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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 12b-25
NOTIFICATION OF LATE FILING
Commission File Number 1-9767
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(Check One):
[ ] Form 10-K [ ] Form 20-F [ ] Form 11-K [X] Form 10-Q [ ] Form N-SAR
For Period Ended: September 30, 1996
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[ ] Transition Report on Form 10-K
[ ] Transition Report on Form 20-F
[ ] Transition Report on Form 11-K
[ ] Transition Report on Form 10-Q
[ ] Transition Report on Form N-SAR
For the Transition Period Ended:
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Nothing in this form shall be construed to imply that the Commission has
verified any information contained herein.
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If the notification relates to a portion of the filing checked above, identify
the Item(s) to which the notification relates:
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PART I -- REGISTRANT INFORMATION
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
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Full Name of Registrant
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Former Name if Applicable
9162 Eton Avenue
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Address of Principal Executive Office (Street and Number)
Chatsworth, CA 91311
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City, State and Zip Code
PART II--RULES 12b-25(b) AND (c)
If the subject report could not be filed without unreasonable effort or expense
and the registrant seeks relief pursuant to Rules 12b-25(b), the following
should be completed. (Check box if appropriate)
[X] (a) The reasons described in reasonable detail in
Part III of this form could not be eliminated
without unreasonable effort or expense;
[X] (b) The subject annual report, semi-annual
report, transition report on Form 10-K, Form
20-F, 11-K, Form N-SAR, or portion thereof,
will be filed on or before the fifteenth
calendar day following the prescribed due
date; or the subject quarterly report of
transition report on Form 10-Q, or portion
thereof will be filed on or before the fifth
calendar day following the prescribed due
date; and
[ ] (c) The accountant's statement or other exhibit
required by Rule 12b-25(c) has been attached
if applicable.
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PART III--NARRATIVE
State below in reasonable detail the reasons why the Form 10-K, 20-F, 11-K,
10-Q, N-SAR, or the transition report or portion thereof, could not be filed
within the prescribed time period. (ATTACH EXTRA SHEETS IF NEEDED)
The registrant is unable to file the Form 10-Q referred to herein
within the prescribed period of time because of the unusual effort required to
(i) obtain and integrate financial information from a recently acquired
business with remote operations in Texas and the United Kingdom and
(ii) restate its results of operations for certain prior periods which affect
the information required for such Form 10-Q. (See "Attachments").
PART IV--OTHER INFORMATION
(1) Name and telephone number of person to contact in regard to
this notification
<TABLE>
<S> <C> <C>
Martin S. McDermut (818) 709-1244
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(Name) (Area Code) (Telephone Number)
</TABLE>
(2) Have all other periodic reports required under Section 13 or
15(d) of the Securities Exchange Act of 1934 or Section 30 of
the Investment Company Act of 1940 during the preceding 12
months or for such shorter period that the registrant was
required to file such report(s) been filed? If answer is no,
identify report(s).
[X] Yes [ ] No
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(3) Is it anticipated that any significant change in results of
operations from the corresponding period for the last fiscal
year will be reflected by the earnings statements to be
included in the subject report of portion thereof?
[X] Yes [ ] No
If so, attach an explanation of the anticipated change, both
narratively and quantitatively, and, if appropriate, state the
reasons why a reasonable estimate of the results cannot be
made. (See "Attachments").
See the following exhibits attached hereto for certain information
which the registrant expects to include in its Form 10-Q for the period ended
September 30, 1996:
Exhibit 1 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Exhibit 2 - Balance Sheet (without footnotes)
Exhibit 3 - Statement of Operations (without footnotes)
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International Remote Imaging Systems, Inc.
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(Name of Registrant as Specified in Charter)
has caused this notification to be signed on its behalf by the undersigned
hereunto duly authorized.
Date November 15, 1996 By /s/ Martin S. McDermut
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Martin S. McDermut, Vice President
Finance and Administration and
Chief Financial Officer
INSTRUCTION: The form may be signed by an executive officer of the registrant
or by any other duly authorized representative. The name and title of the
person signing the form shall be typed or printed beneath the signature. If
the statement is signed on behalf of the registrant by an authorized
representative (other than an executive officer), evidence of the
representative's authority to sign on behalf of the registrant shall be filed
with the form.
ATTENTION
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Intentional misstatements or omissions of fact constitute Federal Criminal
Violations (See 18 U.S.C. 1001)
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(Attach Extra Sheets If Needed)
<PAGE> 1
Exhibit 1
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company generates revenues from the initial sales of in vitro
diagnostic ("IVD") imaging systems based on its patented and proprietary
"Automated Intelligent Microscopy" technology, which in turn generate follow-on
sales of supplies and service necessary for their operation. The Company also
generates revenues from sales of ancillary lines of small laboratory
instruments and supplies.
Until recently, the Company generated most of its revenues from sales
of two models of The Yellow IRIS(R) urinalysis workstation and related supplies
and services. These two models differ mainly by their speed and price. In
1996, the Company introduced a third model of The Yellow IRIS(R) and two new
lines of other IVD imaging systems. The Model 900UDx(TM) urine pathology
system, the latest in The Yellow IRIS(R) family, is a higher capacity automated
urinalysis workstation designed especially for the high-volume testing
requirements of large hospitals and reference laboratories. The Company
received FDA clearance to market the Model 900UDx(TM) in March 1996 and began
sales in May. The Company also received FDA clearance to market The White
IRIS(R) leukocyte differential analyzer in May 1996 and expects to start sales
of this system in 1997. Finally, the Company began selling the PowerGene(TM)
family of genetic analyzers in August 1996 after completing the acquisition
(the "PSI Acquisition") of the IVD imaging business of Perceptive Scientific
Instruments, Inc. ("PSI").
The Company invests in research and product development for new
products and enhancements to existing products. The following table summarizes
total product technology expenditures for the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------------------ ----------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Research and development
expense, net . . . . . . . . $ 879 $ 663 $1,220 $ 882 $1,249
Capitalized software
development costs . . . . . . 81 25 299 176 538
Reimbursed costs under research
and development contracts . . 539 1,111 843 795 1,327
Total product technology --------- --------- --------- --------- ---------
expenditures . . . . $1,499 $1,799 $2,362 $1,853 $3,114
========= ========= ========= ========= =========
</TABLE>
The Company has in the past partially funded its research and
development programs through (i) grants from the National Institutes of Health
obtained through the federal government's Small Business Innovative Research
program, (ii) joint development programs with strategic partners and (iii)
Company-sponsored research and development entities.
In recent years, the Company has, in addition to its internally-funded
projects, entered into four significant externally-funded projects, two joint
development projects with strategic partners and two projects with
Company-sponsored research and development entities. From 1994 to 1996, the
Company collaborated with Boehringer Mannheim Corporation ("BMC"), an
Indianapolis-based manufacturer of diagnostic products, and Boehringer Mannheim
GmbH ("BMG"), BMC's German affiliate and a world leader in clinical chemistry,
in the development of (i) the CHEMSTRIP(R)/IRIStrip(TM) urine test strips and a
related urine test
<PAGE> 2
strip reader for The Yellow IRIS(R) and (ii) the Model 900UDx(R), the latest
model in The Yellow IRIS(R) family. The Company entered into a project in
October 1992 with LDA, a Company-sponsored research and development entity, for
development of The White IRIS(R) leukocyte differential analyzer. Corange
International Limited ("Corange"), an affiliate of BMC and BMG, provided
substantial funding to LDA. In June 1995, the Company acquired LDA for
approximately 498,000 shares of Common Stock. As a result of the LDA
acquisition, the Company incurred a non-recurring, non-cash charge of $3.2
million against earnings for the nine months ended September 30, 1995 for the
acquisition of in-process research and development since The White IRIS(R) had
not yet received FDA clearance. The White IRIS(R) received FDA clearance in
May 1996, and the Company expects to begin marketing The White IRIS(R) in 1997.
The Company entered into a similar project in September 1995 with Poly U/A
Systems, Inc. ("Poly"), another Company-sponsored research and development
entity, for development of several new products to enhance automated urinalysis
("the Poly Products"). The program with Poly is currently ongoing. See "--
Liquidity and Capital Resources."
BMC and BMG recently agreed to several amendments to their contracts
with the Company, strengthening their ties in the supply and distribution of
CHEMSTRIP(R)/IRIStrip(TM) urine test strips while withdrawing from longer term
mutual commitments in the areas of hematology and urine microscopy. Among
other things, BMC agreed to supply the Company with CHEMSTRIP(R)/IRIStrip(TM)
urine test strips at a reduced price and extended the term of the underlying
supply agreement from 1999 until six years after the last date of sale of any
model of The Yellow IRIS(R) containing the urine test strip reader supplied by
BMC. In return, the Company relieved BMC of its obligation to purchase a
minimum number of Model 900UDx(TM) systems and to supply certain technology and
components.
The Company and BMG also reaffirmed their mutual commitment to
manufacture and market the Model 900UDx(TM) and extended the term of the
underlying agreement from 2000 until six years after the last date of sale of
any Model 900UDx(TM). The Company will continue to manufacture the Model
900UDx(TM) with BMG providing certain components on an OEM basis at cost. The
Model 900UDx will be marketed exclusively by the Company in the United States,
Canada and Taiwan, exclusively by BMG in Germany and Italy and by both
companies in other markets.
As compensation to the Company for potentially missed business
opportunities in hematology, Corange sold to the Company the 469,413 shares of
Common Stock and the warrant to purchase 250,000 shares of Common Stock
previously acquired by Corange from the Company in connection with various
joint development projects (the "Corange Securities") at their original
aggregate purchase price of $2.1 million, or $4.54 per share of Common Stock.
The purchase price for the Corange Securities is due on or before December 31,
1996.
RECENT DEVELOPMENTS
Early in the fourth quarter, the Company implemented a restructuring
that reduced its workforce by approximately eighteen percent. The restructuring
is aimed primarily at restoring profitability following the Company's operating
loss in the third quarter of this year. Most of the reductions in the workforce
occurred at the Company's headquarters facility in Chatsworth, California. The
restructuring is expected to reduce current expenditure levels by more than $1.9
million annually, after a one-time charge to earnings of approximately $300,000
which the Company expects to incur during the fourth quarter of 1996 for
severance and other incremental costs associated with the restructuring.
RESTATEMENT OF PRIOR PERIODS' RESULTS OF OPERATIONS
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The Company recently completed a review of its revenue recognition
policy and procedures. As a result of the review, the Company has restated its
results of operations for certain prior periods described below to appropriately
reflect the Company's revenue in accordance with its refined revenue recognition
policy. Such restatements pertain to the amount and timing of revenues
recognized under an introductory sales program and the timing of revenues
recognized for shipments made "FOB destination" or under contingent sales terms.
The Company has established procedures to assure appropriate revenue recognition
in the future.
The Company plans to amend its Annual Report on Form 10-K for the year
ended December 31, 1995 and its Quarterly Reports on Form 10-Q for the three
month periods ended March 31, 1996 and June 30, 1996 to reflect the
adjustments. The table below sets forth selected operating data for the
relevant periods on both a restated basis and as previously reported. (The
previously reported operating data in the table below has also been restated to
retroactively reflect the pooling-of-interests transaction described below under
"Results of Operations.")
<TABLE>
<CAPTION>
Year Ended Three Months Ended Three Months Ended
---------- ------------------ ------------------
December 31, 1995 March 31, 1996 June 30, 1996
----------------- -------------- -------------
As Reported As Restated As Reported As Restated As Reported As Restated
----------- ----------- ----------- ----------- ----------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Net sales $15,022 $14,392 $ 4,344 $ 3,904 $ 4,785 $ 4,824
Cost of sales 7,361 7,127 2,161 2,041 2,334 2,423
------- ------- ------ ------ ------ ------
Gross margin 7,661 7,265 2,183 1,863 2,451 2,401
Operating expenses 9,210 9,163 1,783 1,719 1,971 2,019
-------- ------ ------ ------ ------ ------
Operating income (loss) (1,549) (1,898) 400 144 480 382
Other income 378 378 82 82 80 81
--- --- -- -- -- --
Income (loss) before taxes (1,171) (1,520) 482 226 560 463
Tax provision (benefit) (3,528) (3,646) 40 19 135 112
------- ------ --- --- ---- ----
Net income (loss) $ 2,357 $ 2,126 $ 442 $ 207 $ 425 $ 351
======= ======= ===== ===== ===== =====
Net income (loss) per share $ 0.37 $ 0.33 $ 0.07 $0.03 $0.06 $0.05
</TABLE>
RESULTS OF OPERATIONS
The consolidated financial statements of the Company contained in this
report have been retroactively restated for all periods presented to include
the financial position, results of operations and cash flows of StatSpin, Inc.
(formerly known as StatSpin Technologies) ("StatSpin") in accordance with the
pooling-of-interests method of accounting. The consolidated financial
statements also reflect the consummation of the PSI Acquisition on July 31,
1996 which was accounted for using the purchase method of accounting.
Accordingly, the consolidated statements of operations for the three and nine
month periods ended September 30, 1996 include two months of operation of the
business acquired from PSI. See "-- PSI and Other Recent Acquisitions."
Comparison of Nine Months Ended September 30, 1996 to Nine Months Ended
September 30, 1995
Net sales for the nine months ended September 30, 1996 increased to
$14.3 million from $10.6 million, an increase of $3.7 million or 34% over the
comparable period of the prior year. Sales of IVD imaging systems increased to
$4.0 million from $3.3 million, an increase of $684,000 or 21% over the
comparable period. The increase was due to the addition of the PowerGene(TM)
family of genetic analyzers to the Company's product line in August 1996,
partially offset by a decline in sales of The Yellow IRIS(R) urinalysis
workstation in the third quarter of 1996. The Company believes that the
ongoing consolidation in the healthcare industry may be adversely affecting
sales of The Yellow IRIS(R) as some hospitals and reference laboratories appear
to be postponing large capital investment decisions due to the resulting
uncertainty. The Company also believes that there is a growing trend among
potential customers for The Yellow IRIS(R) toward leasing these systems on a
cost-per-test basis rather than purchasing them. The effect of this trend is
to
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spread the revenue from system placements over several years. The Company
believes that sales of the PowerGene(TM) analyzer have not been similarly
affected because that instrument appeals to a different segment of the
healthcare market than The Yellow IRIS(R) system.
Sales of IVD imaging system supplies and service increased to $6.6
million from $4.9 million, an increase of $1.7 million or 34% over the
comparable period, due to the larger installed base of IVD imaging systems and
the ongoing conversion of the installed base to the new
CHEMSTRIP(R)/IRIStrip(TM) urine test strips. As of September 30, 1996, the
Company had converted approximately 85% of the installed base of The Yellow
IRIS(R) systems from test strips marketed by various distributors to the new
test strips marketed exclusively by the Company. Sales of small instruments
and supplies increased to $3.7 million from $2.4 million, an increase of $1.3
million or 54%, over the comparable period. The increase reflects generally
higher sales levels of the StatSpin products, as well as the addition of the
Cen-Slide(R) urine sediment analysis system in March 1996 and the product line
acquired from Biovation, Inc. ("Biovation") in March 1995. See "-- PSI and
Other Recent Acquisitions."
Cost of goods for IVD imaging systems increased as a percentage of
sales of IVD imaging systems to 52% for the nine months ended September 30,
1996 from 46% for the comparable period due primarily to the addition of the
Model 900UDx(TM) to the product line and amortization of certain fixed costs
for IVD imaging systems over a smaller volume of system sales. These factors
were partially offset by the addition of the higher-margin PowerGene(TM) family
of genetic analyzers to the Company's product line in August 1996. Although
the Model 900UDx(TM) currently has a lower gross margin than other models of
The Yellow IRIS(R), the Company expects the Model 900UDx(TM) to generate higher
sales of supplies in future periods than its other models. Cost of goods for
IVD imaging system supplies and service increased as a percentage of sales of
such products to 55% for the nine months ended September 30, 1996 from 48% for
the comparable period primarily due to relatively lower gross margins on sales
of CHEMSTRIP(R)/IRIStrip(TM) urine test strips which accounted for a greater
proportion of sales of system supplies, as well as a decline in gross margins
on certain other IVD imaging system supplies and service. Cost of goods for
small instruments and supplies decreased as a percentage of sales of small
instruments and supplies to 54% for the nine months ended September 30, 1996
from 57% for the comparable period due to higher gross margins on the recently
added Cen-Slide(R) urine sediment analysis system and Biovation product line as
compared to the Company's other small instruments and supplies, as well as
improved gross margins on the StatSpin product lines due to the higher sales
volume and cost reductions. The net result of these changes and the overall
change in product mix was a decrease in aggregate gross margin to 46% for the
nine months ended September 30, 1996 from 51% for the prior period.
Marketing and selling expenses consist primarily of salaries,
commissions and related travel expenses of the Company's direct sales force, as
well as salaries for the marketing and distributor relations departments.
Marketing and selling expenses increased to $3.2 million for the nine months
ended September 30, 1996 from $2.1 million, an increase of $1.1 million or 55%
over the comparable period, and increased as a percentage of net sales to 23%
from 20%, due to the addition of the PSI sales force, increased trade show
expenses and increased spending on direct sales and after-sales support. The
Company expects trade show expenses and spending on direct sales and
after-sales support to decline during the fourth quarter of this year.
General and administrative expenses consist primarily of payroll costs
associated with the Company's management and support personnel, facilities
related costs and legal and accounting fees. General and administrative
expenses increased to $2.3 million for the nine months ended September 30, 1996
from $1.3 million, an increase of $1 million or 81% over the comparable period,
and increased as a percentage of net sales to 16% from 12%, primarily as a
result of one-time costs associated with the StatSpin acquisition, an
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increase in the allowance for doubtful accounts, incremental costs associated
with the addition of the business acquired from PSI, increased legal and
accounting expenses, increased facilities costs and the addition of
personnel to the administrative staff.
Net research and development expenses consist of costs incurred for the
development of new products and improvements to existing products less
third-party reimbursements under joint development programs, grants and research
and development contracts. Net research and development expenses increased to
$1.2 million for the nine months ended September 30, 1996 from $882,000, an
increase of 367,000 or 42% over the comparable period, and increased slightly as
a percentage of net sales to 9% from 8%. Reimbursements under joint development
programs increased to $1.3 million from $795,000. Total product technology
expenditures increased to $3.1 million from $1.9 million, an increase of $1.2
million or 68% over the comparable period, due primarily to the acceleration of
work on the Model 900UDx(R) prior to its launch, commercial refinements to The
White IRIS(R) following FDA clearance in preparation of its launch and the
addition of research and development staff from PSI.
Amortization of intangible assets reflects the amortization of
deferred expenses for warrants issued in connection with joint development
projects, intangible assets arising from acquisitions and patents. See
"-- Overview" and "-- Liquidity and Capital Resources." Amortization of
intangible assets for the nine months ended September 30, 1996 increased to
$446,000 for the nine months ended September 30, 1996 from $130,000, an increase
of $316,000 or 243% over the comparable period, primarily as a result the
issuance of warrants in connection with the development project with Poly and
the acquisition of intangible assets in the PSI Acquisition. See "-- Liquidity
and Capital Resources."
The results of operations for the nine months ended September 30, 1996
include additional charges to earnings of $1.3 million during the third quarter
for the write-off of deferred offering costs, litigation expenses and
reductions in the net realizable value of inventory and other assets. Due to
the Company's decision not to pursue a previously announced public offering,
the Company recognized $824,000 of expenses associated with the offering. See
"-- Liquidity and Capital Resources." The charge to earnings also includes
$301,000 for expenses related to ongoing litigation with Intelligent Medical
Imaging, Inc. and an arbitration with TOA Medical Electronics, Inc. and
$191,000 for reductions in the net realizable value of inventory and other
assets. The Company does not expect these charges to recur, except that
litigation and arbitration expenses will continue during the fourth quarter and
perhaps beyond. The Company expects a decision in the arbitration
during the fourth quarter, and the prevailing party is expected to recover
attorney fees (estimated at $250,000 or more) from the other party. The
Company also expects to incur an additional charge to earnings of approximately
$300,000 in the fourth quarter of 1996 for severance and other incremental
costs associated with a recent restructuring of the Company's personnel. See
"-- Recent Developments."
Acquisition of in-process research and development for the nine months
ended September 30, 1996 reflects the PSI Acquisition which resulted in a
non-recurring charge against earnings of $7.2 million in the third quarter of
1996 for the acquisition of in-process research and development. Acquisition
of in-process research and development for the nine months ended September 30,
1995 reflects the acquisition of LDA which resulted in a non-recurring,
non-cash charge of $3.2 million against earnings in the second quarter of 1995
for the acquisition of in-process research and development (i.e.,
work-in-process not yet cleared by the FDA). The FDA cleared The White IRIS(R)
in May 1996.
Interest income consists of income from investments and decreased to
$182,000 for the nine months ended September 30, 1996 from $244,000 for the
comparable period, primarily as the result of decreased amounts of invested
cash during the 1996 period.
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Interest expense consists in 1996 primarily of interest indebtedness
incurred to finance the PSI Acquisition (consisting of the Term Loan, the
Subordinated Note and the Credit Facility). See "-- Liquidity and Capital
Resources" and "-- PSI and Other Recent Acquisitions." Interest expense
increased to $248,000 for the nine months ended September 30, 1996 from $41,000
for the comparable period due to the completion in July 1996 of the PSI
Acquisition.
Other income consists principally of royalties for sales of licensed
products and was $63,000 for the nine months ended September 30, 1996,
relatively unchanged from the comparable period.
The income tax benefit for the nine months ended September 30, 1996
was $3.5 million as compared to an income tax provision of $32,000 for the
comparable period in 1995. The effective tax rate (benefit) increased to
(38)% for the nine months ended September 30, 1996 from 3% for the 1995 period
(before non-recurring charges) due to management's assessment that it is more
likely than not that the net operating loss generated in 1996 will be realized
through future taxable income. For the nine months ended September 30, 1995,
the income tax benefit from the utilization of net operating loss carryforwards
was recognized in the period of utilization.
The above factors contributed to a net loss of $5.7 million, or $0.90
per share, for the nine months ended September 30, 1996 as compared to a net
loss of $1.9 million, or $0.34 per share, for the nine months ended September
30, 1995. Excluding the charges to earnings for the acquisition of in-process
research and development from PSI and LDA and the $1.3 million of additional
charges to earnings discussed above, the Company would have had a net loss of
approximately $420,000, or $0.07 per share, and net income of $1.2 million, or
$0.18 per share, for the nine month periods ended September 30, 1996 and
1995, respectively.
Comparison of Three Months Ended September 30, 1996 to Three Months Ended
September 30, 1995
Net sales for the three months ended September 30, 1996 increased to
$5.5 million from $3.7 million, an increase of $1.8 million or 48% over the
comparable period of the prior year. Sales of IVD imaging systems increased to
$1.8 million from $1.1 million, an increase of $642,000 or 57% over the
comparable period. The increase was due to the addition of the PowerGene(TM)
family of genetic analyzers to the Company's product line in August 1996,
partially offset by a decline in sales of The Yellow IRIS(R) urinalysis
workstations in the third quarter of 1996. See "-- Comparison of Nine Months
Ended September 30, 1996 to Nine Months Ended September 30, 1995." Sales of
IVD imaging system supplies and service increased to $2.4 million from $1.8
million, an increase of $666,000 or 38% over the comparable period, due to the
larger installed base of IVD imaging systems and the ongoing conversion of the
installed base to the new CHEMSTRIP(R)/IRIStrip(TM) urine test strips. As of
September 30, 1996, the Company had converted approximately 85% of the
installed base of The Yellow IRIS(R) systems from test strips marketed by
various distributors to the new test strips marketed exclusively by the
Company. Sales of small instruments and supplies increased to $1.3 million
from $854,000 million, an increase of $492,000 or 58%, over the comparable
period. The increase reflects generally higher sales levels of StatSpin
products, as well as the addition of the Cen-Slide(R) urine sediment analysis
system in March 1996 and the product line acquired from Biovation in March
1995. See "-- PSI and Other Recent Acquisitions."
Cost of goods for IVD imaging systems increased as a percentage of
sales of IVD imaging systems to 53% for the three months ended September 30,
1996 from 48% for the comparable period due primarily to the addition of the
Model 900UDx(TM) to the product line and amortization of certain fixed costs
for IVD imaging systems over a smaller volume of system sales. These factors
were partially offset by the addition of the higher-margin PowerGene(TM) family
of genetic analyzers to the Company's product line in August 1996. See
"-- Comparison of Nine Months Ended September 30, 1996 to Nine Months Ended
September 30, 1995."
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Cost of goods for IVD imaging system supplies and service increased as a
percentage of sales of such products to 63% for the three months ended September
30, 1996 from 45% for the comparable period primarily due to relatively lower
gross margins on sales of CHEMSTRIP(R)/IRIStrip(TM) urine test strips which
accounted for a greater proportion of sales of system supplies, as well as a
decline in gross margin on certain other IVD imaging system supplies and
service. Cost of goods for small instruments and supplies decreased as a
percentage of sales of small instruments and supplies to 55% for the three
months ended September 30, 1996 from 56% for the comparable period. The net
result of these changes and the overall change in product mix was a decrease in
aggregate gross margin to 42% for the three months ended September 30, 1996 from
52% for the comparable period.
Marketing and selling expenses increased to $1.5 million for the three
months ended September 30, 1996 from $731,000, an increase of $804,000 or 110%
over the comparable period, and increased as a percentage of net sales to 28%
from 20%, due to the addition of PSI's direct sales force in August 1996, lower
sales of The Yellow IRIS(R) workstation, increased trade show expenses and
increased spending on direct sales and after-sales support. See "-- Comparison
of Nine Months Ended September 30, 1996 to Nine Months Ended September 30,
1995."
General and administrative expenses increased to $1.1 million for the
three months ended September 30, 1996 from $435,000, an increase of $637,000 or
147% over the comparable period, and increased as a percentage of net sales to
19% from 12%, primarily as a result of an increase in the allowance for doubtful
accounts, incremental costs associated with the addition of the business
acquired from PSI, increased legal and accounting expenses, increased facilities
costs and the addition of personnel to the administrative staff.
Net research and development expenses increased to $658,000 for the
three months ended September 30, 1996 from $218,000, an increase of $440,000 or
202% over the comparable period, due principally to increased expenditures self
funded by the Company, and increased as a percentage of net sales to 12% from
6%. Total product technology expenditures increased to $1.3 million from
$473,000, an increase of $818,000 or 173% over the comparable period, due
primarily to commercial refinements to The White IRIS(R) following FDA
clearance in preparation of its launch and enhancements to the Model
900UDx(TM) and the addition of research and development staff from PSI.
Amortization of intangible assets for the three months ended September
30, 1996 increased to $266,000 from $47,000, an increase of $219,000 or 468%
over the comparable period, primarily as a result the issuance of warrants in
connection with the development project with Poly and the acquisition of
intangible assets in the PSI Acquisition. See "-- Liquidity and Capital
Resources."
The results of operations for the three months ended September 30,
1996 include additional charges to earnings of $1.3 million during the period
for the write-off of deferred offering costs, litigation expenses and
reductions in the net realizable value of inventory and other assets. See
"-- Comparison of Nine Months Ended September 30, 1996 to Nine Months Ended
September 30, 1995."
Acquisition of in-process research and development for the three
months ended September 30, 1996 reflects the PSI Acquisition which resulted in
a non-recurring charge against earnings of $7.2 million in the third quarter of
1996 for the acquisition of in-process research and development.
Interest income decreased to $45,000 for the three months ended
September 30, 1996 from $69,000 for the comparable period, primarily as the
result of decreased amounts of invested cash during the 1996 period.
-7-
<PAGE> 8
Interest expense increased to $243,000 for the three months ended
September 30, 1996 from $4,000 for the comparable period due to indebtedness
incurred in July 1996 to finance the PSI Acquisition. See "-- Liquidity and
Capital Resources."
Other income was $31,000 for the three months ended September 30, 1996
for sales of licensed products.
The income tax benefit for the three months ended September 30, 1996
was $3.7 million as compared to an income tax provision of $4,000 for the
comparable period in 1995. The effective tax rate increased to 37% for the
three months ended September 30, 1996 due to management's assessment that it is
more likely than not that the net operating loss generated in 1996 will be
realized through future taxable income. For the three months ended September
30, 1995, the income tax benefit from the utilization of net operating loss
carryforwards was recognized in the period of utilization.
The above factors contributed to net loss of $6.3 million, or $0.98
per share, for the three months ended September 30, 1996 as compared to net
income of $564,000, or $0.09 per share, for the three months ended September
30, 1995. Excluding the charge to earnings for the acquisition of in-process
research and development from PSI and the $1.3 million of additional charges to
earnings discussed above, the Company would have had a net loss of
approximately $850,000 or $0.13 per share, for the three month period ended
September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments decreased to $791,000
(excluding $1.8 million in restricted short-term investments pledged to the
Bank) at September 30, 1996 from $6.2 million at December 31, 1995. The
decrease is primarily attributable to the third quarter operating loss, StatSpin
and PSI acquisition expenses, increased levels of inventory and accounts
receivable, the acquisition of the Cen-Slide(R) urine sediment analysis system
and the purchase of additional manufacturing and office equipment. Inventory
levels during the first nine months of 1996 increased to $4.6 million from $2.9
million. This increase was primarily due to the addition of PSI products and
the Model 900UDx(TM) to the product line, as well as the additional inventory of
supplies and spare parts required to support the growing size of the installed
base of IVD imaging systems. Total accounts receivable increased to $5.9
million at September 30, 1996 from $3.8 million at December 31, 1995. This
increase was the result of higher sales levels generated by the addition of the
PowerGene(TM) family of genetic analyzers to the Company's product line in
August 1996.
In the nine months ended September 30, 1996, the Company expended
$717,000 for capital equipment, primarily for manufacturing and office
equipment, and $538,000 in capitalized software development. The Company
expended $821,000, $266,000 and $439,000 for capital equipment and $299,000,
$25,000 and $81,000 in capitalized software development in 1995, 1994 and 1993,
respectively. The Company does not presently have any material commitments for
capital expenditures. However, the Company expects a decision in the
arbitration with TOA Medical Electronics, Inc. during the fourth quarter, and
the prevailing party is expected to recover attorney fees (estimated at $250,000
or more) from the other party.
During the nine months ended September 30, 1996, the Company generated
cash of $283,000 from stock sales to employees under the Company's stock option
and purchase plans and from exercises of stock options assumed in connection
with the StatSpin acquisition. The Company generated cash of $1.7 million,
$356,000 and $206,000 in 1995, 1994 and 1993, respectively, from exercises of
outstanding warrants issued
-8-
<PAGE> 9
in connection with the formation of LDA and stock sales to employees under the
Company's stock option and purchase plans.
In September 1995, the Company purchased the Corange Securities at
their original aggregate purchase price of $2.1 million. The Company has not
yet paid the purchase price which is due on or before December 31, 1996. See
"-- Overview."
On July 31, 1996, the Company completed the PSI Acquisition for
approximately $16.1 million in cash plus a five-year warrant to purchase
875,000 shares of the Company's Common Stock at $8.00 per share. The Company
financed the cash portion of the purchase price with (i) a $7.0 million
principal amount subordinated note issued to PSI's parent company (the
"Subordinated Note"), (ii) a $7.8 million term loan from City National Bank
(the "Bank") (the "Term Loan") and (iii) $1.3 million loan drawn under a new
revolving line of credit with the Bank (the "Credit Facility").
The Subordinated Note bears interest at a fixed rate of 8.5% per annum
payable in quarterly installments. The entire principal amount is due on or
before July 31, 2001. The Company may prepay the Subordinated Note at any time
without premium or penalty. Under the terms of the Subordinated Note, upon the
issuance by the Company of equity securities generating net proceeds in excess
of $14.5 million, the Company shall apply fifty percent of the excess to the
prepayment of the Subordinated Note. The payment of principal and interest on
the Subordinated Note is subordinated in right of payment, to the extent and in
the manner provided therein, to the prior payment in full of all indebtedness
to the Bank.
The Term Loan is collateralized by a first priority lien on all the
assets of the Company and bears interest monthly at the Bank's prime rate
(8.25% as of October 31, 1996) plus 0.25% through December 1, 1996 and 1.0%
thereafter. The Company is required to repay $1.8 million of principal on or
before December 1, 1996, $100,000 of principal each month thereafter commencing
January 1, 1997 and the balance of $4.7 million on or before January 15, 1998.
The Company may prepay the Term Loan at any time without premium or penalty.
In November, the Company prepaid the December 1, 1996 principal payment of $1.8
million through the liquidation of certain short-term investments previously
pledged to the Bank and thereby reduced the outstanding principal balance of
the Term Loan to $6.0 million. The Term Loan imposes substantially the same
operating and financial covenants on the Company as the Credit Facility
(discussed below).
The Company established the Credit Facility in July 1996. Under the
terms of the Credit Facility, the Company can borrow and reborrow up to a
maximum principal amount of $1.5 million at a variable interest rate equal to
the Bank's prime rate (8.25% as of October 31, 1996). The Company had
approximately $200,000 of unused credit available under the Credit Facility at
October 31, 1996. The Credit Facility matures June 1, 1997 and is
collateralized by a first priority lien on all of the assets of the Company.
The Credit Facility imposes certain operating and financial covenants on the
Company, including, among other things, (i) financial covenants regarding
minimum tangible net worth, a minimum fixed charge coverage ratio, a maximum
ratio of senior liabilities to tangible net worth and a minimum ratio of
current assets to current liabilities, (ii) restrictions on the disposition of
assets other than in the ordinary course of business, (iii) covenants to
maintain the Company's assets and appropriate insurance coverage and (iv)
covenants to deliver from time to time certain financial and other information.
As of September 30, 1996, the Company was no longer in compliance with
the financial covenants of the Term Loan or the Credit Facility. The failure
to comply with such covenants constitutes an event of default under the Term
Loan and the Credit Facility. The Company is requesting that the Bank waive
the event of default. If the Bank declines to grant the waiver, the Bank may
exercise its rights under the
-9-
<PAGE> 10
applicable agreements which include, among other things, the right to declare
the Term Loan and the Credit Facility immediately due and payable and the right
to sell, lease or otherwise dispose of the Company's assets in satisfaction of
the debt. An election by the Bank to accelerate either the Term Loan or the
Credit Facility would constitute an event of default under the Subordinated Note
and entitle the holder thereof to similarly declare the Subordinated Note
immediately due and payable. A decision by the Bank to exercise its rights
under the Term Loan or Credit Facility for an event of default would have a
material adverse effect on the Company.
Assuming that the Company meets its planned goals for increased sales,
reduced operating expenses and improved collection of accounts receivable, the
Company believes that its current cash on hand plus short-term investments,
together with cash generated by operations, will be sufficient to fund normal
operations and pay interest on outstanding debt obligations for at least the
next year. However, there can be no assurance that these goals will be
achieved. In addition, the Company will require outside financing to fund
additional principal payments under the Term Loan and the Credit Facility for at
least the next year and to pay the purchase price for the Corange Securities at
year end. The remaining payments on these obligations (excluding interest)
total $2.1 million, $2.5 million and $4.8 million in 1996, 1997 and 1998,
respectively. Absent an event of default under the Subordinated Note, the
Company is not obligated to pay any principal on the Subordinated Note until its
maturity on July 31, 2001.
In September 1996, the Company filed a registration statement with the
Securities and Exchange Commission for an underwritten public offering by the
Company of 3,000,000 shares of its Common Stock. Based on the price of the
Common Stock at that time, the public offering was expected to generate net
proceeds of $20 million or more. The net proceeds of the offering were to be
used primarily to purchase the Corange Securities and to reduce outstanding
indebtedness incurred to finance the PSI Acquisition. The Company has elected
not to pursue the public offering at this time and, alternatively, plans to
pursue a significantly smaller financing transaction to fund the purchase price
for the Corange Securities and part or all of the remaining principal payments
under the Term Loan and the Credit Facility. The Company is not presently in
negotiations for such financing and there can be no assurance that the Company
can secure adequate financing on favorable terms, if at all. If the Company is
unable to obtain such financing or the Bank elects to accelerate the maturity
of the Term Loan or Credit Facility in the interim, the Company will be unable
to make the required payments under the Term Loan or the Credit Facility or to
purchase the Corange Securities. Under those circumstances, in order to
continue operations the Company would have to pursue an arrangement with its
creditors to reschedule the Company's debts, either voluntarily or
involuntarily.
In September 1995, the Company and Poly entered into a research and
development agreement to develop the Poly Products using the Company's
technology. These products are intended to have dual potential as both
stand-alone products and enhancements to The Yellow IRIS(R) family of
urinalysis workstations. Under the terms of this agreement, Poly will have the
right to use Company technology and any newly-developed technology for
developing, manufacturing and marketing the Poly Products as stand-alone
devices, and the Company will have the right to use the newly-developed
technology for any other purpose and to incorporate the Poly Products into The
Yellow IRIS(R) family of products. Poly has retained the Company to conduct
research, development, clinical evaluation and premarket testing of the Poly
Products. The Company is funding the first $15,000 per month (up to a maximum
of $500,000) of the cost of the project, and Poly is reimbursing the Company
for the excess. Poly was organized by the Company in June 1995 and
subsequently raised net proceeds of approximately $2.0 million in a private
offering. The Company has an option until 121 days after termination of the
agreement with Poly to acquire all of the common stock of Poly for an aggregate
price increasing on August 1, 1997 from $4.4 million to $5.1 million payable in
cash or shares of Common Stock of the Company. If the Company elects to
exercise its option, the portion of the net cost of the acquisition allocated
to completed products would be capitalized and its
-10-
<PAGE> 11
subsequent amortization would impact future earnings. For the portion of the
net cost of the acquisition allocated to in-process research and development,
the Company would record a nonrecurring, noncash (if purchased with Common
Stock), charge against then current earnings.
PSI AND OTHER RECENT ACQUISITIONS
In 1995, the Company began implementing a strategy to achieve global
IVD imaging leadership by expanding its product line of IVD imaging systems and
adding complementary lines of small instruments and supplies.
In July 1996, IRIS consummated the PSI Acquisition for approximately
$16.1 million plus a five-year warrant to purchase 875,000 shares of Common
Stock at $8.00 per share. See "-- Liquidity and Capital Resources." For the
nine months ended September 30, 1996, total revenues from the IVD imaging
business acquired from PSI (the last two months of which are included in the
Company's revenues) increased to $4.9 million from $3.7 million, an increase of
$1.2 million or 32% over the comparable period of the prior year. This
business generated total revenues of $5.4 million, $4.3 million and $3.0
million in 1995, 1994 and 1993, respectively, reflecting annual increases of
25% and 46%, respectively.
PSI had an international presence and generated 55% and 56% of its
total revenue from international sales of the PowerGene(TM) product line for
the six months ended June 30, 1996 and the twelve months ended December 31,
1995, respectively. With the PSI Acquisition, the Company acquired PSI's
foreign subsidiary headquartered in Chester, England that supports agents and
distributors in more than thirty-five countries. Prior to the acquisition, the
Company's international sales were not significant. The Company intends to
market all of its products globally through the international subsidiary
acquired from PSI and to enhance domestic sales of the PowerGene(TM) product
line through the Company's existing operations. The Company has not yet
applied for regulatory clearances or approvals to market The Yellow IRIS(R) or
The White IRIS(R) in most of the foreign countries served by its foreign
subsidiary, and there can be no assurance that the Company can secure the
necessary clearances and approvals in the relevant foreign jurisdictions. The
subsidiary acquired from PSI conducts business in various foreign currencies.
Consequently, fluctuations in exchange rates will affect the Company's future
consolidated operating results and such fluctuations could have an adverse
effect on the Company.
The Company also acquired additional research and development staff
from PSI. PSI expended $797,000, $410,000 and $152,000 for research and
development in 1995, 1994 and 1993, respectively. These expenditures were
offset by research and development grants from the National Aeronautics and
Space Administration and the National Institutes of Health totalling $489,000,
$317,000 and $66,000 in 1995, 1994 and 1993, respectively.
As a result of the PSI Acquisition, the Company recognized a charge
against earnings of $7.2 million in the third quarter of 1996 for the
acquisition of in-process research and development. In addition, interest
expense has increased substantially due to debt incurred in connection with the
PSI Acquisition. See "-- Liquidity and Capital Resources."
In March 1996, the Company purchased the Cen-Slide(R) 1500 System for
centrifugal urine sedimentation and manual microscopic examination and certain
other products for $788,000. The Company generated revenues from these products
of approximately $267,000 from the date of acquisition to September 30, 1996.
-11-
<PAGE> 12
In February 1996, the Company merged with StatSpin for approximately
340,000 shares of Common Stock and the assumption of options and warrants to
purchase an additional 126,000 shares of Common Stock in a pooling-of-interests
transaction for accounting purposes. Accordingly, the financial statements of
the Company have been retroactively restated for all periods presented to
include the financial position, results of operations and cash flows of
StatSpin. StatSpin manufactures special-purpose centrifuges,
application-specific consumable items and other small laboratory instruments.
Through this acquisition, the Company acquired sample preparation technologies
useful for future IVD imaging applications, as well as access to key
distributors for its small laboratory instruments and supplies. StatSpin had
net sales of $3.1 million for the nine months ended September 30, 1996 and $3.1
million for the twelve months ended December 31, 1995.
In June 1995, the Company purchased LDA for approximately 498,000
shares of Common Stock. LDA was a Company-sponsored research and development
entity which provided funding for The White IRIS(R) leukocyte differential
analyzer under a research and development agreement with the Company. See "--
Overview."
In March 1995, the Company purchased its digital refractometer product
line from Biovation for $850,000 and warrants to purchase 75,000 shares of
Common Stock at $8.125 per share. The Company generated revenues from this
product line of approximately $302,000 for the nine months ended September 30,
1996.
HEALTHCARE REFORM POLICIES
In recent years, an increasing number of legislative proposals have
been introduced or proposed in Congress and in some state legislatures that
would effect major changes in the healthcare system, nationally, at the state
level or both. Future legislation, regulation or payment policies of Medicare,
Medicaid, private health insurance plans, health maintenance organizations and
other third-party payors could adversely affect the demand for the Company's
current or future products and its ability to sell its products on a profitable
basis. Moreover, healthcare legislation is an area of extensive and dynamic
change, and the Company cannot predict future legislative changes in the
healthcare field or their impact on its business.
INFLATION
The Company does not foresee any material impact on its operations
from inflation.
RECENTLY-ISSUED ACCOUNTING STANDARDS
In December 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 123 ("SFAS No. 123"),
"Accounting for Stock Based Compensation." The Company will adopt the
disclosure method as provided for in SFAS No. 123.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of
("Statement 121"). Statement 121 addresses the accounting for the impairment
of long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used. Statement 121 also addresses the accounting
for long-lived assets and certain identifiable intangibles to be disposed of,
establishes guidance for recognizing and measuring impairment losses and
requires that the carrying amount of impaired assets be reduced to fair value.
Statement 121 was effective for fiscal years beginning after December 15, 1995.
The impact of the adoption of Statement 121 was not material to the Company's
September 30, 1996 financial statements.
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<PAGE> 13
FORWARD-LOOKING STATEMENTS
Except for historical information, the matters discussed above are
forward-looking statements that are subject to certain risks and uncertainties
that could cause actual results to differ materially from those set forth in
such forward-looking statements. In addition to those described above, such
risks and uncertainties include, among other things, the difficulties of
continuing penetration of the capital-intensive worldwide laboratory
instrument market, rapid technological change in the microelectronics and
software industries, increasing competition from imaging and non-imaging based
IVD products, unanticipated technological difficulties in gaining synergies,
and potential patent and other litigation with third parties. The Company's
most recent Form 10-K and other SEC filings describe these and other additional
factors that could cause actual results to differ materially from those
described in the forward-looking statements.
-13-
<PAGE> 1
Exhibit 2
FINANCIAL INFORMATION
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
A S S E T S DECEMBER 31, SEPTEMBER
1995 30, 1996
---- --------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,511,395 $ 38,259
Short-term investments - unrestricted 4,736,727 753,102
Short-term investments - restricted - 1,800,000
Accounts receivable-trade, net of allowance for doubtful
accounts of $87,759 in 1995 and $338,160 in 1996 3,786,119 5,860,541
Inventories 2,941,021 4,568,550
Prepaid expenses and other current assets 285,683 280,530
Deferred tax asset 919,489 919,489
----------- -----------
Total current assets 14,180,434 14,220,471
Property and equipment, at cost, net of accumulated depreciation 995,044 1,952,027
Purchased intangibles 915,649 10,543,756
Software development costs, net of accumulated amortization 298,030 1,085,587
Long term investments 100,000 -
Deferred tax asset 3,594,100 7,134,568
Other assets 2,119,288 1,997,465
----------- -----------
Total assets $22,202,545 $36,933,874
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 810,819 $ 3,173,940
Notes payable 185,633 9,100,000
Accrued expenses 1,238,599 3,906,081
Deferred income - service contracts 710,907 927,866
Deferred income - other - 467,438
----------- -----------
Total current liabilities 2,945,958 17,575,325
Notes payable - long term portion 125,000 7,000,000
Deferred income - service contracts 190,045 201,693
----------- -----------
Total liabilities 3,261,003 24,777,018
----------- -----------
Shareholders' equity:
Common stock, $.01 par value
Authorized: 15,600,000 shares
Issued and outstanding: 6,292,408 in 1995
6,389,654 in 1996 62,924 63,897
Additional paid-in capital 34,154,116 35,415,799
Treasury stock (96,473 shares in 1995 and 553,875 shares in 1996) (453,386) (2,783,328)
Unearned compensation (95,884) (120,478)
Accumulated deficit (14,726,228) (20,419,034)
----------- -----------
Total shareholders' equity 18,941,542 12,156,856
----------- -----------
Total liabilities and shareholders' equity $22,202,545 $36,933,874
=========== ===========
</TABLE>
<PAGE> 1
Exhibit 3
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the nine months ended
-------------------------
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
---- ----
<S> <C> <C>
Sales of IVD imaging systems $3,274,247 $ 3,957,864
Sales of IVD imaging systems supplies and service 4,933,365 6,598,176
Sales of small instruments and supplies 2,419,189 3,714,959
------------ ------------
Net sales 10,626,801 14,270,999
------------ ------------
Cost of goods - IVD imaging systems 1,494,079 2,055,767
Cost of goods - IVD imaging system supplies and service 2,366,818 3,618,566
Cost of goods - small instruments and supplies 1,389,672 1,990,301
------------ ------------
Cost of goods sold 5,250,569 7,664,634
------------ ------------
Gross margin 5,376,232 6,606,365
Marketing and selling 2,084,717 3,229,417
General and administrative 1,298,258 2,343,546
Research and development, net 882,081 1,249,487
Amortization of intangibles 130,150 446,466
Aborted offering, litigation, and other - 1,317,415
Acquisition of in-process research and development 3,175,645 7,250,000
------------ ------------
Total operating expenses 7,570,851 15,836,331
------------ ------------
Operating loss (2,194,619) (9,229,966)
Other income (expense):
Interest income 243,769 181,764
Interest expense (40,676) (248,060)
Other income 67,848 62,685
------------ ------------
Loss before provision (benefit) for income taxes (1,923,678) (9,233,577)
Provision (benefit) for income taxes 31,500 (3,540,771)
------------ ------------
Net loss $ (1,955,178) $ (5,692,806)
============ ============
Net loss per share ($.34) ($.90)
============ ============
Weighted average number of common shares outstanding for the period
5,745,786 6,343,723
============ ============
</TABLE>
-1-
<PAGE> 2
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the three months ended
--------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
---- ----
<S> <C> <C>
Sales of IVD imaging systems $ 1,123,924 $ 1,766,239
Sales of IVD imaging systems supplies and service 1,766,124 2,431,882
Sales of small instruments and supplies 853,593 1,345,327
------------ -------------
Net sales 3,743,641 5,543,448
------------ -------------
Cost of goods - IVD imaging systems 536,693 933,958
Cost of goods - IVD imaging system supplies and service 799,730 1,522,617
Cost of goods - small instruments and supplies 475,658 743,866
------------ -------------
Cost of goods sold 1,812,081 3,200,441
------------ -------------
Gross margin 1,931,560 2,343,007
Marketing and selling 730,648 1,534,792
General and administrative 434,619 1,072,227
Research and development , net 218,091 658,263
Amortization of intangibles 46,781 265,591
Aborted offering, litigation, and other - 1,317,415
Acquisition of in-process research and development 7,250,000
------------ -------------
Total operating expenses 1,430,139 12,098,288
------------ -------------
Operating income (loss) 501,421 (9,755,281)
Other income (expense):
Interest income 68,755 45,124
Interest expense (4,057) (242,694)
Other income 899 30,958
------------ ------------
Income (loss) before provision (benefit) for income taxes 567,018 (9,921,893)
Provision (benefit) for income taxes 3,200 (3,671,059)
------------ --------------
Net income (loss) $ 563,818 $ (6,250,834)
============ ==============
Net income (loss) per share $ .09 ($.98)
============ ==============
Weighted average number of common shares and common
share equivalents outstanding for the period 6,563,612 6,383,543
============ ============
</TABLE>
-2-
