<PAGE>

               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                  FORM 10-Q


[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999.


                                      OR


[_]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________. TO
      ______________.


                         COMMISSION FILE NO. 0-21371


                            APPLIED IMAGING CORP.
            (Exact name of registrant as specified in its charter)


        Delaware                                   77-0120490
        (State or other jurisdiction of            (I.R.S. Employer
        incorporation or organization)             Identification No.)

                        2380 Walsh Avenue, Building B
                        Santa Clara, California 95051
         (Address of principal executive offices, including zip code)

                                (408) 562-0250
             (Registrant's telephone number, including area code)



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
                                                  -----    -----

As of June 30, 1999, 11,543,005 shares of the Registrant's Common Stock were
outstanding.
<PAGE>

                             APPLIED IMAGING CORP.

                                     INDEX


<TABLE>
<CAPTION>

                                                                         Page
                                                                         ----
<S>                                                                      <C>

                         PART I.  FINANCIAL INFORMATION
                         ------------------------------
Item 1.  Financial Statements

              Condensed Consolidated Balance Sheets
              June 30, 1999 and December 31, 1998   .     .     .     .     3

              Condensed Consolidated Statements of Operations
              Three  and six months ended June 30, 1999 and 1998.     .     4

              Condensed Consolidated Statements of Cash Flows
              Six months ended June 30, 1999 and 1998     .     .     .     5

              Notes to Condensed Consolidated Financial Statements    .   6-7

Item 2.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations    .     .     .  8-11

Item 3.  Quantitative and Qualitative Disclosures about Market Risk
         Derivatives and Financial Instruments.     .     .     .     .    12


                          PART II.  OTHER INFORMATION
                          ---------------------------

Item 4.  Submission of matters to a vote of security holders    .     .    13

Item 6.  Exhibits and Reports on Form 8-K     .     .     .     .     .    13

         Signatures   .     .     .     .     .     .     .     .     .    14
</TABLE>




                                       2
<PAGE>

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

                    APPLIED IMAGING CORP. AND SUBSIDIARIES
                     Condensed Consolidated Balance Sheets
                       (In thousands, except share data)


<TABLE>
<CAPTION>
                                                                           June 30,       December 31,
                                                                             1999             1998
                                                                         -----------      ------------
                                                                         (Unaudited)
<S>                                                                      <C>              <C>
ASSETS

Current assets:
          Cash and cash equivalents                                        $  3,262         $  5,480
          Short term investments                                              5,246            6,248
          Trade accounts receivable, net                                      3,242            3,821
          Inventories                                                         1,118            1,169
          Prepaid expenses and other assets                                     511              436
                                                                           --------         --------
                   Total current assets                                      13,379           17,154
Property and equipment, net                                                   1,311            1,569
Other assets, net                                                               106               85
                                                                           ========         ========
                   Total assets                                            $ 14,796         $ 18,808
                                                                           ========         ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
          Current portion of bank debt                                     $    508         $  1,079
          Accounts payable                                                    1,052            1,572
          Accrued expenses                                                    2,326            2,519
          Deferred revenue                                                    1,196            1,231
                                                                           --------         --------
                   Total current liabilities                                  5,082            6,401
          Long-term liabilities                                                  53               64
                                                                           --------         --------
                   Total liabilities                                          5,135            6,465
                                                                           --------         --------
Stockholders' equity:

          Common stock                                                           12               12
          Additional paid-in capital                                         41,143           41,121
          Deferred compensation                                                (226)            (419)
          Accumulated other comprehensive income                               (367)            (367)
          Accumulated deficit                                               (30,901)         (28,004)
                                                                           --------         --------
                   Total stockholders' equity                                 9,661           12,343
                                                                           --------         --------
                   Total liabilities and stockholders' equity              $ 14,796         $ 18,808
                                                                           ========         ========
</TABLE>

    See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>

                    APPLIED IMAGING CORP. AND SUBSIDIARIES
                Condensed Consolidated Statements of Operations
                     (in thousands, except per share data)
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                              Three months ended                  Six months ended
                                                                    June 30,                          June 30,
                                                           -------------------------         --------------------------
                                                             1999             1998             1999              1998
                                                           --------         --------         --------          --------
<S>                                                        <C>              <C>              <C>               <C>
Revenues                                                    $ 3,141          $ 3,295          $ 5,806           $ 5,969
Cost of revenues                                              1,389            1,636            2,703             2,876
                                                            -------          -------          -------           -------

          Gross profit                                        1,752            1,659            3,103             3,093
                                                            -------          -------          -------           -------
Operating expenses:
          Research and development                            1,090            1,529            2,221             3,451
          Sales and marketing                                 1,134            1,267            2,195             2,596
          General and administrative                            697              727            1,417             1,455
          Restructuring costs                                     -              353              224               353
                                                            -------          -------          -------           -------
                    Total operating expenses                  2,921            3,876            6,057             7,855
                                                            -------          -------          -------           -------
                    Operating loss                           (1,169)          (2,217)          (2,954)           (4,762)
Other income/(expense), net                                      78               91               57               158
                                                            -------          -------          -------           -------
          Net loss                                          $(1,091)         $(2,126)         $(2,897)          $(4,604)
                                                            =======          =======          =======           =======
Net loss per share - basic and diluted                      $ (0.09)         $ (0.24)         $ (0.25)          $ (0.56)
                                                            =======          =======          =======           =======
Weighted average shares outstanding                          11,539            8,716           11,534             8,192
                                                            =======          =======          =======           =======
</TABLE>

    See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>

                    APPLIED IMAGING CORP. AND SUBSIDIARIES
                Condensed Consolidated Statements of Cash Flows
                                (In thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                Six months ended June  30,
                                                                              ------------------------------
                                                                                   1999             1998
                                                                              --------------   -------------
<S>                                                                           <C>              <C>
Cash flows from operating activities:
       Net Loss                                                                  $ (2,897)        $ (4,604)
       Adjustments to reconcile net loss to
       net cash provided (used) by operating activities:
           Depreciation and Amortization                                              437              472
           Compensation expense on stock options                                      193              193
           Loss on sale of fixed assets                                                41                5
           Changes in operating assets and liabilities:
               Accounts receivable, net                                               579               59
               Inventories                                                             51             (346)
               Prepaid expenses and other assets                                      (75)            (482)
               Accounts payable                                                      (520)              80
               Accrued expenses                                                      (193)              51
               Deferred revenue                                                       (35)            (124)
                                                                                 --------         --------
           Net cash used by operating activities:                                  (2,419)          (4,696)
                                                                                 --------         --------
Cash flows from investing activities:
       Purchases of property and equipment                                           (270)            (406)
       Purchases of marketable securities                                               -           (1,013)
       Proceeds from sales and maturities of short term investments                 1,002            4,209
       Proceeds from sale of fixed assets                                              50               24
       Other assets                                                                   (21)             (15)
                                                                                 --------         --------
           Net cash provided by investing activities:                                 761            2,799
                                                                                 --------         --------
Cash flows from financing activities:
       Bank loan proceeds/(payments), net                                            (582)             464
       Proceeds from Issuamce of Common Stock                                          22           10,036
                                                                                 --------         --------
           Net cash provided/(used) by financing activities:                         (560)          10,500
                                                                                 --------         --------
Net decrease in cash and cash equivalents                                          (2,218)           8,603
Cash and cash equivalents at beginning of period                                    5,480            2,918
                                                                                 --------         --------
Cash and cash equivalents at end of period                                        $ 3,262         $ 11,521
                                                                                 ========         ========
Supplemental disclosure of cash flow information:
           Interest paid during period                                            $    41         $     51
                                                                                 ========         ========

</TABLE>

    See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>

                    APPLIED IMAGING CORP. AND SUBSIDIARIES

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 (Unaudited)


NOTE 1 - Basis of Presentation
------------------------------

     The accompanying condensed consolidated financial statements include the
accounts of Applied Imaging Corp. and subsidiaries (the "Company") for the
three and six months ended June 30, 1999 and 1998.  These financial
statements are unaudited and reflect all adjustments, consisting only of
normal recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation of the Company's financial position,
operating results and cash flows for those interim periods presented.  The
results of operations for the three and six months ended June 30, 1999 are
not necessarily indicative of results to be expected for the fiscal year
ending December 31, 1999.  These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto, for the year ended December 31, 1998, contained in the
Company's 1998 annual report on Form 10K.


NOTE 2 - Inventories (in thousands)
-----------------------------------

Balances as of      June 30, 1999    December 31, 1998
                    -------------    -----------------

Raw materials           $1,063            $  999
Work in process             19                96
Finished goods              36                74
                        ------            ------
Total                   $1,118            $1,169
                        ======            ======


NOTE 3 - Loss per share
-----------------------

     There were no reconciling items of the numerators and denominators of the
basic and diluted EPS computation.  Securities excluded from the computation of
EPS because their effect on EPS was antidilutive, but could dilute basic EPS in
future periods are as follows:

Balance as of       June 30, 1999    June 30, 1998
                    -------------    -------------
Options               1,793,400        1,209,316
Warrants                681,747          681,747
                      ---------        ---------
Total                 2,475,147        1,891,063
                      =========        =========



                                       6
<PAGE>
NOTE 4 - Restructuring Costs
----------------------------

     During the quarter ended March 31, 1999, plans were developed to reduce
costs by eliminating fifteen positions in the Company.  The consolidated
statement of operations includes $224,000 of pretax charges relating to the
severance costs of these employees.  As of June 30, 1999, the Company has paid
approximately $212,000 of these costs.

     During the quarter ended June 30, 1999 the Company recorded a
restructuring charge of $353,000 relating to the severance costs of thirteen
positions in the Company.  All of these costs have been paid.


Note 5 - Subsequent Event
-------------------------

     On July 16, 1999 (the "anniversary date"), the Company acquired
intellectual and software property relating to the cytogenetic imaging
instrumentation business of Vysis, Inc.

     The acquisition was accounted for as a purchase.  The consideration paid
was $2,350,000 consisting of a cash payment of $1.0 million, $500,000 in cash
to be paid one year from the anniversary date, $250,000 in cash to be paid
eighteen months from the anniversary date and 497,368 shares of the Company's
common stock.  The installment payments bear interest at the annual rate of
seven percent.  The interest is due and payable at the time the installment is
due.  In addition, the Company will record a liability of approximately
$100,000 for the estimated costs associated with certain warranties and service
contracts that the Company will take responsibility for.  The Company estimates
it will record goodwill of approximately $2,450,000 and will amortize such
goodwill over ten years.

     The Company will also purchase approximately $500,000 in existing
inventory from Vysis for use in the cytogenetic imaging instrumentation
business.




                                      7
<PAGE>

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations

     The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto, and with the
Company's audited financial statements and notes thereto for the fiscal year
ended December 31, 1998.

     The information set forth below contains forward-looking statements
(designated by an *), and the Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Item one" in the Company's
annual report on form 10-K for the fiscal year ended December 31, 1998.


Results of Operations

Revenues.  The Company's revenues are derived primarily from the sale of
products and from service contracts. Revenues for the three and six months
ended June 30, 1999 were $3.1 million and $5.8 million respectively, compared
to $3.3 million and $6.0 million for the corresponding prior year periods. The
decrease in revenues is attributed to certain products discontinued in 1999.

Cost of revenues.  Cost of revenues includes direct material and labor costs,
manufacturing overhead, installation costs, warranty related expenses and
post-warranty service and application support expenses. Costs of revenues, as a
percentage of total revenues, for the three and six months ended June 30, 1999
were 44% and 47% respectively, compared to 50% and 48% for the corresponding
prior year periods. The decreases are primarily due to lower raw material costs
and license fees for the cytogenetic instrumentation products.

Research and development expenses.  Research and development expenses consist
of research and development relating to new products as well as software
development costs to upgrade existing products. Research and development
expenses for the three and six months ended June 30, 1999 were $1.1 million and
$2.2 million respectively, compared to $1.5 million and $3.5 million over the
corresponding prior year periods. The decreases over the prior year periods
are primarily due to decreased expenditures for salaries, lab supplies and
consulting costs associated with the development of the Company's prenatal
screening products and lower development costs for the Company's cytogenetic
instrument business.

Sales and marketing expenses.  Sales and marketing expenses consist primarily
of salaries, commissions and travel expenses of the Company's direct sales
force, as well as commissions paid to independent international sales agents.
Sales and marketing expenses for the three and six months ended June 30, 1999
were $1.1 million and $2.2 million respectively, compared to $1.3 million and
$2.6 million in the corresponding prior year periods. As a percentage of
revenues, sales and marketing expenses were 36% and 38% of total revenues for
the three and six months ended June 30, 1999 compared to 38% and 43% in the
corresponding prior year periods. The decreases are primarily due to lower
personnel and meeting costs.

                                       8
<PAGE>

General and administrative expenses.  General and administrative expenses
consist primarily of payroll costs associated with the Company's management and
administrative personnel, travel expenses, and legal, accounting and regulatory
compliance costs. General and administrative expenses were $697,000 and
$1.4 million for the three and six months ended June 30, 1999, compared to
$727,000 and $1.5 over the prior year periods. The decreases for the three and
six months are primarily due to lower personnel costs.

Restructuring costs.  A restructuring charge of $224,000 was accrued for during
the quarter ended March 31,1999. The charge reflects the severance costs for
fifteen employees. The employee reductions were made in both the United States
and United Kingdom facilities. As of June 30, 1999 approximately $212,000 of
the severance costs have been paid to former employees.

     During the quarter ended June 30, 1998 the Company recorded a
restructuring charge of $353,000 relating to the severance costs of thirteen
positions in both the United States and United Kingdom facilities. All of these
costs have been paid.

Factors That May Affect Future Results

     The Company's operating results may vary significantly depending on
certain factors, including the effect of delays in and terminations of its
research and development programs, adverse results in its clinical studies,
delays in the introduction or shipment of new products, increased competition,
adverse changes in the economic conditions in any of the several countries in
which the Company does business, a slower growth rate in the Company's target
markets, order deferrals in anticipation of new product releases, lack of
market acceptance of new products, the uncertainty of FDA or other domestic and
international regulatory clearances or approvals, the Company's inability to
attract and retain key employees, and the factors set forth in the Company's
annual report on form 10-K for the fiscal year ended December 31, 1998.

     Due to the factors noted above, the Company's future earnings and stock
price may be subject to significant volatility, particularly on a quarterly
basis. Any shortfall in revenues or earnings from levels expected by security
analysts could have an immediate and significant adverse effect on the trading
price of the Company's common stock.


Liquidity and Capital Resources

     At June 30, 1999, the Company had cash, cash equivalents and securities
available for sale of $8.5 million and working capital of $8.3 million. Cash
used by operations for the six months ended June 30, 1999 was $2.4 million
compared to $4.7 million for the corresponding prior year period. The decrease
in cash used in operations is primarily due to lower losses as explained above.
In addition, the Company consumed $270,000 for purchases of capital equipment
compared to $406,000 for the prior year period. The Company also used
approximately $570,000 to pay down its U.K. subsidiary's line of credit.

     The Company expects negative cash flow from operations to continue into
at least 2000, as it continues the research and development of its
micrometastases technologies, expands its marketing, sales and customer support
capabilities and adds administrative infrastructure.* The Company currently
estimates that its existing capital resources will enable it to sustain
operations through 2000*. Because the timing and amount of spending of such
capital resources cannot be accurately determined at this time and will depend
on several factors,

                                       9
<PAGE>

including but not limited to, the progress of its research and development
efforts and clinical investigations, the timing of regulatory approvals or
clearances, competing technologies or products, the Company may consider
obtaining additional financing this year.* The Company may seek to obtain
additional funds through equity or debt financing, collaborative or other
arrangements with other companies, or from other sources.* No assurance can be
given that additional financing will be available when needed or on terms
acceptable to the Company. If adequate funds are not available, the Company
could be required to delay development or commercialization of certain of its
products, to license to third parties the rights to commercialize certain
products or technologies that the Company would otherwise seek to commercialize
itself, or to reduce the marketing, customer support or other resources devoted
to certain of its products. In addition, as opportunities arise, funds may also
be used to acquire businesses, technologies or products that complement any
such acquisitions.*

     On July 16, 1999, the Company acquired certain assets relating to the
cytogenetic imaging instrumentation business of Vysis, Inc. Total
consideration paid was $2,350,000 consisting of a cash payment at closing of
one million dollars, installment payments of $500,000 due July 16, 2000 and
$250,000 due January 16, 2001 and 497,368 shares of the Company's Common Stock.
The installment payments bear interest at 7%, which is due and payable at the
time the installments are due. In addition, the Company will record a liability
of approximately $100,000 for the estimated costs associated with certain
warranties and service agreements that the Company will be responsibility for.
The Company will also purchase approximately $500,000 in existing inventory
from Vysis for use in the cytogenetic imaging instrumentation business.



     Year 2000 Compliance

     The Company is knowledgeable of the issues associated with the programming
code in existing computer systems as the year 2000 approaches. The Company
began in 1997 and 1998 with a Year 2000 problem assessment, establishing a Year
2000 Company Policy, and initiating product upgrades to remedy Year 2000
problems. The Company is using a four-phase approach to achieve Year 2000
compliance. The first phase consisted of the inventorying of all potential
business interruption problems, including those with products and systems, as
well as potential disruption from suppliers and other third parties. The second
phase consists of prioritization of potential problems and allocating the
appropriate level of resources to the most critical areas. The third phase
addresses the remediation programs to solve or mitigate any identified Year
2000 problems. The fourth phase, if necessary, will be to develop and implement
contingency plans if there are significant Year 2000 problems from the Company
or its key suppliers.

     The Company has completed an assessment of its internal Year 2000 risks.
The assessment included a review of products the Company produces and sells to
third parties, its telecommunication systems and its internal computer and
management information systems. The Company has determined that its current
products are Year 2000 compliant. The Company has recently upgraded its
telecommunication equipment and accounting systems to be Year 2000 compliant.
In February 1999, the Company released Year 2000 Upgrades to bring
Pentium-based systems currently installed at customer sites into Year 2000
compliance. Should unanticipated Year 2000 problems occur, the Company is
prepared to develop and execute contingency plans to satisfy customers on an
as-needed basis.*

                                       10
<PAGE>

     The Company is continuing its external assessment of Year 2000 risks. In
early 1998, the Company contacted its key third party manufacturing suppliers
to assess exposure to Year 2000 problems. The initial assessment was that the
key supplier products were Year 2000 complaint. Currently, the Company is
contacting its key suppliers, vendors, financial service organizations (third
party suppliers) to confirm their continuing Year 2000 compliance of their
products and business programs to ensure the Company will not incur any Year
2000 business disruptions. Additionally, new key suppliers are also being
contacted. The Company expects to complete its 1999 external assessment on or
before the end of September 1999.* At present, the Company is not aware of any
issues with any of its third party suppliers.* However, third party compliance
is outside of the Company's control, and consequently, uncertainty exists.
Significant Year 2000 compliance problems from its third party suppliers,
partners, or customers could have a material adverse affect on the Company's
business, results of operation, financial condition and prospects.

     The Company has expended and will continue to expend resources to continue
to monitor and upgrade its products and services and for the upgrade to its
telecommunication and management information systems.* To date the Company
estimates that its has expended approximately $130,000 for costs associated
with its year 2000 compliance and estimates it will spend an additional $35,000
to $70,000 inclusive of non-incremental costs that will be incurred by
reallocation of existing resources in bringing the Company into Year 2000
compliance.* However, there may be unforeseeable issues with unseen costs that
are outside of the Company's control that could have a negative impact on the
Company.*

                                       11
<PAGE>

Item 3.  Quantitative and Qualitative Disclosures about Market Risk
         Derivatives and Financial Instruments.

         For the quarter ended June 30, 1999, there were no material changes
from the disclosures made in the Company's form 10-K for the year ended
December 31, 1998.

                                       12
<PAGE>

PART II  -  OTHER INFORMATION
-----------------------------

Item 4: Submission of matters to a vote of security holders

     The Company solicited proxies for an annual meeting of stockholders on May
24, 1999 to all of the Company's stockholders.

     The election of all directors was conducted and the following nominees were
elected: Andre F. Marion and Pablo Valenzuela.  The vote with respect to each
nominee was as follows:
                                                Votes
                                   -------------------------------
           Name                         For             Against
     -----------------             -------------     -------------

     Andre F. Marion                 8,260,056           4,400
     Pablo Valenzuela                8,260,056           4,400


     PricewaterhouseCoopers LLP  was ratified as the independent accountants of
the Company for the fiscal year ending December 31, 1999 with 8,255,608 votes in
favor, 4,000 votes against and 4,848 abstentions.

Item 6:  Exhibits and Reports on Form 8-K

     (a)
         Exhibit
         -------

         Exhibit 27.1  Financial Data Schedule

     The following report on Form 8-K was filed during the period for  which
this report is filed:

     (b) Reports on Form 8-K
         -------------------

     The Company filed a Form 8-K on April 7, 1999, announcing that the Board of
Director's Audit Committee approved PricewaterhouseCoopers LLP as the Company's
independent accountants and dismissed KPMG LLP as such independent accountants.




                                       13
<PAGE>

                             APPLIED IMAGING CORP.


                                   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.



                                            APPLIED IMAGING CORP.
                                                 (Registrant)




Date: August 10, 1999                By:  /S/ JACK GOLDSTEIN
                                          -------------------------
                                            Jack Goldstein
                                            President, Chief Executive Officer
                                            Chairman of the Board

                                     By:  /S/ MICHAEL J. BRADEN
                                          -----------------------------
                                            Michael J. Braden
                                            Chief Accounting Officer





                                       14