<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                ----------------

                                    FORM 10-Q

[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934.

                      For the Quarter Ended March 31, 1998

[ ] 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 0-19880

                             ENDOSONICS CORPORATION
             (Exact name of registrant as specified in its charter)


Delaware                                                             68-0028500
(State or other jurisdiction of                                (I.R.S. Employer
incorporated or organization)                               Identification No.)

               2870 Kilgore Road, Rancho Cordova, California 95670
                    (Address of principal executive offices)

        Registrant's telephone number, including area code (916) 638-8008

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.


                              Yes [X]   No  [ ]

On March 31, 1998, the registrant had outstanding 16,187,830 shares of Common
Stock of $.001 par value, which is the registrant's only class of Common Stock.

This report on Form 10-Q including all exhibits, contains 17 pages.


<PAGE>   2
                             ENDOSONICS CORPORATION
                                    FORM 10-Q
                                  FIRST QUARTER
<TABLE>
<CAPTION>
                                TABLE OF CONTENTS
                                                                                       Page
                                                                                       ----
<S>     <C>                                                                           <C>
Part I.  Financial Information
Item 1.  Condensed Consolidated Financial Statements
         Condensed consolidated balance sheets at March 31, 1998 and
               December 31, 1997..................................................       3
         Condensed consolidated statements of operations for the three months
               ended March 31, 1998 and 1997......................................       4
         Condensed consolidated statements of cash flows for the
               three months ended March 31, 1998 and 1997.........................       5
         Notes to condensed consolidated financial statements.....................       6

Item 2.   Management's discussion and analysis of financial condition
          and results of operations...............................................      10
Part II.  Other Information
Item 1 through 3.     Not Applicable.
Item 4.  Submission of Matters to a Vote of Security Holders......................      15

Item 5.  Not Applicable
Item 6   Exhibits and Reports on Form 8K..........................................      15
    (a)  Exhibits:
         Exhibit 27 - Financial Data Schedule.....................................      17
Signatures........................................................................      16
Exhibit Index.....................................................................      15
</TABLE>



                                       2
<PAGE>   3
<TABLE>
<CAPTION>
                                      ENDOSONICS CORPORATION
                               CONDENSED CONSOLIDATED BALANCE SHEETS
                                        
                                            (Unaudited)
                        (In thousands, except share and per share amounts)


                                                          March 31, 1998       December 31, 1997
                                                        -------------------    -------------------
<S>                                                            <C>             <C>      
ASSETS
Current assets:
  Cash and cash equivalents                                    $  20,073       $  13,889
  Short-term investments                                           7,935           9,120
  Trade accounts receivable, net                                   9,754          13,351
  Inventories                                                      6,890           6,915
  Accrued interest receivable and other current assets               445             424
                                                               ---------       ---------
        Total current assets                                      45,097          43,699
Property and equipment, net                                        3,512           3,408
Investment in CardioVascular Dynamics, Inc.                        7,316           8,478
Intangible assets, net                                             6,955           7,222
                                                               ---------       ---------
                                                               $  62,880       $  62,807
                                                               =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:
  Accounts payable and accrued expenses                            6,963           7,536
 Accrued restructuring and integration expenses                    5,729           6,017
                                                               ---------       ---------
     Total current liabilities                                    12,692          13,553

STOCKHOLDERS' EQUITY
Convertible preferred stock, $.001 par value
    5,000,000 shares authorized, no shares issued
    and outstanding                                                   --              --
Common stock, $.001 par value; 25,000,000 shares
    authorized as of December 31, 1997;
    and 16,187,830 and 16,153,113 shares
    issued and outstanding as of March 31, 1998
    and December 31, 1997, respectively                               16              16
Additional paid-in capital                                       157,660         157,588
Accumulated deficit                                             (109,344)       (108,263)
Unrealized gain on available-for-sale securities                   1,939               1
Foreign currency translation                                         (83)            (88)
                                                               ---------       ---------
       Total stockholders' equity                                 50,188          49,254
                                                               ---------       ---------
                                                               $  62,880       $  62,807
                                                               =========       =========
</TABLE>



                            See accompanying notes.



                                       3
<PAGE>   4
<TABLE>
<CAPTION>
                                    ENDOSONICS CORPORATION
                       CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                         (Unaudited)
                      (In thousands, except share and per share amounts)

                                                             Three Months Ended March 31,
                                                                1998               1997
                                                            ------------       ------------
<S>                                                         <C>                <C>  
Revenues:
    Product sales                                           $      8,725       $      6,221
    Contract revenue                                                 300                109
                                                            ------------       ------------
Total revenue                                                      9,025              6,330

Cost of sales                                                      5,000              3,419
                                                            ------------       ------------
Gross margin                                                       4,025              2,911

Operating expenses:
   Research, development and clinical                              1,845              1,016
   Marketing and sales                                             2,094                906
   General and administrative                                      1,579                832
   Amortization of intangibles                                       267                 --
                                                            ------------       ------------
            Total operating expenses                               5,785              2,754

Income (loss) from operations                                     (1,760)               157

Equity in net loss of CardioVascular Dynamics, Inc.                 (158)              (269)

Other income:
  Interest income                                                    227                617
  Gain realized on sale of
        CardioVascular Dynamics, Inc.                                610                 --
                                                            ------------       ------------
        Total other income                                           837                617
                                                            ------------       ------------
Net income (loss) before provision for income taxes               (1,081)               505
Provision for income taxes                                            --                 --
Net income (loss)                                           ($     1,081)      $        505
                                                            ============       ============

Basic net income (loss) per share                           ($      0.07)      $       0.04
                                                            ============       ============
Diluted net income (loss) per share                         ($      0.07)      $       0.03
                                                            ============       ============
Shares  used in computing net income (loss) per share:
        Basic                                                 16,174,407         13,547,464
                                                            ------------       ------------
        Effect of dilutive common stock options                       --          1,723,153
                                                            ------------       ------------
        Diluted                                               16,174,407         15,270,617
                                                            ============       ============
</TABLE>


                            See accompanying notes.


                                       4
<PAGE>   5
<TABLE>
<CAPTION>
                             ENDOSONICS CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Unaudited)
               (In thousands, except share and per share amounts)

                                                              Three months ended March 31,
                                                                 1998            1997
                                                                --------       --------
<S>                                                             <C>            <C>     
Cash flows from operating activities
Net income (loss)                                               ($ 1,081)      $    505
     Adjustments to reconcile net income (loss) to net
       cash used in operating activities:
       Depreciation and amortization                                 775            149
       Gain on sale of CardioVascular Dynamics, Inc.                (610)            --
       Equity in net loss CardioVascular Dynamics, Inc.              158            269
       Net changes in:    
               Operating assets                                    3,606         (1,874)
               Operating liabilities                                (861)          (498)
                                                                --------       --------
Net cash provided by (used in) operating activities                1,987         (1,449)
                                                                --------       --------

Cash flows from investing activities:
     Purchase of short-term investments                           (3,944)            --
     Proceeds from sale of CardioVascular Dynamics, Inc. 
        Common Stock                                               3,552             --
     Sales of short-term investments                                  --             56
     Maturities of short-term investments                          7,129          5,189
     Purchase of Cardiometrics Common Stock                           --         (2,317)
     Capital expenditures for property and equipment                (612)          (357)
                                                                --------       --------
Net cash provided by investing activities                          6,125          2,571
                                                                --------       --------

Cash flows from financing activities:
     Proceeds from exercise of stock options                          72            285
                                                                --------       --------
Net cash provided by financing activities                             72            285
                                                                --------       --------

Net increase in cash and equivalents                               8,184          1,407
Cash and equivalents, beginning of period                         13,889         34,943
                                                                ========       ========
Cash and equivalents, end of period                             $ 20,073       $ 36,350
                                                                ========       ========
</TABLE>


                                     See accompanying notes.


                                       5
<PAGE>   6

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998
                                   (UNAUDITED)
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The interim financial information is unaudited. In the opinion of management of
EndoSonics Corporation ("EndoSonics" or the "Company"), the condensed
consolidated financial statements included in this report reflect all
adjustments necessary, consisting only of normal recurring adjustments, to
present fairly the Company's consolidated financial position at March 31, 1998
and the consolidated results of its operations and cash flows for the three
month periods ended March 31, 1998 and 1997. Results for the interim periods are
not necessarily indicative of consolidated results to be expected for the entire
fiscal year. These financial statements should be read in conjunction with the
Company's audited financial statements for the year ended December 31, 1997,
contained in the Company's Annual Report on Form 10-K.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of EndoSonics and its
subsidiaries. (EndoSonics and its subsidiaries are collectively referred to
hereinafter as "the Company".) All significant intercompany accounts and
transactions have been eliminated. Investments in unconsolidated subsidiaries,
and other investments in which the Company has a 20% to 50% interest or
otherwise has the ability to exercise significant influence, are accounted for
under the equity method (see Note 4).

INVESTMENTS

In accordance with SFAS 115, the Company has classified its investment portfolio
as available-for-sale. Unrealized gains (losses) on available-for-sale
securities are recorded as a separate component of stockholders' equity.

2.      INVENTORIES

Inventories are stated at the lower of cost, determined on a first in, first
out (FIFO) cost basis, or market value. Inventories consist of the following:
<TABLE>
<CAPTION>

                                                    March 31, 1998           December 31, 1997
                                                    --------------           -----------------
<S>                                                      <C>                        <C>   
            Raw materials                                $2,477                     $2,817
            Work-in-process                               3,070                      1,842
            Finished goods                                1,343                      2,256
                                                         ------                     ------

            Total                                        $6,890                     $6,915
                                                         ======                     ======
</TABLE>




                                       6
<PAGE>   7

3.      COMPUTATION OF NET INCOME (LOSS) PER SHARE

Net (loss) per share is computed using the weighted average number of shares of
common stock outstanding. Common equivalent shares from stock options and
warrants are excluded from the computation of net loss per share because their
effect is antidilutive. Conversely, common equivalent shares from stock options
are included in the computation of net income per share as their effect is
dilutive. 

At December 31, 1997 and March 31, 1998 the Company had outstanding options to
purchase 2,993,638 and 2,958,921 shares of common stock, respectively (with
exercise prices ranging from $0.32 to $16.50) and outstanding warrants to
purchase 12,304 shares of common stock (with exercise prices from $11.76 to
$12.55). If exercised, these options could potentially dilute basic earnings per
share in future periods. These options have not been included in the computation
of net loss per share, because to do so would have been antidilutive for the
quarter ended March 31, 1998.


4. CHANGE IN OWNERSHIP PERCENTAGE OF CARDIOVASCULAR DYNAMICS, INC.

On June 19, 1996, EndoSonics' 84% owned subsidiary, CVD, successfully completed
an Initial Public Offering (IPO) of 3,400,000 shares of common stock at $12.00
per share, followed by an additional 510,000 shares issued in July 1996
(over-allotment option granted to CVD's underwriters). As a result of this
transaction, the Company's ownership interest in CVD fell below 50%.
Accordingly, CVD's results of operations for 1996 have been consolidated through
June 19, 1996, and accounted for on the equity method until January 31, 1998
when the Company's ownership decreased to 16%. As of February 1, 1998, the
Company is accounting for its investment in CVD under the cost method. In June
1996, the Company recorded an increase to additional paid-in capital of
approximately $17,600 representing the Company's proportionate share of CVD's
net assets following the IPO. For the year ended December 31, 1997 and for the
period from June 20, 1996 to December 31, 1996, the Company recorded ($2,358)
and ($1,621) respectively, representing its proportionate share of CVD's net
losses for the period.

In the quarter ended March 31, 1998, the Company sold 790,000 shares of CVD
stock valued at $3.80 per share resulting in a gain of $610.

As of March 31, 1998 and December 31, 1997, EndoSonics owned 16% and 24%
respectively of the outstanding shares of CVD. Unrealized gains on its
investment in CVD are reported in a separate component of stockholders' equity
pursuant to the requirements of SFAS 115. Condensed financial information for
CVD is shown below:




                                       7
<PAGE>   8
<TABLE>
<CAPTION>

BALANCE SHEET                                     March 31, 1998   December 31, 1997
----------------------------------------------    --------------   -----------------
                           (Unaudited - in thousands)
<S>                                                  <C>               <C>     
Current assets                                       $ 33,860          $ 37,316
Property and equipment, net                             1,483             1,550
Other assets                                            2,073             2,495
                                                     ========          ========
   Total assets                                      $ 37,416          $ 41,361
                                                     ========          ========
Current liabilities                                  $  2,615          $  3,488
Stockholders' equity                                   34,801            37,873
                                                     ========          ========
  Total liabilities and stockholders' equity         $ 37,416          $ 41,361
                                                     ========          ========
EndoSonics' share of CardioVascular Dynamic's
   net assets                                        $  7,316          $  8,478
                                                     ========          ========
</TABLE>

<TABLE>
<CAPTION>

                                                       Three months ended,
STATEMENT OF OPERATIONS                          March 31, 1998    March 31, 1997
----------------------------------------------   --------------    --------------
                           (Unaudited - in thousands)
<S>                                                 <C>               <C>     
Total revenue                                       $  2,466          $  3,019
Cost of sales                                          1,352             1,416
                                                    --------          --------
Gross profit                                           1,114             1,603
Total operating  expenses                              3,436             2,786
                                                    --------          --------
Other income (loss) from operations                      348               585
                                                    ========          ========
Net loss                                            ($ 1,974)         ($   598)
                                                    ========          ========
</TABLE>

CardioVascular Dynamics, Inc.'s stock is quoted on the Nasdaq Stock Market. The
closing price of CVD's stock at March 31, 1998 and December 31, 1997 was $5.16
and $5.50 respectively, per share. The Company held 1,464,016 and 2,194,016
shares of CVD's common stock at March 31, 1998 and December 31, 1997,
respectively.

5.      RESTRUCTURING AND OTHER CHARGES

Concurrent with the purchase of Cardiometrics, Inc., the Company recorded
restructuring and integration charges in 1997 of approximately $9,500 related to
plans to reduce overhead of the combined companies and increase operating
efficiency in future periods. The restructuring and integration charges include
approximately $7,500 of corporate reorganization costs and approximately $2,000
related to relocation of certain product lines and overall integration of the
Company's operations. Due to changes in conditions subsequent to the initial
recording of the restructuring and integration charges, the Company reduced the
provision for these charges to $8,606 during the fourth quarter of 1997. These
charges are included in the 1997 Consolidated Statements of Operations, as
follows:


                                       8
<PAGE>   9
<TABLE>
<CAPTION>

CONSOLIDATED STATEMENT OF OPERATIONS                    1997
------------------------------------------             -------
(In Thousands)
<S>                                                    <C>   
Cost of sales                                          $1,251
Research and development                                  200
Marketing and sales                                       542
General and administrative                              1,361
Restructuring                                           4,956
Other                                                     296
                                                       ======
  Total charges                                        $8,606
                                                       ======
</TABLE>

The elements of the total charges and the accrual for restructuring and
integration charges as of March 31, 1998 are as follows:
<TABLE>
<CAPTION>
                                                                     Accrual as
                                                                         of
                                    1997             Cost             March 31,
(In Thousands)   Provision       Adjustments       Incurred             1998
------------   --------------   --------------   -------------    -------------
<S>                   <C>              <C>           <C>                <C>   
Corporate             
 reorganization       $7,491           ($375)        ($2,071)           $5,045
Consolidation of       
  facilities           1,965            (475)           (904)              586
                      ======           =====         =======            ======
                      $9,456           ($850)        ($2,975)           $5,631
                      ======           =====         =======            ======
</TABLE>

In June 1996, the Company recorded restructuring and integration charges of
approximately $3,066 in connection with the consolidation of the Company's IVUS
manufacturing operations and with the start-up production of the new Five-64
imaging devices. The elements of the 1996 restructuring accrual as of March 31,
1998, were as follows:
<TABLE>
<CAPTION>
                                                                   Accrual as
                                                                      of
                                                     Cost          March 31,
(In Thousands)                    Provision        Incurred          1998
------------                   --------------   -------------    -------------
<S>                                 <C>                <C>   
Consolidation of                   
 facilities                        $   994        ($   986)           $    8  
Conversion to new                  
 technology                          1,849          (1,849)               --
Corporate reorganization               223            (133)               90
                                    ------        --------             -----
                                    $3,066         ($2,968)            $  98
                                    ======        ========             =====
</TABLE>

The accrual for restructuring and integration charges was approximately $5,729
and $6,017 as of March 31, 1998 and December 31, 1997, respectively.

6.      BUSINESS ACQUISITION

On July 23, 1997, the Company acquired all of the outstanding shares of
Cardiometrics, Inc. (Cardiometrics) for approximately $73,400. The results of
Cardiometrics' operations have been combined with those of the Company since the
date of acquisition.

The acquisition was accounted for using the purchase method of accounting.
Consideration for this transaction consisted of the following (in thousands):


                                       9
<PAGE>   10
<TABLE>

<S>                                                                   <C>      
Cash                                                                  $  22,281
EndoSonics common stock                                                  33,139
CardioVascular Dynamics, Inc. common stock                                8,484
Cancellation of the Company's pre-merger investment in
   Cardiometrics                                                          2,317
Liabilities assumed (including Cardiometrics
   termination benefits of $1,900)                                        4,840
Transaction costs                                                         2,357
                                                                       ========
                                                                       $ 73,418
                                                                       ========
</TABLE>

A summary of the purchase price allocation is as follows:
<TABLE>

<S>                                                                   <C>      
Tangible assets acquired                                              $  22,721
In-process research and development                                      43,000
Developed technology                                                      5,200
Other intangibles                                                           700
Goodwill                                                                  1,797
                                                                       ========
                                                                       $ 73,418
                                                                       ========
</TABLE>

The purchased in-process research and development was valued by an independent
appraiser. As it had not reached technological feasibility, and had no probable
alternative future uses, it was charged to operations upon acquisition. Goodwill
and other intangible assets are being amortized over three-to-eight years.
Amortization for the three month period ended March 31, 1998 amounted to $267.
Accumulated amortization amounted to $742 at March 31, 1998. In addition, the
Company recognized a gain of $3,700 in 1997 related to the excess of the fair
value over the book value of CVD common stock used as part of the purchase price
consideration.

The purchase price includes $1,900 in severance and relocation liabilities
assumed by the Company for relocation of certain Cardiometrics employees to
Rancho Cordova, and to terminate others. Approximately $1,000 was paid in 1997.
The Company expects that the remainder of this cash outlay will be completed by
April 1998.

7.      STOCK REPURCHASE

The Board of Directors has authorized a stock repurchase program whereby the
Company may repurchase up to $5.0 million worth of its Common Stock from
time-to-time in the open market or private transactions. Subsequent to March 31,
1998, the Company has repurchased 475,000 shares of its Common Stock on the open
market at an aggregate cost of $3.1 million.

ITEM 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains forward looking statements. The
Company's business is subject to risks and uncertainties and the Company's
actual results may differ significantly from the results discussed in the
forward looking statements. Factors that might 


                                       10
<PAGE>   11
cause such a difference include, but are not limited to, the Company's ability
to transition to new distribution arrangements in Europe and North America the
introduction of new products, FDA approval of new products and changes in
regulatory requirements and third-party reimbursement policies. For a discussion
of these and other factors, please see "Risk Factors" in the Company's Annual
Report on Form 10-K (starting at page 21) for the fiscal year ended December 31,
1997.

INTRODUCTION

Since its inception in 1984, EndoSonics has been engaged primarily in the
research and development of products for the diagnosis and treatment of
cardiovascular disease. Since 1991, a majority of the Company's net revenue has
been derived from sales of its intravascular ultrasound ("IVUS") imaging systems
and catheters.

The Company markets and distributes its IVUS imaging products in the United
States, Europe and Japan through relationships with strategic partners, certain
other distributors and, to a lesser extent, through a direct sales force. In
February 1996, EndoSonics and Cordis entered into an Exclusive Distribution
Agreement (the "Agreement") pursuant to which Cordis was granted the exclusive
right to distribute EndoSonics' IVUS imaging products for coronary applications
in North America, Europe, Africa and the Middle East. In 1997, the Company
entered into similar agreements with affiliates of Cordis covering Japan and
certain South American countries.

Cordis is obligated during each year of the Agreement to use reasonable efforts
to purchase certain minimum annual amounts of products from EndoSonics. Subject
to certain exceptions, Cordis' failure to meet the minimum annual purchase
amount during any year of the Agreement shall constitute a material breach of
such agreement. Cordis is also obligated during the term of the Agreement to
undertake certain efforts to market, promote, distribute and sell EndoSonics'
IVUS imaging products, including the provision of adequate personnel and
facilities, the maintenance of sufficient inventory for demonstration purposes
and the appointment of a United States and European intracoronary ultrasound
marketing manager to interface with EndoSonics' United States and European
clinical and support staff. The Agreement also contains standard representations
and warranties of each party and standard provisions regarding indemnification,
service and maintenance and confidentiality. Under the terms of the Agreement,
Cordis purchases IVUS imaging products from EndoSonics at agreed upon prices set
forth in the Agreement, which prices are jointly reviewed by EndoSonics and
Cordis every six months.

In connection with the execution of the Agreement, the Company issued 350,877
shares of its Common Stock to Cordis in a private placement transaction for an
aggregate purchase price of approximately $5,000,000. The Company has since
registered the shares of Common Stock issued to Cordis. The Agreement initially
expires on December 31, 1998. On April 16, 1998, the Company announced that it
reached an agreement in principle with Cordis on the terms under which the
Agreement will be terminated, subject to completion and execution of a
definitive agreement. Under the terms of this agreement in principle, EndoSonics
will begin direct distribution to the majority of its installed base in the
United States effective July 1, 1998, assuming completion of a definitive
agreement. In Europe, EndoSonics has already begun the process of transitioning
to direct distribution. 


                                       11
<PAGE>   12
The failure of EndoSonics to complete a new agreement with Cordis terminating
the Agreement and/or to successfully transition to new distribution arrangements
could have a material adverse effect on the Company's 1998 operating results.

CardioVascular Dynamics, Inc., ("CVD") formerly an 84%-owned subsidiary of the
Company, designs, develops, manufactures and markets catheters used to treat
certain vascular diseases. CVD's catheters are used in conjunction with
angioplasty and other interventional procedures such as vascular stenting and
drug delivery. CVD completed its initial public offering in June of 1996 and, as
a result, the Company's ownership interest in CVD fell below 50% of CVD's
outstanding stock. Accordingly, CVD's assets, liabilities and results of
operations are no longer included in the Company's consolidated financial
statements. At March 31, 1998, the Company held approximately 16% of the
outstanding shares of the Common Stock of CVD. Effective February 1, 1998, the
Company is accounting for its investment in CVD under the cost method.

The Company's business strategy includes acquiring related businesses, products
or technologies. In January 1997, the Company entered into an agreement to
acquire Cardiometrics, Inc. (Cardiometrics) through the merger of a wholly-owned
subsidiary of the Company with and into Cardiometrics, with Cardiometrics
surviving as a wholly-owned subsidiary of the Company. Cardiometrics develops,
manufactures, and markets intravascular medical devices to measure blood flow
impairment caused by coronary artery disease. Cardiometrics' primary products,
the FloWire(R) Doppler guide wire and FloMap ultrasound intsrument, represent an
advance in functional testing of blood flow impairment, enabling cardiologists
to evaluate the appropriateness of angioplasty interventions and assess
post-procedural results directly in the cardiac catherization laboratory.
Clinical experience demonstrates that the measurement of blood flow impairment
downstream from (distal to) an obstruction, which Cardiometrics calls functional
angiometry, provides information to improve the quality of patient care and
procedure outcomes in the diagnosis and treatment of cardiovascular disease. The
FloWire(R)/FloMap system has received clearance from the FDA and many
corresponding European and Pacific Rim regulatory agencies. Cardiometrics has
also developed the WaveWire(TM)/WaveMap intracoronary blood pressure measurement
system, which was first used in a clinical case in Europe in December 1996.
Cardiometrics received a 510(k) approval in August 1997 and began shipments of
the product in the first quarter of 1998.

The acquisition of Cardiometrics, which was finalized on July 23, 1997, was
accounted for under the purchase method of accounting. In 1997, the Company
incurred a $43 million dollar in-process research and development charge as a
result of the acquisition and $8.6 million in restructuring, integration and
other charges in connection with plans to reduce overhead of the combined
companies.

The Company expects that it may pursue additional acquisitions in the future.
Any future acquisitions may result in potentially dilutive issuances of equity
securities, the write-off of in-process research and development, the incurrence
of debt and contingent liabilities and amortization expenses related to
intangible assets acquired, any of which could materially adversely affect the
Company's business financial condition and results of operations. In particular,
if the Company is unable to use the "pooling of interests" method of accounting,
the Company will be required to amortize any intangible assets acquired in
connection with any additional acquisitions and the amortization periods for
such costs will be over the useful lives of 


                                       12
<PAGE>   13

such assets, which range from three years to eight years. Additionally,
unanticipated expenses may be incurred relating to the integration of
technologies and research and development, and administrative functions. Any
acquisition will involve numerous risks, including difficulties in the
assimilation of the acquired company's employees, operations and products,
uncertainties associated with operating in new markets and working with new
customers, the potential loss of the acquired company's key employees as well as
the costs associated with completing the acquisition and integrating the
acquired company.

RESULTS OF OPERATIONS

FIRST QUARTER OF 1998 COMPARED TO THE SAME PERIOD IN 1997

Total Revenue. Total revenue increased 43% to $9.0 million for the first quarter
of 1998, which included $2.9 million of Cardiometrics revenue, from $6.3 million
in the first quarter of 1997. Revenues for the IVUS business decreased by 3%, or
$0.2 million primarily due to the decline in revenue from Cordis Corporation, a
unit of Johnson & Johnson. In April 1998, EndoSonics reached an agreement in
principle with Cordis on the terms under which Cordis' exclusive distribution
rights for certain EndoSonics products in the United States, Europe, the Middle
East and Africa will be terminated, subject to completion and execution of a
definitive agreement. Further revenue growth is dependent on the ability of the
Company to increase its direct sales force and penetrate the market.

Cost of Sales. Cost of sales as a percentage of product sales increased to 55%
for the first quarter of 1998 from 54% for the first quarter of 1997. Cost of
sales as a percentage of product sales in 1998 increased primarily due to
start-up manufacturing costs associated with the Company's WaveWire(TM)
catheter. Due to the uncertainty associated with continued improvements in the
efficiency of the Company's manufacturing process and the impact of increasingly
competitive pricing, there can be no assurance that the Company's gross profit
margin will be maintained or continue to improve in future periods.

Research, Development, and Clinical. Research, development and clinical expenses
increased by $0.8 million from $1.0 million for the first quarter of 1997 to
$1.8 million for the first quarter of 1998 due primarily to on-going
Cardiometrics clinical studies which were not included in the results of
operations in the first quarter of 1997, and an increase in expenses related to
the Company's majority owned subsidiary, MicroSound.

Marketing and Sales. Marketing and sales increased to $2.1 million in the first
quarter of 1998 from $0.9 million in the first quarter of 1997. The increase is
due to increased staffing and marketing programs related to the acquisition of
Cardiometrics. As a percentage of total revenue, marketing and sales has
increased to 23% in the first quarter of 1998 from 14% in the first quarter of
1997. The increase is due to personnel additions and related expenditures
associated with the transition to a direct sales force in certain world markets.

General and Administrative. General and administrative expenses increased by
$0.8 million dollars to $1.6 million dollars for the first quarter of 1998
compared to $0.8 million dollars for the first quarter of 1997. The increase is
attributable to approximately $0.6 million dollars of legal expenses related to
the company's on-going patent litigation proceedings. After excluding 


                                       13
<PAGE>   14

$0.6 million dollars related to such legal expenses, general and administrative
expenses decreased to 11% of total revenue in the first quarter of 1998 as
compared to 13% of total revenue in the first quarter of 1997.

Amortization of Intangibles. Amortization of intangibles of $0.3 million in the
first quarter of 1998 relates to goodwill and other intangible assets acquired
in connection with the acquisition of Cardiometrics in July of 1997. Goodwill
and other intangibles acquired in the Cardiometrics acquisition are being
amortized over three-to-eight years.

Equity in Loss of CardioVascular Dynamics, Inc. Equity in loss of CardioVascular
Dynamics, Inc. decreased to $0.2 million in the first quarter of 1998 as
compared to $0.3 million in the first quarter of 1997. The decrease is due to a
reduction in ownership to 16% from 45% in the first quarter of 1998 and 1997,
respectively.

Other Income. Other income increased to $0.8 million in the first quarter of
1998 as compared to $0.6 million in the first quarter of 1997. The increase is
due primarily to the sale of CardioVascular Dynamics, Inc. stock for which the
Company recognized a gain of $0.6 million in the first quarter of 1998. This was
offset by reduced interest income in the first quarter of 1998 as compared to
the first quarter of 1997 due to the decrease in the Company's cash and
investments as of March 31, 1998.

Net Income (Loss). Net income (loss) decreased to $1.1 million net loss, or
($0.07) per share, in the first quarter of 1998 as compared to $0.5 net income,
or $0.04 per share, in the first quarter of 1997.

LIQUIDITY AND CAPITAL RESOURCES

On March 31, 1998, the Company had cash and equivalents of $20.1 million,
short-term investments of $7.9 million and no borrowings or credit facilities.
Net cash provided by (used in) operations was $2.0 million in the first quarter
of 1998 as compared to ($1.5) million in the first quarter of 1997. The
deterioration is due in part to a net loss of $1.1 million, and decreases in
current liabilities of $0.9 million offset by a $3.6 million decrease in
accounts receivable. The Company anticipates using cash resources primarily for
capital expenditures, product development, sales and marketing efforts and
working capital purposes. The Company believes that its existing cash, cash
equivalents, and short-term investments as of March 31, 1998 will be sufficient
to meet the Company's operating expenses and capital requirements through 1998.
However, there can be no assurance that the Company will not be required to seek
other financing or that such financing, if required, will be available on terms
satisfactory to the Company.



                                       14
<PAGE>   15

Part II.

                                OTHER INFORMATION

ITEMS 1 through 3.  Not applicable.

ITEM 4.  None.

ITEM 5.  Not applicable.

ITEM 6.  Exhibits and Reports on Form 8-K

(a)     Exhibits:

        Exhibit 27    Financial Data Schedule

(b) No reports of Form 8-K were filed during the period.



                                       15
<PAGE>   16

                                   SIGNATURES

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



                                            ENDOSONICS CORPORATION





                                             /s/   REINHARD J. WARNKING
                                                -------------------------------
                                                      Reinhard J. Warnking
                                                             President and
                                                   Chief Executive Officer

                                                      Date:  May 15, 1998




                                             /s/   RICHARD L. FISCHER
                                                -------------------------------
                                                        Richard L. Fischer
                                               Vice President, Finance and
                                                   Chief Financial Officer

                                                      Date:  May 15, 1998




                                             /s/    KATHLEEN E. REDD
                                                -------------------------------
                                                          Kathleen E. Redd
                                                  Corporate Controller and
                                              Principal Accounting Officer

                                                      Date:  May 15, 1998

                                       16
<PAGE>   17
                               INDEX TO EXHIBITS
<TABLE>
<CAPTION>

EXHIBIT
NUMBER                         DESCRIPTION
-------                        -----------
<S>                             <C>
27                              Financial Data Schedule
</TABLE>