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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

               FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 1999

                                       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: 000-27690


                        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 SEPTEMBER 30, 1999,  THERE WERE  OUTSTANDING  13,996,021  SHARES OF COMMON
STOCK, PAR VALUE $.01, OF THE REGISTRANT.

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<PAGE>

                        INTELLIGENT MEDICAL IMAGING, INC.

                        QUARTER ENDED SEPTEMBER 30, 1999

                                      INDEX
                                                                           PAGE
                                                                           ----
PART I - FINANCIAL INFORMATION

ITEM 1.           FINANCIAL STATEMENTS (Unaudited)

                  BALANCE SHEETS AS OF
                   SEPTEMBER 30, 1999 AND DECEMBER 31, 1998                   2

                  STATEMENTS OF OPERATIONS FOR THE THREE AND NINE
                   MONTHS ENDED SEPTEMBER 30, 1999 AND 1998                   3

                  STATEMENTS OF CASH FLOWS FOR THE
                   NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998              4

                  NOTES TO FINANCIAL STATEMENTS                               5

ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS                         8

PART II - OTHER INFORMATION

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K                           14

SIGNATURES                                                                   15

                                       i
<PAGE>
                         PART I - FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

                        INTELLIGENT MEDICAL IMAGING, INC.
                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                              SEPTEMBER  30,        DECEMBER 31,
ASSETS                                          1999                    1998
                                            (UNAUDITED)
<S>                                              <C>               <C>
Current assets:
 Cash and cash equivalents                       $    125,403      $     31,923
 Accounts receivable, net                             145,705         1,002,781
 Notes receivable related parties                          --            86,684
 Inventory                                            906,173         3,157,537
 Prepaid expenses and other
 current assets                                            --            67,408
 Current portion of investment
 in sales-type leases                                 497,000           497,000
                                                 ------------      ------------
Total current assets                                1,674,281         4,843,333
Long-term portion of
investment in sales-type leases                       451,808           451,808
Revenue equipment, net                                296,092           544,215
Property and equipment, net                           805,050         2,556,347
Other assets                                           18,821            52,650
Deferred financing costs, net                         267,904           297,000
                                                 ------------      ------------
                                                 $  3,513,956      $  8,745,353
                                                 ============      ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Notes payable                                  $  1,249,224      $    335,493
  Accounts payable                                  1,551,957         1,159,737
  Accrued salaries and benefits                       937,353           372,149
  Other accrued liabilities                           694,994           258,671
  Accrued settlement costs                            325,000                --
  Advances from factor                                     --           320,000
 Current portion of amount
 due to financing companies                           497,000           497,000
 Current portion of capital lease obligation               --            30,562
 Current portion of deferred revenue                  160,008           318,381
                                                 ------------      ------------
Total current liabilities                           5,415,536         3,291,993
                                                 ------------      ------------
Long-term liabilities:
   Deferred revenue                                   428,853           412,423
   Long term portion of amounts
   due to financing companies                         451,808           451,808
   Long term portion of
   capital lease obligation                                --            54,719
   Convertible debentures, net
   of unamortized discount                          2,524,096         2,788,000
                                                 ------------      ------------
Total long-term liabilities                         3,404,757         3,706,950
                                                 ------------      ------------
Stockholders' equity:
 Preferred stock, $.01 par
  value-authorized 2,000,000
  shares; no shares issues or
  outstanding                                              --                --
 Common Stock, $.01 par
  value-authorized 30,000,000
  shares; issued and outstanding,
  12,656,871 shares at September
  30, 1999 and 11,631,486 shares
  at December 31, 1998                                126,569           116,315
 Additional paid-in capital                        48,360,048        44,416,708
 Deferred compensation                               (708,761)         (486,000)
 Accumulated deficit                              (53,084,193)      (42,300,613)
                                                 ------------      ------------
Total stockholders' equity                         (5,306,337)        1,746,410
                                                 ------------      ------------
Total liabilities and stockholders' equity       $  3,513,956      $  8,745,353
                                                 ============      ============
</TABLE>

See accompanying notes
                                       2
<PAGE>


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

<TABLE>
<CAPTION>

                                             THREE MONTHS        THREE MONTHS       NINE MONTHS         NINE MONTHS
                                                     ENDED              ENDED             ENDED               ENDED
                                           SEPT.  30, 1999    SEPT.  30, 1998   SEPT.  30, 1999     SEPT.  30, 1998
                                             ------------       -------------     ------------        -------------
<S>                                            <C>                 <C>            <C>                   <C>
Sales:
Product sales                                  $  466,229          $ 633,808      $  1,530,018          $ 2,113,403
Licensing fees                                          -                  -           500,000                   -
                                             ------------       -------------     ------------        -------------
Total Sales                                       466,229            633,808         2,030,018            2,113,403

Cost of sales                                     361,782            661,331         1,509,495            1,765,563
Inventory provisions                              900,000                   -        1,900,000                    -
                                             ------------       -------------     ------------        -------------
Gross profit (loss)                              (795,553)            27,523        (1,379,477)             347,840
                                             ------------       -------------     ------------       -------------
Operating expenses:
     Selling, general and administrative        2,565,382          2,058,338          6,234,677           7,009,123
     Research and development                     371,617          1,275,259         1,834,743            4,047,256
     Restructuring charges                               -                  -          913,982                    -
                                             ------------       -------------     ------------        -------------
Total operating expenses                        2,936,999          3,333,597         8,983,402          11,056,379
                                             ------------       -------------     ------------        -------------
Loss from operations                           (3,732,552)        (3,361,120)      (10,362,879)        (10,708,539)
                                             ------------       -------------     ------------        -------------

Other income (expense):
     Investment and interest income                      -            37,480             3,322             132,047
     Interest expense                             (63,632)          (478,314)         (338,829)           (478,314)
     Discount on debenture                        (28,398)                  -          (85,194)                   -
                                             ------------       -------------     ------------        -------------
Other income (expense)                            (92,030)         (440,834)          (420,701)          (346,267)
                                             ------------       -------------     ------------        -------------

Net loss                                    $  (3,824,582)     $  (3,801,954)   $  (10,783,580)     $  (11,054,806)
                                            =============       =============     ============        =============
Loss per common share
  --basic and diluted:                      $       (0.30)     $       (0.33)   $        (0.86)     $        (0.97)
                                            =============       =============     ============        =============
Weighted average common
shares outstanding basic and diluted           12,656,871         11,583,334        12,562,190          11,359,499
                                            =============       =============     ============        =============
</TABLE>

See accompanying notes
                                       3
<PAGE>

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

<TABLE>
<CAPTION>

                                            NINE MONTHS           NINE MONTHS
                                               ENDED                 ENDED
                                          SEPTEMBER 30, 1999   SEPTEMBER 30, 1998
                                          ------------------   ------------------
<S>                                             <C>                <C>
OPERATING ACTIVITIES
Net loss                                        $(10,783,580)      $(11,054,806)
Adjustments to reconcile
 net loss to net cash used
 in operating activities:
  Depreciation and
  amortization                                     2,074,489          1,448,448
  Amortization on deferred
  compensation                                       114,118                 --
  Inventory provisions                             1,900,000                 --
  Services received in exchange
   for common stock and stock
   options                                         3,296,715             69,939
  Changes in operating assets
   and liabilities:
      Accounts receivable                            537,076            462,698
      Inventory                                      351,364            288,930
      Prepaid expenses                                67,408            (38,083)
      Investment in sales-type
       leases                                             --            (86,776)
      Other assets                                    33,829            (51,150)
      Revenue equipment                               10,123            (42,464)
      Accounts payable                               392,220            (67,907)
      Accrued salaries and
      benefits                                       565,204            (80,555)
      Other accrued liabilities                      436,323            115,784
      Deferred revenue                              (141,943)           245,505
      Accrued settlement costs                       325,000                 --
                                                ------------       ------------
Net cash used in operating  activities              (821,654)        (8,790,437)
                                                ------------       ------------
INVESTING ACTIVITIES
Purchases of property and equipment                       --           (493,125)
Sale of investments held for
 sale                                                     --          6,199,004
Advances to related parties                           86,684           (223,232)
                                                ------------       ------------
Net cash provided by investing activities             86,684          5,482,647
                                                ------------       ------------
FINANCING ACTIVITIES
Proceeds from sale of common stock                        --             92,352
Proceeds from issuance of
 notes payable                                       913,731                 --
Repayment capital leases                             (85,281)                --
Convertible debentures                                    --          2,800,000
                                                ------------       ------------
Net cash provided by
 financing activities                                828,450          2,892,352
                                                ------------       ------------
Net (decrease) increase in
 Cash and cash equivalents                            93,480           (415,438)
Cash and cash equivalents
 at beginning of period                               31,923            853,164
                                                ------------       ------------
Cash and cash equivalents
 at end of period                               $    125,403       $    437,726
                                                ============       ============
Supplemental Information

Stock purchase warrants
 issued for financing costs                     $         --       $    116,400
                                                ============       ============
Conversion of convertible
 debentures to common stock                     $    345,000       $         --
                                                ============       ============
Inventory transferred to
 property and equipment                         $         --       $    552,875
                                                ============       ============
</TABLE>

See accompanying notes
                                       4
<PAGE>
                        INTELLIGENT MEDICAL IMAGING, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)


1.   BASIS OF PRESENTATION

The accompanying unaudited 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, 1998.  Operating  results for the nine month period
ended September 30, 1999 are not necessarily  indicative of the results that may
be expected for the year ending December 31, 1999.

The Company  incurred a  significant  loss  during  fiscal 1998 and for the nine
months  ended  September  30,  1999.  Due to these  significant  losses  and the
Company's  inability to raise additional  capital on a timely basis, the Company
intends on filing for immediate  protection  under the federal  bankruptcy laws.
The  Company  intends  on  implementing  strategic  steps to allow IMI to remain
viable  until  sufficient  market  penetration  for the  Company's  products  is
achieved.  This plan includes:  (i) personnel reductions,  which reduces monthly
expenditures from  approximately  $1,100,000 to $60,000;  and (ii) arranging for
post-petition financing to cover day-to-day operating expenses.  There can be no
assurance though that such funds can be obtained on favorable terms, if at all.

The  Company  initiated  actions to  restructure  its  operations  and  recorded
restructuring and other charges totaling $2,813,982 during the nine months ended
September 30, 1999.  This charge  included  $1,900,000 for excess  inventory and
$913,982 for restructuring  charges including $151,082 of severance and $762,900
related to the impairment of fixed assets. Cash expenditures associated with the
restructuring and one-time charges, are payable over the next six months and are
estimated  to be  $151,082.  In addition,  the Company  issued stock  options to
employees at below market prices in an effort to retain employees.  Compensation
expense related to stock options issued totaled  $3,296,715 of which  $3,029,619
is included in operating expenses for the nine month period ending September 30,
1999.

On October 30, 1998,  Nasdaq  notified the Company of its concern  regarding the
continued  listing of the  Company's  shares of common  stock for trading on the
Nasdaq National Market as a result of the failure of the Company's  common stock
to  maintain a closing  bid price of  greater  than or equal to $1.00 for thirty
(30) consecutive  trade dates.  Pursuant to Nasdaq rules, the Company had ninety
(90) calendar days in which to regain  compliance with Nasdaq continued  listing
requirements.  If within this 90-day  period the common stock  complied with the
minimum  closing  bid  price  requirement  of $1.00  for a  minimum  of ten (10)
consecutive  days,  and was in compliance  with all other listing  requirements,
continued listing would have occurred.  However,  due to the Company's inability
to  demonstrate  compliance  with the $1.00 minimum bid price  requirement on or
before January 28, 1999, the Company's securities were delisted on May 18, 1999.
Since  May 18,  1999,  the  Company's  securities  have  been  traded on the OTC
Bulletin Board under the symbol  "IMII." Such delisting  constituted an event of
default under the Debentures, which was waived by the holder.

As of September 30, 1999 the Company is  delinquent  in its payroll  obligations
(including  wages,  severance  pay and  accrued  vacation  pay) in the amount of
approximately  $865,000. The Company is also currently delinquent in the payment
of its accounts payable.

On April 27,  1999,  James Davis,  William  Whittaker,  George  Masters and Gene
Cochran resigned their positions with the Board of Directors.  Gene Cochran also
resigned his position as Chief Financial  Officer  effective April 30, 1999. The
Company  is seeking  to hire a new Chief  Financial  Officer  and  continues  to
explore a variety of  alternatives  for  increasing  its sales and  distribution
capacity and raising sufficient  capital to fund its operations.  Implementation
of the Company's business strategy requires significant expenditures of capital.
The Company is currently seeking additional funds through debt or equity.  There
can be no assurance  that such funds can be obtained on favorable  terms,  if at
all. If the  Company's  efforts to raise capital are  unsuccessful,  the Company
will have to cease operations.

                                       5
<PAGE>
2.   REVENUE RECOGNITION

In October 1997, the American Institute of Certified Public Accountants  (AICPA)
issued Statement of Position (SOP) 97-2,  "Software Revenue  Recognition"  which
the Company has adopted for transactions  entered into during the year beginning
January 1, 1998. SOP 97-2 provides guidance for recognizing  revenue on software
transactions and supersedes SOP 91-1, "Software Revenue  Recognition".  In March
1998, the AICPA issued SOP 98-4,  "Deferral of the Effective Date of a Provision
of SOP 97-2, Software Revenue  Recognition".  SOP 98-4 defers, for one year, the
application  of  certain  passages  in SOP 97-2 which  limit what is  considered
vendor-specific  objective  evidence necessary to recognize revenue for software
licenses in  multiple-element  arrangements  when  undelivered  elements  exist.
Additional guidance is expected to be provided prior to adoption of the deferred
provision  of SOP 97-2.  The Company  will  determine  the impact,  if any,  the
additional guidance will have on the current revenue recognition  practices when
issued. Adoption of the remaining provisions of SOP 97-2 did not have a material
impact on revenue recognition during 1998.

3.   NOTE RECEIVABLE RELATED PARTIES

In January  1998,  $196,000 was advanced to the  Company's  President  and Chief
Executive  Officer and $424,000 was  advanced to an  individual  who was at that
time a  member  of the  Board of  Directors.  The  advance  of  $196,000  to the
Company's  President,  plus all accrued interest thereon,  was repaid in full on
August  14,  1998.  The  original  due date for the  advance  in the  amount  of
$424,000,  which is secured by shares of the  Company's  common  stock and bears
interest at the rate of prime plus 1% per annum,  was April 8, 1998.  During the
year the advance of $424,000,  plus all accrued interest thereon,  was repaid in
full by payments in the amount of  $290,000,  plus a $163,563  credit  offset in
consulting fees due the former member of the Board of Directors.

4.   CONVERTIBLE DEBENTURES

On June 30,  1998  ("Original  Issue  Date") the  Company  issued,  in a private
placement  transaction,  $3,000,000 of 6% convertible  debentures,  due June 30,
2001 (the  "Debentures").  Subject to adjustment in certain events,  twenty-five
percent (25%) of the aggregate principal amount of the Debentures is convertible
into the common stock of the Company  beginning on September 28, 1998  ("Initial
Conversion Date") and on the first,  second and third month anniversaries of the
Initial Conversion Date up to 50%, 75% and 100%, respectively,  of the aggregate
principal amount of the Debentures  originally issued on the Original Issue Date
is  convertible.   The  Debentures  are   convertible  at  a  conversion   price
("Conversion  Price")  equal to the  lesser  of (a) 120% of the  average  of the
closing  bid price for the common  stock of the Company for the five (5) trading
days immediately  preceding the Original Issue Date or (b) 86% multiplied by the
average of the five (5)  lowest  closing  bid prices of the common  stock of the
Company during the twenty-five (25) trading days immediately  preceding the date
of the applicable  conversion  notice.  The Company  recorded a debt discount of
$906,250  representing the intrinsic value of the beneficial  conversion feature
of the  Debentures.  Interest is payable  quarterly  and may,  at the  Company's
option and subject to certain  restrictions,  be paid in shares of the Company's
common stock based on the  Conversion  Price.  At September  30, 1999,  interest
payable  relating to the  Debentures  of  approximately  $209,000 is included in
accrued expenses.  Subject to certain notification  requirements and the payment
of a prepayment premium which is tied to the applicable Conversion Price and the
closing bid price of the common stock on the date of prepayment, the Company has
the right to prepay all or any portion of the  outstanding  principal  amount of
the Debentures which has not previously been repaid or converted.  The principal
amount of the Debentures for which  conversion  notices have not previously been
received  or for  which  prepayment  has not  been  made  will be  automatically
converted on June 30, 2001 at the Conversion  Price on such date. The Debentures
may be  converted in whole or in part at the option of the holder if the average
of the closing sales prices of the common stock for any twenty (20)  consecutive
trading  days is equal to or greater  than 175% of the  average of the per share
market values for the five (5) trading days  immediately  preceding the original
issue date. The principal amount of Debentures for which conversion notices have
not  previously  been  received  or for  which  prepayment  has not been made or
required  shall be  automatically  converted  on the  third  anniversary  of the
Original  Issue  Date at the  Conversion  Price  on such  date.  This  automatic
conversion  shall not  occur if (a) (1) an  Underlying  Securities  Registration
Statement is not then effective  that names the holder as a selling  stockholder
thereunder  or (2) the  holder  is not  permitted  to resell  underlying  shares
pursuant to Rule 144(k)  promulgated  under the Securities Act of 1993,  without
volume  restrictions;  (b) there  are not  sufficient  shares  of  common  stock
authorized and reserved for issuance upon such  conversion;  and (c) the Company
shall not have defaulted on its covenants and obligations hereunder or under the
Purchase  Agreement  or  Registration  Rights  Agreement.  The Company  incurred
financing  costs of $200,000 in connection  with the issuance of the Debentures,
which will be amortized over the life of the  Debentures.  On July 30, 1998, the
Company  filed a  registration  statement  on Form S-3 with the  Securities  and
Exchange  Commission  ("SEC")  to  register  the  common  stock  underlying  the

                                       6
<PAGE>

convertible   debentures  issued  in  connection  with  the  transaction.   This
registration  statement  was declared  effective by the SEC on October 20, 1998.
Additional capital  commitments of up to $7,000,000 are available to IMI subject
to the parties  mutually  agreeing on the terms.  As of  September  30, 1999 the
holder of the  Debentures  had  converted  $345,000 of the  original  $3,000,000
principal amount of the Debentures into shares of the Company's common stock.


In connection with the issuance of the  Debentures,  the Company issued warrants
to the holders of the  Debentures  to purchase  120,000  shares of the Company's
common  stock at $3.93 per  share.  The  warrants  are  exercisable  immediately
through June 30, 2003. The fair value of the warrants based on the Black-Scholes
valuation  method is $1.87.  The  Company  recorded a debt  discount of $224,400
representing the fair value of the warrants.

In addition,  the Company issued a warrant to a financial consultant to purchase
60,000 shares of the Company's  common stock at $3.63 per share.  The warrant is
exercisable  immediately  through June 30, 2003. The Company  recorded  deferred
financing costs of $116,400 in connection with the issuance of the warrant. Such
costs will be amortized over the term of the Debentures. The assumptions used to
compute the value of the warrants were as follows:

            Risk-free interest rate                            5.48%

            Volatility factors of the
            expected market price of the
            Company's common stock                            .598

            Expected life                                     5 Years

            Dividend yield                                       0%

As of  September  30,  1999 the  Company  was in default  of  certain  covenants
relating to the Debentures, which subsequently were waived by the holder.

5.   COMMITMENTS AND CONTINGENCIES

In November 1996, IMI and DiaSys Corporation  ("DiaSys") (Nasdaq,  DIYS) entered
into a Product Integration  Agreement (the "DiaSys Agreement").  DiaSys designs,
develops,  manufactures and distributes workstation products which prepare fluid
samples.   Under  the  DiaSys   Agreement,   IMI  was  granted  a  nonexclusive,
nontransferable   license  to  integrate  the  patented  DiaSys  wet-preparation
specimen  handling  system  together  with  the  MICRO21  in  order  to  produce
integrated  systems for resale to MICRO21 end users.  The DiaSys  Agreement  was
terminated  in July 1997,  when IMI  rejected  products  delivered by DiaSys and
returned  them.  The  DiaSys  Agreement   provides  for  mandatory  and  binding
arbitration of disputes between the parties. On January 12, 1998, DiaSys filed a
demand for  arbitration of the dispute.  In its demand for  arbitration,  DiaSys
seeks  damages in excess of $1,000,000  for IMI's  alleged  breach of the DiaSys
Agreement and IMI's alleged defamation of DiaSys and its products. IMI filed its
response on February 9, 1998. In its  response,  IMI denies that it breached the
DiaSys  Agreement  or defamed  DiaSys,  and  states  that it  properly  rejected
products supplied by DiaSys due to  non-conformance.  IMI also seeks damages for
libelous  statements  made by DiaSys in a July 2, 1997 press  release  issued by
DiaSys, and for delays in IMI's product  development  efforts caused by DiaSys's
breach of the DiaSys Agreement. On October 7, 1998 the arbitration hearings were
completed  and on November  6, 1998  written  arguments  were  presented  to the
arbitration  panel.  In  September  1999 the Company  settled  its dispute  with
DiaSys.  In  November  1999,  the  Company  defaulted  under  the  terms  of the
settlement agreement. As of September 30, 1999, the Company has accrued $325,000
of potential  loss  contingencies  or related  expenses in  connection  with the
default of the settlement agreement.

On  March  7,  1997,  the  Company  entered  into a  settlement  agreement  with
International  Remote Imaging Systems,  Inc.  ("IRIS")  effective March 1, 1997.
Under  the  settlement  agreement,  IRIS  granted  the  Company  a  fully  paid,
royalty-free  license for  worldwide  direct sales of the MICRO21  system by the
Company.  The Company  agreed to pay a 4 percent  royalty on future sales of the
MICRO21  system  through  third-party  distributors  in the United  States.  The
Company  does  not  believe  the  4  percent   royalty  on  U.S.  sales  through
distributors  will  significantly  adversely  impact  the  Company's  results of
operations during the term of the license.  This license and royalty  obligation
expire in  September  2000,  when the IRIS  patents  that are the subject of the
license expire. The Company has the right, but not the obligation,  to request a
license  from IRIS for sales  through  third-party  distributors  outside of the
United  States;  however,  the Company does not believe that the MICRO21  system
infringes any foreign  patents held by IRIS and the Company has no current plans
to request such a license.

                                       7
<PAGE>

On November 16, 1998 the Company  entered  into three  related  agreements  with
Bayer Corporation  ("Bayer") involving the Company's blood slide maker, the HSM.
The three agreements, a Licensing Agreement,  Instrument Supply Agreement and an
After Market Supply Agreement,  provide Bayer with certain  non-exclusive rights
to  manufacture  and sell products  based on the HSM.  Pursuant to the Licensing
Agreement  Bayer paid the Company a one-time  licensing fee of  $1,100,000.  The
Licensing  Agreement  further  provides  for Bayer to pay the  Company a royalty
payment of $2,000 on each of the first 400 HSM-based units it  manufactures  and
sells in exchange for the non-exclusive  right to manufacture and sell HSM-based
products and the right to negotiate for the manufacture and  distribution of the
Company's  MICRO21  System,  Urine Slide Maker ("USM") and any other new Company
products.  The Instrument Supply Agreement  provides that Bayer will manufacture
the HSM for the Company for at least two years in the event the Company  chooses
not to  manufacture  the HSM or  chooses to have  Bayer  manufacture  the HSM to
supplement the Company's manufacture of this product.  Finally,  pursuant to the
After Market  Supply  Agreement,  with limited  exceptions  Bayer is required to
recommend  the Company as a sole  source of  consumables  used on all  HSM-based
products  manufactured and sold by Bayer until the earlier to occur of (a) three
years following Bayer's sale of 200 HSMs or (b) five years after Bayer's initial
sale of an HSM. Bayer has yet to begin distributing the Company's product.

On November 23,  1998,  the Company  entered  into an Invoice  Purchase and Sale
Agreement with Finova Capital  Corporation  ("Finova")  pursuant to which Finova
purchased  certain invoices from the Company at an invoice purchase price of 95%
of the net amount of the invoice.  Eighty percent (80%) of the purchase price is
payable to the  Company at the time of the  acceptance  of the invoice by Finova
and the  remainder of the  purchase  price is due to the Company upon payment of
the invoice by the  account  debtor.  As of April 9, 1999,  the Company had sold
invoices with an aggregate net amount of $1,057,000 to Finova.

On December 17, 1998,  the Company  entered into a  distribution  agreement with
Beckman-Coulter  involving  the  Company's  blood  slide  maker,  the  HSM.  The
non-exclusive  distribution  agreement  has a  term  of  ten  years  and  allows
Beckman-Coulter  to obtain the HSM on a volume discount basis for re-sale to its
customers. Domestically IMI will have prime responsibility for customer support,
with  Beckman-Coulter  field support personnel providing  installation and field
maintenance  services on a fixed fee basis. In foreign markets,  Beckman-Coulter
will have  total  responsibility  for  customer  support.  Beckman-Coulter  will
recommend  IMI as  the  sole  source  for  consumables  on all  HSMs  it  sells,
domestically  and  overseas.  As of  September  30,  1999,  Beckman-Coulter  had
purchased two HSMs under the distribution agreement.



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

The  following  discussion  should  be read in  conjunction  with the  condensed
financial statements and notes thereto appearing elsewhere in this report.

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.

On June 30, 1998 the Company  completed the sale of $3,000,000 of 6% convertible
debentures,  due June 30, 2001.  See Footnote 5 of Notes to Condensed  Financial
Statements in Part I, Item 1 of this Form 10-Q.

On August 14, 1998 the Company  received full  repayment of all amounts due with
respect to an advance  which the  Company  made to the  Company's  President  in
January  1998 in the amount of $196,000.  As of June 30, 1999,  the Company also
received full  repayment of all amounts due with respect to an advance which the
Company made to a former director, R. Wayne Fritzsche,  by virtue of payments in
the amount of $290,000,  plus a $163,563 credit offset in consulting fees due to
Mr. Fritzsche.

                                       8
<PAGE>

On October 30, 1998,  Nasdaq  notified the Company of its concern  regarding the
continued  listing of the  Company's  shares of common  stock for trading on the
Nasdaq National Market as a result of the failure of the Company's  common stock
to  maintain a closing  bid price of  greater  than or equal to $1.00 for thirty
(30) consecutive  trade dates.  Pursuant to Nasdaq rules, the Company had ninety
(90) calendar days in which to regain  compliance with Nasdaq continued  listing
requirements.  If within this 90-day  period the common stock  complied with the
minimum  closing  bid  price  requirement  of $1.00  for a  minimum  of ten (10)
consecutive  days,  and was in compliance  with all other listing  requirements,
continued listing would have occurred.  However,  due to the Company's inability
to  demonstrate  compliance  with the $1.00 minimum bid price  requirement on or
before January 28, 1999, the Company's securities were delisted on May 18, 1999.
Since  May 18,  1999,  the  Company's  securities  have  been  traded on the OTC
Bulletin Board under the symbol  "IMII." Such delisting  constituted an event of
default under the Debentures, which was waived by the holder.

On November 16, 1998,  the Company  entered into three related  agreements  with
Bayer  Corporation  ("Bayer")  involving  the Company's  blood slide maker,  the
Hematology  Slide  Master(TM)  (HSM(TM)).  The  three  agreements,  a  Licensing
Agreement,  Instrument  Supply  Agreement and an After Market Supply  Agreement,
provide Bayer with certain non-exclusive rights to manufacture and sell products
based on the HSM. Pursuant to the Licensing  Agreement,  Bayer will pay to IMI a
one-time  licensing fee of $1,100,000 in  installments  with the last payment of
$500,000  subject to Bayer's  acceptance  of the  Company's  first  commercially
manufactured  HSM,  as well as a royalty  payment of $2,000 on each of the first
400 HSM-based units it manufactures and sells in exchange for the  non-exclusive
right to manufacture and sell HSM-based  products and the right to negotiate for
the manufacture and  distribution of the Company's  MICRO21 System,  Urine Slide
Maker  ("USM")  and any  other  new  Company  products.  The  Instrument  Supply
Agreement  provides that Bayer will  manufacture  the HSM for the Company for at
least two years in the event the Company  chooses not to manufacture  the HSM or
chooses  to  have  Bayer   manufacture  the  HSM  to  supplement  the  Company's
manufacture  of this  product.  Finally,  pursuant  to the After  Market  Supply
Agreement, with limited exceptions Bayer is required to recommend the Company as
a sole source of consumables  used on all HSM-based  products  manufactured  and
sold by Bayer until the earlier to occur of (a) three  years  following  Bayer's
sale of 200 HSM's or (b) five years after Bayer's  initial sale of an HSM. Bayer
has yet to begin distributing the Company's product.

In December  1998 the  Company's  new blood slide maker,  HSM, was  commercially
released.  The HSM fully  automates the process of blood slide  making/staining.
The HSM was designed so that results from the hematology analyzers  manufactured
by Bayer and Beckman-Coulter  can trigger the automatic  preparation of a slide,
providing the lab significant labor savings and improved operational efficiency.
Once  prepared,  the  slides  can be  automatically  reviewed  by  the  MICRO21,
providing even greater labor savings and improved operational efficiency.

During April 1999,  all of the  Company's  directors  other than Mr.  Fitzmorris
resigned  from the Board of Directors  primarily  due to concerns  regarding the
Company's financial condition and personal liability issues.

In April  1999,  the Board of  Directors  of the Company  implemented  a plan of
salary  deferrals  pursuant to which all  employees  were  offered the option of
deferring a percentage of their salary in exchange for options to purchase three
shares of the  Company's  common  stock at $0.01  per  share for each  dollar of
salary  deferred.  Pursuant  to  such  salary  deferral  plan,  Messrs.  Tyce M.
Fitzmorris,  Jaime Pereira, and Ronald Hagner, the Company's executive officers,
elected to defer 60%, 100% and 40%, respectively, of their salary payments, and,
for the deferral of salary in April,  May and June 1999,  were issued options to
purchase  approximately  662,000,  296,000 and 296,000  restricted shares of the
Company's common stock, respectively.

On April 21,  1999,  the  Company  entered  into a Loan and  Security  Agreement
("Agreement") with Advisco Capital Corp.  ("Advisco")  pursuant to which Advisco
agreed to lend to the Company from time to time, subject to certain  conditions,
up to $2,000,000.  All amounts,  if any,  advanced under the Agreement  would be
secured  by a lien  on all of the  Company's  assets  and  property,  including,
without   limitation,   all  equipment,   receivables,   inventory  and  general
intangibles.  As of September  30,  1999,  no amounts  were  advanced  under the
Agreement.  In the second quarter of 1999, due to the failure of Advisco to make
any advances  under the Agreement,  the Company failed to make certain  required
minimum  monthly  payments  which  constitutes  an event of  default  under  the
Agreement.

                                       9
<PAGE>

In the second quarter of 1999, Mr.  Fitzmorris,  loaned the Company an aggregate
of $154,000 for working capital purposes. Such loans bear interest at a rate per
annum equal to the prime rate. In connection with such loans, Mr. Fitzmorris was
granted options for the purchase of 175,000  restricted  shares of the Company's
common stock for nominal consideration.

On April 26, 1999, the Company borrowed  $200,000 for working capital  purposes.
Such loan was evidenced by a promissory note that matured on June 25, 1999, with
interest at 12% per annum, and was secured by certain receivables, inventory and
equipment.  In  connection  with such  loan,  the  Company  issued to the lender
213,350   restricted   shares  of  the   Company's   common  stock  for  nominal
consideration. This loan was paid in full on June 25, 1999.

On June 15, 1999,  the Company  engaged  Geneva  Capital Corp. to render certain
financial  advisory services to the Company.  In consideration of such services,
the  Company has agreed to pay Geneva a  combination  of cash and stock upon the
occurrence of certain events.

On June 25, 1999, the Company borrowed an aggregate of $310,000 to repay certain
maturing indebtedness and to pay certain outstanding lease and payroll expenses.
Subsequently,  the Company  borrowed an additional  $200,000 for working capital
needs.  Such loans are evidenced by promissory  notes that mature on the earlier
to occur of certain  events,  and bear interest at the rate of 12% per annum. In
September 1999 the Company  defaulted  under the terms of the promissory  notes.
The holders of the  promissory  notes filed legal action seeking to foreclose on
their respective security interests.  In connection with such loans, the Company
issued an aggregate of 710,000  restricted  shares of the Company's common stock
for nominal  consideration  (the "Shares").  The Company has agreed to file with
the Securities and Exchange  Commission not later than November 15, 1999, and to
use its best  efforts to cause to become  effective,  a  registration  statement
under the Securities Act of 1933, as amended,  for the resale of the Shares.  As
of November 15, 1999, the Company failed to file a registration statement.

In July 1999 the Company  elected  Patricia  Meding,  Stephen  Blinn,  and Bruce
Garcia as  directors.  There is a dispute  between the Chairman of the Board and
the other Board  members as to whether at this meeting an  employment  agreement
for the  Chairman  of the  Board in his  capacity  as  President  and CEO and an
employment  agreement  for Ron  Hagner  as Vice  President  of  Sales  was  also
ratified.

In August  1999 the Company  elected  William  Carraway as a director;  however,
there  exists a dispute  between  the  Chairman of the Board and the other Board
members as to whether Mr.  Carraway was  properly  elected and whether Mr. Blinn
and Mr. Garcia resigned as directors in September 1999.

In August 1999 the Company  offered for sale 80 units at $50,000 per Unit.  Each
Unit consisted of 100,000 shares of Common Stock and Warrants to purchase 33,000
shares of Common Stock. The Offering  commenced on August 1, 1999 and terminated
on September 30, 1999, due to the failure to sell the minimum amount.

In  September  1999,  the  Company's  bank  account was  garnished by a judgment
creditor.  All monies in the account are being held by the bank pending  receipt
of an order from the State Court in Florida.

In the third quarter several of the Company's trade vendors,  certain employees,
and the Florida tax  commissioner  initiated  legal actions against the Company.
Several other trade vendors have threatened legal action.

In November 1999, Ernst and Young LLP, the Company's auditors,  terminated their
relationship with the Company.

The  Company  intends  on filing  for  immediate  protection  under the  federal
bankruptcy  laws. The Company intends on  implementing  strategic steps to allow
IMI to remain  viable until  sufficient  market  penetration  for the  Company's
products is  achieved.  This plan  includes:  (i)  personnel  reductions,  which
reduces monthly expenditures from approximately  $1,100,000 to $60,000; and (ii)
arranging for post-petition  financing to cover day-to-day  operating  expenses.
There can be no  assurance  though that such funds can be obtained on  favorable
terms, if at all.

                                       10
<PAGE>

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1998

Product  sales were  $466,229  for the three  months  ended  September  30, 1999
compared with $633,808 for the three months ended September 30, 1998, a decrease
of $167,579. The decrease resulted from a reduction in sales for the quarter.

Cost of sales were  $361,782  for the three  months  ended  September  30,  1999
compared with $661,331 for the three months ended September 30, 1998, a decrease
of $299,549. The decrease corresponds with the decrease in sales volume.

During the three month period ended  September  30, 1999 the Company  recorded a
$900,000  provision for obsolete and excess inventory as a result of sales being
well below the Company's 1999 initial operations plan.

Selling,  general and  administrative  expenses  were  $2,565,382  for the third
quarter of 1999  compared  with  $2,058,338  for the third  quarter of 1998,  an
increase of  $507,044.  The  increase is the result of  compensation  expense of
$1,672,977  incurred  for the three  months  ended  September  30,  1999 for the
issuance of stock  options  below fair market value netted  against cost savings
from operations.

Research  and  development  expenses  were  $371,617  for the three months ended
September 30, 1999 compared with $1,275,259 for the three months ended September
30,  1998,  a decrease of  $903,642.  Research  and  development  expenses  have
decreased  due to  resources  being  cut  and  development  of  new  procedures,
technologies and products being put on hold.

Interest  income was $0 for the three months ended  September  30, 1999 compared
with  $37,480 for the three  months  ended  September  30,  1998,  a decrease of
$37,480. The decrease was primarily due to the sale of investment  securities to
fund  operations.  Interest  expense  was  $63,602  for the three  months  ended
September 30, 1999,  compared with $478,314 for the three months ended September
30,  1998.  Interest  expense  represents  interest  on  notes  payable  and the
Debentures and the  amortization  of the discounts and deferred  financing costs
related  to the  issuance  of the  convertible  debentures  that were  issued on
September 30, 1998.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1998

Product  sales were  $1,530,018  for the nine months  ended  September  30, 1999
compared  with  $2,113,403  for the nine months  ended  September  30,  1998,  a
decrease of $583,385.  The decrease in sales for the nine months ended September
30, 1999 was primarily due to decreased demand for the Company's products offset
by $500,000 of licensing  fees  related to the  Licensing  Agreement  with Bayer
Corporation.

Cost of sales was  $1,509,495  for the nine  months  ended  September  30,  1999
compared  with  $1,765,563  for the nine months  ended  September  30,  1998,  a
decrease of $256,068. The decrease corresponds to the decreased sales volume.

Selling, general and administrative expenses were $6,234,677 for the nine months
ended  September 30, 1999 compared with $7,009,123 for the comparable nine month
period, a decrease of $774,446.  Selling,  general and  administrative  expenses
decreased  because of the staff and expense  reductions  implemented  during the
past year,  offset by an increase in compensation  expense  resulting from stock
options being granted at below fair market value.

Research and  development  expenses  were  $1,834,743  for the nine months ended
September 30, 1999 compared with  $4,047,256 for the nine months ended September
30,  1998, a decrease of  $2,212,513.  Research and  development  expenses  have
decreased  due to  resources  being  cut  and  development  of  new  procedures,
technologies and products put on hold.

Interest income was $3,322 for the nine months ended September 30, 1999 compared
with  $132,047  for the nine months  ended  September  30,  1998,  a decrease of
$128,725. The decrease was primarily due to the sale of investment securities to
fund  operations.  Interest  expense  was  $338,829  for the nine  months  ended
September 30, 1999,  compared with $478,314 for the nine months ended  September
30,  1998.  Interest  expense  represents  interest  on  notes  payable  and the
Debentures and the  amortization  of the discounts and deferred  financing costs
related  to the  issuance  of the  convertible  debentures  that were  issued on
September 30, 1998.

                                       11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

For the nine  months  ended  September  30,  1999,  net cash  used in  operating
activities of $821,654 was primarily due to the Company's operating loss, net of
non cash activities and increases in assets and liabilities.

For the nine months ended  September  30, 1999,  net cash  provided by investing
activities of $86,684 was primarily the result of advances by related parties.

For the nine months ended  September  30, 1999,  net cash  provided by financing
activities  of $828,450  was the result of proceeds  from the  issuance of notes
payable.

During 1998 the Company  experienced a reduction in revenue and increased  costs
that continue to adversely  affected the Company's current results of operations
and its  liquidity.  The Company's  1998 and 1999  operating  plans  contemplate
focusing  activities  on  expanding  sales  revenue  through  the efforts of its
internal  sales,  marketing and service force.  These revenues have not yet been
realized.  Accordingly  the Company  intends on filing for immediate  protection
under the federal bankruptcy laws. The Company intends on implementing strategic
steps to allow IMI to remain viable until sufficient market  penetration for the
Company's products is achieved.  This plan includes:  (i) personnel  reductions,
which reduces monthly expenditures from approximately $1,100,000 to $60,000; and
(ii)  arranging  for  post-petition  financing  to  cover  day-to-day  operating
expenses.  There can be no  assurance  though that such funds can be obtained on
favorable terms, if at all.

As described  above,  in June 1998, the Company issued $3 million of convertible
debentures.  An additional  $7,000,000  million of financing may be available to
the Company,  but the availability of such financing is at the discretion of the
lender after  consideration of the trading  characteristics of the common stock,
the lender's  exposure to the Company at that time,  the absence of any material
adverse  change in the  Company's  financial  condition  or  operations  and the
Company's continued  compliance with the terms of the financing.  The debentures
include a requirement  that the Company's  common stock be listed for trading by
Nasdaq.  However, due to the Company's inability to demonstrate  compliance with
the $1.00  minimum bid price  requirement  on or before  January 28,  1999,  the
Company's  securities were delisted on May 18, 1999. Such delisting  constituted
an event of default under the  Debentures,  which was waived by the holder.  The
Company  believes  it is highly  unlikely  that the lender will loan the Company
additional monies.

As  described  above,  in the second  quarter of 1999,  the Company  borrowed an
aggregate of $675,000 to repay  certain  maturing  indebtedness  and for working
capital purposes.

As  described  above,  on April 21,  1999,  the Company  entered into a Loan and
Security  Agreement with Advisco pursuant to which Advisco agreed to lend to the
Company from time to time, subject to certain conditions,  up to $2,000,000.  As
of September  30, 1999,  Advisco has not funded any loans under the Advisco Loan
Agreement  on the basis that certain  conditions  precedent to such funding have
not been  satisfied.  In  October  1999,  the  Company  terminated  the Loan and
Security Agreement.

Implementation  of  the  Company's   business   strategy  requires   significant
additional  expenditures of capital. The Company is currently seeking additional
funds through  equity or debt.  There can be no assurance that such funds can be
obtained on favorable terms, if at all.

YEAR 2000 ISSUE

The  Company  has  implemented  a  process  for  identifying,  prioritizing  and
modifying or replacing  certain computer and other systems and programs that may
be affected by the Year 2000 issue.  The Company is also monitoring the adequacy
of the manner in which  certain third parties and third party vendors of systems
are  attempting  to address the Year 2000 issue.  The Company has  substantially
completed an assessment of its computer and embedded systems and determined that
it needed to modify or replace  portions of its  software  so that its  computer
systems  will  function  properly  with  respect  to dates in the year  2000 and
thereafter. While the Company believes its process is designed to be successful,
because of the  complexity of the Year 2000 issue,  and the  interdependence  of
organizations using computer systems, it is possible that the Company's efforts,
or  those  of  third  parties  with  whom  the  Company  interacts,  will not be
successful or satisfactorily completed in a timely fashion.

The Company  estimates that the total cost that it will incur in connection with
attempting to address the Year 2000 issue, including assessment development of a
modification  or  replacement  plan,  purchase of new  hardware and software and
implementation  of the  modification  or replacement  plan or software,  will be
approximately  $50,000. To date, the Company has incurred  approximately $35,000
(of which $-0- has been  capitalized and $35,000  expensed).  The Company funded
the costs incurred to date through cash flow from operations and expects to fund
future costs through cash flow from operations.

                                       12
<PAGE>

The project was  completed in September  1999.  The Company  believes  that with
modifications to existing software,  conversions to new software and replacement
or modification of certain embedded  systems,  the Year 2000 issue will not pose
significant operational problems. However, if such modifications and conversions
are not made, or are not completed on a timely basis,  the Year 2000 issue would
have a material adverse impact on the Company's  business,  financial  condition
and results of operations.

The  estimated  costs of the project and the date on which the Company  believes
necessary  modifications and replacements to address the Year 2000 issue will be
completed  are based on  management's  estimates,  which were derived  utilizing
numerous assumptions of future events,  including the continued  availability of
certain resources and other factors. As the Company progresses in addressing the
Year 2000 issue,  estimates of costs could change, and there can be no assurance
that the Company will not experience  cost overruns or delays in connection with
its plan for modifying or replacing  systems and programs.  In addition,  it may
not be possible to adequately  assess the impact of the failure of third parties
to adequately address the Year 2000 issue. As a result, actual operating results
could differ  materially  from those  anticipated.  Specific  factors that might
cause  such  material   differences   include,  but  are  not  limited  to,  the
availability  and cost of personnel  trained to address the Year 2000 issue, the
ability  to  locate  and  correct  all  relevant   computer  codes  and  similar
uncertainties.

Due to the fact that the Company believes it has secured sufficient resources to
address  the  Year  2000  issue  as it  relates  to its  computer  systems,  the
assessment of embedded systems is complete and the Company does not believe that
contingency  planning is warranted at this time. The assessment of third parties
external to the Company is underway,  and the results of this  assessment,  when
completed,  may reveal the need for  contingency  planning at a later date.  The
Company will regularly  evaluate the need for contingency  planning based on the
progress and findings of the Year 2000 project.

FORWARD LOOKING STATEMENTS

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
1999 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;  the  immediate  need for the Company to raise  significant
additional  capital to satisfy  delinquent  payroll,  accounts payable and notes
payable  obligations  and to  finance  operations  in  the  near-term,  and  the
inability  to provide  assurances  that such  capital will be available on terms
favorable to the Company,  if at all; the delay in the Company's  achievement of
substantial market penetration and widespread  acceptance of the MICRO21 system;
the uncertainty of the commercial  viability and potential market  acceptance of
other IMI products such as the newly  developed HSM and USM,  which have not yet
been  manufactured or sold in commercial  volumes;  the potential failure of the
Company's  sales  team,   Bayer   Corporation  and   Beckman-Coulter   or  other
distributors  to sell  HSMs in  amounts  sufficient  to  generate  a  meaningful
recurring  revenue  base  associated  with HSM  consumables  and to sell MICRO21
systems in amounts  sufficient  to help the  Company  achieve  its sales  goals;
uncertainty  as to whether  strategic  partners will become  involved in MICRO21
sales;  uncertainty  as to the  ability  of the  Company  to  achieve  sales and
marketing  goals  following   implementation  of  the  Company's  revised  sales
approach,  including  increased  reliance on strategic  partners  for  worldwide
sales/service and reductions in the Company's sales and marketing personnel, due
to the  decrease in  personnel,  and the  possible  adverse  impact on potential
customer  perception of the Company;  uncertainty due to industry  consolidation
and customer budget processes and restrictions;  the possibility that agreements
with strategic partners will not result in significant  improvements in results;
the  uncertainty  as to the actual  amount of damages  which the Company will be
obligated to pay DiaSys due to its default of the Diasys  settlement  agreement;
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 expense of product  development  and the  related  delay and
uncertainty  as to receipt of any requisite  FDA  clearance or other  government
clearance or approval for new products and new procedures for use on the MICRO21
system;  and the uncertainty of profitability and sustainability of revenues and
profitability.

                                       13
<PAGE>


PART II - OTHER INFORMATION

Item 6.   Exhibits and Reports on Form 8-K

     (a) No exhibits are filed as of part of this report.

     (b) The Company  filed a Form 8-K on November 17, 1999,  which  disclosed a
change in certifying accountant.

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<PAGE>

SIGNATURES


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


INTELLIGENT MEDICAL IMAGING, INC.


By: /s/ TYCE M. FITZMORRIS                     Date: November 22, 1999
    ---------------------------
      Tyce M. Fitzmorris
      President and Chief Executive Officer

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