<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
March 31, 1998                                                        No. 1-9767
                             ----------------------


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


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



    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 April
30, 1998 was 6,284,862.

<PAGE>   2

                   INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.


                               INDEX TO FORM 10-Q

                   Three Months Ended March 31, 1998 and 1997




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

            ITEM 1 - Consolidated Financial Statements

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


            Consolidated Statements of Operations..............................3


            Consolidated Statements of Cash Flows..............................4


            Consolidated Statements of Comprehensive Income....................5


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


            ITEM 2 - Management's Discussion and Analysis of
                     Financial Condition and Results of Operations.............9



 PART 2 -   OTHER INFORMATION

            ITEM 1 - Legal Proceedings........................................12

            ITEM 6 - Exhibits and Reports on Form 8-K

            (a)  Exhibits.....................................................12
            (b) Reports on Form 8-K...........................................12



 SIGNATURE ...................................................................13
</TABLE>

<PAGE>   3

PART 1 - FINANCIAL INFORMATION

ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS


                   INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                            ASSETS                                At December 31,        At March 31,
                                                                             1997               1998
                                                                                          (unaudited)
                                                                     ------------      --------------
<S>                                                                  <C>               <C>         
Current assets:
Cash and cash equivalents                                            $  1,470,861      $  1,808,896
Short-term investments                                                     25,000            25,000
Accounts receivable, net of allowance for doubtful
  accounts of $267,579 in 1997 and $269,156 in 1998                     5,319,539         4,593,709
Inventories                                                             3,739,483         3,964,739
Prepaid expenses and other current assets                                 259,822           241,156
Deferred tax asset                                                        993,950           990,150
                                                                     ------------      ------------
    Total current assets                                               11,808,655        11,623,650

Property and equipment, at cost, net of accumulated depreciation        1,847,746         1,840,633
Purchased intangibles, net of accumulated amortization                 8,597,601         8,368,175
Software development costs, net of accumulated amortization of
 $1,223,601 in 1997 and $1,312,137 in 1998                              1,080,106         1,086,515
Deferred tax asset                                                      7,621,800         7,621,800
Other assets                                                            1,778,669         1,941,930
                                                                     ------------      ------------
    Total assets                                                     $ 32,734,577      $ 32,482,703
                                                                     ============      ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Short-term borrowings                                              $    850,000      $    500,000
  Current portion of long-term debt                                     3,400,000         1,300,000
  Accounts payable                                                      2,613,297         2,588,860
  Accrued expenses                                                      2,383,946         2,515,231
  Deferred income - service contracts and other                           911,459           953,851
                                                                     ------------      ------------
    Total current liabilities                                          10,158,702         7,857,942

Subordinated note payable                                               7,000,000         7,000,000
Deferred income - service contracts and other                             241,507           309,012
Notes payable, long-term portion                                          542,027         2,342,027
                                                                     ------------      ------------
    Total liabilities                                                  17,942,236        17,508,981

Commitments and contingencies

Shareholders' equity:
  Preferred stock, $.01 par value
    Authorized:  3,000,000 shares
    Convertible Series A,
    Shares issued and outstanding :  1997 and 1998 - 3,000
    ($3,000,000 liquidation preference)                                        30                30
  Common stock, $.01 par value
    Authorized:  15,600,000 shares
    Shares issued and outstanding:
    1997 - 6,259,728, 1998 - 6,283,463                                     62,597            62,835
  Additional paid-in capital                                           37,788,536        37,914,698
  Treasury stock, at cost (26,240 shares in 1997 and in 1998)            (103,500)         (103,500)
  Unearned compensation                                                  (333,495)         (288,315)
  Foreign currency translation adjustment                                  35,877            41,872
  Accumulated deficit                                                 (22,657,704)      (22,653,898)
                                                                     ------------      ------------
     Total shareholders' equity                                        14,792,341        14,973,722
                                                                     ------------      ------------
     Total liabilities and shareholders' equity                      $ 32,734,577      $ 32,482,703
                                                                     ============      ============
</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 March 31,
                                                     ------------------------------------ 
                                                                     1997            1998
                                                              -----------     -----------
<S>                                                           <C>             <C>        
Sales of IVD imaging systems                                  $ 2,479,290     $ 2,445,937
Sales of IVD imaging supplies and services                      2,619,324       2,968,201
Sales of small instruments and supplies                         1,103,294       1,111,644
Royalties and licensing revenues                                   88,127          66,859
                                                              -----------     -----------

Net revenues                                                    6,290,035       6,592,641
                                                              -----------     -----------

Cost of goods - IVD imaging systems                             1,228,110       1,267,982
Cost of goods - IVD imaging supplies and services               1,374,299       1,341,583
Cost of goods - small instruments and supplies                    573,474         628,249
                                                              -----------     -----------

Cost of goods sold                                              3,175,883       3,237,814
                                                              -----------     -----------

Gross margin                                                    3,114,152       3,354,827

Marketing and selling                                           1,251,956       1,266,460
General and administrative                                        998,076         817,710
Research and development, net                                     455,965         653,798
Intangibles amortization                                          311,868         289,488
Unusual legal expenses                                             95,129          37,666
                                                              -----------     -----------

Total operating expenses                                        3,112,994       3,065,122

Operating income                                                    1,158         289,705

Other income (expense):
   Interest income                                                 19,682           8,169
   Interest expense                                              (310,744)       (271,235)
   Other income (expense)                                              --         (20,615)
                                                              -----------     -----------

Income (loss) before provision (benefit) for income taxes        (289,904)          6,024

Provision (benefit) for income taxes                              (87,829)          2,218
                                                              -----------     -----------
Net income (loss)                                                (202,075)          3,806

Less imputed preferred stock dividend                            (450,000)             --
                                                              -----------     -----------

Net income (loss) attributable to common shareholders         $  (652,075)    $     3,806
                                                              ===========     ===========

Net income (loss) per common share - basic                    $      (.11)    $       .00
                                                              ===========     ===========

Net income (loss) per common share - diluted                  $      (.11)    $       .00
                                                              ===========     ===========

Weighted average number of common shares - basic                5,932,176       6,245,276
                                                              ===========     ===========

Weighted average number of common shares and common
    share equivalents outstanding for the period - diluted      5,932,176       7,426,990
                                                              ===========     ===========
</TABLE>
---------------
The accompanying notes are an integral part of these consolidated financial
statements.


                                       3
<PAGE>   5

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

<TABLE>
<CAPTION>
                                                                     For the three months ended March 31,
                                                                     ------------------------------------
                                                                              1997            1998
                                                                              ----            ----
<S>                                                                      <C>             <C>        
Cash flow from operating activities:
     Net income (loss)                                                   $(  202,075)    $     3,806
    Adjustments to reconcile net income (loss) to cash provided
    by operations:
     Deferred tax benefit                                                   (121,000)          3,800
     Depreciation and amortization                                           657,459         628,029
     Common stock and stock option compensation amortization                  48,109          66,136
    Changes in assets and liabilities:
     Accounts receivable - trade and other                                   519,150         552,989
     Service contracts, net                                                  143,027         220,211
     Inventories                                                             401,235        (224,462)
     Prepaid expenses and other current assets                                16,713            (492)
     Other assets                                                              5,559        (134,384)
     Accounts payable                                                     (1,211,091)        (25,858)
     Accrued expenses                                                        (41,038)        131,864
     Deferred income - other                                                 (52,495)          7,070
                                                                         -----------     -----------
Net cash provided by operating activities                                    163,553       1,228,709
                                                                         -----------     -----------

Cash flow from investing activities:
    Acquisition of property and equipment                                    (37,228)       (152,667)
    Software development costs                                              (124,701)        (94,945)
    Acquisition of other assets                                              (30,000)             --
    Decrease in short-term investments                                       267,589              --
                                                                         -----------     -----------
Net cash provided (used) by investing activities                              75,660        (247,612)
                                                                         -----------     -----------

Cash flow from financing activities:
    Repayments of credit facility                                                 --        (350,000)
    Repayment of notes payable                                            (1,300,000)       (300,000)
    Installment payment on repurchase of common stock                       (545,057)             --
    Issuance of common stock and warrant for cash                            124,172          91,488
    Deferred stock or debt issuance costs                                    (93,244)        (85,844)
                                                                         -----------     -----------
Net cash used by financing activities                                     (1,814,129)       (644,356)
                                                                         -----------     -----------

Effect of foreign currency fluctuation on cash and cash
  equivalents                                                                 (9,591)          1,294
                                                                         -----------     -----------
Net increase (decrease) in cash and cash equivalents                      (1,584,507)        338,035
Cash and cash equivalents at beginning of period                           3,602,535       1,470,861
                                                                         -----------     -----------
Cash and cash equivalents at end of period                               $ 2,018,028     $ 1,808,896
                                                                         ===========     ===========

Supplemental schedule of non-cash investing and financing activities:
    Issuance of common stock in exchange for services                       $102,163         $20,956
    Capital lease obligation incurred                                             --          70,000
    Issuance of common stock in satisfaction of liabilities                   80,000          13,956
    Issuance of warrants to purchase common stock                             64,500              --
    Deferred stock issuance costs not paid                                   186,496              --
Supplemental disclosure of cash flow information:
    Cash paid for interest                                                   289,203         240,182
    Cash paid for income taxes                                                    --          40,000
</TABLE>
----------------------

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


                                       4
<PAGE>   6

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




<TABLE>
<CAPTION>
                                            For the three months ended March 31,
                                            ------------------------------------
                                                               1997         1998
                                                          ---------       ------
<S>                                                       <C>             <C>   
Net income (loss)                                         $(202,075)      $3,806
    Other comprehensive income,
    foreign currency translation adjustment                 (36,602)       5,995
                                                          ---------       ------
Comprehensive income (loss)                               $(238,677)      $9,801
                                                          =========       ======
</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") equipment, including 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. The Company also provides ongoing service and supplies to support
the equipment sold.

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 as of March 31, 1998 and
1997 and the results of its operations for the three month periods then ended.
These financial statements should be read in conjunction with the financial
statements and notes included in the Company's latest 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.

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 1997 financial statements
to conform with the 1998 presentation.

3.   Comprehensive Income.

     In January 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS
130"). FAS 130 establishes standards for reporting and displaying comprehensive
income and its components (revenues, expenses, gains and losses) in financial
statements. FAS 130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements.

     No tax effect has been allocated to the foreign currency translation
adjustment for the periods presented.

     The following is a reconciliation of accumulated other comprehensive income
balance for the three months ended March 31, 1998.


<TABLE>
<S>                                               <C>    
                     Beginning balance             $35,877

                     Current period change           5,995
                                                   -------
                     Ending balance                $41,872
                                                   =======
</TABLE>


                                       6
<PAGE>   8

4.   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, 1997  At March 31, 1998
                                           --------------------  -----------------
<S>                                                  <C>                <C>       
     Finished goods                                  $  766,525         $  579,360
     Work-in-process                                    788,374            342,424
     Raw materials, parts and sub-assemblies          2,184,584          3,042,955
                                                     ----------         ----------
                                                     $3,739,483         $3,964,739
                                                     ==========         ==========
     </TABLE>

5.   Purchased Intangibles.

     Purchased intangibles, at cost, consist of the following:

<TABLE>
<CAPTION>
                                       At December 31, 1997    At March 31, 1998
                                       --------------------    -----------------
<S>                                             <C>                  <C>        
     Goodwill                                   $   383,108          $   383,108
     International distribution channel           5,571,728            5,571,728
     Acquired technology and know-how             3,960,904            3,960,904
                                                -----------          -----------
                                                  9,915,740            9,915,740
     Less accumulated amortization               (1,318,139)          (1,547,565)
                                                -----------          -----------
     Total                                      $ 8,597,601          $ 8,368,175
                                                ===========          ===========
</TABLE>

6.   Short Term Borrowings and Notes Payable.

     As of March 31, 1998, the Company's liabilities included $3.1 million
outstanding under a bank term loan. On May 8, 1998, the Company repaid the bank
loan with the proceeds of a new loan facility from Foothill Capital Corporation,
a division of Norwest Bank. The new credit facility consists of a $3.6 million
term loan and a $4.0 million revolving line of credit. Borrowings under the line
of credit are limited to a percentage of eligible accounts receivable and are
subject to a combined limit of $7.0 million for the entire credit facility. The
Company had approximately $2.0 million available under the line of credit at
inception. The term loan bears interest at the lender's prime rate (8.5% on May
8, 1998) plus 3.0% and is payable in 36 equal monthly installments. The
revolving credit line bears interest at the lender's prime rate plus 1.0%. The
new credit facility is subject to minimum interest charges, prepayment penalties
and customary fees, is collateralized by a first priority lien on all assets of
the Company and matures in 2001. It also contains financial covenants based
primarily on tangible net worth and cash flow and imposes restrictions on
acquisitions, capital expenditures and cash dividends. At March 31, 1998, $1.9
million of amounts owed under the bank term loan refinanced on a long-term basis
through the new credit facility was reclassified to long-term debt.

     On March 31, 1998, the Company had outstanding notes payable in the
aggregate amount of $1,042,027 from a repurchase of common stock and warrants
from a joint venture partner in 1996. The notes bear interest at the rate of 8%,
and principal is due in bi-monthly installments of $100,000.

7.   Capital Stock.

Stock Issuances:

     During the three months ended March 31, 1998, the Company (i) issued 10,957
shares of common stock in exchange for $20,957 in cash and services under the
Key Employee Stock Purchase Plan, (ii) issued options to purchase 125,900 shares
of common stock under the Company's stock option plans (10,000 of which are
subject to shareholder approval of a new option plan) and (iii) cancelled
options to purchase 3,600 shares of common stock. No options were exercised
during the period. At March 31, 1998, options to purchase 1,388,600 shares of
common stock were issued and outstanding under the Company's stock options
plans. The outstanding options expire by the end of 2008. The exercise price for
these options ranges from $3.03 to $4.50 per share, for an aggregate exercise
price of approximately $4.5 million. At March 31, 1998, there were 602,900
shares of common stock available for the granting of future options of which
590,000 are subject to shareholder approval of a new stock option plan.

     During the three months ended March 31, 1998, warrants were exercised to
purchase 12,778 shares of common stock for $49,487. Also, warrants to purchase
an additional 75,000 shares of common stock were issued for cash proceeds of
$35,000 and 70,098 stock options outstanding relating to the StatSpin
acquisition expired unexercised.

Warrants:

     At March 31, 1998, the following warrants were outstanding and exercisable:


                                       7
<PAGE>   9

<TABLE>
<CAPTION>
    Number of Warrants             Price               Expiration Date
    ------------------             -----               ---------------

<S>                                <C>                 <C> 
               315,000              6.50               September 29, 1998
                50,000              3.875              January 15, 2000
               298,633              4.00               March 29, 2000
                25,000              4.375              June 1, 2000
                25,000              4.0625             July 1, 2000
               123,000              7.80               September 28, 2000
               875,000              8.00               July 31, 2001
                84,270              3.56               December 31, 2001
                10,000              4.31               May 15, 2002
</TABLE>

8.   Commitments and Contingencies.

     In July 1996, the Company acquired Perceptive Scientific Instruments, Inc.
("PSI") from Digital Imaging Technologies, Inc. ("DITI"). As part of the
purchase price, the Company issued to DITI a five-year warrant to purchase
875,000 shares of common stock at $8.00 per share. In August 1997, the Company
filed a demand for arbitration against DITI with the American Arbitration
Association. The Company's demand for arbitration alleges material breaches of
the representations, warranties and covenants in the purchase agreement
governing the PSI acquisition. DITI subsequently filed a counterclaim in the
arbitration proceeding alleging that the Company misrepresented or omitted to
disclose material facts in connection with the PSI acquisition. DITI had
previously requested a reduction in the exercise price of the warrant but
elected to seek unspecified monetary damages in the counterclaim. The parties
are currently engaged in discovery. Although the Company does not presently
anticipate any material adverse effect as a result of this arbitration
proceeding, there can be no assurance that it will not have such an effect on
the Company or result in additional dilution to holders of the Common Stock.

9.   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 March 31,
                                          ----------------------------
                                                 1997             1998
                                             --------         --------
<S>                                         <C>              <C>     
          Reimbursements                     $312,538         $206,124
          Costs                               339,205          294,786
                                             --------         --------
          Net costs                          $ 26,667         $ 88,662
                                             ========         ========
</TABLE>


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

10.  Unusual Charges.

     The results of operations for the three month period ended March 31, 1998,
include unusual charges totaling $37,666 and are primarily legal expenses
relating to the pending arbitration matter with DITI. The unusual charges in the
comparable period in the prior year totaled $95,129 and are primarily legal
expenses related to a completed arbitration matter.

11.  Income Taxes.

     The income tax provision for the three-month period ended March 31, 1998
was $2,218, as compared to an income tax benefit of $87,829 for the comparable
period in the prior year. The income tax provision and benefit for the three
month periods ended March 31, 1998 and 1997, respectively, differs from the
federal statutory rate due to state, local and foreign income taxes and
permanent differences between income reported for financial statement and income
tax purposes.

12.  Earnings Per Share.

     The computation of per share amounts for the three months ended March 31,
1997 is based on the average number of common shares outstanding for the
period. Options and warrants to purchase 2,809,270 shares of common stock
outstanding during the three months ended March 31, 1997 were not considered in
the computation of diluted EPS because their inclusion would have been
antidilutive. Preferred stock convertible into 842,697 common shares at March
31, 1997 was also not considered in the computation of diluted EPS because its
inclusion would have been antidilutive.

     In early 1997 the staff of the Securities and Exchange Commission ("staff")
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
three-month period ended March 31, 1997.


                                       8
<PAGE>   10
    The following is a reconciliation of net income and shares used in computing
basic and diluted earnings per share amounts for the three months ended March
31, 1998.

<TABLE>
<CAPTION>
                                       Income          Shares   Per Share Amount
                                       ------          ------   ----------------
<S>                                    <C>            <C>                   <C> 
Basic EPS                                                                 
Income available to Common                                                
  Shareholders                         $3,806         6,245,276             $.00
                                                                          
Effects of Dilutive Securities                                                
    Warrants                               --             9,270               --
    Options                                --           119,812               --
    Convertible Preferred Stock            --         1,052,632               --
                                                                          
Diluted EPS                                                               
Income available to Common                                                
  Shareholders plus Assumed            ------         ---------             ----                                     
  Conversions                          $3,806         7,426,990             $.00
                                       ======         =========             ====
</TABLE>
                                                                        
     Options and warrants to purchase 1,783,133 shares of common stock at $4.00
to $8.00 outstanding during the three months ended March 31, 1998, were not
included in the computation of diluted EPS because the exercise price was
greater than the average market price of the common shares during the period.

13.  Recently Issued Accounting Standards.

     In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("FAS 131"). This statement requires that a
public business enterprise report financial and descriptive information about
its reportable operating segments. Generally, financial information is required
to be reported on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments. It is effective
for fiscal years beginning after December 15, 1997. The Company intends to adopt
this new standard in fiscal year 1998, and does not believe that this statement
will have a significant impact on its 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 diagnostic ("IVD")
imaging systems based on its patented and proprietary AIM technology. Following
their 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 1996, the Company generated most of its revenues from sales of two
models of The Yellow IRIS urinalysis workstation and related supplies and
service. 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 also 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. ("PSI"). Finally, in December 1997, the Company began
distributing the UF-100 urine cell analyzer in the United States under an
existing agreement with its manufacturer, TOA Medical Electronics, 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>
                                                    Three Months Ended March 31,
                                                    ----------------------------
                                                           1997           1998
                                                           ----           ----
<S>                                                      <C>            <C>     
Research and development expense, net                    $456,000       $654,000
Capitalized software development costs                    125,000         95,000
Reimbursed costs for research and
  development grants and contracts                        313,000        206,000
                                                         --------       --------
       Total product technology expenditures             $894,000       $955,000
                                                         ========       ========
</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.


                                       9
<PAGE>   11
RESULTS OF OPERATIONS

     Comparison of Quarter Ended March 31, 1998 to Quarter Ended March 31, 1997

     Net revenues for the quarter ended March 31, 1998 increased to $6.6 million
from $6.3 million, an increase of $303,000 or 5% over the comparable period in
the prior year. Sales of IVD imaging systems decreased to $2.4 million from $2.5
million, a decrease of $33,000 or 1% from the comparable period in the prior
year. Revenues from sales of the Yellow IRIS family of urinalysis workstation
decreased slightly due to a shift in sales mix to lower priced units. This
decrease was partially offset by an increase in sales of the PowerGene line of
genetic analyzers.

     Sales of IVD imaging system supplies and services increased to $3.0 million
from $2.6 million, an increase of $349,000 or 13% over the comparable period in
the prior year, primarily due to the larger installed base of The Yellow IRIS
IVD imaging systems. Sales of small instruments and supplies totaled $1.1
million, which is comparable to the prior year.

     Cost of goods for IVD imaging systems increased as a percentage of sales of
IVD imaging systems to 52% for the quarter ended March 31, 1998 from 50% for the
comparable period in the prior year. The increase is primarily due to lower
average selling prices of The Yellow IRIS urinalysis workstations. Cost of goods
for IVD imaging system supplies and services as a percentage of sales of such
products decreased to 45% for the current period as compared to 52% for the same
period in the prior year. The decrease is primarily due to decreased costs and
increased selling prices. Cost of goods for small instruments and supplies as a
percentage of sales of small instruments and supplies totaled 57% for the
current quarter compared to 52% for the comparable period in the prior year. The
increase is primarily due to a change in the sales mix. The net result of these
changes was an increase in aggregate gross margin to 51% for the quarter ended
March 31, 1998, as compared to 50% in the comparable period in the prior year.

     Marketing and selling expenses totaled $1.3 million for the quarter ended
March 31, 1998, which is comparable to the prior year. Marketing and selling
expenses as a percentage of net revenues decreased to 19% in the current quarter
as compared to 20% in the same period in the prior year.

     General and administrative expenses decreased to $818,000 for the quarter
ended March 31, 1998 from $998,000, a decrease of $180,000 or 18% from the
comparable period in the prior year. This decrease is mainly the result of the
reduced expenses resulting from the restructuring implemented in the fourth
quarter of 1996, as well as decreased legal and accounting expenses. General and
administrative expenses as a percentage of net revenues decreased from 16% to
12%. The Company does not anticipate further reduction in the amount of these
expenses, although they may decline as a percentage of net revenues.

     Net research and development expenses increased to $654,000 for the quarter
ended March 31, 1998 from $456,000, an increase of $198,000 or 43% over the
comparable period in the prior year. Net research and development expenses
increased as a percentage of revenues from 7% to 10%. Reimbursements under joint
development programs decreased to $206,000 from $313,000. Total product
technology expenditures, including capitalized software development costs and
reimbursed costs under research and development grants and contracts, increased
to $955,000 from $894,000, an increase of $61,000 or 7% as compared to the
comparable period in the prior year. The increase in total product technology
expenditures is due to increased expenditures relating to the PowerGene family
of genetic analyzers, partially offset by decreased expenditures on products
under a joint development program with Poly UA Systems, Inc., a company
sponsored research and development entity, for several new urinalysis automation
products.

     Amortization of intangible assets for the quarter ended March 31, 1998
decreased to $289,000 from $312,000, a decrease of $23,000 or 7% from the
comparable period in the prior year. The decline is primarily the result of the
write-off in the fourth quarter of 1997 of goodwill from the acquisition of the
digital refractometer product line in 1995.

     The results of operations for the quarter ended March 31, 1998 include
unusual legal expenses of $38,000 relating to a pending arbitration matter. The
unusual legal expenses in the comparable period in the prior year totaled
$95,000 and relate primarily to a separate, completed arbitration matter.

     Interest expense decreased to $271,000 for the quarter ended March 31, 1998
from $311,000 for the comparable period in the prior year due to reduced
indebtedness.

     The income tax provision for the quarter ended March 31, 1998 was $2,000,
as compared to an income tax benefit of $88,000 for the comparable period
in 1997.

     The above factors contributed to a net income of $4,000 or $0.00 per share
for the quarter ended March 31, 1998 as compared to a net loss of $202,000 or
$0.11 per share for the quarter ended March 31, 1997. In early 1997 the staff of
the Securities and Exchange Commission ("staff") 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 three-month period
ended March 31, 1997.


                                       10
<PAGE>   12


LIQUIDITY AND CAPITAL RESOURCES

     Cash and cash equivalents increased to $1.8 million at March 31, 1998 from
$1.5 million at December 31, 1997. The increase is primarily attributable to
cash provided by operating activities. Due primarily to improved results of
operations in the 1998 period and significant reductions in accounts payable
balances during the 1997 period, cash provided by operations for the three
months ended March 31, 1998 increased to $1.2 million from $164,000 for the
comparable period in the prior year.

     Expenditures for property and equipment and capitalized software
development totaled $153,000 and $95,000, respectively in the current quarter as
compared to $37,000 and $125,000, respectively, in the same quarter in the prior
year. The Company expects greater levels of such expenditures will be required
during the remainder of 1998.

     Net cash used by financing activities totaled $644,000 and consisted
primarily of principal payments under a bank credit facility that matured during
the second quarter of 1998. The bank credit facility consisted of a $7.8 million
term loan and a $1.5 million revolving credit line. As of March 31, 1998, the
Company had $3.1 million outstanding under the bank term loan and had repaid the
revolving credit line.

     On May 8, 1998, the Company terminated the bank credit facility and repaid
the term loan with the proceeds of a new credit facility from Foothill Capital
Corporation, a division of Norwest Bank. The new credit facility consists of a
$3.6 million term loan and a $4.0 million revolving line of credit. Borrowings
under the line of credit are limited to a percentage of eligible accounts
receivable and subject to a combined limit of $7.0 million for the entire credit
facility. The Company had $2.0 million available under the line of credit at
inception. The term loan bears interest at the lender's prime rate (8.5% on
May 8, 1998) plus 3.0% and is payable in 36 equal monthly installments. The
revolving line of credit bears interest at the lender's prime rate plus 1.0%.
The new credit facility is subject to minimum interest charges, prepayment
penalties and customary fees, is collateralized by a first priority lien on all
the assets of the Company and matures in 2001. It also contains financial
covenants based primarily on tangible net worth and cash flow and imposes
restrictions on acquisitions, capital expenditures and cash dividends.

     As of March 31, 1998, the Company also had outstanding notes payable in the
aggregate amount of $1.0 million from the repurchase of common stock and
warrants from a joint venture partner in 1996. The notes bear interest at the
rate of 8.0%, and principal is due in bi-monthly installments of $100,000.

     The Company has scheduled principal payments on outstanding debt totaling
$1.8 million during the next twelve months.

     The Company believes that its current cash on hand, together with cash
generated from operations, and cash available under the new credit facility will
be sufficient to fund normal operations and pay principal and interest on
outstanding debt obligations for the next twelve months.

     The Company plans to pursue equity financing to reduce indebtedness and to
fund its long-term business strategy. While the FDA cleared The White IRIS
leukocyte differential analyzer in May 1996, its commercial release was
temporarily delayed by other priorities such as the introduction of the UF-100
urine sediment analyzer. The Company is now in discussion with two prestigious
medical institutions to serve as testimonial sites for The White IRIS. The
Company's immediate goal is to install the first two commercial systems at these
institutions. By doing so, the Company hopes to develop the customer references
which are a key step toward commercial success of any new major instrument in
the laboratory medicine business. Expanded commercial release of The White IRIS
may depend upon the availability of sufficient funds and may be subject to
additional delays if such funds are unavailable.

     In September 1995, the Company and Poly U/A Systems Inc. ("Poly") entered
into a research and development agreement to develop several new urinalysis
automation products using the Company's technology. The Company is funding the
first $15,000 per month of the cost of the project (up to a maximum of $500,000,
of which $35,000 remains unexpended), and Poly is reimbursing the Company for
the excess. The Company has an option until November 29, 1998 to acquire all of
the common stock of Poly for an aggregate price of $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, if any, 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.


                                       11
<PAGE>   13

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

     Recently issued accounting standards are described in Note 13 to the
financial statements.

FORWARD-LOOKING STATEMENTS

     The foregoing discussion contains various forward-looking statements which
reflect the Company's current views with respect to future events and financial
results and are subject to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include, but are
not limited to, the Company's views with respect to future financial results,
capital requirements, market growth, new product introductions and the like, and
are generally identified by phrases such as "anticipates," "believes,"
"estimates," "expects," "intends," "plans" and words of similar import. 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 its 1997 Annual Report on Form 10-K.


PART 2 - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

     In July 1996, the Company acquired PSI from Digital Imaging Technologies,
Inc. ("DITI"). As part of the purchase price, the Company issued to DITI a
five-year warrant to purchase 875,000 shares of Common stock at $8.00 per share.
In August 1997, the Company filed a demand for arbitration against DITI with the
American Arbitration Association. The Company's demand for arbitration alleges
material breaches of the representations, warranties and covenants in the
purchase agreement governing the PSI acquisition. DITI subsequently filed a
counterclaim in the arbitration proceeding alleging that the Company
misrepresented or omitted to disclose material facts in connection with the PSI
acquisition. DITI had previously requested a reduction in the exercise price of
the warrant but elected to seek unspecified monetary damages in the
counterclaim. The parties are currently conducting discovery. Although the
Company does not presently anticipate any material adverse effect as a result of
this arbitration proceeding, there can be no assurance that it will not have
such an effect on the Company or result in additional dilution to holders of the
Common Stock.

     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 6.  EXHIBITS AND REPORTS ON FORM 8-K.

    (a)    Exhibits

    No.        Description

    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) 

   10.1(a) -- Loan and Security Agreement dated as of May 5, 1998 between the 
              Company, Perceptive Scientific Instruments, Inc., and StatSpin,
              Inc., on the one hand, and Foothill Capital Corporation, on the
              other hand.

   10.1(b) -- Intellectual Property Security Agreement dated as of May 5, 1998
              between the Company and Foothill Capital Corporation.

   10.1(c) -- Copyright Security Agreement dated as of May 5, 1998 between the
              Company and Foothill Capital Corporation.

   10.1(d) -- Intellectual  Property  Security  Agreement  dated  as of  May  5,
              1998 between Perceptive Scientific Instruments, Inc. and Foothill
              Capital Corporation.
 
   10.1(e) -- Copyright Security Agreement dated as of May 5, 1998 between
              Perceptive Scientific Instruments, Inc. and Foothill Capital
              Corporation.

   10.1(f) -- Security Agreement - Stock Pledge dated as of May 5, 1998 between
              Perceptive Scientific Instruments, Inc. and Foothill Capital
              Corporation.

   10.1(g) -- Intellectual Property Security Agreement dated as of May 5, 1998 
              between StatSpin, Inc., and Foothill Capital Corporation.



                                       12
<PAGE>   14

   27      -- Financial Data Schedule

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

     Exhibits followed by a number in parenthesis are incorporated by
reference to the similarly numbered Company document cited below:

(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.

     SIGNATURE

     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 May 14,
1998.


                                    INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.



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



                                       13