<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

                                    FORM 10-Q

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



       For the quarter ended                          Commission File
       June 30, 1997                                  No. 1-9767
    
                             ----------------------


                   INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
             (Exact name of registrant as specified in its charter)


       Delaware                                        94-2579751
       (State or other                                 (I.R.S. Employer
       jurisdiction of                                 Identification No.)
       incorporation or
       organization)


                    9162 Eton Avenue, Chatsworth CA.          91311
                    (Address of principal executive offices)  (Zip Code)

                    Telephone Number: 818-709-1244




        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
                               ----      ----

        The number of shares of Common Stock of the registrant outstanding as 
        of August 8, 1997 was 6,053,125.



<PAGE>   2

                   INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.

                               INDEX TO FORM 10-Q

                Three and Six months ended June 30, 1997 and 1996


<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                         <C>
  PART 1 -  FINANCIAL INFORMATION

            ITEM 1 -  Consolidated Financial Statements

            Consolidated Balance Sheets......................................2


            Consolidated Statements of Operations............................3&4


            Consolidated Statements of Cash Flows............................5


            Notes to Consolidated Financial Statements.......................6


            ITEM 2 - Management's Discussion and Analysis of
                     Financial Condition and Results of Operations..........10


  PART 2 -  OTHER INFORMATION

            ITEM 1 - Legal Proceedings......................................16

            ITEM 5- Submission of Matters to a Vote of Security Holders.....16

            ITEM 6 - Exhibits And Reports on Form 8-K

            (a)  Exhibits...................................................16
            (b)  Reports on Form 8-K........................................16


  SIGNATURE ................................................................16
</TABLE>



                                        1


<PAGE>   3

PART 1 FINANCIAL INFORMATION

ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS

                   INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                         At December 31,        At June 30,
                                                                                    1996               1997
                                                                                                (unaudited)
                                                                            ------------       ------------
<S>                                                                         <C>                <C>         
Current assets:
   Cash and cash equivalents                                                $  3,602,535       $  1,336,844
   Short-term investments                                                        667,589            125,000
   Accounts receivable, net of allowance for doubtful
     accounts of $278,766 in 1996 and $258,903 in 1997                         5,207,933          4,906,686
   Inventories                                                                 4,838,206          4,529,235
   Prepaid expenses and other current assets                                     163,465            277,004
   Deferred tax asset                                                            936,500          1,061,034
                                                                            ------------       ------------
     Total current assets                                                     15,416,228         12,235,803

   Property and equipment, at cost, net of accumulated depreciation of
     $3,379,884 in 1996 and $3,990,653 in 1997                                 1,947,713          1,533,511
   Purchased intangibles                                                      10,324,760          9,813,804
   Software development costs, net of accumulated amortization of
    $847,880 in 1996 and $1,034,441 in 1997                                      920,972            977,933
   Deferred warrant costs                                                      1,155,452          1,090,163
   Deferred tax asset                                                          7,276,250          7,276,250
   Other assets                                                                  818,870          1,199,724
                                                                            ------------       ------------
     Total assets                                                           $ 37,860,245       $ 34,127,188
                                                                            ============       ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY


Current liabilities:
   Short-term borrowings                                                    $  1,334,755       $  1,643,057
   Current portion of long term debt                                           2,600,000          4,000,000
   Accounts payable                                                            4,587,407          3,529,180
   Accrued expenses                                                            3,901,071          2,623,389
   Deferred income - service contracts                                           799,523            705,633
   Deferred income - other                                                       279,591            227,096
                                                                            ------------       ------------
     Total current liabilities                                                13,502,347         12,728,355

Subordinated note payable                                                      7,000,000          7,000,000
Deferred income - service contracts and other                                    193,219            202,167
Notes payable, long-term portion                                               3,400,000                --
                                                                            ------------       ------------
     Total liabilities                                                        24,095,566         19,930,522

Commitments and contingencies

Shareholders' equity:
   Preferred stock, $.01 par value
     Authorized:  3,000,000 shares
     Convertible Series A,
     Shares issued and outstanding:  3,000 in 1996 and 1997
     ($3,000,000 liquidation preference)                                              30                 30
   Common stock, $.01 par value
     Authorized:  15,600,000 shares
     Shares issued and outstanding:
     1996 - 5,911,890, 1997 - 6,053,125                                           59,118             60,530
   Additional paid-in capital                                                 36,311,535         37,018,669
   Treasury stock, at cost (26,240 shares in 1996 and 1997)                     (103,500)          (103,500)
   Unearned compensation                                                        (385,879)          (442,576)
   Foreign currency translation adjustment                                        37,791              2,674
   Accumulated deficit                                                       (22,154,416)       (22,339,161)
                                                                            ------------       ------------
     Total shareholders' equity                                               13,764,679         14,196,666
                                                                            ------------       ------------
     Total liabilities and shareholders' equity                             $ 37,860,245       $ 34,127,188
                                                                            ============       ============
</TABLE>

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


                                        2


<PAGE>   4

                   INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)


<TABLE>
<CAPTION>
                                                       For the three months ended June 30,
                                                       -----------------------------------
                                                                    1996              1997
                                                             -----------      -----------
<S>                                                          <C>              <C>        
Sales of IVD imaging systems                                 $ 1,322,486      $ 2,840,378
Sales of IVD imaging supplies and services                     2,152,499        2,599,796
Sales of small instruments and supplies                        1,348,470        1,049,743
Royalty and license revenue                                      114,367
                                                             -----------      -----------
Net revenues                                                   4,823,455        6,604,284
                                                             -----------      -----------

Cost of goods - IVD imaging systems                              691,442        1,399,764
Cost of goods - IVD imaging supplies and services              1,003,772        1,209,105
Cost of goods - sales of small instruments and supplies          670,027          592,588
                                                             -----------      -----------
Cost of goods sold                                             2,365,241        3,201,457
                                                             -----------      -----------

Gross margin                                                   2,458,214        3,402,827

Marketing and selling                                            983,504        1,320,110
General and administrative                                       574,774          705,255
Research and development, net                                    340,813          767,879
Intangibles amortization                                         106,431          313,092
Unusual charges                                                   70,740            2,892
                                                             -----------      -----------
Total operating expenses                                       2,076,262        3,109,228

Operating income                                                 381,952          293,599

Other income (expense):
   Interest income                                                76,841           13,969
   Interest expense                                                   --         (281,494)
   Other income                                                    3,912           (2,091)
                                                             -----------      -----------
Income before provision for income taxes                         462,705           23,983

Provision for income taxes                                       111,589            6,653
                                                             -----------      -----------
Net income                                                   $   351,116      $    17,330
                                                             ===========      ===========

Net income per common share                                  $       .05      $       .00
                                                             ===========      ===========
Weighted average number of common shares and common
share equivalents outstanding for the period                   6,920,567        7,079,784
                                                             ===========      ===========
</TABLE>

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


                                        3


<PAGE>   5

                   INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                     For the six months ended June 30,
                                                                     ---------------------------------
                                                                              1996                1997
                                                                      ------------       ------------
<S>                                                                   <C>                <C>         
Sales of IVD imaging systems                                          $  2,191,625       $  5,319,667
Sales of IVD imaging supplies and services                               4,166,294          5,219,120
Sales of small instruments and supplies                                  2,369,632          2,153,037
Royalty and license revenue                                                 21,835            202,495
                                                                      ------------       ------------
Net revenues                                                             8,749,386         12,894,319
                                                                      ------------       ------------

Cost of goods - IVD imaging systems                                      1,173,382          2,627,874
Cost of goods - IVD imaging supplies and services                        2,034,673          2,668,519
Cost of goods - sales of small instruments and supplies                  1,198,435          1,166,062
                                                                      ------------       ------------
Cost of goods sold                                                       4,406,490          6,462,455
                                                                      ------------       ------------

Gross margin                                                             4,342,896          6,431,864

Marketing and selling                                                    1,773,561          2,486,951
General and administrative                                                 965,676          1,703,331
Research and development, net                                              610,916          1,223,844
Intangibles amortization                                                   175,485            624,960
Unusual charges                                                            270,105             98,021
                                                                      ------------       ------------
Total operating expenses                                                 3,795,743          6,137,107

Operating income                                                           547,153            294,757

Other income (expense):
   Interest income                                                         136,640             33,651
   Interest expense                                                         (5,366)          (592,238)
   Other income (expense), net                                               9,892             (2,091)
                                                                      ------------       ------------
Income (loss) before provision (benefit) for income taxes                  688,319           (265,921)

Provision (benefit) for income taxes                                       130,291            (81,176)
                                                                      ------------       ------------
Net income (loss)                                                          558,028           (184,745)

Less imputed preferred stock dividend                                           --           (450,000)
                                                                      ------------       ------------
Net income (loss) available to common shareholders                    $    558,028       $   (634,745)
                                                                      ============       ============

Net income (loss) per common share, after deduction for required      
dividend on preferred stock                                           $        .08       $       (.11)
                                                                      ============       ============

Weighted average number of common shares and common
share equivalents outstanding for the period                             6,915,143          5,968,992
                                                                      ============       ============
</TABLE>

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

                                        4

<PAGE>   6

                   INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                          For the six months ended June 30,
                                                                          ---------------------------------
                                                                                    1996               1997
                                                                             -----------       -----------
<S>                                                                          <C>               <C>         
Cash flows from operating activities:
     Net income (loss)                                                       $   558,028       $  (184,745)
     Adjustments to reconcile net income (loss) to cash provided by
       operations:
         Deferred tax benefit                                                         --          (124,534)
         Depreciation and amortization                                           389,321         1,427,589
         Common stock and stock option compensation amortization                  48,880           133,062
     Changes in assets and liabilities:
         Accounts receivable - trade and other                                (1,082,295)          (13,778)
         Service contracts, net                                                 (102,354)          189,321
         Inventories                                                            (969,889)          303,292
         Prepaid expenses and other current assets                               (82,922)          (82,767)
         Other assets                                                           (244,662)          (28,240)
         Accounts payable                                                        592,723          (818,988)
         Accrued expenses                                                       (510,742)         (102,967)
         Deferred income - other                                                 452,465           (52,495)
                                                                             -----------       -----------
Net cash provided (used) by operating activities                                (951,447)          644,750
                                                                             -----------       -----------

Cash flows from investing activities:
     Acquisition of property and equipment                                      (423,955)         (206,969)
     Acquisition of product line                                                (788,000)               --
     Software development costs                                                 (287,613)         (243,522)
     Acquisition of other assets                                                      --           (30,000)
     Decrease in short term investments                                        2,200,827           542,589
                                                                             -----------       -----------
Net cash provided by in investing activities                                     701,259            62,098
                                                                             -----------       -----------

Cash flow from financing activities:
     Borrowings under credit facility                                                 --         1,510,000
     Repayments of credit facility                                            (1,746,755)
     Repayment of notes payable                                                 (310,633)       (2,000,000)
     Repurchase of common stock                                                       --          (545,057)
     Issuance of common stock for cash                                            50,876            22,009
     Issuance of common stock for cash under Employee Stock
       Purchase Plan                                                            227,054           116,079
     Deferred offering costs                                                          --          (319,764)
                                                                             -----------       -----------
Net cash used by financing activities                                            (32,703)       (2,963,488)
                                                                             -----------       -----------

Effect of foreign currency fluctuation on cash and cash equivalents                   --            (9,051)
                                                                             -----------       -----------
Net decrease in cash and cash equivalents                                       (282,891)       (2,265,691)
Cash and cash equivalents at beginning of period                               1,511,395         3,602,535
                                                                             -----------       -----------
Cash and cash equivalents at end of period                                   $ 1,228,504       $ 1,336,844
                                                                             ===========       ===========

Supplemental schedule of non cash activities:
    Issuance of common stock in exchange for services                        $   113,428       $   116,079
    Issuance of common stock in satisfaction of accounts payable                      --           270,699
    Issuance of warrants to purchase common stock                                     --           183,680
      Accrued offering costs                                                          --            54,544
    Issuance of notes payable for accrued liabilities                                 --           545,057
Supplemental disclosure of cash flow information
    Cash paid for interest                                                         5,366           572,958
    Cash paid for income taxes                                                        --            13,000
</TABLE>

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


                                       5


<PAGE>   7

                   INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Formation and Business of the Company.

      International Remote Imaging Systems, Inc. was incorporated in California
in 1979 and reincorporated during 1987 in Delaware. International Remote Imaging
Systems, Inc. and its subsidiaries (collectively "IRIS" or the "Company")
operate primarily in one segment. The Company designs, develops, manufactures
and markets in vitro diagnostic ("IVD") imaging systems based on patented and
proprietary automated intelligent microscopy ("AIM") technology, and special
purpose centrifuges and other small instruments for specimen preparation in
microscopic and other procedures performed in clinical laboratories. AIM
combines the Company's capabilities in automated specimen presentation,
including its patented slideless microscope, and proprietary high-speed digital
processing hardware and software to classify and visually present images of
microscopic particles in easy-to-use displays. The Company's IVD imaging systems
are designed to provide customers with better and more rapid results and labor
cost-savings over manual methods of performing microscopy. The Company also
provides on-going service and supplies to support equipment sold. The Company's
products are sold directly and through distributors primarily to clinical,
hospital, veterinary, physicians offices and research laboratories worldwide.

      On July 31, 1996, the Company, through a wholly owned subsidiary, PSI
Acquisition Corp., acquired the IVD imaging business of Perceptive Scientific
Instruments, Inc. for $9.5 million in cash (including $400,000 in acquisition
costs), issuance of a $7.0 million 8.50% subordinated note ("Subordinated Note")
and a five year warrant to purchase 875,000 shares of the Company's common stock
at $8.00 per share (valued for accounting purposes at $927,000,) ("the PSI
Acquisition"). The cash portion of the purchase price was paid primarily with
funds obtained from a bank under a $7.8 million term loan ("Term Loan") and a
new $1.5 million revolving line of credit ("Credit Facility"). The Company
subsequently changed the name of PSI Acquisition Corp. to Perceptive Scientific
Instruments, Inc. ("PSI").

      PSI designs, develops, manufactures and markets IVD imaging systems for
biological, clinical and research applications. PSI's primary business is
providing cytogenetic analysis instrumentation and related services through
worldwide sales of its proprietary PowerGene product line. The PowerGene product
line is used in various procedures for chromosome analysis, including
karyotyping and DNA probe and comparative genomic hybridization analysis via
fluorescent in-situ hybridization methods. The PowerGene system is marketed in
the Western Hemisphere from PSI's Houston headquarters and in other parts of the
world through its U.K. subsidiary.

      The PSI Acquisition has been accounted for using the purchase method of
accounting, and accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed based upon their estimated fair value at
the date of acquisition. The operating results of the acquired business of PSI
are included in the consolidated statement of operations from the date of
acquisition, August 1, 1996. Accordingly, PSI financial results are included in
the consolidated statement of operations for the quarter and six months ended
June 30, 1997 but are not included in the consolidated statement of operations
for the comparable periods in the prior year.

2.    Summary of Significant Accounting Policies.

Basis of Presentation of Unaudited Interim Financial Statements:

     In the opinion of management, the accompanying unaudited consolidated
financial statements contain all normal recurring adjustments necessary to
present fairly the financial position of the Company and subsidiaries as of June
30, 1997 and 1996 and the results of their operations for the three and six
month periods then ended. These financial statements should be read in
conjunction with the financial statements and notes included in the latest
Company's annual report on Form 10-K. Interim results are not necessarily
indicative of results for a full year.


Use of Estimates:

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



                                        6

<PAGE>   8

Principles of Consolidation:

     The consolidated financial statements include the accounts of International
Remote Imaging Systems, Inc. and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in the consolidated
financial statements.

Reclassifications:

     Certain reclassifications have been made to the 1996 financial statements
to conform with the 1997 presentation.

3.    Inventories.

     Inventories are carried at the lower of cost or market, on a first-in,
first-out basis and consist of the following:

3.    Inventories.

     Inventories are carried at the lower of cost or market, on a first-in,
first-out basis and consist of the following:

<TABLE>
<CAPTION>
                                At December 31, 1996    At June 30, 1997
                                --------------------    ----------------
<S>                                       <C>                 <C>       
Finished goods                            $  631,116          $  857,155
Work-in-process                              646,031             471,926
Raw materials, parts and
  sub-assemblies                           3,561,059           3,200,154
                                          ----------          ----------
                                          $4,838,206          $4,529,235
                                          ==========          ==========
</TABLE>

4.    Purchased Intangibles.

     Purchased intangibles, at cost, consist of the following:

<TABLE>
<CAPTION>
                                At December 31, 1996       At June 30, 1997
                                --------------------       ----------------
<S>                                     <C>                    <C>         
Goodwill                                $  1,377,973           $  1,377,973
International distribution 
  channel                                  5,571,728              5,571,728
Acquired technology
  and know-how                             3,960,904              3,960,904
                                        ------------           ------------
                                          10,910,605             10,910,605
Less accumulated
  amortization                              (585,845)            (1,096,801)
                                        ------------           ------------
Total                                   $ 10,324,760           $  9,813,804
                                        ============           ============
</TABLE>

5.    Short Term Borrowings and Notes Payable.

     The Company financed the purchase price for the PSI Acquisition with the
Subordinated Note ($7.0 million), the Term Loan ($7.8 million) and a portion of
the Credit Facility ($1.3 million). The Term Loan and Credit Facility impose
certain operating and financial convenants on the Company. Due to an inability
to comply with these financial covenants, the Company was in default on both
loans at September 30 and December 31, 1996. In April of 1997, the bank waived
the default, amended the financial covenants and extended the maturity of both
loans. In exchange, the Company agreed to increase the interest rates on both
loans and to issue the bank a three year warrant to purchase 50,000 shares of
Common Stock at $3.875 per share and additional warrants if the Term Loan is
outstanding on June 1 and July 1, 1997. On June 1 and July 1, 1997, the Company
issued three year warrants to purchase 25,000 shares each of common stock at
$4.25 and $4.375 per share, respectively. The warrants were valued at a total of
$32,500 each for accounting purposes, which is being amortized to interest
expense over the remaining life of the Term Loan.


     On June 30, 1997 the outstanding principal balance of the Term Loan was
$4.0 million. The Term Loan is collateralized by a first priority lien on all
the assets of the Company and bears interest monthly at the bank's prime rate
(8.50% on June 30, 1997) plus 1.75%. The interest rate increased an additional
0.25 percentage points on July 1, 1997. The Company is required to pay $100,000
of principal each month, and the balance is due April 15, 1998. The Company may
prepay the Term Loan at any time without premium or penalty. The Company has
further reduced the outstanding principal balance of the Term Loan to $3.8
million as of August 1, 1997.



                                       7

<PAGE>   9

     The outstanding principal balance on the Credit Facility was $1.1 million
on June 30, 1997. Under the terms of the Credit Facility, the Company can borrow
and reborrow up to a maximum principal amount of $1.5 million at a variable
interest rate equal to the bank's prime rate plus 1.75%. The interest rate
increased an additional 0.25 percentage point on July 1, 1997. The Credit
Facility matures April 15, 1998 and is collateralized by a first priority lien
on all of the assets of the Company.

     On June 30, 1997, the Company owed approximately $1.0 million for the
repurchase of common stock from an affiliate of Boehringer Mannheim Corporation.
This balance was due in two installments in the second and third quarters of
1997. The Company exercised its right to pay the June 30, 1997 installment by
delivering a one year promissory note in the amount of $545,057 bearing 8%
interest. The remaining installment is due in the third quarter of 1997. The
Company also has the right to pay the final installment by delivering a similar
promissory note.

     The outstanding principal balance on the Subordinated Note was $7.0 million
on June 30, 1997. The Subordinated Note bears interest at a fixed rate of 8.5%
per annum, payable in quarterly installments. The entire principal is due on or
before July 31, 2001.

     The Company is presently pursuing additional financing to repay principal
on its outstanding indebtedness and to fund its future business strategy. The
Company may not be able to secure adequate additional financing on favorable
terms, if at all.

6.    Capital Stock.

Stock Issuances:

      During the six months ended June 30, 1997, the Company issued 55,925
shares of common stock in exchange for $218,242 in cash and services under the
Employee Stock Purchase Plan. Also, for the six months ended June 30, 1997,
options to purchase 163,100 shares of common stock were granted under the 1997
Stock Option Plan. Options for 9,934 shares of common stock were exercised and
options for 27,200 shares of common stock were canceled. At June 30, 1997,
options to purchase 1,235,213 shares of common stock were issued and outstanding
under the Company's stock options plans. The outstanding options expire by the
end of 2007. The exercise price for these options ranges from $2.90 to $6.22 per
share, for an aggregate of approximately $4.1 million. At June 30, 1997, there
were 250,467 shares of common stock available for the granting of future
options.

      For the six months ended June 30, 1997, 75,376 shares of common stock were
issued in satisfaction of accounts payable totaling $270,700.

Warrants:

      At June 30, 1997, there were warrants outstanding and exercisable to
purchase 75,000 shares at $8.125 per share until March 30, 1998, 512,000 shares
at $6.50 per share until September 29, 1998, 150,000 shares at $7.80 per share
until September 28, 2000, 875,000 shares at $8.00 per share until July 31, 2001,
84,270 shares at $3.56 per share until December 31, 2001, 50,000 shares at
$3.875 per share until January 15, 2000, 25,000 shares at $4.25 per share until
May 31, 2000 and 10,000 shares at $4.31 per share until May 15, 2002. On July 1,
1997 an additional warrant was issued to purchase 25,000 shares at $4.375 per
share until June 30, 2000.

      As part of the purchase price for the PSI Acquisition, the Company issued
the seller a five-year warrant to purchase 875,000 shares of common stock at
$8.00 per share. Following the Company's restatement in the third quarter of
1996 of financial results for certain prior periods, the Company received a
request from the seller for a reduction in the exercise price of the warrant. In
its request, the seller asserts that it had relied on the prior financial
information and suffered material damage as a result. The Company has declined
to consider the seller's request until the Company has evaluated its claims
against the seller.


                                        8
<PAGE>   10

7.    Research and Development Grants and Contracts.

      Reimbursements and direct costs connected with research and development
grants and agreements were as follows:

<TABLE>
<CAPTION>
                        Three Months Ended June 30,   Six Months Ended June 30, 
                        ---------------------------   -------------------------
                             1996          1997          1996          1997
                           --------      --------      --------      --------
<S>                        <C>           <C>           <C>           <C>     
Reimbursements             $131,562      $337,771      $944,249      $650,309
Costs                       141,819       426,499       964,137       765,704
                           --------      --------      --------      --------
                           $ 10,257      $ 88,728      $ 19,888      $115,395
                           ========      ========      ========      ========
</TABLE>


      Net costs incurred under research and development grants and contracts
have been included in research and development expense in the statements of
operations.

8.    Unusual Charges.

      The results of operations for the six month period ended June 30, 1997
include unusual charges totaling $98,021 and are primarily legal expenses
relating to the recently completed litigation and arbitration matters. The
unusual charges in the comparable period in the prior year totaled $270,105 and
primarily related to StatSpin merger expenses.

9.    Income Taxes

      The income tax provision (benefit) for the three and six month periods
ended June 30, 1997 was approximately $6,653 and ($81,176), respectively as
compared to an income tax provision of approximately $111,589 and $130,291,
respectively for the comparable periods in the prior year. The income tax
benefit for the six month period ended June 30, 1997 differs from the federal
statutory rate due to state, local and foreign income taxes incurred on taxable
income at a subsidiary level which is not offset by losses at the corporate
level.

10.   Earnings Per Share.

     The computations of share amounts for the three and six month periods ended
June 30, 1997 and 1996 are based on the weighted average number of shares
outstanding for the period and common share equivalents unless antidilutive.

     The staff of the Securities and Exchange Commission ("staff") recently
announced a new position on accounting for convertible preferred stock which is
potentially convertible at a discount to the market price of the common stock,
even if the potential for a discount is only a possibility. The staff has taken
the position that solely for purposes of calculating earnings per share the
potential discount is an imputed dividend to the preferred stockholders which
reduces the amount of earnings available to common stockholders. Accordingly,
the issuance of the Series A Preferred Stock resulted in a one-time reduction in
earnings available to common shareholders of $450,000 or $0.08 per share in the
six month period ended June 30, 1997. The staff's position is limited to
calculations of earnings per common share and will not have any effect on the
Company's net income and cash flow.

11.   Recently Issued Accounting Standards.

     In February, 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS
No. 128"). SFAS No. 128 requires dual presentation of newly defined basic and
diluted earnings per share on the face of the income statement for all entities
with complex capital structures. This method is considered more compatible with
International Accounting Standards. SFAS No. 128 is effective for all fiscal
years ending after December 15, 1997. Due to the net loss incurred, the adoption
of SFAS No. 128 for the six month period ended June 30, 1997 would not have had
an impact on net loss per share. The Company has not determined the impact
of SFAS No. 128 for the three month period ended June 30, 1997.

     In June 1997, the FASB issued SFAS No. 130, "Comprehensive Income". SFAS
No. 130 becomes effective in 1998 and requires reclassification of earlier
financial statements for comparative purposes. SFAS No. 130 requires that
changes in the amounts of certain items, including foreign currency translation
adjustments and gains and losses on certain securities be shown in the financial
statements. SFAS No. 130 does not require a specific format for the financial
statement in which comprehensive income is reported, but does require that an
amount representing total comprehensive income be reported in that statement.
The Company has not determined the effect, if any, of SFAS No. 130 on the
consolidated financial statements.


                                       9
<PAGE>   11

     Also in June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments
Of An Enterprise and Related Information". SFAS No. 131 will change the way
public companies report information about segments of their business in their
annual financial statements and requires them to report selected segment
information in their quarterly reports issued to shareholders. It also requires
entity-wide disclosures about the products and service an entity provides, the
material countries in which it holds assets and reports revenues, and its major
customers. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The Company has not determined the effect, if any, of SFAS No. 131
on the consolidated financial statements.


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

OVERVIEW

     The Company generates revenues from sales of in vitro diagnostics ("IVD")
imaging systems based on its patented and proprietary AIM technology. Following
the initial sale, these systems become part of the "installed base" and generate
follow-on sales of supplies and service necessary for their operation. The
Company also generates revenues from sales of ancillary lines of small
laboratory instruments and supplies.

     Until recently, the Company generated most of its revenues from sales of
two models of The Yellow IRIS urinalysis workstation and related supplies and
services. These two models differ mainly by their speed and price. In 1996, the
Company introduced a third model of The Yellow IRIS, the Model 900UDx urine
pathology system, which is a higher capacity automated urinalysis workstation
designed especially for the high-volume testing requirements of large hospitals
and reference laboratories.

     The Company received FDA clearance to market the Model 900UDx in March 1996
and began sales in May of that year. The Company also received FDA clearance to
market The White IRIS leukocyte differential analyzer in May 1996 and began
commercial display of this system in July 1997. Finally, the Company began
selling the PowerGene family of genetic analyzers in August 1996 after
completing the acquisition, ("the PSI Acquisition") of the digital imaging
business of Perceptive Scientific Instruments, Inc.

     The Company invests significant amounts in research and development for new
products and enhancements to existing products. The following table summarizes
total product technology expenditures for the periods indicated:

<TABLE>
<CAPTION>
                                                               For the Three Months             For the Six Months 
                                                                     Ended June 30,                 Ended June 30,
                                                          --------------------------      --------------------------
                                                               1996             1997            1996            1997
<S>                                                       <C>             <C>             <C>             <C>       
      Research and development expense, net               $  340,813      $  767,879      $  610,916      $1,223,884
      Capitalized software development costs                 140,737         118,821         287,613         243,522
      Reimbursed costs for research and development
        grants and contracts                                 131,562         337,771         944,249         650,309
                                                          ----------      ----------      ----------      ----------
               Total product technology expenditures      $  613,112      $1,224,471      $1,842,778      $2,117,715
                                                          ==========      ==========      ==========      ==========
</TABLE>

     The Company partially funds its research and development programs through
(i) grants from NASA and the National Institutes of Health, (ii) joint
development programs with strategic partners and (iii) Company-sponsored
research and development entities.

RESULTS OF OPERATIONS

     The consolidated financial statements also reflect the consummation of the
PSI Acquisition on July 31, 1996 which was accounted for using the purchase
method of accounting. Accordingly, the financial results of the acquired
business are included in the consolidated statement of operations for the three
and six months ended June 30, 1997 but are not included in the consolidated
statements of operations for the comparable periods in the prior year.

     Comparison of Quarter Ended June 30, 1997 to Quarter Ended June 30, 1996

     Net sales for the quarter ended June 30, 1997 increased to $6.6 million
from $4.8 million, an increase of $1.8 million or 38% over the comparable period
in the prior year. Sales of IVD imaging systems increased to $2.8 million from
$1.3 million, an increase of $1.5 million or 115% over the comparable period in
the prior year. The increase is due primarily to the addition of the PowerGene
family of genetic analyzers to the Company's product line in August 1996 as a
result of the PSI Acquisition.


                                       10

<PAGE>   12

     Sales of IVD imaging system supplies and services increased to $2.6 million
from $2.2 million, an increase of $447,000 or 21% over the comparable period in
the prior year, primarily due to the larger installed base of IVD imaging
systems and the conversion of The Yellow IRIS installed base to the new
CHEMSTRIP/IRIStrip urine test strips marketed exclusively by the Company. As of
June 30, 1997, the Company had converted more than 90% of this installed base
from test strips marketed by various distributors to the new strips. Sales of
small instruments and supplies decreased to $1.0 million from $1.3 million, a
decrease of $299,000 or 22%, over the comparable period in the prior year. The
decrease generally reflects lower sales levels of the StatSpin products
primarily due to rescheduled purchases from one of its major distributors.

     The Company believes that the ongoing consolidation in the healthcare
industry may be adversely affecting sales of The Yellow IRIS as some hospitals
and reference laboratories appear to be postponing large capital investment
decisions due to the resulting uncertainty. The Company also believes that there
is a growing trend among potential customers for The Yellow IRIS toward leasing
these systems on a cost-per-test basis rather than purchasing them. This trend
is expected to spread the revenue from system placements over several years.

     Royalty revenues for the second quarter ended June 30, 1997 increased to
$114,000 from none in the prior year. The increase is primarily due to the
receipt of previously disputed royalties relating to the fourth quarter of 1996
and an initial fee earned for the license of certain technology.

     Cost of goods for IVD imaging systems decreased as a percentage of sales of
IVD imaging systems to 49% for the quarter ended June 30, 1997 from 52% for the
comparable period in the prior year. The decrease is primarily due to the
addition to the Company's product lines of the higher-margin PowerGene family of
genetic analyzers following the PSI Acquisition and an increase in the average
selling price of the Model 900UDx following the conclusion of its introductory
sales program. These factors were partially offset by a change in the product
mix and amortization of increased fixed costs for IVD imaging systems. Although
the Model 900UDx currently has a lower gross margin than other models of The
Yellow IRIS due to an OEM component on which the Company recognizes minimal
gross margin, the Company expects the Model 900UDx to generate higher sales of
CHEMSTRIP/IRIStrips and other supplies. Cost of goods for IVD imaging system
supplies and services as a percentage of sales remained constant at 47%, when
compared to the same period in the prior year. However, costs of IVD imaging
system supplies as a percentage of sales have been increasing due to relatively
lower gross margins on increasing sales of CHEMSTRIP/IRIStrip urine test strips
and lower gross margins realized on the sales of PowerGene service and supplies.
In the current quarter, these increases were offset by a temporary decline in
other costs. Cost of goods for small instruments and supplies as a percentage of
sales of small instruments and supplies totaled 56% for the quarter ended June
30, 1997 compared to 50% for the comparable period in the prior year. The
increase is primarily due to a change in the sales mix and decreased sales
levels. The net result of these changes was an increase in aggregate gross
margin to 52% for the quarter ended June 30, 1997, as compared to 51% in the
quarter ended June 30, 1996.

     Marketing and selling expenses consist primarily of salaries, commissions
and related travel expenses of the Company's direct sales force, as well as
salaries for the marketing and distributor relations departments. Marketing and
selling expenses increased to $1.3 million for the quarter ended June 30, 1997
from $984,000, an increase of $337,000 or 34% over the comparable period in the
prior year, due to the addition of the sales force from the PSI Acquisition
partially offset by decreased marketing and selling expenses related to The
Yellow IRIS. Marketing and selling expenses as a percentage of net revenues
amounted to 20% in the current and prior period.

     General and administrative expenses consist primarily of payroll costs
associated with the Company's management and support personnel, facilities
related costs and legal and accounting fees. General and administrative expenses
increased to $705,000 for the quarter ended June 30, 1997 from $575,000, an
increase of $130,000 or 23% over the comparable period in the prior year. This
increase is the result of the addition of the administrative functions following
the PSI Acquisition. General and administrative expenses as a percentage of net
revenues decreased from 12% to 11%.

     Net research and development expenses consist of costs incurred for the
development of new products and improvements to existing products less
third-party reimbursements under joint development programs, grants and research
and development contracts. Net research and development expenses increased to
$768,000 for the quarter ended June 30, 1997 from $341,000, an increase of
$427,000 or 125% over the comparable period in the prior year. Reimbursements
under joint development programs increased to $338,000 from $132,000. Total
product technology expenditures increased to $1.2 million from $613,000, an
increase of $611,000 or 100% over the comparable period in the prior year, due
primarily to the addition of 

                                       11
<PAGE>   13

research and development staff from the PSI Acquisition, accelerated development
of a new PowerGene system for 24-color karyotyping based on multiple-fluorescent
in situ hybridization technology and increased development efforts on The White
IRIS. Net research and development expenses as a percentage of revenues
increased from 7% to 12%.

     Amortization of intangible assets reflects the amortization of deferred
expenses for warrants issued in connection with a joint development project and
intangible assets arising from acquisitions and patents. Amortization of
intangible assets for the quarter ended June 30, 1997 increased to $313,000 from
$106,000, an increase of $207,000 or 195% over the comparable period in the
prior year, primarily as a result of the acquisition of intangible assets in the
PSI Acquisition.

     The results of operations for the quarter ended June 30, 1997 include
certain unusual charges to earnings of $3,000, primarily legal expenses relating
to recently completed litigation and arbitration matters. The unusual charges in
the comparable period in the prior year totaled $71,000, related primarily to
StatSpin merger expenses.

     Interest income consists of income from investments and decreased to
$14,000 for the quarter ended June 30, 1997 from $77,000 for the comparable
period in the prior year, primarily as the result of decreased amounts of
invested cash in 1997.

     Interest expense increased to $281,000 for the quarter ended June 30, 1997
from none for the comparable period in the prior year due to the indebtedness
incurred to finance the PSI Acquisition.

     The income tax provision for the quarter ended June 30, 1997 was
approximately $7,000, as compared to $112,000 for 1996 due to the decrease in
taxable income.

     The above factors contributed to a net income of $17,000 or less than $0.01
per share for the quarter ended June 30, 1997 as compared to net income of
$351,000 or $0.05 per share for the quarter ended June 30, 1996.

Comparison of Six Months Ended June 30, 1997 to Six Months Ended June 30, 1996

     Net sales for the six months ended June 30, 1997 increased to $12.9 million
from $8.7 million, an increase of $4.2 million or 48% over the comparable period
in the prior year. Sales of IVD imaging systems increased to $5.3 million from
$2.2 million, an increase of $3.1 million or 141% over the comparable period in
the prior year. The increase was due primarily to the addition of the PowerGene
family of genetic analyzers to the Company's product line in August 1996 as a
result of the PSI Acquisition, as well as increases in sales of The Yellow IRIS.

     Sales of IVD imaging system supplies and services increased to $5.2 million
from $4.2 million, an increase of $1.0 million or 24% over the comparable period
in the prior year, due to the larger installed base of IVD imaging systems and
the conversion of The Yellow IRIS installed base to the new CHEMSTRIP/IRIStrip
urine test strips marketed exclusively by the Company. Sales of small
instruments and supplies decreased to $2.2 million from $2.4 million, a decrease
of $217,000 or 9%, over the comparable period in the prior year. The decrease
reflects generally lower sales levels of the StatSpin products primarily due to
rescheduled purchases from one of its major distributors.

     Royalty revenues for the six months ended June 30, 1997 increased to
$202,000 from $22,000, an increase of $180,000 over the comparable period in the
prior year. The increase is primarily the result of increased royalties
received, the receipt of previously disputed royalties relating to the fourth
quarter of 1996 and an initial fee earned for the license of certain technology.

     Cost of goods for IVD imaging systems decreased as a percentage of sales of
IVD imaging systems to 49% for the six months ended June 30, 1997 from 54% for
the comparable period in the prior year due primarily to the addition to the
Company's product line of the higher-margin PowerGene family of genetic


                                       12

<PAGE>   14

analyzers following the PSI Acquisition and an increase in the average selling
price of the Model 900UDx following the conclusion of its introductory sales
program. These factors were partially offset by a change in the product mix 
and amortization of increased fixed costs for IVD imaging
systems. Although the Model 900UDx currently has a lower gross margin than other
models of The Yellow IRIS due to an OEM component on which the Company
recognizes minimal gross margin, the Company expects the Model 900UDx to
generate higher sales of CHEMSTRIP/IRIStrips and other supplies. Cost of goods
for IVD imaging system supplies and services increased as a percentage of sales
of such products to 51% for the six months ended June 30, 1997 from 49% for the
comparable period in the prior year primarily due to relatively lower gross
margins on sales of CHEMSTRIP/IRIStrip urine test strips which accounted for a
greater proportion of sales of system supplies and lower gross margins realized
on the sales of PowerGene service and supplies. Cost of goods for small
instruments and supplies as a percentage of sales of small instruments and
supplies totaled 54% for the six months ended June 30, 1997, an increase as
compared with 51% for the six months ended June 30, 1996 primarily due to a
shift in the sales mix and lower sales volumes. The aggregate gross margin for
the six months ended June 30, 1997 was 50% which is comparable to the gross
margin realized in the six months ended June 30, 1996.

     Marketing and selling expenses increased to $2.5 million for the six months
ended June 30, 1997 from $1.8 million, an increase of $713,000 or 40% over the
comparable period in the prior year, primarily due to the addition of the sales
force from the PSI Acquisition partially offset by decreased marketing and
selling expenses related to The Yellow IRIS. Marketing and selling expenses as a
percentage of net revenues decreased from 20% in the prior period to 19% in the
current period.

     General and administrative expenses increased to $1.7 million for the six
months ended June 30, 1997 from $1.0 million, an increase of $738,000 or 76%
over the comparable period in the prior year, and increased as a percentage of
net revenues from 11% to 13%. This increase is the result of the addition of
administrative functions following the PSI Acquisition, increased administrative
staffing and increased legal and accounting expenses.

     Net research and development expenses increased to $1.2 million for the six
months ended June 30, 1997 from $611,000, an increase of $613,000 or 100% over
the comparable period in the prior year, and increased as a percentage of net
revenues from 7% to 9%. Reimbursements under joint development programs
decreased to $650,000 from $944,000. Total product technology expenditures
increased to $2.1 million from $1.8 million, a increase of $275,000 or 15% over
the comparable period in the prior year, due primarily to the addition of
research and development staff from the PSI Acquisition, accelerated development
of a new PowerGene system for 24-color karyotyping based on multiple-fluorescent
in situ hybridization technology and increased development efforts on The White
IRIS.

     Amortization of intangible assets for the six months ended June 30, 1997
increased to $625,000 from $175,000, an increase of $449,000 or 256% over the
comparable period in the prior year, primarily as a result of the acquisition of
intangible assets in the PSI Acquisition and the Censlide product line
acquisition.

     The results of operations for the six months ended June 30, 1997 include
certain unusual charges to earnings of $98,000, primarily legal expenses
relating to recently completed litigation and arbitration matters. The unusual
charges in the comparable period in the prior year totaled $270,000 and
consisted primarily of StatSpin merger expenses.

     Interest income decreased to $34,000 for the six months ended June 30, 1997
from $137,000 for the comparable period in the prior year, primarily as the
result of decreased amounts of invested cash in 1997.

     Interest expense increased to $592,000 for the six months ended June 30,
1997 from $5,000 for the comparable period in the prior year due to the
indebtedness incurred to finance the PSI Acquisition.

     The income tax benefit for the six months ended June 30, 1997 was $81,000,
as compared to an income tax provision of $130,000 for 1996. The income tax
benefit for the six months ended June 30, 1997 differs 


                                       13


<PAGE>   15

from the federal statutory rate due to state, local and foreign income taxes 
incurred on taxable income at a subsidiary level which is not offset by
losses at the corporate level.

     The staff of the Securities and Exchange Commission recently announced a
new position on accounting for convertible preferred stock which is potentially
convertible at a discount to the market price of the common stock, even if the
potential for a discount is only a possibility. The staff has taken the position
that, solely for purposes of calculating earnings per share, the potential
discount is an imputed dividend to the preferred stockholders which reduces the
amount of income available to common stockholders. As a result of the staff's
new accounting position, the issuance of the Series A Preferred Stock resulted
in a one-time reduction in earnings available to common shareholders of $450,000
or $0.08 per share in the first quarter of 1997. The staff's position is limited
to the calculation of earnings per share and did not have any effect on the
Company's net income or cash flow.

     The above factors contributed to a net loss of $185,000 or $0.11 per share
for the six months ended June 30, 1997 as compared to net income of $558,000 or
$0.08 per share for the six months ended June 30, 1996.

LIQUIDITY AND CAPITAL RESOURCES

     Cash, cash equivalents and short-term investments decreased to $1.5 million
at June 30, 1997 from $4.3 million at December 31, 1996. The decrease is
primarily attributable to principal payments on bank debt and an installment
payment for the repurchase of common stock. Inventory levels at June 30, 1997
decreased to $4.5 million from $4.8 million at December 31, 1996. This decrease
is primarily due to the implementation of an inventory reduction program. Total
accounts receivable decreased to $4.9 million at June 30, 1997 from $5.2 million
at December 31, 1996. This decrease was primarily the result of improved
collection efforts partially offset by the effect of increased sales.

     Accounts payable decreased to $3.5 million at June 30, 1997 from $4.6
million at December 31, 1996, primarily due to the application of the net
proceeds from the sale of the Series A Preferred Stock in late December 1996.
Cash provided by operations totaled $645,000 for the six months ended June 30,
1997, as compared to cash used in operations totaling $951,000 for the six 
months ended June 30, 1996.

     In the six months ended June 30, 1997, the Company expended $207,000 for
capital equipment and $244,000 for capitalized software development. The Company
expended $424,000 for capital equipment and $288,000 for capitalized software
development in the comparable period of the prior year. The Company does not
presently have any material commitments for capital expenditures.

     During the six months ended June 30, 1997, the Company generated cash of
$138,000 from stock sales to employees under the Company's stock option and
purchase plans.

     On June 30, 1997, the outstanding principal balance of the Term Loan was
$4.0 million. The Term Loan is collateralized by a first priority lien on all
the assets of the Company and bears interest monthly at the bank's prime rate
(8.50% on June 30, 1997) plus 1.75%. The interest rate increased an additional
0.25 percentage point on July 1, 1997. The Company is required to pay $100,000
of principal each month, and the balance is due April 15, 1998. The Company may
prepay the Term Loan at any time without premium or penalty. The Company has
further reduced the outstanding principal balance of the Term Loan to $3.8
million as of August 1, 1997.

     The outstanding principal balance on the Credit Facility was $1.1 million
on June 30, 1997. Under the terms of the Credit Facility, the Company can borrow
and reborrow up to a maximum principal amount of $1.5 million at a variable
interest rate equal to the bank's prime rate plus 1.75%. The interest rate
increased an additional 0.25 percentage point on July 1, 1997. The Credit
Facility, collateralized by a first priority lien on all assets, matures April
15, 1998.

     On June 30, 1997, the Company owed approximately $1.0 million for the
repurchase of common stock and warrants to purchase common stock from an
affiliate of Boehringer Mannheim Corporation. This balance was due in two
installments in the second and third quarters of 1997. The Company exercised its
right to pay the June 30, 1997 installment by delivering a one year promissory
note in the amount of $545,000 bearing 8% interest. The remaining installment is
due in the third quarter of 1997. The Company also has the right to pay the
final installment by delivering a similar promissory note.


                                       14
<PAGE>   16

     The Company believes that its current cash on hand plus short-term
investments, together with cash generated by operations and cash available under
the Credit Facility, will be sufficient to fund normal operations and pay
principal and interest on outstanding debt obligations until maturity of the
bank debt on April 15, 1998.

     The Company is presently pursuing additional financing to repay principal
on its outstanding indebtedness and to fund its future business strategy. The
Company may not be able to secure adequate additional financing on favorable
terms, if at all. Additional outside financing (or a restructuring of existing
indebtedness) could result in dilution to holders of Common Stock and
significant financial and operational restrictions on the Company.

     In September 1995, the Company and Poly UA Systems Inc. ("Poly"), entered
into a research and development agreement to develop the Poly products using the
Company's technology. The Company is funding the first $15,000 per month (up to
a maximum of $500,000) of the cost of the project, and Poly is reimbursing the
Company for the excess. The Company has an option to acquire all of the common
stock of Poly for an aggregate price increasing on August 1, 1997 from $4.4
million to $5.1 million, payable in cash or shares of Common Stock of the
Company. If the Company elects to exercise its option, the portion of the net
cost of the acquisition allocated to completed products would be capitalized and
its subsequent amortization may impact future earnings to the extent profits
from products acquired do not cover these costs. For the portion of the net cost
of the acquisition allocated to in-process research and development, the Company
would record a nonrecurring, noncash (if purchased with Common Stock) charge
against then current earnings.

INFLATION

     The Company does not foresee any material impact on its operations from
inflation.

HEALTHCARE REFORM POLICIES

     In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
effect major changes in the healthcare system, nationally, at the state level or
both. Future legislation, regulation or payment policies of Medicare, Medicaid,
private health insurance plans, health maintenance organizations and other
third-party payors could adversely affect the demand for the Company's current
or future products and its ability to sell its products on a profitable basis.
Moreover, healthcare legislation is an area of extensive and dynamic change, and
the Company cannot predict future legislative changes in the healthcare field or
their impact on its business.

RECENTLY-ISSUED ACCOUNTING STANDARDS

     In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS
No. 128"). SFAS No. 128 requires dual presentation of newly defined basic and
diluted earnings per share on the face of the income statement for all entities
with complex capital structures. This method is considered more compatible with
International Accounting Standards. SFAS No. 128 is effective for all fiscal
years ending after December 15, 1997. Due to the net loss incurred, the adoption
of SFAS No. 128 for the six months ended June 30, 1997 would not have had an
impact on net loss per share. The Company has not yet determined the impact of
SFAS No. 128 for the quarter ended June 30, 1997 .

     In June 1997, the FASB issued SFAS No. 130, "Comprehensive Income". SFAS
No. 130 becomes effective in 1998 and requires reclassification of earlier
financial statements for comparative purposes. SFAS No. 130 requires that
changes in the amounts of certain items, including foreign currency translation
adjustments and gains and losses on certain securities be shown in the financial
statements. SFAS No. 130 does not require a specific format for the financial
statement in which comprehensive income is reported, but does require that an
amount representing total comprehensive income be reported in that statement.
The Company has not determined the effect, if any, of SFAS No. 130 on the
consolidated financial statements.

     Also in June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments
Of An Enterprise and Related Information". SFAS No. 131 will change the way
public companies report information about segments of their business in their
annual financial statements and requires them to report selected segment
information in their quarterly reports issued to shareholders. It also requires
entity-wide disclosures about the products and service an entity provides, the
material countries in which it holds assets and reports revenues, and its major
customers. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The Company has not determined the effect, if any, of SFAS No. 131
on the consolidated financial statements.


                                       15

<PAGE>   17

FORWARD-LOOKING STATEMENTS

     The foregoing discussion, as well as the other sections of this Annual
Report on Form 10-Q, contain various forward-looking statements which reflect
the Company's current views with respect to future events and financial results.
Forward-looking statements usually include the verbs "anticipates," "believes,"
"estimates," "expects," "intends," "plans," "projects," "understands" and other
verbs suggesting uncertainty. The Company reminds stockholders that
forward-looking statements are merely predictions and therefore inherently
subject to uncertainties and other factors which could cause the actual results
to differ materially from the forward-looking statement. The Company has
attempted to identify some of these uncertainties and other factors in Exhibit
99 to this Quarterly Report on Form 10-Q and in its 1996 Annual Report on Form
10-K.


PART 2         OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

     The Company is involved in routine litigation arising in the ordinary
course of its business, and, while the results of the proceedings cannot be
predicted with certainty, the Company believes that the final outcome of such
matters will not have a material adverse effect on the Company.

ITEM 5.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     IRIS held its Annual Meeting of Stockholders on June 26, 1997. At the
meeting, IRIS stockholders voted on the following matters:

     1.  ELECTION OF THE CLASS 1 DIRECTORS. The stockholders re-elected Mr.
         Steven M. Bisbeck as the Class 1 Director. The voting results were
         5,142,638 votes for and 98,983 votes withheld.

     2.  RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS. The stockholders
         ratified the reappointment of the accounting firm of Coopers & Lybrand
         L.L.P., by the Board of Directors, as independent auditors of IRIS for
         1997.


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

     (a)      Exhibits

<TABLE>
<CAPTION>
  No.             Description
  ---             -----------
<S>            <C>
  3.1(a)       -- Certificate of Incorporation, as amended (1)
  3.1(b)       -- Certificate of Designations of Series A Convertible Preferred Stock (2)
  3.2          -- Restated Bylaws (3)
  4.1          -- Specimen of Common Stock Certificate (4)
  4.2          -- Certificate of Designations of Series A Convertible Preferred Stock (2)
  11           -- Statement re: Computation of Per Share Earnings
  27           -- Financial Data Schedule
  99           -- Certain Information Regarding Forward Looking Statements
</TABLE>

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

The following items are incorporated by reference to the cited Company
documents.

(1)      Current Report on Form 8-K dated August 13, 1987 and its Quarterly
         Report on Form 10-Q for the quarter ended September 30, 1993.

(2)      Current Report on Form 8-K dated January 15, 1997.

(3)      Quarterly Report on Form 10-Q for the quarter ended September 30, 1994.

(4)      Registration Statement on Form S-3, as filed with the Securities and
         Exchange Commission on March 27, 1996 (File No. 333-002001).

     (b)      Reports on Form 8-K

     None filed during the period covered.


     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, in Chatsworth, California, on August
____, 1997.


                                   INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.



                                   By: /s/ Martin S. McDermut
                                       -----------------------------------
                                        Martin S. McDermut, Vice President, 
                                        Finance & Administration
                                        and Chief Financial Officer


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