Document:

Exhibit 4.8

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

This
interim Management Discussion and Analysis (“MD&A”) is dated as at November 4,
2010 and should be read in conjunction with the interim unaudited consolidated
financial statements and the notes thereto for the three and nine months ended
September 30, 2010, and with the audited consolidated financial statements
and notes thereto for the year ending December 31, 2009.  In this MD&A, “IMRIS”, the “Company”,
“we”, “our” and “us” are used to refer to IMRIS Inc.

 

This MD&A contains
forward-looking statements about future events or future performance and
reflects management’s expectations and assumptions regarding our growth,
results of operations, performance and business prospects and opportunities.  Such forward-looking statements reflect
management’s current beliefs and are based on information currently available
to us.  In some cases, forward-looking
statements can be identified by terminology such as “may”, “would”, “could”,
“will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”,
“estimate”, “predict”, “potential”, “continue” or the negative of these terms
or other similar expressions concerning matters that are not historical
facts.  In particular, statements
regarding our future operating results, economic performance and product
development efforts are or involve forward-looking statements.

 

A
number of factors could cause actual events, performance or results, including
those in respect of the foregoing items, to differ materially from the events,
performance and results discussed in the forward-looking statements.  Factors which could cause future outcomes to
differ materially from those set forth in the forward-looking statements
include, but are not limited to: [i] timing and amount of revenue recognition
of order backlog and the Company’s expectation of sales and margin growth [ii]
obtaining sufficient and suitable financing to support operations and
commercialization of products, [iii] adequately protecting proprietary
information and technology from competitors, [iv] obtaining regulatory
approvals and successfully completing new product launches, [v] successfully
competing in the targeted markets, and [vi] maintaining third party
relationships, including key personnel, and key suppliers.  In evaluating these forward-looking
statements, readers should specifically consider various factors, including the
risks outlined under “Risks and Uncertainties”, which may cause actual events,
performance or results to differ materially from any forward-looking statement.

 

Readers
are cautioned that our expectation, beliefs, projections and assumptions used
in preparation of such information, although considered reasonable at the time
of preparation, may prove to be wrong, and as such, undue reliance should not
be placed on forward-looking statements. 
By their nature, forward-looking statements are subject to numerous
known and unknown risks and uncertainties so as a result, we can give no
assurance that any of the actual events, performance, results, or expectations
will occur or be realized.  These
forward-looking statements are expressly qualified by this cautionary statement
as of the date of this MD&A and we do not intend, and do not assume any
obligation, to update or revise them to reflect new or future events or
circumstances.  Additional information
including our annual information form and management’s discussion and analysis
for the year ended December 31, 2009 is available on SEDAR at
www.sedar.com .

 

OVERVIEW

 

IMRIS
is a global provider of image guided therapy solutions that deliver timely
information to clinicians during surgical or interventional procedures.  IMRIS systems incorporate multiple imaging
modalities including magnetic resonance “MR” imaging, and fluoroscopy into
fully integrated imaging suites.  Our
systems use a variety of patented technologies that enhance patient safety and
operating room efficiency.

 

Our
Products

 

IMRISneuro — provides
surgeons with high resolution MR images during neurosurgical procedures.  Due to the invasive nature of brain surgery
and the importance of minimizing disturbance to healthy brain tissue,
neurosurgical procedures may benefit from an MRI’s unique ability to
distinguish between diseased and healthy brain tissue.  IMRISneuro allows surgeons to make
adjustments to the procedure while the procedure is in progress, which may lead
to improved patient outcomes and reduce the likelihood that repeat surgeries
will be needed.

 

IMRIS Inc.

Management’s Discussion
and Analysis — November 2010

 

1

 

IMRIScardio
— provides clinicians with timely and accurate images for visualizing
the cardiovascular system before, during and after an intervention.  Cardiovascular interventions demand a high
level of accuracy in the diagnosis of patients and in the assessment of
treatments.  The IMRIScardio suite
includes a wide-bore 1.5 Tesla MRI scanner and a single-plane angiography
system providing the ability to alternate between imaging modalities and
immediately assess treatment.

 

IMRISNV  — sequentially
employs MRI and fluoroscopy in an integrated suite that provides interventional
clinicians with imaging for the rapid assessment and post procedure evaluation
of neurovascular conditions including stroke, where speed of treatment is a
major determinant in the success of patient outcomes.  The  IMRISNV suite
features a wide-bore 3 Tesla MR scanner and a bi-plane angiography system
completely integrated into a single suite that permits the patient to
transition quickly and seamlessly between MR imaging and intervention without
transporting the patient between modalities.

 

Our
Customer Value Proposition

 

All
IMRIS products are designed to assist clinicians to improve outcomes for their
patients.  Our integrated imaging
solutions are based on three fundamental principles:

 

Patient
Safety — The patient is never moved during the course of a surgical or
interventional procedure in an IMRIS integrated therapy suite.  Unlike conventional imaging solutions where
the patient is moved for imaging, our solutions move the imaging system to the
patient at the right moment in the procedure. 
This avoids any potential risks associated with having to move the
patient to the scanner, and maintains optimum patient positioning during the
procedure.

 

Clinical
Efficiency — All aspects of IMRIS systems are designed to
enhance the workflow of the clinical team. 
Imaging information is captured rapidly and presented to maximize
efficiency and effectiveness for clinicians. 
In addition, because the imaging system is moved to the patient during
use, when not in use, clinicians are afforded unrestricted access to the
patient and do not require special MR-compatible instruments for the
procedures.

 

Financial
Utility — IMRIS systems provide customers with both intraoperative
interventional and diagnostic MR imaging capabilities.  When not in use during a surgery or
interventional procedure, the MR scanner is located in an adjacent room and is
available for diagnostic imaging, thereby ensuring that the hospital obtains
maximum utility from its equipment.

 

Our
Technology

 

The
creation of high value intellectual property and advancements in technology is
an important element of our business.  To
grow the Company and remain competitive, we are continuously engaged in new product
development and enhancement and each year we invest significantly in research
and development to drive continuing innovation that supports our competitive
position.

 

Underlying
all of our image guided therapy solutions is advanced proprietary technology
and intellectual property that we have developed as part of our unique
solutions.  The protection of these
products, our processes and know-how is integral to our business.  We have patents in place in the United
States, Canada and other countries where available to protect our core patent
family.  In addition, we have filed a
number of additional patent applications that are directed to specific aspects
of our technology.  At September 30,
2010 we had 34 patents either issued or pending.  As we develop our technologies we will
continue to seek patent protection to contribute to our competitive advantage.

 

2

 

Our
Business Model

 

The
purchase and installation of an IMRIS system represents a significant capital
project for our customers that can range from approximately $4 million to $12
million depending on the product solution, the configuration of the room layout
and system options selected.  The
IMRISneuro system pricing can range between $4 million to $7 million in value
whereas the average value of the IMRIScardio and IMRISNV system sales are
priced significantly higher, between $8 million to $10 million and $10 million
to $12 million respectively due to the additional equipment required for those solutions.  In addition to the capital equipment sale,
most of our customers enter into equipment service contracts that are generally
4-5 years in duration.  These contracts
begin after the typical one year warranty period and are on average equal to
approximately 5% of the original equipment purchase price per year in
revenues.  Customers may require further
capital expenditures for room construction and ancillary operating room
equipment.

 

The
sales cycle for our systems is both complex and lengthy as a result of the
large capital expenditure associated with the purchase of an IMRIS system and
the number of stakeholders who are engaged in the process.  As such, a typical sales cycle can be more
than 12 months from initial customer engagement to receipt of a purchase
order.  Following the receipt of a
customer purchase order, the delivery and installation cycle for one of our
systems typically ranges from five months to twelve months or more depending in
part on the configuration of our system, but also dependent on the amount of
additional construction work that may be required to be completed by the
customer.  We invoice customers for the
system in installments spread over a number of milestones which typically
include a deposit at the time of order; and a percentage of the total system
price upon delivery of the equipment, completion of installation and final
acceptance.  Due to the project nature of
our system sales, we recognize revenues and related cost of sales on a
percentage-of-completion basis as the system is installed.

 

HIGHLIGHTS

 

Through
the third quarter of 2010 we made solid progress advancing our business
strategies.  Highlights from the quarter
included:

 

·                  Record quarterly order bookings of $42.7
million increased backlog to $120.0 million.

 

·                  Global growth strategy resulted in four new
system orders including two IMRIScardio systems.

 

·                  Sales increased 75% to $17.3 million over Q3
2009.

 

·                  Record gross profit as a percentage of sales
of 45.9%.

 

·                  Positive EBITDA of $1.3 million and earnings
per share of $0.02.

 

·                  Agreement with Varian Medical Systems to
co-develop advanced new radiation therapy product.

 

·                  First IMRISneuro installation completed in
Australia at Canberra Hospital.

 

3

 

SUMMARY
OF SELECTED FINANCIAL INFORMATION

 

The
following table sets forth selected financial information for the dates and
periods indicated.

 

Statement of Operations

(Thousands
of CDN dollars, except per share amounts)

(Unaudited)

 

	
   

  	
   

  	
  Three months ended

  	
   

  	
   

  	
   

  	
  Nine months ended

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  September 30

  	
   

  	
  %

  	
   

  	
  September 30

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2010

  	
   

  	
  2009

  	
   

  	
  Change

  	
   

  	
  2010

  	
   

  	
  2009

  	
   

  	
  Change

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Sales

  	
   

  	
  $

  	
  17,289

  	
   

  	
  $

  	
  9,864

  	
   

  	
  75

  	
  %

  	
  $

  	
  46,588

  	
   

  	
  $

  	
  24,496

  	
   

  	
  90

  	
  %

  
	
  Cost
  of sales

  	
   

  	
  9,361

  	
   

  	
  5,402

  	
   

  	
  73

  	
  %

  	
  27,226

  	
   

  	
  13,758

  	
   

  	
  98

  	
  %

  
	
  Gross
  profit

  	
   

  	
  7,928

  	
   

  	
  4,462

  	
   

  	
  78

  	
  %

  	
  19,362

  	
   

  	
  10,738

  	
   

  	
  80

  	
  %

  
	
  As
  a percentage of sales

  	
   

  	
  45.9

  	
  %

  	
  45.2

  	
  %

  	
   

  	
   

  	
  41.6

  	
  %

  	
  43.8

  	
  %

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Operating
  expenses

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Administration

  	
   

  	
  1,875

  	
   

  	
  1,643

  	
   

  	
  14

  	
  %

  	
  5,851

  	
   

  	
  4,891

  	
   

  	
  20

  	
  %

  
	
  Sales
  and marketing

  	
   

  	
  1,880

  	
   

  	
  1,601

  	
   

  	
  17

  	
  %

  	
  6,161

  	
   

  	
  5,269

  	
   

  	
  17

  	
  %

  
	
  Customer
  support and operations

  	
   

  	
  1,467

  	
   

  	
  1,161

  	
   

  	
  26

  	
  %

  	
  4,045

  	
   

  	
  3,443

  	
   

  	
  17

  	
  %

  
	
  Research
  and development

  	
   

  	
  1,377

  	
   

  	
  1,134

  	
   

  	
  21

  	
  %

  	
  4,102

  	
   

  	
  3,494

  	
   

  	
  17

  	
  %

  
	
  Amortization

  	
   

  	
  874

  	
   

  	
  539

  	
   

  	
  62

  	
  %

  	
  2,612

  	
   

  	
  1,565

  	
   

  	
  67

  	
  %

  
	
   

  	
   

  	
  7,473

  	
   

  	
  6,078

  	
   

  	
  23

  	
  %

  	
  22,771

  	
   

  	
  18,662

  	
   

  	
  22

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Operating
  income (loss) before the following

  	
   

  	
  455

  	
   

  	
  (1,616

  	
  )

  	
   

  	
   

  	
  (3,409

  	
  )

  	
  (7,924

  	
  )

  	
  57

  	
  %

  
	
  Foreign
  exchange gain (loss)

  	
   

  	
  207

  	
   

  	
  (1,034

  	
  )

  	
   

  	
   

  	
  220

  	
   

  	
  (1,658

  	
  )

  	
   

  	
   

  
	
  Interest
  income (expense)

  	
   

  	
  69

  	
   

  	
  (6

  	
  )

  	
   

  	
   

  	
  79

  	
   

  	
  (1

  	
  )

  	
   

  	
   

  
	
  Net
  income (loss) for the period

  	
   

  	
  $

  	
  731

  	
   

  	
  $

  	
  (2,656

  	
  )

  	
   

  	
   

  	
  $

  	
  (3,110

  	
  )

  	
  $

  	
  (9,583

  	
  )

  	
  68

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Basic
  and diluted earnings (loss) per share

  	
   

  	
  $

  	
  0.02

  	
   

  	
  $

  	
  (0.10

  	
  )

  	
   

  	
   

  	
  $

  	
  (0.10

  	
  )

  	
  $

  	
  (0.35

  	
  )

  	
  71

  	
  %

  

 

Results
of Operations

 

Sales

 

Sales
increased by approximately $7.4 million or 75% to $17.3 million for the three
months ended September 30, 2010 compared to the same period in 2009.  The growth in revenue in the quarter is
attributed to higher average revenue per system and an increase in the number
of systems delivered in the period.  On a
year to date basis, sales increased to $46.6 million from $24.5 million in the
prior year, an increase of 90%.  Revenue
growth for the nine months ended September 30, 2010 is the result of
higher average revenue per system due to a favorable product mix and an
increase in systems deliveries in 2010.

 

Sales
for the nine months ended September 30, 2010 included $45.2 million of
revenues associated with new system deliveries and $1.4 million of revenues
related to extended maintenance contracts. 
This compares to $23.3 million of new system sales and $1.2 million in
extended maintenance contracts for the same prior period in 2009.

 

4

 

Gross
Profit

 

Gross profit for the three
and nine months ended September 30, 2010 increased by approximately $3.4
million and $8.7 million respectively to $7.9 million and $19.4 million as
compared to the same periods in the prior year. 
The overall increase in gross profit is a result of increased system
installations.  Gross profit as a
percentage of sales increased slightly from 45.2% in the third quarter of 2009
to 45.9% in the third quarter of 2010. 
For the nine months ending September 30, 2010, gross profit
percentage decreased from 43.8% to 41.6% compared to the prior year.

 

The increase in quarterly
gross profit as a percentage of sales was consistent with expectations as
higher margin systems were delivered in the quarter.  Quarterly gross profit percentage would have
been even stronger if not for the completion our first IMRIScardio system,
which resulted in some downward pressure on the gross profit percentage.

 

The year to date decrease in
gross profit percentage was a result of delivery of two lower margin systems in
the first half of the fiscal year.  We
expect to see similar margins experienced in the latest quarter for the balance
of the year and improving margins on future IMRIScardio and IMRISNV systems as
we achieve greater market acceptance.

 

Operating
Expenses

 

Operating
expenses for the third quarter were $7.5 million, an increase of approximately
$1.4 million or 23% over the third quarter of 2009.  On a year to date basis, total operating
expenses increased to $22.8 million from $18.7 million in the prior year, an
increase of approximately $4.1 million or 22%. 
The quarterly and year to date increase is primarily a result of a
significant increase in amortization expense related to the acquisition of
NeuroArm Surgical Limited along with more moderate increases in costs across
all operating departments.  Excluding
non-cash amortization costs, the quarterly and year to date operating expense
increases were $1.1 million and $3.1 million or 19% and 18% over the prior year
periods respectively.  As a percentage of
sales, operating expenses were effectively leveraged, decreasing in the third
quarter and year-to-date periods by 18% and 27% over the prior year periods
respectively.  Departmental expenses
increased in the third quarter and year to date mainly due to costs associated
with increased staff levels and the establishment of a new organizational
structure to meet the growing global demand of our products.

 

At
the departmental level, administrative expenses for the third quarter of 2010,
increased to $1.9 million from $1.6 million in the third quarter of 2009, a 14%
increase.  On a year to date basis,
administrative expenses increased to $5.9 million from $4.9 million in the
prior period or a 20% increase.  The
third quarter increase is a result of higher staff costs ($0.2 million)
associated with the creation of our new organization structure including
additional staffing and higher office and other costs of $0.1 million.  The year to date increase is a result of the
new organizational structure ($0.8 million), one-time facility costs ($0.1
million) associated with the lease on our headquarters, and higher office and
other costs of $0.1 million.

 

Sales
and marketing expenses for the third quarter of 2010, increased to $1.9 million
from $1.6 million in the third quarter of 2009, a 17% increase.  Year to date, sales and marketing expenses
increased to $6.2 million from $5.3 million in the prior period for a 17%
increase.  The third quarter increase is
mainly due to higher staffing levels ($0.1 million) and higher commissions
associated with a system installation ($0.2 million).  The year to date increase is a result of
severance costs ($0.2 million), higher commission expense ($0.6 million) and
small increase in office expenses ($0.1 million).

 

Customer
support and operations expense for the third quarter of 2010, increased to $1.5
million from $1.2 million in the third quarter of 2009, a 26% increase.  On a year to date basis, customer support and
operations expense increased to $4.0 million from $3.4 million in the prior
year or a 17% increase.  The third
quarter increase is mainly attributed to an increase in staff costs ($0.3
million) to support the higher system volume delivered in the period.  Year to date, staff and travel costs
increased $0.9 million and we allocated an additional $0.3 million to cost of
goods as compared to the prior year due to the increased volume in system
deliveries.

 

Research
and development expenses for the third quarter of 2010 increased to $1.4
million from $1.1 million in the third quarter in 2009, a 21% increase.  Year to date, research and development
expense increased to $4.1 million from $3.5 million in the prior year, or a 17%
increase.  The third quarter increase is
primarily a result of increased staff related expenses due to additional
headcount to support current ongoing product development activities.  

 

5

 

Year
to date, staff costs increased $0.7 million and we incurred an additional $0.2
million in equipment costs compared to 2009. 
These increases were partially offset by a $0.3 million reduction in
third party research contracts.

 

Amortization
expense for the third quarter of 2010 was $0.9 million versus $0.5 million in
the third quarter of 2009, an increase of 62%. 
On a year to date basis, amortization expense was $2.6 million compared
to $1.6 million in the prior year, a 67% increase.  The third quarter and year to date increase
in amortization expense resulted from the commencement of amortization on the
NeuroArm Surgical Limited patents acquired in February 2010 and increased
amortization relating to our research and development test facility.

 

The
Company had a foreign exchange gain of $0.2 million in the third quarter of
2010 compared to a foreign exchange loss of $1.0 million in 2009.  On a year to date basis, foreign exchange
gains were $0.2 million compared to a foreign exchange loss of $1.7 million in
the prior year.  The foreign exchange
gain during the third quarter and year to date resulted from the decrease in value
of the Canadian dollar compared to the Australian dollar and Euro.  The majority of the Company’s sales are
denominated in foreign currencies; as such we held foreign denominated net
assets during the period resulting in the foreign exchange gain.  These assets are impacted as the underlying
foreign currencies change in value against the Canadian dollar.

 

Interest
income for the third quarter and year to date for 2010 and 2009 were
insignificant as a result of the extremely low yields on short-term money
market instruments.

 

Operating
Income (Loss) and Net Income (Loss) for the Period

 

The
Company’s operating income for the third quarter of 2010 was $0.5 million
compared to an operating loss of $1.6 million in the third quarter of
2009.  Year to date, the operating loss
was $3.4 million compared to $7.9 million in the prior year, a 57% improvement.

 

The
net income for the third quarter of 2010 was $0.7 million compared to a loss of
$2.7 million in the prior year’s quarter. 
The year to date loss decreased from $9.6 million in 2009 to $3.1 million
in 2010, an improvement of 68%.  The
quarterly and year to date improvement is due primarily to increased sales
volume, higher gross profit and lower foreign exchange losses; offset by
additional operating expenses to fund the current and planned growth in the
business.

 

EBITDA

 

We use the non-GAAP measure EBITDA to measure
aspects of our financial performance (see “Non-GAAP Financial Measures” for a
reconciliation of EBITDA to GAAP measures). 
We define EBITDA as earnings before interest income (expense),
foreign exchange gain (loss), income taxes and amortization.

 

In
the third quarter of 2010, EBITDA was $1.3 million compared with negative $1.1
million in the third quarter of 2009. 
Year to date EBITDA was negative $0.8 million compared to negative $6.4
million in 2009.  The improvement in
EBITDA was primarily due to increased sales volumes and higher gross profit,
net of higher operating expenses used to support the growth in the business.

 

6

 

SUMMARY
OF QUARTERLY RESULTS

 

The
following table is a summary of our financial results for the past eight
quarters.

 

	
  (Thousands of CDN dollars)

  	
   

  	
  Q3

  	
   

  	
  Q2

  	
   

  	
  Q1

  	
   

  	
  Q4

  	
   

  	
  Q3

  	
   

  	
  Q2

  	
   

  	
  Q1

  	
   

  	
  Q4

  	
   

  
	
  (Unaudited)

  	
   

  	
  2010

  	
   

  	
  2010

  	
   

  	
  2010

  	
   

  	
  2009

  	
   

  	
  2009

  	
   

  	
  2009

  	
   

  	
  2009

  	
   

  	
  2008

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Sales

  	
   

  	
  $

  	
  17,289

  	
   

  	
  $

  	
  16,751

  	
   

  	
  $

  	
  12,548

  	
   

  	
  $

  	
  19,922

  	
   

  	
  $

  	
  9,864

  	
   

  	
  $

  	
  9,828

  	
   

  	
  $

  	
  4,804

  	
   

  	
  $

  	
  5,734

  	
   

  
	
  Cost of sales

  	
   

  	
  9,361

  	
   

  	
  10,402

  	
   

  	
  7,463

  	
   

  	
  10,992

  	
   

  	
  5,402

  	
   

  	
  5,399

  	
   

  	
  2,957

  	
   

  	
  4,313

  	
   

  
	
  Gross Profit

  	
   

  	
  7,928

  	
   

  	
  6,349

  	
   

  	
  5,085

  	
   

  	
  8,930

  	
   

  	
  4,462

  	
   

  	
  4,429

  	
   

  	
  1,847

  	
   

  	
  1,421

  	
   

  
	
  As a percentage of sales

  	
   

  	
  45.9

  	
  %

  	
  37.9

  	
  %

  	
  40.5

  	
  %

  	
  44.8

  	
  %

  	
  45.2

  	
  %

  	
  45.1

  	
  %

  	
  38.4

  	
  %

  	
  24.8

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Operating expenses

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Administration

  	
   

  	
  1,875

  	
   

  	
  2,108

  	
   

  	
  1,868

  	
   

  	
  1,815

  	
   

  	
  1,643

  	
   

  	
  1,774

  	
   

  	
  1,474

  	
   

  	
  1,719

  	
   

  
	
  Sales and marketing

  	
   

  	
  1,880

  	
   

  	
  2,526

  	
   

  	
  1,755

  	
   

  	
  2,770

  	
   

  	
  1,601

  	
   

  	
  1,964

  	
   

  	
  1,704

  	
   

  	
  1,742

  	
   

  
	
  Customer support and
  operations

  	
   

  	
  1,467

  	
   

  	
  1,386

  	
   

  	
  1,192

  	
   

  	
  1,507

  	
   

  	
  1,161

  	
   

  	
  1,217

  	
   

  	
  1,065

  	
   

  	
  955

  	
   

  
	
  Research and development

  	
   

  	
  1,377

  	
   

  	
  1,458

  	
   

  	
  1,267

  	
   

  	
  1,430

  	
   

  	
  1,134

  	
   

  	
  1,283

  	
   

  	
  1,077

  	
   

  	
  1,271

  	
   

  
	
  Amortization

  	
   

  	
  874

  	
   

  	
  888

  	
   

  	
  850

  	
   

  	
  597

  	
   

  	
  539

  	
   

  	
  527

  	
   

  	
  499

  	
   

  	
  504

  	
   

  
	
   

  	
   

  	
  7,473

  	
   

  	
  8,366

  	
   

  	
  6,932

  	
   

  	
  8,119

  	
   

  	
  6,078

  	
   

  	
  6,765

  	
   

  	
  5,819

  	
   

  	
  6,191

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Operating income (loss)
  before the following:

  	
   

  	
  455

  	
   

  	
  (2,017

  	
  )

  	
  (1,847

  	
  )

  	
  811

  	
   

  	
  (1,616

  	
  )

  	
  (2,336

  	
  )

  	
  (3,972

  	
  )

  	
  (4,770

  	
  )

  
	
  Foreign exchange gain
  (loss)

  	
   

  	
  207

  	
   

  	
  146

  	
   

  	
  (133

  	
  )

  	
  (368

  	
  )

  	
  (1,034

  	
  )

  	
  (961

  	
  )

  	
  337

  	
   

  	
  881

  	
   

  
	
  Interest income
  (expense)

  	
   

  	
  69

  	
   

  	
  6

  	
   

  	
  4

  	
   

  	
  (25

  	
  )

  	
  (6

  	
  )

  	
  1

  	
   

  	
  4

  	
   

  	
  74

  	
   

  
	
  Net income (loss) for
  the quarter

  	
   

  	
  $

  	
  731

  	
   

  	
  $

  	
  (1,865

  	
  )

  	
  $

  	
  (1,976

  	
  )

  	
  $

  	
  418

  	
   

  	
  $

  	
  (2,656

  	
  )

  	
  $

  	
  (3,296

  	
  )

  	
  $

  	
  (3,631

  	
  )

  	
  $

  	
  (3,815

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Earning (loss) per share

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Basic

  	
   

  	
  $

  	
  0.02

  	
   

  	
  $

  	
  (0.06

  	
  )

  	
  $

  	
  (0.06

  	
  )

  	
  $

  	
  0.02

  	
   

  	
  $

  	
  (0.10

  	
  )

  	
  $

  	
  (0.12

  	
  )

  	
  $

  	
  (0.13

  	
  )

  	
  $

  	
  (0.14

  	
  )

  
	
  Diluted

  	
   

  	
  $

  	
  0.02

  	
   

  	
  $

  	
  (0.06

  	
  )

  	
  $

  	
  (0.06

  	
  )

  	
  $

  	
  0.01

  	
   

  	
  $

  	
  (0.10

  	
  )

  	
  $

  	
  (0.12

  	
  )

  	
  $

  	
  (0.13

  	
  )

  	
  $

  	
  (0.14

  	
  )

  

 

The
financial results for the eight most recent quarters reflect the progression of
an early stage Company with a limited operating history.  Factors that have caused our results to vary
are described below.

 

·                  The general trend has been
for strong growth in sales over the quarters as the Company has achieved
increased market acceptance.  As a result
of the limited number of systems sold and installed to date and the high dollar
value associated with each sale, our revenues recorded from quarter to quarter
have varied depending on the number and stage of active projects in any given
quarter.

 

·                  Gross profit has improved
significantly with increased sales volumes and higher pricing.  Our initial pricing strategy for our
IMRISneuro product was market penetration based.  As product recognition and adoption occurred
we increased our pricing to reflect the underlying value of IMRIS systems.  This change has resulted in improved gross
profit as a percentage of sales.  The
decrease in gross profit percentage in the first two quarters of 2010 is
primarily tied to market penetration pricing for the introductions of
IMRIScardio and IMRISNV installations in the period.

 

·                  Net losses have generally
decreased from quarter to quarter but have varied depending on the timing of
when specific projects are installed and the pricing associated with the
respective projects.  The improvements over
time reflect the increases in gross profit described above, controlled
increases in operating expenses to meet growth in the business and foreign
exchange gains and losses.

 

7

 

·                  Most of our sales to date
have been denominated in currencies other than the Canadian dollar which can
give rise to foreign exchange gains or losses depending on the change in value
of the Canadian dollar versus other currencies in each quarter.  For most of 2008, the relative value of the
Canadian dollar versus the US dollar resulted in the recording of foreign
exchange gains.  In the last three
quarters of 2009 and first quarter of 2010, we incurred foreign exchange losses
primarily as a result of changes in the relative values of these two
currencies.  In Q2 and Q3 of 2010, the
Canadian dollar weakened compared to other foreign currencies resulting in
foreign exchange gains.

 

·                  On November 2, 2009 we
completed an equity financing with the issuance of 3,215,000 common shares and
an additional 482,250 common shares granted as an overallotment option,
resulting in net proceeds of $19.3 million. 
With completion of the financing, our total number of shares outstanding
increased compared with prior quarters.

 

BACKLOG

 

We use the non-GAAP measure
“backlog” to measure aspects of our financial performance (for more
information, see “Non-GAAP Financial Measures”).  Backlog is defined as the unrecognized
portion of (i) revenues anticipated to be recorded from system orders,
including confirmed orders and orders subject to the completion of formal
documentation and (ii) service contracts with a term of four to five years
and which commence at the conclusion for the warranty period on our systems
(typically one year).  The term of our
service contracts generally ranges from 4 to 5 years commencing at the
conclusion of the warranty period on our systems which typically are 1 year in
length.  Service contract revenue is
recognized ratably over the term of the contract.

 

In the third quarter of
2010, order bookings totalled $42.7 million and included four new customer
system orders.  We received three orders
from North America and one from Australia. 
The Company also had a system order upgrade from an existing customer
and signed three service agreements. 
During the quarter $17.3 million of backlog was converted into revenues,
and the depreciation of the Canadian dollar versus the currency of orders in
backlog resulted in a $0.5 million increase in the value of the backlog.  Net of these items, backlog at September 30,
2010 was $120.0 million.  We continue to
convert past order backlog to recognized revenue and we are reasonably
confident that we will convert our present order backlog to recognized revenue
going forward.

 

The table below provides the
Company’s 2010 quarterly backlog on this segmented basis at and a restatement
of each of the last two years as of December 31:

 

	
  (Thousands of CDN 

  dollars)

  	
   

  	
  December 31, 

  2008

  	
   

  	
  December 

  31, 2009

  	
   

  	
  March 31, 

  2010

  	
   

  	
  June 30, 

  2010

  	
   

  	
  September 30, 

  2010

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  System
  orders

  	
   

  	
  $

  	
  66,384

  	
   

  	
  $

  	
  87,569

  	
   

  	
  $

  	
  80,384

  	
   

  	
  $

  	
  70,083

  	
   

  	
  $

  	
  92,254

  	
   

  
	
  Service
  contracts

  	
   

  	
  11,811

  	
   

  	
  25,167

  	
   

  	
  24,040

  	
   

  	
  23,928

  	
   

  	
  27,741

  	
   

  
	
  Total
  backlog

  	
   

  	
  $

  	
  78,195

  	
   

  	
  $

  	
  112,736

  	
   

  	
  $

  	
  104,424

  	
   

  	
  $

  	
  94,011

  	
   

  	
  $

  	
  119,995

  	
   

  

 

To
September 30, 2010, we had sold 41 systems, 28 of which are installed and
13 of which are in the delivery phase. 
Of the 41 systems sold, 28 are in the United States, 6 are in Canada, 5
systems are in Asia Pacific and 2 systems are in Europe.

 

ACQUISITION
OF NEUROARM SURGICAL LIMITED

 

On
February 4, 2010, the Company announced that it entered into a definitive
agreement to acquire all of the common shares of NeuroArm Surgical Limited
(“NASL”), a privately held company based in Calgary, Alberta, and its magnetic
resonance-compatible neurosurgical robotics system.  The Company also entered into a memorandum of
understanding with MacDonald Dettwiler and Associates Limited (“MDA”) to create
the next generation of the technology. 
The transaction closed on February 5, 2010.

 

The
transaction was completed through the issuance of common shares from treasury
and included the technology, patents and associated intellectual property.  The acquisition of NASL was determined to be
an acquisition of assets and not a business combination, as NASL did not meet
the definition of a business.

 

8

 

 

 

The
Consideration offered to complete the acquisition was 1.6 million shares of the
Company with a value of $10.4 million, or $6.50 per share.  Transaction costs to complete the acquisition
were $0.2 million which brought the total purchase price to $10.6 million.  The Company has issued 20% of the shares,
being 320,000 common shares into escrow for a period of 24 months for any
claims that could be made against NASL.

 

VARIAN
CO-DEVELOPMENT AGREEMENT

 

On October 5, 2010 we announced an
agreement with Varian Medical Systems to co-develop an innovative new MR-guided
radiation therapy system for use in treating a variety of cancers.  Under the terms of the agreement, the two
companies will develop a solution that combines IMRIS’ proprietary MR imaging
technology with Varian’s TrueBeamTM system.

 

IMRIS
began development of our MR-guided radiation therapy program in 2008 in
collaboration with the University Health Network (UHN) in Toronto, Canada. We
installed a 3T MR-simulation suite in 2009 at UHN’s Princess Margaret Hospital
in Toronto, a world-renowned cancer research and treatment centre. Princess
Margaret Hospital will complement the development work by Varian and IMRIS by
providing the clinical expertise and environment for building and testing the
first of these systems.

 

Following successful completion of the
development stage of this project, and subject to necessary regulatory
approvals, the companies anticipate co-branding the new MR-guided radiation
therapy suite and leveraging Varian’s global presence and leadership position
in the fields of radiotherapy and radiosurgery to market the system.

 

OUTLOOK

 

When
our Company was formed in 2005, our initial focus was on gaining market
acceptance for IMRISneuro and securing early technology adopters ensuring the
successful delivery of each customer installation as we developed our core
competencies across all facets of the organization.  Today, IMRISneuro has become the
solution of choice and is installed in leading neuroscience centers around the
world.  We have broadened our market
opportunity with the recent introduction of IMRISNV and IMRIScardio and will
use a similar strategy to secure early adopters while continuing to leverage
our technology platforms and core competencies in support of bringing new application—specific
solutions to market.

 

IMRIS
systems have been purchased by medical facilities in regions around the world
including the United States, Canada, India, China, Australia and
Europe.  We continue to focus on
expanding our sales and marketing resources on North America, Europe and
China.  We have aligned our organization
structure and resources to support this approach and established regional
organizations in each of these markets to move decision-making as close as
possible to the customer.  As a result of
the regional focus, we have already started to realize benefits with additional
sales volume coming from the European and Asia-Pacific markets.  We believe by continuing to expand our
presence in Europe and China with a concentrated focus on North America, that
we can capitalize on significant market opportunities on a global scale.  We also continue to selectively address other
emerging market opportunities with distributor arrangements.

 

We
have a strong track record of meeting our installation schedules and ensuring
customer satisfaction.  We continue with
our plans to build additional capacity and capability across the Company to
ensure we meet our customer commitments and financial objectives.  We continue to expect to see an increase in backlog
conversion through the remainder of the year. 
In order to meet this anticipated growth, we continue to strategically
add customer support resources to ensure we manage the expected ongoing growth
in our business effectively.

 

9

 

Since
first coming to market, we have expanded our product portfolio to include
IMRISNV and IMRIScardio.  Our recently
announced development relationship with Varian Medical Systems provides IMRIS
with the ability to expand its MR-guided radiation therapy program.  Consistent with our other systems for
neurosurgery, neurovascular and cardiac applications, the radiation therapy
system is expected to be offered in multi-room configurations and will include
independent diagnostic capabilities of the MR system.  The Company continues to develop as part of
its acquisition of NASL its MRI compatible neurosurgical robot system which
builds on the Company’s vision to deepen its offering of its image guided
solutions.  The Company’s collaboration
with MacDonald, Dettwiler and Associates Ltd., a world leader in robotics, to
create the next generation of the technology, provides the Company with a
number of potential applications for medical practitioners.  We plan to continue the advancement of our
longer term initiatives for robotics and interventional therapies including the
new radiation therapy system with Varian as well as making a concentrated
effort to further enhance the value of our existing product portfolio in image
guided therapy solutions.

 

We
continue to be committed to investing prudently in our business to capture the
growth potential we believe exists for IMRIS’s image guided therapy
solutions.  This includes hardening
existing product lines and effectively managing costs to support the overall
goal of growth in profitability.

 

Financial
Outlook

 

We
have seen a strong year of growth in 2010 as we advance our business plan and
execute on our corporate priorities.  Our
sales funnel continues to expand with customers increasingly embracing the
value proposition IMRIS solutions offer. 
Our order bookings have rebounded to record levels in the third quarter
of 2010 after a slow start to the first half of the year, primarily due to the
underlying seasonality inherent in the medical device industry, together with
uncertainty over the potential impacts of US healthcare reform which caused
some delays in purchase decisions by US customers.  We continue to believe we will build our 2010
order backlog in the fourth quarter from the positive trends demonstrated in
the third quarter of 2010.

 

We
expect to continue to convert our backlog into revenues at a higher rate than
historical trends.  As we move through
the fourth quarter, we continue to focus on advancing customer installations in
support of converting orders into recognized revenues.  Our ability to complete installations is
highly dependent on the readiness of customer sites which are often part of a
larger hospital construction project.  As
a result, we can experience delays in our delivery schedule which are beyond
our control resulting in an unbalanced quarterly revenue profile.  While we do not control our customers’
broader construction schedules, through our active involvement in managing each
customer program we continue to work to minimize the potential for delays and
shorten the delivery cycle of those elements that are within the Company’s
control.

 

2010
annual gross profit as a percentage of sales is forecast to be in the range of
performance levels achieved in 2009.  Although
we experienced a reduction in gross margin performance in the first half of
2010 compared with 2009, it was in-line with our expectations as we delivered
our first IMRISNV/IMRIScardio systems. 
With these projects largely complete and much improved margins in Q3
2010, a large portion of our gross profit as a percentage of sales shortfall
from 2009 levels has been recovered. 
Gross profit as a percentage of sales is expected to remain relatively
consistent through the fourth quarter of the year.

 

Operating
expenses for Q4 2010 are expected to increase over Q4 2009 levels as we add
more capacity in anticipation of an increase in system installations and
deliver on planned objectives.  The
primary driver of capacity will be the continued investment in the sales and
marketing area to expand our global presence and additional support in the
customer solutions and delivery area of the business to manage our expected
growth.  We will also continue to invest
in research and development programs to add depth to our product offerings,
including an investment to further develop the surgical robotics technology
acquired from NASL and our image guided radiation therapy program with Varian
Medical Systems. Given the current operating results to date, the Company expects
to deliver much improved year over year operating results in 2010.  In addition, new opportunities are
continuously evaluated, and where the potential exists for substantial revenue
and gross margin enhancement, we will consider investing additional resources
in advance of revenue.

 

10

 

We
have solid balance sheet strength with cash and receivables totaling $30.4
million at September 30, 2010.  This
together with anticipated positive cash flow from operations in 2010 as well as
cash from customer deposits on future orders is expected to provide sufficient
liquidity to fund our operations through the year.  We will continue to critically explore
potential strategic opportunities which can expand our business.  As a result, we may undertake a new program
which could create substantial value, but may require us to access the capital
markets to strengthen our balance sheet.

 

LIQUIDITY
AND CAPITAL RESOURCES

 

Our
principal capital needs are for funding scientific research and development
programs, supporting our sales and marketing activities and funding capital
expenditures and working capital.  The
Company has financed its cash requirements primarily through issuances of securities
and advanced customer deposits from new orders.

 

We
had cash or cash equivalents of $12.4 million as at September 30, 2010, a
decrease of $8.5 million from June 30, 2010 and a decrease of $13.9
million from December 31, 2009.  The
decrease from June 30, 2010 primarily resulted from the increase in
working capital of $8.5 million.  We
generated $1.8 million in cash from operations offset by $1.5 million in
restricted cash and $0.3 million for capital asset purchases.

 

The
decrease from December 31, 2009 primarily resulted from an increase in
working capital of $11.6 million, capital spending and acquisition costs of
$1.2 million and setting aside restricted cash of $1.7 million offset by cash
operating income of $0.2 million and issuance of new shares for $0.4 million.

 

The
following table sets forth the summary statement of cash flows for the periods
indicated:

 

Statements
of Cash Flows

(Thousands of CDN dollars)

(Unaudited)

 

	
   

  	
   

  	
  Three months ended

  	
   

  	
  Nine months ended

  	
   

  
	
   

  	
   

  	
  September 30

  	
   

  	
  September 30

  	
   

  
	
   

  	
   

  	
  2010

  	
   

  	
  2009

  	
   

  	
  Change

  	
   

  	
  2010

  	
   

  	
  2009

  	
   

  	
  Change

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash flows:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Used in
  Operating Activities

  	
   

  	
  $

  	
  (6,694

  	
  )

  	
  $

  	
  (2,472

  	
  )

  	
  $

  	
  (4,222

  	
  )

  	
  $

  	
  (11,374

  	
  )

  	
  $

  	
  (9,866

  	
  )

  	
  $

  	
  (1,508

  	
  )

  
	
  From Financing
  Activities

  	
   

  	
  8

  	
   

  	
  9

  	
   

  	
  (1

  	
  )

  	
  363

  	
   

  	
  23

  	
   

  	
  340

  	
   

  
	
  Used in
  Investing Activities

  	
   

  	
  (1,856

  	
  )

  	
  (570

  	
  )

  	
  (1,286

  	
  )

  	
  (2,866

  	
  )

  	
  (2,654

  	
  )

  	
  (212

  	
  )

  
	
  Net increase
  (decrease)

  	
   

  	
  (8,542

  	
  )

  	
  (3,033

  	
  )

  	
  (5,509

  	
  )

  	
  (13,877

  	
  )

  	
  (12,497

  	
  )

  	
  (1,380

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash and cash
  equivalents, opening

  	
   

  	
  20,939

  	
   

  	
  9,133

  	
   

  	
   

  	
   

  	
  26,274

  	
   

  	
  18,597

  	
   

  	
   

  	
   

  
	
  Cash and cash
  equivalents, closing

  	
   

  	
  $

  	
  12,397

  	
   

  	
  $

  	
  6,100

  	
   

  	
  $

  	
  6,297

  	
   

  	
  $

  	
  12,397

  	
   

  	
  $

  	
  6,100

  	
   

  	
  $

  	
  6,297

  	
   

  

 

Operating
Activities

 

The
cash used in operating activities for the three months ended September 30,
2010 was $6.7 million.  The cash used in
the third quarter of 2010 was comprised of the operating income (excluding
non-cash related items) of approximately $1.8 million offset by an $8.5 million
increase in working capital.  This
increase in working capital is made up of a increase in receivables ($12.5
million), and a reduction in customer deposits ($1.8 million) offset by an
increase in accounts payable and accruals ($3.6 million), an increase in
unbilled receivables ($1.7 million), a decrease in inventory ($0.3 million), a
decrease in prepaids ($0.2 million).

 

Year
to date, cash used from operating activities was $11.4 million.  The cash used in 2010 was comprised of the
operating income (excluding non-cash related items) of approximately $0.2
million offset by an $11.6 million increase in working capital.  This increase in working capital is made up
of an increase in receivables ($3.1 million), an increase in prepaid expenses
($0.6 million), a decrease in customer deposits ($7.3 million) and a decrease
accounts payables and accruals ($2.9 million) offset by an increase in unbilled
receivables ($2.1 million) and inventory ($0.2 million).

 

11

 

Financing
Activities

 

Financing
activities for the three and nine months ended September 30, 2010 was
essentially $nil and $0.4 million.  The
cash generated in financing activities for the current quarter and year to date
was as a result of employee share options being exercised.

 

Investing
Activities

 

The cash used in investing
activities (net of restricted cash of $1.5 million) for the three months ended September 30,
2010 was approximately $0.3 million. 
During the current quarter, the Company purchased miscellaneous capital
assets ($0.3 million).

 

Year to date, the cash used
in investing activities (net of restricted cash) was approximately $1.2
million.  The Company purchased fixed
assets totaling $1.0 million and also incurred $0.2 million in acquisition
costs associated with the purchase of NASL.

 

The Company had restricted
cash on September 30, 2010 totaling $1.7 million which will be used to
offset future supplier invoices and as guarantees on certain system
installations.

 

Capital expenditures for the
remainder of 2010 are expected to be in the range of $1.0 million to $1.2
million for research and development equipment and office equipment to support
our increased staff levels.

 

Liquidity
and Capital Resources Summary

 

Our
cash and cash equivalents as at September 30, 2010 totaled $12.4
million.  This cash position and our
expectation that we will generate positive cash flow from operations including
the customer deposits on future orders, is expected to provide sufficient
liquidity to meet the anticipated needs of current operations and existing
projects and budgeted capital asset expenditures.  We
may require additional financing if we determine there is a need to accelerate
our efforts in any or all of our key business areas, such as research and
development, sales and marketing, or production.

 

OUTSTANDING
SHARE DATA

 

The
following table sets forth our outstanding share data as at the dates given:

 

	
   

  	
   

  	
  Authorized

  	
   

  	
  November 4, 2010

  	
   

  	
  December 31, 2009

  
	
  Common shares

  	
   

  	
  unlimited

  	
   

  	
  $96,159,185

  (32,953,195 common shares)

  	
   

  	
  $85,337,047

  (31,082,377 common shares)

  
	
  Preferred shares

  	
   

  	
  unlimited

  	
   

  	
  Nil

  	
   

  	
  Nil

  
	
  Contributed surplus

  	
   

  	
   

  	
   

  	
  $2,619,812

  	
   

  	
  $1,946,100

  

 

As
at November 4, 2010 a total of 3,836,747 stock options were outstanding
under the Company’s stock option plan.

 

12

 

NON-GAAP FINANCIAL MEASURES

 

In this MD&A, we use the
non-GAAP measure “Backlog” and “EBITDA”. 
We define backlog as the unrecognized portion of the revenues
anticipated to be recorded from system orders, including confirmed orders and
orders subject to completion of formal documentation and the unrecognized
portion of service contracts which have a term of 4-5 years commencing at the
conclusion of the warranty period on our systems which is typically one year in
length.  In view of the long sales cycle,
high unit price and limited quarterly installations that are characteristic of
our business, we believe that our backlog provides a better measure at any
particular point in time of the long-term performance prospects of our business
than our quarterly operating results. 
Backlog does not have any standardized meaning prescribed by Canadian
generally accepted accounting principles and is, therefore, unlikely to be
comparable to similar measures presented by other companies.

 

We
define EBITDA as the earning before financing interest income (expense),
foreign exchange gain (loss), income taxes, and amortization.  We have begun reporting EBITDA because we
believe investors use it as another measure of our operating performance.  EBITDA does not have a standardized meaning
as prescribed by Canadian generally accepted accounting principles and it is
not necessarily comparable to similarly titled measures used by other
companies.

 

A
reconciliation to the most comparable GAAP measure for EBITDA is as follows:

 

	
   

  	
   

  	
  Three months ended

  	
   

  	
  Nine months ended

  	
   

  
	
  (Thousands of CDN dollars)

  	
   

  	
  September 30,

  2010

  	
   

  	
  September 30,

  2009

  	
   

  	
  September 30,

  2010

  	
   

  	
  September 30,

  2009

  	
   

  
	
  Income
  (loss) and comprehensive income (loss)

  	
   

  	
  $

  	
  731

  	
   

  	
  $

  	
  (2,656

  	
  )

  	
  $

  	
  (3,110

  	
  )

  	
  $

  	
  (9,583

  	
  )

  
	
  Foreign
  exchange loss (gain)

  	
   

  	
  (207

  	
  )

  	
  1,034

  	
   

  	
  (220

  	
  )

  	
  1,658

  	
   

  
	
  Interest
  expense (income)

  	
   

  	
  (69

  	
  )

  	
  6

  	
   

  	
  (79

  	
  )

  	
  1

  	
   

  
	
  Amortization

  	
   

  	
  874

  	
   

  	
  539

  	
   

  	
  2,612

  	
   

  	
  1,565

  	
   

  
	
  EBITDA

  	
   

  	
  $

  	
  1,329

  	
   

  	
  $

  	
  (1,077

  	
  )

  	
  $

  	
  (797

  	
  )

  	
  $

  	
  (6,359

  	
  )

  

 

FINANCIAL
INSTRUMENTS

 

Our financial instruments
consist of cash and cash equivalents, restricted cash, accounts receivables,
unbilled receivables, and accounts payable and accrued liabilities.

 

We are subject to credit
risk with respect to our accounts receivable and unbilled receivables to the
extent debtors do not meet their obligations and we are subject to foreign
exchange risk with respect to financial instruments denominated in a currency
other than the Canadian dollar.

 

Our short-term investments
at September 30, 2010 were $9.8 million and were invested in an interest
bearing savings account.  Of this total,
$Nil was denominated in US dollars.

 

Our accounts receivable at September 30,
2010 were $16.8 million, of which $14.9 million is considered current (less
than 60 days old).  Accounts receivable
include $11.0 million that are denominated in US dollars, $0.1million
denominated in Euros and $5.3 million denominated in Australian dollars.

 

RELATED PARTY TRANSACTION

 

The Company leases air
travel time from 5343381 Manitoba Ltd., a company which is wholly owned by
Centara Corporation, a corporation controlled by our Chairman.  The amount charged to travel expenses with
respect to transactions conducted on an estimated third party comparable cost
basis with this related party during the third quarter of 2010 was $98,280
(2009 - $131,590) and $144,480 for the nine months ended September 30,
2010 (2009 - $439,800).

 

As at September 30,
2010 and December 31, 2009, the balance payable to this related party was
$Nil.

 

13

 

CRITICAL ACCOUNTING POLICIES AND
ESTIMATES

 

The preparation of financial statements in
accordance with GAAP requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the year.  Among the accounting estimates described in
the notes to the financial statements, we consider the accounting estimates
used in the determination of recognized revenues, the value of goodwill and the
valuation of stock options to be critical. 
Our results as determined by actual events could differ materially from
the previously mentioned estimates.

 

Revenue
Recognition

 

We
recognize revenues for our system sales on a percentage-of-completion basis as
the system is installed.  The
percentage-of-completion is determined by the ratio of actual costs incurred to
date to the estimated cost of completion for the project.  In the event that the actual costs of
completion differ from the estimated cost we have used in determining the
percentage-of-completion, recognized revenues may be over or under-estimated
until all costs have been incurred and the project is complete.  Funds received from our customers in advance
of meeting the criteria for recognition of revenues are recorded as customer
deposits until the revenue is recognized. 
Revenues recognized in advance of the criteria for invoicing to our
customer are recorded as unbilled receivables. 
Accordingly, the reported amounts shown on the balance sheet under
customer deposits or unbilled receivables may be over or understated.

 

Interest
income is recognized as earned.

 

Value of Goodwill

 

We
recorded goodwill on the purchase of the assets of a predecessor company.  The value of goodwill is tested for
impairment annually or more frequently if an event or circumstance occurs which
we feel may result in an impairment of the value of goodwill.

 

Stock Based Compensation Plan

 

From
time to time we issue stock options to employees, directors, officers or
consultants.  We have adopted the
recommendations of Section 3870 of the Canadian Institute of Chartered
Accountants’ Handbook, “Stock Based Compensation and Other Stock Based Payments”.  Options granted to employees are valued at
the grant date using the Black-Scholes option pricing model which requires
management to make assumptions as to volatility, exercise date and option
life.  The value of the options is
expensed over the vesting period of the options, generally a period of four
years.  Options granted to non-employees
are valued at the grant date using the Black-Scholes option pricing model.  The options are expensed at the time the
goods are received or services performed, or over the vesting period.

 

FUTURE
ACCOUNTING STANDARDS

 

International
Financial Reporting Standards (IFRS)

 

In
February 2008, the CICA confirmed that Canadian reporting issuers will be
required to report under IFRS effective January 1, 2011, including
comparative figures for the prior year. 
The transition from Canadian generally accepted accounting principles (“GAAP”)
to IFRS will be applicable for the Company’s first quarter of 2011, at which time
the Company will prepare both its fiscal 2011 and fiscal 2010 comparative
financial information using IFRS.  The
Company expects the transition to IFRS to impact financial reporting, business
processes, disclosure controls, internal controls over financial reporting and
information systems.

 

14

 

We
have developed a detailed IFRS implementation plan, which consists of three
phases: scoping and diagnostic phase, impact analysis, evaluation and design
phase and implementation and review phase. 
The Company has completed the scoping and diagnostic phase, and is
continuing to progress with the impact analysis, evolution and design
phase.  The implementation and review
phase have been devised.  We provide
quarterly updates to the Audit and Governance Committee as to the status of our
IFRS implementation plan.  We continue to
work toward completion of the implementation plan and are on schedule.

 

A
detailed review of the major differences between Canadian GAAP and current IFRS
has been completed and the Company has determined that the areas listed below
are expected to have the greatest impact on the Company’s Consolidated
Financial Statements.  The list and
comments are intended to highlight only those areas believed to be the most
significant and is not intended to be a complete and exhaustive list of all
expected changes.  We continue to monitor
standards development as issued by the International Accounting Standards Board
and the AcSB, as well as regulatory developments as issued by the Canadian
Securities Administrators (CSA), which may affect the timing, nature or
disclosure of our adoption of IFRS.  The
transition from current Canadian GAAP to IFRS is a significant undertaking that
may materially affect our reported financial position and results of
operations.  The areas of significance
identified are based on available information and our expectations as of the
date of this MD&A and thus, are subject to change for new facts and
circumstances.

 

First-Time Adoption

 

IFRS 1, First-Time
Adoption of International Financial Reporting Standards, provides
guidance to entities adopting IFRS for the first time with a number of optional
exemptions and mandatory exceptions, in certain areas, to the general
requirement for full retrospective application of IFRS.  The Company expects to apply the following
significant optional exemptions available under IFRS 1 on the opening
transition date of January 1, 2010:

 

(i)            Business combinations — The
Company will not restate any business combinations prior to the transition date

(ii)           Fair value or revaluation as
deemed costs — The Company will not elect to revalue any property plant or
equipment to fair value.

(iii)          Share based payment
transactions — The  Company will elect not to
adjust any vested options as at the transition date and apply IFRS 2
prospectively on the non-vested stock options as at January 1, 2010.

 

Property,
Plant and Equipment

 

Consistent
with Canadian GAAP, under IAS 16 Property Plant and
Equipment, separable components of property, plant and equipment are
recognized initially at cost.  The level
of detail in which property plant and equipment is componentized under IFRS is
expected to be greater than under Canadian GAAP.  The Company does not believe it will materially
impact our financial results.

 

Under
IFRS an entity is required to choose to account for each class of property,
plant and equipment using either the cost model or the revaluation model.  The cost model is generally consistent with
Canadian GAAP where an item of property, plant and equipment is carried at its
cost less any accumulated depreciation and any accumulated impairment
losses.  Under the revaluation method an
item of property, plant and equipment is carried at its revalued amount, being
its fair value at the date of the revaluation less any accumulated depreciation
and accumulated impairment losses. 
Subsequent increases in fair value are recorded to the revaluation
surplus account in equity while decreases in fair value serve to reduce the revaluation
surplus account related to the asset, with any excess recognized in
income.  The Company will continue to use
the cost model in valuing its property, plant and equipment.

 

15

 

Stock Based Compensation

 

The
guidance provided by IFRS 2, Share Based Payments,
is largely consistent with Canadian GAAP and requires estimates of the fair
value of stock options to be made at the date of the grant and recognition of
the related expense in income as the options vest.  The use of the Black- Scholes model is an
acceptable method under IFRS to estimate the fair value of the options at the
date of grant, and is consistent with the Company’s current practice.  For share options that vest in installments, IFRS
2 requires the use of the attribution method, which requires that the Company
treat each installment as a separate share option grant with a different fair
value.  Unlike Canadian GAAP, IFRS
does not include the straight line method as an alternative to the attribution
method for awards with a service condition and graded-vesting features.  The Company will need to account for its
awards using the attribution method. 
Currently the Company records forfeitures as they occur, however upon
transition to IFRS, the Company will be required to make an estimate of the
forfeiture rates for use in the determination of the total share based
compensation expense.  These changes will
result in a difference in valuation of the stock based awards and timing
differences for the recognition of compensation expenses.

 

Revenue Recognition

 

The
guidance provided by IAS 11 Construction Contracts
regarding percentage of completion accounting is consistent with Canadian
GAAP.  Under the current IFRS, the
Company does not expect any significant differences in the recognition and
timing of its revenue.

 

On
June 24, 2010, the International Accounting Standards Board (IASB) and the
US Financial Accounting Standards Board (FASB) published a joint exposure draft
ED 2010/6 Revenue from Contracts with Customers.  Under the proposal, the timing of revenue
recognition may change for many entities across most industries.  The percentage of completion method of
recognizing revenue may still be acceptable so long as certain conditions
apply.  Entities that provide warranties,
as IMRIS does, would be required to defer some revenue at the inception of the
contract.  At this time the Company is
still assessing the proposal to determine if it would have a material impact on
the recognition and timing of the Company’s revenues.  As this exposure draft is still in its early
stages, there has been no decision as to whether any of the proposed changes
are going to be made.  The Company
continues to monitor the situation and will reassess its revenue recognition polices
under IFRS if and when and changes are made.

 

Income Taxes

 

The
current version of IAS 12 Income Taxes is
similar to Canadian GAAP with the following exception that all deferred taxes
assets and liabilities are treated as long term instead of the Canadian GAAP
approach of allocating between current and long term portions.  We expect there will be limited systems
impact in the determination of the tax provision.  Additionally, the Company is in the process
of assessing the impact of various transitional adjustments on the income tax
balances.

 

Functional Currency

 

International
Accounting Standard 21, The Effects of Changes in
Foreign Exchange Rates, requires that the functional currency of
each entity in a consolidated group be determined separately based on the
currency of the primary economic environment in which the entity operates.  A list of primary and secondary indicators is
used under IFRS in this determination. 
Canadian GAAP does not provide specific guidance as to the determination
of functional currency for a reporting domestic entity.  It assumes that the functional of an entity
is the currency of the entity’s country of domicile (e.g. CAD for a Canadian
location).

 

The
Company, has prepared a preliminarily analysis applying the primary and
secondary indicators in the standard and determined that the functional
currency of each of its entities matches the currency of the country of
domicile for the entity.  Given the
analysis and current conditions under which we operate, the Company’s presentation
currency will remain in Canadian Dollars.

 

16

 

Impairment of Assets

 

Canadian
GAAP generally uses a two-step approach to impairment testing: first comparing
asset carrying values with undiscounted future cash flows to determine whether
impairment exists; and then measuring any impairment by comparing asset
carrying values with fair values.  IAS 36, Impairment of Assets, uses a one-step approach testing for
and measurement of impairment, with asset carrying values compared directly
with the higher of fair value less costs to sell and value in use (which uses
discounted future cash flows).  This may
potentially result in more write-down where carrying values of assets were
previously supported under Canadian GAAP on an undiscounted cash flow basis,
but could not be supported on a discounted cash flow basis.

 

However,
the extent of any new write-down may be partially offset by the requirement
under IAS 36 to reverse any previous impairment losses where circumstances have
changed such that the impairments have been reduced.  Canadian GAAP prohibits reversal of
impairment losses.

 

The Company is in the process of reviewing the
standard but at this time believe this will not have a significant impact on
our results.

 

Provisions

 

International
Accounting Standard 37, Provision, Contingent
Liabilities and Contingent Assets, requires a provision to be
recognized when all of the following conditions have been satisfied:

 

(1)          there is a present
obligation as a result of a past transaction or event; and

(2)          it is probable that an
outflow of resources will be required to settle the obligation; and

(3)          a reliable estimate can be
made of the obligation.

 

“Probable”
in this context means more likely than not. 
Under Canadian GAAP, the criterion for recognition in the financial
statements is “likely”, which is a higher threshold than “probable”.  Therefore, it is possible that there may be
some contingent liabilities which would meet the recognition criteria under
IFRS that are not currently recognized under Canadian GAAP.

 

Other
differences between IFRS and Canadian GAAP exist in relation to the measurement
of provisions, such as the methodology for determining the best estimate where
there is a range of equally possible outcomes (IFRS uses the mid-point of the
range, whereas Canadian GAAP uses the low end of the range), and there is a
requirement under IFRS for provisions to be discounted where material.

 

The
Company has not completed an assessment as to its potential impact on our
results.

 

Summary

 

The Company is monitoring
the potential impact of other changes to financial reporting processes,
disclosure controls and procedures, and internal controls over financial
reporting arising from the adoption of IFRS. 
The Company has not finalized quantifying the effects of the potential
significant differences between IFRS and Canadian GAAP and they may or may not
be material to our results.  The Company
will continue to assess the impact of adopting IFRS, and will update our IFRS
changeover plan and anticipated impacts on our results.

 

Business
Combinations

 

In
January 2009, the CICA issued Section 1582 “Business Combinations” to
replace Section 1581.  The new
section further aligns Canadian GAAP with U.S. GAAP and IFRS, and changes the
accounting for business combinations in a number of areas.  It establishes principles and requirements
governing how an acquiring company recognizes and measures in its consolidated
financial statements identifiable assets acquired, liabilities assumed, any
non-controlling interest in the acquiree, and goodwill acquired.  The Section also establishes disclosure
requirements.  Prospective application of
the standard is effective for fiscal years beginning on or after January 1,
2011 with early adoption permitted.

 

17

 

Consolidated
Financial Statements and Non-Controlling Interests

 

Sections
1601 and 1602 further align Canadian GAAP with U.S. GAAP and IFRS. Sections
1601 and 1602 change the accounting and reporting of ownership interests in
subsidiaries held by parties other than the parent.  Non-controlling interests are to be presented
in the consolidated statement of financial position within equity but separate
from the parent’s equity.  The amount of
consolidated net income attributable to the parent and to the non-controlling
interest is to be clearly identified and presented on the face of the
consolidated statements of income.  In
addition, these pronouncements establish standards for a change in a parent’s
ownership interest in a subsidiary and the valuation of retained
non-controlling equity investments when a subsidiary is deconsolidated.  They also establish reporting requirements
for providing sufficient disclosures that clearly identify and distinguish
between the interests of the parent and the interests of the non-controlling
owners.  The Company does not believe
there will be any impact on its consolidated financial statements upon the
adoption of these pronouncements in fiscal 2011, unless the Company’s
circumstances change.

 

Multiple
Deliverable Revenue Arrangements

 

In
December 2009, the CICA issued EIC Abstract 175, Multiple Deliverable
Revenue Arrangements.  The EIC deals with
arrangements that have multiple deliverables and provides guidance which is to
be applied to determine how an arrangement consideration should be measured,
whether the arrangement should be divided into separate units of accounting,
and how the arrangement consideration should be allocated among the separate
units of accounting.  This EIC is
effective for years beginning January 1, 2011, with early adoption permitted.  The Company does not believe there will be
any impact on its consolidated financial statements upon the adoption of these
pronouncements in fiscal 2011, unless the Company’s circumstances change.

 

DISCLOSURE AND INTERNAL CONTROLS

 

We have established and
maintain disclosure controls and procedures in order to provide reasonable
assurance that material information relating to IMRIS is made known in a timely
manner.  We have evaluated the
effectiveness of our disclosure controls and procedures as at the date of our
2009 annual report and are not aware of any material changes that are required
to be made to these controls and procedures; we believe them to be effective in
providing such reasonable assurance.

 

We are also responsible for
the design of our internal controls over financial reporting (ICFR) in order to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with Canadian generally accepted accounting principles (“GAAP”).  We have evaluated the design of our internal
controls and procedures over financial reporting as at the end of the period
covered by the annual filings, and believe the design to be effective to
provide such reasonable assurance.  As of
the date of this report, we are not aware of any change in the Corporation’s
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.

 

No material changes have
been made to the Company’s internal controls during the third quarter of 2010.

 

18

 

RISKS
AND UNCERTAINTIES

 

The operating results, business prospects and
financial position of the Company are subject to a number of risks and
uncertainties.  Risks relating
to our business include: our long sales cycle, high unit price and limited
quarterly installations; our limited operating history and accumulated deficit;
our lack of product diversity; our dependence on our suppliers; the development
of IMRIScardio and IMRISNV; our reliance on key personnel; the lack of
supporting clinical data; market competition and technological advances; patent
protection and trade secrets; intellectual property litigation; our ability to
shift from research and development to commercialization; our ability to manage
growth; foreign exchange fluctuations; additional financing requirements; and
regulatory matters.  If any of the events described as risks or
uncertainties actually occurs, our business, prospects, financial condition and
operating results would likely suffer, possibly materially.  We have discussed several of the more
significant risks and uncertainties which may affect the business below,
however for a more comprehensive list of the risks and uncertainties affecting
the business, readers are advised to refer to our 2009 Annual Information Form available
at www.sedar.com.

 

Long
Sales Cycle, High Unit Price and Limited Installations

 

The long sales cycle, as well as the high unit price of the IMRIS
systems, among other factors, may contribute to substantial fluctuations in our
quarterly operating results.  Because of
the high unit price of IMRIS systems and the fact that we have installed only
23 units over the Company’s history, each installation currently represents a
significant component of our revenue for a particular quarter.  If we lose a single customer order or if
customers defer installation of an IMRIS system for even a short period of
time, recognition of a significant amount of revenue may be lost or deferred to
a subsequent period.  Given that our
operating costs are relatively fixed, our inability to recognize revenue in a
particular quarter may adversely affect our profitability in that quarter.  We expect that revenues from a limited number
of new customers will account for a large percentage of total revenues in
future quarters.  Our ability to attract
new customers will depend on a variety of factors, including the capability,
safety, efficacy, ease of use, price, quality and reliability of our products
and effective sales, support, training and service.  In addition, if we are unable to fulfill our current
purchase orders and other commitments on a timely basis or at all, market
acceptance of our products could be adversely affected and hospitals may
instead purchase our competitors’ products.  The loss or delay of individual orders or
failure to add new customers could have a significant impact on future revenues
and operating results.

 

Limited
Operating History and Accumulated Deficit

 

We have a limited operating history from which investors can evaluate
our business and prospects.  We have a large
accumulated deficit and we may not achieve profitability.  We have incurred substantial losses since
inception and despite achieving profitability in the current quarter; we may
incur additional operating losses in the near term.  If the time required to generate significant
revenues and achieve profitability on an annualized basis is longer than anticipated,
we may not be able to continue our operations without additional capital.  Our prospects must be considered in
light of the risks and uncertainties encountered by an early-stage company in
the continuously-evolving surgical imaging market.  If we cannot successfully address these
risks, our business and financial condition would suffer.

 

Lack of
Product Diversity

 

Currently, our commercially available products are the IMRISneuro, IMRIScardio
and IMRISNV systems.  Although we expect
sales of our new IMRIScardio and IMRISNV systems to increase with market
acceptance of these systems, we currently generate substantially all of our
revenue from sales of the IMRISneuro system and multiyear service plans for the
IMRISneuro system.  If we are unable to
sustain or grow sales of the IMRISneuro system or grow sales of IMRIScardio and
IMRISNV, we may not generate sufficient revenue to support our business.  Accordingly, we are currently dependent on
our ability to market and sell the IMRISneuro system.  Any factor materially and/or adversely
affecting our ability to market and sell the IMRISneuro system or pricing and
demand for the IMRISneuro system may have a material and adverse effect on our
financial condition and results of operations.

 

19

 

Foreign Exchange Fluctuations

 

As a global provider of
integrated imaging solutions, most of our sales are denominated in currencies
other than the Canadian dollar.  We
currently generate a significant portion of our sales in US dollars but many of
our expenses are denominated in Canadian dollars.  To date, we have not used forward exchange
contracts to hedge exposures denominated in foreign currencies or any other
derivative instrument for trading, hedging or speculative purposes.  As such, we are exposed to fluctuations in
the exchange rate between certain foreign currencies, including US dollars,
Euros and Australian dollars, versus the Canadian dollar as a result of the
translation into Canadian dollars of our balance sheet and income statement
items denominated in those foreign currencies.

 

Regulatory Matters

 

Products intended for
diagnostic and therapeutic use for humans are governed by a wide array of
regulatory authorities in various jurisdictions.  For most of these products in most
jurisdictions, applicable statutes and regulations require testing and
government review and approval prior to marketing the product.  This procedure can take a number of years and
involves the expenditure of substantial resources.  Any failure or delay by us to obtain
regulatory approvals or clearances could adversely affect the marketing of any
products developed by us and our ability to receive product revenue.  There is no assurance that any of our planned
products will be approved by any regulatory authority on a timely basis, or at
all.  Also, in the event that a
regulatory authority revokes any approvals granted in respect of our products,
or a recall of our products is required in the event of material deficiencies
or defects, our business, financial condition and results of operations could
be adversely affected.

 

Dependence
on Suppliers

 

We depend on Siemens to supply the MR scanner and angiography systems
for our IMRIS systems.  Our current
agreement with Siemens was entered into as of November 2009 for a
five-year term with automatic renewal provisions thereafter, subject to six
months’ advance written notice of termination by either party.  The agreement may be terminated earlier in
the event of default or in the event of insolvency or equivalent proceedings
against either party or in the event of a change of control or similar sale
transaction affecting IMRIS where the buyer or controlling shareholder is a
direct competitor to Siemens.  If for any
reason we could not obtain MR scanners and angiography systems from Siemens,
there is no certainty that we could find another vendor willing to supply this
equipment for the IMRIS systems and a change would require a redesign of the
IMRIS systems, which could take a year or more to implement.  We are dependant on Siemens to provide
support and maintenance services to our customers under contract to IMRIS; if
Siemens’ services became unavailable, any resulting service issues could
disrupt our customer relationships and cause damage to our reputation.

 

We purchase certain other components of our system from outside
vendors, including radio-frequency shielding systems, certain hardware
components for our surgical information management system and operating room
booms and lights.  For the majority of
our system components, we do not have long-term supply contracts with the
suppliers; however, we attempt to establish dual sourcing for most of these
other components of our system and we believe that we would be able to
establish alternative sources for these components, subject to any regulatory
qualifications, as may be required.  It
is possible that a disruption of the supply of these components could result in
increased costs and delays in deliveries of IMRIS systems, which could
adversely affect our reputation and results of operations.  Additionally, any transition to alternate
manufacturers or suppliers would likely result in operational problems and
increased expenses and could delay the shipment of, or limit our ability to
provide our products.

 

20

 

Competition
and Technological Advances

 

The surgical imaging industry is subject to intense and increasing
competition and rapidly evolving technologies. 
Many government, academic and business entities are investing
substantial resources in research and development of treatments and new
products that may render surgical imaging obsolete, including radiation
treatment, new drug treatments and gene therapy.  Successful developments that result in new
approaches for treatments could reduce the attractiveness of our products or
render them obsolete.  MRI competes with
other surgical imaging technologies such as CT, fluoroscopy and ultrasound for
market share in the overall surgical imaging market.

 

The market for neurosurgical MR imaging is highly competitive, with a
number of companies providing competing surgical MRI systems.  Many of these competitors are large medical
system suppliers which have considerably greater resources at their disposal to
advance the development of their MRI systems. 
These competitors or other companies may at any time develop new or
improved surgical imaging solutions. 
Alternatively, these competitors may choose to increase their respective
market share by changing their pricing model or by lowering the price of their
surgical imaging solutions or ancillary supplies.  If we are unable to address these competitor
tactics by either continuing to enhance and improve our current product(s) or
we are unable to maintain or increase our selling price in the face of
competition, there can be no assurance that the Company will be able to
maintain its desired market share or achieve its financial objectives.

 

ADDITIONAL
INFORMATION

 

Additional
information about IMRIS can be found on the SEDAR website at www.sedar.com.

 

21Exhibit
4.9

 

FORM 51-102F3

MATERIAL CHANGE
REPORT

 

Item 1 Name and Address of Company

 

IMRIS Inc. (“IMRIS” or the “Company”)

100-1370 Sony Place

Winnipeg, Manitoba

R3T 1N5

 

Item 2 Date of Material Change

 

February 4, 2010

 

Item 3 News Release

 

A press release was disseminated by Canada NewsWire on February 4,
2010 from Winnipeg, Manitoba and is attached as Exhibit “A” to this report.

 

Item 4 Summary of Material Change

 

The Company announced that it has entered into a definitive
agreement to acquire NeuroArm Surgical Limited (“NASL”), a privately held
company based in Calgary, Alberta, and its magnetic resonance-compatible
neurosurgical robot.  IMRIS has also
entered into a memorandum of understanding with MacDonald Dettwiler and
Associates Limited (“MDA”) to create the next generation of the technology.

 

IMRIS will issue 1.6 million common shares as consideration
for the acquisition of NASL, including the technology, patents and associated
intellectual property.

 

Item 5 Full Description of Material Change

 

For further details, please see the
attached news release.

 

Item 6 Reliance on subsection 7.1(2) or (3) of National
Instrument 51-102

 

This report is not being filed on a confidential basis.

 

Item 7 Omitted Information

 

N/A

 

Item 8 Executive Officer

 

Kelly McNeill, Chief Financial Officer of the Corporation, is
knowledgeable about the material change and this report and his business
telephone number is (204) 480-7090.

 

Item 9 Date of Report

 

February 10,
2010

 

 

EXHIBIT “A”

TO MATERIAL CHANGE REPORT

 

	
  

  	
  FOR IMMEDIATE RELEASE

  

 

IMRIS to Acquire MR-Compatible Surgical Robot Technology

 

— MacDonald, Dettwiler to Partner with IMRIS on Next Generation Surgical
Robot —

 

Winnipeg,
Manitoba, February 4, 2010  (TSX: IM) —  IMRIS
Inc. (“IMRIS” or the “Company”) today announced that it has entered into a
definitive agreement to acquire NeuroArm Surgical Limited (“NASL”), a privately
held company based in Calgary, Alberta, and its magnetic resonance-compatible
neurosurgical robot.  The companies
expect to close the transaction no later than February 8, 2010, subject to
the satisfaction of customary closing conditions.  IMRIS has also entered into a memorandum of
understanding with MacDonald Dettwiler and Associates Limited (“MDA”) to create
the next generation of the technology.

 

The robotic surgery
system is designed to perform microsurgery and biopsy-stereotaxy applications
on the brain with unprecedented precision. To management’s knowledge, it is the
only surgical robot in the world that a surgeon can use together with a magnetic
resonance (MR) scanner in the operating room.

 

“This acquisition will
deepen IMRIS’s offering of image guided therapy solutions, by bringing surgical
robotics together with MR imaging,” said David Graves, IMRIS Chief Executive
Officer.  “This technology offers the
potential to increase neurosurgical precision and contribute to less invasive
procedures.”

 

IMRIS will issue 1.6
million common shares as consideration for the acquisition of NASL, including
the technology, patents and associated intellectual property.  IMRIS and MDA will work together to
commercialize the technology.  MDA, a
world leader in robotics and developer of the Canadarm, played a key role in
creating the current NASL robotic surgery system.

 

“We have developed three
generations of robotic systems for the International Space Station — expertise
that was instrumental in the development of the first NeuroArm,” said Steve
Oldham, MDA’s Vice President responsible for this business.  “We are very pleased that IMRIS’s vision for
surgical robotics under MR guidance utilizes MDA’s technology.  We believe that by combining IMRIS’s
expertise in developing unique image guided therapy solutions with MDA’s
advanced robotics capabilities, we are bringing together all of the right
elements to achieve this vision.”

 

The system features two
robotic arms that can manipulate MR-compatible tools at microscopic scale from
a remote workstation.  The surgeon sees
detailed three-dimensional images of the brain and surgical tools, and uses
hand controllers equipped with enhanced touch sensation that allows the surgeon
to ‘feel’ very small anatomy through the robotic arms and surgical tools.

 

The first generation
robot was developed at the University of Calgary and is currently being used to
perform neurosurgical procedures within an IMRISneuro
suite at Calgary’s Foothills Hospital. 
At closing of the acquisition, IMRIS will enter into a collaboration
agreement with the University of Calgary to leverage its clinical setting and
data through development of the next generation of the technology.

 

“With the same
disciplined approach we have consistently applied in building our business, we
are acquiring a proven technology with tremendous potential applications,” Mr. Graves
said.  “Combining IMRIS’s expertise with MDA’s
leading edge robotics capabilities positions us well to bring this exciting new
technology to medical practitioners to enhance outcomes for their patients.”

 

-30-

 

 

Analyst Conference Call Today

 

IMRIS will host a
conference call to discuss the announced acquisition of NASL today at 9:30 a.m. ET.  Following management’s presentation, there
will be a question-and-answer session for analysts and institutional
investors.  To participate in the
teleconference, please call 416-644-3416 or
877-974-0450 (conference code 4216139).  To access the live audio webcast, please
visit IMRIS’s website at www.imris.com. 
A taped rebroadcast will be available to listeners following the call
until midnight (ET) on February 11, 2010. 
To access the rebroadcast, please call 416-640-1917 or 877-289-8525 and
enter passcode 4216139#.The webcast will also be archived on IMRIS’s website.

 

About IMRIS

 

IMRIS (TSX: IM) is a global
leader in providing image guided therapy solutions.  These solutions feature fully integrated
surgical and interventional suites that incorporate magnetic resonance,
fluoroscopy and computed tomography to deliver on demand imaging during
procedures. The Company’s systems serve the neurosurgical, cardiovascular and
neurovascular markets and have been selected by leading medical institutions
around the world.

 

About MacDonald, Dettwiler and
Associates Ltd. (MDA)

 

MDA provides advanced information solutions that
capture and process vast amounts of data, produce essential information, and
improve the decision making and operational performance of business and
government organizations worldwide. Focused on markets and customers with
strong repeat business potential, MDA delivers a broad spectrum of information
solutions, ranging from complex operational systems, to tailored information
services, to electronic information products. MDA employs more than 3,200
people in locations across the United States, the United Kingdom, and Canada.
The Company’s common shares trade on the Toronto Stock Exchange under the symbol
TSX:MDA.

 

Forward-Looking Statements

 

This press release contains and refers to
forward-looking information based on current expectations. In some cases,
forward-looking statements can be identified by terminology such as “will”, “anticipate”,
“may”, “expect”, “believe”, “prospective”, “continue” or the negative of these
terms or other similar expressions concerning matters that are not historical
facts.  These statements should not be
understood as guarantees of future performance or results. Such statements
involve known and unknown risks, uncertainties and other factors, including the ability of the parties to satisfy all of
the closing conditions to complete the transaction, our ability to
successfully develop the next generation of the NeuroArm technology, our
ability to commercialize the NeuroArm system and our reliance on our strategic
partners including MDA and the University of Calgary, that may cause actual
results, performance or achievements to be materially different from those
implied by such statements.  Additional factors are discussed in our
materials filed with the securities regulatory authorities from time to time.  Although such statements are based on
management’s reasonable assumptions, there can be no assurance that actual
results will be consistent with such statements. Forward-looking statements are
subject to significant risks and uncertainties, and other factors that could
cause actual results to differ materially from expected results.  These forward-looking statements are made as
of the date hereof and except as may be required by applicable law or stock
exchange regulations, the Company assumes no responsibility to update or revise
them to reflect new events or circumstances.

 

 

	
  For further information, please
  contact:

  
	
   

  
	
  Brad Woods

  
	
  Director Investor
  Relations

  
	
  & Corporate
  Communications

  
	
  IMRIS Inc.

  
	
  Tel: 204-480-7094

  
	
  Email: bwoods@imris.com

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