<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 June 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 0-19880

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


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

                  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 August 3, 1999, the registrant had outstanding 17,410,733 shares of Common
Stock of $.001 par value, which is the registrant's only class of Common Stock.


                                       1

<PAGE>   2

                             ENDOSONICS CORPORATION
                                    Form 10-Q
                                 Second Quarter

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                          <C>
Part I.   Financial Information

Item 1.   Condensed Consolidated Financial Statements

          Condensed consolidated balance sheets at June 30, 1999 and
             December 31, 1998..............................................  3

          Condensed consolidated statements of operations for the three
             months and six months ended June 30, 1999 and 1998.............  4

          Condensed consolidated statements of cash flows for the
             six months ended June 30, 1999 and 1998........................  5

          Notes to condensed consolidated financial statements..............  6

Item 2.   Management's discussion and analysis of financial condition
             and results of operations......................................  8

Part II.  Other Information

Item 1 through 3. Not Applicable.

Item 4.   Submission of Matters to a Vote of Security Holders............... 18

Item 5.   Not Applicable

Item 6.   Exhibits and Reports on Form 8K................................... 18

          (a)  Exhibits:

               Exhibit 27 - Financial Data

Schedule....................................................................

Signatures.................................................................. 19
</TABLE>


                                       2

<PAGE>   3

                             ENDOSONICS CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS

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


<TABLE>
<CAPTION>
                                                       June 30,       December 31,
                                                         1999            1998
                                                       ---------      ------------
<S>                                                   <C>             <C>
ASSETS
Current assets:
  Cash and cash equivalents                            $     738       $   8,749
  Short-term investments                                  20,971          20,406
  Trade accounts receivable, net                          20,188          13,725
  Inventories                                             10,816           6,834
  Accrued interest receivable and
     other current assets                                    446             560
                                                       ---------       ---------
        Total current assets                              53,159          46,137
Property and equipment, net                                5,369           4,064
Intangible assets, net                                    11,470          12,392
                                                       ---------       ---------
                                                       $  69,998       $  66,730
                                                       =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued expenses                $  10,424       $   8,200
  Accrued restructuring and
     integration expenses                                  2,069           3,674
                                                       ---------       ---------
        Total current liabilities                         12,493          11,874
Other liabilities                                            568             604
                                                       ---------       ---------
        Total liabilities                                 13,061          12,478

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, and 17,515,594 and
     17,590,120 shares issued and
     outstanding as of June 30, 1999
     and December 31, 1998 respectively                       19              18
Additional paid-in capital                               178,655         176,433
Common stock in treasury, at cost, 1,241,480
     and 860,000 shares at June 30, 1999 and
     December 31, 1998 respectively                       (7,124)         (4,839)
Accumulated other comprehensive loss                      (1,536)         (1,305)
Accumulated deficit                                     (113,077)       (116,055)
                                                       ---------       ---------
       Total stockholders' equity                         56,937          54,252
                                                       ---------       ---------
                                                       $  69,998       $  66,730
                                                       =========       =========
</TABLE>

See accompanying notes.


                                       3

<PAGE>   4

                             ENDOSONICS CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                    Three months ended June 30,        Six months ended June 30,
                                                    ----------------------------      ----------------------------
                                                        1999            1998              1999            1998
                                                    ------------    ------------      ------------    ------------
<S>                                                 <C>             <C>               <C>             <C>
Total revenue                                       $     13,965    $     10,091      $     26,026    $     19,116
Cost of sales                                              6,515           4,533            12,379           9,533
                                                    ------------    ------------      ------------    ------------
       Gross profit                                        7,450           5,558            13,647           9,583

Operating expenses:
   Research, development and clinical                      2,100           1,751             3,650           3,596
   Marketing and sales                                     2,808           2,013             5,085           4,107
   Restructuring                                            (738)             --              (738)             --
   General and administrative                              1,246           1,011             2,181           2,590
   Amortization of intangibles                               462             267               923             534
                                                    ------------    ------------      ------------    ------------
       Total operating expenses                            5,878           5,042            11,101          10,827
                                                    ------------    ------------      ------------    ------------

Income (loss) from operations                              1,572             516             2,546          (1,244)

Equity in net loss of Radiance
   Medical Systems, Inc.                                      --              --                --            (158)

Other income (expense):
   Interest income                                           260             363               574             590
   Gain realized on sale of common shares
     of Radiance Medical Systems, Inc.                        --             129                --             739
                                                    ------------    ------------      ------------    ------------
       Total other income                                    260             492               574           1,329
                                                    ------------    ------------      ------------    ------------
Net income (loss) before tax                               1,008           3,120
                                                                                             1,832             (73)
Tax Provision                                                 73              --               125              --
                                                    ------------    ------------      ------------    ------------
Net income (loss)                                   $      1,759    $      1,008      $      2,995    $        (73)
                                                    ============    ============      ============    ============
Basic net income (loss) per share                   $       0.10    $       0.06      $       0.17    $      (0.01)
                                                    ============    ============      ============    ============
Diluted net income (loss) per share                 $       0.10    $       0.06      $       0.16    $      (0.01)
                                                    ============    ============      ============    ============
Shares used in computing net income
   (loss) per share:
       Basic                                          17,754,644      15,838,119        17,876,553      16,006,263
       Effect of dilutive common stock options           243,699         113,801           451,163            --
                                                    ------------    ------------      ------------    ------------
       Diluted                                        17,998,343      15,951,920        18,327,716      16,006,263
                                                    ============    ============      ============    ============
</TABLE>

See accompanying notes


                                       4

<PAGE>   5

                             ENDOSONICS CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                            Six months ended June 30,
                                                            -------------------------
                                                               1999           1998
                                                             --------       --------
<S>                                                          <C>            <C>
Cash flows from operating activities
Net income (loss)                                            $  2,995       $    (73)
   Adjustments to reconcile net income (loss) to net
   Cash provided by (used in) operating activities:
      Depreciation and amortization                             1,470            961
      Gain on sale of common shares of Radiance
      Medical Systems, Inc.                                        --           (739)
   Equity in net loss of Radiance Medical
   Systems, Inc.                                                   --            158
   Net changes in :
      Operating assets                                        (11,166)         3,510
      Operating liabilities                                     1,624         (2,482)
                                                             --------       --------
Net cash provided by (used in)
   operating activities                                        (5,077)         1,335
                                                             --------       --------

Cash flows from investing activities:
   Purchase of short-term investments                         (10,169)       (14,431)
   Proceeds from sale of Radiance Medical
      Systems, Inc. common stock                                   --          3,942
   Maturities of short-term investments                         9,435          9,147
   Capital expenditures for property and equipment             (1,859)          (524)
                                                             --------       --------
Net cash used in investing activities                          (2,593)        (1,866)
                                                             --------       --------

Cash flows from financing activities:
   Treasury shares acquired                                    (2,482)        (3,268)
   Proceeds from exercise of stock options                      2,223             78
                                                             --------       --------
Net cash used in financing activities                            (259)        (3,190)
                                                             --------       --------

Effect of exchange rate changes on cash and
  cash equivalents                                                (82)             4
                                                             --------       --------

Net decrease in cash and equivalents                           (8,011)        (3,717)
Cash and equivalents, beginning of period                       8,749         13,889
                                                             ========       ========
Cash and equivalents, end of period                          $    738       $ 10,172
                                                             ========       ========
</TABLE>

See accompanying notes.


                                       5

<PAGE>   6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  June 30, 1999
                                   (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 June 30, 1999
and the consolidated results of its operations and cash flows for the six month
periods ended June 30, 1999 and 1998. 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, 1998,
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.

Reclassifications

Certain reclassifications have been made to the prior period balances to conform
with current period presentations.

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>
                               June 30,      December 31,
                                1999            1998
                               -------       -----------
<S>                            <C>             <C>
     Raw materials             $ 4,137         $ 3,206
     Work-in-process             4,445           1,354
     Finished goods              2,234           2,274
                               -------         -------
          Total                $10,816         $ 6,834
                               =======         =======
</TABLE>


                                       6


<PAGE>   7

3.   Computation of Net Income (Loss) Per Share

Net income (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 this effect
is dilutive.

At June 30, 1999 and December 31, 1998 the Company had outstanding options to
purchase 3,633,214 and 3,744,030 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.

4.   Comprehensive Income

The following table sets forth the computation of comprehensive income:

<TABLE>
<CAPTION>
                                                     Three months ended June 30,
                                                         1999           1998
                                                       --------       --------
<S>                                                    <C>            <C>
Net income (loss)                                      $  1,759       $  1,008

Other comprehensive income:
Unrealized gain on available for sale
      securities (net tax of $64 and $0
      in 1999 and 1998, respectively)                    (1,539)           366
Foreign currency translation (net tax
      of $1 and $0 in 1999 and 1998,
      respectively)                                          21             (1)
                                                       --------       --------
Comprehensive income                                   $    241       $  1,373
                                                       ========       ========
</TABLE>

<TABLE>
<CAPTION>

                                                      Six months ended June 30,
                                                         1999           1998
                                                       --------       --------
<S>                                                    <C>            <C>
Net income (loss)                                      $  2,995       $     73

Other comprehensive income:
Unrealized gain on available for sale
      securities (net tax of $7 and $0
      in 1999 and 1998, respectively)                      (162)         2,304
Foreign currency translation (net tax
      of $2 and $0 in 1999 and 1998,
      respectively)                                         (58)            (4)
                                                       --------       --------

Comprehensive income                                  $   2,775       $  2,227
                                                       ========       ========
</TABLE>


                                       7

<PAGE>   8

5.   Restructuring and Other Charges

During the second quarter of 1999, the Company determined that certain accrued
costs related to the cancellation of certain distribution agreements would most
likely not be recognized. Accordingly, $738 in accrued restructuring reserves
was reversed during the quarter. The elements of the accrual for restructuring
and integration charges as of June 30, 1999 are as follows:

<TABLE>
<CAPTION>
                               Accrual as of
                                December 31,      Cost      Restructuring    Accrual as of
                                   1998         Incurred       Decrease      June 30, 1999
----------------------------   -------------    --------    -------------    -------------
<S>                               <C>            <C>           <C>              <C>
Corporate reorganization          $ 3,674        $ (867)       $ (738)          $ 2,069
                               =============    ========    =============    =============
</TABLE>


6.   Stock Repurchase

The Board of Directors has authorized a stock repurchase program whereby the
Company may repurchase up to 1.7 million shares of its common stock from
time-to-time in the open market or private transactions. As of December 31,
1998, the Company had repurchased 860,000 shares of its common stock on the open
market at an aggregate cost of approximately $4,839. During the six months ended
June 30, 1999, the Company repurchased an additional 410,000 shares of its
common stock on the open market at an aggregate cost of approximately $2,482.
Also, during the six months ended June 30, 1999, 28,520 shares of common stock
held in treasury were re-issued to participants of the Company's Employee Stock
Purchase Plan at prices ranging from $4.0375 to $7.3313 per share. As a result,
a total of 1,241,480 shares were held in treasury at June 30, 1999 at an
aggregate cost of approximately $7,124.

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

This Quarterly Report of Form 10-Q contains forward-looking statements. These
statements are generally indicated by words or phrases such as "anticipates",
"estimates", "projects", "believes", "intends", "expects", and similar words and
phrases. 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 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 discussion of these and other
factors, please see "Risks Factors" on page 13 of this Form 10-Q and in the
Company's Annual Report on Form 10-K (starting on page 20) for the fiscal year
ended December 31, 1998.

Results of Operations

Second quarter of 1999 compared to the same period in 1998

Total Revenue. Total revenue increased 38% to $14.0 million for the second
quarter of 1999, from $10.1 million for the second quarter of 1998. Revenues for
the IVUS business increased by 20%, or $1.5 million, due primarily to an
increase in direct and distributor sales in Europe over 1998 levels. Revenues
for the Cardiometrics business increased by 47% or $1.2 million due, in part, to
an increase in Wavewire shipments. Export sales comprised approximately 70% of
total revenues in second quarter of 1999 as compared to 72% in the second
quarter of 1998. The Company expects that export sales will continue to
represent a substantial portion of the Company's revenue in future periods.

Cost of Sales. Cost of sales as a percentage of product sales increased slightly
to 47% for the second quarter of 1999, as compared to 45% for the second quarter
of 1998. Cost of sales as a percentage of total revenues increased due, in part,
to a shift in the distributor/direct-sale ratio in certain geographic regions.


                                       8

<PAGE>   9

In general, sales to distributors carry a lower gross margin than direct sales.
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 improve in future periods.

Research, Development, and Clinical. Research, development and clinical expenses
increased to $2.1 million for the second quarter of 1999 from $1.8 million for
the second quarter of 1998. In the second quarter of 1999, the Company
recognized approximately $0.5 million in research and development funding which
offset certain expenses. Excluding this reimbursement research, development and
clinical expenses totaled approximately $2.6 million, which represents an
increase of $0.8 million or 44% from the second quarter of 1998. The increase is
due primarily to Navius' research and development expenses, which are included
in the second quarter 1999 operating results as a consequence of the Company's
August 1998 acquisition of Navius.

Marketing and Sales. Marketing and sales increased to $2.8 million in the second
quarter of 1999 compared to $2.0 million in the second quarter of 1998. The
increase, 39%, is due to increased staffing and marketing programs related to
staffing a direct sales force in the United States and Germany. The increased
expense corresponds to the 38% increase in revenues. Consequently, marketing and
sales expense as a percentage of revenues was 20% in the second quarters of 1999
and 1998.

General and Administrative. General and administrative expenses increased by
$0.2 million or 23% in the second quarter of 1999 to $1.2 million from $1.0
million dollars for the second quarter of 1998. The increase is attributable to
an overall increase in the Company's level of operations. However, as a
percentage of total revenues, general and administrative expenses decreased to
9% in the second quarter of 1999 from 10% in the second period of 1998.

Restructuring. During the second quarter of 1999, the Company determined that
certain accrued costs related to the cancellation of certain distribution
agreements would most likely not be recognized. Accordingly, $738 in accrued
restructuring reserves was reversed during the quarter.

Amortization of Intangibles. Amortization of intangibles increased to $0.5
million in the second quarter of 1999 from $0.3 million in the second quarter of
1998. The amortization relates to goodwill and other intangible assets acquired
in the acquisition of Navius in August 1998 and Cardiometrics in July 1997.
Goodwill and other intangibles are being amortized over periods ranging from
three to nine years

Other Income. Other income decreased to $0.3 million in the second quarter of
1999 compared to $0.5 million in the second quarter of 1998. The Company
recognized a gain of 0.1 million in the second quarter of 1998, related to the
sale of Radiance Medical Systems, Inc. (RADX) common stock. The Company did not
sell any RADX common stock in the second quarter of 1999.

Net Income (Loss). Net income increased to $1.8 million, or $0.10 per diluted
share, in the second quarter of 1999 as compared to $1.0 million, or $0.06 per
diluted share, in the second quarter of 1998.

First Six Months of 1999 Compared to Same Period of 1998

Total Revenue. Total revenue increased 36% to $26 million for the six months
ended June 30, 1999 as compared to $19.1 million for the six months ended June
30, 1998. Revenues for the IVUS business increased by 30%, or $4.1 million, due
primarily to an increase in direct and distributor sales in Europe over 1998
levels. Revenues for the Cardiometrics business increased by 14% or $0.7 million
due, in part, to an increase in Wavewire shipments. Export sales comprised
approximately 69% of total revenues in


                                       9

<PAGE>   10

second quarter of 1999 as compared to 73% in the second quarter of 1998. The
Company expects that export sales will continue to represent a substantial
portion of the Company's revenue in future periods.

Cost of Sales. Cost of sales as a percentage of product sales decreased to 48%
for the six months ended June 30, 1999, from 50% for the six months ended June
30, 1998. Cost of sales as a percentage of total revenues decreased due in part
to higher overall average selling prices of IVUS products resulting from an
improved geographical mix. In addition, in 1998 cost of sales included certain
start-up costs related to the ramp up of manufacturing of Company's WaveWire
catheter. These costs were not present in 1999. 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 slightly to $3.7 million for the first six months of 1999 from $3.6
million for the same period in 1998. In 1999, the Company recognized
approximately $1.1 million in research and development funding which offset
certain expenses. Excluding this reimbursement research, development and
clinical expenses totaled approximately $4.8 million, which represents an
increase of $1.2 million or 32% from the first six months of 1998. The increase
is due primarily to Navius' research and development expenses, which are
included in the second quarter 1999 operating results as a consequence of the
Company's August 1998 acquisition of Navius.

Marketing and Sales. Marketing and sales increased to $5.1 million in the second
quarter of 1999 compared to $4.1 million in the second quarter of 1998. The
increase, 24%, is due to increased staffing and marketing programs related to
staffing a direct sales force in the United States and Germany. The increased
marketing and sales expense if offset by to the 30% increase in revenues.
Consequently, marketing and sales expense as a percentage of revenues decreased
to 20% for the six months ended June 30, 1999 from 21% in the same period of
1998.

General and Administrative. General and administrative expenses decreased by
$0.4 million dollars to $2.2 million for the six months ended June 30, 1999 as
compared to $2.6 million dollars for the six months ended June 30, 1998. The
reduction is due primarily to a reduction in legal expenses related to patent
litigation, which was ongoing in the first six months of 1998.

Restructuring. During the second quarter of 1999, the Company determined that
certain accrued costs related to the cancellation of certain distribution
agreements would most likely not be recognized. Accordingly, $738 in accrued
restructuring reserves was reversed during the quarter.

Amortization of Intangibles. Amortization of intangibles increased $0.4 million
for the six months ended June 30, 1999 to $0.9 million as compared to $0.5
million for the six months ended June 30, 1998. The amortization relates to
goodwill and other intangible assets acquired in the acquisition of Navius in
August 1998 and Cardiometrics in July 1997. Goodwill and other intangibles are
being amortized over periods ranging from three to nine years.

Equity in Net Loss of Radiance Medical Systems, Inc. There was no equity in net
loss of Radiance Medical Systems, Inc. (RADX) in the six months ended June 30,
1999. Equity in the net loss of RADX for the six months ended June 30, 1998 was
$0.2 million. Since February 1998, the Company's ownership in RADX has been less
than 20%.


                                       10

<PAGE>   11

Other Income. Other income decreased to $0.6 million as compared to $1.3 million
for the six months ended June 30,1998. The Company recognized a gain of $0.7
million in the six months ended June 30, 1998, related to the sale of Radiance
Medical Systems, Inc. (RADX) common stock. The company did not sell any RADX
during the first six months of 1999.

Net Income (Loss). Net income/loss was $3.0 million, or $0.16 per diluted share,
for the six months ended June 30, 1999 as compared to a loss of $0.1 million, or
($0.01) per diluted share, for the six months ended June 30, 1998.

Liquidity and Capital Resources

On June 30, 1999, the Company had cash and equivalents of $0.7 million,
short-term investments of $21.0 million and no borrowings or credit facilities.
Net cash provided by (used in) operations was ($5.1) million in the six months
ended June 30, 1999 as compared to $1.3 million in the same period in 1998. The
use of cash in operations relates to increased account receivables arising from
sales to distributors and increases in inventory to support future sales.

Net cash used in investing activities increased $0.7 million to $2.6 million in
the six months ended June 30, 1999 as compared to $1.9 million in the same
period of 1998. There was no cash provided by sales of Radiance Medical Systems,
Inc., common stock in the six months ended June 30, 1999, as compared to $3.9
million provided in the same period of 1998. Also, capital expenditures in the
six months ended June 30, 1999 increased $1.3 million from the same period in
1998. These reductions in cash were partially offset by a decrease in purchases
of short-term investments and an increase in the maturities of short-term
investments.

Net cash used in financing activities was $0.3 million for the six months ended
June 30, 1999 as compared to $3.2 million in the same period of 1998. In the six
months ended June 30, 1999 the Company used $2.5 million to acquire treasury
stock and received $2.2 million from the exercise of stock options. In the six
months ended June 30, 1998 the Company used $3.3 million to acquire treasury
stock and received $0.1 million from the exercise of stock options.

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 June 30, 1999 will be sufficient to meet the Company's
operating expenses and capital requirements through 2000. 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.

Impact of Year 2000

The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions to operations, including, a
temporary inability to process transactions, send invoices, or engage in similar
normal business activities. Should any of these disruptions occur, the financial
impact on the Company is unknown.

The Company has completed an assessment and will have to modify or replace
certain portions of its existing software in order for its computer systems to
function properly with respect to dates in the year 2000 and thereafter.
However, independent of the Year 2000 Issue, the Company has plans to replace
the majority of its existing computer programs with an integrated,
enterprise-wide software platform. The


                                       11

<PAGE>   12

Company has identified a software program which meets the Company's operational
needs and is also Year 2000 compliant. The Company believes that the new
software can be installed and tested with regards to the Year 2000 Issue by
September 1999. It is expected that the cost of the new software, installation,
and testing will be approximately $1.0 million, the majority of which would be
capitalized. In the event that the new software does not function properly with
regard to the Year 2000, and an adequate solution is not readily available, the
Company's believes that it can make the necessary modifications, (consisting
primarily of software version upgrades), to its current computer programs in
order to make them Year 2000 compliant.

It is anticipated that the Year 2000 project will be completed not later than
September 1999, which is prior to any anticipated impact on the Company's
operating systems. The Company believes that with the planned software
conversion or with modifications to the existing software, the Year 2000 Issue
will not pose a significant operational problem. However, if such modifications
are not completed timely, the Year 2000 Issue could have a material impact on
the operations of the Company. Likewise, based on a survey of its major
suppliers, vendors and customers with regard to their Year 2000 readiness, the
Company does not anticipate any operational problems related its suppliers,
vendors, customers and the Year 2000 Issue. However, if any of the Company's key
suppliers, vendors or customers does experience a prolonged business
interruption as a result of the Year 2000 Issue, it could have a material impact
on the operations of the Company.

The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which assume certain future events, including the continued availability of
certain resources. However, there can be no guarantee that these estimates will
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
effectiveness of the new software and, if necessary, the upgrades received from
the Company's software vendors at addressing the Year 2000 Issue and similar
uncertainties.


                                       12

<PAGE>   13

RISK FACTORS

     History of Operating Losses; Anticipated Future Losses. The Company was
founded in 1984 and has experienced annual operating losses since its inception.
The Company's accumulated deficit at December 31, 1998 was approximately $116
million. There can be no assurance that the Company will be able to achieve or
sustain profitability in the future. Although the Company believes that its
existing cash, cash equivalents and short-term investments will be sufficient to
meet its liquidity requirements through 2000, there can be no assurance that the
Company will not require additional financing or that such financing, if
required, will be available on satisfactory terms, if at all.

     Uncertainty of Market Acceptance. Although external ultrasound imaging and
balloon angioplasty are widely used technologies, the use of IVUS imaging in
connection with interventional cardiology is relatively new. The commercial
success of the Company's products will depend upon their acceptance by the
medical community as a useful, cost-effective component of interventional
cardiovascular and peripheral vascular procedures. IVUS imaging is used in
conjunction with angioplasty and other intravascular procedures such as vascular
stenting. Accordingly, the medical community must determine that the information
obtained from the use of the Company's ultrasound products will increase the
safety or effectiveness or lower the overall cost of the care being provided and
that the value of such information justifies the incremental expense of
obtaining IVUS imaging. In addition, market acceptance of the Company's
combination balloon angioplasty/IVUS imaging catheters will depend, among other
things, on a determination by the medical community that the efficacy of the
therapeutic component of the Company's combination catheters is at least
comparable to that of competing non-imaging angioplasty catheters and other
types of therapy. Although IVUS imaging devices have been available for over ten
years, the market for such products has remained relatively small. Although the
Company believes the benefits of IVUS imaging can be demonstrated, there can be
no assurance that the benefits will be considered sufficient by the medical
community to enable the Company's products to achieve widespread market
acceptance. Failure of the Company's products to achieve market acceptance would
have a material adverse effect on the Company's business, financial condition
and results of operations.

     Dependence on Strategic Relationships. In recent years there has been
significant consolidation among medical device suppliers as the major suppliers
have attempted to broaden their product lines in order to focus on product
configurations that address a given procedure or treatment and in order to
respond to cost pressures from health care providers. This consolidation has
made it increasingly difficult for smaller suppliers, such as the Company, to
effectively distribute their products without a major relationship with one of
the major suppliers. There can be no assurance that the Company will be able to
maintain its relationship with its key distributors or replace a key distributor
in the event the Company's relationship with that distributor would be
terminated. In the event of such a termination, the Company's ability to
distribute its IVUS imaging products would be materially adversely affected,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.

     Dependence on New Products; Rapid Technological Change. The medical device
industry generally, and the IVUS imaging device market in particular, are
characterized by rapid technological change, changing customer needs, and
frequent new product introductions. The Company's future success will depend
upon its ability to develop and introduce new products that address the
increasingly sophisticated needs of its customers. There can be no assurance
that the Company will be successful in developing and marketing new products
that achieve market acceptance or that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of new products.

     Dependence on International Sales. The Company derives, and expects to
continue to derive, a significant portion of its revenue from international
sales. In 1996, 1997, and 1998, the Company's international sales were $16.9
million, $21.9 million and $32.2 million respectively, or 69%, 64% and 73% of
total revenue. Therefore, a significant portion of the Company's revenues will
continue to be subject to the risks associated with international sales,
including economic or political instability, shipping delays, changes in
applicable regulatory policies, fluctuations in foreign currency exchange rates
and various trade restrictions, all of which could have a significant impact on
the Company's ability to deliver products on a competitive and timely basis.
Future imposition of, or significant increases in the level of, customs duties,


                                       13
<PAGE>   14

import quotas or other trade restrictions, could have an adverse effect on the
Company's business, financial condition and results of operation. The regulation
of medical devices, particularly in the European Community, continues to expand
and there can be no assurance that new laws or regulations will not have an
adverse effect on the Company.

     Suppliers. The Company purchases many standard and custom built components
from independent suppliers, and contracts with third parties for certain
specialized electronic component manufacturing processes. Most of these
purchased components and processes are available from more than one vendor.
However, the manufacturing of the connection points on the integrated circuit
microchips and the pressure microchip are currently performed by single vendors.
Although the Company is in the process of identifying alternative vendors, the
qualification of additional or replacement vendors for certain components or
services is a lengthy process. Any supply interruption from these single source
vendors would have a material adverse effect on the Company's ability to
manufacture its products until a new source of supply was qualified and, as a
result, could have an adverse effect on the Company's business, financial
condition and results of operations.

     Limitations on Third-Party Reimbursement. In the United States, the
Company's products are purchased primarily by medical institutions that then
bill various third-party payors. Medical institutions are reimbursed for the
care of Medicare hospital patients based at a predetermined lump sum amount for
diagnostic related group or DRGs regardless of the costs involved. The amount of
money paid for a specific DRG is determined by the average resource consumption
needed to treat a specific disease, including the nursing time, operating room
time and supplies. The amount of reimbursement is fixed and thus the amount of
potential profit for the medical institution relating to the procedure may be
reduced to the extent the physician performs additional procedures such as IVUS
imaging, pressure measurement or uses a more expensive product that combines
ultrasound imaging with therapeutic capabilities.

     Private insurers and other payors determine whether to provide coverage for
a particular procedure and reimburse hospitals for medical treatment also
usually at a fixed rate based. The fixed rate of reimbursement is based on the
procedure performed, and is unrelated to the specific type or number of devices
used in a procedure. Some payors may deny reimbursement if they determine that
the device used in a treatment was unnecessary, inappropriate or not
cost-effective, experimental or used for a non-approved indication.

     Physicians are reimbursed for performing medical producers based on the
amount of resource costs needed to provide the services. Included in the cost of
providing each service is the physician work, practice expense and malpractice
insurance. Payments are adjusted for geographic differences. CPT codes are now
available for all EndoSonics technology. CPT codes have been available since for
ultrasound procedures since 1997 and since January 1999 for Doppler flow and
pressure measurement. Physicians are responsible to determine that the clinical
benefits of intravascular ultrasound imaging and physiological assessment
justify the additional costs for the medical institutions.

     Although the Company believes that less invasive procedures generally
provide less costly overall therapies as compared to alternative surgical
procedures, there can be no assurance that reimbursement for such less invasive
procedures will continue to be available, or that future reimbursement policies
of payors will not adversely affect the Company's ability to sell its products
on a profitable basis. Failure by hospitals and other users of the Company's
products to obtain reimbursement from third-party payors, or changes in
government and private third-party payors' policies toward reimbursement for
procedures employing the Company's products, would have a material adverse
effect on the Company's business, financial condition and results of operations.

     The market for the Company's products could be adversely affected by
changes in governmental and private third-party payors' policies. A portion of
capital costs for medical equipment purchased by hospitals are currently
reimbursed separately from DRG payments. Moreover, the Company is unable to
predict what additional legislation or regulation if any, relating to the health
care industry or third-party coverage and reimbursement may be enacted in the
future, or what effect such legislation or regulation would have on the Company.


                                       14
<PAGE>   15

     Competition. Competition in the market for devices used in the diagnosis
and treatment of cardiovascular and peripheral vascular disease is intense, and
is expected to increase. The interventional cardiology market is characterized
by rapid technological innovation and change, and the Company's products could
be rendered obsolete as a result of future innovations. The Company's digital,
all-electronic IVUS imaging catheters compete with mechanical ultrasound devices
manufactured by CVIS and Hewlett-Packard. Both CVIS and Hewlett-Packard are
significantly larger than the Company, and have significantly greater financial,
sales and marketing and technical resources available. These competitors have
also developed IVUS imaging products with high quality images and the Company
believes that its competitive position is dependent upon its ability to
establish its reputation as a producer of high quality IVUS imaging products.
There can be no assurance that these companies are not currently developing, or
will not attempt to develop, combination balloon angioplasty/IVUS imaging
catheters that would compete with the Company's combination balloon
angioplasty/IVUS imaging products. Moreover, companies currently engaged in the
manufacture and marketing of non-imaging angioplasty catheters could attempt to
expand their product lines to include combination balloon angioplasty/IVUS
imaging products.

     The Company's combination balloon angioplasty/IVUS imaging catheters
compete or will compete with therapeutic catheters marketed by a number of
manufacturers, including CVIS, Cordis, Guidant and Medtronic, Inc. Such
companies have substantial resources, established market positions, and
significantly larger sales and marketing organizations. In addition, the Company
faces competition from manufacturers of atherectomy devices, vascular stents and
pharmaceutical products intended to treat cardiovascular disease.

     Reliance on Patents and Proprietary Technology; Risk of Patent
Infringement. The Company holds six issued United States patents and has other
United States and several foreign patent applications pending covering various
aspects of its IVUS imaging technology. No assurance can be given, however, that
the Company's patent applications will issue as patents or that any issued
patents will provide competitive advantages for the Company's products or will
not be successfully challenged or circumvented by its competitors. Although the
Company attempts to ensure that its products do not infringe other party's
patents and proprietary rights, there can be no assurance that its products do
not infringe such patents or rights. The interventional cardiovascular market
has been characterized by substantial litigation regarding patent and other
intellectual property rights. In the event that any relevant claims of
third-party patents are upheld as valid and enforceable, the Company could be
prevented from practicing the subject matter claimed in such patents, or would
be required to obtain licenses from the owners of any such patents or redesign
its products or processes to avoid infringement. There can be no assurance that
such licenses would be available or, if available, would be so on terms
acceptable to the Company or that the Company would be successful in any attempt
to redesign its products or processes to avoid infringement. The Company also
relies on trade secrets and proprietary technology and enters into
confidentiality and non-disclosure agreements with its employees and
consultants. There can be no assurance that the confidentiality of such trade
secrets or proprietary information will be maintained by employees, consultants,
advisors or others, or that the Company's trade secrets or proprietary
technology will not otherwise become known or be independently developed by
competitors in such a manner that the Company has no practical recourse.
Litigation may be necessary to defend against claims of infringement or
invalidity, to enforce patents issued to the Company or to protect trade secrets
and could result in substantial cost to, and diversion of effort by, the
Company.

     Government Regulation. The manufacturing and marketing of the Company's
products are subject to extensive and rigorous government regulation in the
United States and in other countries. The Company believes that its success will
be significantly dependent upon commercial sales of improved versions of its
imaging systems and catheter products. The Company will not be able to market
these new products in the United States unless and until the Company obtains
approval from the FDA.

     If a medical device manufacturer can establish that a newly developed
device is "substantially equivalent" to a device that was legally marketed prior
to May 1976, or to a device that the FDA has found to be substantially
equivalent to a legally marketed pre-1976 device, the manufacturer may seek
clearance from the FDA to market the device by filing a premarket notification
with the FDA under Section 510(k) of the Federal Food, Drug, and Cosmetic Act
("510(k)"). There can be no assurance that 510(k) clearance for any future
product or modification of an existing product will be granted or that the
process will not be


                                       15
<PAGE>   16

unduly lengthy. All of the 510(k) clearances received for the Company's
catheters were based on substantial equivalence to legally marketed pre-1976
devices. Review of the substantially equivalent pre- 1976 devices on which the
510(k) clearances for the Company's catheters were based and any resulting
restrictions on the Company or requirements imposed to present additional data
could have a material adverse effect on the Company's business, financial
condition and results of operations.

     If substantial equivalence cannot be established, or if the FDA determines
that the device or the particular application for the device requires a more
rigorous review, the FDA will require that the manufacturer submit a PMA
application that must be reviewed and approved by the FDA prior to sales and
marketing of the device in the United States. The PMA process is significantly
more complex, expensive and time consuming than the 510(k) clearance process and
frequently requires the submission of clinical data. It is expected that certain
of the Company's combination angioplasty/IVUS imaging products under development
will be subject to this PMA process. Failure to comply with applicable
regulatory requirements can, among other consequences, result in fines,
injunctions, civil penalties, suspensions or loss of regulatory approvals,
product recalls, seizure of products, operating restrictions and criminal
prosecution. In addition, governmental regulations may be established that could
prevent or delay regulatory approval of the Company's products. Delays in
receipt of approvals, failure to receive approvals or the loss of previously
received approvals would have a material adverse effect on the Company's
business, financial condition and results of operations.

     The Company is also required to register as a medical device manufacturer
with the FDA and certain state agencies, such as the Food and Drug Branch of
CDHS. As such, the Company is inspected on a routine basis by both the FDA and
the CDHS for compliance with the GMP regulations. These regulations require that
the Company manufacture its products and maintain related documentation in a
prescribed manner with respect to manufacturing, testing and control activities.
Further, the Company is required to comply with various FDA requirements for
labeling. The Medical Device Reporting regulation requires that the Company
provide information to the FDA on deaths or serious injuries alleged to have
been associated with the use of its devices, as well as product malfunctions
that would likely cause or contribute to death or serious injury if the
malfunction were to recur. In addition, the FDA prohibits an approved device
from being marketed for unapproved applications. If the FDA believes that a
company is not in compliance with applicable laws and regulations, it can
institute proceedings to detain or seize products, issue a recall, prohibit
marketing and sales of the company's products and assess civil and criminal
penalties against the company, its officers or its employees.

     The Company is also subject to other federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices. The extent of government regulation that might
result from any future legislation or administrative action cannot be accurately
predicted. Failure to comply with regulatory requirements could have a material
adverse effect on the Company's business, financial condition and results of
operations.

     International sales of the Company's products are subject to the regulatory
agency product registration requirements of each country. The regulatory review
process varies from country to country and may in some cases require the
submission of clinical data. The Company typically relies on its distributors in
such foreign countries to obtain the requisite regulatory approvals. There can
be no assurance, however, that such approvals will be obtained on a timely basis
or at all.

     The Company has received ISO 9001 certification of its Quality System as
well as CE Mark certifications for most of its products. The ISO 9000 series of
standards for quality operations has been developed to ensure that companies
know the standards of quality to which they must adhere to receive
certification. The European Union has promulgated rules which require that
medical products obtain the right to affix the CE Mark, an international symbol
of adherence to quality assurance standards and compliance with applicable
European medical device directives. All medical devices placed on the market
within the European Union are required to bear the CE Mark. ISO 9000
certification is one of the CE Mark certification requirements. Failure to
receive the right to affix the CE Mark for any product will prohibit the Company
from selling that product in member countries in the European Union. In Europe,
the Company has obtained ISO 9001 certification for operations at the EndoSonics
Europe, B.V. office. There can be no assurance that the Company will be
successful in meeting ongoing certification requirements.


                                       16
<PAGE>   17

     Potential Product Liability; Limited Insurance. The Company faces the risk
of financial exposure to product liability claims. The Company's products are
often used in situations in which there is a high risk of serious injury or
death. Such risks will exist even with respect to those products that have
received, or in the future may receive, regulatory approval for commercial sale.
The Company maintains product liability insurance with coverage limits of $1.0
million per occurrence and $5.0 million per year in the aggregate. There can be
no assurance that the Company's product liability insurance is adequate or that
such insurance coverage will remain available at acceptable costs. There can be
no assurance that the Company will not incur significant product liability
claims in the future. A successful claim brought against the Company in excess
of its insurance coverage could have a material adverse effect on the Company's
business, financial condition and results of operations. Additionally, adverse
product liability actions could negatively affect the reputation and sales of
the Company's products as well as the Company's ability to obtain and maintain
regulatory approval for its products.

     Volatility of Stock Price. The Company's Common Stock has experienced and
can be expected to continue to experience substantial price volatility in
response to actual or anticipated quarterly variations in operating results,
announcements of technological innovations or new products by the Company or its
competitors, developments related to patents or other intellectual property
rights, developments in the Company's relationships with its customers,
distributors or suppliers, acquisitions or divestitures of other companies in
the health care industry, and other events or factors. In addition, any
shortfall or changes in revenue, gross margins, earnings, or other financial
results from analysts' expectations could cause the price of the Company's
Common Stock to fluctuate significantly. In recent years, the stock market in
general has experienced extreme price and volume fluctuations, which have
particularly affected the market price of many technology and health care
companies and which have often been unrelated to the operating performance of
those companies. These broad market fluctuations may adversely affect the market
price of the Company's Common Stock.


                                       17
<PAGE>   18

Part II.

                                OTHER INFORMATION

ITEMS 1 through 3. Not applicable.

ITEM 4. Submission of Matters to a Vote of Security-Holders

The Company's Annual Meeting of Stockholders was held on June 10, 1999. The
following actions were taken at this meeting:

<TABLE>
<CAPTION>
                                                                             Abstentions
                                      Affirmative     Negative     Votes     and Broker
                                         Votes         Votes      Withheld    Non-Votes
                                      -----------     --------    --------   -----------
<S>                                    <C>           <C>             <C>        <C>
A.  Election of Directors
    Julie A. Brooks                    15,901,750       77,049
    Thomas J. Cable                    15,901,750       77,049
    Dale Conrad                        15,901,750       77,049
    Roger Salquist                     15,901,750       77,049
    Jakob Stapfer                      15,901,750       77,049
    Gregg W. Stone, M.D.               15,901,750       77,049
    Reinhard J. Warnking               15,901,750       77,049
    W. Michael Wright                  15,901,750       77,049

B.  Amendment to the 1998 Stock
    Option Plan for an additional
    500,000 shares                     11,593,667    2,333,918                  51,214

C.  Ratification of Ernst & Young
    LLP as Independent Auditors
                                       13,962,645       11,825                   4,329
</TABLE>


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.


                                       18
<PAGE>   19

                                   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:  August 13, 1999



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

                                                 Date:  August 13, 1999



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

                                                 Date:  August 13, 1999


                                       19
<PAGE>   20

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number            Description
-------           -----------
<S>               <C>
  27              Financial Data Schedule
</TABLE>