---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



---

FORM 10-Q



---



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2007

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- | -----------------------------------------------------------------------------------------

For the transition period from  to
.

Commission File No. 1-11181



---

IRIS
INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in Its Charter)



---



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 94-2579751                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|9172 Eton Avenue, Chatsworth, CA.        |  | 91311     
|(Address of principal executive offices) |  | (Zip Code)

(818) 709-1244

(Registrants Telephone Number, Including Area Code)



---

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 ̈

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer ̈Accelerated filer  x    Non accelerated filer ̈

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes ̈No  x

The registrant had 18,196,540 shares of common stock issued and outstanding as of May 8, 2007.



---



---

IRIS INTERNATIONAL, INC.

INDEX TO FORM 10-Q



|         |  |                                                                                                      |  |     
|-------- |  | ---------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                      |  | Page
|PART I   |  | FINANCIAL INFORMATION                                                                                |  |     
|         |  |                                                                                                     
|Item 1.  |  | Financial Statements                                                                                 |  |     
|         |  |                                                                                                     
|         |  | Consolidated Balance Sheets as of March 31, 2007 (unaudited) and December 31, 2006                   |  | 3   
|         |  |                                                                                                     
|         |  | Consolidated Statements of Operations for the three months ended March 31, 2007 and 2006 (unaudited) |  | 4   
|         |  |                                                                                                     
|         |  | Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006 (unaudited) |  | 5   
|         |  |                                                                                                     
|         |  | Notes to Consolidated Financial Statements                                                           |  | 6   
|         |  |                                                                                                     
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                |  | 12  
|         |  |                                                                                                     
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                           |  | 16  
|         |  |                                                                                                     
|Item 4.  |  | Controls and Procedures                                                                              |  | 16  
|         |  |                                                                                                     
|PART II  |  | OTHER INFORMATION                                                                                    |  |     
|         |  |                                                                                                     
|Item 1A. |  | Risk Factors                                                                                         |  | 17  
|         |  |                                                                                                     
|Item 6.  |  | Exhibits                                                                                             |  | 17  
|         |  |                                                                                                     
|         |  | Signatures                                                                                           |  | 18  



2



---

PART I

FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

IRIS INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)



|                                                                                               |  |               |         |   |                  |   |         |  
|---------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                               |  | March 31,2007 |         |   | December 31,2006 |  
|                                                                                               |  | (Unaudited)   |         |   |                  |  
|Assets                                                                                         |  |               |         |   |                  |   |         |  
|Current assets:                                                                                |  |               |         |   |                  |   |         |  
|Cash and cash equivalents                                                                      |  | $             | 23,082  |   |                  | $ | 23,159  |  
|Marketable securities                                                                          |  |               | 285     |   |                  |   | 132     |  
|Accounts receivable, net of allowance for doubtful accounts and sales returns of $687 and $601 |  |               | 13,598  |   |                  |   | 13,166  |  
|Inventories, net                                                                               |  |               | 6,750   |   |                  |   | 6,918   |  
|Prepaid expenses and other current assets                                                      |  |               | 1,362   |   |                  |   | 626     |  
|Investment in sales-type leases                                                                |  |               | 2,265   |   |                  |   | 2,145   |  
|Deferred tax asset                                                                             |  |               | 2,865   |   |                  |   | 2,865   |  
|                                                                                               |  |               |         |   |                  |   |         |  
|Total current assets                                                                           |  |               | 50,207  |   |                  |   | 49,011  |  
|Property and equipment, at cost, net                                                           |  |               | 7,010   |   |                  |   | 6,662   |  
|Goodwill                                                                                       |  |               | 2,450   |   |                  |   | 2,450   |  
|Core Technology, net                                                                           |  |               | 1,701   |   |                  |   | 1,723   |  
|Software development costs, net of accumulated amortization of $ 1,878 and $1,729              |  |               | 1,238   |   |                  |   | 1,387   |  
|Deferred tax asset                                                                             |  |               | 4,221   |   |                  |   | 5,516   |  
|Inventories  long term portion                                                                |  |               | 440     |   |                  |   | 440     |  
|Investment in sales-type leases                                                                |  |               | 6,565   |   |                  |   | 6,728   |  
|Other assets                                                                                   |  |               | 441     |   |                  |   | 400     |  
|                                                                                               |  |               |         |   |                  |   |         |  
|Total assets                                                                                   |  | $             | 74,273  |   |                  | $ | 74,317  |  
|                                                                                               |  |               |         |   |                  |   |         |  
|Liabilities and Shareholders Equity                                                           |  |               |         |   |                  |   |         |  
|Current liabilities:                                                                           |  |               |         |   |                  |   |         |  
|Accounts payable                                                                               |  | $             | 3,557   |   |                  | $ | 3,797   |  
|Accrued expenses                                                                               |  |               | 4,977   |   |                  |   | 6,414   |  
|Deferred service contract revenue                                                              |  |               | 1,423   |   |                  |   | 1,517   |  
|                                                                                               |  |               |         |   |                  |   |         |  
|Total current liabilities                                                                      |  |               | 9,957   |   |                  |   | 11,728  |  
|Deferred service contract revenue, long term                                                   |  |               | 23      |   |                  |   | 23      |  
|                                                                                               |  |               |         |   |                  |   |         |  
|Total liabilities                                                                              |  |               | 9,980   |   |                  |   | 11,751  |  
|Commitments and contingencies                                                                  |  |               |         |   |                  |   |         |  
|                                                                                               |  |              
|Shareholders equity:                                                                          |  |               |         |   |                  |   |         |  
|Preferred Stock, $.01 par value; Authorized 1 million shares:                                  |  |               |         |   |                  |   |         |  
|Callable Series C shares issued and outstanding: none                                          |  |               |        |   |                  |   |        |  
|Common stock, $.01 par value                                                                   |  |               |         |   |                  |   |         |  
|Authorized: 50 million shares; issued and outstanding: 18,092 shares and 18,046 shares         |  |               | 182     |   |                  |   | 180     |  
|Additional paid-in capital                                                                     |  |               | 80,005  |   |                  |   | 79,226  |  
|Other comprehensive income                                                                     |  |               | 79      |   |                  |   | 48      |  
|Accumulated deficit                                                                            |  |               | (15,973 | ) |                  |   | (16,888 | )
|                                                                                               |  |               |         |   |                  |   |         |  
|Total shareholders equity                                                                     |  |               | 64,293  |   |                  |   | 62,566  |  
|                                                                                               |  |               |         |   |                  |   |         |  
|Total liabilities and shareholders equity                                                     |  | $             | 74,273  |   |                  | $ | 74,317  |  
|                                                                                               |  |               |         |   |                  |   |         |  

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



3



---

IRIS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited  in thousands)



|                                                         |  |                                     |        |   |      |   |        |  
|-------------------------------------------------------- |  | ----------------------------------- | ------ | - | ---- | - | ------ | -
|                                                         |  | For the three monthsended March 31, |       
|                                                         |  | 2007                                |        |   | 2006 |  
|Sales of IVD instruments                                 |  | $                                   | 8,566  |   |      | $ | 5,915  |  
|Sales of IVD consumables and service                     |  |                                     | 8,843  |   |      |   | 7,259  |  
|Sales of sample processing instruments and supplies      |  |                                     | 2,713  |   |      |   | 2,941  |  
|                                                         |  |                                     |        |   |      |   |        |  
|Total revenues                                           |  |                                     | 20,122 |   |      |   | 16,115 |  
|                                                         |  |                                     |        |   |      |   |        |  
|Cost of goodsIVD instruments                            |  |                                     | 4,634  |   |      |   | 3,150  |  
|Cost of goodsIVD consumable and supplies                |  |                                     | 4,096  |   |      |   | 3,134  |  
|Cost of goodssample processing instruments and supplies |  |                                     | 1,407  |   |      |   | 1,540  |  
|                                                         |  |                                     |        |   |      |   |        |  
|Total cost of goods sold                                 |  |                                     | 10,137 |   |      |   | 7,824  |  
|                                                         |  |                                     |        |   |      |   |        |  
|Gross profit                                             |  |                                     | 9,985  |   |      |   | 8,291  |  
|                                                         |  |                                     |        |   |      |   |        |  
|Marketing and selling                                    |  |                                     | 3,052  |   |      |   | 2,322  |  
|General and administrative                               |  |                                     | 2,385  |   |      |   | 2,115  |  
|Research and development, net                            |  |                                     | 2,428  |   |      |   | 1,488  |  
|                                                         |  |                                     |        |   |      |   |        |  
|Total operating expenses                                 |  |                                     | 7,865  |   |      |   | 5,925  |  
|                                                         |  |                                     |        |   |      |   |        |  
|Operating income                                         |  |                                     | 2,120  |   |      |   | 2,366  |  
|                                                         |  |                                    
|Other income (expense):                                  |  |                                     |        |   |      |   |        |  
|Interest income                                          |  |                                     | 339    |   |      |   | 263    |  
|Interest expense                                         |  |                                     | (1     | ) |      |   | (1     | )
|Other income (expense)                                   |  |                                     |       |   |      |   | 3      |  
|                                                         |  |                                     |        |   |      |   |        |  
|Income before provision for income taxes                 |  |                                     | 2,458  |   |      |   | 2,631  |  
|Provision for income taxes                               |  |                                     | 996    |   |      |   | 973    |  
|                                                         |  |                                     |        |   |      |   |        |  
|Net income                                               |  | $                                   | 1,462  |   |      |   | 1,658  |  
|                                                         |  |                                     |        |   |      |   |        |  
|Basic net income per share                               |  | $                                   | .08    |   |      |   | .10    |  
|                                                         |  |                                     |        |   |      |   |        |  
|Diluted net income per share                             |  | $                                   | .08    |   |      |   | .09    |  
|                                                         |  |                                     |        |   |      |   |        |  
|Basic  average shares outstanding                       |  |                                     | 18,003 |   |      |   | 17,409 |  
|                                                         |  |                                     |        |   |      |   |        |  
|Diluted  average shares outstanding                     |  |                                     | 18,597 |   |      |   | 18,300 |  
|                                                         |  |                                     |        |   |      |   |        |  

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



4



---

IRIS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited  in thousands)



|                                                                                  |  |                                     |        |   |      |   |        |  
|--------------------------------------------------------------------------------- |  | ----------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                  |  | For the three monthsended March 31, |       
|                                                                                  |  | 2007                                |        |   | 2006 |  
|Cash flows from operating activities:                                             |  |                                     |        |   |      |   |        |  
|Net income                                                                        |  | $                                   | 1,462  |   |      | $ | 1,658  |  
|Adjustments to reconcile net income to net cash provided by (used in) operations: |  |                                     |        |   |      |   |        |  
|Deferred taxes                                                                    |  |                                     | 996    |   |      |   | 972    |  
|Tax benefit from stock option exercises                                           |  |                                     | (248   | ) |      |   | (637   | )
|Depreciation and amortization                                                     |  |                                     | 616    |   |      |   | 474    |  
|Common stock and stock based compensation                                         |  |                                     | 227    |   |      |   | 237    |  
|Changes in assets and liabilities:                                                |  |                                     |        |   |      |   |        |  
|Accounts receivable                                                               |  |                                     | (432   | ) |      |   | 543    |  
|Deferred service contract revenue                                                 |  |                                     | (94    | ) |      |   | 37     |  
|Inventories, net                                                                  |  |                                     | 168    |   |      |   | (1,687 | )
|Prepaid expenses and other                                                        |  |                                     | (736   | ) |      |   | (298   | )
|Sales-type leases                                                                 |  |                                     | 43     |   |      |   | (943   | )
|Accounts payable                                                                  |  |                                     | (240   | ) |      |   | (712   | )
|Other Assets                                                                      |  |                                     | (9     | ) |      |   | (25    | )
|Accrued expenses                                                                  |  |                                     | (1,437 | ) |      |   | (895   | )
|                                                                                  |  |                                     |        |   |      |   |        |  
|Net cash provided by (used in) operating activities                               |  |                                     | 315    |   |      |   | (1,276 | )
|                                                                                  |  |                                     |        |   |      |   |        |  
|Cash flows from investing activities:                                             |  |                                     |        |   |      |   |        |  
|Acquisition of property and equipment                                             |  |                                     | (793   | ) |      |   | (721   | )
|Purchase of short term investments and marketable securities                      |  |                                     | (153   | ) |      |   |       |  
|                                                                                  |  |                                     |        |   |      |   |        |  
|Net cash used in investing activities                                             |  |                                     | (946   | ) |      |   | (721   | )
|                                                                                  |  |                                     |        |   |      |   |        |  
|Cash flows from financing activities:                                             |  |                                     |        |   |      |   |        |  
|Issuance of common stock and warrants for cash                                    |  |                                     | 306    |   |      |   | 646    |  
|Tax benefit from stock option exercises                                           |  |                                     | 248    |   |      |   | 637    |  
|                                                                                  |  |                                     |        |   |      |   |        |  
|Net cash provided by financing activities                                         |  |                                     | 554    |   |      |   | 1,283  |  
|                                                                                  |  |                                     |        |   |      |   |        |  
|Net increase (decrease) in cash and cash equivalents                              |  |                                     | 77     |   |      |   | (714   | )
|Cash and cash equivalents at beginning of period                                  |  |                                     | 23,159 |   |      |   | 19,145 |  
|                                                                                  |  |                                     |        |   |      |   |        |  
|Cash and cash equivalents at end of period                                        |  | $                                   | 23,082 |   |      | $ | 18,431 |  
|                                                                                  |  |                                     |        |   |      |   |        |  
|Supplemental schedule of non-cash financing activities:                           |  |                                     |        |   |      |   |        |  
|Issuance of common stock and common stock warrants                                |  | $                                   | 899    |   |      |   | 858    |  
|                                                                                  |  |                                    
|Supplemental disclosure of cash flow information:                                 |  |                                     |        |   |      |   |        |  
|Cash paid for income taxes                                                        |  | $                                   | 318    |   |      | $ | 23     |  
|Cash paid for interest                                                            |  |                                     | 1      |   |      |   | 1      |  

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



5



---

IRIS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited  dollars in thousands except per share amounts)

1. Nature of Business

IRIS International, Inc. was incorporated in California in 1979 and reincorporated during 1987 in
Delaware under the name of International Remote Imaging Systems, Inc. We changed our name to IRIS International, Inc. in December 2003. We design, develop, manufacture and market in vitro diagnostic (IVD) equipment, including IVD imaging
systems based on patented and proprietary neural network-based Automated Particle Recognition (APR) software to enable high-speed digital processing to classify and display images of microscopic particles technology, as well as special purpose
centrifuges and other small instruments for automating microscopic procedures performed in clinical laboratories.

2. Interim Financial Reporting

Basis of Presentation The financial statements have been prepared in accordance with the instructions to Form 10-Q
under the Securities Exchange Act of 1934, as amended, and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States (GAAP). These financial statements should be
read in conjunction with the Consolidated Financial Statements and accompanying notes contained in the Companys Annual Report on Form 10-K for the year ended December 31, 2006.

The Consolidated Financial Statements included herein are unaudited, but in the opinion of management, such financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary to summarize fairly the Companys financial position and results of operations for the interim period. The results reported in these Consolidated Financial Statements should not be
taken as indicative of results that may be expected for the entire year.

Use of Estimates The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America 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 amounts 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 materially from those estimates.

Earnings Per Share Basic earnings per share are computed by dividing net income by the weighted average number of common shares
outstanding. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares and common stock equivalents outstanding, calculated on the treasury stock method for options and warrants or the converted
method for convertible preferred stock. The weighted average number of outstanding antidilutive common stock options and warrants excluded from the computation of diluted net income per common share for the three month periods ended March 31,
2007 and 2006 was 454,000 and 527,000. A reconciliation of the shares used in the basic and diluted earnings per common share is as follows:



|                                    |  |                             |  |       
|----------------------------------- |  | --------------------------- |  | ------
|                                    |  | Three Months EndedMarch 31,
|(In thousands)                      |  | 2007                        |  | 2006  
|Basic weighted shares outstanding   |  | 18,003                      |  | 17,409
|Dilutive stock options & warrants   |  | 594                         |  | 891   
|                                    |  |                             |  |       
|Diluted weighted shares outstanding |  | 18,597                      |  | 18,300
|                                    |  |                             |  |       



6



---

3. Acquisitions

On April 3, 2006 we acquired the stock of Leucadia Technologies, Inc., renamed Iris Molecular Diagnostics, (IMD) a development stage molecular diagnostics company. With this acquisition we acquired
significant core technology for an ultra-sensitive immunoassay process and novel in-vitro separation and concentration process as well as in-process research and development for bacteria and cancer detection applications.

Pursuant to the acquisition agreement we paid $3.3 million of cash, 272,375 shares of IRIS common stock, valued at $4.2 million, deferred stock units for
51,879 shares of IRIS common stock valued at $800,000 and $230,000 of transaction fees. The IRIS common stock and deferred stock units were valued based on the average closing market price of IRIS common stock a few days before and a few days
following the acquisition. In addition, we will issue up to 108,950 shares of IRIS common stock and deferred stock units for 20,752 shares of IRIS common stock as earn-out consideration if certain regulatory and sales milestones are achieved.

The acquisition was accounted for as a purchase with the allocation, based on fair value, as follows:



|                                            |  |   |      
|------------------------------------------- |  | - | -----
|(In thousands)                              |  |  
|Cash and cash equivalents                   |  | $ | 2    
|Fixed Assets                                |  |   | 21   
|Core Technology                             |  |   | 1,790
|Goodwill                                    |  |   | 2,231
|                                            |  |   |      
|Total assets acquired                       |  | $ | 4,044
|                                            |  |   |      
|Total liabilities  deferred income tax     |  | $ | 662  
|                                            |  |   |      
|In process research and development expense |  | $ | 5,180
|                                            |  |   |      

The following unaudited condensed consolidated pro forma statement of operations data shows the
results of our operations for the three months ended March 31, 2006 as if the recently completed acquisitions had occurred January 1, 2006:



|                                      |  |      |        |  
|------------------------------------- |  | ---- | ------ | -
|(In thousands, except per share data) |  | 2006 |       
|Revenues                              |  | $    | 70,494 |  
|Income from operations                |  | $    | 829    |  
|Net income (loss)                     |  | $    | (307   | )
|Net income (loss) per share  diluted |  | $    | (0.02  | )

These unaudited condensed consolidated pro forma results have been prepared for comparative
purposes only and are not necessarily indicative of the actual results of operations had the acquisitions taken place as of the beginning of the period presented or the results of our future operations. Furthermore, the pro forma results do not give
effect to all cost savings or incremental costs that may occur as a result of the integration and consolidation of the acquisitions.

4. Inventories

Inventories consist of the following:



|                                           |  |               |       |   |                  |   |       |  
|------------------------------------------ |  | ------------- | ----- | - | ---------------- | - | ----- | -
|(In thousands)                             |  | March 31,2007 |       |   | December 31,2006 |  
|Finished Goods                             |  | $             | 1,844 |   |                  | $ | 2,127 |  
|Work-in-process                            |  |               | 302   |   |                  |   | 241   |  
|Raw materials, parts and sub-assemblies    |  |               | 5,044 |   |                  |   | 4,990 |  
|                                           |  |               |       |   |                  |   |       |  
|                                           |  |               | 7,190 |   |                  |   | 7,358 |  
|Less: non-current portion, net of reserves |  |               | (440  | ) |                  |   | (440  | )
|                                           |  |               |       |   |                  |   |       |  
|Inventories  current portion              |  | $             | 6,750 |   |                  | $ | 6,918 |  
|                                           |  |               |       |   |                  |   |       |  



7



---

5. Bank Loan Agreement

In May 2004, we signed a credit facility with a commercial bank. The credit facility consists of a $6.5 million revolving line of credit for working capital and a $10.0 million line of credit for acquisitions and
product opportunities. Borrowings under the revolving line of credit are limited to a percentage of eligible receivables and inventory. The entire credit facility has variable interest rates, which will change from time to time based on changes to
either the LIBOR rate or the lenders prime rate.

As of March 31, 2007 and 2006, there were no borrowings under the credit
facility. We are subject to certain financial covenants under the credit facility with the bank and as of March 31, 2007, we were in compliance with such covenants.

6. Income Taxes

On a quarterly basis, we estimate what our effective tax rate will be for the full
fiscal year and record a quarterly income tax provision based on the anticipated rate. As the year progresses, we refine our estimate based on the facts and circumstances by each tax jurisdiction. The effective tax rates for the quarters ended
March 31, 2007 and 2006 were 41% and 37%.

We adopted the provisions of Financial Accounting Standards Board (FASB)
Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement 109 (FIN 48), on January 1, 2007. Our condensed consolidated financial statements as of and for the quarter ended
March 31, 2007 reflect the impact of FIN 48, but the condensed consolidated financial statements for the first quarter of 2006 have not been restated to reflect, and do not include, the impact of FIN 48.

As a result of the initial adoption of FIN 48, we recognized a $547,000 reduction in our deferred tax benefit relating to federal and California tax
credits which we could not conclude that it is more likely than not that such tax credits will be sustainable on audit by the respective taxing authorities. As a result we reduced the deferred tax asset by $547,000 and recorded a charge to retained
earnings as of January 1, 2007, by a like amount.

The Company will recognize potential interest and penalties related to income tax
positions as a component of the provision for income taxes on the consolidated statements of income in any future periods in which the Company must record a liability. Since the Company has not recorded a liability at March 31, 2007, there would be
no impact to the Companys effective tax rate. The Company does not anticipate that total unrecognized tax benefits will significantly change during the next twelve months. The Company is no longer subject to federal, state, or foreign income
tax examinations for years prior to 2003.

7. Stock-Based Compensation

Effective January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment, which requires compensation costs
related to share-based transactions, including employee stock options, to be recognized in the financial statements based on fair value. Share-based compensation expense for the three months ended March 31, 2007 and 2006 includes incremental
share-based compensation expense as follows:



|                                     |  |                                     |     |   |      |   |     |  
|------------------------------------ |  | ----------------------------------- | --- | - | ---- | - | --- | -
|(In thousands)                       |  | For the Three MonthsEnded March 31, |    
|                                     |  | 2007                                |     |   | 2006 |  
|Cost of Sales                        |  | $                                   | 50  |   |      | $ | 47  |  
|Marketing and Selling                |  |                                     | 17  |   |      |   | 44  |  
|General and Administrative           |  |                                     | 81  |   |      |   | 84  |  
|Research and development             |  |                                     | 82  |   |      |   | 61  |  
|                                     |  |                                     |     |   |      |   |     |  
|Stock-based compensation             |  |                                     | 230 |   |      |   | 236 |  
|Income tax benefit                   |  |                                     | (91 | ) |      |   | (94 | )
|                                     |  |                                     |     |   |      |   |     |  
|Stock-based compensation, net of tax |  | $                                   | 139 |   |      | $ | 142 |  
|                                     |  |                                     |     |   |      |   |     |  



8



---

Stock Options

Stock option activity during the three months ended March 31, 2007 is as follows:



|                                     |  |        |   |  |                                       |       |                                         |           |                         |   |      
|------------------------------------ |  | ------ | - |  | ------------------------------------- | ----- | --------------------------------------- | --------- | ----------------------- | - | -----
|(in thousands, except for per share) |  | Shares |   |  | WeightedAverageExercisePrice PerShare |       | WeightedAverageRemainingContractualTerm |           | AggregateIntrinsicValue
|Outstanding at January 1, 2007       |  | 1,973  |   |  | $                                     | 9.98  |                                         | 3.4 years |                         | $ | 9,599
|Granted                              |  | 391    |   |  | $                                     | 11.94 |                                         |           |                         |   |      
|Exercised                            |  | (62    | ) |  | $                                     | 4.92  |                                         |           |                         |   |      
|Canceled or expired                  |  | (192   | ) |  | $                                     | 13.88 |                                         |           |                         |   |      
|                                     |  |        |   |  |                                       |       |                                         |           |                         |   |      
|Outstanding at March 31, 2007        |  | 2,109  |   |  | $                                     | 10.06 |                                         | 3.6 years |                         | $ | 8,771
|                                     |  |        |   |  |                                       |       |                                         |           |                         |   |      
|Exercisable at March 31, 2007        |  | 1,409  |   |  | $                                     | 7.70  |                                         | 3.0 years |                         | $ | 8,559
|                                     |  |        |   |  |                                       |       |                                         |           |                         |   |      

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the
difference between our closing stock price on March 31, 2007 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders, had all option holders exercised their options on
March 31, 2007. Total intrinsic value of options exercised for the three months ended March 31, 2007 amounted to $ 461,201. As of March 31, 2007, total unrecognized stock-based compensation expense related to nonvested stock options
was $2.7 million.

Restricted Shares

We began awarding restricted share units in 2006. Through March 31, 2007 we have awarded 181,000 restricted share units. Unvested restricted share units are forfeited if the employee terminates for any reason other than death,
disability, or special circumstances as determined by the Compensation Committee of the Board. Restricted shares activity during the three months ended March 31, 2007 was as follows:



|                                     |  |        |  |                                                |      
|------------------------------------ |  | ------ |  | ---------------------------------------------- | -----
|(in thousands, except for per share) |  | Shares |  | Weighted AverageGrant Date FairValue Per Share
|Outstanding at January 1, 2007       |  | 88     |  | $                                              | 17.11
|Granted                              |  | 75     |  | $                                              | 11.94
|                                     |  |        |  |                                                |      
|Outstanding at March 31, 2007        |  | 163    |  | $                                              | 14.73
|                                     |  |        |  |                                                |      

Fair value of our restricted shares is based on our closing stock price on the date of grant. As
of March 31, 2007, total unrecognized stock-based compensation expense related to non vested restricted share grants was $1.8 million which is expected to be recognized over the remaining weighted average period of approximately 3.5 years.

The Compensation Committee of the Board of Directors determines the exercise price of options. Payment of the exercise price may be made
either in cash or with shares of common stock that have been held at least six months. The options generally vest over either three or four years and expire either five or ten years from the date of grant. The fair value of each option grant is
estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions:



|                        |  |                                  |   |  |      |  
|----------------------- |  | -------------------------------- | - |  | ---- | -
|                        |  | For theThreeMonthsEndedMarch 31, |  
|(In thousands)          |  | 2007                             |   |  | 2006 |  
|Risk free interest rate |  | 4.6                              | % |  | 4.3  | %
|Expected lives (years)  |  | 3.0                              |   |  | 3.0  |  
|Expected volatility     |  | 47                               | % |  | 40   | %
|Expected dividend yield |  |                                 |   |  |     |  



9



---

The expected volatilities are based on the historical volatility of our stock. The observation is made on
a weekly basis. The expected terms of the stock options are based on the average vesting period on a basis consistent with the historical experience for similar option grants. The risk-free rate is consistent with the expected terms of the stock
options and based on the U.S. Treasury yield curve in effect at the time of grant.

A summary of our non-vested stock options during the
twelve months ended December 31, 2006 is presented below:



|                                      |  |        |   |  |                                     |      
|------------------------------------- |  | ------ | - |  | ----------------------------------- | -----
|(In thousands)                        |  | Shares |   |  | WeightedAverage GrantDate FairValue
|Non-vested options at January 1, 2007 |  | 498    |   |  | $                                   | 15.70
|Granted                               |  | 391    |   |  | $                                   | 11.94
|Vested                                |  | (46    | ) |  | $                                   | 22.71
|Forfeited or expired                  |  | (142   | ) |  | $                                   | 22.95
|                                      |  |        |   |  |                                     |      
|Non-vested options at March 31, 2007  |  | 700    |   |  | $                                   | 14.80
|                                      |  |        |   |  |                                     |      

8. Capital Stock  Warrants

At March 31, 2007, there were outstanding and exercisable warrants to purchase 74,300 shares at a price of $7.80 per share.

9. Contingencies

Litigation

From time to time, we are party to certain litigation arising in the normal course of business. Management believes that the resolution of such matters
will not have a material adverse effect on our financial position, results of operations or cash flows.

Guarantees

We enter into indemnification provisions under (i) agreements with other companies in the ordinary course of business, typically with business
partners, contractors, customers and landlords, and (ii) agreements with investors. Under such provisions we generally indemnify and hold harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of our
activities or, in some cases, as a result of the indemnified partys activities under the agreement. Indemnification provisions often include indemnifications relating to representations made by us with regard to intellectual property rights.
Such indemnification provisions generally survive termination of the underlying agreement. In addition, in some cases, we agree to reimburse employees for certain expenses and to provide salary continuation. The maximum potential amount of future
payments we could be required to make under these indemnification provisions is unlimited. To date, we have not incurred any material costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the
estimated fair value of these agreements is minimal. Accordingly, we have no recorded liabilities for these agreements as of March 31, 2007.

10.
Segments and Geographic Information

Our operations are organized on the basis of products and related services and under SFAS
No. 131, we operate in two segments: (1) IVD and (2) sample processing.

The IVD segment designs, develops, manufactures,
markets and distributes IVD systems based on patented and proprietary technology for automating microscopic procedures for urinalysis. The segment also provides ongoing sales of supplies and services 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 segment also includes the operations of the IMD research division and the ADIR
research subsidiary.

The sample processing 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.



10



---

The accounting policies of the segments are the same as those described in the Summary of
Significant Accounting Policies. We evaluate the performance of our segments and allocate 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 months ended March 31, 2007 and 2006:



|                                    |  |     |        |                  |   |                              |  |   |        |   |  |   |       
|----------------------------------- |  | --- | ------ | ---------------- | - | ---------------------------- |  | - | ------ | - |  | - | ------
|(In thousands)                      |  | IVD |        | SampleProcessing |   | UnallocatedCorporateExpenses |  |   | Total 
|For the three months March 31, 2007 |  |     |        |                  |   |                              |  |   |        |   |  |   |       
|Revenues                            |  | $   | 17,409 |                  | $ | 2,713                        |  | $ |        |   |  | $ | 20,122
|Interest income                     |  |     | 339    |                  |   |                              |  |   |        |   |  |   | 339   
|Interest expense                    |  |     | 1      |                  |   |                              |  |   |        |   |  |   | 1     
|Depreciation and amortization       |  |     | 544    |                  |   | 68                           |  |   | 4      |   |  |   | 616   
|Segment pre-tax profit              |  |     | 3,108  |                  |   | 579                          |  |   | (1,229 | ) |  |   | 2,458 
|Segment assets                      |  |     | 50,531 |                  |   | 16,656                       |  |   | 7,086  |   |  |   | 74,273
|Investment in long-lived assets     |  |     | 19,751 |                  |   | 474                          |  |   |        |   |  |   | 20,225
|                                    |  |     |        |                 
|For the three months March 31, 2006 |  |     |        |                  |   |                              |  |   |        |   |  |   |       
|Revenues                            |  | $   | 13,174 |                  | $ | 2,941                        |  | $ |        |   |  | $ | 16,115
|Interest income                     |  |     | 261    |                  |   | 2                            |  |   |        |   |  |   | 263   
|Interest expense                    |  |     | 1      |                  |   |                             |  |   |        |   |  |   | 1     
|Depreciation and amortization       |  |     | 564    |                  |   | 53                           |  |   | 64     |   |  |   | 681   
|Other non-cash items                |  |     |        |                  |   |                              |  |   |        |   |  |   |       
|Segment pre-tax profit              |  |     | 3,052  |                  |   | 650                          |  |   | (1,071 | ) |  |   | 2,631 
|Segment assets                      |  |     | 41,777 |                  |   | 14,065                       |  |   | 9,695  |   |  |   | 65,537
|Investment in long-lived assets     |  |     | 13,073 |                  |   | 502                          |  |   |        |   |  |   | 13,575

We ship products from two locations in the United States. Substantially all long-lived assets are
located in the United States. Sales to international customers amounted to approximately $6.4 million during the first quarter of 2007 compared to $5.0 million during the first quarter of 2006.

Segment assets attributed to corporate unallocated expenses are deferred taxes. Long-lived assets include property and equipment, intangible
assets, long-term portion of inventory and other long-term assets. Deferred income tax is excluded from long-lived assets.



11



---

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Overview

IRIS International, Inc. consists of three operating units in two business segments as determined in accordance with SFAS 131. Our
largest unit, Iris Diagnostics Division, designs, manufactures and markets in vitro diagnostics (IVD) systems, consumables and supplies for urinalysis. Our Sample Processing division markets small centrifuges and other processing equipment and
accessories for rapid specimen processing, and our Advanced Digital Imaging and Research LLC (ADIR) subsidiary assists in the advancement of proprietary imaging technology while conducting government-sponsored research and contract development in
imaging and pattern recognition. With the acquisition of IMD, we acquired significant core technology for an ultra-sensitive immunoassay process and novel in-vitro separation and concentration process as well as in-process research and development
for bacteria and cancer detection applications.

We generate revenues primarily from: sales of IVD instruments, IVD consumables and service
and sample processing instruments and supplies. Revenues from IVD instruments include sales of urine microscopy and chemistry analyzers manufactured by us and urine chemistry analyzers sourced from a Japanese manufacturer. We sell the urine
microscopy analyzers and the iChem 100; our new semi-automated chemistry analyzer introduced in the third quarter of 2006 on a global basis and distribute the other chemistry analyzers domestically only. Consumables include products such as chemical
reagents and urine test strips. Service revenues are derived primarily from annual service contracts purchased by our domestic customers after the initial year of sale, which is covered by product warranties spare parts from international customers.
Once the analyzers are installed, we generate recurring revenue from sales of consumables. Consumable and service revenue will continue to expand as the installed base of related instruments increases. Revenue is also generated from sales of sample
processing instruments and related supplies, which primarily consists of centrifuge systems, DNA processing workstations and blood analysis products.

Domestic sales of our automated urinalysis systems are direct to the customer through our sales force. International sales, with the exception of France, are through independent distributors. Sales in France are
direct to end use customers. International sales represented 32% of consolidated revenues in the first quarter of 2007 as compared to 31% in the first quarter of 2006. Since the launch of our iQ200 product line, we have increased our sales efforts
in the international marketplace, with the ultimate goal of balancing our urinalysis business between domestic and international markets. Our Sample Processing products are sold worldwide through distributors.

We make significant investments in research and development for new products and enhancements to existing products. We internally fund research and
development programs, and through ADIR, we also receive government grants to fund various research activities.

Application of Critical Accounting
Policies and Use of Estimates

A description of our critical accounting policies that represent the more significant judgments and
estimates used in the preparation of our financial statements was provided in the Managements Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the year ended
December 31, 2006. Other than the adoption of FIN48 as discussed in Note 6 to the accompanying condensed consolidated financial statements, there have been no material changes in theses critical accounting policies since December 31, 2006.

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and our
discussion and analysis of our financial condition and results of operations require us to make judgments, assumptions, and estimates that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. We base
our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. We regularly
discuss with our audit committee the basis of our estimates. Actual results may differ from these estimates and such differences may be material.



12



---

Results of Operations

The following table summarizes results of operations data for the periods indicated. The percentages in the table are based on total revenues with the exception of percentages for gross profit margins which are
computed on related revenue.



|                                           |  |                              |  |     |   |  |        |  |     |  
|------------------------------------------ |  | ---------------------------- |  | --- | - |  | ------ |  | --- | -
|                                           |  | Three months ended March 31, | 
|(in thousands)                             |  | 2007                         |  |     |   |  | 2006   |  |     |  
|Revenues                                   |  |                              |  |     |   |  |        |  |     |  
|IVD instruments                            |  | 8,566                        |  | 43  | % |  | 5,915  |  | 37  | %
|IVD consumables and service                |  | 8,843                        |  | 44  | % |  | 7,259  |  | 45  | %
|Sample Processing instruments and supplies |  | 2,713                        |  | 14  | % |  | 2,941  |  | 18  | %
|                                           |  |                              |  |     |   |  |        |  |     |  
|Total revenues                             |  | 20,122                       |  | 100 | % |  | 16,115 |  | 100 | %
|                                           |  |                              |  |     |   |  |        |  |     |  
|Gross Profit *                             |  |                              |  |     |   |  |        |  |     |  
|IVD instruments                            |  | 3,932                        |  | 46  | % |  | 2,765  |  | 47  | %
|IVD consumable and supplies                |  | 4,747                        |  | 54  | % |  | 4,125  |  | 57  | %
|Sample Processing instruments and supplies |  | 1,306                        |  | 48  | % |  | 1,401  |  | 48  | %
|Royalty and license revenues               |  |                              |  |     |   |  |        |  |     |  
|                                           |  |                              |  |     |   |  |        |  |     |  
|Gross profit                               |  | 9,985                        |  | 50  | % |  | 8,291  |  | 51  | %
|                                           |  |                              |  |     |   |  |        |  |     |  
|Operating expenses                         |  |                              |  |     |   |  |        |  |     |  
|Marketing and selling                      |  | 3,052                        |  | 15  | % |  | 2,322  |  | 14  | %
|General and administrative                 |  | 2,385                        |  | 12  | % |  | 2,115  |  | 13  | %
|Research and development, net              |  | 2,428                        |  | 12  | % |  | 1,488  |  | 9   | %
|                                           |  |                              |  |     |   |  |        |  |     |  
|Total operating expenses                   |  | 7,865                        |  | 39  | % |  | 5,925  |  | 37  | %
|                                           |  |                              |  |     |   |  |        |  |     |  
|Operating income                           |  | 2,120                        |  | 11  | % |  | 2,366  |  | 15  | %
|Other income (expense)                     |  | 338                          |  |     |   |  | 265    |  |     |  
|                                           |  |                              |  |     |   |  |        |  |     |  
|Income before for income taxes             |  | 2,458                        |  | 11  | % |  | 2,631  |  | 16  | %
|Income taxes**                             |  | 996                          |  | 41  | % |  | 973    |  | 37  | %
|                                           |  |                              |  |     |   |  |        |  |     |  
|Net income (loss)                          |  | 1,462                        |  | 7   | % |  | 1,658  |  | 10  | %
|                                           |  |                              |  |     |   |  |        |  |     |  

---

|* | Gross profit margin percentages are based on the related sales of each category.
|- | --------------------------------------------------------------------------------

|** | Income tax percentage is computed based on the relationship of income taxes to pre-tax income.
|-- | ----------------------------------------------------------------------------------------------

Comparison of Three months ended March 31, 2007 to 2006

Revenues for the three months ended
March 31, 2007 increased by 25% over the prior year quarter. Revenues in the IVD urinalysis segment increased to $17.4 million in Q1 2007, from $13.2 million in the prior year quarter. Sales of IVD instruments increased to $8.6 million from
$5.9 million. The increase in instrument sales is due to increased sales to both domestic and international customers. We sell our instruments and consumables direct to customers domestically. In the international market, the average sale prices of
the iQ200 analyzer and related consumables are lower due to the fact that such sales, with the exception of France, are made through independent distributors in approximately 60 countries. International revenues accounted for approximately 32% of
consolidated revenue during the three months ended March 31, 2007 compared to 31% during the prior year quarter. We also continue to service and support the installed base of legacy systems discontinued in 2004. Sales of IVD consumables and
service increased during the quarter to $8.8 million from $7.3 million, an increase of $1.5 million or 22% over the prior year quarter, primarily due to the larger installed base of instruments. Revenues during the first quarter from the sample
processing instruments and supplies decreased to $2.7 million compared to $2.9 million for the prior year quarter primarily due to lower sales of the Express 3 centrifuges which resulted from the higher placement of units in the prior year quarter
due to initial demand for this new product.

Our unit volume of instruments sold during the current quarter was 129, which is higher than
the 102 units sold during Q1 2006, a 36% increase domestically and 23% internationally. Domestically, we sell the iQ200 microscopy analyzers either separately or combined with a chemistry analyzer, which we acquire from a Japanese supplier. The
majority of domestic sales are sold as combined systems. Internationally, we sell our iQ200 microscopy analyzer separately or with our semi-automated chemistry analyzer, as we do not have the distribution rights for the fully automated chemistry
analyzer. We are currently developing an automated chemistry analyzer internally which we anticipate will be introduced by the end of 2007.



13



---

Overall gross profit margins decreased from 51% in 2006 to 50% in 2007. The gross profit margin of our
IVD instruments was 1% lower at 46% in 2007 compared to the prior year quarter, primarily due to the mix of instruments sold domestically versus internationally. The gross margin of our IVD consumables and services decreased to 54% during the
quarter compared to 57% during the prior year quarter. The decrease included a combination of our chemistry strip manufacturing operation, acquired in June 2005, currently operating below capacity as well as increased costs associated with
additional personnel for domestic service in order to improve customer service response times. Our German strip manufacturing facility is expected to continue to operate below capacity until we launch our new automated urine chemistry analyzer later
this year. Gross profit margin for our sample processing laboratory instrument and supply segment amounted to 48% in both the 2007 quarter and the 2006 quarter.

Marketing and selling expenses totaled $3.1 million, or 15% of revenue, for the current year first quarter, as compared to $2.3 million, or 14% of revenue, in the first quarter of 2006. The increase includes
additional personnel costs of $157,000; higher commissions paid of $144,000; higher fees paid to GPOs (group purchasing organizations) of $88,000; plus travel and related costs of $117,000 due to increased sales to domestic customers; and $110,000
in professional fees, primarily for the translation of manuals into other languages for our international customers.

General and
administrative expenses increased to $2.4 million compared to $2.1 million in the prior year primarily due to increased professional fees relating to our year end audit and compliance with the internal control provisions of the Sarbanes-Oxley Act of
2002.

Research and development expense amounted to $2.4 million during first quarter of 2007 compared to $1.5 million in the same period
in the prior year. The increase level of R&D spending reflects the investment in Iris Molecular Diagnostics in April 2006.

Interest
income during the first quarter of 2007 amounted to $339,000, a $76,000 increase over 2006 for the same period. The increase relates to our continued investment of excess cash during the quarter, as well as interest earned on lease financing from
the sale of instruments to customers. Our sales-type lease financings approximated $9.0 million during both periods.

Income tax expense
during the first quarter of 2007 amounted to 41% of pre-tax income as compared to 37% during the prior year quarter. The increase in the income tax provision results from the exclusion of losses of our German subsidiary in the tax computation. The
tax provision continues to be primarily a non-cash expense, since we have significant deferred tax assets relating to tax loss carryforwards. As of January 1, 2007 we have federal tax loss carryforward amounts to approximately $9.4 million and
research and development tax credit carryovers totaling $3.6 million.

Off-Balance Sheet Arrangements

At March 31, 2007 and 2006, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred
to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing,
liquidity, market or credit risk that could arise if we had engaged in such relationships.

Liquidity and Capital Resources

Our primary source of liquidity is cash from operations, which depends heavily on sales of our IVD instruments, consumables and service, as well as sales
of sample processing instruments and supplies. At March 31, 2007, our cash and cash equivalents amounted to $23.1 million compared to $23.2 million at December 31, 2006.



14



---

Operating Cash Flows.Cash provided by operations for the three months ended March 31, 2007
improved $1.6 million to $315,000 as compared to cash used in operations of $1.3 million during the prior year quarter. The improvement includes; non-cash items consisting of deferred taxes of $413,000; higher and depreciation and amortization of
$142,000, as well as a reduction of $1.9 million in inventories and a $1.0 million reduction in the financing of sales-type lease transactions during the quarter. The sources of cash were partially offset higher receivables of $975,000; a decrease
in prepaid expenses and other assets of $438,000; increases in accounts payable and accrued expenses amounting to $61,000; lower net income and an increase in deferred service contract revenue of $131,000.

The relationship of receivables to revenues has increased over the prior year. The number of days sales in accounts receivable increased to 68 at the end
of the first quarter compared to 61 days for the prior year quarter. The number of days sales in inventory decreased to 55 days at the end of the first quarter compared to 107 days at the end of the prior year quarter. The reduction in the number of
days sales in inventory is due to higher sales volume and improved inventory planning procedures and reduced amount of lead-time required for safety stock on hand. In addition, the level of inventory on hand for the Legacy product line continued to
decrease during the first quarter of 2007.

Our cash flow continues to be favorably affected by the fact that at December 31, 2006 we
had net operating tax loss carry forwards of $9.4 million for federal and $1.0 million for state and tax credit carry forwards of $2.2 million for federal and $1.7 million for state, net of valuation allowances. We continue to realize tax deductions
from both the exercise of stock options and the purchase by employees of our common stock at a discount to market. During the three months ended March 31, 2007, we realized tax deductions of approximately $248,000.

Investing Activities.Cash used in investing activities increased to $946,000 during the first quarter, a $225,000 increase over the prior year
quarter primarily as a result of the purchase of short-term marketable securities amounting to $153,000 and increased additions to property and equipment.

Financing Activities.Cash provided by financing activities for the first quarter was lower than the prior year quarter due to a decrease cash generated through issuances of common stock, and a reduction in the
tax benefit from stock option exercises.

We currently have a credit facility with a commercial bank consisting of a $6.5 million revolving
line of credit for working capital and a $10.0 million line of credit for acquisitions and product opportunities. Borrowings under the revolving line of credit are limited to a percentage of eligible receivables and inventory. The entire credit
facility has variable interest rates, which will change from time to time based on changes to either the LIBOR rate or the lenders prime rate. As of March 31, 2007, there were no borrowings under the new credit facility. We are subject to
certain financial covenants under the credit facility with the bank and as of March 31, 2007, we were in compliance with such covenants.

We believe that our current cash on hand, together with cash generated from operations and cash available under the credit facility with the bank will be sufficient to fund normal operations. However additional funding may be required to
fund expansion of our business. There is no assurance that such funding will be available, on terms acceptable to us.

New Accounting Pronouncements

In September 2006, the FASB issued SFAS 157, which addresses how companies should measure fair value when they are required to use a
fair value measure for recognition or disclosure purposed under generally accepted accounting principles. As a result of SFAS 157, there is a common definition of fair value to be used throughout GAAP; SFAS 157 is effective for fiscal years
beginning after November 15, 2007. We are currently evaluating the impact of adopting SFAS 157 on our financial position and results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159), which provides entities with the option to measure certain
financial instruments and other items at fair value, whereas those items are not currently required to be measured at fair value. SFAS 159 will be effective for us on January 1, 2008. We are currently evaluating the impact of adopting SFAS 159
on our financial position and results of operations.



15



---

Inflation

We do not foresee any material impact on our operations from inflation.

Healthcare Reform Policies

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



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

Market Risk

Our business is exposed to various market risks, including changes in interest rates and foreign currency
exchange rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and foreign currency exchange rates. We do not invest in derivatives or other financial instruments for trading or
speculative purposes. We had no debt at March 31, 2007.

Foreign Currencies

We are subject to certain foreign currency risks in the importation of goods from Japan. Our purchases from this supplier are denominated in Japanese Yen.
These components represent a significant portion of our material costs. Fluctuations in the US Dollar/Japanese Yen exchange rate could result in increased costs for our key components. Similarly, we are also exposed to currency fluctuations with
respect to the exportation of our products. With the exception of France which is denominated in Euros, all of our sales are denominated in US Dollars. Our strip manufacturing facility in Germany has the US Dollar as its functional currency.



|Item 4. | Controls and Procedures
|------- | -----------------------

(a) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined by paragraph (e) of Exchange Act Rules 13a-15 or 15d-15, designed to ensure that we are
able to collect the information we are required to disclose in the reports we file with the SEC and to approve, summarize and disclose this information within the time periods specified in the rules of the SEC. Our Chief Executive Officer and
Interim Chief Financial Officer are responsible for establishing and maintaining these procedures, and, as required by the rules of the SEC, evaluate their effectiveness. Our Chief Executive Officer and Interim Chief Financial Officer have evaluated
the effectiveness of our disclosure controls and procedures as of March 31, 2007, the end of the period covered by this report, and based upon that evaluation, the Chief Executive Officer and Interim Chief Financial Officer concluded that our
disclosure controls and procedures are effective.

(b) Changes in Internal Controls over Financial Reporting

There was no change in the Companys internal control over financial reporting that occurred during the period covered by this Quarterly Report of
Form 10-Q that materially affected, or is reasonable likely to materially affect, the Companys internal control over financial reporting.



16



---

PART II

OTHER INFORMATION



|Item 1A. | Risk Factors
|-------- | ------------

There has been no material changes in risk factors as set forth in our Annual
Report on Form 10-K for the year ended December 31, 2006.



|Item 6. | Exhibits
|------- | --------



|              |  |                                                                                                         |  |                  
|------------- |  | ------------------------------------------------------------------------------------------------------- |  | -----------------
|ExhibitNumber |  | Description                                                                                             |  | ReferenceDocument
|31.1          |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer      |  | *                
|              |  |                                                                                                        
|31.2          |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Principal Accounting Officer |  | *                
|              |  |                                                                                                        
|32.1          |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer      |  | *                
|              |  |                                                                                                        
|32.2          |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Principal Accounting Officer |  | *                

---

|* | Filed herewith
|- | --------------



17



---

SIGNATURES

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

Date: May 9, 2007



IRIS INTERNATIONAL, INC.By:

/s/ CÉSAR M. GARCÍACésar M. GarcíaPresident and Chief Executive OfficerBy:

/s/ VERONICA O. TARRANTVeronica O. TarrantInterim Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)




18