<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission File
June 30, 1995 No. 0-9767
______________________
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2579751
(State or other (I.R.S. Employer
jurisdiction of identification No.)
incorporation or
organization)
9162 Eton Ave., Chatsworth, California 91311
(Address of principal executive offices)(Zip Code)
Telephone Number: 818-709-1244
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _________
-------------
The number of shares of Common Stock of the registrant outstanding as of August
3, 1995 was 5,649,398.
<PAGE>
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
INDEX TO FORM 10-Q
Three and six months ended June 30, 1995 and 1994
PAGE
----
PART 1 - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Operations. . . . . . . . . . . . . . . . . . 3 & 4
Statements of Cash Flows. . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements.. . . . . . . . . . . . . . . 6
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . 12
PART 2 - OTHER INFORMATION
ITEM 5 - Submission of Matters to a Vote of Security Holders 16
ITEM 6 - Exhibits And Reports on Form 8-K
(a) Exhibits . . . . . . . . . . . . . . . . . . . . . . . 16 & 17
(b) Reports on Form 8-K
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 June 30
A S S E T S 1994 1995
------------ ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,406,284 $ 1,181,700
Short-term investments 2,256,062 2,718,999
Accounts receivable-trade, net of allowance for doubtful
accounts of $35,443 in 1994 and 1995 2,057,503 2,330,825
Accounts receivable-service contracts 313,144 506,973
Accounts receivable-LDA Systems, Inc. 575,657 --
Inventories 1,773,889 2,151,796
Prepaid expenses and other current assets 179,306 310,751
------------ ------------
Total current assets 9,561,845 9,201,044
Property and equipment, at cost, net of accumulated
depreciation 447,250 591,398
Software development costs, net of accumulated
amortization of $625,816 in 1994 and $645,914 in 1995 40,623 98,244
Long term investments 1,200,000 1,200,000
Deferred tax asset -- 594,000
Other assets 878,666 1,814,346
------------ ------------
Total assets $ 12,128,384 $ 13,499,032
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 746,142 $ 510,204
Accrued expenses 879,899 906,109
Service contracts-deferred income 683,402 731,480
------------ ------------
Total current liabilities 2,309,443 2,147,793
Service contracts-deferred income 119,913 248,594
------------ ------------
Total liabilities 2,429,356 2,396,387
------------ ------------
Shareholders' equity:
Common stock, $.01 par value
Authorized: 15,600,000 shares
Issued and outstanding: 4,990,067 in 1994
5,637,663 in 1995 49,901 56,377
Additional paid-in capital 26,619,692 30,680,418
Treasury Stock (96,473 shares in 1994 and 1995) (453,386) (453,386)
Unearned compensation (93,130) (96,691)
Deficit (16,424,049) (19,084,073)
------------ ------------
Total shareholders' equity 9,699,028 11,102,645
------------ ------------
Total liabilities and shareholders' equity $ 12,128,384 $ 13,499,032
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the three months ended
------------------------------
June 30, 1994 June 30, 1995
------------- -------------
<S> <C> <C>
Sales from workstations and related supplies $ 1,906,512 $ 2,434,345
Service contracts 535,694 556,592
Research and development contracts 214,109 363,790
----------- -----------
Net sales 2,656,315 3,354,727
----------- -----------
Cost of goods from workstations and supplies 862,093 966,322
Cost of goods from service contracts 404,764 399,445
Cost of research and development contracts 259,109 441,353
----------- -----------
Cost of goods sold 1,525,966 1,807,120
----------- -----------
Gross margin 1,130,349 1,547,607
Marketing and selling expenses 451,183 608,147
General and administrative expenses 316,834 441,549
Research and development expenses 54,327 64,799
Acquisition of in-process research and development -- 3,480,987
----------- -----------
Total operating expenses 822,344 4,595,482
----------- -----------
Operating income (loss) 308,005 (3,047,875)
Other income:
Interest income 34,182 56,347
Other income 18,941 35,439
----------- -----------
Income (loss) before provision for income taxes 361,128 (2,956,089)
Provision for income taxes 5,000 13,000
----------- -----------
Net income (loss) $ 356,128 $(2,969,089)
----------- -----------
----------- -----------
Net income (loss) per share $.07 ($.57)
---- -----
---- -----
Weighted average number of common shares and common
share equivalents outstanding for the period 5,255,415 5,189,512
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the six months ended
------------------------------
June 30, 1994 June 30, 1995
------------- -------------
<S> <C> <C>
Sales from workstations and related supplies $ 3,161,744 $ 4,323,161
Service contracts 992,964 1,124,017
Research and development contracts 358,882 638,150
----------- -----------
Net sales 4,513,590 6,085,328
Cost of goods from workstations and supplies 1,360,390 1,741,197
Cost of goods from service contracts 812,151 817,137
Cost of research and development contracts 448,882 760,713
----------- -----------
Cost of goods sold 2,621,423 3,319,047
----------- -----------
Gross margin 1,892,167 2,766,281
Marketing and selling expenses 846,886 1,176,494
General and administrative expenses 570,565 780,191
Research and development expenses 159,469 165,977
Acquisition of in-process research and development -- 3,480,987
----------- -----------
Total operating expenses 1,576,920 5,603,649
----------- -----------
Operating income (loss) 315,247 (2,837,368)
Other income:
Interest income 65,126 138,395
Other income 80,574 55,949
----------- -----------
Income (loss) before provision for income taxes 460,947 (2,632,024)
Provision for income taxes 10,000 28,000
----------- -----------
Net income (loss) $ 450,947 $(2,660,024)
----------- -----------
----------- -----------
Net income (loss) per share $.09 ($.52)
---- -----
Weighted average number of common shares and common
share equivalents outstanding for the period 5,227,940 5,145,673
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the six months ended
------------------------------
June 30, 1994 June 30, 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 450,947 $(2,660,024)
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Depreciation and amortization 172,282 213,963
Common stock compensation 41,778 42,254
Write off of acquired in-process research and development -- 3,480,987
Changes in assets and liabilities:
Accounts receivable - trade (90,871) (273,322)
Notes receivable - trade 11,999 --
Service contracts, net 69,727 (17,070)
Inventories 8,014 (377,907)
Prepaid expenses and other current assets (261,561) (131,445)
Accounts payable (34,367) (235,938)
Accrued expenses (230,328) 26,210
----------- -----------
Net cash provided by operating activities 137,620 67,708
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment, (71,346) (288,347)
Software development costs (8,811) (77,719)
Increase in investments (1,681,799) (462,937)
Other assets 2,589 (978,582)
----------- -----------
Net cash used in investing activities (1,759,367) (1,807,585)
----------- -----------
Cash flows from financing activities:
Issuance of common stock for cash 296,286 515,293
Repurchase of common stock (16,573) --
Principal payments received on shareholders' notes receivable 6,667 --
----------- -----------
Net cash provided by financing activities 286,380 515,293
----------- -----------
Net decrease in cash and cash equivalents (1,335,367) (1,224,584)
Cash and cash equivalents at beginning of period 2,937,379 2,406,284
----------- -----------
Cash and cash equivalents at end of period $ 1,602,012 $ 1,181,700
----------- -----------
----------- -----------
Supplemental schedule of non-cash financing activities:
Issuance of warrants for asset purchase $ 213,750
Issuance of stock for exercise of call option to purchase LDA $ 2,977,344
Issuance of warrants in connection with development agreement $ 315,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS OF THE COMPANY.
International Remote Imaging Systems, Inc. (IRIS) was incorporated in
California in 1979 and reincorporated during 1987 in Delaware. IRIS engages in
the business of developing, manufacturing and selling microscopical image
analyzing systems based on proprietary technology.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
In the opinion of IRIS, the accompanying unaudited financial statements
contain all normal recurring adjustments necessary to present fairly the
financial position of IRIS as of June 30, 1995 and the results of its operations
for the three and six months ended June 30, 1995 and 1994. It is suggested that
these financial statements be read in conjunction with the financial statements
and notes included in the latest IRIS annual report on Form 10-K. Interim
results are not necessarily indicative of results for a full year.
Cash, Cash Equivalents and Short-term Investments:
Short-term investments principally include certificates of deposit and debt
instruments of the United States Government with initial maturities greater than
three months and less than one year. Long term investments represent
certificates of deposit and debt instruments with maturities greater than one
year. IRIS considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. IRIS places its cash
and investments with high credit-quality institutions. At times, these deposits
may be in excess of the federally insured limit.
Accounts Receivable:
IRIS sells predominantly to entities in the Healthcare Industry. IRIS
grants uncollateralized credit to its customers, primarily domestic hospitals.
Property and Equipment and Depreciation:
Property and equipment are recorded at cost. IRIS uses the straight-line
method in computing depreciation over the estimated useful lives of the assets
which are: leasehold improvements (remaining life of the lease); furniture and
fixtures (3 years); machinery and equipment (3 years); and tools, dies and molds
(3 years).
Costs of maintenance and repairs are charged to expense when incurred;
costs of renewals and betterments are capitalized. Upon sale or retirement, the
cost and related accumulated depreciation are eliminated from the respective
accounts and the resulting gain or loss is included in current income.
Software Development Costs:
IRIS capitalizes certain software development costs in accordance with
Statement of Financial Accounting Standards (SFAS) No. 86 -- "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed" for new
products currently under development. IRIS amortizes software costs using the
greater of the straight line method over the estimated product life, or a
percentage of total units sold over the projected sales. Amortization of
software development costs was $20,098 and $45,000 for the six months ended June
30, 1995 and 1994, respectively.
Revenue Recognition:
IRIS recognizes revenue when the following conditions are all met: (i) an
authorized purchase order has been received in writing, (ii) customer credit
worthiness has been established and (iii) shipment of the product to the
customer designated location has occurred.
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<PAGE>
Warranties:
IRIS recognizes the full estimated cost of warranty expense, including
installation costs, at the time of shipment.
Research and Development Expenditures:
Except for certain software development costs required to be capitalized as
described above (See Software Development Costs.), research and development
expenditures are charged to operations as incurred.
Development Contracts:
Revenues are recognized under development contracts in amounts equivalent
to development costs incurred on the related project plus, and where
contractually provided for, an amount to cover general and administrative costs
of the project.
Income Taxes:
Income taxes are accounted for in accordance with SFAS No. 109 --
"Accounting for Income Taxes" which requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
standard, deferred tax liabilities and assets are determined based on the
differences between the financial statement and the tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
3. MARKETABLE DEBT SECURITIES.
On January 1, 1994, IRIS adopted SFAS No. 115 -- "Accounting for Certain
Investments in Debt and Equity Securities" and determined that all its debt
securities should be classified as "held-to-maturity" based on the Company's
intent and ability to hold those securities to maturity. Under this standard,
debt securities classified as "held-to-maturity" are carried at amortized cost.
At June 30, 1995, IRIS had the following debt securities included in short-
term and long-term investments:
Amortized Expected Maturity Value and period
Security Cost Within One Year One to Five Years
-------- ----------- --------------- ----------------
US Treasury Bills $ 2,204,000 $ 2,255,000
US Treasury Note 800,000 400,000 $ 400,000
4. INVENTORIES.
Inventories, with the exception of rental units, are carried at the lower
of first-in, first-out cost or market and are composed of the following:
<TABLE>
<CAPTION>
INVENTORY CLASS DECEMBER 31, 1994 JUNE 30, 1995
--------------- ----------------- -------------
<S> <C> <C>
Finished goods $ 471,318 $ 554,000
Work-in-process 351,682 342,835
Raw materials 894,805 1,139,185
Rental units, net 56,084 115,776
------------ ------------
$ 1,773,889 $ 2,151,796
------------ ------------
------------ ------------
</TABLE>
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<PAGE>
Rental units are carried at cost less accumulated depreciation of $146,211
at June 30, 1995 and $136,136 at December 31, 1994 computed using the straight-
line method. These units are classified as inventory because they are
available for sale at the conclusion of their lease terms, typically one year.
Future minimum rental revenue on noncancellable leases as of June 30, 1995 is
$42,200, due during 1995.
5. PROPERTY AND EQUIPMENT.
Property and equipment is composed of the following:
<TABLE>
<CAPTION>
PROPERTY OR EQUIPMENT DECEMBER 31, 1994 JUNE 30, 1995
--------------------- ----------------- -------------
<S> <C> <C>
Leasehold improvements $ 257,534 $ 276,108
Furniture and fixtures 80,532 85,730
Machinery and equipment 1,736,869 1,969,227
Tools, dies, and molds 135,859 188,026
----------- ----------
2,210,794 2,519,091
Less accumulated depreciation (1,763,544) (1,927,693)
----------- ----------
$ 447,250 $ 591,398
----------- ----------
----------- ----------
</TABLE>
At June 30, 1995 and December 31, 1994 totals include $1,366,265 and
$1,270,363 in fully depreciated assets which remain in service.
6. ACCRUED EXPENSES.
Accrued expenses are composed of the following:
<TABLE>
<CAPTION>
ACCRUED EXPENSES: DECEMBER 31, 1994 JUNE 30, 1995
---------------- ----------------- -------------
<S> <C> <C>
Bonus $ 206,451 $ 133,405
Commissions 55,133 32,223
Payroll 56,074 58,714
Vacation 109,999 121,549
Professional fees 88,261 145,649
Taxes 19,159 108,516
Warranty expense 344,822 306,053
---------- ----------
$ 879,899 $ 906,109
---------- ----------
---------- ----------
</TABLE>
7. INCOME TAXES.
The income tax provision for the six months ended June 30, 1995 and 1994
consists of estimated federal alternative minimum and state taxes, and reflects
the utilization of net operating loss carryforwards for both federal and state
purposes.
At June 30, 1995, IRIS had federal net operating loss carryforwards of
$14.6 million which expire in fiscal years ending in 1997 through 2009.
As of June 30, 1995 , IRIS had investment tax and R & D credit
carryforwards of approximately $72,000 expiring in fiscal years ending in 1997
through 2003
-8-
<PAGE>
8. LDA AND WARRANTS.
In October 1992, LDA Systems, Inc. (LDA) completed an initial public
offering of 107,750 units, each unit consisting of one share of callable LDA
common stock and ten IRIS warrants, each five (5) warrants entitling the holder
to purchase one share of IRIS common stock for $3.75. These warrants expired on
July 31, 1995. LDA received net proceeds of $774,000 from the unit offering.
These funds were used to engage IRIS to conduct research and development,
clinical evaluations and pre-market testing of The White IRIS-TM- leukocyte
differential analyzer, a proposed new product. IRIS contributed approximately
$500,000 to the development costs of The White IRIS-TM- over a three-year period
ending on June 12, 1995.
On June 12, 1995 IRIS completed the acquisition of LDA for approximately
498,000 shares of IRIS Common Stock. (See Note 13 below.)
9. CAPITAL STOCK.
Stock Issuances:
During 1990, the IRIS Board of Directors adopted an Employee Stock Purchase
Plan designed to allow IRIS employees who qualified as sophisticated investors
to buy shares of IRIS Common Stock at 50% of the market price, provided that
they agreed to hold the shares purchased for a minimum of 2 years, during which
time payments for the 50% portion may be made at the option of the employee
either by payroll deduction or by lump sum payment, but in no event may it
exceed more than 15% of the employee's salary during the year. The remaining
50% portion is recorded as deferred compensation and amortized over the vesting
period. The shares may not be transferred, except following the death of the
employee or a change in control of the Company. During the period of the
limitation on transfer, IRIS has the option to repurchase the shares at the
employee's price per share if the employee's employment with IRIS is terminated
either voluntarily or as result of termination for cause. During the six month
periods ended June 30, 1995 and 1994, IRIS issued 17,937 and 44,004 shares of
common stock, respectively, under the plan for an aggregate cash purchase price
of $36,963 and $71,042, respectively.
In addition, during the six month period ended June 30, 1995, IRIS issued
21,200 shares of stock on exercise of stock options granted to employees, former
employees and consultants and 110,459 shares on exercise of IRIS warrants
granted in connection with the 1992 LDA offering.
Stock Options:
For the six months ended June 30, 1995, options to purchase 75,700 shares
of common stock were granted under the 1994 Stock Option Plan. There were
21,200 options exercised and 10,400 were canceled. At June 30, 1995, options to
purchase 480,001 shares of common stock were issued and outstanding under IRIS
stock option plans. The outstanding options expire by the end of 2005. The
exercise price for these options ranges from $1.10 to $5.90 per share and in
aggregate $1,764,911. At June 30, 1995 there were an additional 465,467 shares
available for the granting of future options.
Warrants:
At June 30, 1995, there were a number of warrants outstanding and
exercisable to purchase 236,337 shares of common stock exercisable at $10.00 per
share until December 1995. These warrants, initially due to expire in December
1994, were extended. Also, there were warrants outstanding and exercisable to
purchase 338,332 shares of common stock at $3.75 per share until July 31, 1995
issued in connection with the two LDA unit offerings. In addition, there were
warrants outstanding and exercisable to purchase 250,000 shares of common stock
at $7.375 per share until February 6, 1998 and 75,000 shares at $8.125 per share
until March 30, 1998.
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<PAGE>
Preferred Stock:
IRIS is authorized to issue 3,000,000 shares of preferred stock in one or
more series with such terms as may be designated by the Board of Directors.
There is no preferred stock outstanding.
10. COMMITMENTS.
Leases:
IRIS leases its primary business location at a monthly rent of $13,402,
subject to increases based on the Consumer Price Index. IRIS has the option to
renew the lease for two additional three-year periods commencing on July 3,
1997.
At June 30, 1995, the minimum lease payments due over the remaining life of
this lease and an automobile lease were:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ --------
<S> <C>1
1995 $ 80,729
1996 160,824
1997 93,814
--------
$335,367
--------
--------
</TABLE>
Rental expense under all operating leases during the six months ended June
30, 1995 and 1994 was $90,832 and $72,294, respectively.
Other:
Effective September 1, 1988, IRIS entered into a consulting and licensing
agreement with Cytocolor, Inc. relating to the use of a patented leukocyte stain
in The White IRIS-TM-, a product currently under development by IRIS. Under the
terms of the agreement, IRIS is subject to the following future minimum royalty
payments:
<TABLE>
<CAPTION>
YEAR ROYALTY
<S> <C>
1996 20,000
1997 20,000
1998 20,000
1999 20,000
2000 20,000
After 2000 $260,000
--------
$360,000
--------
--------
</TABLE>
11. EARNINGS PER SHARE.
The computations of loss per share for the three and six months ended June
30, 1995 are based on the weighted average number of shares outstanding. Common
share equivalents were excluded in the calculations as their inclusion would be
anti-dilutive.
The computations of per share amounts for the three and six months ended
June 30, 1994 are based on the weighted average number of common shares and
common share equivalents outstanding for the period. Fully diluted and primary
earnings per share were $.07 for the three months ended June 30,1994 and $.09
for the six months ended June 30, 1994.
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<PAGE>
12. RESEARCH AND DEVELOPMENT FUNDING.
Upon the completion of LDA's initial public offering in October 1992, IRIS
entered into a Research and Development Agreement with LDA for the joint
development of The White IRIS-TM- leukocyte differential analyzer. (See Note 8
above.) In February 1995, IRIS entered into a Research, Development and
Distribution Agreement with Boehringer Mannheim GmbH (BMG) for the joint
development and distribution of an automated urinalysis system for reference
laboratories. (See Note 13 below.)
For the six month periods ended June 30, 1995 and 1994 contract revenues
and costs connected with these projects were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1994 1995
---- ----
<S> <C> <C>
Revenues $ 358,882 $ 638,150
Costs (448,882) (760,713)
------------ -----------
Net Costs $ (90,000) $ (122,563)
------------ -----------
------------ -----------
</TABLE>
Pursuant to earlier payments and certain agreements with TOA Medical
Electronics Co., Ltd. (TOA), TOA has developed a urine sediment analyzer under
license from IRIS using pre-1989 IRIS technology in exchange for 3% royalty on
sales. In June 1995, IRIS granted TOA a temporary non-exclusive license to use
such technology for the limited purpose of developing, manufacturing and
marketing industrial instruments in Japan. In exchange, TOA agreed to
temporarily increase the amount of the royalty from 3% to 5% and the scope of
the royalty to include revenues on consumables and service contracts. These
changes were made retroactive to October 1994 and expire with TOA's temporary
license in September 1996, at which time the scope and amount of royalty will
revert to their original terms. Including the retroactive effect of these
changes, IRIS received royalties from TOA of approximately $35,000 and $11,000
for the three months ended June 30, 1995 and 1994, respectively, and
approximately $67,000 and $72,000 for the six months ended June 30, 1995 and
1994, respectively.
13. SIGNIFICANT EVENTS.
Acquisition of LDA Systems, Inc.:
In June 1995, IRIS completed the acquisition of LDA for approximately
498,000 shares of IRIS Common Stock. Prior to the acquisition, IRIS and LDA had
been engaged in a joint program to complete commercial development of The White
IRIS-TM- leukocyte differential analyzer - an instrument developed from
technology originally pioneered by IRIS. IRIS acquired LDA pursuant to the
exercise of its call option under the LDA Restated Certificate of Incorporation
to purchase all of the outstanding shares of LDA Common Stock. For this
purpose, the IRIS Common Stock was valued at $7.7625 per share -- the average
closing price of a share of IRIS Common Stock on the American Stock Exchange
for the 20 trading days preceding the call date. Accordingly, IRIS tendered
2.5765 shares of IRIS Common Stock for each share of LDA Common Stock. As a
result of the acquisition, IRIS incurred a non-recurring, non-cash charge of
$3.5 million against earnings in the second quarter for the acquisition of in-
process research and development (i.e., work-in-process not yet cleared for
interstate commerce by the Food and Drug Administration (FDA)), the recognition
of deferred warrants costs and other expenses.
Reference Lab Agreement:
During the first quarter of 1995, IRIS and BMG announced a joint project to
develop a high capacity, automated urinalysis system primarily for reference
laboratories based on the proprietary technologies of both companies. The
program is jointly funded by both companies. In addition to designing specific
components of the new system, BMG has agreed to pay IRIS a fixed amount,
$640,000, for its research
-11-
<PAGE>
and development on the project. In connection with this project, IRIS issued
Corange (an affiliate of BMG) warrants to purchase 250,000 shares of IRIS Common
Stock at an exercise price of $7.375 per share and granted Corange certain
registration rights with respect to the shares of IRIS Common Stock issuable
upon exercise of these warrants.
Product Line Acquisition:
During the first quarter of 1995, IRIS acquired the digital refractometer
product line of Biovation, Inc. for $850,000 in cash and warrants to purchase
75,000 shares of IRIS Common Stock at an exercise price of $8.125 per share.
IRIS granted Biovation certain registration rights with respect to the shares of
IRIS Common Stock issuable upon exercise of these warrants. The product line
consists of a patented device known as a digital refractometer and the related
consumables used in the operation and maintenance of the refractometer. The
value of the IRIS warrants issued in connection with this acquisition is
included on the Balance Sheet as a component of "Other Assets" and will be
amortized on a straight-line basis over the estimated life of the product, which
IRIS estimates is ten years.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
Working capital amounted to $7.1 million at June 30, 1995 as compared to
$7.3 million at December 31, 1994. The decrease of $.2 million in working
capital is due largely to the funds used in the product line acquisition of
Biovation, Inc. mitigated by cash generated by operations and the sale of stock.
Accounts receivable increased $273,000 during the first half of 1995 due to an
overall increase of sales during the second quarter. During the first half of
1995, IRIS recorded a net loss of approximately $2.7 million after recognizing a
non-recurring charge for the acquisition of LDA Systems, Inc. in the amount of
$3.5 million. Also IRIS received approximately $515,000 in cash from (i) the
sale of IRIS Common Stock under the Key Employee Purchase Plan, (ii) the
exercise of options granted under its Stock Option Plan and (iii) the exercise
of warrants issued as part of LDA's 1992 unit offering.
During the three and six month periods ended June 30, 1995, IRIS spent
$122,000 and $288,000, respectively, for capital expenditures primarily for
machinery and equipment, compared with $52,000 and $71,000 for the comparable
periods of 1994. Currently, IRIS has no material commitments for capital
expenditures. Future commitments for capital expenditures may prove necessary
to continue IRIS efforts in research and development and to manufacture and
market its existing products. IRIS also intends to use some of its working
capital for the manufacture and installation of rental systems.
IRIS has made numerous improvements in The Yellow IRIS-Registered
Trademark- over the years, including the IRISensor-TM- camera, IRISpeed Plus-TM-
high-performance software, IRIScope-TM- body fluids cell counting capabilities,
and the multi-band image processor. Many potential additional improvements are
now available from IRIS work on The White IRIS-TM- and other projects and
expected to be available from work on the reference laboratory system. IRIS
believes quick incorporation of these improvements into The Yellow IRIS-
Registered Trademark- will require a substantial amount of research and
development time and financial resources. While IRIS believes that it has the
technical ability and financial resources for such an undertaking, IRIS is
exploring alternate source of funding, such as the joint development program for
commercialization of The White IRIS-TM- with LDA, before a major engagement in
such a project. IRIS has already commenced some work on this project.
During the first quarter of 1994, IRIS and Savyon Diagnostics Ltd., an
Israeli manufacturer of medical test kits, received a $100,000 grant from the
Israeli-United States Binational Industrial Research and Development Foundation
(the BIRD Foundation) for partial funding of a collaborative project to develop
a urine-based chlamydia test for The Yellow IRIS-Registered Trademark-.
Conditional grants are repaid solely from commercial revenues generated by the
resulting project, with neither company incurring any liability to the BIRD
Foundation if the project fails to generate a successful commercial product.
IRIS incurred approximately $9,000 in excess of the BIRD grant during the six
month period ended June 30, 1995.
-12-
<PAGE>
IRIS estimates that work on this project will continue at least until the fourth
quarter of 1995 and expects to incur approximately $30,000 of additional
research and development expenses for this project during 1995 in excess of the
BIRD grant. There can be no assurances that a commercially viable product will
be developed.
IRIS currently plans to use only modest amounts of its current working
capital for further development of products other than those related to The
Yellow IRIS-Registered Trademark- and The White IRIS-TM-. More vigorous
development of The Purple IRIS-TM- and other products depends on securing
alternative sources of funding such as the joint development program with LDA
for commercialization of The White IRIS-TM-. IRIS continues to pursue
additional research and development contracts with the United States Federal
Government agencies and from other sources such as the BIRD Foundation.
However, there can be no assurance that IRIS will be successful in more of these
kinds of efforts, or any others, to locate acceptable sources of funding desired
for other products.
In February 1995, IRIS and BMG entered into an agreement to develop a high-
capacity, automated urinalysis system for reference laboratories based on the
proprietary technologies of both companies. The program is jointly funded by
BMG and IRIS. In addition to designing specific components for the new system,
BMG has agreed to pay IRIS a fixed amount, $640,000, for IRIS research and
development on the project. In connection with this project, IRIS issued to
Corange (an affiliate of BMG) a warrant to purchase 250,000 shares of IRIS
Common Stock at an exercise price of $7.375 per share and granted Corange
certain registrations rights with respect to the shares of IRIS Common Stock
issuable upon exercise of the warrants.
In an effort to maximize interest income on its cash reserves, IRIS holds a
significant portion of its funds in short and long-term investments with
staggered maturities consisting of US Treasury securities and federally insured
certificates of deposit. IRIS had a decrease in cash, cash equivalents and
short term investments of approximately $1.2 million for the six months ended
June 30, 1995, as compared to a decrease of $1.3 million for the comparable
period in 1994. Approximately $850,000 of the decrease for 1995 is attributable
to the acquisition of a product line from Biovation, Inc. and the most
significant component of the decrease in 1994 was the additional investment of
approximately $1.7 million in short- and long-term debt securities. IRIS
believes that its current cash on hand plus short-term investments will be
sufficient to meet its needs for the next year.
RESULTS OF OPERATIONS
In June 1995, IRIS completed the acquisition of LDA for approximately
498,000 shares of IRIS Common Stock. IRIS acquired LDA pursuant to the exercise
of its option under the LDA Restated Certificate of Incorporation to purchase
all of the outstanding shares of LDA Common Stock. The option exercise price
was $20.00 per share of LDA Common Stock, and IRIS elected to pay the exercise
price with IRIS Common Stock. For this purpose, the IRIS Common Stock was
valued at $7.7625 per share -- the average closing price of a share of IRIS
Common Stock on the American Stock Exchange for the 20 trading days preceding
the date of exercise. Accordingly, IRIS tendered 2.5765 shares of IRIS Common
Stock for each share of LDA Common Stock. As a result of the acquisition, IRIS
incurred a non-recurring, noncash charge of $3.5 million against earnings in the
second quarter for the acquisition of in-process research and development (i.e.,
work-in-process not yet cleared by The Food and Drug Administration (FDA)) and
the recognition of deferred warrants costs and other expenses.
Prior to the acquisition, IRIS and LDA had been engaged in a $2.8 million
joint development program to complete commercial development of The White IRIS-
TM- leukocyte differential analyzer -- an instrument developed from technology
originally pioneered by IRIS. From October 1992 until the acquisition, IRIS
funded approximately $15,000 per month (or an aggregate of $500,000) of the
research and development on this project, and LDA funded all additional costs.
The first phase of clinical trials yielded the initial data necessary to submit
an application to the FDA late in the second quarter.
-13-
<PAGE>
During the fourth quarter of 1994, IRIS began marketing an improved version
of The Yellow IRIS-Registered Trademark- featuring a new CHEMSTRIP-Registered
Trademark- urine test reader and CHEMSTRIP/IRIStrip-TM- urine test strips, both
designed and manufactured by Boehringer Mannheim Corporation (BMC) especially
for The Yellow IRIS-Registered Trademark-. The combination of the CHEMSTRIP-
Registered Trademark- reader with the CHEMSTRIP/IRIStrip-TM- test strips is
expected to provide the fastest, most accurate urine test strip on the market.
BMC has granted IRIS the exclusive distributorship of the CHEMSTRIP/IRIStrip-
TM- test strips. The test strips used by the less advanced version of The
Yellow IRIS-Registered Trademark- are currently supplied to IRIS customers by
various laboratory products distributors. IRIS is offering its existing
customers an opportunity to upgrade their existing workstations with the new
CHEMSTRIP-Registered Trademark- reader for use with the CHEMSTRIP/IRISstrip-TM-.
Approximately one third of the existing customers have already upgraded their
workstations. Although IRIS hopes that the addition of CHEMSTRIP/IRIStrip-TM-
to its product line will create a significant new source of revenues, IRIS
cannot predict the extent to which new or existing IRIS customers will switch
to the new CHEMSTRIP/IRIStrip-TM- test strips.
On March 20, 1995, IRIS acquired the digital refractometer product line of
Biovation, Inc. for $850,000 in cash and warrants to purchase 75,000 shares of
IRIS Common Stock at an exercise price of $8.125 per share. IRIS granted
Biovation certain registration rights with respect to the shares of IRIS Common
Stock issuable upon exercise of these warrants. The product line consists of
manufacturing and marketing a patented device known as a digital refractometer
and the related consumables used in its operation and maintenance. Revenues from
this product line averaged approximately $495,000 over Biovation's last three
fiscal years. IRIS presently intends to continue marketing the refractometer
and related consumables under the Biovation tradename through existing
distribution channels.
In 1991 IRIS introduced a lower priced version of The Yellow IRIS-
Registered Trademark-. The lower-priced version accounted for approximately
half of all new systems sold during the first half of 1995. The lower priced
version is likely to remain a significant percentage of total system sales
because of its appeal to more numerous community hospitals. While the gross
margin on the lower-priced version is less, IRIS believes that it contributes
incrementally to the aggregate gross margin earned as it appeals to a market
segment that ordinarily would not buy the more expensive model. Because its
incremental margin exceeds the incremental operational expenses connected with
its sale, its contributes positively to the profitability of IRIS.
IRIS, like many companies in the clinical laboratory instrumentation
business, is feeling the impact of current economics imposed by managed care
which have intensified the review and curtailed the expenditure of capital by
hospitals. One result has been slower than expected replacement sales as IRIS
customers postpone capital expenditures and continue using The Yellow IRIS-
Registered Trademark- beyond its five-year anticipated life. On the other hand,
IRIS believes the impact of intensified capital expenditure reviews may be
mitigated by the current pressure to reduce operational costs, especially labor.
In 1993, President Clinton announced his intention to reform the existing
health care system of the United States. While hospitals appear to have
postponed important decisions regarding capital expenditures during the first
quarter of 1994 when congressional deliberations were at their peak, such
expenditures appear to have resumed now that the healthcare reform debate has
subsided. At the present time, IRIS believes that the effectiveness of The
Yellow IRIS-TM--Registered Trademark- should be even more beneficial to
hospitals if their revenues are further controlled.
THREE AND SIX MONTHS 1995 COMPARED TO THREE AND SIX MONTHS 1994
IRIS recorded a net loss for the three and six month periods ended June 30,
1995 of $3.0 million and $2.7 million, respectively, as the result of
recognizing a $3.5 million non-recurring charge in connection with the
acquisition of LDA Systems, Inc. Excluding the effect of the acquisition, IRIS
had net income for these three and six month periods of approximately $.5
million and $.8 million, respectively, an increase of $156,000 (or 44%) and
$370,000 (or 82%) from the comparable periods in 1994. This increase is due
primarily to the resumption of increasing sales of workstations and related
supplies following an industry-wide slowdown in the first quarter of 1994.
-14-
<PAGE>
These results include interest income from investments of $56,000 and
$138,000, respectively, for the three and six month periods ended June 30, 1995,
compared to $34,000 and $65,000 for the comparable periods in 1994. The
respective $22,000 and $73,000 increases in interest income are due largely to
the increased amounts of invested cash, generally higher interest rates and cash
transfers from interest-bearing bank accounts to short-term investments. See
"Liquidity and Capital Resources."
The above results also include other income consisting of royalties from
TOA of $35,000 and $67,000, respectively, for the three and six month periods
ended June 30, 1995 compared to $11,000 and $72,000, respectively, for the
comparable periods in 1994. The 1995 royalty amounts reflect an agreement with
TOA to temporarily increase the amount of the royalty from 3% to 5% and the
scope of the royalty to apply to revenues on consumables and service contracts,
as well as instruments. These changes were made retroactive to October 1994 and
expire in September 1996, at which time the scope and amount of the royalty will
revert to their original terms.
Net sales, excluding revenues from research and development contracts,
increased to $3.0 million for the second quarter of 1995 from $2.4 million
during the comparable period in 1994. The $.6 million increase was attributable
primarily to an increase in sales of workstations and consumables. Cost of
goods sold increased from approximately $1.3 million in the second quarter of
1994 to approximately $1.4 million in the second quarter of 1995 and decreased
as a percentage of sales from 52% to 46% as a result of improved utilization of
service parts and increased sales of consumables. Net sales of $5.5 million for
the six month period ended June 30, 1995 increased approximately $1.3 million or
31% from the comparable period in 1994. Cost of goods sold increased to $2.6
million from $2.2 million and decreased as a percentage of sales from 52% to 47%
during the comparable period in 1994, as a result of improved utilization of
service parts and increased sales of consumables.
Total research and development expenses, including costs incurred on
development contracts increased to $506,000 and $927,000 in the three and six
month periods ended June 30, 1995 from $313,000 and $608,000 in the comparable
periods of 1994 as IRIS continued its work under the Research and Development
Agreement with LDA and commenced work on the reference laboratory system under
an Agreement with BMG. Research and development expenses related to The White
IRIS-TM- decreased to $188,000 and $363,000 in the three and six month periods
ended June 30, 1995 from $259,000 and $449,000 in the comparable periods of 1994
and were offset by related revenues of $126,000 and $247,000 in 1995 and
$214,000 and $359,000 in 1994 from LDA (See Note 12 above.) Following
completion of the acquisition of LDA, research and development expenses related
to The White IRIS-TM- are expected to decrease, but IRIS will no longer benefit
from offsetting revenues from LDA under the Research and Development Agreement.
See "Liquidity and Capital Resources." Research and development expenses
related to the reference laboratory system were $253,000 and $398,000,
respectively, for the three and six month periods ended June 30, 1995 and were
offset by exactly revenues received from BMG. Research and development expenses
unrelated to The White IRIS-TM- and the reference laboratory system increased to
$65,000 and $166,000, respectively, during the three and six month periods ended
June 30, 1995 from $54,000 and $159,000 during the comparable periods in 1994 as
research and development activity, in general, was intensified.
Marketing and selling expenses in the three and six month periods ended
June 30, 1995 increased by $157,000 and $330,000, respectively, to $608,000 and
$1,1176,000, respectively, as compared to the same periods of 1994. These
increases are due largely to a greater emphasis on direct marketing. General
and administrative expenses of $441,000 and $780,000 in the three and six month
periods ended June 30, 1995, respectively, increased by $124,000 and $209,000
from the same periods in 1994. The increase in these expenses is due to a
variety of factors including increases related to higher sales, and the
installation of a new computer network.
INFLATION
IRIS does not foresee any material impact on its operations from inflation.
-15-
<PAGE>
PART 2 - OTHER INFORMATION
ITEM 5 - Submissions of Matters to a Vote of Security-Holders.
IRIS held its Annual Meeting of Stockholders on June 22, 1995. At the
meeting, IRIS stockholders voted on the following matters:
1. ELECTION OF THE CLASS 2 DIRECTOR. The IRIS stockholders re-elected
John A. O'Malley as the Class 2 Director. The voting results were 4,374,018
votes for and 16,292 votes withheld.
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS. The IRIS
stockholders ratified reappointment of the accounting firm of Coopers and
Lybrand, by the Board of Directors, as independent auditors of IRIS for 1995.
ITEM 6 - Exhibits And Reports on Form 8K
(a) Exhibits
3.1 Articles of Incorporation.1./
3.2 Bylaws.2/
10.1 Lease of the Registrant's facilities.3/
10.2 1980 and 1982 Stock Option Plans, and forms of Stock Option
Agreements for each Plan.4/
10.3 1983 and 1986 Stock Option Plans, and forms of Stock Option
Agreements for each Plan.5/
10.4 Amended and Restated Stock Option Plan.6/
10.5 1994 Stock Option Plan and forms of Stock Option Agreements.7/
10.6 Various agreements with TOA.8/
10.6A Temporary License Agreement dated as of June 8,1995 between IRIS
and TOA.
10.7 Agreement for a Strategic Alliance in Urinalysis dated January
17, 1994 between IRIS and BMC.10/
10.8 Securities Purchase Agreement dated as of April 20, 1994 by and
among IRIS, LDA and Corange International Limited.9/
10.9 Warrant Certificate dated April 22, 1994 issued to Corange
International Limited.10/
10.10 Research and Development and Distribution Agreement dated
February 6, 1995 by and among IRIS, LDA and Corange International
Limited. 10/
10.11 Warrant Certificate dated February 6, 1995 issued to Corange
International Limited. 10/
10.12 Asset Purchase Agreement dated as of March 20, 1995 between IRIS
and Biovation, Inc. 10/
10.13 Warrant Certificate dated March 20, 1995 issued to Biovation,
Inc. 10/
11 Statement of Computation of Per Share Earnings.
(b) Reports on Form 8-K
IRIS filed Current Reports on Form 8-K on April 18, 1995
announcing its decision to acquire LDA Systems, Inc. and on
June 27, 1995 announcing the completion of the acquisition
of LDA Systems, Inc.
-16-
<PAGE>
----------------------------------
1 Incorporated by reference to the Company's Current Report on Form 8-K dated
August 13, 1987 and its Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993.
2/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994.
3/ Incorporated by reference to the Company's Annual Report on Form Company's
Annual Report on Form 10-K for the year ended December 31, 1994, its Annual
Report on Form 10-K for the year ended December 31, 1989 and its Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993.
4/ Incorporated by reference to the Company's Registration Statement on Form
S-2, as filed with the Securities and Exchange Commission on September 4,
1985.
5/ Incorporated by reference to the Company's Registration Statement on Form
S-8, as filed with the Securities and Exchange Commission on May 10, 1982.
6/ Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992.
7/ Incorporated by reference to the Company's Registration Statement of Form
S-8, as filed with the Securities and Exchange Commission on August 8,
1994.
8/ Incorporated by reference to the Company's Current Report on Form 8-K dated
July 15, 1988.
9/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1994.
10/ Incorporated by reference to the Company's Annual Report on From 10-K for
the year ended December 31, 1994.
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Six months ended June 30
1994 1995
---------- ------------
<S> <C> <C>
Actual Weighted Average Shares Outstanding for the Period 4,986,755 5,145,673
Dilutive Effects of Stock Options and Warrants Using Average
Market Price 241,185 0
---------- -----------
Total Shares Based on Shares Outstanding and the
Assumption that All Share Equivalents Are Exercised at
Average Stock Market Price. 5,227,940 5,145,673
Additional Dilutive Effect of Stock Options and Warrants Being
Exercised Using Ending Market Price 0 0
---------- -----------
Total Shares Based on Shares Outstanding and the
Assumption That All Stock Options and Warrants are
Exercised at Ending Market Price 5,227,940 5,145,673
---------- -----------
---------- -----------
Net Income Applicable to Fully Diluted Earnings Per Share $450,947 ($2,660,024)
-------- ------------
-------- ------------
Fully Diluted Net Income (loss) Per Share $ .09 ($ .52)
------ ---------
------ ---------
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Three months ended June 30
1994 1995
---------- ------------
<S> <C> <C>
Actual Weighted Average Shares Outstanding for the Period 5,016,476 5,189,512
Dilutive Effects of Stock Options and Warrants Using Average
Market Price 238,939 0
---------- -----------
Total Shares Based on Shares Outstanding and the
Assumption that All Share Equivalents Are Exercised at
Average Stock Market Price. 5,255,415 5,189,512
Additional Dilutive Effect of Stock Options and Warrants Being
Exercised Using Ending Market Price 0 0
----------- -----------
Total Shares Based on Shares Outstanding and the
Assumption That All Stock Options and Warrants are
Exercised at Ending Market Price 5,255,415 5,189,512
---------- -----------
---------- -----------
Net Income Applicable to Fully Diluted Earnings Per Share $356,128 ($2,969,089)
-------- ------------
-------- ------------
Fully Diluted Net Income (loss) Per Share $ .07 ($ .57)
------ -------
------ -------
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
Dated: August 11, 1995 By: /s/ E. Eduardo Benmaor
-----------------------------------------
E. Eduardo Benmaor
Secretary, Controller, and
Principal Accounting Officer
-18-
<PAGE>
EXHIBIT 10.6A
TEMPORARY LICENSE AGREEMENT
This Temporary License Agreement (the "AGREEMENT") is
made as of June 8, 1995 by and between International Remote
Imaging Systems, Inc., a Delaware corporation ("IRIS"), and
TOA Medical Electronics Company Ltd., a Japanese corporation
("TOA"), with reference to the following facts:
A. IRIS and TOA initially entered into a number of
agreements dated as of October 30, 1986 (the "INITIAL
AGREEMENTS") relating to the joint development of certain
products.
B. IRIS and TOA restructured their relationship in 1988
and accordingly amended or terminated the Initial Agreements
pursuant to several agreements dated as of July 15, 1988 (the
"RESTRUCTURING DOCUMENTS"), including, a Restructuring
Agreement (the "RESTRUCTURING AGREEMENT") and a License
Agreement (the "LICENSE AGREEMENT").
C. Pursuant to the License Agreement, IRIS granted TOA
a perpetual license to use certain technology developed by
IRIS prior to April 1, 1988 (such technology being
specifically defined in the License Agreement as the "IRIS
TECHNOLOGY" and hereinafter referred to as the "LICENSED
TECHNOLOGY") for the development, manufacture and marketing of
the Y-II and the Apple IRIS, and, pursuant to the
Restructuring Agreement, TOA agreed to make periodic payments
to IRIS based on the revenues generated by sales of the Y-II
and the Apple IRIS.
D. TOA intends to investigate the potential market for
certain new industrial instruments which incorporate the
Licensed Technology and, in connection therewith, desires to
secure a temporary license to use the Licensed Technology for
the development, manufacture and test marketing of such
industrial instruments. IRIS is willing to grant such a
temporary license in exchange for certain amendments to the
periodic payments due under the Restructuring Agreement.
NOW, THEREFORE, based on the above premises and in
consideration of the mutual covenants and agreements contained
herein, the parties agree as follows:
1. TEMPORARY LICENSE. Subject to the terms and
conditions hereof, and in consideration of the amendments to
the Restructuring Agreement effected pursuant to Section 3
hereof, IRIS hereby grants TOA the non-exclusive, temporary
right to use the Licensed Technology until September 30, 1996
(the "TEMPORARY LICENSE EXPIRATION DATE") only for the limited
purpose of developing, manufacturing and test marketing
instruments for non-medical, industrial applications (the
"INDUSTRIAL INSTRUMENTS") in Japan; provided, that TOA may
manufacture Industrial Instruments which incorporate Licensed
Technology only as necessary for testing and test marketing.
Such temporary license shall be limited to the territory, time
and uses set forth in the first sentence of this Section 1 and
shall be subject to all the terms and conditions of the
License Agreement and the Restructuring Agreement, as
hereinafter amended, (including,
<PAGE>
without limitation, TOA's covenants regarding periodic payments) as
if the definition of "PRODUCTS" in the License Agreement had been
temporarily amended for the duration of the temporary license granted
hereunder to include the Industrial Instruments.
2. OPTION TO NEGOTIATE PERMANENT LICENSE. If TOA so
elects by giving written notice to IRIS on or before June 30,
1996, IRIS and TOA agree to commence negotiating in good faith
mutually acceptable terms for a permanent license to use the
Licensed Technology for the development, manufacture and
marketing of the Industrial Instruments; PROVIDED, HOWEVER,
that neither party shall have any obligation to continue such
negotiations after the Temporary License Expiration Date.
3. AMENDMENTS TO CALCULATION OF PERIODIC PAYMENTS. For
the period commencing on the Effective Date (as hereinafter
defined) and ending on the Temporary License Expiration
Date, the Restructuring Agreement shall be deemed amended as
follows:
3.1 CALCULATION OF PERIODIC PAYMENTS. The first
sentence of Section 3(b) of the Restructuring Agreement
(titled "Calculation of Periodic Payments") is hereby amended
by changing "3%" to "Five Percent (5%)".
3.2 CALCULATION OF REVENUES. Section 3(c) of the
Restructuring Agreement (titled "Calculation of Revenues") is
hereby amended and restated in its entirety as follows:
"Revenues" shall in all cases be calculated net of
returns, allowances and trade discounts. Revenues
derived by TOA or its Affiliates with regard to
Sales of a Product shall be deemed to include,
without limitation, (i) revenues derived from Sales
of consumables for use with the Product ("Associated
Consumables") and (ii) revenues derived from Sales
of service contracts sold in conjunction with the
Product ("Associated Service Contracts"), in each
case, regardless of the date of Sale of the Product.
4. EFFECTIVE DATE.
This Agreement shall be effective for all purposes as of
the earlier of (i) October 1, 1994 or (ii) the date upon which
TOA made its first sale, if any, of any Industrial Instrument
which incorporates any of the Licensed Technology (the
"EFFECTIVE DATE"). Within 30 days of the date hereof, TOA
shall pay IRIS in immediately available funds any and all
additional amounts due under the Restructuring Agreement with
respect to previously completed calendar quarters as a result
of the amendments implemented by this Agreement together with
an itemized statement comparable to that required by
Section 3(f) of the Restructuring Agreement for Periodic
Payments.
-2-
<PAGE>
5. MISCELLANEOUS.
This Agreement and any documents referred to herein or
executed contemporaneously herewith constitute the parties'
entire agreement with respect to the subject matter hereof.
Capitalized terms used and not otherwise defined herein shall
have the meanings assigned to them in the Restructuring
Agreement or the License Agreement, as applicable. This
Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which shall
together constitute one and the same instrument, and may not
be amended, altered or modified except by a writing signed by
the parties. Except as expressly modified herein, the
Restructuring Documents (including, without limitation, the
License Agreement and the Restructuring Agreement) shall
remain in full force and effect, and to the extent reasonably
applicable, the provisions of Section 11 of the Restructuring
Agreement (titled "General Provisions") are hereby
incorporated herein and made a part hereof.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year first set forth above to be
effective as of the date specified in Section 4.
INTERNATIONAL REMOTE IMAGING
SYSTEMS, INC., a Delaware
corporation
/s/ Fred H. Deindoerfer
_________________________________
Fred H. Deindoerfer, President
TOA MEDICAL ELECTRONICS CO.,
LTD., a Japanese corporation
/s/ Hisashi Ietsugu
_________________________________
Hisashi Ietsugu,
Managing Director
-3-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,161,700
<SECURITIES> 2,718,999
<RECEIVABLES> 2,837,798
<ALLOWANCES> (35,443)
<INVENTORY> 2,151,796
<CURRENT-ASSETS> 9,201,044
<PP&E> 591,393
<DEPRECIATION> (1,927,693)
<TOTAL-ASSETS> 13,499,032
<CURRENT-LIABILITIES> 2,147,793
<BONDS> 0
<COMMON> 56,377
0
0
<OTHER-SE> 11,046,268
<TOTAL-LIABILITY-AND-EQUITY> 13,499,032
<SALES> 6,085,328
<TOTAL-REVENUES> 6,290,672
<CGS> 3,319,047
<TOTAL-COSTS> 2,122,662
<OTHER-EXPENSES> 3,480,987<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,632,024)
<INCOME-TAX> 28,000
<INCOME-CONTINUING> (2,632,024)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,660,024)
<EPS-PRIMARY> (.52)
<EPS-DILUTED> 0
<FN>
(F1)NON-RECURRING
(/FN)
</TABLE>
