                                 (99,312)                           55,214
               Accounts payable                                              (7,449)                        (383,886)
               Accrued salaries and benefits                                 183,207                          122,179
               Accrued interest payable                                    (421,132)                        (139,478)
               Other accrued liabilities                                      58,156                         (48,518)
               Contingent settlement liability                           (1,210,891)                                0
               Due to related party                                                0                        (105,000)
               Customer advance                                                    0                        (150,000)
                                                                 --------------------         ------------------------
Net cash used in operating activities                                   (12,344,599)                      (4,626,470)

INVESTING ACTIVITIES
Purchases of property and equipment                                      (1,184,454)                        (475,194)
Purchase of investments available for sale                                         0                     (25,881,217)
Sales of investments available for sale                                   13,295,326                                0
                                                                 --------------------         ------------------------
Net cash provided by investing activities                                 12,110,872                     (26,356,411)

FINANCING ACTIVITIES
Proceeds from long-term notes payable                                              0                           60,000
Repayment of long-term notes payable and
     capitalized lease obligations                                                 0                        (747,197)
Repayments of notes payable to related parties                                     0                        (338,958)
Advance from factor                                                                0                        2,216,614
Repayments to factor                                                               0                      (2,216,614)
Due to related party                                                               0                        (762,897)
Proceeds from sale of common stock                                           110,544                       34,466,404
                                                                 --------------------         ------------------------
Net cash provided by financing activities                                    110,544                       32,677,352

Net (decrease) increase  in cash and cash
     equivalents                                                           (123,183)                        1,694,471
Cash and cash equivalents at beginning of period                             288,001                           75,821
                                                                 --------------------         ------------------------

Cash and cash equivalents at end of period                                  $164,818                       $1,770,292
                                                                 ====================         ========================

SUPPLEMENTAL INFORMATION
Interest paid                                                                     $0                         $141,149
                                                                 ====================         ========================

Notes payable and notes payable to related
     parties converted to common stock                                            $0                         $300,000
                                                                 ====================         ========================

Inventory transferred to property and equipment                             $974,715                         $393,353
                                                                 ====================         ========================

See accompanying notes

</TABLE>




                        INTELLIGENT MEDICAL IMAGING, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


1.   BASIS OF PRESENTATION

The accompanying  unaudited consolidated financial statements have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been included.  These financial statements,  footnotes and discussions should be
read in conjunction  with audited  financial  statements  and related  footnotes
included in Intelligent Medical Imaging,  Inc.'s ("IMI" or "the Company") annual
report on Form 10-K for the year ended December 31, 1996.  Operating results for
the three- and nine-month  periods ended  September 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending  December 31,
1997.

2.   INVESTMENTS AVAILABLE-FOR-SALE

Investments  available-for-sale  consist of asset backed  securities,  corporate
bonds  and U.S.  Government  agency  bonds.  Management  determines  the  proper
classifications   of  investments  in  obligations  with  fixed  maturities  and
marketable  equity  securities  at the time of purchase  and  re-evaluates  such
designations  as of  each  balance  sheet  date.  At  September  30,  1997,  all
securities were designated as available-for-sale.  Accordingly, these securities
are stated at fair market value,  with unrealized gains and losses reported as a
separate component of stockholders'  equity.  Realized gains and losses on sales
of investments,  as determined on a specific  identification basis, are included
in the consolidated statements of operations.

Investment  securities  available for sale at September 30, 1997, are summarized
as follows:

<TABLE>
<CAPTION>

                                                                 September 30, 1997                             December 31, 1996
                                                                    Unrealized       Market                    Unrealized    Market
                                                    Cost          Gains (Losses)      Value       Cost       Gains (Losses)   Value
                                                  ----------------------------------------------------------------------------------

<S>                                                   <C>            <C>            <C>         <C>            <C>        <C>       
Cash and cash equivalents                             $225,546       $0             $225,546    $5,389,564     $2,950     $5,392,514

U.S. Government agency bonds and mortgages          $8,127,391     $51,718        $8,179,109    $7,525,683    $18,169     $7,543,852

U.S. Corporate bonds and asset backed securities    $3,087,582     $34,664        $3,122,246   $11,820,598    $36,908    $11,857,506

                                                  ==================================================================================
Total investments available-for-sale               $11,440,519     $86,382       $11,526,901   $24,735,845    $58,027    $24,793,872
                                                  ==================================================================================
</TABLE>


<TABLE>
<CAPTION>
3.   PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

                                                        September 30,                    December 31,
                                                            1997                             1996
                                                    ----------------------          -----------------------
Furniture, fixtures and office
<S>                                                            <C>                                <C>     
     equipment                                                 $1,804,884                         $461,690
Computer and development
     equipment                                                  2,651,514                        1,835,539
                                                    ----------------------          -----------------------
                                                                4,456,398                        2,297,229
Accumulated depreciation                                      (1,139,803)                        (630,272)
                                                    ----------------------          -----------------------
                                                               $3,316,595                       $1,666,957
                                                    ======================          =======================
</TABLE>

4.   IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In February 1997, the Financial  Accounting Standards Board issued Statement No.
128,  EARNINGS PER SHARE,  which is required to be adopted in December  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.  Statement  128 would not have an impact on the
periods ended September 30, 1997 and 1996.


5.   COMMITMENTS AND CONTINGENCIES

On June 17, 1997, the Company notified DiaSys  Corporation  ("DiaSys"),  that it
was  terminating the Product  Integration  Agreement dated November 1, 1996 (the
"DiaSys  Agreement"),  between the Company and DiaSys,  due to DiaSys'  material
breaches of the DiaSys Agreement.  The Company also rejected all goods delivered
by  DiaSys  to  the  Company  as   non-conforming.   DiaSys  has  expressed  its
disagreement  with the Company's  position  regarding the  conformity of DiaSys'
products and the  Company's  termination  of the DiaSys  Agreement.  The Company
believes that it had a valid basis to terminate the DiaSys Agreement and is thus
relieved  from  the  minimum  purchase  requirements  set  forth  in the  DiaSys
Agreement.

In the second quarter of 1997, the Company paid Coulter Corporation  ("Coulter")
$3,600,000  in exchange  for the return of 26 of  Coulter's  used  inventory  of
Micro21  Systems and  reimbursement  to Coulter for  certain  costs  incurred in
connection with the sale and marketing of the Micro21 Systems in accordance with
the terms of a settlement agreement  ("Settlement  Agreement") executed on March
27, 1997. In the  Settlement  Agreement,  the Company also agreed to pay Coulter
approximately  $1,000,000,  subject to certain offsets, in exchange for: (i) the
return of certain spare parts and  equipment and (ii) the  assignment of four of
Coulter's  customer contract accounts  receivable.  Through October 1997, all of
Coulter's  customer  contract  accounts  receivable  have been  assigned  to the
Company.

Contingent Settlement Liability includes approximately $900,000 related to Micro
21 Systems which were not part of the Coulter Settlement Agreement.  The Company
is in negotiations  with Coulter  Corporation and anticipates  this  contingency
will be resolved by December 31, 1997.

On May 22, 1997,  the Board of Directors  authorized the Company to loan Tyce M.
Fitzmorris,  the Company's President and Chief Executive Officer, up to $500,000
on a secured recourse basis. During the third quarter, advances of approximately
$366,509 were made. A repayment,  including interest accrued at the rate of 8.5%
per annum,  was made by Mr.  Fitzmorris to the Company in September 1997, in the
amount of $325,807,  leaving a balance as of September 30, 1997 of approximately
$40,000.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
            OF OPERATIONS

OVERVIEW

The  Company  has  developed  and  is  marketing  the  MICRO21(TM)   System,  an
intelligent,  automated  microscope  system,  for  diagnostic  use in  hospital,
commercial  reference and physician  group  laboratories.  The MICRO21 System is
designed to automate a broad range of manual microscopic procedures, potentially
enabling the clinical  laboratory  to reduce costs and exposure to  liabilities,
enhance  analytical  accuracy  and  consistency,  increase the  productivity  of
medical technologists and improve patient care.

In August 1995,  the Company  entered into an exclusive  sales and  distribution
agreement (the "Coulter Agreement") with Coulter for worldwide sales,  marketing
and service of the MICRO21 system.  The Company terminated the Coulter Agreement
in the fourth quarter of 1996 because of Coulter's  revocation of its commitment
to purchase  $5,500,000 of MICRO21  systems during the third and fourth quarters
of 1996 and other breaches of the Coulter Agreement by Coulter. Coulter disputed
the  Company's  termination  of the  Coulter  Agreement  and claimed the Coulter
Agreement  remained in effect. The parties submitted the dispute to arbitration,
but settled the dispute as of March 27,  1997.  The dispute  between the Company
and  Coulter  has had an adverse  effect on sales and  marketing  and has been a
factor in the return of some

<PAGE>
MICRO21 systems placed with customers by Coulter for evaluation.  The Settlement
Agreement  provides  for the  Company to pay Coulter  approximately  $4,600,000,
subject to  offsets,  in  exchange  for:  (i) the return of  twenty-six  (26) of
Coulter's  used  inventory  of  MICRO21  systems  and  certain  spare  parts and
equipment;  (ii) the  assignment  of four  (4) of  Coulter's  customer  contract
receivables;  and (iii)  reimbursement  to Coulter for certain costs incurred in
connection  with the sale and  marketing  of the  MICRO21  system.  The  Company
believes that many of the customers who returned  systems under  evaluation will
order a MICRO21  system for  evaluation,  purchase or lease now that the dispute
with  Coulter is  resolved.  In the second  quarter of 1997,  the  Company  paid
Coulter  $3,600,000 in exchange for the return of 26 of Coulter's used inventory
of Micro21 Systems.

In June 1997,  the Company  established a new division in The  Netherlands - IMI
Europe.  IMI Europe will perform sales and  marketing  functions in the European
market. IMI Europe has not reported any sales in the third quarter.

RESULTS OF OPERATIONS

Product  sales were  $431,516  for the three  months  ended  September  30, 1997
compared  with  $258,702  for the three  months ended  September  30,  1996,  an
increase of $172,814.  Product sales were  $2,843,559  for the nine months ended
September 30, 1997 compared with  $3,324,785 for the nine months ended September
30,  1996,  a decrease of  $481,226.  The  increase  for the three  months ended
September  30,  1997  was  primarily  due to the  Micro21  Systems  sold  by the
Company's  sales force as compared to sales by Coulter prior to  termination  of
the Coulter  Agreement in October  1996.  The overall  decrease in sales for the
nine  months  ended  September  30,  1997  compared  to  September  30, 1996 was
primarily due to the time required to build up the Company's  internal sales and
service  organizations  following the  termination  of the Coulter  Agreement in
October 1996, and  significantly  fewer than expected  conversions of evaluation
placements to sales during the quarter ended September 30, 1997.

Cost of sales was  $352,578  for the  three  months  ended  September  30,  1997
compared with $78,988 for the three months ended September 30, 1996, an increase
of $273,590.  Cost of sales was $1,647,799  for the nine months ended  September
30, 1997 compared with  $1,788,399 for the nine months ended September 30, 1996,
a decrease  of  $140,600.  The  increase  in cost of sales for the  quarter  was
primarily due to support of  evaluation  units  installed  with  customers.  The
decrease  in cost of sales for the nine  months  ended  September  30,  1997 was
primarily due to the overall  decrease in sales for the same period ended in the
prior year.

Selling,  general and  administrative  expenses  were  $2,469,323  for the three
months ended  September 30, 1997 compared with  $1,004,391  for the three months
ended  September  30,  1996,  an increase of  $1,464,932.  Selling,  general and
administrative  expenses  have  continued to increase  because of the  continued
growth of the Company and the need for additional  personnel.  Selling,  general
and administrative  expenses were $6,042,245 for the nine months ended September
30, 1997 compared with  $2,260,847 for the nine months ended September 30, 1996,
an increase of  $3,781,398.  The  increase  was  primarily  due to  increases in
staffing, marketing, legal fees and relocation expenses.

Research  and  development  expenses  were  $931,423  for the three months ended
September 30, 1997  compared with $815,020 for the three months ended  September
30,  1996,  an increase of  $116,403.  Research and  development  expenses  were
$2,733,469 for the nine months ended September 30, 1997 compared with $1,712,709
for the nine months  ended  September  30,  1996,  an  increase  of  $1,020,760.
Research and development expenses have increased due to resources being utilized
in the development of new procedures,  technologies  and products.  Research and
development  expenses  are  expected to continue to increase as new  procedures,
technologies and products are developed.

Other income was $0 for the nine months ended  September  30, 1997 compared with
$76,475 for the nine months ended September 30, 1996, a decrease of $76,475. The
decrease  was due to a gain  recognized  in 1996 in  connection  with a discount
negotiated on a note payable to a third party.

Interest  income was  $207,240 for the three  months  ended  September  30, 1997
compared with $395,631 for the three months ended September 30, 1996, a decrease
of $188,391.  The decrease  for the three  months ended  September  30, 1997 was
primarily due to the sale of investment securities to fund operations.  Interest
income was $872,202 for the nine months ended  September  30, 1997 compared with
$806,312 for the nine months ended  September  30, 1996, an increase of $65,890.
The  increase  was due to  interest  income  earned  on the  proceeds  from  the
Company's initial public offering which closed on March 27, 1996.

<PAGE>



Interest  expense was $0 for the three months ended  September 30, 1997 compared
with $11,179 for three months ended  September  30, 1996, a decrease of $11,179.
Interest  expense was $0 for the nine months ended  September  30, 1997 compared
with  $141,149  for the nine months  ended  September  30,  1996,  a decrease of
$141,149. The Company had no notes payable outstanding during 1997.


LIQUIDITY AND CAPITAL RESOURCES

The  Settlement  Agreement  provides  that  the  Company  will  pay  to  Coulter
approximately $4,600,000, of which $3,600,000 was paid in 1997. In addition, the
Settlement  Agreement  required  Coulter to purchase  four current model MICRO21
systems,  to replace  certain units  returned,  at a discounted  purchase price.
These units were purchased in April 1997. As of October 1997,  units  previously
sold by Coulter to customers have been assigned and acquired by the Company.

In March  1996,  the Company  completed  its initial  public  offering,  selling
3,450,000 shares of common stock at $11.00 per share, resulting in approximately
$34,000,000  in net  proceeds to the  Company.  In 1996,  the  Company  paid all
long-term  notes  payable,  indebtedness  and  amounts  due to  related  parties
totaling approximately  $4,300,000.  For the year ended December 31, 1996, cash,
cash equivalents and investments increased approximately $25,000,000,  primarily
due to net cash provided by proceeds from the initial public offering.

In May 1996, the Company employed  investment advisors to manage the cash assets
of the Company subject to specific  restrictions and  limitations.  The advisors
are allowed to buy, sell, exchange and otherwise trade in any stocks,  bonds and
other  securities  consistent  with  the  Company's  objectives.   The  specific
restrictions and limitations limit the advisors to investments  characterized as
investment  grade  only  and of  maturities  no  longer  than two  years.  These
investments are classified as available-for-sale.

Cash and cash equivalents consist of cash and liquid investments with a maturity
of 90 days or less.  Investments  available-for-sale  consist  of  asset  backed
securities,  corporate  bonds  and  U.S.  Government  agency  bonds.  Management
determines  the  appropriate  classification  of debt  securities at the time of
purchase  and  re-evaluates  such  designation  as of each  balance  sheet date.
Unrealized  holding gains and losses on  securities  classified as available for
sale are reported as a separate component of stockholders' equity.

For the nine  months  ended  September  30,  1997,  net cash  used in  operating
activities of $12,344,599 was primarily due to the Company's  operating loss due
to an  increase  in overall  expenses  because  of the  increase  in  personnel,
increase  in  inventory  and payment of  $3,600,000  to Coulter  Corporation  to
repurchase Micro21 Systems as specified in the Settlement Agreement.

For the nine months ended  September  30, 1997,  net cash  provided by investing
activities  of  $12,110,872  was  primarily  the result of sales of  investments
available-for-sale,  partially  offset by purchases of computer  equipment to be
used in research and development and leasehold improvements to the manufacturing
facility.

For the nine months ended  September  30, 1997,  net cash  provided by financing
activities of $110,544 was primarily the result of proceeds from the exercise of
common stock options.

At September 30, 1997 the Company had a net operating loss ("NOL")  carryforward
of  approximately  $11,000,000  available  for income tax  purposes  that expire
through the year 2011.  Section 382 of the Internal  Revenue  Code,  as amended,
limits the amount of federal  taxable income that may be offset by  pre-existing
NOLs of a corporation  following a change in ownership  ("Ownership  Change") of
the corporation.  A portion of the Company's NOLs are currently subject to these
limitations  because the Company  experienced  an  Ownership  Change on June 30,
1995, due to the issuance of common stock.

The Company  believes that cash, cash equivalents and investments held for sale,
together with  projected cash flow from  operations,  will be sufficient to meet
the  Company's   liquidity  and  capital   requirements   for  projected  annual
expenditures  through 1998,  although no assurance  exists that the Company will
not require additional capital prior to the end of such period.



<PAGE>



Statements  contained  in this  Form  10-Q  that are not  historical  facts  are
forward-looking  statements that are made pursuant to the safe harbor provisions
of the Private  Securities  Litigation  Reform Act of 1995. The Company cautions
that a number of important  factors could cause the Company's actual results for
1997 and beyond to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company.

Forward-looking   statements   involve  a  number  of  risks  and  uncertainties
including,  but not  limited  to, the  Company's  history of  operating  losses;
uncertainty of profitability and uncertainty of widespread market acceptance for
the MICRO21 system;  uncertainty,  risks and costs associated with the Company's
need to expand and enhance its own sales and marketing  organization  to replace
Coulter;  the  anticipated  loss of revenue  and  earnings  during the period of
transition of sales, marketing and service  responsibilities from Coulter to the
Company;  the delays and  impediments  to customer  acceptance  associated  with
industry and market perception of the historical dispute between the Company and
Coulter;  the risk that  expansion  of sales in foreign  markets may be possible
only  through  distributors,  such as Coulter,  at  transfer  prices too low for
favorable  profitability;  the  inability  of  the  Company  to  enter  into  an
alternative exclusive distribution  arrangement due to certain rights granted to
Coulter  under the  Coulter  Settlement  Agreement;  the delays and  impediments
associated  with the industry  and market  perception  of the  dispute,  even if
amicably  settled,  between the Company and  DiaSys,  and the  inability  of the
Company to resolve its  dispute  with DiaSys  amicably;  possible  delays in the
development  of  monolayer  procedures  as a result  of the  termination  of the
license agreement with MonoGen, Inc.; potential delays and technical problems in
the  development  and commercial  release of new products and procedures such as
the proposed MICRO21 Microscopic  Workstation System; delays in closing sales of
systems placed for  evaluation  due to length of the closing cycle,  uncertainty
due to industry  consolidation  and customer budget processes and  restrictions;
the expense of product  development  and the related delay and uncertainty as to
receipt of any  requisite  FDA  clearance  or other  governmental  clearance  or
approval for new products and new procedures for use on the MICRO21 system;  the
uncertainty of profitability and  sustainability of revenues and  profitability;
the uncertainty of availability of capital for future capital needs,  especially
in the event of  further  delays in  anticipated  market  acceptance  and market
penetration of MICRO21 systems; the Company's limited manufacturing  experience;
fluctuations in operating  results;  the Company's  ability to its protect trade
secrets and proprietary technology;  competition and technological change in the
industry in which the Company is engaged;  product  liability and the ability of
the Company to obtain adequate insurance for product  liability;  uncertainty of
third  party  reimbursement  and health  care reform  policies;  and  government
regulation.  The Company  cannot  assure that it will be able to  anticipate  or
respond timely to any of the factors,  or changes in any of the factors,  listed
above,  which could adversely affect the operating results in one or more fiscal
quarters.  Results of  operations  in any past period  should not be  considered
indicative  of the results to be expected for future  periods.  Fluctuations  in
operating  results may also result in fluctuations in the price of the Company's
common stock.



<PAGE>



                           PART II - OTHER INFORMATION


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits:

               LIST OF EXHIBITS                          DESCRIPTION

                              27                         Financial Data Schedule

         (b) Reports on Form 8-K:

               A  current  Report  on Form 8-K was  filed on July 30,  1997,  to
               report a press  release  issued  by the  Company  describing  the
               termination  of its  Product  Integration  Agreement  with Diasys
               Corporation and the basis for such termination.






<PAGE>




                                   SIGNATURES

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

                                               INTELLIGENT MEDICAL IMAGING, INC.

Date:  NOVEMBER 14, 1997                      BY:  /S/ TYCE M. FITZMORRIS
                                                  -----------------------------
                                                   Tyce M. Fitzmorris, 
                                                   President and Chief
                                                     Executive Officer


Date:  NOVEMBER 14, 1997                      BY: /S/ GENE M. COCHRAN
                                                  -----------------------------
                                                  Gene M. Cochran,
                                                  Chief Financial Officer