<PAGE>
 
                       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 April 4, 1999


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

         For the transition period from _____________ to _____________

                         Commission file number 0-19386

                          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                                April 4, 1999
 ----------------------------------------              --------------------

     Common Stock,  $0.01 par value                           7,028,855
<PAGE>
 
<TABLE> 
<CAPTION> 

                          FISCHER IMAGING CORPORATION
                                        
                               TABLE OF CONTENTS


PART I.   FINANCIAL INFORMATION                                                 Page
                                                                                ----

<S>             <C>                                                             <C> 

     Item 1.   Consolidated Financial Statements
 
               Consolidated Balance Sheets -
               April 4, 1999 and December 31, 1998                               3
                                                                                 
               Consolidated Statements of Operations -                           
               Three months ended                                                
               April 4, 1999 and March 30, 1998                                  4
                                                                                 
               Consolidated Statements of Cash Flows -                           
               Three months ended                                                
               April 4, 1999 and  March 30, 1998                                 5
                                                                                 
               Notes to Consolidated Financial Statements                        6
 
     Item 2.   Management's Discussion and Analysis of Financial
               Condition and Results of Operations                              11

     Item 3.   Quantitative and Qualitative Disclosures About Market Risk       21

PART II.  OTHER INFORMATION

 
     Item 6.   Exhibits and Reports on Form 8-K                                 24

</TABLE> 
<PAGE>
 
                          FISCHER IMAGING CORPORATION
                          CONSOLIDATED BALANCE SHEETS
                    (Amounts in thousands except share data)
<TABLE>
<CAPTION>
                                                                           April 4,       December 31,
                                                                             1999             1998
                                                                       --------------   --------------
                                                                         (Unaudited)
                                     ASSETS

CURRENT ASSETS
<S>                                                                        <C>          <C>
 Cash and cash equivalents                                                  $  1,105      $    929
 Trade accounts receivable, net of allowance for doubtful accounts                   
   of approximately $739 and $726 at April 4, 1999 and                               
   December 31, 1998, respectively                                            14,379        16,797
 Inventories                                                                  21,191        22,023
 Prepaid expenses and other current assets                                       768         1,098  
                                                                            --------      -------- 
     Total current assets                                                     37,443        40,847
                                                                            --------      -------- 
PROPERTY AND EQUIPMENT (at cost)                                                     
 Manufacturing equipment                                                       9,518         9,467
 Office equipment and leasehold improvements                                   6,087         5,936
                                                                            --------      -------- 
                                                                              15,605        15,403
 Less- Accumulated depreciation and amortization                              10,457         9,994
                                                                            --------      -------- 
       Property and equipment, net                                             5,148         5,409
                                                                            --------      -------- 
INTANGIBLE ASSETS, net                                                         2,817         2,957
DEFERRED COSTS AND OTHER ASSETS                                                1,949         1,756
                                                                            --------      -------- 
       TOTAL ASSETS                                                         $ 47,357      $ 50,969
                                                                            ========      ======== 
 

                    LIABILITIES AND STOCKHOLDERS' INVESTMENT
 
CURRENT LIABILITIES
<S>                                                                         <C>
 Notes payable and current maturities of long-term debt                     $  5,508      $  6,838
 Trade accounts payable                                                        5,589         5,204
 Accrued salaries and wages                                                    1,614         2,225
 Customer deposits                                                             2,993         2,599
 Accrued warranty and installation costs                                       1,686         1,124
 Accrued restructuring costs                                                     377         1,015
 Deferred service revenue                                                        867         1,132
 Other current liabilities                                                     2,196         1,615
                                                                            --------      -------- 
       Total current liabilities                                              20,830        21,752
                                                                                         
LONG-TERM DEBT                                                                   520           587
OTHER NONCURRENT LIABILITIES                                                     200           200
                                                                            --------      -------- 
       TOTAL LIABILITIES                                                      21,550        22,539
                                                                            --------      -------- 
STOCKHOLDERS' INVESTMENT
 Common Stock, $.01 par value, 25,000,000 shares authorized, 7,028,855
   and 6,980,150 shares issued and outstanding at April 4, 1999 and
   December 31, 1998, respectively                                                70            70
 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, 506,667                             
    and 1,333,333 shares authorized, issued and outstanding at                               
    April 4, 1999 and December 31, 1998, respectively; liquidation                           
    preference of $3.8 million and $10.0 million at April 4, 1999                            
    and December 31, 1998, respectively (Note 6)                                   5            13
 Additional paid-in capital                                                   43,264        49,366
 Accumulated deficit                                                         (18,109)      (21,459)
 Accumulated other comprehensive income (foreign                                       
   currency translation adjustments)                                             577           440
                                                                            --------      --------
       TOTAL STOCKHOLDERS' INVESTMENT                                         25,807        28,430
                                                                            --------      -------- 
       TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT                       $ 47,357      $ 50,969
                                                                            ========      ========
</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
                                                                   -------------------------------------
                                                                       April 4,               March 30,
                                                                         1999                   1998
                                                                     -------------          -------------
<S>                                                                  <C>                    <C>
REVENUES
      Products and services                                               $14,165                $13,667
      Sale of manufacturing license (Note 6)                                6,200                     --
                                                                          -------                -------
      Total                                                                20,365                 13,667
 
COST OF SALES
      Products and services                                                 9,101                  8,408
      Sale of manufacturing license                                           400                     --
                                                                          -------                -------
       Total                                                                9,501                  8,408
                                                                          -------                -------
             Gross profit                                                  10,864                  5,259
 
OPERATING EXPENSES
      Research and development                                              1,415                  1,392
      Selling, marketing and service                                        3,475                  3,531
      General and administrative                                            2,223                  1,358
                                                                          -------                -------
              Total operating expenses                                      7,113                  6,281
                                                                          -------                -------
 
INCOME (LOSS) FROM OPERATIONS                                               3,751                 (1,022)
 
      Interest expense                                                       (280)                   (54)
      Interest income                                                          57                     30
      Other (expense) income, net                                            (178)                   (73)
                                                                          -------                -------
 
INCOME (LOSS) BEFORE INCOME TAXES                                           3,350                 (1,119)
      Benefit for income taxes                                                 --                     --
                                                                          -------                -------
NET INCOME (LOSS)                                                         $ 3,350                $(1,119)
                                                                          =======                =======
 
NET INCOME (LOSS) PER SHARE
      Basic                                                               $  0.48                $ (0.16)
                                                                          =======                =======
      Diluted                                                             $  0.40                $ (0.16)
                                                                          =======                =======
 
SHARES USED TO CALCULATE
INCOME (LOSS) PER SHARE
      Basic                                                                 7,029                  6,980
                                                                          =======                =======
      Diluted                                                               8,344                  6,980
                                                                          =======                =======
</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> 
                                                                                Three Months Ended
                                                                              ---------------------- 
                                                                               April 4,    March 30,
                                                                                 1999        1998
                                                                              ----------  ---------- 

 CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                           <C>           <C>          
   Net income (loss)                                                          $ 3,350      $(1,119)
                                                                              -------      -------
   Adjustments to reconcile net income (loss) to net cash                                        
   provided by (used in) operating activities-                                     
     Noncash sale of manufacturing license                                     (6,200)          --
     Depreciation                                                                 529          549
     Amortization of intangible assets                                            140          172
     Provision for doubtful accounts                                               --           (4)
     Provision for excess and obsolete inventories                                301          305   
     Sales and retirements of assets                                               --           60
     Foreign exchange losses                                                      151           57
     Restructuring costs                                                         (638)        (321)
     Other changes in current assets and liabilities-
       Decrease in trade accounts receivable                                    2,418          272   
       Decrease (Increase) in inventories                                         531       (2,215)
       Decrease (Increase) in prepaid expenses and other current assets           330         (108)
       (Increase) Decrease in deferred costs and other assets                    (193)          90
       Increase in trade accounts payable                                         385          978
       Decrease in accrued salaries and wages                                    (611)         (13)
       Increase in customer deposits                                              394          899
       Increase (Decrease) in accrued warranty and installation costs             562          (52)
       Decrease in deferred service revenue                                      (265)         (26)
       Increase (Decrease) in other current liabilities                           581         (278)
     Other                                                                        (82)          (3)
                                                                              -------      -------
         Total adjustments                                                     (1,667)         362
                                                                              -------      -------
         Net cash provided (used in) by operating activities                    1,683         (757)
                                                                              -------      -------
 CASH FLOWS FROM INVESTING ACTIVITIES                                                           
   Capital expenditures                                                          (186)        (161)
                                                                              -------      -------
         Net cash used in investing activities                                   (186)        (161)
                                                                              -------      -------
                                                                       
 CASH FLOWS FROM FINANCING ACTIVITIES                                                           
   Proceeds from sales of common stock, net                                        90          132
   Net borrowings under line of credit agreement                               (1,350)          --
   Repayments of long-term debt                                                   (47)         (80)
                                                                              -------      -------
         Net cash used in financing activities                                 (1,307)         (52)
                                                                              -------      -------
 EFFECT OF EXCHANGE RATE CHANGES ON CASH                                          (14)          15
                                                                              -------      -------
 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                             176         (851)
 CASH AND CASH EQUIVALENTS, beginning of period                                   929        3,439
                                                                              -------      -------
 CASH AND CASH EQUIVALENTS, end of period                                     $ 1,105      $ 2,588
                                                                              =======      =======
 
</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") on April 4,
1999, its results of operations for the three months ended April 4, 1999 and
March 30, 1998 and its cash flows for the three months ended April 4, 1999 and
March 30, 1998.

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, 1998.

Typically, and for the year ending December 31, 1999 the Company closes its
first three fiscal quarters as of the Sunday closest to the end of March, June
and September.  In 1998, to more evenly distribute the days between quarters,
the first three fiscal quarters were 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):


                                                April 4,          December 31, 
                                                 1999                1998 
                                             ---------------      ------------
                                             
  FIFO cost-                                 
       Raw materials                             $14,410             $14,684
       Work in process and finished goods         14,169              14,099
  LIFO valuation adjustment                         (520)               (520)
                                                 -------             -------
       Total before valuation reserves            28,059              28,263
  Less valuation reserves                         (6,868)             (6,240)
                                                 -------             -------
  Inventories, net                               $21,191             $22,023
                                                 =======             =======

                                       6
<PAGE>
 
3.  OTHER CURRENT LIABILITIES
-----------------------------

Other current liabilities consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                           April 4,           December 31,
                                                             1999                 1998
                                                       --------------       ---------------
         <S>                                             <C>                  <C>
         Accrued sales, property, and            
             other state and local taxes                   $   397                $   594
         Other                                               1,799                  1,021
                                                           -------                ------- 
         Total other current liabilities                   $ 2,196                $ 1,615
                                                           =======                ======= 
         </TABLE>

         
4. NOTES PAYABLE AND LONG-TERM DEBT
-----------------------------------

Notes payable and long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
 
                                                          April 4,             December 31,
                                                            1999                  1998
                                                       --------------       ---------------
                                                                   
         <S>                                               <C>               <C> 
         Borrowing under bank revolving line of credit     $ 5,222                $ 6,572
         Capitalized lease obligations                         779                    827
         Other                                                  27                     26
                                                           -------                ------- 
                                                             6,028                  7,425
         Less--Current maturities                           (5,508)                (6,838)
                                                           -------                -------
         Long-term debt                                    $   520                $   587
                                                           =======                =======
</TABLE>


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

5.  NET EARNINGS (LOSS) 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.

            A reconciliation between the number of securities used to calculate
basic and, where anti-dilutive, diluted earnings per share is as follows:

<TABLE> 

                                                                                        April, 4,     March 30,
                                                                                          1999          1998
                                                                                      ------------  ------------
<S>                                                                                   <C>           <C>
   Weighted average number of common shares outstanding (Shares used in Basic
    Earnings Per Share Computation)...................................................       7,029         6,980
                                                                                             -----         -----
Shares of convertible preferred stock (as if converted)...............................       1,315         1,333
Effect of stock options (treasury stock method).......................................          --             2
                                                                                             -----         -----
Shares used in Diluted Earnings Per Share Computation, if dilutive....................       8,344         8,315
                                                                                             =====         =====
</TABLE>

                                       7
<PAGE>
 
For the three months ended March 30, 1998, the effects of the convertible
preferred stock and stock options were excluded from the calculation of diluted
earnings per share in the accompanying Consolidated Statements of Operations
because the result would have been anti-dilutive. As of April 4, 1999 and March
30, 1998, there were, respectively, 1,058,925 and 860,000 outstanding options to
purchase shares of Common Stock under the company's current stock option plans.

6.  SALE OF MANUFACTURING LICENSE
---------------------------------

By an agreement effective March 24, 1999, General Electric Company, on behalf of
GE Medical Systems, exchanged 826,666, or 62%, of the 1,333,333 shares of
Convertible Preferred Stock then owned by GE Medical Systems ("GEMS") for a non-
exclusive right to manufacture the Tilt-C system, which the Company has
manufactured for GEMS since 1994.  The Company expects to continue its
manufacturing activity for GE Medical Systems through at least December 1999,
the original expiration date of its manufacturing agreement with GEMS.
Completion of this transaction reduced GEMS' ownership of the Company from 15.9%
to 6.7%, on a diluted basis.

7.  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 remaining lease obligations (net of estimated
sublease payments), facility closing costs, severance and other non-recurring
costs associated with this decision.  In January 1999, the Company fulfilled its
remaining obligations for this facility by agreeing to a $1.0 million lease
buyout, over an eight month period, completing the Addison closure within the
original $2.9 million provision.  During the three months ended April 4, 1999
and March 30, 1998, the Company spent approximately $638,000 and $321,000,
respectively including, in 1999, required payments under the lease buyout.

8.  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 changes 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
                                                                ----------------------------------
                                                                    April 4,            March 30,
                                                                      1999                1998
                                                                --------------      --------------
          <S>                                                     <C>                 <C>
          Net income (loss)                                             $3,350             $(1,119)
          Foreign currency translation adjustments                         137                  73
                                                                        ------             -------
          Comprehensive income (loss)                                   $3,487             $(1,046)
                                                                        ======             =======
</TABLE>

                                       8
<PAGE>
 
9.  OPERATING AND GEOGRAPHIC SEGMENT INFORMATION
------------------------------------------------

          The Company operates in a single industry segment: the design,
manufacture, and marketing of x-ray imaging systems. Because of differences in
distribution costs, strategies, and aftermarket potential, the Company
separately manages and reports operating results for products sold by the
Company (proprietary) from those manufactured for sale to other medical products
companies under Original Equipment Manufacturer ("OEM") contracts. The Company's
manufacturing and most distribution activities are in the United States,
including export sales to Europe, primarily, and elsewhere. The Company also has
marketing operations in Europe and Australia. The following is a summary of the
Company's operations by segment (in thousands):

<TABLE>
<CAPTION>
                                      
Three Months Ended                                   United States                   International     Internal
------------------                      ----------------------------------------  -------------------  ---------
April 4, 1999:                          Proprietary    OEM    Export     Total    Australia   Europe     Sales      Total
--------------                          -----------  -------  -------  ---------  ----------  -------  ---------  ---------
 
Revenues:
<S>                                     <C>          <C>      <C>      <C>        <C>         <C>      <C>        <C>
    Product..............................   $ 5,840   $3,684   $2,225   $11,749      $   21    $ 115      $(174)   $11,711
    Service..............................     2,269                       2,269          39      146                 2,454
    Sale of manufacturing license........     6,200       --       --     6,200          --       --         --      6,200
                                            -------  -------  -------   -------      ------    -----      -----    -------
                                             14,309    3,684    2,225    20,218          60      261       (174)    20,365
                                            -------  -------  -------   -------      ------    -----      -----    -------
  Costs of sales:
    Product..............................     3,065    2,656    1,156     6,877          13       63       (118)     6,835
    Service..............................       556       --       --       556          24       20        (56)       544
    Sale of manufacturing license........       400       --       --       400          --       --         --        400
                                            -------  -------  -------   -------      ------    -----      -----    -------
    Allocated............................     4,021    2,656    1,156     7,833          37       83       (174)     7,779
                                            -------  -------  -------
    Unallocated..........................                                 1,722          --       --                 1,722
                                                                        -------      ------    -----               -------
                                                                          9,555          37       83       (174)     9,501
                                                                        -------      ------    -----      -----    -------
  Gross profit...........................                                10,663          23      178         --     10,864
  Operating expenses.....................                                 6,939          92       82         --      7,113
                                                                        -------      ------    -----      -----    -------
  Loss from operations...................                                 3,724         (69)      96         --      3,751
  Interest expense.......................                                  (229)         --      (51)        --       (280)
  Interest income........................                                    56           1       --         --         57
  Other expense, net.....................                                   (25)         79     (232)        --       (178)
  Income taxes...........................                                    --          --       --         --         --
                                                                        -------      ------    -----      -----    -------
  Net loss...............................                               $ 3,526      $   11    $(187)     $  --    $ 3,350
                                                                        =======      ======    =====      =====    =======
  Identifiable assets....................                               $45,593      $1,033    $ 731               $47,357
                                                                        =======      ======    =====               =======
  Capital expenditures...................                               $   186      $   --    $  --               $   186
                                                                        =======      ======    =====               =======
  Depreciation...........................                               $   523      $    6    $  --               $   529
                                                                        =======      ======    =====               =======
</TABLE>
                                                                                

                                       9
<PAGE>
 
<TABLE>
<CAPTION>
                  
Three Months Ended                                   United States                  International     Internal
------------------                      ---------------------------------------  -------------------  ---------
March 30, 1998:                         Proprietary    OEM    Export    Total    Australia   Europe     Sales      Total
---------------                         -----------  -------  ------  ---------  ----------  -------  ---------  ----------
 
Revenues:
<S>                                     <C>          <C>      <C>     <C>        <C>         <C>      <C>        <C>
    Product...........................       $7,363   $3,445    $890   $11,698       $  38    $ 238      $(288)    $11,686
    Service...........................        1,899       --      --     1,899          35       47         --       1,981
                                             ------  -------  ------   -------       -----    -----      -----     -------
                                              9,262    3,445     890    13,597          73      285       (288)     13,667
                                             ------  -------  ------   -------       -----    -----      -----     -------
  Costs of sales:
    Product...........................        4,338    2,277     514     7,129          46      131       (281)      7,025
    Service...........................          347       --      --       347          35        9         (7)        384
                                             ------  -------  ------   -------       -----    -----      -----     -------
    Allocated.........................        4,685    2,277     514     7,476          81      140       (288)      7,409
                                             ------  -------  ------
    Unallocated.......................                                     999          --       --                    999
                                                                       -------       -----    -----                -------
                                                                         8,475          81      140       (288)      8,408
                                                                       -------       -----    -----      -----     -------
  Gross profit........................                                   5,122          (8)     145         --       5,259
  Operating expenses..................                                   6,068         107      106         --       6,281
                                                                       -------       -----    -----      -----     -------
  Loss from operations................                                    (946)       (115)      39         --      (1,022)
  Interest expense....................                                     (54)         --       --         --        (181)
  Interest income.....................                                      29           1       --         --         271
  Other expense, net..................                                      (9)         44     (108)        --        (760)
  Income taxes........................                                      --          --       --         --          --
                                                                       -------       -----    -----      -----     -------
  Net loss............................                                 $  (980)      $ (70)   $ (69)     $  --     $(1,119)
                                                                       =======       =====    =====      =====     =======
  Identifiable assets.................                                 $48,338       $ 904    $ 721                $49,963
                                                                       =======       =====    =====                =======
  Capital expenditures................                                 $   161       $  --    $  --                $   161
                                                                       =======       =====    =====                =======
  Depreciation........................                                 $   537       $   8    $   4                $   549
                                                                       =======       =====    =====                =======
</TABLE>
                                                                                
  Internal sales from the United States to Australia and Europe are recorded on
the basis of transfer pricing established by the Company. International sales to
OEM customers are managed and, therefore, reported as part of OEM business
results.

                                        

                                       10
<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, 1998 (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 about:

 . resolutions of deficiencies noted by the FDA;
 . the adequacy of financial resources;
 . future operating results including revenues and expenses;
 . sales under the company's strategic alliances, marketing arrangements, and
  other agreements pertaining to Mammotest, digital radiography, and other
  products;
 . the status of SenoScan and other new products in development;
 . the size and growth of the company's markets;
 . the effectiveness of efforts to transfer production activities from the
  company's Addison, Illinois manufacturing facility;
 . the success of efforts to reduce manufacturing and other costs;
 . manufacturing capacity and capabilities;
 . submissions to the FDA and receipt of FDA approvals and clearances;
 . the company's assessment of costs of modifications required to become Year
  2000 compliant;
 . availability of raw materials and components; 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
the risks of investing in the company set forth:

(i) in the Business section of the Form 10-K under the headings:

   "Risks Associated with OEM Agreements," "Sales and Marketing,"
   "International Operations," "Strategic Alliances", "Risks of Technological
   Change and New Products," "Risks of New Product Development and Market
   Acceptance," "Competition," "Government Regulation," "Government
   Reimbursement," `Manufacturing and Operating Risks," "Product Liability,
   Market Withdrawal, and Product Recalls," "Patents and Intellectual Property,"
   "Risk of Dependence on Key Personnel," in the Market for Registrant's 

                                       11
<PAGE>
 
   Common Equity and Related Stockholder Matters under the headings "Risk of
   Price Volatility of Common Stock," `Risks of Fluctuations in Quarterly
   Results of Operations," "Risks of Fluctuations in Quarterly Results of
   Operations," Risks Associated with Shares Eligible for Future Sale," "Risks
   Associated with Control by Management and Certain Stockholders," and "Certain
   Anti-Takeover Effects,"

(ii) in the Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") section of the Form 10-K under the "Overview"
heading, (iii) elsewhere in the Business, MD&A, and other sections of the Form
10-K, and (iv) in this Form 10-Q under the "Overview section of MD&A and
elsewhere.

Overview

Risk of Continued Losses


The company designs, manufactures and markets specialty and general purpose
medical imaging systems for the diagnosis and treatment of disease. The
company's newer products are directed towards medical specialties, such as
diagnosing and treating breast cancer, heart disease and vascular disease, in
which image-guided, minimally invasive therapies are replacing open surgical
procedures.  The company also designs and manufactures specialty x-ray imaging
components and subsystems for several leading medical product companies and
sells general radiology systems for use in hospitals, clinics and physicians'
offices.

The company has experienced significant losses in four of the five years ended
December 31, 1998 and, excluding the sale of a manufacturing license (See Note 6
to these Consolidated Financial Statements), in the first quarter of 1999.
Although the company was profitable in 1995 and for the first nine months of
1996, significant losses have been incurred since then.  Significant factors
giving rise to recent losses include excessive manufacturing capacity and
related manufacturing costs, intense competition for certain of the company's
products, declining margins and demand for OEM products, and a general slowdown
in capital expenditures by hospitals.  The company cannot predict when it will
return to profitability, although it has taken significant steps to reduce costs
and improve sales.  These include:

 . entering into distribution partnerships in 1997 and 1998 with Ethicon
  Endo-Surgery for the marketing and sale of Mammotest breast biopsy systems in
  the United States and in Europe;
 . entering into a strategic alliance with Direct Radigraphy Corporation for the
  development and marketing of digital radiography products  (See the "Strategic
  Alliances" heading of the Business Section of Form 10-K);
 . closure of the company's Addison, Illinois manufacturing facility; and
 . other actions to reduce operating expenses and manufacturing costs.

Improvement in the company's results of operations will depend on many factors,
including:

                                       12
<PAGE>
 
 . demand for the company's products;
 . the availability of adequate financial resources;
 . the company's ability to maintain or increase gross margins;
 . the effectiveness of efforts to control manufacturing and other costs;
 . effective negotiation and implementation of product distribution arrangements;
 . effective implementation of marketing and sales strategies in the United
  States and internationally;
 . maintenance or renewal of orders under OEM agreements with favorable terms;
  and
 . the development and introduction of new products that compete successfully.

The company believes that improved factory utilization is a key factor in
returning to profitability.  Therefore, the company decided in the third quarter
of 1997 to close its Addison, Illinois manufacturing facility and outsource or
transfer Addison production.  In January 1999, the company fulfilled its
remaining obligations for this facility by agreeing to a $1.0 million lease
buyout, over an eight month period, completing the Addison closure within the
original $2.9 million provision.

The company expects continued significant quarterly and annual fluctuations in
revenues, operating results and net income, depending on such factors as:

 . delays in development projects;
 . the timing of orders for large system products and products produced under OEM
  contracts, and related manufacturing and shipment scheduling;
 . new product introductions or marketing initiatives by the company or its
  competitors;
 . the effects of managed healthcare on capital expenditures and reimbursement;
 . increases in marketing, research, and other costs in relation to sales;
 . regulatory clearance of new products;
 . the effect of general economic conditions of the company's markets; and
 . the effects of seasonal patterns and other timing issues with respect to
  customer purchasing decisions.

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 not be able 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.

In recent years, the company has attempted to expand its international sales and
marketing efforts, which have resulted in losses from its international
operations.  The company can expect to continue to incur losses until
international revenues reach sufficient levels.  Additionally, the company's
exposure to foreign currency and other international business risk may increase
as its international business grows.  The company attempts to minimize these
risks by: (i) generally requiring payments in U.S. dollars; (ii) using letters
of credit; and (iii) requiring advance deposits and through other means.  There
can be no assurance, however, that international sales efforts will be
successful or that the associated risks can be minimized.  International
revenues 

                                       13
<PAGE>
 
declined substantially in 1998 and 1997, but increased significantly in the
first quarter of 1999 as compared to the first quarter of 1998.

Sales of the company's Mammotest breast biopsy systems were lower in 1997 as
compared to 1996, due in part to aggressive competition within the surgical
stereotactic core needle breast biopsy market from U.S. Surgical. Sales in this
market increased in 1998, in part due to the company's marketing partnerships
with Ethicon Endo-Surgery. In December 1998, following its acquisition by Tyco
Corporation, U. S. Surgical terminated its OEM agreement with Trex Medical, the
company's principle competitor in this market. While long-term competitive
conditions for Mammotest may become more favorable to the company, there could
be unfavorable near-term impacts of U. S. Surgical's departure from this market,
depending on inventory conditions and other factors.

In January 1999, the Agfa-Gevaert Group announced the acquisition of Sterling
Diagnostic Imaging, Inc., the parent of Direct Radiography Corp., the company's
partner in developing digital imaging products for the general radiography
market.  Direct Radiography was not included in this acquisition; however, on
April 29, 1999, Sterling entered into an agreement whereby Hologic Corporation
will acquire Direct Radiography.  The company expects to continue its
partnership with Direct Radiography under its new ownership.


Year 2000 Update

General


The company uses software and related technologies in its products and in
product development and manufacturing that may be impacted by the Year 2000.
The Year 2000 issue exists because many computer systems and applications use
two-digit date fields to designate a year.  As a result, 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 is in the process of evaluating its products, computer hardware, and
operating software, and third party suppliers for possible Year 2000 problems.
This project is organized as follows:

                                       14
<PAGE>
 
<TABLE>
<CAPTION>
                                                                                        Anticipated        Anticipated
                                                                                        Completion        Out-of-Pocket
              Area                                    Task/Status                          Date                Cost
---------------------------------  -------------------------------------------------  ---------------  --------------------
<S>                                <C>                                                <C>              <C>
I. Products:
   Current versions                Initial review                                        Complete               *
                                   Documentation                                         Complete               *
   Earlier versions                Develop evaluation/testing program                    Complete               *
                                   Perform testing                                       Complete               *
                                   Documentation                                         Complete               *
                                   Develop remedial program, if necessary              2nd qtr 1999             *
II. Primary business software:
                                   Upgrade to Year 2000 compliant version                Complete      Under $25,000
                                   Perform testing                                       Complete               *
                                   Provide user training                                 Complete               *
                                   Update customized reporting/features                  Complete               *
III. Other software applications:
   Major payroll and
       Engineering applications    Obtain certificaton of Year 2000 compliance           Complete
   Other applications              Evaluate and/or obtain certifications               3rd qtr 1999             *
 
IV. Hardware:
    Networks                       Confirm Year 2000 compliance                          Complete               *
    Personal computers             Confirm Year 2000 compliance                          Complete               *
                                   Replace or upgrade as necessary                     2nd qtr 1999    Under $100,000
V. Third party suppliers:
                                   Establish evaluation criteria                         Complete               *
                                   Survey suppliers                                    2nd qtr 1999             *
                                   Re-source as necessary                              3rd qtr 1999             *
</TABLE>
      * No significant out-of-pockets incurred or expected to be incurred.

At this time, the company has not formulated contingency plans in the event that
systems are not Year 2000 compliant.  The need to develop 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 in upgrading the
company's primary business system.  This amount is not considered material to
the company's financial position.  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 be performed 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.

                                       15
<PAGE>
 
Risks

The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, normal business activities or operations.  There
is inherent uncertainty regarding the Year 2000 problem, in part resulting from
the uncertainty of the Year 2000 readiness of third-party suppliers and
customers.  Therefore, 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:

 .  the customer being able to reset the date (on a one-time basis) to
   prevent future occurrences; or

 .  implementation of modifications currently under development by the company or
   third-party suppliers, which were finalized and available to customers as of
   the end of the first quarter of 1999.

The company is nearing completion of its evaluation of earlier versions of
current products and may conclude that problems less easily addressed do exist.
If such problems are identified, disruption of customers' operations could
conceivably occur, potentially resulting in legal actions being taken against
the company, even though Year 2000 problems are not expressly covered by product
warranties.

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 elsewhere in this Form 10-K, which is
provided under the "Safe Harbor" provisions of the Private Securities Litigation
Reform Act of 1995.

FDA Regulation

The company is subject to periodic inspections by the Food and Drug
Administration, whose primary purpose is to audit the company's compliance with
Good Manufacturing Practices, 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 

                                       16
<PAGE>
 
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. The recent issuance of another Form 483 increases the possibility
that one or more of these sanctions could be imposed.

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.  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.  Ongoing FDA compliance reviews and/or related delays in product
clearances could have a material adverse effect on the company.

Proforma Results of Operations for the Three Months Ended April 4, 1999

The company's results of operations for the three months ended April 4, 1999
included items of a non-recurring nature, as follows (in thousands):
<TABLE>
<CAPTION>
                                                                           Increase (Decrease)
                                               ---------------------------------------------------------------------------
                                                                         Gross            Operating           Net Income
                                                    Revenues             Profit           Expenses              (Loss)
                                               ------------------  ------------------ ------------------ -----------------
<S>                                            <C>                 <C>                 <C>             <C>
Reported results of operations                           $20,365             $10,864          $7,113           $ 3,350
Sale of manufacturing license (1)                         (6,200)             (5,800)             --            (5,800)
Accruals for contractual issues (2)                           --                  --            (886)              886
                                                         -------             -------          ------           -------
Normalized proforma results of operations                                                                
                                                         $14,165             $ 5,064          $6,227           $(1,564)
                                                         =======             =======          ======           =======
</TABLE>

(1) During the first quarter, the company sold to G. E. Medical Systems a non-
    exclusive right to manufacture the Tilt-C system, in exchange for 826,666
    shares of Series D Convertible Preferred Stock previously held by G. E.
    Medical Systems. See Note 6 to these unaudited consolidated financial
    statements.

(2) Due to legal activities which occurred during the first quarter of 1999, the
    company has concluded that it is probable that the company will incur
    settlement costs to resolve contractual issues with respect to two product
    installations.

The remainder of Management's Discussion and Analysis of Results of Operations
will be based on normalized proforma results of operations for the three months
ended April 4, 1999.

Results of Operations

Revenues and net loss, on a normalized proforma basis, for the first quarter of
1999 were $14,165,000 and $1,564,000, respectively, as compared to revenues of
$13,667,000 and a net loss of $1,119,000 for the first quarter of 1998.
Revenues in the 

                                       17
<PAGE>
 
first quarter of 1999 were favorably impacted by significant increases in
shipments of mammography products and higher service revenues, partially offset
by a substantial decline in shipments of electrophysiology products. Gross
margin as a percent of revenues decreased from 38.5% in the first quarter of
1998 to 35.8% in the first quarter of 1999, primarily due to increased
unfavorable absorption of manufacturing costs associated with lower levels of
production hours and material purchases and to inefficiencies associated with
production activities transferred from the company's Addison, Illinois factory,
partially offset by a shift in mix to higher margin proprietary products. On a
normalized proforma basis, operating expenses were about the same in the first
quarter of 1999 versus the first quarter of 1998. Other income and expense was
more unfavorable in the first quarter of 1999 versus 1998, primarily due to
foreign exchange loss in Europe caused by the strengthening U. S. dollar, and
higher interest expense associated with higher borrowings under the company's
revolving line of credit. As a result of these factors, the net loss increased
from $1,119,000 in the first quarter 1998 to $1,564,000, on a normalized
proforma basis, in the first quarter of 1999.

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 (on a normalized proforma basis for 1999):



                                                 Three Months Ended
                                            April 4,            March 30,
                                              1999                1998
                                        ---------------      ---------------
                                       
Revenues                                    100.0  %               100.0  %
Gross margin                                 35.8                   38.5
Research and development                     10.0                   10.2
Selling, marketing and service               24.5                   25.8
General and administrative                    9.4                    9.9
Loss from Operations                         (8.2)                  (7.5)
Benefit for income taxes                      ---                    ---
Net loss                                    (11.0)                  (8.2)


Revenues.  First quarter normalized proforma 1999 revenues were $14,165,000, a
4% increase from first quarter 1998 revenues of $13,677,000.  The increase
reflects approximately 20% increases in shipments of mammography products and
service revenues, offset by a substantial decline in shipments of
electrophysiology product shipments, essentially caused by a delay in the
shipment of two systems planned for the first quarter of 1999.  The increase was
in the U. S. direct and international dealer channels of distribution, and was
offset by a decline in U. S. dealer sales.

Gross Profit.  For the first quarter of 1999, gross profit expressed as a
percentage of revenues was 35.8%, as compared to 38.5% for the first quarter of
1998.  The decrease in gross profit as a percentage of revenues was primarily
due to: (i) an increase in unfavorable absorption of manufacturing costs
associated with lower levels of material purchases and fewer production hours
and (ii) inefficiencies associated with production activities transferred from
the company's Addison, Illinois factory, which were partly offset by a shift in
mix to higher margin mammography products and service revenues.

                                       18
<PAGE>
 
Research and Development Expenses.  Research and development expenses for the
first quarter of 1999 and 1998 were $1,415,000 and $1,392,000, respectively.
This represented 10.0% of revenues for 1999 and 10.2% of revenues for 1998.
These results were relatively unchanged.  The key product development focuses
continue to be digital mammography, digital general radiography, and ultrasound
mammography.

Selling, Marketing and Service Expenses.  Selling, marketing and service
expenses for the first quarters of 1999 and 1998 were $3,475,000 and $3,531,000,
respectively, or 24.5% and 25.8%, respectively, of revenues.  As compared to the
same period in 1998, selling, marketing and service expense decreased modestly,
both in amount and as a percentage of revenuesdue to a reduction in marketing
outlays, as the company has increased its reliance on the marketing outlays of
its marketing partners.  The reduction in marketing expenditures was partly
offset by a shift in sales mix to proprietary products sold though the direct
channel of distribution, with associated higher commissions, installation and
warranty provisions.

General and Administrative Expenses. General and administrative expenses for the
first quarter of 1999 and 1998 remained relatively unchanged at $1,337,000, on a
normalized proforma basis, and $1,358,000, respectively, Legal costs were at a
high level in the first quarters of both 1999 and 1998 due to the company's
patent infringement lawsuit against Trex Medical Corporation.

Interest Expense / Interest Income.  Interest expense for the three months ended
April 4, 1999 and March 30, 1998 was $280,000 and $54,000, respectively.
Interest income for the first quarter of 1999 and 1998 was $57,000 and $30,000,
respectively.  The increase in interest expense, net of interest income, in the
first quarter of 1999 as compared to the first quarter of 1998 is due primarily
to higher levels of borrowings under the company's working capital line of
credit, primarily due to the funding of operating losses, offset by reductions
in investment in inventory and accounts receivable.

Net Loss.   The company's net loss for the first quarter of 1999, on a
normalized proforma basis, was $1,564,000, as compared to the first quarter 1998
net loss of $1,119,000.  The deterioration was primarily due to the unfavorable
effects of lower levels of production hours and material purchases on absorption
of manufacturing costs and a $230,000 foreign exchange loss from European
operations, partly offset the the favorable effects of increases in higher
mammography product sales and service revenues.

Income Taxes

The Company's estimated effective tax rate for the year ended December 31, 1999
is currently 0%.  Accordingly, no income tax benefit or provision has been
recorded for the three months ended April 4, 1999.  This rate was determined
based upon the anticipated 1999 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 1999 domestic consolidated tax return.  As of December 31,
1998, the company had valuation allowances of approximately $8.8 million,
reducing net deferred tax assets to $0.  The realizability of net deferred tax
assets is dependent on the company's ability to generate 

                                       19
<PAGE>
 
future taxable income, and the company's estimate of realizable deferred tax
assets may change in the near future.

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 provided by operating activities for the three months ended April 4,
1999 was $1.7 million compared to $0.8 million used in operations in the
comparable period of 1998.  The cash provided by operations was due to a $4.1
million decrease in working capital, partly offset by $1.8 million of cash used
to fund operating results (net income before non-cash expenses and excluding the
non-cash sale of a manufacturing license).  The working capital decrease
consisted of $2.4 million in net collections of accounts receivable, a $0.5
million decreased investment in inventories, a $0.4 million increase in customer
deposits, and a $1.4 million in increased accruals; partly offset by $0.6
million of restructuring-related expenditures (see Note 7 to Notes to
Consolidated Financial Statements).

Net cash used in investing activities was $0.2 million for the three months
ended April 4, 1999, or essentially the same as the comparable period in 1998.

Net cash used in financing activities for the three months ended April 4, 1999
was $1.3 million, principally due to reduced borrowings under the company's bank
revolving line of credit, made possible by the decreased investment in working
capital.

As of April 4, 1999, the company had $1.1 million in cash and cash equivalents
and working capital of $16.6 million. The company has a $15.0 million bank
revolving line of credit arrangement, subject to borrowing base restrictions.
Due to the effects of these restrictions, which are based on eligible
receivables and inventory, only $8.9 million of the line was available as of
April 4, 1999, of which $3.7 million was unused.  The agreement is secured by
the company's accounts receivable, inventories, and fixed assets and may be
called by the lender upon 30 days notice.  The agreement is renewable monthly
and such renewals are subject to a fee of $5,000 per month.  The borrowings
under the agreement are subject to interest at one percent over the bank's prime
rate of interest, or 8.75%, at April 4, 1999.

The company's losses and negative cash flows from operations over the past
several years have depleted substantially all of its cash and have resulted in
borrowing levels approaching the maximum amounts available.  Further, as noted
above, the principal lender may withdraw the revolving credit facility at any
time upon giving the company 30 days notice.  Any such withdrawal, or any
occurrence of the company's liquidity needs exceeding its available borrowing
capacity, would have a material adverse impact on the company's operations.  The
company has, however, taken significant actions to reduce the level of operating
losses and fixed cash requirements.  See "Overview" section of this Management's
Discussion and Analysis of Financial Condition and Results of Operations.

The company has no present plans for capital expenditures in 1999 materially
different from recent years.

                                       20
<PAGE>
 
The company believes its current cash and cash equivalent balances and its
available borrowings under the line of credit will satisfy its liquidity needs
for 1999.  The company may need to obtain additional debt or equity capital to
fund its long-term needs for growth.



Item 3.  Quantitative and Qualitative Disclosures About Market Risk:
--------------------------------------------------------------------

  Market risk represents the risk of loss that may impact the financial
position, results of operations or cash flows of the company due to adverse
changes in financial and commodity market prices and rates. The company is
exposed to market risk in the areas of changes in United States interest rates
and changes in foreign currency exchange rates as measured against the United
States dollar. These exposures are directly related to its normal operating and
funding activities. Historically and as of April 4, 1999, the company has not
used derivative instruments or engaged in hedging activities.

 Interest Rate Risk

  The interest payable on the company's revolving line of credit is variable
based on the prime rate and, is therefore, affected by changes in market
interest rates. At April 4, 1999, approximately $5.2 million was outstanding
with an interest rate of 8.75% (prime plus 1%). The line of credit is cancelable
upon 30 days notice by the lender and, should such cancellation occur, or the
company's liquidity needs exceed amounts available under this line of credit,
the interest rate applicable to replacement credit facilities might be
significantly higher. For example, if the interest rate in effect for the three
month periods ended April 4, 1999 and March 30, 1998 on the company's line of
credit had been twice the rates in effect, would have incurred additional
interest expense of approximately $280,000, or $.03 per share, and $54,000, or
$.01 per share, respectively.  The company attempts to manage its interest rate
risk by monitoring interest rates which are available under other types of
lending instruments and through other lenders but, at present, does not qualify
for lending instruments which would not be more expensive that its current
month-to-month lending arrangement. Therefore, the company's exposure to changes
in interest rates will be significant until such time as its operating results
permit it greater access to other lenders and lending instruments on terms
equivalent or superior to those available under its current lending agreement.

 Foreign Currency Risk

  The company has a wholly-owned subsidiary in Australia and a 90% owned
subsidiary in Denmark which, in turn, owns subsidiaries in Germany and France.
Local assets and liabilities, principally intercompany debt to the parent
company, are recorded in local currencies, thereby creating exposures to changes
in exchange rates. These changes may positively or negatively affect the
company's operating results. As disclosed at Note 10 to Notes to Consolidated
Financial Statements, revenues in foreign currency through all foreign
subsidiaries constituted under 3% of the company's total revenues for the three
month periods ended April 4, 1999 and March 30, 1998.  

                                       21
<PAGE>
 
The company therefore does not believe that foreseeable near-term changes in
exchange rates will have in a material effect on future earnings, fair values or
cash flows of the company and has chosen not to enter into foreign currency
hedging instruments. There can be no assurance that such an approach will prove
to have been successful, especially in the event of a significant and sudden
decline in the value of any of the applicable local currencies.

                                       22
<PAGE>
 
                          PART II.  OTHER INFORMATION



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 , Finance/
                            Chief Financial Officer and
                            Principal  Accounting Officer



May 12, 1999

                                       23
<PAGE>
 
                                 Exhibit Index
                                 -------------
                                        

Exhibit No.                       Description
-----------                       -----------
27                          Financial Data Schedule

                                       24