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                                  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: MARCH 31, 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 MAY 12, 1999,  THERE WERE OUTSTANDING  12,280,021  SHARES OF COMMON STOCK,
PAR VALUE $.01, OF THE REGISTRANT.

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<PAGE>


                        INTELLIGENT MEDICAL IMAGING, INC.

                          QUARTER ENDED MARCH 31, 1999

                                      INDEX

                                                                     PAGE
                                                                     ----

PART I - FINANCIAL INFORMATION

ITEM 1.       FINANCIAL STATEMENTS (Unaudited)

              CONDENSED BALANCE SHEETS AS OF
              MARCH 31, 1999 AND DECEMBER 31, 1998                    3

              CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE
              MONTHS ENDED MARCH 31, 1999 AND 1998                    4

              CONDENSED STATEMENTS OF CASH FLOWS FOR
              THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998          5

              NOTES TO CONDENSED FINANCIAL STATEMENTS                 6

ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL       9
              CONDITION AND RESULTS OF OPERATIONS

PART II - OTHER INFORMATION                                          13

ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K 13

SIGNATURES                                                           14






                                       2
<PAGE>

                           PART I - FINANCIAL INFORMATION

ITEM 1.   CONDENSED FINANCIAL STATEMENTS

                        INTELLIGENT MEDICAL IMAGING, INC.
                            CONDENSED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                       MARCH 31,        DECEMBER 31,
ASSETS                                                                   1999              1998
                                                                  --------------       -------------
<S>                                                                     <C>                 <C>    
Current assets:
 Cash                                                                   $27,093             $31,923
 Accounts receivable, net of allowance for uncollectable
          accounts of $40,000 at December 31,  1998 and  1997           407,249           1,002,781
 Notes Receivable                                                        88,563              86,684
 Inventory                                                            3,176,291           3,157,537
 Prepaid expenses                                                       (11,351)             67,408
 Current portion of investment in sales-type leases                     497,000             497,000
                                                                  --------------       -------------

Total current assets                                                  4,184,844           4,843,333

Long-term portion of investment in sales-type leases                    451,808             451,808
Revenue equipment, net                                                  591,975             544,215
Property and equipment, net                                           2,113,870           2,556,350
Other assets                                                             42,874              52,650
Deferred financing costs                                                287,302             297,000
                                                                  --------------       -------------
                                                                     $7,672,673         $ 8,745,353
                                                                  ==============       =============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                                 $1,494,035          $1,159,737
    Accrued salaries and benefits                                       516,877             372,149
    Note payable in default                                             285,493             335,493
    Note payable Tyce Fitzmorris                                         40,000                   0
    Accrued interest payable                                             90,000                   0
    Other accrued liabilities                                           228,174             258,671
    Due to factor                                                       320,000             320,000
    Current portion of amount due to financing companies                497,000             497,000
    Current portion of capital lease obligation                          30,562              30,562
    Current portion of deferred revenue                                 318,381             318,381
                                                                  --------------       -------------
Total current liabilities                                             3,820,522           3,291,993

Deferred Revenue                                                        571,957             412,423
Amount due to financing companies                                       451,808             451,808
Capital lease obligation                                                 49,211              54,719
Convertible debentures                                                2,655,000                   0
Debt discount                                                          (168,302)                  0
Convertible debentures, net of unamortized discount                   2,486,698           2,788,000

Stockholders' equity:
 Preferred stock, $.01 par value-authorized 2,000,000 shares;
   no shares issues or outstanding                                            0                   0
 Common Stock, $.01 par value-authorized 35,000,000 shares;
   issued and outstanding, 11,739,625 shares at March 31, 1999
   and 11,631,486 shares at December 31, 1998                           117,396             116,315
 Additional paid-in capital                                          44,788,020          44,416,708
 Deferred compensation                                                 (462,687)           (486,000)
 Net unrealized investment gains and (losses)                                 0                   0
Accumulated deficit                                                 (44,150,252)        (42,300,613)
                                                                  --------------      ---------------
Total shareholders' equity                                              292,477           1,746,410
                                                                  --------------      ---------------
                                                                     $7,672,673          $8,745,353
                                                                  ==============      ===============
</TABLE>


                                       3
<PAGE>
                        INTELLIGENT MEDICAL IMAGING, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                   THREE MONTHS       THREE MONTHS
                                                       ENDED              ENDED
                                                  MARCH 31, 1999     MARCH 31, 1998
                                                 ----------------    --------------
<S>                                                     <C>             <C>      
Product sales                                           599,360         1,042,298
Licensing fees                                          500,000                 0
                                                    ------------     -------------
                                                      1,099,360         1,042,298
Cost of sales                                           601,267           761,292
                                                    ------------     -------------
                                                        498,093           281,006
Operating expenses:
     Selling, general and administrative              1,409,125         2,349,725
     Research and development                           881,385         1,417,025
                                                    ------------     -------------
Total operating expenses                              2,290,510         3,766,750
                                                    ------------     -------------
Loss from operations                                 (1,792,417)       (3,485,744)
Other income (expense):
     Investment and interest income                       3,014            68,158
     Interest expense                                   (31,841)                0
     Discount on debenture                              (28,398)                0
                                                    ------------     -------------
Other income (expense)                                  (57,225)           68,158

Net loss                                             (1,849,642)       (3,417,586)

loss per common share--basic and diluted:                 (0.16)            (0.31)
Weighted average common shares outstanding           11,739,625        11,025,640
                                                    ============     =============
</TABLE>


                                       4
<PAGE>
                        INTELLIGENT MEDICAL IMAGING, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                              THREE MONTHS           THREE MONTHS
                                                                 ENDED                  ENDED
                                                             MARCH 31, 1999         MARCH 31, 1998
                                                           -------------------    -------------------
<S>                                                           <C>                    <C>        
OPERATING ACTIVITIES
Net loss                                                       (1,849,639)            (3,417,586)
Adjustments to reconcile net loss to net cash
  used in operating activities:
    Depreciation                                                  349,132                292,702
    Amortization on deferred revenue                              (22,347)               (22,486)
    Amortization on discounts on convertible debentures             9,698                      0
    Services received in exchange for common stock and                             
          stock options                                            23,313                 23,313
    Changes in operating assets and liabilities:
          Accounts receivable                                     595,532               (104,526)
          Inventory                                               (18,754)               223,507
          Prepaid expenses                                         78,759                 37,824
          Investment in sales-type leases                               0                 88,794
          Other assets                                              9,776                (59,529)
          Revenue equipment                                       (47,760)              (111,919)
          Accounts payable                                        334,298               (304,337)
          Note payable in default                                 (50,000)                     0
          Accrued salaries and benefits                           144,728                 49,385
          Accrued interest payable                                 90,000                      0
          Other accrued liabilities                               (30,497)               (23,500)
          Deferred revenue                                        181,881                 91,829
                                                           ---------------        ---------------
Net cash used by operating activities                            (201,880)            (3,236,529)

INVESTING ACTIVITIES 
Purchases of property and equipment                               132,050               (187,688)
Sale of investments held for sale                                       0              3,659,833
Advances to related parties                                             0               (622,267)
Repayments of advances to related parties                          (1,879)                     0
                                                           ---------------        ---------------
Net cash used in investing activities                             130,171              2,849,878

FINANCING ACTIVITIES
Proceeds from sale of common stock                                333,689                 16,091
Repayment of long-term notes payable
     and capitalized lease obligations                             (5,508)                     0
Proceeds from notes payable to related parties                     40,000                      0
Convertible debentures                                           (301,302)                     0
Net cash provided by financing activities                          66,879                 16,091
                                                           ---------------        ---------------
Net (decrease) increase in cash                                    (4,830)              (370,560)
Cash at beginning of period                                        31,923                853,164
                                                           ---------------        ---------------
Cash at end of period                                              27,093                482,604
                                                           ===============        ===============

Supplemental Information

Stock purchase warrants issued for financing costs                116,400                      0

Inventory transfered to property and equipment                          0                414,477

</TABLE>


                                       5
<PAGE>

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

1.   BASIS OF PRESENTATION

The accompanying  unaudited condensed 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 three
month period ended March 31, 1999 are not necessarily  indicative of the results
that may be expected for the year ending December 31, 1999.

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.   PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

                                        March 31,         March 31,
                                          1999              1998
                                       -------------     -----------
Furniture, fixtures and office          
     equipment                            2,615,866       2,289,023
Computer and development                
     equipment                            2,578,113       2,678,526
                                       -------------    ------------
                                          5,193,979       4,967,549
Accumulated depreciation                 (3,080,109)     (1,868,393)
                                       -------------    ------------
                                          2,113,870       3,099,156
                                       =============    ============


4.   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,  payments in the amount of $290,000,  including accrued  interest,  plus a
$75,000  credit offset in consulting  fees due the former member of the Board of
Directors  have  been  made  leaving  a balance  of  $88,563  including  accrued
interest. The balance of $88,563 has been extended to August 28, 1999.

5.   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


                                       6
<PAGE>
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.  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  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.

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  exerciseable  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%

6.   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.  Management  is unable to make a meaningful  estimate of the
likelihood  or amount or range of loss that  could  result  from an  unfavorable
outcome of the pending  arbitration.  As of September 30, 1998,  the Company has
not accrued any loss  contingencies  or related expenses in connection with this
arbitration.  The Company  believes that DiaSys's claims are without merit,  and
that the  Company  will  prevail in the  arbitration.  However,  there can be no
assurance  that  the  Company  will  prevail  in  the   arbitration  or  in  its
counterclaim  asserted  against  DiaSys,  or that any resolution of the dispute,
which is expected  to occur  within one year,  will not have a material  adverse
effect  on  the  Company's   liquidity,   financial  condition  and  results  of
operations.

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.

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 


                                       7

<PAGE>
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.

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 April 9, 1999,  Beckman-Coulter  had purchased
two HSMs under the distribution agreement.

7.   MANAGEMENT'S PLANS

The Company has implemented  strategic steps in an effort to remain viable until
sufficient market penetration for the Company's products is achieved. This plan,
which includes  personnel  reductions,  has reduced  monthly  expenditures  from
approximately  $1,100,000 in July 1998 to $350,000 as of April 9, 1999, with the
reduction  in  extraordinary   development   expenditures  coinciding  with  the
completion  of the HSM  instrument  and  across  the board  reductions  in IMI's
operating costs. In connection with these cost  reductions,  the Company decided
to  discontinue  its  operations  in  Europe  and,  instead,  rely on  qualified
distributors. The IMI Europe office was officially closed on July 31, 1998.

The Company has also  reduced  sales  expenditures,  while  emphasizing  a sales
process that better  targets  prospective  customers who are closest to making a
purchase decision.  The reduction of sales expenditures is in furtherance of the
strategy of focusing on specific customer groups and markets and the de-emphasis
on providing  total market  coverage to all types of  prospects.  The Company is
implementing  a plan that will  segment the market  according to product fit and
geographic location.

On June 30, 1998 the Company  completed the sale of $3,000,000 of 6% convertible
debentures,  due June 30, 2001 (the  "Debentures").  See  Footnote 5 of Notes to
Financial  Statements  in Part I, Item 1 of this Form 10-Q. As of April 9, 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,
leaving Debentures in the principal amount of $2,655,000 outstanding as of April
9, 1999.  If the  Company's  common stock is delisted  from the Nasdaq  National
Market and not allowed to be listed on the Nasdaq  Small Cap Market as discussed
below,  the  Debentures  will be in default.  The Company  does not have capital
available to pay the outstanding principal amount of the Debentures in the event
of such a default.

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.  With  respect  to  repayment  of the
Company's advance to a former director,  R. Wayne Fritzsche,  as of December 31,
1998  payments  in the  amount of  $290,000,  plus a $75,000  credit  offset for
consulting  fees past due or payable to Mr.  Fritzsche by the Company,  had been
applied  against  the amount  due,  leaving a balance  due of $88,563  including
accrued  interest.  Repayment  of the  balance of $88,563  has been  extended to
August 28, 1999.

On October 30, 1998 the Company was notified by Nasdaq of a potential  delisting
of the  Company's  common  stock  from the  Nasdaq  National  Market,  effective
February 1, 1999,  due to the Company's  failure to comply with  Nasdaq's  $1.00
minimum  bid price  requirement  for  continued  listing on the Nasdaq  National
Market.  On January  28, 1999 the  Company  requested a hearing  before a Nasdaq
hearing panel to appeal the proposed  delisting,  which  effectively  stayed the
delisting  of the  Company's  common  stock.  On March 25,  1999 the Company was
further  notified by Nasdaq that the  Company  did not meet the  $4,000,000  net
tangible assets requirement for continued listing on the Nasdaq National Market.
The  Company's  request  for a hearing was granted by Nasdaq and the hearing was
held on April 8, 1999. In the event that the Company's  appeal is denied and the
Company's common stock is delisted from the Nasdaq National Market,  the Company
has requested that Nasdaq permit the Company's  common stock to be listed on the
Nasdaq Smallcap  Market.  There can be no assurance that the Company's appeal of
Nasdaq's proposed delisting of the Company's common stock will be successful and
it appears  likely that the Company's  common stock will  eventually be delisted
from the Nasdaq National Market. There also can be no assurance that Nasdaq will
permit the  Company's  common stock to be listed on the Nasdaq  Smallcap  Market
since such listing will  require  that the Company  convince  Nasdaq that it can
sustain long term compliance with all applicable continued listing requirements.
In the  event  that the  Company's  common  stock is  delisted  from the  Nasdaq
National Market and the Company is not successful in its request that its common
stock be listed on the Nasdaq Smallcap  Market,  the Company's common stock will
commence trading on the OTC Bulletin Board, in which case a shareholder may find
it more  difficult  to sell,  or to obtain  quotations  as to the price of,  the
Company's  common stock. In addition,  the failure of the Company's common stock
to be listed for trading on the Nasdaq  National  Market or the Nasdaq  Smallcap
Market would constitute an event of default under the Debentures, in which event
the full principal amount of the Debentures,  together with all accrued interest
thereon,  would become  immediately due and payable in cash and the availability
of any remaining borrowing capacity under the related convertible

                                       8
<PAGE>

debenture agreement could be further limited. Pending the Nasdaq hearing panel's
decision,  the Company's  common stock will remain  listed on Nasdaq's  National
Market System.

Notwithstanding  the reductions in personnel and corporate  expenditures and the
strategic planning  referenced above, the Company has depleted its cash reserves
and has been delinquent in its payroll  obligations  since March 31, 1999. As of
May 13, 1999 the Company is  delinquent  in its payroll  obligations  (including
wages,  severance pay and accrued  vacation pay) in the amount of $500,000.  The
Company is also currently  delinquent in the payment of its accounts payable. In
addition, the Company is also currently in default in the amounts of $57,213 and
$178,280  with  respect to the  payment of two secured  promissory  notes to the
Company's legal counsel. These promissory notes were executed to provide for the
payment of past due legal fees owed to the Company's  legal  counsel,  Edwards &
Angell,  LLP. The Company's  failure to pay its employees will adversely  affect
the  Company's  efforts to maintain a competent  and capable sales and marketing
staff.  The Company will continue to lose employees  unless it can raise capital
promptly.  In  addition,  the  Company's  inability  to timely pay its  accounts
payable  has had an  adverse  effect  on the  Company's  relationship  with  its
vendors,  resulting  in some  vendors  refusing  to ship  products or to provide
services to the Company.  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  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.

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.

On April 20, 1998, the Company signed a customer financing  agreement with Prime
Capital Corp.  ("Prime") to provide up to $36 million of financing for customers
acquiring the MICRO21 System Workstation.  Under the terms of the agreement, the
Company and Prime will establish a wholesale customer finance relationship under
which Prime will provide a "Private Label Fee Per Slide"  financing  facility to
customers  of the  Company for an ongoing  vendor  leasing  program.  Prime will
provide up to $12  million of  customer  financing  per year over 3 years.  This
agreement  should help IMI to continue to meet its near-term cash flow needs and
provides a financing alternative for IMI's customers.

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.  The sale of the  convertible
debentures will help IMI to continue to meet its near-term cash flow needs.

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.  With  respect  to  repayment  of the
Company's advance to a former director,  R. Wayne Fritzsche,  as of December 31,
1998  payments  in the  amount of  $290,000,  plus a $75,000  credit  offset for
consulting  fees past due or payable to Mr.  Fritzsche by the Company,  had been
applied against the amount due,  leaving a balance due of $86,684.  Repayment of
the balance of $86,684 has been extended to August 28, 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 has ninety
(90) calendar days in which to regain  compliance with Nasdaq continued  listing
requirements.  If within this 90-day  period the common stock  complies with the
minimum  closing  bid  price  requirement  of $1.00  for a  minimum  of ten (10)
consecutive  days,  and is in compliance  with all other  listing  requirements,
continued listing will occur.  However,  if the Company is unable to demonstrate
compliance with the $1.00 minimum bid price requirement on or before January 28,
1999,  the Company's  securities  will be delisted at the opening of business on
February 1, 1999. Such delisting would  constitute an event of default under the
Debentures, in which event the full principal amount of the Debentures, together
with all accrued interest thereon,  would become  immediately due and payable in
cash and the availability of the remaining  borrowing capacity under the related
convertible debenture agreement could be further limited.

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.


                                       9
<PAGE>
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.

The Company is implementing  strategic steps so as to allow IMI to remain viable
until sufficient market penetration for the Company's products is achieved. This
plan, which includes  personnel  reductions,  reduces monthly  expenditures from
approximately  $1,100,000  to  $350,000  with  the  reduction  in  extraordinary
development  expenditures  coinciding  with  the  completion  of the HSM and USM
instruments  and  across  the board  reductions  in IMI's  operating  costs.  In
connection  with these cost  reductions,  the Company decided to discontinue its
operations  in Europe and,  instead,  rely on  qualified  distributors.  The IMI
Europe office was officially closed on July 31, 1998.

The Company is moving  forward to identify  and  implement  reductions  in sales
expenditures,  while emphasizing a sales process that better targets prospective
customers who are closest to making a purchase decision.  The reduction of sales
expenditures is in furtherance of the strategy of focusing on specific  customer
groups and markets and the de-emphasis on providing total market coverage to all
types of  prospects.  The Company is  implementing  a plan that will segment the
market according to product fit and geographic location.

During  the fourth  quarter of 1997,  the  Company  began to offer a  short-term
rental  program  which  provides  for  monthly or annual  rentals of the MICRO21
system.  The  Company  believes  that this  program  will  augment its sales and
long-term  lease  programs by giving  potential  customers the ability to fund a
MICRO21  with  operating  funds,  thereby  overcoming  potential  cost  barriers
associated with limited or non-existent capital expenditure funds.  Expansion of
the short-term  rental  program may require that the Company  secure  additional
financing.

The Company  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.

RESULTS OF OPERATIONS

Product sales were $1,099,360 for the three months ended March 31, 1999 compared
with  $1,042,298  for the three  months  ended  March 31,  1998,  a increase  of
$57,062.  The increase in sales for the quarter was primarily due to $500,000 in
licensing fees related to the Licensing Agreement with Bayer Corporation.

Cost of sales was $601,267  for the three  months ended March 31, 1999  compared
with  $761,292  for the three  months  ended  March 31,  1998,  an  decrease  of
$160,025. The decrease in cost of sales for the quarter was primarily due to the
fact that $500,000 of the revenue  recorded was from  licensing  fees - no costs
are associated with this portion of the revenue  resulting in a decrease in cost
of sales.

Selling,  general and  administrative  expenses  were  $1,409,125  for the first
quarter of 1999  compared  with  $2,349,725  for the first  quarter  of 1998,  a
decrease of $940,600.  Selling,  general and  administrative  expenses decreased
because  of the  staff and  expense  reductions  implemented  early in the third
quarter of 1998 and have continued into 1999.

Research and development expenses were $881,385 for the three months ended March
31, 1999 compared with  $1,417,025 for the three months ended March 31, 1998, an
decrease of $535,640.  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 $3,014 for the three months  ended March 31, 1999  compared
with  $68,158 for the three  months ended March 31, 1998, a decrease of $65,144.
The decrease was  primarily  due to the sale of  investment  securities  to fund
operations.

Interest  expense was $60,239 for the three months ended March 31, 1999 compared
with $0 for the three months ended March 31, 1998.  Interest expense  represents
the  amortization  of the discounts and deferred  financing costs related to the
issuance of the convertible debentures that were issued on June 30, 1998.

LIQUIDITY AND CAPITAL RESOURCES

For the three months ended March 31, 1999, net cash used in operating activities
of $201,880 was primarily due to the Company's operating loss.

For the three months ended March 31, 1999, net cash used in investing activities
of $130,171 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 advances made to a former member of the Board of Directors.

For the three  months  ended March 31,  1999,  net cash  provided  by  financing
activities  of $66,879  was the result of  proceeds  from the  company's  common
stock.

During 1998 the Company has  experienced  a reduction  in revenue and  increased
costs that have 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.  In addition,  during the fourth
quarter of 1997 the Company began to offer a short-term  rental program which it
believes will augment its sales and long-term lease programs by giving potential
customers the ability to fund a MICRO21 with operating funds, thereby overcoming
potential  cost  barriers  associated  with  limited  or  non-existent   capital
expenditure funds. Expansion of this program may require that the Company secure
additional financing.  The Company's plans also contemplate  continuing the cost

                                       10
<PAGE>
control measures  implemented in 1998 and cost and personnel  reductions,  which
reduce monthly expenditures from approximately  $1,100,000 to $850,000; the cost
reductions also include closing the Company's office in Europe in July 1998. The
Company's plans also contemplate  seeking  alternative  sources of financing and
exploring  strategic  alternatives.  During 1998, the Company has introduced two
new products, a Hematology Slide Maker and Urine Slide Maker, and two additional
procedures which management  believes will offer  significant  opportunities for
expanding the Company's  potential  customer  base. In addition,  the Company is
currently  negotiating with a company for distribution and licensing  agreements
associated with sales of the Company's products.  Also, during the third quarter
of 1998, the Company implemented cost controls and personnel reductions. 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  subject to the
mutual agreement of the parties.  At March 31, 1999 the Company's remaining cash
balance totaled  $437,726.  Although  management  believes that its plan will be
successful, there can be no assurance that the Company will be successful in its
attempt  to expand  revenue,  secure  additional  financing  or  consummate  the
distribution and licensing agreements.

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.  On October 30, 1998 Nasdaq  notified the Company that it's common stock
has failed to maintain a closing bid price of greater than or equal to $1.00 for
thirty  consecutive dates. The Company has 90 calendar days to regain compliance
with Nasdaq rules. If the Company is unable to comply with the minimum bid price
requirement on or before  January 28, 1999,  the Company's  common stock will be
delisted at the opening of business on February 1, 1999.  Such  delisting  which
would constitute an event of default under the convertible  debenture agreement,
in which event the full principal  amount of the  debentures,  together with all
accrued interest thereon,  would become  immediately due and payable in cash and
the  availability  of the remaining  borrowing  capacity  under the  convertible
debenture  agreement  could be further  limited.  The Company is  considering  a
reverse  stock  split  to  rectify  this  situation,  however,  there  can be no
assurance  that such action will  achieve  the  intended  result or that it will
satisfy the event of default under the convertible debenture agreement.

Implementation  of  the  Company's   business   strategy  requires   significant
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.

The project is estimated to be  completed by September  1999,  which is prior to
any anticipated impact on the Company's operating systems.  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.

                                       11
<PAGE>
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 the
Company's appeal of Nasdaq's proposed delisting will be unsuccessful,  resulting
in the  termination of listing of the Company's  common stock on Nasdaq or that,
even if such appeal is successful,  the Company's future financial  results will
not  sustain  continued  listing on Nasdaq;  the  possible  acceleration  of the
Debentures due to a default in the event the Company's  common stock is delisted
from Nasdaq.  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  pursuant to
a pending  decision on damages by an arbitration  panel; 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.

                                       12
<PAGE>


PART II - OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits:

              LIST OF EXHIBITS                      DESCRIPTION
              ----------------                      -----------
                   10.34                Advisco Capital Corp. Loan and 
                                        Security  Agreement, dated April 29,1999

                   27                   Financial Data Schedule

         (b) Reports on Form 8-K:

         None.



                                       13

<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:      May 14, 1999                       By: /S/ TYCE M. FITZMORRIS
           ------------                       --------------------------
                                                   Tyce M. Fitzmorris,
                                                   President and Chief
                                                    Executive Officer