<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

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

                                  FORM 10-Q/A
                               (AMENDMENT NO. 1)

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



      For the quarter ended                            Commission File
      June 30, 1996                                    No. 1-9767

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


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


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




          9162 Eton Ave., Chatsworth, California       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
6, 1996 was 6,470,951.




<PAGE>   2
                   INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.




                               INDEX TO FORM 10-Q

                Three and six months ended June 30, 1996 and 1995




                                                                        PAGE

 PART 1 -FINANCIAL INFORMATION

         ITEM 1 - 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....     14



 PART 2 -OTHER INFORMATION

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

         ITEM 6 - Exhibits And Reports on Form 8-K

         (a)  Exhibits..............................................     21

         (b)  Reports on Form 8-K...................................     23

 SIGNATURES.........................................................
                                                                         24 

        *  Previously filed



                                      -1-
<PAGE>   3
PART 1         FINANCIAL INFORMATION

               ITEM 1 - FINANCIAL STATEMENTS

                   INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                 December 31           June 30
A S S E T S                                                             1995              1996
                                                                ------------      ------------
                                                                                   (unaudited)
<S>                                                             <C>               <C>         
Current assets:
  Cash and cash equivalents                                     $  1,511,395      $  1,228,504
  Short-term investments                                           4,736,727         2,635,900
  Accounts receivable-trade, net of allowance for doubtful
    accounts of $87,759 in 1995 and 1996                           2,897,507         4,142,726
  Accounts receivable-service contracts                              481,367           621,860
  Accounts receivable-other                                          407,245           244,321
  Inventories                                                      2,941,021         4,097,910
  Prepaid expenses and other current assets                          285,683           368,605
  Deferred tax asset                                                 919,489           919,489
                                                                ------------      ------------
    Total current assets                                          14,180,434        14,259,315

  Property and equipment, at cost, net of accumulated
    depreciation                                                     995,044         1,387,921
  Software development costs, net of accumulated
    amortization of $667,425 in 1995 and $694,628 in 1996            298,030           558,440
  Long term investments                                              100,000              --
  Deferred warrants costs                                          1,574,780         1,493,740
  Deferred tax asset                                               3,594,100         3,594,100
  Other assets                                                     1,460,157         2,117,819
                                                                ------------      ------------
    Total assets                                                $ 22,202,545      $ 23,411,335
                                                                ============      ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                              $    810,819      $  1,403,542
  Notes payable                                                      185,633              --
  Accrued expenses                                                 1,238,599           789,857
  Service contracts-deferred income                                  710,907           722,490
  Deferred revenue - other                                              --             452,465
                                                                ------------      ------------
   Total current liabilities                                       2,945,958         3,368,354

  Notes payable - long term portion                                  125,000              --
  Service contracts-deferred income                                  190,045           216,601
                                                                ------------      ------------
    Total liabilities                                              3,261,003         3,584,955
                                                                ------------      ------------
Shareholders' equity:
  Common stock, $.01 par value
    Authorized: 15,600,000 shares
    Issued and outstanding: 6,292,408 in 1995
                            6,377,805 in 1996                         62,924            63,778
  Additional paid-in capital                                      34,154,116        34,469,313
  Treasury stock (96,473 in 1995 and 84,462 shares in 1996)         (453,386)         (377,980)
  Unearned compensation                                              (95,884)         (160,531)
  Accumulated deficit                                            (14,726,228)      (14,168,200)
                                                                ------------      ------------
  Total shareholders' equity                                      18,941,542        19,826,380
                                                                ------------      ------------
  Total liabilities and shareholders' equity                    $ 22,202,545      $ 23,411,335
                                                                ============      ============
</TABLE>



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





                                      -2-
<PAGE>   4
                   INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)



<TABLE>
<CAPTION>
                                                                   For the three months ended
                                                                   --------------------------
                                                               June 30, 1995    June 30, 1996
                                                               -------------    -------------
<S>                                                              <C>              <C>        
Sales of IVD imaging systems                                     $ 1,337,966      $ 1,322,486
Sales of IVD imaging systems supplies and services                 1,622,000        2,152,499
Sales of small instruments and supplies                              755,917        1,348,470
                                                                 -----------      -----------
Net sales                                                          3,715,883        4,823,455
                                                                 -----------      -----------

Cost of goods from IVD imaging systems                               510,803          687,752
Cost of goods from IVD imaging systems supplies and services         814,406        1,065,048
Cost of goods from small instruments and supplies                    481,810          670,027
                                                                 -----------      -----------
Cost of goods sold                                                 1,807,019        2,422,827
                                                                 -----------      -----------
Gross margin                                                       1,908,864        2,400,628

Marketing and selling expenses                                       714,092          904,568
General and administrative expenses                                  518,848          792,987
Research and development expenses, net                               487,676          321,121
Acquisition of in-process research and development                 3,175,645             --
                                                                 -----------      -----------
Total operating expenses                                           4,896,261        2,018,676
                                                                 -----------      -----------

Operating income (loss)                                           (2,987,397)         381,952

Other income (expense):
  Interest income                                                     72,796           76,841
  Interest expense                                                   (18,309)            --
  Other income                                                        32,720            3,912
                                                                 -----------      -----------

Income (loss) before provision for income taxes                   (2,900,190)         462,705
Provision for income taxes                                            16,300          111,589
                                                                 -----------      -----------

Net income (loss)                                                $(2,916,490)     $   351,116
                                                                 ===========      ===========

Net income (loss) per share                                            ($.53)     $       .05
                                                                 ===========      ===========

Weighted average number of common shares and common
  share equivalents outstanding for the period                     5,529,772        6,920,567
                                                                 ===========      ===========
</TABLE>


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




                                      -3-
<PAGE>   5
                   INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                     For the six months ended
                                                                     ------------------------
                                                               June 30, 1995    June 30, 1996
                                                               -------------    -------------
<S>                                                              <C>              <C>        
Sales of IVD imaging systems                                     $ 2,150,323      $ 2,191,625
Sales of IVD imaging systems supplies and services                 3,167,241        4,166,294
Sales of small instruments and supplies                            1,565,596        2,369,632
                                                                 -----------      -----------
Net sales                                                          6,883,160        8,727,551
                                                                 -----------      -----------

Cost of goods from IVD imaging systems                               957,386        1,169,692
Cost of goods from IVD imaging systems supplies and services       1,567,088        2,095,949
Cost of goods from small instruments and supplies                    914,014        1,198,435
                                                                 -----------      -----------
Cost of goods sold                                                 3,438,488        4,464,076
                                                                 -----------      -----------
Gross margin                                                       3,444,672        4,263,475

Marketing and selling expenses                                     1,354,069        1,694,625
General and administrative expenses                                  947,008        1,452,308
Research and development expenses, net                               663,990          591,224
Acquisition of in-process research and development                 3,175,645             --
                                                                 -----------      -----------
Total operating expenses                                           6,140,712        3,738,157
                                                                 -----------      -----------

Operating income (loss)                                           (2,696,040)         525,318

Other income (expense):
  Interest income                                                    175,014          136,640
  Interest expense                                                   (36,619)          (5,366)
  Other income                                                        66,949           31,727
                                                                 -----------      -----------

Income (loss) before provision for income taxes                   (2,490,696)         688,319
Provision for income taxes                                            28,300          130,291
                                                                 -----------      -----------

Net income (loss)                                                $(2,518,996)     $   558,028
                                                                 ===========      ===========

Net income (loss) per share                                            ($.46)     $       .08
                                                                 ===========      ===========

Weighted average number of common shares and common
  share equivalents outstanding for the period                     5,485,933        6,915,143
                                                                 ===========      ===========
</TABLE>


   The accompanying notes are an integral part of these 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, 1995    June 30, 1996
                                                                  -------------    -------------
<S>                                                                 <C>              <C>        
Cash flows from operating activities:
  Net income (loss)                                                 $(2,518,996)     $   558,028
  Adjustments to reconcile net income (loss) to
    cash used by operating activities:
      Depreciation and amortization                                     235,480          389,321
      Common stock compensation                                          19,781           48,880
      Write off of acquired in-process research and development       3,175,645             --
  Changes in assets and liabilities:
    Accounts receivable - trade                                        (273,341)      (1,245,219)
    Accounts receivable - other                                            --            162,924
    Service contracts, net                                              (17,070)        (102,354)
    Inventories                                                        (284,967)        (969,889)
    Prepaid expenses and other current assets                          (141,407)         (82,922)
    Other assets                                                       (278,692)        (244,662)
    Accounts payable                                                   (219,781)         592,723
    Accrued expenses                                                    (47,677)        (510,742)
    Deferred revenue - other                                                -            452,465
                                                                    -----------      -----------
Net cash used by operating activities                                  (351,025)        (951,447)
                                                                    -----------      -----------

Cash flows from investing activities:
  Acquisition of property and equipment,                               (275,959)        (423,955)
  Acquisition of product line                                          (850,000)        (788,000)
  Software development costs                                            (77,719)        (287,613)
  Maturities of certificates of deposit                                 900,000          800,000
  Purchases of certificates of deposit                                 (900,000)        (800,000)
  Maturities of held-to-maturity debt securities                        800,000        3,068,000
  Purchases of held-to-maturity debt securities                      (1,262,937)        (867,173)
                                                                    -----------      -----------
Net cash provided (used) by investing activities                     (1,666,615)         701,259
                                                                    -----------      -----------

Cash flows from financing activities:
  Issuance of common stock for cash                                     384,766          277,930
  Proceeds from notes payable                                           166,660             --
  Principal payments on notes payable                                  (382,646)        (310,633)
                                                                    -----------      -----------
Net cash provided by financing activities                               168,780          (32,703)
                                                                    -----------      -----------

Net decrease in cash and cash equivalents                            (1,848,860)        (282,891)
Cash and cash equivalents at beginning of period                      2,573,384        1,511,395
Adjustment to cash to reflect change in StatSpin Technologies
fiscal year                                                             114,866              -
                                                                    -----------      -----------
Cash and cash equivalents at end of period                          $   839,390      $ 1,228,504
                                                                    -----------      -----------

Supplemental schedule of non-cash financing activities:

Issuance of common stock for services                               $    22,473      $   113,428
Issuance of warrants for asset purchase                                 153,000             --
Issuance of stock for exercise of call option to purchase LDA         2,977,344             --
Issuance of warrants in connection with development agreement           315,000             --
</TABLE>


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



                                      -5-
<PAGE>   7
NOTES TO FINANCIAL STATEMENTS

1.  Formation and Business of the Company.

    International Remote Imaging Systems, Inc. (IRIS) was incorporated in
California in 1979 and reincorporated during 1987 in Delaware. IRIS engages in
the business of developing, manufacturing and selling microscopical image
analyzing systems and other laboratory instruments based on proprietary
technology.

    On February 1, 1996, a newly formed subsidiary of IRIS completed its merger
with StatSpin, Inc. ("StatSpin"), which became a wholly owned subsidiary of
IRIS. StatSpin manufactures special purpose centrifuges and other small
instruments widely used in clinical, veterinary, physicians offices and research
laboratories and sells its products primarily through leading distributors to
the physician office and veterinary laboratory markets. IRIS issued
approximately 340,000 shares of common stock for all of the outstanding common
stock and appreciation rights of StatSpin and assumed options and warrants to
purchase an additional 126,000 shares of IRIS common stock. This represents an
exchange ratio of 4.095 shares of common stock of IRIS for each common share and
stock appreciation right of StatSpin. This transaction was accounted for as a
pooling-of-interests. Accordingly, the consolidated financial statements have
been retroactively restated for all periods presented to include the financial
position, results of operations and cash flows of StatSpin.

Combined and separate results of IRIS and StatSpin are as follows:

<TABLE>
<CAPTION>
                                       IRIS           StatSpin        Combined
                                       ----           --------        --------
<S>                                <C>              <C>             <C>        
Six months ended June 30, 1996
    Net sales                      $ 6,741,029      $ 1,986,522     $ 8,727,551
    Net income                         368,989          189,039         558,028

Six months ended June 30, 1995
    Net sales                        5,447,178        1,435,982       6,883,160
    Net income (loss)               (2,660,024)         141,028      (2,518,996)
</TABLE>

2.  Summary of Significant Accounting Policies.

Unaudited Interim Financial Statements:

    In the opinion of IRIS, the accompanying unaudited consolidated financial
statements contain all normal recurring adjustments necessary to present fairly
the financial position of IRIS as of June 30, 1996 and the results of its
operations and cash flows for the three and six months ended June 30, 1996 and
1995. It is suggested that these financial statements be read in conjunction
with the financial statements and notes included in the latest IRIS annual
report on Form 10-K/A Amendment No. 1. 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 financial statements include the accounts of IRIS and StatSpin, a
wholly-owned subsidiary acquired on February 1, 1996. All significant
intercompany accounts and transactions have been eliminated in the consolidated
financial statements. IRIS acquisition of StatSpin was recorded using the
pooling-of-interests method of accounting.




                                      -6-
<PAGE>   8
Cash, Cash Equivalents and Short-term Investments:

    Short-term investments principally include certificates of deposit and debt
instruments of the United States Government with initial maturities greater than
three months and less than one year. Long term investments represent
certificates of deposit and debt instruments with maturities greater than one
year. IRIS considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. IRIS places its cash
and investments with high credit-quality institutions. At times, these deposits
may be in excess of the federally insured limit.

Accounts Receivable:

    IRIS sells predominantly to entities in the healthcare industry. IRIS grants
uncollateralized credit to its customers, primarily domestic hospitals and
clinical and research laboratories. IRIS performs ongoing credit evaluations of
its customers before granting uncollaterized credit and, to date, has not
experienced any material credit related losses.

Property and Equipment and Depreciation:

    Property and equipment are recorded at cost, less accumulated depreciation
and amortization. Depreciation is computed using the straight line method over
three to five years, the estimated useful lives of these assets. Leasehold
improvements are amortized over the lesser of their useful life or the remaining
term of the lease.

    Costs of maintenance and repairs are charged to expense when incurred; costs
of renewals and betterments are capitalized. Upon sale or retirement, the cost
and related accumulated depreciation are eliminated from the respective accounts
and the resulting gain or loss is included in current income.

Software Development Costs:

    IRIS capitalizes certain software development costs in accordance with
Statement of Financial Accounting Standards (SFAS) No. 86 -- "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed" for new
products currently under development. IRIS amortizes software costs using the
greater of the straight line method over the estimated product life of generally
one to three years, or a percentage of total units sold over the projected
sales. Amortization of software development costs was $27,203 and $20,098 for
the six months ended June 30, 1996 and 1995, respectively.

Deferred Warrant Costs:

    Deferred warrant costs result from the issuance of warrants in conjunction
with various development and technology license agreements. These costs are
being amortized over the term of the related agreement, or with respect to
perpetual technology license agreements over the expected life of the related
technology of, generally, ten years.

Revenue Recognition:

    IRIS derives revenue from the sale of IVD imaging systems, sales of supplies
and service for its IVD imaging systems and sales of small laboratory
instruments and related supplies. IRIS generally recognizes product revenues
once all of the following conditions have been met: (i) an authorized purchase
order has been received in writing, (ii) customer credit worthiness has been
established, and (iii) shipment of the product to the customer designated
location has occurred. Estimated installation expense is recognized as part of
the accrual for warranty expenses at the time of shipment.

    IRIS recognizes service revenues ratably over the term of the service
period, which typically ranges from twelve to sixty months. Payments for service
contracts are generally made in advance. Deferred revenue represents the
revenues to be recognized over the remaining term of the service contracts.





                                      -7-
<PAGE>   9
Warranties:

    IRIS recognizes the full estimated cost of warranty expense, including
installation costs, at the time of shipment.

Research and Development Expenditures:

    Except for certain software development costs required to be capitalized as
described above (See Software Development Costs), research and development
expenditures are charged to operations as incurred. Net research and development
expense includes total research and development costs incurred, including costs
incurred under research and development contracts, less costs reimbursed under
research and development contracts.

Income Taxes:

    IRIS accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes" which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and the tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense represents the tax payable
for the period and the change during the period in deferred tax assets and
liabilities.

Reclassifications:

    Certain reclassifications have been made to the interim financial statements
for the period ended June 30, 1995 to conform with the 1995 year end and the
1996 interim financial statement presentation. These reclassifications had no
effect on net income or shareholders' equity.

3.  Marketable Debt Securities.

    On January 1, 1994, IRIS adopted SFAS No. 115 -- "Accounting for Certain
Investments in Debt and Equity Securities" and determined that all its debt
securities should be classified as "held-to-maturity" based on the Company's
intent and ability to hold those securities to maturity. Under this standard,
debt securities classified as "held-to-maturity" are carried at amortized cost.

    At June 30, 1996, IRIS had the following debt securities included in
short-term and long-term investments:


<TABLE>
<CAPTION>
                                        Expected Maturity Value and Period
                          Amortized     ----------------------------------
 Security                      Cost     Within One Year  One to Five Years
 --------                      ----     ---------------  -----------------

<S>                       <C>               <C>                        <C>
 US Treasury Bills        1,435,116         $ 1,470,000                --
 US Treasury Notes          400,000             400,000                --
</TABLE>


4.  Inventories.

    Inventories are carried at the lower of first-in, first-out cost or market
and are composed of the following:


<TABLE>
<CAPTION>
                                        December 31, 1995  June 30, 1996
                                        -----------------  -------------
<S>                                            <C>            <C>       
         Finished goods                        $  422,115     $  367,284
         Work-in-process                          276,115        431,332
         Consumables, raw materials, parts
         and sub-assemblies                     2,242,791      3,299,294
                                               ----------     ----------
                                               $2,941,021     $4,097,910
                                               ==========     ==========
</TABLE>




                                      -8-
<PAGE>   10
5.   Property and Equipment.
        Property and equipment is composed of the following:


<TABLE>
<CAPTION>
                                     December 31, 1995    June 30, 1996
                                     -----------------    -------------
<S>                                        <C>              <C>        
         Leasehold improvements            $   327,178      $   352,254
         Furniture and fixtures                115,544          109,006
         Machinery and equipment             2,422,835        3,094,835
         Tools, dies, and molds                532,070          490,177
         Rental units                          166,268          168,469
                                           -----------      -----------
                                             3,563,895        4,214,741
         Less accumulated depreciation      (2,568,851)      (2,826,820)
                                           -----------      -----------
                                           $   995,044      $ 1,387,921
                                           ===========      ===========
</TABLE>



    Property and equipment includes $1,348,448 and $1,284,448 for June 30, 1996
and December 31, 1995, respectively, of fully depreciated assets which remain in
service. Depreciation expense was $257,969 and $164,169 for the six month
periods ended June 30, 1996 and 1995, respectively. Repairs and maintenance
expense for the six month periods ended June 30, 1996 and 1995 was $26,406 and
$36,019, respectively.

    Rental units are carried at cost less accumulated depreciation ($23,108 at
June 30, 1996 and $163,952 at December 31, 1995). Future minimum rental revenue
on noncancellable leases as of June 30, 1996 is approximately $136,000 due
during 1996.

6.   Accrued Expenses.

    Accrued expenses are composed of the following:


<TABLE>
<CAPTION>
                                    December 31, 1995      June 30, 1996
                                    -----------------      -------------
<S>                                        <C>                <C>       
         Accrued bonuses                   $  366,372         $   71,519
         Accrued commission                    76,079               --
         Accrued payroll                       88,228            145,122
         Accrued vacation                     135,832            137,104
         Accrued professional fees            155,552             12,389
         Accrued taxes - other                 70,642             95,622
         Accrued expenses - other              76,071             78,903
         Accrued warranty expense             269,823            249,198
                                           ----------         ----------
                                           $1,238,599         $  789,857
                                           ==========         ==========
</TABLE>

7.   Notes Payable.

    StatSpin had notes payable to shareholders with an outstanding balance of
$185,638 at December 31, 1995. The notes bore interest at 11% - 12% and were due
in 1996 through 1997.

    In addition StatSpin had a note payable to the Massachusetts Technology
Development Corporation with an outstanding balance of $124,995 at December 31,
1995. The note bore interest at 9% per year and was due in 1998.

   Upon consummation of the merger, all note obligations were paid off by IRIS.

8.  LDA and Warrants.

    In October 1992, LDA Systems, Inc. (LDA) completed an initial public
offering of 107,750 units, each unit consisting of one share of callable LDA
common stock and ten IRIS warrants, each five warrants entitling the holder to
purchase one share of IRIS common stock for $3.75, exercisable at any time from
November 16, 1992 through July 31, 1995. LDA received net proceeds of $774,000
from the 



                                      -9-
<PAGE>   11



unit offering. LDA used these funds to engage IRIS during the period
October 1993 through June 1995 to conduct research, development, clinical
evaluations and pre-market testing of The White IRIS(R), a proposed new product,
in accordance with a research and development contract. In addition, IRIS funded
an additional $500,000 of the development cost at a rate of $15,000 per month
during this period.

    On April 25, 1994, LDA completed the sale of additional units to Corange
Limited consisting of 85,714 shares of callable LDA common stock and warrants to
purchase an aggregate of 248,571 shares of IRIS common stock at an exercise
price of $3.75 per share. As part of the investment agreement, Corange was
granted the option to participate with LDA in the joint development,
manufacture, and marketing of certain future hematology instruments. The option
expired October 30, 1995.

    IRIS had the option to purchase for cash or shares of IRIS common stock all
of the outstanding shares of LDA common stock at $20 per share until November
29, 1995. In June 1995, IRIS completed the acquisition of LDA for approximately
498,000 shares of IRIS Common Stock . IRIS acquired LDA pursuant to the exercise
of its call option under the LDA Restated Certificate of Incorporation to
purchase all the outstanding shares of LDA Common Stock tendering 2.5765 shares
of IRIS Common Stock for each share of LDA Common Stock. As a result of the
acquisition, IRIS incurred a non-recurring charge in the second quarter of 1995
of approximately $3.2 million against earnings for the acquisition of in-process
research and development (i.e., work-in-process not yet cleared for interstate
commerce by the Food and Drug Administration).


    On May 13, 1996, IRIS obtained clearance from the FDA to commence marketing
The White IRIS(R) leukocyte differential analyzer, its newly developed
workstation for white blood cell classification. The FDA cleared The White
IRIS(R) as a class III device for commercial use in the classification of normal
as well as immature and other abnormal types of white blood cells.

9.  Poly Development Agreement.

    On September 25, 1995, Poly U/A Systems, Inc. (Poly) engaged IRIS to develop
several new products based on IRIS and other technology to further enhance
automation in the urinalysis field. Under the terms of the project, Poly will
have the right to use the IRIS technology and any newly developed technology for
developing, manufacturing and marketing the new products as stand-alone devices,
and IRIS will have the right to use any newly developed technology for any other
purpose and to incorporate the new products into The Yellow IRIS(R). Poly has
retained IRIS to conduct research, development, clinical evaluation and
pre-market testing of the proposed new products. IRIS will fund the first
$15,000 per month (up to a maximum of $500,000) of the cost of the project, and
Poly will reimburse IRIS for the excess. IRIS has an option until 121 days after
termination of the project (which terminates not later than July 31, 1998) to
acquire all of the Common Stock of Poly at prices rising over time from $14 to
$20 per share of Poly Common Stock. IRIS may pay the option exercise price in
cash or with shares of IRIS Common Stock. IRIS is also providing financial and
administrative services to Poly at cost.

    Poly, a privately-held company based in Los Angeles, California, was
organized in June 1995 to undertake the commercial development of several
potential products based on technology developed or licensed by IRIS. In order
to fund its share of the project, Poly, in 1995 raised net proceeds of $2.0
million through the sale of 128 units at the price of $20,000 per unit. Each
unit consists of 2,000 shares of Poly's Callable Common Stock and a warrant to
purchase 4,000 shares of IRIS Common Stock. In the aggregate, investors
purchased 256,000 shares of Poly's Callable Common Stock and warrant to purchase
512,000 shares of IRIS Common Stock. The IRIS warrants are exercisable at $6.50
per share during the last two years of their three-year duration. In connection
with Poly's sale of units, IRIS also issued warrants to the placement agent and
the finder to purchase an aggregate of 150,000 shares of IRIS Common Stock.
These warrants are exercisable at $7.80 per share for a five year period and
include certain registration rights.

10. Reference Lab Agreement.

    During the first quarter of 1995, IRIS and Boehringer Mannheim Corporation
(BMC) and Boehringer Mannheim GmbH (BMG), its German affiliate, announced a 
joint project to develop a high capacity 





                                      -10-
<PAGE>   12

automated urinalysis system primarily for reference laboratories based on the
proprietary technologies of both companies. The program is jointly funded by
both companies. In addition to designing specific components of the new system,
BMG originally agreed to pay IRIS a fixed amount of $640,000 for its research
and development of the project. During the first quarter of 1996, BMG agreed to
pay IRIS an additional $350,000 to complete the project.

    In connection with this project and certain distribution considerations,
IRIS issued Corange (an affiliate of BMG) warrants to purchase 250,000 shares of
IRIS Common Stock at an exercise price of $7.375 per share and granted Corange
certain registration rights with respect to the shares of IRIS Common Stock
issuable upon exercise of these warrants.

11. Research and Development Contracts.

    Reimbursements are recognized under research and development contracts in 
amounts equivalent to reimbursable research and development costs incurred on
the related project plus, where contractually provided for, an amount to
cover general and administrative costs of the project.

    Development contract reimbursements and costs connected with the development
agreements entered into with LDA, Poly and BMG as described above were as
follows:

<TABLE>
<CAPTION>
                     Three Months Ended June 30,             Six Months Ended June 30,
                     ---------------------------             -------------------------
                        1995               1996               1995               1996
                        ----               ----               ----               ----
<S>               <C>                   <C>             <C>                <C>       
Reimbursements    $  363,790            131,562         $  638,150         $  944,249
Costs                746,695            141,819          1,066,055            964,137
                  ----------         ----------         ----------         ----------

Net Costs         $  382,905         $   10,257         $  427,905         $   19,888
                  ==========         ==========         ==========         ==========
</TABLE>

12. Capital Stock.

Stock Issuances:

    During 1990, the IRIS Board of Directors adopted an Employee Stock Purchase
Plan (the "Plan") designed to allow employees of the Company to buy its shares
at 50% of the then current market price, provided that the employee agrees to
hold the shares purchased for a minimum of 2 years. Payments for the 50% portion
may be made at the option of the employee either by payroll deduction or by lump
sum payment, but in no event may exceed more than 15% of the employee's total
compensation during any year. The remaining 50% portion is recorded as deferred
compensation and amortized over the vesting period. The shares purchased
pursuant to the Plan may not be transferred, except following the death of the
employee or a change in control, for a period of 2 years following the date of
purchase. During the period of the limitation on transfer, IRIS has the option
to repurchase the shares at the employee's purchase price, if the employee
terminates employment with IRIS either voluntarily or as result of termination
for cause. During the periods ended June 30, 1996 and 1995, IRIS issued 29,974
and 17,937 shares of common stock, respectively, in exchange for $227,054 and
$71,222 in cash and services, respectively, under the Plan.

    In addition, during the six month period ended June 30, 1996, IRIS issued
35,633 shares of stock on exercise of stock options granted to employees, former
employees and consultants and 19,791 shares of common stock on exercise of
options in connection with the acquisition of StatSpin, Inc.

Stock Options:

    In connection with the merger with StatSpin, each outstanding option and
warrant of StatSpin was converted into an option to purchase IRIS common stock
at a ratio of 4.095 shares of IRIS common stock for each share of StatSpin
common stock covered by such option or warrant. The exercise price per share for
the StatSpin options and warrants were adjusted by dividing the initial exercise
price by 4.095.



                                      -11-
<PAGE>   13

    For the six months ended June 30, 1996, 229,000 shares of common stock were
granted under the 1994 Stock Option Plan. Options for 35,633 shares were
exercised and options for 12,567 were canceled. At June 30, 1995, options to
purchase 765,798 shares of common stock were issued and outstanding under IRIS
stock option plans. The outstanding options expire by the end of 2006. The
exercise price for these options ranges from $1.10 to $8.29 per share and in
aggregate $3,533,352. At June 30, 1996 there were an additional 138,400 shares
available for the granting of future options.

Warrants:

At June 30, 1996, there were warrants outstanding and exercisable to purchase
250,000 shares of common stock exercisable at $7.375 per share until February 6,
1998, 75,000 shares at $8.125 per share until March 30, 1998, 512,000 shares at
$6.50 per share until September 29, 1998 and 150,000 shares at $7.80 per share
until September 28, 2000.

Preferred Stock:

    IRIS is authorized to issue 3,000,000 shares of preferred stock in one or
more series with such terms as may be designated by the Board of Directors.
There is no preferred stock outstanding.

13. Commitments.

Leases:

    IRIS leases its primary business locations at a monthly rent of $20,800,
subject to increases based on the Consumer Price Index. IRIS has the option to
renew one lease for two additional three-year periods commencing on July 3,
1997.

    At June 30, 1996, the minimum lease payments due over the remaining life of
these leases and other operating leases were:

<TABLE>
<CAPTION>
         Year ending 
         December 31,         Amount
         ------------         ------
         <S>                <C>    
         1996 (six months)  $134,088
         1997                186,069
         1998                 85,932
         1999                 85,932
         2000                 21,483
                            --------
                            $513,504
                            ========
</TABLE>


    Rental expense under all operating leases during the six months ended June
30, 1996 and 1995 was $93,304 and $90,832, respectively.

Other:

    Effective September 1, 1988, IRIS entered into a consulting and licensing
agreement with Cytocolor, Inc. relating to the use of a patented leukocyte stain
in The White IRIS(TM), a product currently under development by IRIS. Under the
terms of the agreement, IRIS is subject to the following future minimum royalty
payments:

<TABLE>
<CAPTION>
                     Year                Royalty
                     ----                -------
                     <S>                <C>   
                     1996               $ 20,000
                     1997                 20,000
                     1998                 20.000
                     1999                 20,000
                     Years thereafter    280,000
                                        --------
                                        $360,000
                                        ========
</TABLE>

    In connection with the development agreement with Poly, IRIS has agreed to
fund $15,000 per month (up to a maximum of $500,000) of the cost of the 
development project (see Note 9)

14. Earnings Per Share.



                                      -12-
<PAGE>   14

    The computations of per share amounts for the three and six months ended
June 30, 1996 are based on the weighted average number of shares and common
shares equivalents outstanding for the period. Fully diluted and primary
earnings per share were $.05 and $.08, respectively, for the three and six month
periods ended June 30, 1996.

    The computations of share amounts for the three and six months ended June
30, 1995 are based on the weighted average number of shares outstanding for the
period. Common share equivalents were not included in the computations as their
inclusion would be antidilutive. The loss per share for the three and six month
periods ended June 30, 1995 was $.53 and $.46, respectively.

15. Licenses.

    Pursuant to earlier payments and certain agreements with TOA Medical
Electronics Co., Ltd. (TOA), TOA has developed a urine sediment analyzer under
license from IRIS using pre-1989 IRIS technology. IRIS received royalties of
approximately $4,000 and $33,000 for the three months ended June 30, 1996 and
1995, respectively, and approximately $32,000 and $67,000 for the six months
ended June 30, 1996 and 1995, respectively.

16. Export Sales.

    IRIS had export equipment sales of $12,317 and $5,788, respectively, and
$51,946 and $58,138, respectively, for the three and six months periods ended
June 30, 1996 and 1995.

17. Subsequent Event.

    Only July 31, 1996, IRIS acquired the IVD imaging business of Perceptive
Scientific Instruments, Inc. (PSI) for $9.1 million in cash, a $7.0 million
subordinated debenture and a five year warrant to purchase 875,000 shares of
IRIS common stock at $8.00 per share. IRIS paid the cash portion of the purchase
price with funds obtained from a bank under a $7.8 million term loan and a new
$1.5 million revolving line of credit.

    PSI, a privately held company based in Houston, is a recognized leader in
the development and supply of digital 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(TM) product line. The PowerGene product line, based in
part on image processing technology from NASA, is used in various procedures for
chromosome analysis, including karyotyping, DNA probe analysis via fluorescent
in-situ hybridization methods and comparative genomic hybridization analysis.
The PowerGene system is marketed nationally from PSI's Houston headquarters and
internationally through its U.K. subsidiary.

18. Restatement of Prior Period Results of Operations.

    The Company completed a review during the fourth quarter of 1996 of its
revenue recognition policy and procedures. As a result of the review, the
Company has restated its 1995 and three and six months ended June 30, 1996
results of operations and related balance sheet accounts as described below to
appropriately reflect the Company's revenue in accordance with its revenue
recognition policy. Such restatements pertain to the amount and timing of
revenues recognized under an introductory sales program, and the timing of
revenues recognized for shipments made "FOB destination" or under contingent
sales terms. The Company has established procedures to assure appropriate
revenue recognition in the future.

    The table below sets forth selected operating data and accumulated deficit
for the relevant periods on both a restated basis and as previously reported.
The previously reported data in the table below has been restated to
retroactively reflect the pooling-of-interests transaction described in Note 1
under "Formation and Business of the Company".



                                      -13-
<PAGE>   15
<TABLE>
<CAPTION>
                                                     Year Ended               Three Months Ended                Six Months Ended
                                              December 31, 1995                    June 30, 1996                   June 30, 1996
                                  -----------------------------     ----------------------------    ----------------------------
                                   As Reported      As Restated     As Reported      As Restated     As Reported     As Restated
                                  ------------     ------------     ------------    ------------    ------------    ------------
<S>                               <C>              <C>              <C>             <C>             <C>             <C>
Net sales                         $ 15,021,658     $ 14,392,158     $  4,784,445    $  4,823,455    $  9,129,016    $  8,727,551
Cost of sales                        7,360,524        7,126,816        2,333,885       2,422,827       4,494,652       4,464,076
                                  ------------     ------------     ------------    ------------    ------------    ------------

   Gross margin                      7,661,134        7,265,342        2,450,560       2,400,628       4,634,364       4,263,475
Operating expenses                   9,210,323        9,163,323        1,971,062       2,018,676       3,754,896       3,738,157
                                  ------------     ------------     ------------    ------------    ------------    ------------

   Operating income (loss)          (1,549,189)      (1,897,981)         479,498         381,952         879,468         525,318
Other income and expense, net          377,760          377,760           80,753          80,753         163,001         163,001
                                  ------------     ------------     ------------    ------------    ------------    ------------

   Income (loss) before taxes       (1,171,429)      (1,520,221)         560,251         462,705       1,042,469         688,319
Tax provision (benefit)             (3,528,044)      (3,646,633)         135,000         111,589         175,000         130,291
                                  ------------     ------------     ------------    ------------    ------------    ------------

   Net income                     $  2,356,615     $  2,126,412     $    425,251    $    351,116    $    867,469    $    558,028
                                  ============     ============     ============    ============    ============    ============

Net income per share              $        .37     $        .33     $        .06    $        .05    $        .13    $        .08

Accumulated deficit               $ 14,496,025     $ 14,726,228     $ 13,628,556    $ 14,168,200    $ 13,628,556    $ 14,168,200
</TABLE>


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

Overview

    The Company generates revenues from the initial sales of IN VITRO diagnostic
("IVD") imaging systems based on its patented and proprietary "Automated
Intelligent Microscope" ("AIM") technologies, which in turn generate follow-on
sales of supplies and service necessary for their operation, as well as
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-Registered Trademark- urinalysis workstation
and related supplies and services. These two models differ mainly by their
speed and price, with the faster and more expensive model accounting for
approximately two-thirds of sales in both 1994 and 1995. In 1996, the Company
introduced a third model of The Yellow IRIS-Registered Trademark- and two new
lines of other IVD imaging systems. The Model 900UDx(TM) urine pathology system,
the latest in The Yellow IRIS-Registered Trademark- family, is a higher capacity
automated urinalysis workstation designed specifically for the high volume
testing requirements of large hospitals and reference laboratories. The Company
received FDA clearance to market the Model 900UDx(TM) in March 1996 and
commenced sales in May 1996. The Company also received FDA clearance to market
The White IRIS(R) leukocyte differential analyzer in May 1996 and expects to
commence sales of this system in late 1996 or early 1997. Finally, the Company
commenced sales of the PowerGene(TM) family of cytogenetic analyzers in August
1996 after acquiring this line of business from Perceptive Scientific
Instruments, Inc. ("PSI").

    The Company devotes a significant amount of resources to research and
development for new products and upgrading existing products. The following
table summarizes net research and development expenses for the periods
indicated:

<TABLE>
<CAPTION>
                                                        Year Ended December 31,       Six Months Ended June 30,
                                          -------------------------------------       -------------------------
                                          1995            1994            1993            1996            1995
                                          ----            ----            ----            ----            ----
<S>                                <C>             <C>             <C>             <C>             <C> 
Total product
    technology expenditures        $ 2,362,000     $ 1,799,000     $ 1,499,000     $ 1,823,000     $ 1,380,000
Less:
    Capitalized software
       development costs              (299,000)        (25,000)        (81,000)       (288,000)        (78,000)
    Reimbursed costs under
       research and development
       contracts                      (843,000)     (1,111,000)       (539,000)       (944,000)       (638,000)
                                   -----------     -----------     -----------     -----------     ----------- 
Research and development
       expense, net                $ 1,220,000     $   663,000     $   879,000     $   591,000     $   664,000
                                   ===========     ===========     ===========     ===========     ===========
</TABLE>



                                      -14-
<PAGE>   16
    The Company has in the past partially funded its research and
development programs through (i) grants from the National Institutes of Health
under its Small Business Innovative Research program, (ii) joint development
programs with strategic partners and (iii) Company-sponsored research and
development entities.

    In recent years, the Company has entered into two significant joint
development projects with strategic partners and two projects with
Company-sponsored research and development entities. From 1994 to 1996, the
Company and Boehringer Mannheim Corporation, an Indianapolis-based manufacturer
of diagnostic products, collaborated in the development of (i) a new urine test
strip reader for The Yellow IRIS-Registered Trademark- and the related
CHEMSTRIP/IRIStrip-Registered Trademark- urine test strips and (ii) the Model
900UDx-Registered Trademark-, the latest model in The Yellow IRIS-Registered
Trademark- family. The Company entered into a project in October 1992 with LDA
Systems, Inc. ("LDA"), a Company-sponsored research and development entity, for
development of The White IRIS- Registered Trademark- leukocyte differential
analyzer. Boehringer Mannheim was one of the investors in LDA. In June 1995, the
Company acquired LDA for approximately 498,000 shares of common stock of the
Company. As a result of the LDA acquisition, the Company incurred a non -
recurring, non-cash charge of $3.2 million against earnings in the second
quarter of 1995 for the acquisition of in-process research and development
because The White IRIS-Registered Trademark- had not yet received FDA clearance.
The Company entered into a similar project in September 1995 with Poly U/A
Systems, Inc. ("Poly"), another Company-sponsored research and development
entity, for development of several new products to enhance automated urinalysis
(the "Poly Products"). The program with Poly is currently ongoing. See
"--Liquidity and Capital Resources."

RESULTS OF OPERATIONS

    The consolidated financial statements of the Company contained in this
report have been retroactively restated for all periods presented to include
the financial position, results of operations and cash flows of StatSpin, Inc.
(formerly known as StatSpin Technologies) ("StatSpin") in accordance with the
pooling-of-interests method of accounting. 

SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO JUNE 30, 1995

    Net sales for the six months ended June 30, 1996 increased to $8.7 million
from $6.9 million, an increase of $1.8 million or 27% over the comparable period
of the prior year. Sales of IVD imaging systems totaled $2.2 million,
approximately the same as the comparable period. Sales of IVD imaging system
supplies and service increased to $4.2 million from $3.2 million, an increase of
$1.0 million or 32% over the comparable period, due to the larger installed base
of IVD imaging systems and the ongoing conversion of the installed base to the
new CHEMSTRIP/IRIStrip-Registered Trademark- urine test strips. As of June 30,
1996, the Company had converted approximately 80% of the installed base from
test strips marketed by various distributors to the new test strips marketed
exclusively by IRIS. Sales of small instruments and supplies increased to $2.4
million from $1.6 million, an increase of $804,000 or 51%, over the comparable
period. The increase reflects generally higher sales levels of the StatSpin
product line as well as the addition of the Cen-Slide-Registered Trademark- 1500
System and the Biovation-Registered Trademark- product line. See "--PSI and
Other Recent Acquisitions."

    Cost of goods for IVD imaging systems increased as a percentage of sales of
IVD imaging systems to 53% for the six months ended June 30, 1996 from 45% for
the comparable period due to lower gross margins on introductory sales of the
Model 900UDx(R). Cost of goods for IVD imaging system supplies and service
increased as a percentage of sales of such products to 50% for the six months
ended June 30, 1996 from 49% for the comparable period primarily due to lower
gross margins on CHEMSTRIP/IRIStrip-Registered Trademark- urine test strips as
compared to other IVD imaging system supplies. Cost of goods for small
instruments and supplies decreased as a percentage of sales of small instruments
and supplies to 51% for the six months ended June 30, 1996 from 58% for the
comparable period due to higher gross margins on the recently added
Cen-Slide-Registered Trademark- and Biovation-Registered Trademark- product
lines as compared to the Company's other small instruments and supplies. The net
result of these changes and the overall change in product mix was a modest
decrease in gross margin to 49% for the six months ended June 30, 1996 from 50%
for the comparable period.

    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 $1.7 million for the six months ended June 30,
1996 from $1.4 million, an increase of $341,000 or 25% over the comparable
period, due to increased spending on direct sales and after-sales support, but
decreased as a percentage of net sales to 19% from 20%.




                                      -15-
<PAGE>   17
    General and administrative expenses consist primarily of payroll costs
associated with the Company's management and support personnel, travel expenses,
and legal and accounting fees. General and administrative expenses increased to
$1.5 million for the six months ended June 30, 1996 from $947,000, an increase
of $505,000 or 53% over the comparable period, and increased as a percentage of
net sales to 17% from 14%, primarily as a result of one-time costs associated
with the acquisition of StatSpin in February, 1996 (recorded as a
"pooling of interests"), as well as two additions to the administrative staff.

    Net research and development expenses consist of expenses for the
development of new products and improvements to existing products less
third-party reimbursements under joint development programs. Net research and
development expenses decreased to $591,000 for the six months ended June 30,
1996 from $664,000, a decrease of $73,000 or 11% over the comparable period, and
also decreased as a percentage of net sales to 7% from 10%. Total product
technology expenditures increased to $1.8 million from $1.4 million, an increase
of $443,000 or 32%, due primarily to the acceleration of work on the Model
900UDx-Registered Trademark- prior to its launch and commercial refinements to
The White IRIS-Registered Trademark- following FDA clearance. However, this
increase was largely offset by an increase in reimbursements under joint
development programs to $944,000 from $638,000, an increase of $306,000 or 48%.

    Interest income consists of income from investments and decreased to
$137,000 for the six months ended June 30, 1996 from $175,000 for the comparable
period. This was primarily the result of decreased amounts of invested cash
during the 1996 period. See "--Liquidity and Capital Expenditures."

    Interest expense consists of interest on notes assumed in the StatSpin
acquisition and decreased to $5,000 for the six months ended June 30, 1996 from
$37,000 for the comparable period due to payment of the notes in full following
consummation of the acquisition.

    Other income consists of royalties for sales of licensed products and
decreased to $32,000 for the six months ended June 30, 1996 from $67,000 for the
comparable period due to lower reported sales of licensed products, partly
offset by higher royalty rates.

    Acquisition of in-process research and development in 1995 reflects the
acquisition of LDA which resulted in a non-recurring, non-cash charge of $3.2
million against earnings for the acquisition of in- process research and
development (i.e., work-in-process not yet cleared for interstate commerce by
the FDA).

    The income tax provision for the six months ended June 30, 1996 was $130,000
as compared to $28,000 for the comparable period in 1995. The effective tax rate
increased to 19% from 4% (before the non-recurring charge) due to the reduction
of a substantial portion of the deferred tax asset valuation allowance during
the fourth quarter of 1995. This reduction in the valuation allowance resulted
principally from the Company's assessment of the realizability of its net
operating loss carryforwards based on recent operating history as well as an
assessment that operations will continue to generate taxable income. However,
the amount of the deferred tax assets considered realizable could be reduced if
the future taxable income during the carryforward periods is reduced.

    The above factors contributed to net income of $558,000, or $.08 per share,
for the six months ended June 30, 1996 as compared to a net loss of $2.5
million, or $(.46) per share, for the six months ended June 30, 1995. The net
loss for the 1995 period was the result of the acquisition of LDA which resulted
in a non-recurring, non-cash charge of $3.2 million against earnings for the
acquisition of in-process research and development. Excluding the effect of the
acquisition, the Company would have had net income of approximately $657,000 for
the six months ended June 30, 1995.

   THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30,
1995

   Net sales for the three months ended June 30, 1996 increased to $4.8 million
from $3.7 million, an increase of $1.1 million or 30% over the comparable period
of the prior year. Sales of IVD imaging 



                                      -16-
<PAGE>   18
systems remained relatively constant at $1.3 million for the three month periods
ended June 30, 1996 and 1995. Sales of IVD imaging system supplies and service
increased to $2.2 million from $1.6 million, an increase of $530,000 or 33% over
the comparable period, due to the larger installed base of IVD imaging systems
and the ongoing conversion of the installed base to the new CHEMSTRIP/IRIStrip-
Registered Trademark- urine test strips. Sales of small instruments and supplies
increased to $1.3 million from $756,000, an increase of $593,000 or 78% over the
comparable period. The increase reflects generally higher sales levels of the
StatSpin product line as well as the addition of the Cen-Slide- Registered
Trademark- 1500 System and the Biovation-Registered Trademark- product line. See
"--PSI and Other Recent Acquisitions."

    Cost of goods for IVD imaging systems increased as a percentage of sales of
IVD imaging systems to 52% for the three months ended June 30, 1996 from 38% for
comparable period due to lower gross margins on introductory sales of the Model
900UDx-Registered Trademark-. Cost of goods for IVD imaging system supplies and
service decreased as a percentage of sales of such products to 49% for the three
months ended June 30, 1996 from 50% for the comparable period. Cost of goods for
small instruments and supplies decreased as a percentage of sales of small
instruments and supplies to 50% for the three months ended June 30, 1996 from
64% for the comparable period due to higher gross margins on the recently added
Cen-Slide-Registered Trademark- and Biovation-Registered Trademark-product
lines as compared to the Company's other small instruments and supplies. These
changes and the overall change in product mix resulted in gross margins
decreasing to 50% for the three month periods ended June 30, 1996 from 51% for
the period ended June 30, 1995.

    Marketing and selling expenses increased to $905,000 for the three months
ended June 30, 1996 from $714,000, an increase of $190,000 or 27% over the
comparable period, due to increased spending on direct sales and after-sales
support, but remained constant as a percentage of net sales at 19%.

    General and administrative expenses increased to $793,000 for the three
months ended June 30, 1996 from $519,000, an increase of $274,000 or 53% over
the comparable period of the prior year, and increased as a percentage of net
sales to 16% from 14%, primarily as a result of one-time costs associated with
the acquisition of StatSpin (recorded as a "pooling of interests"), as well as
two additions to the administrative staff.

    Net research and development expenses decreased to $321,000 for the three
months ended June 30, 1996 from $488,000, a decrease of $167,000 or 34% over the
comparable period, and also decreased as a percentage of net sales to 7% from
13%, due primarily to the timing in the recognition of certain costs and
offsetting reimbursements on research and development contracts. Total product
technology expenditures decreased to $594,000 from $927,000, a decrease of
$333,000 or 56%, due primarily to the timing in the recognition of certain
costs.

    Interest income increased to $77,000 for the three months ended June 30,
1996 from $73,000 for the comparable period. See "--Liquidity and Capital
Expenditures."

    There was no interest expense for the three months ended June 30, 1996 as
compared $18,000 for the prior year period due to payment in full of outstanding
notes of StatSpin following consummation of the StatSpin acquisition.

    Other income decreased to $4,000 for the three months ended June 30, 1996
from $33,000 for the comparable period due to lower reported sales of licensed
products.

    Acquisition of in-process research and development in 1995 reflects the
acquisition of LDA which resulted in a non-recurring, non-cash charge of $3.2
million against earnings for the acquisition of in-process research and
development (i.e., work-in-process not yet cleared for interstate commerce by
the FDA).

   The income tax provision for the three months ended June 30, 1996 was
$112,000 as compared to $16,000 for the comparable period. The effective tax
increased to 24% from 6% (before the non-recurring charge) due to the reduction
of a substantial portion of the deferred tax asset valuation allowance during
the fourth quarter of 1995. This reduction in the valuation allowance resulted
principally from the Company's assessment of the realizability of its net
operating loss carryforwards 





                                      -17-
<PAGE>   19
based on recent operating history as well as an assessment that operations will
continue to generate taxable income. However, the amount of the deferred tax
assets considered realizable could be reduced if the future taxable income
during the carryforward periods is reduced.

    The above factors contributed to net income of $351,000, or $.05 per share,
for the three months ended June 30, 1996 as compared to a net loss of $2.9
million, or $(.53) per share, for the three months ended June 30, 1995. The net
loss for the 1995 period was the result of the acquisition of LDA which resulted
in a non-recurring, non-cash charge of $3.2 million against earnings for the
acquisition of in- process research and development. Excluding the effect of the
acquisition, the Company would have had net income of approximately $259,000 for
the three months ended June 30, 1995.

Liquidity and Capital Resources

    Cash, cash equivalents and short-term investments decreased to $3.9 million
at June 30, 1996 from $6.2 million at December 31, 1995, a decrease of $2.3
million or 38%. The decrease is primarily attributable to increased levels of
inventory and accounts receivable, the acquisition of the Cen-Slide- Registered
Trademark- product line near the end of the first quarter and the purchase of
additional manufacturing and office equipment. Inventory levels during the first
six months of 1996 increased to $4.1 million from $2.9 million, an increase of
$1.2 million or 39%. This increase was primarily due to the addition of the
Model 900UDx-TM- and CHEMSTRIP/IRIStrip-Registered Trademark- urine test strips
to the product line, as well as the additional inventory of supplies and spare
parts required to support the growing size of the installed base of IVD imaging
systems. Total accounts receivable increased to $5.0 million at June 30, 1996
from $3.8 million at December 31, 1995, an increase of $1.2 million or 32%. This
increase was the combined effect of generally higher sales levels, extended
payment terms on the sale of several IVD imaging systems to one customer which
were collected in August 1996, and slower collections.

    In the six months ended June 30, 1996, the Company expended $424,000 for
capital equipment, primarily for manufacturing and office equipment, and
expended $288,000 in capitalized software development.

    During the first six months of 1996, the Company generated cash of $278,000
from stock sales to employees under the Company's stock option and purchase
plans and from exercises of stock options assumed in connection with the
StatSpin acquisition.

    On July 31, 1996 the Company acquired the IVD imaging business of PSI for
approximately $16.1 million plus a five-year warrant to purchase 875,000 shares
of the Company's Common Stock at $8 per share. The Company financed the cash
portion of the purchase price with (i) a $7 million subordinated note issued to
PSI's parent company (the "Subordinated Note"), (ii) a $7.8 million term loan
from City National Bank (the "Bank") (the "Term Loan") and (iii) $1.3 million
from a new revolving line of credit (the "Credit Facility") with the Bank. As a
result of this acquisition, the Company expects to recognize a charge against
earnings of approximately $7 million in the third quarter of 1996 for the
acquisition of in-process research and development.

    The Subordinated Note bears interest at a fixed rate of 8.5% per annum
payable in quarterly installments. The entire principal amount is due on or
before July 31, 2001. The Company may prepay the Subordinated Note at any time
without premium or penalty. Under the terms of the Subordinated Note, the
Company is required to apply 50% of the net proceeds in excess of $14.5 million
from any future offering of equity securities to the payment of principal. The
payment of principal and interest on the Subordinated Note is subordinated in
right of payment, to the extent and in the manner provided therein, to the prior
payment in full of all indebtedness to the Bank.

    The Term Loan is secured by all the assets of the Company and bears interest
monthly at the Bank's prime rate plus 0.25% through December 1, 1996 and 1.0%
thereafter. The Company is required to repay $1.8 million of principal on or
before December 1, 1996, $100,000 of principal each month thereafter commencing
January 1, 1997 and the balance of $4.8 million on or before January 15, 1998.
The Company may repay the Term Loan at any time without premium or penalty. The
Term Loan imposes substantially the same operating and financial covenants on
the Company as the Credit Facility (discussed below).





                                      -18-
<PAGE>   20

    The Company established the Credit Facility in July 1996. 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 (presently 8.25%). The Credit Facility matures June 1, 1997 and is
secured by a first priority lien on all of the assets of the Company. The Credit
Facility imposes certain operating and financial covenants on the Company,
including, among other things, (i) financial covenants regarding minimum
tangible net worth, a minimum fixed charge coverage ratio, a maximum ratio of
senior liabilities to tangible net worth and a minimum ratio of current assets
to current liabilities, (ii) restrictions on the disposition of assets other
than in the ordinary course of business, (iii) covenants to maintain the
Company's assets and appropriate insurance coverage and (iv) covenants to
deliver from time to time certain financial and other information. As of July
31, 1996, there was approximately $200,000 of unused credit available under the
Credit Facility.

    In September 1995, the Company and Poly entered into a joint project to
develop the Poly Products using the Company's technology. These products are
intended to have dual potential as both stand-alone products and enhancements to
The Yellow IRIS-Registered Trademark- line of urinalysis workstations. Under the
terms of this project, Poly will have the right to use Company technology and
any newly developed technology for developing, manufacturing and marketing the
Poly Products as stand-alone devices, and the Company will have the right to use
the newly developed technology for any other purpose and to incorporate the Poly
Products into The Yellow IRIS-Registered Trademark- family of products. Poly has
retained the Company to conduct research, development, clinical evaluation and
premarket testing of the Poly Products. 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. Poly was organized by the Company in
June 1995 and subsequently raised net proceeds of approximately $2.0 million in
a private offering. The Company has an option until 121 days after termination
of the project with Poly to acquire all of the common stock of Poly for an
aggregate price rising over time from $4.4 million to $5.1 million payable in
cash or shares of the Company's Common Stock. If the Company elects to exercise
its option, it would likely capitalize the portion of the net cost of the
acquisition allocated to completed products and record a nonrecurring, noncash
(if purchased with Common Stock) charge against earnings for the portion of the
net cost of the acquisition allocated to in- process research and development.




                                      -19-
<PAGE>   21
PSI and Recent Acquisitions

    In late 1995, the Company began implementing a strategy to achieve global
IVD imaging leadership by expanding its product lines of large IVD imaging
systems and adding complementary lines of small instruments and supplies.

    In July 1996, IRIS acquired the IVD imaging business of PSI which includes
the PowerGene-TM- family of cytogenetic analyzers. See "--Liquidity and Capital
Resources." For the six months ended June 30, 1996, PSI's net sales from this
business increased to $3.6 million from $2.4 million, an increase of $1.2
million or 50% over the comparable period. PSI generated net sales from this
business of $5.4 million, $4.3 million and $3.0 million in 1995, 1994 and 1993,
respectively, reflecting annual increases of 26% and 45%, respectively.

    PSI has a significant international presence and generated 56% and 57% of
its total sales from international sales of the PowerGene-TM- product line for
the six months ended June 30, 1996 and the twelve months ended December 31,
1995, respectively. With the PSI acquisition, the Company acquired an overseas
direct sales force of four persons located in Chester, England that supports
agents and distributors in more than 20 countries. Prior to the acquisition, the
Company's international sales were not significant. The Company intends to
market all of its products internationally through the international operations
acquired from PSI and to enhance domestic sales of the PowerGene-TM- product
line through the Company's existing operations.

    In March 1996, the Company acquired the Cen-Slide-Registered Trademark- 1500
System for centrifugal urine sedimentation and manual microscopic examination
and certain other products for $788,000 in cash and the assumption of $62,000 of
liabilities. The Company generated revenues from these products of approximately
$153,000 for the three months ended June 30, 1996.

    In February 1996, the Company acquired StatSpin, Inc. ("StatSpin") for
approximately 340,000 shares of common stock of the Company and the assumption
of options and warrants to purchase an additional 126,000 shares of common stock
of the Company. The Company recorded the transaction as a "pooling-of-interests"
for accounting purposes. StatSpin manufactures special-purpose centrifuges,
application specific consumable items and other small laboratory instruments.
Through this acquisition, the Company acquired sample preparation technologies
useful for future IVD imaging applications as well as access to key distributors
for its small laboratory instruments and supplies. StatSpin had net sales of
$2.0 million for the six months ended June 30, 1996 and $3.1 million for the
twelve months ended December 31, 1995.

    In June 1995, the Company acquired LDA for approximately 498,000 shares of
common stock of the Company. LDA was a Company-sponsored research and
development entity which provided funding for The White IRIS-Registered
Trademark- leukocyte differential analyzer in a joint development program with
the Company. The Company received FDA clearance to market The White
IRIS-Registered Trademark- in May 1996 and expects to commence sales of this
product in late 1996 or early 1997. See "--Overview."

    In March 1995, the Company acquired its digital refractometer product line
from Biovation, Inc. for $850,000 in cash and warrants to purchase 75,000 shares
of common stock of the Company at an exercise price of $8.125 per share. The
Company generated revenues from this product line of approximately $226,000 for
the six months ended June 30, 1996.

    The Company may pursue additional acquisitions in the future.

Healthcare Legislation

    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, either nationally or at the state
level. 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.
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.




                                      -20-
<PAGE>   22
Inflation

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

Newly Issued Accounting Standards

    In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of."
SFAS No. 121 requires the Company to review the carrying amounts of its
long-lived assets and certain identifiable intangible assets for impairment. If
it is determined the carrying amount of the asset is not recoverable, the
company is required to recognize an impairment loss. The impact of the adoption
of statement 121 was not material to the Company.

    In December 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock Based Compensation." In accordance with SFAS No. 123, the Company will
adopt the disclosure method as provided for in the statement.

FORWARD LOOKING STATEMENTS

    Except for historical information, the matters discussed above are
forward-looking statements that are subject to certain risks and uncertainties
that could cause actual results to differ materially from those set forth in
such forward-looking statements.  In addition to those described above, such
risks and uncertainties include, among other things, the difficulties of
continuing penetration of the capital-intensive worldwide laboratory instrument
market, rapid technological change in the microelectronics and software
industries, increasing competition from imaging and non-imaging based IVD
products, unanticipated technological difficulties in gaining synergies, and
potential patent and other litigation with third parties.  The Company's most
recent Annual Report on Form 10-K, as amended, and other SEC filings describe
these and other additional factors that could cause actual results to differ
materially from those described in the forward-looking statements.        

PART 2 - OTHER INFORMATION

ITEM 6 - Exhibits And Reports on Form 8-K

(a)  Exhibits

  No.                   Description

3.1      Certificate of Incorporation, as amended(1)

3.2      Restated Bylaws(2)

10.1     Lease of the Registrant's facilities(3)

10.2(a)  1982 Stock Option Plans and form of Stock Option Agreement(4)

10.2(b)  1983 and 1986 Stock Option Plans, and forms of Stock Option Agreements
         for each Plan(5)

10.2(c)  Amended and Restated 1986 Stock Option Plan(6)

10.2(d)  1994 Stock Option Plan and forms of Stock Option Agreements(7)

10.2(e)  Certificate of Officer With Respect to Amendment of 1994 Stock Option
         Plan*



                                      -21-
<PAGE>   23

10.3(a)  Asset Purchase Agreement dated as of July 15, 1996 by and among IRIS,
         Digital Imaging Technologies, Inc., Perceptive Scientific Instruments,
         Inc. and Perceptive Scientific Technologies, Inc.*

10.3(b)  Registration Rights and Standstill Agreement dated July 31, 1996
         between IRIS and Digital Imaging Technologies, Inc.*

10.3(c)  Warrant Certificate dated July 31, 1996 issued to Digital Imaging
         Technologies Inc.*

10.3(d)  Stockholder Guaranty Agreement dated July 31, 1996 between Edward
         Randall III and PSII Acquisition Corp., a wholly-owned subsidiary of
         IRIS now known as Perceptive Scientific Instruments, Inc.*

10.3(e)  Registration Rights and Standstill Agreement dated as of July 31, 1996
         between IRIS and Digital Imaging Technologies, Inc.*

10.3(f)  Non-Competition Agreement dated as of July 15, 1996 between Edward
         Randall III and PSII Acquisition Corp., a wholly-owned subsidiary of
         IRIS now known as Perceptive Scientific Instruments, Inc.*

10.3(g)  Employment Agreement dated July 29, 1996 with Anthony G. Landells*

10.3(h)  Employment Agreement dated July 8, 1996 with Dr. Kenneth Castleman*

10.3(j)  Lease for the League City, Texas facilities of Registrant's Perceptive
         Scientific Instruments, Inc. subsidiary*

10.3(k)  Lease for the England facilities of Registrant's Perceptive Scientific
         Instruments, Inc. subsidiary*

10.3(l)  Technology License Agreement dated July 31, 1996 between Perceptive
         Scientific Imaging Systems, Inc. and PSII Acquisition Corp., a
         wholly-owned subsidiary of IRIS now known as Perceptive Scientific
         Instruments, Inc.*

10.4(a)  $7,000,000 Subordinated Note dated July 29, 1996 issued by IRIS in
         favor of Digital Imaging Technologies, Inc.*

10.4(b)  $1,500,000 Promissory Note dated July 29, 1996 issued by IRIS to City
         National Bank*

10.4(c)  $7,800,000 Promissory Note dated July 29, 1996 issued by IRIS to City
         National Bank*




                                      -22-
<PAGE>   24
10.4(d)  Commercial Security Agreement dated July 29, 1996 executed by IRIS in
         favor of City National Bank*

11       Statement restated Computation of Per Share Earnings

27       Financial Data Schedule
___________
* previously filed

(1)   Incorporated by reference to the Company's 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)   Incorporated by reference to the Company's Quarterly Report on Form 10-Q
      for the quarter ended September 30, 1994.

(3)   The original lease and all prior amendments are incorporated by reference
      to the Company's Annual Report on Form 10-K for the year December 31,
      1989, its quarterly report on Form 10-Q for the quarter ended September
      30, 1993 and its Annual Report on Form 10-K for the year ended December
      31, 1994.

(4)   Incorporated by reference to the Company's Registration Statement on Form
      S-2, as filed with the Securities and Exchange Commission on September 4,
      1985 (File No. 2-99240).

(5)   Incorporated by reference to the Company's Registration Statement on Form
      S-8, as filed with the Securities and Exchange Commission on May 10, 1982
      (File No. 2-77496).

(6)   Incorporated by reference to the Company's Annual Report on Form 10-K for
      the year ended December 31, 1992.

(7)   Incorporated by reference to the Company's Registration Statement on Form
      S-8, as filed with the Securities and Exchange Commission on August 8,
      1994 (File No. 33-82560).


(b)  Reports on Form 8-K

    IRIS filed a Current Report on Form 8-K on February 16, 1996 with respect to
the acquisition of Norfolk Scientific, Inc., d/b/a StatSpin Technologies, which
included certain financial statements of StatSpin and unaudited pro forma
condensed financial statements reflecting the combination of IRIS and StatSpin
using the pooling of interest accounting method. IRIS also filed Current Reports
on Form 8-K on May 9, 1996 and July 15, 1996 with respect to the signing of a
letter of intent and a definitive acquisition agreement, respectively, for the
acquisition of the digital imaging business of Perceptive Scientific
Instruments, Inc.



                                      -23-
<PAGE>   25


                                   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.




                                     INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.








Dated:  December 31, 1996            By: /s/  Martin S. McDermut
                                        ----------------------------------
                                              Martin S. McDermut
                                              Vice President, Finance and
                                              Administration
                                              Chief Financial Officer







                                      -24-