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 Quarter Ended September 28, 1998


[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
      EXCHANGE ACT OF 1934

                        For the transition period from to

                         Commission file number 0-19386

                           FISCHER IMAGING CORPORATION
             (Exact name of Registrant as specified in its charter)

               DELAWARE                                36-2756787
       (State of incorporation)           (I.R.S. Employer Identification No.)

       12300 North Grant Street
            Denver, Colorado                             80241
 (Address of principal executive offices)              (Zip Code)

       Registrant's telephone number, including area code: (303) 452-6800


Indicate by check mark whether the Registrant (i) 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 (ii) has been subject to such filing
requirements for the past 90 days. Yes X No

                                                    Shares Outstanding as of
        Title of Class                                 September 28, 1998
------------------------------                      ------------------------

Common Stock, $0.01 par value                               6,980,150


<PAGE>


                           FISCHER IMAGING CORPORATION

                                TABLE OF CONTENTS


PART I.     FINANCIAL INFORMATION                                       PAGE
                                                                        ----


      Item 1.     Consolidated Financial Statements

                  Consolidated Balance Sheets -
                  September 28, 1998 and December 31, 1997                  3

                  Consolidated Statements of Operations -
                  Three and nine months ended
                  September 28, 1998 and September 29, 1997                 4

                  Consolidated Statements of Cash Flows -
                  Nine months ended
                  September 28, 1998 and  September 29, 1997                5

                  Notes to Consolidated Financial Statements                6


      Item 2.     Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                       9


PART II.    OTHER INFORMATION

      Item 1.     Legal Proceedings                                         17

      Item 6.     Exhibits and Reports on Form 8-K                          17


<PAGE>


                           FISCHER IMAGING CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                    (Amounts in thousands except share data)
<TABLE>
<CAPTION>
                                                              September 28, December 31,
                                                                  1998         1997
                                                              ==========================
                                                               (Unaudited)  (Unaudited)
                                   ASSETS
<S>                                                              <C>        <C>  
CURRENT ASSETS
 Cash and cash equivalents                                       $  1,044   $  3,439
 Trade accounts receivable, net of allowance for
   doubtful accounts of approximately $667 and $778 
   at September 28, 1998 and December 31, 1997, 
   respectively                                                    16,765     14,132
 Inventories                                                       20,521     17,373
 Deferred income taxes                                              1,334      1,334
 Prepaid expenses and other current assets                          1,642      1,169
                                                                  -------    -------
         Total current assets                                      41,306     37,447
                                                                  -------    -------

PROPERTY AND EQUIPMENT (at cost)
 Manufacturing equipment                                            9,497      9,521
 Office equipment and leasehold improvements                        5,966      5,563
                                                                  -------    -------
                                                                   15,463     15,084
 Less- Accumulated depreciation and amortization                    9,559      9,417
                                                                  -------    -------
         Property and equipment, net                                5,904      5,667
                                                                  -------    -------
INTANGIBLE ASSETS, net                                              3,106      3,615
DEFERRED INCOME TAXES                                                 668        668
DEFERRED COSTS AND OTHER ASSETS                                     1,725      1,747
                                                                  -------    -------
         TOTAL ASSETS                                            $ 52,709   $ 49,144
                                                                  =======    =======

                    LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
   Notes payable and current maturities of long-term debt        $  3,786   $    224
   Trade accounts payable                                           6,037      4,876
   Accrued salaries and wages                                       2,190      2,027
   Customer deposits                                                2,235      1,136
   Accrued warranty and installation costs                          1,247      1,090
   Accrued restructuring costs                                        743      1,180
   Deferred service revenue                                           860        771
   Other current liabilities                                          968        964
                                                                  -------    -------
         Total current liabilities                                 18,066     12,268

LONG-TERM DEBT                                                        648        309
ACCRUED RESTRUCTURING COSTS, LONG-TERM                                682        900
OTHER NONCURRENT LIABILITIES                                          468        482
                                                                  -------    -------
         TOTAL LIABILITIES                                         19,864     13,959
                                                                  -------    -------
STOCKHOLDERS' INVESTMENT
   Common Stock, $.01 par value, 25,000,000 shares
     authorized, 6,980,150 and 6,948,648 shares issued 
     and outstanding at September 28, 1998 and December
     31, 1997, respectively                                            70         69
   Preferred Stock, 5,000,000 shares authorized:
     Series C Junior Participating Preferred Stock, 
     $.01 par value, 500,000 shares authorized, no shares 
     issued and outstanding                                             -          -
   Series D Convertible Preferred Stock, $.01 par value, 
     1,333,333 shares authorized, issued and outstanding
     at September 28, 1998 and December 31, 1997; 
     liquidation preference of $10,000,000                             13         13
   Additional paid-in capital                                      49,366     49,235
   Accumulated deficit                                            (17,053)   (14,656)
   Accumulated other comprehensive income (foreign
     currency translation adjustments)                                449        524
                                                                  -------    -------
         TOTAL STOCKHOLDERS' INVESTMENT                            32,845     35,185
                                                                  -------    -------
         TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT          $ 52,709   $ 49,144
                                                                  =======    =======
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                        3
<PAGE>

                           FISCHER IMAGING CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Amounts in thousands except per share data)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                            Three Months Ended            Nine Months Ended
                                     ----------------------------------   -----------------------------------
                                       September 28,     September 29,      September 28,      September 29,
                                           1998              1997               1998               1997
                                           ----              ----               ----               ----

<S>                                      <C>               <C>                <C>                <C>     
REVENUES                                 $ 15,878          $ 14,636           $ 44,795           $ 42,089

COST OF SALES                               9,812             9,439             27,524             27,799
                                           ------            ------             ------             ------
        Gross profit                        6,066             5,197             17,271             14,290

OPERATING EXPENSES
   Research and development                 1,651             1,327              4,572              4,393
   Selling, marketing and service           3,527             3,487             11,026             12,203
   General and administrative               1,293             1,248              3,917              3,490
   Restructuring provision                     --             2,900                 --              2,900
                                           ------            ------             ------             ------
        Total operating expenses            6,471             8,962             19,515             22,986
                                           ------            ------             ------             ------
LOSS FROM OPERATIONS                         (405)           (3,765)            (2,244)            (8,696)

   Interest expense                           (86)              (19)              (199)               (68)
   Interest income                              6                69                 52                197
   Other (expense) income, net                191              (169)                (6)              (608)
                                           ------            ------             ------             ------

LOSS BEFORE INCOME TAXES                     (294)           (3,884)            (2,397)            (9,175)
   Benefit for income taxes                    --                --                 --                 --
                                           ------            ------             ------             ------
NET LOSS                                 $   (294)         $ (3,884)          $ (2,397)          $ (9,175)
                                           ======            ======             ======             ======

NET LOSS PER SHARE
   Basic and diluted                     $  (0.04)         $  (0.56)          $  (0.34)          $  (1.32)
                                           ======            ======             ======             ======

SHARES USED TO CALCULATE
LOSS PER SHARE
   Basic and diluted                        6,980             6,949              6,980              6,949
                                           ======            ======             ======             ======
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                        4


<PAGE>


                           FISCHER IMAGING CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                            Nine Months Ended
                                                                        ---------------------------
                                                                        September 28,  September 29,
                                                                             1998          1997
                                                                        -------------  -------------
<S>                                                                       <C>          <C>      
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                                $ (2,397)    $ (9,175)
                                                                           -------      -------
  Adjustments to reconcile net loss to net cash
  (used in) provided by operating activities-
    Restructuring provision                                                     --        2,900
    Depreciation                                                             1,717        1,398
    Amortization of intangible assets                                          509          540
    Provision for doubtful accounts                                            (79)         112
    Provision for excess and obsolete inventories                            1,031          697
    Sales and retirements of assets                                            119          152
    Foreign exchange losses                                                    (88)         523
    Restructuring costs                                                       (655)        (200)
    Other changes in current assets and liabilities-
      (Increase) Decrease in trade accounts receivable                      (2,554)       4,867
      (Increase) Decrease in inventories                                    (4,502)       4,466
      Increase in prepaid expenses and other current assets                   (473)        (237)
      Decrease in deferred costs and other assets                               22          380
      Increase (Decrease) in trade accounts payable                          1,161         (763)
      Increase (Decrease) in accrued salaries and wages                        163          (50)
      Increase in customer deposits                                          1,099          271
      Increase (Decrease) in accrued warranty and installation costs           157         (244)
      Increase (Decrease) in deferred service revenue                           89         (158)
      Increase (Decrease) in other current liabilities                           4         (411)
    Other                                                                      (14)          (2)
                                                                           -------      -------
            Total adjustments                                               (2,294)      14,241
                                                                           -------      -------
            Net cash (used in) provided by operating activities             (4,691)       5,066
                                                                           -------      -------

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures                                                      (1,120)      (1,537)
                                                                           -------      -------
            Net cash used in investing activities                           (1,120)      (1,537)
                                                                           -------      -------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from sales of common stock, net                                     132          142
  Net borrowings under line of credit agreement                              3,526           --
  Repayments of long-term debt                                                (255)        (361)
                                                                           -------      -------
            Net cash provided by (used in) financing activities              3,403         (219)
                                                                           -------      -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH                                         13          (63)
                                                                           -------      -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                        (2,395)       3,247
CASH AND CASH EQUIVALENTS, beginning of period                               3,439        3,289
                                                                           -------      -------
CASH AND CASH EQUIVALENTS, end of period                                  $  1,044     $  6,536
                                                                           =======      =======
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                        5


<PAGE>


                           FISCHER IMAGING CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1. GENERAL

In the opinion of management, the accompanying unaudited consolidated balance
sheets and statements of operations and cash flows contain all adjustments,
consisting only of normal recurring items, necessary to present fairly the
financial position of Fischer Imaging Corporation (the "Company") at September
28, 1998, its results of operations for the three and nine months ended
September 28, 1998 and September 29, 1997 and cash flows for the nine months
ended September 28, 1998 and September 29, 1997.

The unaudited consolidated financial statements presented herein have been
prepared in accordance with the instructions to Form 10-Q and do not include all
the information and note disclosures required by generally accepted accounting
principles. The financial statements should be read in conjunction with the
audited financial statements and notes thereto contained in the Company's latest
annual report on Form 10-K for the year ended December 31, 1997.

The Company typically closes its first three fiscal quarters as of the Sunday
closest to the end of March, June and September. In 1998 and 1997, to more
evenly distribute the days between quarters, the first three fiscal quarters are
being closed as of the Monday closest to quarter-end.


2. INVENTORIES

Inventories include costs of materials, direct labor and manufacturing overhead.
Inventories are priced at the lower of cost (using primarily the last-in,
first-out ("LIFO") method of valuation) or market. Writedowns for excess or
obsolete inventories are charged to expense in the period in which conditions
giving rise to the writedowns are first recognized.

Inventories consisted of the following components (in thousands):
                                                September 28,    December 31,
                                                    1998             1997
                                                -------------    ------------
          FIFO cost-
            Raw materials                         $15,049           $11,960
            Work in process and finished           12,599            11,705
          LIFO valuation adjustment                  (586)             (586)
                                                   ------            ------
            Total before valuation reserves        27,062            23,079
          Less valuation reserves                  (6,541)           (5,706)
                                                   ------            ------
          Inventories, net                        $20,521           $17,373
                                                   ======            ======

3.  OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following (in thousands):
                                                September 28,    December 31,
                                                    1998             1997
                                                -------------    ------------

          Accrued sales, property, and
            other state and local taxes           $   556           $   688
          Other                                       412               276
                                                   ------            ------
          Total other current liabilities         $   968           $   964
                                                   ======            ======


                                        6

<PAGE>


4. NOTES PAYABLE AND LONG-TERM DEBT

Notes payable and long-term debt consisted of the following (in thousands):

                                                  September 28,    December 31,
                                                      1998             1997
                                                  -------------    ------------

     Borrowing under bank revolving line of credit    3,526             --
     Capitalized lease obligations                      882            505
     Other                                               26             28
                                                     ------           ----
                                                      4,434            533
     Less--Current maturities                        (3,786)          (224)
                                                     ------           ----
     Long-term debt                                  $  648         $  309


See "Management's Discussion & Analysis - Liquidity and Capital Resources" for a
discussion of the Company's line of credit.


5.  NET (LOSS) EARNINGS PER SHARE

The Company presents basic and diluted earnings per share in accordance with
Statement of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS
128"), which establishes standards for computing and presenting basic and
diluted earnings per share. Under this statement, basic earnings or loss per
share is computed by dividing the net earnings or loss by the weighted average
number of shares of common stock outstanding. Diluted earnings or loss per share
is determined by dividing the net earnings or loss by the sum of (1) the
weighted average number of common shares outstanding, (2) if not anti-dilutive,
the number of shares of convertible preferred stock as if converted upon
issuance, and (3) if not anti-dilutive, the effect of outstanding stock options
determined utilizing the treasury stock method. For the three and nine month
periods included in the accompanying Consolidated Statements of Operations, the
effects of the convertible preferred stock and stock options were excluded from
the calculation of diluted earnings per share since the result would have been
anti-dilutive.


6.  RESTRUCTURING COSTS

During the third quarter of 1997, the Company decided to close its Addison,
Illinois manufacturing facility and, accordingly, recorded a $2.9 million
restructuring provision for the anticipated shortfall between required lease
payments and estimated sublease payments during the facility's remaining lease
term (which runs through June 2002), estimated facility closing costs, severance
and certain other non-recurring costs associated with this decision. The
production transfer activities from this facility are now essentially
complete. The remaining accrued restructuring costs of approximately $1.4
million relate primarily to the Company's estimated net remaining obligations
under the Addison facility lease. During the three and nine months ended
September 28, 1998, the Company spent approximately $315,000 and $655,000,
respectively, for severance and facility closing costs, net of proceeds from
asset dispositions.


                                        7

<PAGE>


7.  REPORTING COMPREHENSIVE INCOME

In 1998, the Company adopted Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130, effective for years beginning
after December 15, 1997, establishes standards for the reporting and display of
comprehensive income and its components. Comprehensive income is defined as the
change in equity of a business enterprise except those resulting from
investments by or distributions to its owners. For the Company, comprehensive
income includes only net earnings or loss and foreign currency translation
adjustments, as follows:

<TABLE>
<CAPTION>
                                                   Three Months Ended            Nine Months Ended
                                              ----------------------------  ---------------------------
                                              September 28,  September 29,  September 28, September 29,
                                                   1998           1997           1998          1997


<S>                                               <C>           <C>           <C>           <C>    
     Net loss                                     $(294)        $(3,884)      $(2,397)      $(9,175)
     Foreign currency translation adjustments      (190)            153           (75)          460
                                                   ----          ------        ------        ------
     Comprehensive loss                           $(484)        $(3,731)      $(2,472)      $(8,715)
                                                   ====          ======        ======        ======
</TABLE>


8.  CHANGES TO DIRECTOR STOCK OPTION PLAN

Under the Company's Nonemployee Director Plan (the "Director Plan"), adopted in
1993, non-qualified options to acquire shares of common stock may be granted to
nonemployee directors, at a price no less than fair market value on the date of
grant. At the Company's June 12, 1998 Annual Meeting, stockholders approved an
amendment and restatement of the Director Plan to, among other changes, increase
from 200,000 to 300,000 the number of shares of common stock authorized for
issuance under the Director Plan, increase from 2,000 to 5,000 the number of
shares granted annually to nonemployee directors, decrease from 2,000 to 1,000
the number of options granted annually to directors who serve on the
Compensation Committee, extend the term of the options, and increase the period
for exercising options after leaving the Board.

At the same time, to acknowledge the services provided by its nonemployee
directors and to increase the Company's ability to retain such Directors,
stockholders also approved the repricing of certain outstanding options
previously granted to nonemployee directors, in view of the significant decline
in the market value of the Company's common stock. The repricing resulted in the
lowering of the exercise price of 68,000 options with existing exercise prices
ranging from $4.6875 to $13.380 to an exercise price of $4.25. The repricing of
outstanding options did not have a material impact on the operating results of
the Company.

                                        8

<PAGE>


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the results of operations and financial condition
should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto appearing in the Company's Annual Report on Form
10-K for the year ended December 31, 1997 (the "Form 10-K"). This Form 10-Q,
including the information incorporated by reference herein, contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. For this purpose, statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes", "expects", "anticipates",
"plans", "estimates", and similar words and expressions are intended to identify
such statements. These forward-looking statements include statements concerning
the growth of the Company's markets, future operating results including revenues
and expenses, the Company's ability to satisfy its short and long-term liquidity
needs, the success and timing of its cost-cutting measures including the closure
of the Company's Addison, Illinois manufacturing facility, sales under the
Company's strategic alliances, OEM agreements and otherwise, marketing
arrangements for its Mammotest products and other products, the Company's
success in identifying and remediating at a reasonable cost any Year 2000
deficiencies in products, supplied components, or internal operating systems,
the Company's ability to meet FDA requirements and satisfactorily respond to FDA
regulatory actions, and other matters. These forward-looking statements involve
risks and uncertainties. The actual results that the Company achieves may differ
materially from those discussed in such forward-looking statements due to the
risks and uncertainties described in this Form 10-Q, in the Business section of
Form 10-K under the headings "Risks Associated with OEM Agreements",
"International Operations," "Strategic Alliances", "Risks of Technological
Change and New Products," "Risks of New Product Development and Market
Acceptance," "Manufacturing and Operating Risks," "Competition," "Government
Regulation," "Government Reimbursement," "Patents and Intellectual Property,"
"Risk of Dependence on Key Personnel," "Product Liability, Market Withdrawal,
and Product Recalls", in the Market for Registrant's Common Equity and Related
Stockholder Matters section of Form 10-K under the headings "Risk of Price
Volatility of Common Stock," "Risks Associated with Shares Eligible for Future
Sale," "Risks Associated with Control by Management and Certain Stockholders,"
and "Certain Anti-Takeover Effects," in the Management's Discussion and Analysis
of Financial Condition and Results of Operations ("MD&A") section of Form 10-K
under the "Overview" heading, and elsewhere in the Business and MD&A sections
and other sections of Form 10-K.

OVERVIEW

The Company designs, manufactures and markets specialty and general purpose
medical imaging systems for the diagnosis and treatment of disease. The
Company's newest product lines are directed towards medical specialties in which
image-guided, minimally-invasive therapies are replacing open surgical
procedures. These products are used primarily in the diagnosis and treatment of
breast cancer, heart disease and vascular disease. The Company also designs and
manufactures specialty x-ray imaging components and subsystems for several
leading medical products companies as an original equipment manufacturer ("OEM")
and sells general radiology systems for use in hospitals, clinics and
physicians' offices.

                                        9

<PAGE>


The Company experienced losses in the fourth quarter of 1996, during 1997, and
during the first nine months of 1998. For most of this period, sales under OEM
arrangements were significantly lower than comparable prior periods, primarily
due to decreased shipments of Tilt-C systems to GE Medical Systems. Some
improvement in OEM shipments, primarily due to increased Tilt-C shipments, was
achieved in the third quarter of 1998. During the fourth quarter of 1996 and the
first half of 1997, the Company also experienced decreases in the sales of its
Mammotest systems versus comparable prior periods, due primarily to aggressive
and successful competition within the surgical stereotactic core needle breast
biopsy market from U.S. Surgical Corporation. However, during the last six
months of 1997 and the first nine months of 1998, sales of Mammotest systems
increased versus comparable prior periods. The Company believes that its
marketing alliance with Johnson and Johnson's Ethicon EndoSurgery, Inc.
("Ethicon EndoSurgery"), entered into in October 1997, is beginning to favorably
impact incoming order rates from this market.

In November 1997, the Company entered into an alliance with Sterling Diagnostic
Imaging, Inc. ("Sterling"), under which the Company will develop specific
digital radiographic systems, utilizing Sterling's DirectRay(TM) digital image
detector technology. The Company believes that production shipments of digital
radiography systems will begin during the fourth quarter of 1998.

In addition to measures to increase sales of its products, the Company believes
that improving factory utilization and limiting growth of operating expenses are
key elements in its efforts to return to acceptable levels of profitability. A
key element of this strategy was the decision, announced during the third
quarter of 1997, to close its Addison, Illinois manufacturing facility and
outsource or transfer Addison production. See Notes to Consolidated Financial
Statements "Restructuring Costs".

The Company cannot predict when it will return to profitability, although it has
taken significant steps to improve sales and reduce manufacturing and other
costs. Improvement in the Company's results of operations will depend on many
factors including, among other things, demand for the Company's products, the
ability of the Company to improve manufacturing productivity and otherwise
increase gross margins, control manufacturing and other costs, effectively
implement distribution agreements for its products, implement its marketing and
sales strategies in the United States and internationally, and the successful
development and introduction of digital and other new products.

The Company has experienced and is likely to continue to experience significant
quarterly and annual fluctuations in revenues and operating results, depending
on such factors as the timing of large system shipments to customers, the timing
of orders under OEM contracts and related manufacturing capacity and shipment
scheduling, new product introductions and new marketing programs by the Company
and its competitors, the effect of economic conditions on the Company's markets,
the effects of managed healthcare on customer capital expenditures and
reimbursement, increases in marketing and research costs in relation to sales,
regulatory clearance of new products, the effects of FDA regulatory actions,
seasonal purchasing patterns of hospitals and the timing of purchasing decisions
by customers. Additionally, because the timing of the occurrence of such factors
is difficult to anticipate and many of the Company's costs are fixed, the
Company may be unable to sufficiently reduce its costs in periods when its
revenues are less than anticipated and may suffer unexpected losses or lower
income in these periods.

                                       10

<PAGE>


The Company is attempting to expand international sales and marketing efforts,
which can be expected to result in losses from international operations until
international revenues reach sufficient levels. Additionally, the Company's
exposure to foreign currency and other risks of international business may
increase as its international business grows. The Company attempts to minimize
these risks through measures including, but not limited to, requiring payments
in U.S. dollars and using letters of credit. There can be no assurance, however,
that the Company will be successful in its international sales efforts or in
minimizing any associated risks. Revenues from customers outside the United
States declined significantly from 1996 to 1997 and in the first half of 1998,
versus the first half of 1997.

YEAR 2000 UPDATE

        GENERAL
        The Company utilizes software and related technologies within its
products and in their development and manufacture that may be impacted by the
Year 2000. The Year 2000 issue exists because many computer systems and
applications currently use two-digit date fields to designate a year.
Date-sensitive systems may recognize the Year 2000 as 1900, or not at all. This
inability to properly treat the Year 2000 could cause systems to process
critical financial and operational information incorrectly.

        YEAR 2000 PROJECT
        The Company has begun to evaluate its products, computer hardware, and
operating software for possible Year 2000 problems. This project is organized as
follows:

<TABLE>
<CAPTION>
                                                                             Anticipated       Anticipated
                                                                             Completion       Out-of-Pocket
           Area                            Task/Status                           Date             Cost
     ---------------                 ---------------------------             -----------      -------------
Products:
<S>                                <C>                                       <C>              <C>
   Current versions                Initial review                             Complete
                                   Documentation                             1st qtr 1999
   Earlier versions                Develop evaluation/testing program        4th qtr 1998
                                   Perform testing                           1st qtr 1999
                                   Documentation                             1st qtr 1999
                                   Develop remedial program, if necessary    2nd qtr 1999


   Primary business software       Upgrade to Year 2000 compliant version     Complete        Under $25,000
                                   Perform testing                           4th qtr 1998
                                   Provide user training                     1st qtr 1999
                                   Update customized reporting/features      1st qtr 1999

   Other software applications:
     Major payroll and
       engineering applications    Evaluate for Year 2000 compliance          Complete
     Other applications            Evaluate and/or obtain certifications     3rd qtr 1999

Hardware:
    Networks                       Evaluate for Year 2000 compliance          Complete
    Personal computers             Evaluate for Year 2000 compliance         4th qtr 1998
                                   Replace or upgrade as necessary           1st qtr 1998     Under $100,000

Third party suppliers              Establish evaluation criteria             1st qtr 1999
                                   Survey suppliers                          2nd qtr 1999
                                   Re-source as necessary                    3rd qtr 1999
</TABLE>

                                       11

<PAGE>


        At this time, the Company has not formulated contingency plans in the
event that systems are not Year 2000 compliant. The necessity for developing
such plans will be assessed following the completion of testing of its primary
business software and upon receipt of information from critical third party
suppliers regarding their Year 2000 compliance.

        COSTS
        The cost to be incurred in conjunction with the Year 2000 project is
expected to be less than $200,000, for anticipated upgrades to existing desk-top
personal computers and for the assistance of outside consultants on the upgrade
of the Company's primary business system. This amount is not considered material
to the Company's financial position. Presently unanticipated problems could
cause this amount to be exceeded, however, and no assurance can be given that,
under such circumstances, the amount would not be material.

        It is anticipated that most Year 2000 Project activities will continue
to be carried out with internal resources. Consequently, Year 2000 activities
can be anticipated to continue to delay other projects, particularly in the area
of new information systems development. Such delays are not, however, expected
to materially impact the Company's results of operations.

        RISKS
        The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Due to the general uncertainty inherent in the Year 2000 problem, in
part resulting from the uncertainty of the Year 2000 readiness of third-party
suppliers and customers, the Company is unable to predict with certainty whether
the consequences of Year 2000 failures will have a material impact on the
Company's results of operations, liquidity or financial condition. The Year 2000
Project is expected to significantly reduce the Company's level of uncertainty
about the Year 2000 problem, in particular, with respect to the Year 2000
compliance and readiness of its third-party suppliers. The Company believes that
the possibility of significant interruptions of normal operations should be
significantly reduced by the implementation of upgraded business systems and the
completion of the Year 2000 project as scheduled.

        Based on its assessment to date, the Company believes that few of its
current products will be affected by the Year 2000 problem. Of those that may be
affected, the only significant risk appears to be the possible inaccurate dating
of patient records. The remedial actions to correct dating problems that may
occur appear to be either:

  i. the  customer  being  able to reset  the date (on a  one-time  basis)  to
     prevent  future occurrences or
ii.  implementation of modifications currently under development by the Company
     or third-party suppliers, which are expected to be finalized and released
     to customers by the end of the first quarter of 1999.

        The Company is continuing its evaluation of earlier versions of current
products and may conclude that problems less easily remediated may exist. Should
such problems be identified, disruption of customers' operations could
conceivably occur, potentially resulting in legal actions being taken against
the Company.

        Readers are cautioned that forward-looking statements contained in the
Year 2000 Update should be read in conjunction with the Company's cautionary
statement regarding forward-looking statements contained on page 9 of this Form
10-Q, which is provided under the "Safe Harbor" provisions of the Private
Securities Litigation Reform Act of 1995.

                                       12

<PAGE>


FDA REGULATION

The Company is subject to periodic inspections by the Food and Drug
Administration ("FDA"), whose primary purpose is to audit the Company's
compliance with Good Manufacturing Practices ("GMPs"), which include testing,
quality control and documentation procedures. In March 1995, the Company's
Denver facility was issued a Warning Letter by the FDA concerning documentation
and other deficiencies. The Company rectified these deficiencies and resolved
this matter with the FDA in June 1995. In December 1996, following an inspection
of the Denver facility, the FDA issued Inspectional Observations Form 483
("Form 483") and a subsequent Warning Letter regarding manufacturing practices.
The Company was required to respond as to planned corrective actions and to
obtain a favorable third-party certification of the Denver facility's
manufacturing and quality systems. These actions were completed. In October
1998, following a periodic inspection of the Denver facility, the FDA issued a
Form 483 regarding possible deficiencies in manufacturing, quality, and
documentation practices. The Company has prepared and submitted its response to
the Form 483.

Failure to satisfy FDA requirements can result in the Company's inability to
receive awards of federal government contracts, to receive new marketing or
export clearances for products manufactured at its Denver facility, or FDA
enforcement actions including, among other things, product seizure, injunction,
and/or criminal or civil proceedings being initiated by the FDA without further
notice. The recent issuance of another Form 483 increases the possibility that
one or more of these sanctions could be imposed.

Although the Company strives to operate within the requirements imposed by the
FDA, there can be no assurance that these deficiencies can be corrected or that
the Company will be able to satisfy FDA compliance concerns in the future. These
ongoing FDA compliance reviews and/or related delays in product clearances could
have a material adverse effect on the Company.

RESULTS OF OPERATIONS

The Company's revenues and net loss for the third quarter of 1998 were
$15,878,000 and $294,000, respectively, as compared to revenues of $14,636,000
and a net loss, excluding the restructuring provision, of $984,000 for the third
quarter of 1997. See Notes to Consolidated Financial Statements-"Restructuring
Costs". Revenues in the third quarter of 1998 were favorably impacted by
significant increases in shipments of mammography, general radiography and OEM
products, partially offset by a decline in shipments of electrophysiology
products. Gross margin as a percent of revenues increased from 35.5% in the
third quarter of 1997 to 38.2% in the third quarter of 1998, primarily due to
manufacturing cost reductions associated with the closure of the Company's
Addison manufacturing facility, a shift in mix to relatively higher margin
mammography products, and improved absorption of manufacturing costs associated
with somewhat higher production levels, partially offset by inventory writedowns
associated with the finalization of the transfer of production from the Addison
facility. Operating expenses were higher in the third quarter of 1998 versus the
third quarter of 1997 due to higher research and development and volume-related
expenses, offset by lower marketing costs. Other income and expense improved in
the third quarter of 1998 versus 1997, primarily due to foreign exchange gains
caused by the weakening U. S. dollar relative to European currencies. As a
result of these factors, the net loss in the third quarter of 1998 was reduced
to $294,000, from the third quarter 1997 net loss, excluding the restructuring
provision, of $984,000, an improvement of $690,000.

                                       13

<PAGE>


The following table sets forth the percentage of revenues represented by certain
data included in the Company's statements of operations for the periods
indicated:

<TABLE>
<CAPTION>
                                          Three Months Ended          Nine Months Ended
                                     --------------------------- ----------------------------
                                     September 28, September 29, September 28,  September 29,
                                         1998          1997          1998           1997
                                     ------------  ------------- -------------  -------------

<S>                                     <C>           <C>           <C>            <C>    
     Revenues                           100.0 %       100.0 %       100.0 %        100.0 %
     Gross profit                        38.2          35.5          38.6           34.0
     Research and development            10.4           9.1          10.2           10.4
     Selling, marketing and service      22.2          23.8          24.6           29.0
     General and administrative           8.1           8.5           8.7            8.3
     Restructuring provision              ---          19.8            --            6.9
     Loss from Operations                (2.6)        (25.7)         (5.0)         (20.7)
     Benefit for income taxes             ---           ---            --             --
     Net loss                            (1.9)        (26.5)         (5.4)         (21.8)
</TABLE>


Revenues. Third quarter 1998 revenues were $15,878,000, an 8% increase from
third quarter 1997 revenues of $14,636,000. For the nine months ended September
28, 1998, revenues were $44,795,000, or 6% greater than revenues of $42,089,000
for the comparable nine months of 1997. For the three month periods, the
increase reflects significantly higher shipments of mammography, general
radiography, and OEM product shipments, partly offset by a decline in
electrophysiology product shipments. For the nine month periods, significantly
higher shipments of mammography and electrophysiology products were partly
offset by reductions in general radiography and OEM product shipments. For the
three month periods, the increase was primarily in the international dealer and
OEM channels of distribution; whereas, for the nine month periods, the increase
was primarily in the U.S. direct channel, partly offset by a decline in the OEM
distribution channel.

Gross Profit. For the third quarter of 1998, gross profit expressed as a
percentage of revenues was 38.2%, as compared to 35.5% for the third quarter of
1997. For the nine months ended September 28, 1998 and September 29, 1997, gross
profit as a percentage of revenues was 38.6% and 34.0%, respectively. For both
the three and nine month periods, the increase in gross profit as a percentage
of revenues was due to reductions in unfavorable manufacturing variances, as a
result of improved absorption of manufacturing costs caused by higher production
levels and by reductions in manufacturing costs associated with the closing of
the Company's Addison manufacturing facility, partly offset by inventory
writedowns associated with the finalization of the Addison facility production
transfer and closure. In addition, the Company experienced a favorable shift in
product mix toward higher margin mammography products.

Research and Development Expenses. Research and development expenses for the
third quarter of 1998 and 1997 were $1,651,000 and $1,327,000, respectively, or
10.4% and 9.1%, respectively, of revenues. For the nine months ended September
28, 1998 and September 29, 1997, research and development expenses were
$4,572,000 and $4,393,000 respectively, or 10.2% and 10.4%, respectively, of
revenues. The modestly higher level of research and development expenses versus
last year is primarily attributable to development activities in digital
radiography and ultrasound. 

                                       14

<PAGE>


Selling, Marketing and Service Expenses. Selling, marketing and service expenses
for the third quarter of 1998 and 1997 were $3,527,000 and $3,487,000,
respectively, or 22.2% and 23.8%, respectively, of revenues. For the nine months
ended September 28, 1998, selling, marketing and service expenses were
$11,026,000, or 24.6% of revenues, as compared to $12,203,000, or 29.0% of
revenues, for the comparable nine months of 1997. The decrease in selling,
marketing and service expense for the nine month period ended September 28, 1998
as compared to the same period of 1997 and the decrease as a percentage of
revenues for both the three and nine month periods is primarily the result of a
more cost-effective sales compensation program, reductions in the scope of
marketing activities, and efficiencies gained by consolidation of service and
technical support functions. For the three months ended September 28, 1998,
increased revenues through the direct channel of distribution, which generally
require sales commissions, warranty, and installation provisions, more than
offset the other reductions in selling, marketing and service expenses.

General and Administrative Expenses. General and administrative expenses for the
third quarter of 1998 and 1997 were $1,293,000 and $1,248,000, respectively, or
8.1% and 8.5%, respectively, of revenues. For the nine months ended September
28, 1998 and September 29, 1997, general and administrative expenses were
$3,917,000 and $3,490,000, respectively, or 8.7% and 8.3%, respectively, of
revenues. For both the three and nine month periods, the increase in general and
administrative expenses was due to increased legal costs associated with the
Company's patent infringement lawsuits against Trex Medical Corporation,
partially offset by the effects of cost reduction efforts, including the closure
of the Addison manufacturing facility. The changes as a percent of revenues are
due to the increases described above, offset by the effects of higher revenues
in 1998 versus the comparable periods of 1997.

Interest Expense / Interest Income. Interest expense for the three months ended
September 28, 1998 and September 29, 1997 was $86,000 and $19,000, respectively,
and for the nine months then ended, was $199,000 and $68,000, respectively.
Interest income for the third quarter of 1998 and 1997 was $6,000 and $69,000,
respectively. For the nine month periods ended September 28, 1998 and September
29, 1997, interest income was $52,000 and $197,000, respectively. For the three
and nine month periods ended September 28, 1998, the increases in interest
expense and the reductions in interest income as compared to the three and nine
month periods ended September 29, 1997 are due primarily to increases in
borrowings under the Company's working capital line of credit and reduced cash
balances during the 1998 three and nine month periods, which were undertaken
primarily to fund increased investment in inventories and, for the three month
period ended September 28, 1998, an increased investment in accounts receivable.

Net Loss. The Company's net loss for the third quarter of 1998 was $294,000, an
improvement of $690,000 as compared to the third quarter 1997 net loss,
excluding the restructuring provision, of $984,000. The net loss for the nine
months ended September 28, 1998 was $2,397,000 a $3,878,000 improvement over the
$6,275,000 net loss, before the restructuring provision, for the nine months
ended September 29, 1997. The improvement was due to the favorable effects of
higher revenues, the improvement in gross margin as a percentage of revenue
caused by higher production levels and the resultant improved absorption of
manufacturing costs, reductions in manufacturing costs associated with the
closing of the Addison manufacturing facility, by efforts to restrain the growth
in operating expenses, and by foreign exchange gains caused by the weakening of
the U.S. dollar relative to European currencies.

                                       15

<PAGE>


INCOME TAXES

The Company's estimated effective tax rate for the year ended December 31, 1998
is currently 0%. Accordingly, no income tax benefit has been provided for the
three or nine month periods ended September 28, 1998. This rate was determined
based upon the anticipated 1998 results of operations includable in the domestic
consolidated tax return and upon projected net temporary differences between
operating results reflected in the financial statements and those required to be
reflected in the 1998 domestic consolidated tax return. As of December 31, 1997,
the Company had approximately $2.0 million of net deferred tax assets, which
represents timing differences that are more likely than not to be realized
against taxable income of future years. The amount of net deferred tax asset
considered realizable, however, could be reduced in the near term if estimates
of future taxable income do not materialize. No income tax provisions have been
recognized for foreign tax jurisdictions and no income tax benefits have been
recognized for subsidiary losses outside the domestic consolidated return
because they are not expected to reverse in the foreseeable future.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities for the nine months ended September 28,
1998 was $4.7 million compared to $5.1 million provided by operations in the
comparable period of 1997. The use of cash flow in operations was due to a $5.5
million increase in working capital, partly offset by $0.8 million of funds
provided from operating results (the net loss before non-cash depreciation,
amortization, obsolescence, and other provisions.) This working capital increase
was the result of a $4.5 million increased investment in inventories, a $2.6
million increase in accounts receivable, and $0.6 million of
restructuring-related expenditures (see Note 6 to Notes to Consolidated
Financial Statements), offset by a $1.1 million increase in customer deposits
and a $1.2 million increase in accounts payable.

Net cash used in investing activities was $1.1 million for the nine months ended
September 28, 1998, compared to $1.5 million for the same period in 1997. The
decrease was principally related to increased use of non-cash capital lease
financing.

Net cash used in financing activities for the nine months ended September 28,
1998 was $3.4 million, principally due to borrowings under the Company's bank
revolving line of credit used to finance the increased investment in working
capital.

As of September 28, 1998, the Company had $1.0 million in cash and cash
equivalents and working capital of $23.2 million. The Company has in place, on a
month-to-month basis, a $15.0 million bank revolving line of credit arrangement.
Due to the effects of restrictions based on eligible receivables and inventory,
$11.6 million of the line was available as of September 28, 1998, of which $8.1
million was unused. The agreement is secured by the Company's accounts
receivable, inventory, and fixed assets. Renewals are subject to a fee of $5,000
per month, and borrowings under the agreement are subject to interest at a rate
of 9.5% per annum (one percent over the bank's prime rate of interest) as of
September 28, 1998. The Company expects its long-term liquidity needs to be
satisfied principally from cash flows generated from operations. Even though the
terms of a proposed buyout of the Addison facility lease would adversely affect
fourth quarter 1998 liquidity by approximately $0.6 million, the Company
believes that its short-term liquidity needs can be satisfied through cash
provided from operations and through borrowings under its revolving line of
credit arrangement, or through other credit arrangements.

                                       16

<PAGE>


                              PART II.  OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:

The information contained in Part II, Item 1, "Legal Proceedings" of the
Company's Form 10-Q's for the quarters ended June 29, 1998 and March 30, 1998 is
herein incorporated by reference.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:

(A)  EXHIBITS

          Exhibits filed with this report:

          EXHIBIT NO.                DESCRIPTION

             27                  Financial Data Schedule

(B)  REPORTS ON FORM 8-K

          None




                                      SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q for the quarter
ended September 28, 1998 to be signed on its behalf by the undersigned thereunto
duly authorized.



                                  FISCHER IMAGING CORPORATION




                                  /s/ WILLIAM C. FEE
                                  --------------------------------------------
                                  William C. Fee
                                  Vice President  /
                                  Chief Accounting Officer
                                  (Principal Accounting Officer)


November 11, 1998

                                       17