<PAGE>   1


                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

                                    FORM 10-Q

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



<TABLE>
<S>                                                     <C>
            For the quarter ended                       Commission File
              September 30, 2000                          No. 1-9767
</TABLE>

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


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


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



<TABLE>
<S>                                                   <C>
           9162 Eton Avenue, Chatsworth, CA             91311
       (Address of principal executive offices)       (Zip Code)
</TABLE>

                         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
October 31, 2000 was 9,801,469.


<PAGE>   2

                   INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.


                               INDEX TO FORM 10-Q

                 Three and Nine Months Ended September 30, 2000




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

           ITEM 1 - Consolidated Financial Statements

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


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


           Consolidated Statements of Cash Flows ................................          7


           Consolidated Statements of Comprehensive Income ......................          9


           Notes to Consolidated Financial Statements ...........................         10


           ITEM 2 - Management's Discussion and Analysis of
                    Financial Condition and Results of Operations ...............         15

           ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk ..         22

PART II -  OTHER INFORMATION

           ITEM 1 - Legal Proceedings ...........................................         22

           ITEM 2 - Sales of Unregistered Securities ............................         22

           ITEM 6 - Exhibits and Reports on Form 8-K

              (a) Exhibits ......................................................         22
              (b) Reports on Form 8-K ...........................................         23

SIGNATURE .......................................................................         23
</TABLE>



                                       1
<PAGE>   3

                                     PART I
                              FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

                   INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
                           CONSOLIDATED BALANCE SHEETS


                                     ASSETS

<TABLE>
<CAPTION>
                                                                                At December 31,       At September 30,
                                                                                     1999                  2000
                                                                                --------------        ---------------
                                                                                                        (unaudited)
<S>                                                                             <C>                   <C>
Current assets:
Cash and cash equivalents                                                        $  2,034,593          $  3,207,841
Accounts receivable, net of allowance for doubtful
  accounts of $516,047 in 1999 and $346,742 in 2000                                 6,444,865             5,082,175
Inventories                                                                         3,360,468             4,418,961
Prepaid expenses and other current assets                                             355,935               212,924
Deferred tax asset                                                                  1,005,908             1,248,579
                                                                                 ------------          ------------
    Total current assets                                                           13,201,769            14,170,480

Property and equipment, at cost, net of accumulated depreciation
  of $5,870,670 in 1999 and $3,896,832 in 2000                                      1,553,942             1,264,962
Purchased intangibles, net of accumulated amortization
  of $124,813 in 1999 and $150,833 in 2000                                            258,295               232,276
Software development costs, net of accumulated amortization of
  $1,782,410 in 1999 and $1,336,580 in 2000                                           474,616               382,048
Deferred tax asset                                                                 10,351,336             9,001,823
Other assets                                                                          821,167             1,708,369
                                                                                 ------------          ------------
    Total assets                                                                 $ 26,661,125          $ 26,759,958
                                                                                 ============          ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Short-term borrowings                                                          $    655,036          $    376,064
  Current portion of long-term debt                                                 1,200,000               800,000
  Accounts payable                                                                  2,466,389             2,420,421
  Accrued expenses                                                                  2,647,975             2,556,209
  Subordinated note payable - current                                                      --             7,000,000
  Deferred income - service contracts and other                                     1,140,737               747,571
                                                                                 ------------          ------------
    Total current liabilities                                                       8,110,137            13,900,265

Subordinated note payable - long term                                               7,000,000                    --
Deferred income - service contracts and other                                         829,281               455,217
Notes payable, long-term portion                                                      500,000                    --
                                                                                 ------------          ------------
    Total liabilities                                                              16,439,418            14,355,482

Commitments and contingencies

Shareholders' equity:
  Preferred stock, $.01 par value; Authorized: 3,000,000 shares;
    Callable Series B  shares issued and outstanding :
    1999 - 198,000 ($594,000 liquidation preference)
    2000 - 204,000 ($612,000 liquidation preference)                                    1,980                 2,040
  Common stock, $.01 par value; Authorized: 15,600,000 shares
    Shares issued and outstanding: 1999 - 9,347,325 and 2000 - 9,794,554               93,473                97,944
  Additional paid-in capital                                                       39,529,777            40,282,192
  Unearned compensation                                                              (153,108)             (205,161)
  Foreign currency translation adjustment                                              67,207                    --
  Accumulated deficit                                                             (29,317,622)          (27,772,539)
                                                                                 ------------          ------------
          Total shareholders' equity                                               10,221,707            12,404,476
                                                                                 ------------          ------------
          Total liabilities and shareholders' equity                             $ 26,661,125          $ 26,759,958
                                                                                 ============          ============
</TABLE>

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



                                       2
<PAGE>   4

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


<TABLE>
<CAPTION>
                                                                          For the three months
                                                                           ended September 30,
                                                                    --------------------------------
                                                                       1999                  2000
                                                                    -----------          -----------
<S>                                                                 <C>                  <C>
  Sales of IVD systems                                              $ 1,725,767          $ 1,465,848
  Sales of IVD supplies and services                                  3,604,196            3,896,692
  Sales of small instruments and supplies                             1,204,555            1,665,565
  Royalties and licensing revenues                                      125,733              114,670
                                                                    -----------          -----------

  Net revenues                                                        6,660,251            7,142,775
                                                                    -----------          -----------

  Cost of goods - IVD systems                                         1,423,007            1,025,602
  Cost of goods - IVD supplies and services                           1,653,364            1,329,317
  Cost of goods - small instruments and supplies                        651,702              853,812
                                                                    -----------          -----------

  Cost of goods sold                                                  3,728,073            3,208,731
                                                                    -----------          -----------

  Gross margin                                                        2,932,178            3,934,044

  Marketing and selling                                                 782,182              835,279
  General and administrative                                            986,373            1,065,658
  Research and development, net                                         243,159              670,563
  Amortization of intangibles                                            59,890               36,422
  Unusual charges                                                     1,934,507                   --
                                                                    -----------          -----------

  Total operating expenses                                            4,006,111            2,607,922

  Operating income (loss)                                            (1,073,933)           1,326,122

  Other income (expense):
     Interest income                                                      7,934               55,714
     Interest expense                                                  (246,746)            (242,779)
     Other income                                                         7,185                2,507
                                                                    -----------          -----------

  Income (loss) from continuing operations before provision          (1,305,560)           1,141,564
      for income taxes

  Provision for income taxes                                             82,411              422,379
                                                                    -----------          -----------

  Income (loss) from continuing operations                           (1,387,971)             719,185

  Loss from operations of discontinued segment,
      net of tax benefit of $2,489,091                               (4,521,104)                  --
                                                                    -----------          -----------

  Net income (loss)                                                 $(5,909,075)         $   719,185
                                                                    ===========          ===========
</TABLE>



                                       3
<PAGE>   5

<TABLE>
<S>                                                                  <C>                     <C>
Income (loss) per share - basic:
    Income (loss) from continuing operations                         $        (0.20)         $         0.07
    Loss from discontinued operations                                         (0.65)                     --
                                                                     --------------          --------------
Income (loss) per share attributable to common shareholders -
    basic                                                            $        (0.85)         $         0.07
                                                                     ==============          ==============


Income (loss) per share - diluted:
    Income (loss) from continuing operations                         $        (0.20)         $         0.07
    Loss from discontinued operations                                         (0.65)                     --
                                                                     --------------          --------------
Income (loss) per share attributable to common shareholders -
    diluted                                                          $        (0.85)         $         0.07
                                                                     ==============          ==============


Weighted average number of common shares outstanding - basic              6,928,353               9,752,009
Weighted average number of common shares outstanding -
    diluted                                                               6,928,353              10,696,246

</TABLE>

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











                                       4
<PAGE>   6

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


<TABLE>
<CAPTION>
                                                                              For the nine months
                                                                               ended September 30,
                                                                       ----------------------------------
                                                                           1999                  2000
                                                                       ------------          ------------
<S>                                                                    <C>                   <C>
  Sales of IVD systems                                                 $  4,482,232          $  4,985,001
  Sales of IVD supplies and services                                     10,094,036            11,051,743
  Sales of small instruments and supplies                                 3,462,640             4,794,575
  Royalties and licensing revenues                                          227,980               541,075
                                                                       ------------          ------------

  Net revenues                                                           18,266,888            21,372,394
                                                                       ------------          ------------

  Cost of goods - IVD systems                                             3,249,314             3,350,703
  Cost of goods - IVD supplies and services                               4,466,605             4,238,884
  Cost of goods - small instruments and supplies                          1,877,461             2,473,161
                                                                       ------------          ------------

  Cost of goods sold                                                      9,593,380            10,062,748
                                                                       ------------          ------------

  Gross margin                                                            8,673,508            11,309,646

  Marketing and selling                                                   2,508,575             2,678,025
  General and administrative                                              2,591,559             3,036,084
  Research and development, net                                             827,434             1,691,214
  Amortization of intangibles                                               200,235               107,095
  Unusual charges                                                         3,977,780                    --
                                                                       ------------          ------------

  Total operating expenses                                               10,105,583             7,512,418

  Operating income (loss)                                                (1,432,075)            3,797,228

  Other income (expense):
     Interest income                                                         24,583               139,032
     Interest expense                                                      (790,822)             (727,406)
     Other income                                                            10,410                14,364
                                                                       ------------          ------------

  Income (loss)  from continuing operations before provision
      (benefit) for income taxes                                         (2,187,904)            3,223,218

  Provision for income taxes                                                 13,633             1,192,591
                                                                       ------------          ------------

  Income (loss) from continuing operations                               (2,201,537)            2,030,627

  Loss from discontinued operations:
      Loss from operations of discontinued segment prior to
        March 31, 2000, net of tax benefit of $2,720,360 in 1999
        and $61,015 in 2000                                              (5,146,350)             (286,385)
      Loss on disposal of discontinued segment, including tax
        provision of $29,374                                                     --              (199,159)
                                                                       ------------          ------------

  Loss from discontinued operations                                      (5,146,350)             (485,544)
                                                                       ------------          ------------
  Net income (loss)                                                    $ (7,347,887)         $  1,545,083
                                                                       ============          ============
</TABLE>



                                       5
<PAGE>   7



<TABLE>
<S>                                                                  <C>                     <C>
Income (loss) per share - basic:
    Income (loss) from continuing operations                         $        (0.33)         $         0.21
    Loss from discontinued operations                                         (0.78)                  (0.05)
                                                                     --------------          --------------
Income (loss) per share attributable to common shareholders -
    basic                                                            $        (1.11)         $         0.16
                                                                     ==============          ==============
Income (loss) per share - diluted:
    Income (loss) from continuing operations                         $        (0.33)         $         0.20
    Loss from discontinued operations                                         (0.78)                  (0.05)
                                                                     --------------          --------------
Income (loss) per share attributable to common shareholders -
    diluted                                                          $        (1.11)         $         0.15
                                                                     ==============          ==============

Weighted average number of common shares outstanding - basic              6,619,032               9,593,806
Weighted average number of common shares outstanding -
    diluted                                                               6,619,032              10,399,840
</TABLE>

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



                                       6
<PAGE>   8

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

<TABLE>
<CAPTION>
                                                                                   For the nine months
                                                                                    ended September 30,
                                                                            ----------------------------------
                                                                                1999                  2000
                                                                            ------------          ------------
<S>                                                                         <C>                   <C>
Cash flow from operating activities:
     Net income (loss)                                                      $ (7,347,887)         $  1,545,083
    Adjustments to reconcile net income (loss) to net cash
      provided by operations:
        Loss from discontinued operations                                             --               485,544
        Deferred tax benefit                                                  (2,741,526)            1,106,842
        Depreciation and amortization                                          1,747,989               605,010
        Provision for impairment of certain assets                             8,160,978                    --
        Common stock and stock option compensation amortization                  147,193               170,591
        Gain on disposal of equipment                                            (87,158)               (1,677)
        Litigation settlement payable in equity securities                     1,520,371                    --
        Allowance for doubtful accounts                                          141,433                    --
    Changes in assets and liabilities:
      Accounts receivable - trade and other                                     (644,749)              385,601
      Service contracts, net                                                     310,879              (386,242)
      Inventories                                                                924,600            (1,341,502)
      Prepaid expenses and other current assets                                 (159,187)               69,985
      Other assets                                                               (12,776)              (86,844)
      Accounts payable                                                          (158,335)              317,455
      Accrued expenses                                                           716,263               767,318
                                                                            ------------          ------------

Net cash provided by continuing operations                                     2,518,088             3,637,164
Net cash used by discontinued operations                                              --              (858,988)
                                                                            ------------          ------------
Net cash provided by operating activities                                      2,518,088             2,778,176
                                                                            ------------          ------------

Cash flow from investing activities:
    Acquisition of property and equipment                                       (183,215)             (253,019)
    Software development costs                                                  (302,092)             (186,086)
    Sale of equipment                                                            125,000                    --
    Investing activities of discontinued operations                                   --              (136,694)
                                                                            ------------          ------------
Net cash used by investing activities                                           (360,307)             (575,799)
                                                                            ------------          ------------

Cash flow from financing activities:
    Borrowings under credit facility                                           8,168,891            13,910,000
    Repayments of credit facility                                             (8,373,842)          (14,188,972)
    Repayment of notes payable                                                (1,309,224)             (912,960)
    Issuance of common stock and warrants for cash                                56,081               162,803
                                                                            ------------          ------------
Net cash used by financing activities                                         (1,458,094)           (1,029,129)
                                                                            ------------          ------------

Effect of foreign currency fluctuation on cash and cash equivalents              (20,431)                   --
                                                                            ------------          ------------
Net increase in cash and cash equivalents                                        679,256             1,173,248
Cash and cash equivalents at beginning of period                                 389,495             2,034,593
                                                                            ------------          ------------
Cash and cash equivalents at end of period                                  $  1,068,751          $  3,207,841
                                                                            ============          ============
</TABLE>



                                       7
<PAGE>   9

<TABLE>
<S>                                                                              <C>               <C>
Supplemental schedule of non-cash investing and financing activities:
    Issuance of common stock in exchange for services                                72,731          87,000
    Addition to capital lease obligation                                                 --         103,977
    Issuance of common stock in satisfaction of liabilities                           7,650              --

Supplemental disclosure of cash flow information:
    Cash paid for interest                                                          742,661         649,339
    Cash paid for income taxes                                                       44,771          21,726
</TABLE>


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



                                       8
<PAGE>   10

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



<TABLE>
<CAPTION>
                                                          For the three months
                                                           ended September 30,
                                                    --------------------------------
                                                       1999                  2000
                                                    -----------          -----------
<S>                                                 <C>                  <C>
Net income (loss)                                   $(5,909,075)         $   719,185

    Other comprehensive income,
    foreign currency translation adjustment             (17,243)                  --
                                                    -----------          -----------
    foreign currency translation adjustment

Comprehensive income (loss)                         $(5,926,318)         $   719,185
                                                    ===========          ===========
</TABLE>

<TABLE>
<CAPTION>
                                                          For the nine months
                                                          ended September 30,
                                                    --------------------------------
                                                       1999                  2000
                                                    -----------          -----------
<S>                                                 <C>                  <C>
Net income (loss)                                   $(7,347,887)         $ 1,545,083

    Other comprehensive income,
    foreign currency translation adjustment              (9,046)                  --
                                                    -----------          -----------

Comprehensive income (loss)                         $(7,356,933)         $ 1,545,083
                                                    ===========          ===========
</TABLE>


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



                                       9
<PAGE>   11

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


1. FORMATION AND BUSINESS OF THE COMPANY.

        International Remote Imaging Systems, Inc. was incorporated in
California in 1979 and reincorporated during 1987 in Delaware. International
Remote Imaging Systems, Inc. and its subsidiaries (collectively "IRIS" or the
"Company") designs, develops, manufactures and markets in vitro diagnostic
("IVD") equipment, including IVD imaging systems based on patented and
proprietary automated intelligent microscopy ("AIM") technology, and special
purpose centrifuges and other small instruments for automating microscopic
procedures performed in clinical laboratories. The Company also provides ongoing
service and supplies to support the equipment sold.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

Basis of Presentation of Unaudited Interim Financial Statements:

        In the opinion of management, the accompanying unaudited consolidated
financial statements contain all normal recurring adjustments necessary to
present fairly the financial position of the Company as of September 30, 2000
and 1999 and the results of its operations for the three and nine month periods
then ended. These financial statements should be read in conjunction with the
financial statements and notes included in the Company's latest annual report on
Form 10-K. Interim results are not necessarily indicative of results for a full
year.

Use of Estimates:

        The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
periods. The significant estimates in the preparation of the consolidated
financial statements relate to the assessment of the carrying value of accounts
receivables, inventories, purchased intangibles, estimated provisions for
warranty costs and deferred tax assets. Actual results could differ from those
estimates.

Principles of Consolidation:

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

Reclassifications:

        Certain reclassifications have been made to the 1999 financial
statements to conform to the 2000 presentation.

3. COMPREHENSIVE INCOME.

        In prior periods, the Company's components of comprehensive income were
net income and foreign currency translation adjustments. After the disposal of
PSI's international operations, the Company has no other comprehensive income
items and, accordingly, comprehensive income is net income.

4. INVENTORIES.

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

<TABLE>
<CAPTION>
                                              At December 31,    At September 30,
                                                   1999               2000
                                              --------------     ---------------
<S>                                           <C>                <C>
Finished goods                                  $  842,952         $1,043,301
Work-in-process                                    350,424            836,723
Raw materials, parts and sub-assemblies          2,167,092          2,538,937
                                                ----------         ----------
                                                $3,360,468         $4,418,961
                                                ==========         ==========
</TABLE>



                                       10
<PAGE>   12

5. SHORT-TERM BORROWINGS AND NOTES PAYABLE.

        At September 30, 2000, the outstanding amount under the credit facility
with Foothill Capital Corporation consists of $800,000 outstanding under a $3.6
million term loan and $376,000 outstanding under a $4.0 million revolving line
of credit. Borrowings under the line of credit are limited to a percentage of
eligible accounts receivable. The Company had approximately $1.6 million
available under the line of credit at September 30, 2000. The term loan bears
interest at the lender's prime rate (9.5% on September 30, 2000) plus 3.0% and
is payable in monthly installments of $100,000. The revolving credit line bears
interest at the lender's prime rate plus 1.0%. The credit facility is subject to
minimum interest charges, prepayment penalties and customary fees, is
collateralized by a first priority lien on all assets of the Company and matures
in 2001. It also contains financial covenants based primarily on tangible net
worth and cash flows and imposes restrictions on acquisitions, capital
expenditures and cash dividends.

6. CAPITAL STOCK.

Stock Issuances:

        During the nine months ended September 30, 2000, the Company (i) issued
24,941 shares of common stock in exchange for $18,000 in cash and services under
the Employee Stock Purchase Plan, (ii) issued options to purchase 492,050 shares
of common stock under the Company's stock option plans and (iii) cancelled
options to purchase 176,626 shares of common stock. Options for 103,724 shares
of common stock were exercised during the period. At September 30, 2000, options
to purchase 2,079,351 shares of common stock were issued and outstanding under
the Company's stock options plans. The outstanding options expire by the end of
2010. The exercise price for these options ranges from $0.69 to $4.38 per share.
At September 30, 2000, there were 293,093 shares of common stock available for
the granting of future options under the Company's stock option plans.

        During the nine months ended September 30, 2000, the Company issued
309,556 shares of common stock, 6,000 shares of preferred stock and warrants to
purchase an additional 18,000 shares of common stock in exchange for 57,000
shares of the common stock of Poly U/A Systems that had not been acquired
through the tender offer which took place in 1999.

Warrants

        During the nine months ended September 30, 2000, warrants were exercised
to purchase 9,000 shares of common stock for $9,000. Also, warrants to purchase
an additional 100,000 shares of common stock were issued in exchange for
services. The Company also recently agreed to issue a warrant to purchase
another 50,000 shares of common stock in exchange for future services. During
the period, warrants to purchase 223,000 shares of common stock expired
unexercised and the expiration date of 298,633 other warrants was extended by
one year.

        As of September 30, 2000, the following warrants to purchase shares of
common stock were outstanding and exercisable:

<TABLE>
<CAPTION>
                     Number of Shares        Per Share Price    Expiration Date
                     ----------------        ---------------    ---------------
<S>                                          <C>                <C>
                          298,633                  4.00          April 3, 2001
                          875,000                  3.56          July 31, 2001
                          84,270                   3.56          December 31, 2001
                          100,000                  1.50          February 10, 2002
                          10,000                   4.31          May 15, 2002
                          306,000                  2.00          August 6, 2002
                          297,000                  1.00          August 6, 2002
</TABLE>

7. INCOME TAXES.

        The income tax provision from continuing operations for the nine-month
period ended September 30, 2000 was $1,192,591 as compared to $13,633 for the
comparable period last year. The


                                       11
<PAGE>   13

income tax provision for the three-month period ended September 30, 2000 was
$422,379, as compared to $82,411 in the prior year. The income tax provision
differs from the federal statutory rate due primarily to state income taxes and
permanent differences between income reported for financial statement and income
tax purposes.

        Realization of deferred tax assets associated with net operating loss
("NOL") carryforwards and credit carryforwards is dependent upon generating
sufficient taxable income prior to their expiration. Management believes that
there is a risk that certain of these NOL and credit carryforwards may expire
unused and accordingly, has established a valuation reserve against them.
Although realization is not assured for the remaining deferred tax assets,
management believes it is more likely than not that they will be realized
through future taxable income or alternative tax strategies. However, the net
deferred tax assets could be reduced in the near term if management's estimates
of taxable income during the carryforward period are significantly reduced or
alternative tax strategies are not available. The Company will continue to
review its valuation allowances and make adjustments, if necessary. Also,
although a valuation allowance has been provided against a portion of its NOL's,
should the Company undergo an ownership change as defined in Section 382 of the
Internal Revenue Code, the Company's tax NOL generated prior to the ownership
change would be subject to an annual limitation. If this occurred a further
adjustment of the valuation allowance would be necessary.

8. EARNINGS PER SHARE (EPS).

        The computation of per share amounts for the three and nine months ended
September 30, 2000 is based on the average number of common shares outstanding
for the period. Options and warrants to purchase 1,389,803 and 3,948,854 shares
of common stock outstanding during the three months ended September 30, 2000 and
three months ended September 30, 1999, respectively, were not considered in the
computation of diluted EPS because their inclusion would have been antidilutive.
Options and warrants to purchase 1,722,103 and 3,948,854 shares of common stock
outstanding during the nine months ended September 30, 2000 and nine months
ended September 30, 1999, respectively, were not considered in the computation
of diluted EPS because their inclusion would have been antidilutive. Preferred
stock convertible into 2,000,000 common shares at September 30, 1999, was also
not considered in the computation of diluted EPS for the nine-month period then
ended because their inclusion would have been antidilutive.

        The following is a reconciliation of shares used in computing basic and
diluted earnings per share amounts.


<TABLE>
<CAPTION>
                                                   Three Months       Nine Months
                                                   ended 9/30/00     ended 9/30/00
                                                   -------------     -------------
<S>                                                <C>               <C>
Weighted average number of shares - basic            9,752,009          9,593,806

Effects of Dilutive Securities
      Options                                          444,371            342,664
      Warrants                                         193,866            158,454
      Preferred Stock                                  306,000            304,916
                                                    ----------         ----------

Weighted average number of shares - diluted         10,696,246         10,399,840
                                                    ==========         ==========
</TABLE>


9. DISCONTINUED OPERATIONS.

        In March 2000, the Board of Directors approved a plan of disposal for
its wholly-owned subsidiary, Perceptive Scientific Instruments, LLC ("PSI"), the
Company's genetic analysis business segment. The Company completed the sale of
substantially all of PSI's U.S. operations to Applied Imaging Corporation
(Nasdaq: AICX) on July 6, 2000. The purchase price consisted of 385,371 shares
of Applied Imaging common stock, the assumption of certain liabilities and
potential cash payments based on future performance of Applied Imaging's
business. The Company was unable to sell PSI's international operations and
placed Perceptive Scientific International Limited (a wholly-owned subsidiary of
PSI) into a voluntary liquidation under United Kingdom law on June 6, 2000.



                                       12
<PAGE>   14

        The results of discontinued operations through the date of disposal
consisted of the following:

<TABLE>
<S>                                                         <C>
Operating losses, net of tax through March 31, 2000         $(286,385)
                                                            ---------

Loss on Disposal:
  Operating losses, net of tax from March 31, 2000
    to July 6, 2000                                         $(340,827)

  Gain on disposal of net assets                              141,668
                                                            ---------
                                                             (199,159)
                                                            ---------
Total loss from discontinued operations                     $(485,544)
                                                            =========
</TABLE>

        Revenues from discontinued operations for the nine months ended
September 30, 2000 were $1,227,400.

        The operating results of the discontinued operations for the three and
nine months ended September 30, 1999 are summarized as follows:

<TABLE>
<CAPTION>
                                         Three Months          Nine Months
                                          -----------          -----------
<S>                                       <C>                  <C>
Revenues                                  $   982,287          $ 3,363,805
Loss from discontinued operations          (4,521,104)          (5,146,350)
</TABLE>


        The cash flow data of the discontinued operations for the nine months
ended September 30, 1999 were not separately detailed in the statement of cash
flows, but are summarized below:

<TABLE>
<S>                                             <C>
Cash provided by operations                     $  49,543
Cash used by investing activities                (129,327)
Effect of foreign currency fluctuations
  on cash equivalents                             (20,431)
                                                ---------
Cash used by discontinued operations            $(100,215)
                                                =========
</TABLE>

10. SEGMENT AND GEOGRAPHIC INFORMATION.

        The Company's continuing operations are organized on the basis of
products and related services and under FAS 131 operates in two segments: (1)
urinalysis and (2) small laboratory devices.

        The urinalysis segment designs, develops, manufactures and markets IVD
imaging systems based on patented and proprietary AIM technology for automating
microscopic procedures for urinalysis. In December 1997, this segment also began
distributing the UF-100 urine cell analyzer in the United States under an
existing agreement with its manufacturer. The segment also provides ongoing
sales of supplies and service necessary for the operation of installed
urinalysis workstations. In the United States, these products are sold through a
direct sales force. Internationally, these products are sold through
distributors.

        The small laboratory devices segment designs, develops, manufactures and
markets a variety of benchtop centrifuges, small instruments and supplies. These
products are used primarily for manual specimen preparation and dedicated
applications in coagulation, cytology, hematology and urinalysis. These products
are sold worldwide through distributors.

        The accounting policies of the segments are the same as those described
in the "Summary of Significant Accounting Policies" included in the Company's
report on Form 10-K for the year ended December 31, 1999. The Company evaluates
the performance of its segments and allocates resources to them based on
earnings before income taxes, excluding corporate charges ("Segment Profit").

        The tables below present information about reported segments for the
three and nine month periods ended September 30, 2000 and 1999:



                                       13
<PAGE>   15

Three Months Ended September 30, 2000:


<TABLE>
<CAPTION>
                                                                Small             Unallocated
                                                             Laboratory            Corporate
                                         Urinalysis            Devices              Expenses                Total
                                        ------------         ------------         ------------          ------------
<S>                                     <C>                  <C>                  <C>                   <C>
Revenues                                $  5,477,210         $  1,665,565                   --          $  7,142,775

Interest income                         $     55,714                   --                   --          $     55,714

Interest expense                        $      1,111                   --         $    241,668          $    242,779

Depreciation and amortization           $    209,053         $     30,603         $     42,771          $    282,427

Segment profit (loss)                   $  1,374,806         $    467,295         $   (700,537)         $  1,141,564

Segment assets                          $ 14,395,548         $  2,114,008         $ 10,250,402          $ 26,759,958

Investment in long-lived assets         $    239,074         $     16,552                   --          $    255,626
</TABLE>



Three Months Ended September 30, 1999:

<TABLE>
<CAPTION>
                                                                Small             Unallocated
                                                             Laboratory            Corporate
                                         Urinalysis            Devices              Expenses                  Total
                                        ------------         ------------         ------------             ------------
<S>                                     <C>                  <C>                  <C>                      <C>
Revenues                                $  5,455,696         $  1,204,555                   --             $  6,660,251

Interest income                         $      7,162         $        772                   --             $      7,934

Interest expense                        $      1,254                   --         $    245,492             $    246,746

Depreciation and amortization           $    248,098         $     30,252         $     12,110             $    290,460

Segment profit (loss)                   $   (357,536)(1)     $    255,113         $ (1,203,137)(2)         $ (1,305,560)

Segment assets                          $ 10,612,493         $  1,840,152         $ 11,611,779             $ 24,064,424

Investment in long-lived assets         $    141,625         $     14,999                   --             $    156,624
</TABLE>


(1) Includes $1,604,131 for writeoff of the White IRIS and deferred warrant
    costs.

(2) Includes unusual legal expenses of $330,376.



                                       14
<PAGE>   16

Nine Months Ended September 30, 2000:

<TABLE>
<CAPTION>
                                                                Small           Unallocated
                                                             Laboratory          Corporate
                                         Urinalysis            Devices            Expenses              Total
                                        ------------         ------------       ------------         ------------
<S>                                     <C>                  <C>                <C>                  <C>
Revenues                                $16,577,819         $ 4,794,575                  --          $21,372,394

Interest income                         $   139,032                  --                  --          $   139,032

Interest expense                        $     2,191                  --         $   725,215          $   727,406

Depreciation and amortization           $   565,432         $    89,230         $   117,776          $   772,438

Segment profit (loss)                   $ 4,150,298         $ 1,308,479         $(2,235,559)         $ 3,223,218

Investment in long-lived assets         $   397,416         $    41,689                  --          $   439,105
</TABLE>


Nine Months Ended September 30, 1999:

<TABLE>
<CAPTION>
                                                                   Small             Unallocated
                                                                Laboratory            Corporate
                                         Urinalysis               Devices              Expenses                  Total
                                        ------------            ------------         ------------             ------------
<S>                                     <C>                     <C>                  <C>                      <C>
Revenues                                $ 14,804,248            $  3,462,640                   --             $ 18,266,888

Interest income                         $     22,592            $      1,991                   --             $     24,583

Interest expense                        $      3,977                      --         $    786,845             $    790,822

Depreciation and amortization           $    772,365            $    111,111         $     34,450             $    917,926

Segment profit (loss)                   $  1,870,527(1)         $    732,026         $ (4,790,457)(2)         $ (2,187,904)

Investment in long-lived assets         $    320,191            $     35,789                   --             $    355,980
</TABLE>


(1) Includes $1,604,131 for writeoff of the White IRIS and deferred warrant
    costs.

(2) Includes litigation settlement and unusual legal expenses of $2,373,649.

        Long-lived assets for continuing operations were all located in the
United States and totaled $2,646,393 at December 31, 1999 and $3,587,655 at
September 30, 2000.


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

INTRODUCTION

        We sold Perceptive Scientific Instruments, our genetic analysis
business, on July 6, 2000 as part of a plan to refocus on our core business. We
have treated this business as a discontinued operation for accounting purposes,
and we have removed it from most of the discussion and financial information in
this Quarterly Report. For a further discussion of the sale of this business,
please see the section entitled "Discontinued Business Operations" on page 20 of
this Quarterly Report.

OVERVIEW

        We generate revenues primarily from sales of The Yellow IRIS urinalysis
workstation, an in vitro diagnostic, or IVD, imaging system based on our
patented and proprietary AIM technology, and the related supplies and service
required to operate this workstation. We also earn revenues from sales of
ancillary lines of


                                       15
<PAGE>   17

small laboratory instruments and supplies. Until 1996, we marketed just two
models of The Yellow IRIS urinalysis workstation. These models differ mainly in
speed and price. In 1996, we introduced a third model of The Yellow IRIS, the
Model 900UDx urine pathology system, for the high-volume testing requirements of
large hospitals and reference laboratories. We further improved The Yellow IRIS
in August 2000 by launching the Model 939UDx which added automated analyte
pattern recognition. The new model transmits test results directly to the
laboratory information system without operator review or intervention. In
December 1997, we began distributing the IRIS/Sysmex UF-100 urine cell analyzer
in the United States under an exclusive agreement with its manufacturer, Sysmex
Corporation. We did not have significant sales of the UF-100 in 1998, 1999 or
2000. In September 1998, Sysmex started procedures to end the exclusive nature
of our distribution rights, claiming inadequate sales performance. We denied
these allegations. Sysmex then announced that its U.S. subsidiary would
distribute the UF-100 in North America. More recently, Sysmex verbally informed
us that they plan to appoint another third-party North American distributor. We
may take legal action. We cannot predict the impact on the Company of their plan
to appoint another distributor or any legal action we may take.

        Because of the nature of our business, we make significant investments
in research and development for new products and enhancements to existing
products. In the past, we have partially funded our research and development
programs through grants from the National Institutes of Health, joint
development programs with strategic partners and Company-sponsored research and
development entities. We anticipate that future expenditures on research and
development will continue at their current levels for the foreseeable future and
will be funded primarily out of the Company's earnings.

        The following table summarizes total product technology expenditures for
the periods indicated:

<TABLE>
<CAPTION>
                                                    Three Months Ended Sept. 30,           Nine Months Ended Sept. 30,
                                                   -----------------------------         -----------------------------
                                                      1999               2000               1999               2000
                                                   ----------         ----------         ----------         ----------
<S>                                                <C>                <C>                <C>                <C>
Research and development expense, net              $  243,000         $  671,000         $  827,000         $1,691,000
Capitalized software development costs                 72,000            154,000            214,000            186,000
Reimbursed costs for research and
  development grants and contracts                    171,000            207,000            385,000            658,000
                                                   ----------         ----------         ----------         ----------

     Total product technology expenditures         $  486,000         $1,032,000         $1,426,000         $2,535,000
                                                   ==========         ==========         ==========         ==========
</TABLE>


        In 1995, we entered into a joint development project with Poly U/A
Systems, Inc. for development of several new products to enhance automated
urinalysis. Subsequently, certain disputes arose with the Poly U/A shareholders.
In 1999, we made a tender offer to acquire all of the outstanding shares of Poly
U/A stock for a package of IRIS securities with an estimated value of up to $1.5
million. Approximately 77% of the outstanding shares of Poly U/A were tendered
in this transaction. We subsequently purchased most the remaining shares of Poly
U/A stock in several negotiated transactions. Poly U/A is now a 99.6% owned
subsidiary of IRIS. We have recorded the cost of purchasing Poly U/A stock as a
litigation settlement expense.

RESULTS OF OPERATIONS

        COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 TO THREE MONTHS
ENDED SEPTEMBER 30, 1999

        Net revenues for the quarter ended September 30, 2000 totaled $7.1
million, an increase of $483,000, or 7%, over the same period last year. Sales
of IVD imaging systems decreased to $1.5 million from $1.7 million, a decrease
of $260,000, or 15% from the comparable period last year. Sales of IVD system
supplies and services increased to $3.9 million from $3.6 million, an increase
of $292,000 or 8% over the comparable period last year, primarily due to the
larger installed base of The Yellow IRIS IVD imaging systems. Sales of small
instruments and supplies increased to $1.7 million from $1.2 million, an
increase of $461,000, or 38%, over the comparable period last year, primarily
due to increased sales of small instruments. Royalties and licensing revenues
decreased to $115,000 in the current quarter from $126,000 in the same period
last year.

        Revenues from the urinalysis segment totaled $5.5 million in the current
quarter which was comparable to the same quarter of last year. Revenues from
small laboratory devices increased to $1.7 million in the current quarter, as
compared to $1.2 million in the same quarter last year, an increase of $461,000.



                                       16
<PAGE>   18

        Cost of goods for IVD systems decreased as a percentage of sales of IVD
imaging systems to 70% for the quarter ended September 30, 2000 from 82% for the
comparable period last year. The decrease is primarily attributable to the fact
that the current period had a smaller proportion of low margin international
sales than the year ago period. Cost of goods for IVD imaging system supplies
and services as a percentage of sales of such products was 34% for the current
period compared to 46% in the same period last year. The decrease is primarily
attributable to certain improvements in the manufacturing process. Cost of goods
for small instruments and supplies as a percentage of sales of small instruments
and supplies totaled 51% for the current quarter compared to 54% for the
comparable period last year due to increased sales volume. The aggregate gross
margin totaled 55% for the current quarter as compared to 44% in the same
quarter last year.

        Cost of goods sold as a percentage of revenues from the urinalysis
segment totaled 43% this quarter as compared to 56% in the same quarter of last
year. This decrease was primarily due to improvements in the manufacturing
process. Cost of goods for small laboratory devices as a percentage of revenues
totaled 51% in the current period, as compared to 54% in the same quarter of
last year. This decrease is due to increased sales volume.

        Marketing and selling expenses totaled $835,000 for the quarter ended
September 30, 2000, compared to $782,000 in the same period last year, an
increase of $53,000 or 7%. Marketing and selling expenses as a percentage of net
revenues was 12% in the current quarter, which was the same as last year.

        General and administrative expenses increased to $1,066,000 for the
current quarter ended September 30, 2000 as compared to $986,000 for the
comparable period last year, an increase of $79,000 or 8%. This increase is
primarily due to accrued management bonuses based on third quarter
profitability. General and administrative expenses for the quarter as a
percentage of net revenues was 15% in the current year, which was the same as
the prior year.

        Net research and development expenses increased to $671,000 for the
quarter ended September 30, 2000 from $243,000, an increase of $427,000 or 176%
from the comparable period last year. Net research and development expenses as a
percentage of revenues increased to 9% from 4% in the year-ago period. Total
product technology expenditures, including capitalized software development
costs and reimbursed costs under research and development grants and contracts,
increased to $1.0 million from $486,000, an increase of $546,000 or 112% as
compared to the comparable period last year. The increase in total product
technology expenditures is due to increased spending under a major project
focused on The Yellow IRIS workstation. We began this project in 1999 to improve
The Yellow IRIS urinalysis workstation product line. As a result, we expect our
net research and development expenses will remain at current levels for the
foreseeable future. We have completed feasibility studies on the proposed
improvements. We believe that this project is important to maintaining our
competitive position in the urinalysis market and that our failure to
successfully complete this project on schedule could have a material and adverse
effect on future system sales.

        Amortization of intangible assets reflects the amortization of acquired
intangible assets and patents. Amortization of intangible assets for the quarter
ended September 30, 2000 decreased to $36,000 from $60,000, a decrease of
$23,000 or 39% from the comparable period last year. The decline is the result
of the write off in the third quarter of 1999 of The White IRIS and deferred
warrant costs.

        The results of operations for the quarter ended September 30, 2000 did
not include any unusual expenses as compared to $1.9 million in the prior year's
quarter. The prior year's expenses related primarily to the settlement with Poly
UA, legal expenses for an arbitration with the former owner of Perceptive
Scientific Instruments and writeoff of the White IRIS and deferred warrant
costs.

        The net result was operating income of $1.3 million for the quarter
ended September 30, 2000 as compared to a loss of $1.1 million for the same
quarter last year. Excluding the unusual expenses, operating income totaled $1.3
million for the third quarter of 2000 as compared to $861,000 for the same
quarter last year.

        Interest expense decreased to $243,000 for the quarter ended September
30, 2000 from $247,000 for the comparable period last year due to reduced
indebtedness, partially offset by increased interest rates on our credit
facility.

        For the quarter ended September 30, 2000, urinalysis segment profits
increased to $1.4 million as compared to a loss of $358,000 in the same period
last year, an increase of $1.7 million, or 485%. The improvement was the result
of increased gross margins and the absence of unusual expenses in 2000. Segment
profits from the small


                                       17
<PAGE>   19

laboratory devices segment totaled $467,000 in the current quarter as compared
to $255,000 in the same period last year, an increase of $212,000 or 83%. The
improvement was the result of increased product sales and gross margins.
Unallocated corporate expenses totaled $701,000 in the current period as
compared to $1.2 million in the comparable period last year, a decrease of
$503,000. This decrease is due primarily to the fact that 1999 numbers included
unusual legal expenses of $330,000.

        The income tax provision for the quarter ended September 30, 2000 was
$422,000, as compared to $82,000 for the comparable period in 1999. The
difference reflects the Company's improved profitability in the third quarter of
2000 as compared to the comparable prior period.

        We had income from continuing operations of $719,000 or $0.07 per
diluted share for the quarter ended September 30, 2000 as compared to a loss of
$1.4 million or $0.20 per diluted share for the quarter ended September 30,
1999.

        COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 TO NINE MONTHS ENDED
SEPTEMBER 30, 1999

        Net revenues for the nine months ended September 30, 2000 totaled $21.4
million, an increase of $3.1 million, or 17%, over the same period last year.
Sales of IVD imaging systems increased to $5.0 million from $4.5 million, an
increase of $503,000, or 11% from the comparable period last year. Sales of IVD
system supplies and services increased to $11.1 million from $10.1 million, an
increase of $957,000 or 9% over the comparable period last year, primarily due
to the larger installed base of The Yellow IRIS IVD imaging systems. Sales of
small instruments and supplies increased to $4.8 million from $3.5 million, an
increase of $1.3 million, or 38% over the comparable period last year, primarily
due to increased sales of small instruments. Royalties and licensing revenues
increased to $541,000 in the current nine-month period from $228,000 in the same
period last year. The increase was due to the receipt of a $300,000 license fee
in connection with expanded licensing of several existing patents.

        Revenues from the urinalysis segment totaled $16.6 million in the
current nine-month period as compared to $14.8 million in the same period of
last year, an increase of $1.8 million. Revenues from small laboratory devices
increased to $4.8 million in the current nine-month period, as compared to $3.5
million in the same period last year, an increase of $1.3 million.

        Cost of goods for IVD systems as a percentage of sales of IVD imaging
systems was 67% for the nine months ended September 30, 2000 as compared to 72%
last year. The decrease is primarily attributable to a relatively lower
proportion of low margin international sales in the current year. Cost of goods
for IVD imaging system supplies and services as a percentage of sales of such
products was 38% for the current period compared to 44% in the same period last
year. The decrease is primarily attributable to certain improvements in the
manufacturing process. Cost of goods for small instruments and supplies as a
percentage of sales of small instruments and supplies totaled 52% for the
current period compared to 54% for the comparable period last year due to
increased sales volume. The aggregate gross margin totaled 53% for the current
period as compared to 47% in the same period last year.

        Cost of goods sold as a percentage of revenues from the urinalysis
segment totaled 46% for the nine months ended September 30, 2000 as compared to
52% in the same period of last year. This decrease is primarily due to
improvements in the manufacturing process, as well as changes in the
international/domestic sales mix and the impact on revenues of the license fee.
Cost of goods for small laboratory devices as a percentage of revenues totaled
52% in the current period, as compared to 54% in the same period of last year.
This decrease is due to increased sales volume.

        Marketing and selling expenses totaled $2.7 million for the nine months
ended September 30, 2000, compared to $2.5 million in the same period last year,
an increase of $169,000 or 7%. Marketing and selling expenses as a percentage of
net revenues was 13% in the current period as compared to 14% last year.

        General and administrative expenses increased to $3.0 million for the
nine months ended September 30, 2000 as compared to $2.6 million for the
comparable period last year, an increase of $445,000 or 17%. This increase is
primarily due to accrued management bonuses based on improved profitability.
General and administrative expenses for the period as a percentage of net
revenues was 14% in the current year which was comparable to the prior year.



                                       18
<PAGE>   20

        Net research and development expenses increased to $1.7 million for the
nine months ended September 30, 2000 from $827,000, an increase of $864,000 or
104% from the comparable period last year. Net research and development expenses
as a percentage of revenues increased to 8% from 5% in the prior year. Total
product technology expenditures, including capitalized software development
costs and reimbursed costs under research and development grants and contracts,
increased to $2.5 million from $1.4 million, an increase of $1.1 million or 78%
as compared to the comparable period last year. The increase in total product
technology expenditures is due to increased spending under a major project
focused on The Yellow IRIS workstation. We began this project in 1999 to improve
The Yellow IRIS urinalysis workstation product line. As a result, we expect our
net research and development expenses will remain at current levels for the
foreseeable future. We have completed feasibility studies on the proposed
improvements. We believe that this project is important to maintaining our
competitive position in the urinalysis market and that our failure to
successfully complete this project on schedule could have a material and adverse
effect on future system sales.

        Amortization of intangible assets reflects the amortization of acquired
intangible assets and patents. Amortization of intangible assets for the nine
months ended September 30, 2000 decreased to $107,000 from $200,000, a decrease
of $93,000 or 47% from the comparable period last year. The decline is the
result of the write off in the third quarter of 1999 of The White IRIS and
deferred warrant costs.

        The results of operations for the nine months ended September 30, 2000
did not include any unusual expenses as compared to $4.0 million in the prior
year's period. The prior year's expenses related primarily to the settlement
with Poly UA, legal expenses for an arbitration with the former owner of
Perceptive Scientific Instruments and writeoff of the White IRIS and deferred
warrant costs.

        The net result was operating income of $3.8 million for the nine months
ended September 30, 2000 as compared to an operating loss of $1.4 million for
the same period last year. Excluding the unusual expenses, operating income
totaled $3.8 million for the first nine months of 2000 as compared to $2.5
million for the same period last year.

        Interest expense decreased to $727,000 for the nine months ended
September 30, 2000 from $791,000 for the comparable period last year due to
reduced indebtedness, partially offset by increased interest rates on our credit
facility.

        For the nine months ended September 30, 2000, urinalysis segment profits
increased to $4.1 million as compared to $1.9 million in the same period last
year, an increase of $2.3 million, or 122%. This increase is largely due to
higher revenue and improved gross margins partially offset by higher operating
expenses. Segment profits from the small laboratory devices segment totaled $1.3
million in the current nine-month period as compared to $732,000 in the same
period last year. The improvement was the result of increased product sales and
gross margins. Unallocated corporate expenses totaled $2.2 million in the
current period as compared to $4.8 million in the comparable period last year, a
decrease of $2.6 million. This decrease is due primarily to the fact that 1999
numbers included a litigation settlement and unusual legal expenses of $2.4
million.

        The income tax provision for the nine months ended September 30, 2000
was $1.2 million, as compared to $14,000 for the comparable period in 1999. The
difference reflects the Company's profitability in the first nine months of 2000
as compared to its net loss for the comparable prior period. The difference
between the effective rate and the federal statutory rate for the nine months
ended September 30, 1999 relates primarily to an increase in the deferred tax
valuation allowance relating to net operating loss carryforwards generated by
the litigation settlement with Poly UA.

        We had income from continuing operations of $2.0 million or $0.20 per
diluted share for the nine months ended September 30, 2000 as compared to a loss
from continuing operations of $2.2 million or $0.33 per diluted share for the
nine months ended September 30, 1999.

LIQUIDITY AND CAPITAL RESOURCES

        Cash and cash equivalents increased to $3.2 million at September 30,
2000 from $2.0 million at December 31, 1999. The increase is due to the cash
provided by operations in excess of amounts used by investing and financing
activities. Cash provided by operations for the nine months ended September 30,
2000 increased to $2.8 million from $2.5 million for the comparable period last
year. This increase is primarily due to improved operations.



                                       19
<PAGE>   21

        Cash used by investing activities totaled $576,000 for the nine months
ended September 30, 2000, as compared to $360,000 in the same period last year.
The increase is primarily due to the increase in net expenditures for property
and equipment.

        The credit facility with Foothill Capital Corporation, a Wells Fargo
company, consists of a $3.6 million term loan and a $4.0 million revolving line
of credit. Borrowings under the line of credit are limited to a percentage of
eligible accounts receivable and are subject to a combined limit of $7.0 million
for the total credit facility. The term loan bears interest at the lender's
prime rate (9.5% on September 30, 2000) plus 3.0%, and is payable in 36 equal
monthly installments. The revolving line of credit bears interest at the
lender's prime rate plus 1.0%. The credit facility is subject to minimum
interest charges, prepayment penalties and customary fees, is collateralized by
a first priority lien on all the assets of the Company and matures in 2001. It
also contains financial covenants based primarily on tangible net worth and cash
flow and imposes restrictions on acquisitions, capital expenditures and cash
dividends. We were in compliance with all of the financial covenants at
September 30, 2000.

        We began a major project in 1999 to improve The Yellow IRIS urinalysis
workstation product line. As a result, we are incurring increased expenditures
for our research and development. We plan to fund this project with cash from
operations.

        Net cash used by financing activities totaled $1.0 million and consisted
primarily of principal payments made on the term loan described above and net
repayments of amounts borrowed under the revolving line of credit. As of
September 30, 2000, $800,000 was outstanding under the term loan and $376,000
was outstanding under the revolving line of credit; $1.6 million remained
available for future borrowings under the revolving credit line.

        We reduced our outstanding borrowings by $1.2 million in the first nine
months of 2000 and we have scheduled principal payments totaling $7.8 million
during the next 12 months, including a $7.0 million principal payment due July
31, 2000 under an outstanding subordinated note. Excluding the July 31 payment
of the subordinated note, we believe that our current cash on hand, together
with cash generated from operations and cash available under the credit
facility, will be sufficient to fund normal operations. We are currently seeking
proceeds from a debt or equity financing in order to repay the subordinated
note. We cannot give any assurances that we will obtain such funding on
favorable terms, if at all.

        We had 204,000 shares of Series B Callable Preferred Stock outstanding
on September 30, 2000. These shares have a liquidation preference of $3 per
share (or an aggregate liquidation preference of $612,000). The "callable"
feature entitles us to convert the preferred stock at any time into a number of
shares of common stock equal to the liquidation value divided by the market
price of the common stock at the time of conversion (subject to a minimum value
of $2.00 per share of common stock). The preferred stock will automatically
convert under the same formula on August 3, 2002 if we have not converted it
sooner. Based on the average closing price of $1.46 for the five consecutive
trading days ending October 31, 2000, the call price would be the $2.00 minimum,
and we could convert the Series B Callable Preferred Stock into 306,000 shares
of common stock. The Series B Callable Preferred Stock is non-voting, is not
entitled to any preferred dividends, and is not subject to any mandatory or
optional redemption provisions. We are not permitted to pay cash dividends on
our common stock or to repurchase any shares of our common stock without the
written consent of the holders of a majority of the Series B Callable Preferred
Stock.

DISCONTINUED BUSINESS OPERATIONS

        We acquired Perceptive Scientific Instruments in July 1996. Its
principal product line is the PowerGene family of genetic analyzers IVD imaging
systems for karyotyping, DNA probe analysis and comparative genomic
hybridization. We sold the U.S. operations of Perceptive Scientific Instruments
to Applied Imaging Corporation (Nasdaq: AICX) on July 6, 2000. The purchase
price consisted of 385,371 shares of Applied Imaging common stock, the
assumption of certain liabilities and potential cash payments based on future
performance of Applied Imaging's business. We retained the research group,
including its federally funded research grants. We were unable to sell the
international operations and placed Perceptive Scientific International Limited
(a wholly-owned subsidiary of Perceptive Scientific Instruments) into a
voluntary liquidation under United Kingdom law on June 6, 2000. We have
classified Perceptive Scientific Instruments as a discontinued operation for
accounting purposes and have removed it from most of the discussion and
financial information in our 1999 Annual Report and 2000 Quarterly Reports.


                                       20
<PAGE>   22


SHAREHOLDER RIGHTS PLAN

        We have a shareholders rights plan. The rights are not presently
exercisable. They become exercisable only if a person or group acquires 20% or
more of our common stock, or announces a tender offer for 20% or more of our
common stock, without board approval. If the rights are triggered, all common
stockholders (except the hostile party) will be entitled to purchase shares of
common stock (or the economic equivalent in preferred stock) at a price based on
a substantial discount from the market price of the common stock. The Board of
Directors may terminate the plan at any time or redeem the rights prior to their
becoming exercisable. The rights expire on December 22, 2009.

NET OPERATING LOSS CARRYFORWARDS

        At December 31, 1999, we had federal net operating loss carryforwards of
approximately $17.5 million. If substantially all of our outstanding options and
warrants are exercised together with future equity issuances, these transactions
in combination with other prior stock issuances during the past three years may
constitute a "change of ownership" under Section 382 of the Internal Revenue
Code. Section 382 imposes an annual limitation on the utilization of net
operating loss carryforwards based on a statutory rate of return (usually the
applicable federal rate) and the value of the corporation at the time of the
change of ownership. Depending on the market price of our common stock at the
time a change of ownership occurs, the resulting limitations imposed by Section
382 could trigger a substantial write down in our deferred tax assets and a
corresponding charge to earnings in the relevant quarter.

INFLATION

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

FORWARD-LOOKING STATEMENTS

        This Quarterly Report on Form 10-Q contains forward-looking statements
which reflect our current views about future events and financial results. We
have made these statements in reliance on the safe harbor created by the Private
Securities Litigation Reform Act of 1995. Forward-looking statements include our
views on future financial results, financing sources, product development,
capital requirements, market growth and the like, and are generally identified
by phrases such as "anticipates," "believes," "estimates," "expects," "intends,"
"plans" and similar words. Forward-looking statements are merely predictions and
therefore inherently subject to uncertainties and other factors which could
cause the actual results to differ materially from the forward-looking
statement. These uncertainties and other factors include, among other things,

        -       our ability to secure additional financing to repay the
                remaining principal balance of our long-term debt and to fund
                our long-term business strategy,

        -       unexpected technical and marketing difficulties inherent in
                major product development efforts,

        -       the potential need for changes in our long-term strategy in
                response to future developments,

        -       future advances in diagnostic testing methods and procedures, as
                well as potential changes in government regulations and
                healthcare policies, both of which could adversely affect the
                economics of the diagnostic testing procedures automated by our
                products,

        -       rapid technological change in the microelectronics and software
                industries, and

        -       increasing competition from imaging and non-imaging based
                in-vitro diagnostic products.

        We have attempted to identify additional significant uncertainties and
other factors affecting forward-looking statements in Exhibit 99 to our 1999
Annual Report on Form 10-K. Stockholders should understand that the
uncertainties and other factors identified in this Quarterly Report and in
Exhibit 99 to the Annual Report are not a comprehensive list of all the
uncertainties and other factors which may affect forward-looking statements. We
do not undertake any obligation to update or revise any forward-looking
statements or the list of uncertainties and other factors which could affect
those statements.

NEW ACCOUNTING PRONOUNCEMENTS

        In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements," which provides the SEC's views on applying generally accepted
accounting principles to selected revenue recognition issues. The SAB is
effective in the fourth quarter


                                       21
<PAGE>   23

of this fiscal year. The Company is presently evaluating the impact, if any,
that this may have on the Company's revenue recognition policies.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        There was no material change in the Company's exposure to market risk on
September 30, 2000 as compared to its market risk exposure on December 31, 1999.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Market Risk" in the Company's 1999 Annual Report on Form 10-K.

                                     PART II
                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

        We are not currently involved in any litigation.

ITEM 2. SALES OF UNREGISTERED SECURITIES.

        During the quarter ended September 30, 2000, we agreed to issue a
warrant to purchase up to 50,000 shares of common stock at $2-1/8 per share to
our new investor relations firm. The warrant is part of their overall
compensation package for one year of services. We believe the investor relations
firm is an "accredited investor" under Regulation D and has acquired the warrant
for its own account and not with a view to resale or distribution. We did not
engage in general solicitation or advertising, and the securities issued in the
transaction bear appropriate restrictive legends concerning the registration
requirements of the Securities Act of 1933. We believe this transaction was
exempt from the registration requirements of the Securities Act of 1933 based
Section 4(2) of the Securities Act of 1933.

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

        (a) Exhibits

<TABLE>
<CAPTION>
 Exhibit                                                                                            Reference
  Number        Description                                                                          Document
----------      -------------------------------------------------------------------------------     ---------
<S>             <C>                                                                                 <C>
   3.1(a)       Certificate of Incorporation, as amended                                                (1)
   3.1(b)       Certificate of Designations of Series A Convertible Preferred Stock                     (2)
   3.1(c)       Certificate of Designations of Series B Callable Preferred Stock                        (3)
   3.1(d)       Certificate of Designations, Preferences and Rights of Series C Preferred Stock         (4)
   3.2          Restated Bylaws                                                                         (5)
   4.1          Specimen of Common Stock Certificate                                                    (6)
   4.2          Certificate of Designations of Series A Convertible Preferred Stock                     (2)
   4.3          Certificate of Designations of Series B Callable Preferred Stock                        (3)
   4.4          Certificate of Designations, Preferences and Rights of Series C Preferred Stock         (4)
   27           Financial Data Schedule                                                                 --
</TABLE>

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

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

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

(3) Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.

(4) Current Report on Form 8-K dated January 26, 2000.

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

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



                                       22

<PAGE>   24

        (b) Reports on Form 8-K

        We did not file any current reports on Form 8-K during the quarter
ended September 30, 2000.

                                    SIGNATURE

        Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, in Chatsworth, California, on November
13, 2000.


                               INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.

                               By:  /s/ Donald E. Horacek
                                  -----------------------------------
                                  Donald E. Horacek
                                  Controller and Secretary
                                  [Authorized Signatory and Principal
                                  Accounting Officer]









                                       23

<PAGE>   25

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    EXHIBITS

                                       TO

                                    FORM 10-Q


                 FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2000

                           COMMISSION FILE NO. 1-9767

                   INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.


<PAGE>   26

                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
 Exhibit                                                                                            Reference
  Number        Description                                                                          Document
----------      -------------------------------------------------------------------------------     ---------
<S>             <C>                                                                                 <C>
   3.1(a)       Certificate of Incorporation, as amended                                                (1)
   3.1(b)       Certificate of Designations of Series A Convertible Preferred Stock                     (2)
   3.1(c)       Certificate of Designations of Series B Callable Preferred Stock                        (3)
   3.1(d)       Certificate of Designations, Preferences and Rights of Series C Preferred Stock         (4)
   3.2          Restated Bylaws                                                                         (5)
   4.1          Specimen of Common Stock Certificate                                                    (6)
   4.2          Certificate of Designations of Series A Convertible Preferred Stock                     (2)
   4.3          Certificate of Designations of Series B Callable Preferred Stock                        (3)
   4.4          Certificate of Designations, Preferences and Rights of Series C Preferred Stock         (4)
   27           Financial Data Schedule                                                                 --
</TABLE>

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

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

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

(3) Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.

(4) Current Report on Form 8-K dated January 26, 2000.

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

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