<PAGE>   1
                                  United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                  FORM 10-QSB

                                   (MARK ONE)

[x]      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 For the Period Ended September 30, 1999.

[ ]      Transition Report Pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 For the Transition Period From ____________ to
         ______________.

Commission file number 1-12471

                        INTEGRATED SURGICAL SYSTEMS, INC.
             (Exact Name of registrant as specified in its charter)

           Delaware                                              68-0232575
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

1850 Research Park Drive
Davis, CA                                                         95616-4884
(Address of principal executive offices)                          (Zip Code)

                                  530-792-2600
              (Registrant's telephone number, including area code)

                 829 West Stadium Lane, Sacramento, CA 95834
                               (former address)

                                 Not applicable
               (Former name, and former fiscal year, if changed
                               since last report)

     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 Act of 1934
     during the preceding 12 months (or for such shorter periods 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 ___

                Applicable Only to Issuers Involved in Bankruptcy
                   Proceedings During the Preceding Five Years

      Indicate by check mark whether the registrant has filed all documents and
      reports required to be filed by Sections 12, 13 or 15(d) of the Securities
      Exchange Act of 1934 subsequent to the distribution of securities under a
      plan confirmed by the court. Yes ___ No ___

                      Applicable Only to Corporate Issuers

      Indicate the number of shares outstanding of each of the issuer's classes
      of common stock, as of the latest practical date.

      Common Stock $.01 Par Value - 9,091,963 shares as of November 1, 1999.
<PAGE>   2
                        INTEGRATED SURGICAL SYSTEMS, INC.

                                      Index

<TABLE>
<S>    <C>
Part I.  Financial Information

Item 1.  Financial Statements (Unaudited)

         Consolidated Balance Sheet - September 30, 1999

         Consolidated Statements of Operations - Three months ended
         September 30, 1999 and 1998 - Nine months ended September 30, 1999 and
         1998

         Consolidated Statements of Cash Flows - Nine months ended
         September 30, 1999 and 1998

         Notes to Consolidated Financial Statements - September 30, 1999

Item 2.  Management's Discussion and Analysis or Plan of Operation

Part II. Other Information

Item 2.  Changes in Securities
Item 6.  Exhibits and Reports on Form 8-K

Signatures
</TABLE>



<PAGE>   3
PART I. FINANCIAL INFORMATION
          ITEM 1. FINANCIAL STATEMENTS

                       INTEGRATED SURGICAL SYSTEMS, INC.
                           CONSOLIDATED BALANCE SHEET
                                  (UNAUDITED)

<TABLE>
<CAPTION>
ASSETS                                                      September 30, 1999
Current Assets:

<S>                                                           <C>
     Cash and cash equivalents ............................         $566,135
     Short-term investments................................           46,042
     Accounts receivable ..................................        2,222,761
     Inventory ............................................        3,399,217
     Other current assets .................................          514,286
                                                              --------------
Total current assets ......................................        6,748,441

Property and equipment, net ...............................        1,064,274
Leased equipment, net .....................................          661,019
Long-term net investment in sales type leases .............          565,126
Intangible assets, net ....................................        2,385,698
Other assets ..............................................          247,205
                                                              --------------
Total assets                                                     $11,671,763
                                                              ==============
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

     Accounts payable .....................................       $1,111,107
     Value-added taxes payable ............................           69,080
     Accrued payroll and related expenses .................          441,874
     Customer deposits ....................................        1,253,957
     Accrued product retrofit costs .......................          135,348
     Current portion of bank loans ........................          142,507
     Other current liabilities ............................        1,111,105
                                                              --------------
Total current liabilities .................................        4,264,978

Note payable ..............................................          162,200

Commitments and contingencies

Stockholders' equity:

     Convertible preferred stock, $0.01 par value
      1,000,000 shares authorized; 5,826 shares issued
      and outstanding ....................................                58
      ($5,826,000 aggregate liquidation value)
     Common stock, $0.01 par value, 50,000,000 shares
      authorized; 9,019,124 shares issued and outstanding .           90,191
     Additional paid-in capital ...........................       49,850,025
     Deferred stock compensation ..........................          (39,783)
     Preferred stock discount .............................         (273,750)
     Accumulated other comprehensive loss .................         (414,369)
     Accumulated deficit ..................................      (41,967,787)
                                                              --------------
Total stockholder's equity ................................        7,244,585
                                                              --------------
                                                                 $11,671,763
                                                              ==============
</TABLE>


                See notes to consolidated financial statements.
<PAGE>   4
                        INTEGRATED SURGICAL SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED            NINE MONTHS ENDED
                                                    SEPTEMBER 30,                 SEPTEMBER 30,
                                               ------------------------     -------------------------
                                                   1999        1998            1999           1998
                                               -----------   ----------     -------------------------
<S>                                            <C>           <C>            <C>          <C>
Net Sales ...................................  $ 2,269,044   $   777,894     $ 5,185,003  $ 4,188,474
Cost of Sales ...............................    1,241,486       432,881       2,793,103    2,033,764
                                               -----------   -----------     -----------  -----------
                                                 1,027,558       345,013       2,391,900    2,154,710
Operating expenses:
   Selling, general and administrative ......    1,327,700     1,607,875       4,399,672    4,768,347
   Research and development .................    1,436,468     1,770,890       4,262,414    5,126,043
   Stock compensation .......................       15,285        32,925          45,856       68,925
                                               -----------   -----------     -----------  -----------
                                                 2,779,453     3,411,690       8,707,942    9,963,315
Other income (expense):
   Interest income ..........................       36,317        56,074         176,533      221,710
   Other ....................................      (71,174)      102,659        (352,643)     172,465
                                               -----------   -----------     -----------  -----------

Loss before provision for income taxes ......   (1,786,752)   (2,907,944)     (6,492,152)  (7,414,430)
Provision for income taxes ..................       53,809        15,000          84,068       39,196
                                               -----------   -----------     -----------  -----------
Net loss ....................................   (1,840,561)   (2,922,944)     (6,576,220)  (7,453,626)

Preferred stock accretion ...................     (659,996)      (68,412)     (1,168,603)     (68,412)
                                               -----------   -----------     -----------  -----------
Net loss applicable to common stockholders...  $(2,500,557)  $(2,991,356)    $(7,744,823) $(7,522,038)
                                               ===========   ===========     ===========  ===========

Basic net loss per common share .............      $ (0.28)      $ (0.53)       $  (1.09)    $  (1.35)

Shares used in computing basic net loss
  per-share .................................    8,873,184     5,632,477       7,102,218    5,575,810
</TABLE>

See notes to consolidated financial statements
<PAGE>   5
                       INTEGRATED SURGICAL SYSTEMS, INC.
                    Consolidated Statements of Cash Flows
               Increase (Decrease) in Cash and Cash Equivalents
                                 (Unaudited)

<TABLE>
<CAPTION>

                                                                                  NINE MONTHS ENDED SEPTEMBER 30
                                                                                   1999                    1998
                                                                                ----------              ----------
<S>                                                                         <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES

Net loss .............................................................          ($6,576,220)          ($7,453,626)

Adjustment to reconcile net loss to net cash used in
    operating activities:
        Depreciation .................................................              435,094               340,801
        Amortization of intangible assets ............................              629,280               629,280
        Gain on sale of short term investments .......................              (50,626)
        Stock compensation ...........................................               45,855                71,585
        Issuance of stock options to consultants .....................              145,239               158,841
        Changes in operating assets and liabilities...................
             Accounts Receivable .....................................             (257,120)              149,435
             Inventory ...............................................             (393,559)           (2,169,993)
             Other current assets ....................................              (49,865)             (199,396)
             Accounts payable ........................................             (364,647)             (344,723)
             Value added taxes payable ...............................             (278,504)              294,020
             Accrued payroll and related expenses ....................              (29,404)              231,367
             Customer deposits .......................................              357,681               268,563
             Payable to subcontractors ...............................                ---                 (38,656)
             Other current liabilities ...............................              378,511               400,760
             Note Payable ............................................               19,000                10,792
                                                                            ----------------      ----------------
Net cash used in operating activities ................................           (5,989,285)           (7,650,950)
                                                                            ----------------      ----------------
CASH FLOWS FROM INVESTING ACTIVITIES

Sale of short term investments........................................            1,978,236            (1,784,729)
Net investments in sales type leases..................................             (363,295)               73,000
Purchases of property and equipment...................................             (168,137)             (891,040)
(Increase) decrease in other assets...................................               25,327              (450,996)
                                                                            ----------------      ----------------
Net cash provided by (used in) investing activities ..............                1,472,131            (3,053,765)
                                                                            ----------------      ----------------
CASH FLOWS FROM FINANCING ACTIVITIES

Payments on bank loans........ .......................................             (762,019)              (46,569)
Net proceeds from sale of preferred stock and warrants................            6,177,425             3,300,400
Proceeds financing leases.............................................                ---                 186,461
Payments of expenses EASDAQ offering..................................                ---                 (11,478)
Proceeds from sale of common stock warrants...........................               10,658                 6,930
Proceeds from exercise of stock options...............................                4,509                16,339
                                                                            ----------------       ---------------
Net cash provided by financing activities ..................                      5,430,573             3,452,083

Effect of exchange rate changes on cash
   and cash equivalents...............................................             (570,865)               76,477
                                                                            ----------------       ---------------
Net increase (decrease) in cash and cash equivalents .................              342,554            (7,176,155)

Cash and cash equivalents at beginning of period .....................              223,581             9,091,788
                                                                            ----------------       ---------------

Cash and cash equivalents at end of period ...........................             $566,135            $1,915,633
                                                                            ================       ===============

See notes to consolidated financial statements.

</TABLE>
<PAGE>   6
                        INTEGRATED SURGICAL SYSTEMS, INC.

Notes to Consolidated Financial Statements (Unaudited)


September 30, 1999

NOTE A - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the nine-month period ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999. For further information, refer to the consolidated financial statements
and footnotes thereto included in Integrated Surgical Systems, Inc.'s annual
report on Form 10-KSB for the year ended December 31, 1998.

NOTE B - INVENTORIES

The components of inventory consist of the following:

<TABLE>
<CAPTION>
                                    September 30, 1999
                                    ------------------
<S>                                <C>
             Raw Materials              $1,436,858
             Work in process               751,492
             Finished goods              1,210,867
                                        ----------
                                        $3,399,217
                                        ==========

</TABLE>

<PAGE>   7
NOTE C - CONVERTIBLE PREFERRED STOCK


In July 1999, the Company received net proceeds of approximately $2,825,000 from
the sale of 3,000 shares of Series E Convertible Preferred Stock ("Series E
Preferred Stock") and warrants ("Warrants") to purchase 37,500 shares of common
stock ("Common Stock"), par value $.01 per share.

The Series E Preferred Stock is convertible (the "Beneficial Conversion
Feature") into shares of Common Stock, at the option of the holder, commencing
October 28, 1999, subject to certain limitations, discussed below. The number
of shares of Common Stock issuable upon conversion of the Series E Preferred
Stock is equal to the quotient of (x) the product of $1,000 (the stated value of
each share of Series E Preferred Stock) and the number of shares of Series E
Preferred Stock to be converted and (y) 85% of the lowest sale price of the
Common Stock on the Nasdaq SmallCap Market during the five trading days
preceding the date of conversion (the "Market Price"), but in no event more than
$5.0625 (the "Conversion Price").

Holders of Series E Preferred Stock may convert 25% of their shares commencing
October 28, 1999, 50% of their shares commencing November 27, 1999, 75% of their
shares Commencing December 27, 1999 and 100% of their shares commencing January
26, 2000. The Company may require holders to convert all (but not less than all)
of the Series E Preferred Stock at any time after July 30, 2002, or buy out all
outstanding shares, at the then Conversion Price.

Holders of Series E Preferred Stock may convert 100% of their shares prior to
January 26, 2000 if the maximum conversion price of $5.0625 is exceeded on the
Nasdaq Small Cap Market.

The value assigned to the Beneficial Conversion Feature, as determined using the
quoted market price of the Company's common stock on the date the Series E
Preferred Stock was sold, amounted to $529,412, which represents a discount to
the value of the Series E Preferred Stock (the "Discount".) The Discount is
being accreted using the straight-line method through January 26, 2000.
Approximately $256,000 of the discount was accreted during the three month
period ended September 30, 1999.

Holders of Series E Preferred Stock are not entitled to dividends and have no
voting rights, unless required by law or with respect to certain matters
relating to the Series E Preferred Stock.

The Company may redeem the Series E Preferred Stock upon written notice to the
holders of the Series E Preferred Stock at any time after the earlier of
January 30, 2000 and the closing of a registered firm underwritten secondary
offering of equity securities, at a redemption price equal to the greater of
$1,500 per share and the Market Price of the Shares of Common Stock into which
such Series E Preferred Stock could  have been converted on the date of the
notice of redemption.

The Warrants are exercisable at any time during the period commencing January
30, 2000 and ending January 29, 2004, at an exercise price of $3.7294, subject
to adjustment. The Conversion Price and the number of shares of Common Stock
issuable upon conversion are subject to adjustment based upon certain future
events.


NOTE D - NET LOSS PER SHARE


In 1997, the Financial Accounting Standards Board ("FASB") issued Statement No.
128, Earnings Per Share.  Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities.  Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share.  All net loss per share amounts have been presented on the
basis set forth in Statement 128.


As of September 30, 1999, outstanding options to purchase 1,340,562 shares of
Common Stock (with exercise prices ranging from $0.07 to $8.63) and outstanding
warrants to purchase 5,334,056 shares of Common Stock (with exercise prices
ranging from $0.01 to $6.16) could potentially dilute basic earnings per share
in the future and have not been included in the computation of diluted net loss
per share because to do so would have been antidilutive for the periods
presented.

<PAGE>   8
NOTE E - ACCUMULATED OTHER COMPREHENSIVE LOSS

As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting
and display of comprehensive income and its components. Statement 130 requires
unrealized gains or losses on the Company's available-for-sale securities and
the foreign currency translation adjustments, which prior to adoption were
reported separately in stockholders' equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to the requirements of Statement 130.

The following table sets forth the computation of comprehensive loss:

<TABLE>
<CAPTION>
                                                             Three Months Ended                        Nine Months Ended
                                                                September 30,                             September 30,
                                                        ------------------------------            ------------------------------
                                                          1999                 1998                 1999                 1998
                                                        ---------            ---------            ---------            ---------
<S>                                                    <C>                  <C>                  <C>                  <C>
Net loss........................................       (1,840,561)          (2,922,944)           (6,576,220)          (7,453,626)
Other comprehensive income:
Unrealized gain (loss) on available
       for sale securities......................                0               16,956               (50,626)              16,956
Foreign currency translation....................           73,130               52,568              (570,959)              76,477
                                                        ---------            ---------             ---------            ---------
Comprehensive loss..............................       (1,767,431)          (2,853,420)           (7,197,805)          (7,360,193)
</TABLE>

NOTE F -- SUBSEQUENT EVENT

On May 25th the Company entered into a definitive letter of intent with ILTAG
International Licensing Holding S.A.L., as lead investor, to sell an equity
interest in the Company. This transaction is subject to the approval of
Stockholders. If approved, three investors will purchase an aggregate of
2,922,396 shares of common stock and warrants to purchase an additional number
of shares of common stock that would give them 40% of the fully diluted common
stock, for a purchase price of $4 million. The exercise price of the warrants
will be $1.02656 per share. As a condition of the sale, the investors, or their
representatives will become three of the five members of the Board of Directors
of the Company. The three investors are ILTAG International Licensing Holding
S.A.L., Bernd Herrmann and Urs Wettstein. The Stockholders' vote on this issue
is planned for mid-November 1999. The Board of Directors recommends that
Stockholders approve the transaction.
<PAGE>   9
     9

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Results of Operations

Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998

     Net Sales.  Net sales for the nine months ended September 30, 1999 (the
"1999 Interim Period") were approximately $5,185,000, largely attributable to
the sale of six ROBODOC systems, as compared to nine months ended September 30,
1998 (the "1998 Interim Period") of approximately $4,188,000, which included the
sale of five ROBODOC systems. In addition to the sale of six systems, a seventh
system was shipped to a customer subject to an operating lease agreement, and
during the 1999 interim period, an eighth system was installed at another site,
but not recognized as a sale since all Company obligations had not yet been
concluded.

     Results for the first nine months of 1999 were lower than anticipated given
the strong order activity experienced in the fourth quarter of 1998 after the
introduction of the Company's proprietary pinless registration technology.
Moreover, early in the second quarter, the Company's competitor fostered
uncertainty among potential customers in response to the resignation of the
Chief Executive Officer on April 28, 1999. As a result, new orders and sales in
the second quarter were below expectation.

     Cost of Sales.  Cost of sales for the 1999 Interim Period was approximately
$2,793,000 (54% of net sales) as compared to the 1998 Interim Period of
approximately $2,034,000 (49% of net sales). The higher cost as a percent of
sales in the 1999 Interim Period is a result of lower unit selling prices
attributable to two customers purchasing more than one ROBODOC system.

     Selling, General and Administrative.  Selling, general and administrative
expenses for the 1999 Interim Period (approximately $4,400,000) decreased by
approximately $368,000, or 8% as compared to the 1998 Interim Period
(approximately $4,768,000). European marketing costs increased approximately
$200,000 with the addition of two employees in sales and increased participation
in medical conferences and travel to potential customer sites.

     Research and Development.  Research and development expenses for the 1999
Interim Period (approximately $4,262,000) decreased by approximately $864,000,
or approximately 17%, as compared to the 1998 Interim Period (approximately
$5,126,000). Approximately 45% of the decrease in research and development
expense is attributable to efforts in 1998 to implement the quality system to
meet ISO 9000 standards not required in the 1999 Interim Period. Management, to
reduce spending to desired cash flow, initiated the remaining decrease. Lower
priority/return projects were delayed.
<PAGE>   10

     Stock Compensation.  Stock compensation expense during the 1999 Interim
Period was $46,000, $23,000 lower than the 1998 Interim Period ($69,000). The
Company charged to operations in 1996 deferred stock compensation relating to
stock options granted during 1996 with exercise prices less than the estimated
fair value of the Company's Common Stock, as determined by an independent
valuation analysis, on the date of grant. Deferred compensation for the
non-vested portion is being amortized into expense over the vesting period of
the stock options, which generally range from three to five years. Stock
compensation expense in the 1999 and 1998 Interim Periods represents the
additional vesting which occurred in the first nine months of 1999 and 1998.

     Interest Income.  Interest income for the 1999 Interim Period
(approximately $177,000) decreased by approximately $45,000, or 20%, as compared
to the 1998 Interim Period (approximately $222,000), primarily due to lower
average cash balances during the 1999 Interim Period.

     Other Income and Expense.  Other expense for the 1999 Interim Period was
approximately $353,000 compared to income of approximately $172,000 in the 1998
Interim Period. The increase in expense ($525,000) is primarily attributable to
an exchange rate loss associated with a weaker Dutch Guilder against the U.S.
dollar in the 1999 Interim Period. The Company does not currently hedge foreign
currency transactions against the U.S. dollar to minimize exchange rate gains or
losses. This activity is being considered.

     Net Loss.  The net loss for the 1999 Interim Period (approximately
$6,576,000) decreased by approximately $878,000, or approximately 12%, as
compared to the net loss for the 1998 Interim Period (approximately $7,454,000).

  LIQUIDITY AND CAPITAL RESOURCES

     Since inception, the Company's expenses have exceeded net sales and the
accumulated net loss at September 30, 1999 was $42 million. Operations have been
funded primarily from the issuance of debt and the sale of equity securities
aggregating approximately $42.9 million. In addition, the Company was the
beneficiary of proceeds from a $3 million key-man life insurance policy in 1993
upon the death of one of its executives.

<PAGE>   11


     In 1998, the Company established a $1.5 million revolving credit facility
with a bank. During 1999, the Company repaid the amount due under this line of
credit and terminated the agreement. The Company has an additional revolving
line of credit with Societe Generale Bank in Lyon, France, that requires
quarterly payment of approximately $26,000 per quarter. The revolving line of
credit was established in July 1996 for five years with interest accruing at
7.15% per annum. The amount available decreases quarterly by 5% of the original
amount beginning October 1996. The loan balance as of September 30, 1999 was
approximately $143,000.

     The Company received an interest free loan with a balance of $162,200 at
September 30, 1999 from the French agency Agence Nationale de Valorisation de la
Recherches, which is a French national agency established to aid research and
development projects. In the case of failure of the project, the grant
organization may decide to forgive all or part of the repayments. If the Company
sells either a license for the related technology, the prototype developed, or
articles manufactured specifically for the research project, 50% of the revenue
must be paid to the grant organization in the subsequent year, up to the balance
of the loan amount outstanding. According to the contract, any such payments
would be considered to be an advance repayment of the loan. The Company has not
made any sales of this type through September 30, 1999.

     The Company's use of cash in operating activities of approximately
$5,989,000 in the 1999 Interim Period decreased by approximately $1,662,000 as
compared to cash used in operating activities in the 1998 Interim Period of
approximately $7,651,000. Net cash used in operations in the 1999 Interim Period
was due primarily to inventory growth of approximately $394,000 and increased
accounts receivable of approximately $257,000, reductions in accounts payable of
$365,000 and Value-added taxes payable of $279,000 offset by increases in
customer deposits of $358,000, increases in other current liabilities of
$379,000 and changes in other operating assets and liabilities of $60,000.

     The Company's proceeds from investing activities of approximately
$1,472,000 in the 1999 Interim Period increased by approximately $4,526,000 as
compared to cash used for investing activities in the 1998 Interim Period of
approximately $3,054,000. The investment cash proceeds in the 1999 Interim
Period were derived primarily from the sale of short term investments to retire
loans. There are presently no significant equipment or plant expenditures
planned that would adversely impact liquidity.

     Cash provided by financing activities in the 1999 Interim Period was
approximately $5,431,000 and increased by approximately $1,979,000 as compared
to the financing activities during the 1998 Interim Period. In 1999 the Company
received aggregate net proceeds of approximately $6,177,000 from the sale of
convertible preferred stock and warrants.

     The Company's business is not inherently seasonal. However, because the
sales price of the Company's products are significant, the timing of customer
orders can cause revenue fluctuations from period to period which may give the
appearance of seasonality.

     The net proceeds from the Series A Preferred Stock financing, received in
the 3rd quarter of 1998, were used to fund the operations of the Company during
the fourth quarter of 1998 and first quarter of 1999. In the first nine months
of 1999, the Company received net proceeds from the Series B, C, D and E
Preferred Stock financings of approximately $6,177,000. Of this amount,
approximately $760,000 was used to pay bank loans, approximately $5,000,000,
together with approximately $1,000,000 of the remaining net proceeds from the
Series A Preferred Stock financing carried over into 1999, and was the Net Cash
Used in Operating Activities in the first nine months of 1999. The $5,989,000
Net Cash Used in Operating Activities in the first nine months of 1999
represents approximately $5,371,000 in cash operating losses, and $618,000
negative cash change in operating assets and liabilities.


<PAGE>   12

The Company believes, based upon its current business plan and existing cash
equivalents, that it has adequate capital to satisfy its immediate working
capital needs. However, there is no assurance that revenues from operations
will be adequate in the short term to fully execute the Company's business
plan, or that debt or future financing, if needed, will be available on terms
favorable to the Company.

YEAR 2000 COMPLIANCE

     The Company uses a wide variety of commercially available computers and
computer software in the normal course of business that are generally Y2K
compliant. The Company has potential Y2K exposure in two areas. First, the
Company's accounting and manufacturing system is not currently Y2K compliant and
could cause some disruption of business, if not upgraded by the end of 1999.
Secondly, the Company's products are computer controlled, however they are not
highly date sensitive, which minimizes the impact of any Y2K issues identified.

     The Company is in the process of upgrading its accounting and manufacturing
computer system and plans to complete the upgrade by the beginning of the fourth
quarter of 1999. The Company has completed initial investigations of its
products and concluded that there is minimal risk of system failure due to the
Y2K problem.

     Potential exposure in other areas is minimal. Any Y2K problems with the
Company's network or software used for research and development and engineering
could adversely affect research and development and engineering costs, but would
not immediately impact the ability to continue operations. Such issues could
also be quickly resolved with commercially available products. Many of the
Company's major product components have relatively long lead times. Temporary
interruptions in the Company's supplies caused by any year 2000 issues would not
significantly impact the Company's manufacturing schedule, or its ability to
service customers. As a contingency, the Company plans to identify readily
available alternative vendors for key components and use current inventory
stocks as a buffer in case of a vendor related Year 2000 problem. In general,
the Company has determined that there is a minimal exposure to year 2000
problems through third parties.

     The Company estimates it will need to spend less than $100,000 to become
year 2000 compliant. The majority of this cost relates to upgrading or replacing
the Company's accounting and manufacturing system. Expenses include the testing
conducted by the Quality Department, Engineering Department involvement in
testing and de-bugging, and the Service Department upgrades to customer
equipment if any such service is required.

     In the worst case scenarios, the Company believes that it would have
minimal business interruption due to any foreseeable Y2K problems. In connection
with the Company's accounting and manufacturing system, the Company's
contingency plan is to operate with manual accounting and manufacturing systems,
augmented by available third party Y2K compliant software, until planned
upgrades become operational. Management believes alternate vendors, and off the
shelf solutions will be available to solve any of the Company's undetected
problems. In addition, the Company is small enough to allow it to function with
manual operating procedures for short periods of time.

     Y2K project cost is based on management's best estimate and actual results
could differ from those anticipated. If the Company or its vendors are unable to
resolve the Y2K issues in a timely manner, or if there are significant
undetected Y2K issues, such matters could have a material impact on the
Company's results of operations. However, the Company believes the necessary
modifications and replacement of computer systems will be completed in 1999 and,
as a result, the Y2K issue is not expected to pose significant operational or
financial problems for the Company.

<PAGE>   13

EMPLOYEES

     Employees as of September 30, 1999 decreased by two compared to September
30, 1998:

<TABLE>
<CAPTION>
                                                              PERIOD ENDING
                                                              SEPTEMBER 30TH
                                                              --------------
                                                              1999     1998
                                                              -----    -----
<S>                                                           <C>      <C>
General and Administrative..................................   11       12
Sales and Marketing.........................................   11       12
Regulatory & Quality........................................    9        8
Research & Development......................................   40       42
Manufacturing...............................................   10        9
                                                               --       --
          Total Employees...................................   81       83
</TABLE>

<PAGE>   14

Item 2.        Changes in Securities

(c)(1) On July 30, 1999, the Company issued and sold 3,000 shares of Series E
Convertible Preferred Stock ("Series E Preferred Stock") and warrants to
purchase 37,500 shares of Common Stock to nine accredited investors for a total
purchase price of $3,000,000 pursuant to a Preferred Stock Purchase Agreement
dated as of July 30, 1999. In addition, the Company issued 4,024 shares of
Common Stock to a party who arranged this preferred stock financing. The Series
E Preferred Stock, warrants and shares of Common Stock were issued pursuant to
the exemption from the registration requirements of the Securities Act provided
by Section 4(2) of the Securities Act and Rule 506 of Regulation D.

The Series E Preferred Stock is convertible into shares of Common Stock, at the
option of the holder thereof, subject to certain limitations, discussed below.
The number of shares of Common Stock issuable upon conversion of the Series E
Preferred Stock is determined by multiplying the number of shares of Series E
Preferred Stock to be converted by $1,000, and dividing that amount by 85% of
the lowest sale price of a price of a share of Common Stock on the NASDAQ
Smallcap Market during the five trading days preceding the date of the
conversion. There is no minimum conversion price, but in no event may the
conversion price exceed $5.0625. The right of conversion is subject to the
following limitations:


-         The number of shares of Common Stock that the holder may acquire upon
     conversion, together with shares beneficially owned by the holder and its
     affiliates, may not exceed 5% of the total outstanding shares of Common
     Stock.

-         The number of shares of Common Stock that the holders may acquire upon
     conversion may not exceed 1,765,727 shares, until stockholders approve the
     issuance upon conversion of more than that number of shares, representing
     19.9% of the shares outstanding on the date upon which the Series E
     Preferred Stock was issued . This limitation is required by the rules of
     The NASDAQ Stock Market, Inc. Until stockholder approval is obtained, upon
     any request for conversion that, together with prior conversions, would
     result in the issuance of more than 1,765,727 shares of Common Stock but
     for this limitation, the Company will be required to pay the holder
     requesting conversion an amount in cash equal to the greater of (A) $1,500
     per share of Series E Preferred Stock it is unable to convert because of
     this limitation and (B) the number of shares of Common Stock in excess of
     1,765,727 shares that would have been issued upon conversion but for this
     limitation times the closing sale price of a share of Common Stock on the
     trading day preceding the notice of conversion.


At any time after July 30, 2002, the Company may require holders to convert all
(but not less than all) of the Series E Preferred Stock, or buy out all
outstanding shares, at the then conversion price.

Holders of Series E Preferred Stock are not entitled to dividends and have no
voting rights,


<PAGE>   15

except as required by law and with respect to certain matters relating to the
Series E Preferred Stock.

The Company may redeem the Series E Preferred stock upon written notice to the
holders of the Series E Preferred Stock at any time after the earlier of January
30, 2000 and the closing of a registered firm commitment underwritten secondary
offering of the Company's equity securities, at a redemption price equal to the
greater of $1,500 per share and an amount equal to the lowest sale price of a
share of Common Stock during the five trading days preceding the date of the
notice of redemption times the number of shares of Common Stock into which such
shares of Series E Preferred Stock could have been converted on the date of the
notice of redemption.

The conversion price and the number of shares of Common Stock issuable upon
conversion are subject to adjustment in the event of a stock split, stock
dividend, reorganization, reclassification or issuance of shares of Common Stock
(or securities convertible into or exercisable or exchangeable for Common Stock)
prior to the first anniversary of the date on which a registration statement for
the resale of the shares of Common Stock issuable upon conversion of the Series
E Preferred is declared effective by the Commission at less than the then
conversion price in a transaction exempt from the registration requirements of
the Securities Act if the Company grants the purchasers of such shares (or other
securities) the right to demand registration of such shares.

The Warrants are exercisable at any time during the period commencing January
30, 2000 and ending January 29, 2004, at an exercise price of $3.7294 per share,
subject to adjustment in the event of a stock split, stock dividend,
reclassification, recapitalization, merger, consolidation or certain
dispositions of assets.

(c)(2) During the three months ended September 30, 1999, the Company issued
44,818 shares of Common Stock upon conversion of its Series A Convertible
Preferred Stock and 348,434 shares of Common Stock upon conversion of its Series
B Convertible Preferred Stock. The issuance of these shares was exempt from
registration pursuant to Section 3(a)(9) of the Securities Act.



<PAGE>   16
         18

Item 6. Exhibits and Reports on Form 8-K

        (a) Exhibits

             4.1* -- Form of Series E Preferred Stock Purchase Agreement

             4.2* -- Certificate of Designations for Series E Convertible
                     Preferred Stock (included as Exhibit A to Exhibit 4.1)

             4.3* -- Form of warrant issued in connection with the Series E
                     Convertible Preferred Stock financing (included as
                     Exhibit B to Exhibit 4.1)

             4.4* -- Form of Registration Rights Agreement for the Series E
                     Convertible Preferred Stock financing (included as
                     Exhibit C to Exhibit 4.1)

             27.1 -- Financial Data Schedule

----------

    *Incorporated by reference from the Company's Form 10-QSB for the
fiscal quarter ended June 30, 1999.

        (b) Reports on Form 8-K
            None.
<PAGE>   17
         19

Signatures

In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                  INTEGRATED SURGICAL SYSTEMS, INC.


Date: November 12, 1999     by:   /s/ Mark W. Winn
                                  ------------------------------------------
                                  Mark W. Winn, Chief Financial Officer