<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-Q


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

                      For The Quarter Ended July 2, 2000


[__]  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 ______
                                                      ----


The number of shares of Registrant's Common Stock outstanding as of July 2, 2000
was 7,075,000.

<PAGE>

                          FISCHER IMAGING CORPORATION

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
PART I.        FINANCIAL INFORMATION                                            Page
                                                                                ----

<S>                                                                            <C>
Item 1.     Consolidated Financial Statements

               Consolidated Balance Sheets (unaudited) --
               July 2, 2000 and December 31, 1999                                 3

               Consolidated Statements of Operations (unaudited) --
               Three and six months ended July 2, 2000 and July 4, 1999           4

               Consolidated Statements of Cash Flows (unaudited) --
               Six months ended July 2, 2000 and July 4, 1999                     5

               Notes to Consolidated Financial Statements (unaudited)             6

Item 2.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations                                            12

Item 3.     Quantitative and Qualitative Disclosures About Market Risk           19


PART II.  OTHER INFORMATION


Item 1.     Legal Proceedings                                                    20

Item 2.     Changes in Securities and Use of Proceeds                            20

Item 3.     Defaults Upon Senior Securities                                      20

Item 4.     Submission of Matters to a Vote of Security Holders                  20

Item 5.     Other Information                                                    20

Item 6.     Exhibits and Reports on Form 8-K                                     20
</TABLE>
<PAGE>

                          FISCHER IMAGING CORPORATION
                          CONSOLIDATED BALANCE SHEETS
                    (Amounts in thousands except share data)
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                             July 2,  December 31,
                                                                                2000        1999
                                                                             -------    -------
<S>                                                                         <C>        <C>
                                     ASSETS
CURRENT ASSETS
 Cash and cash equivalents                                                   $ 1,119    $ 1,056
 Trade accounts receivable, net of allowance for doubtful
   accounts of approximately $1,844 and $1,741 at July 2, 2000
   and December 31, 1999, respectively                                        14,682     15,897
 Inventories                                                                  14,943     15,064
 Prepaid expenses and other current assets                                       827        912
                                                                             -------    -------
       Total current assets                                                   31,571     32,929
                                                                             -------    -------
PROPERTY AND EQUIPMENT
 Manufacturing equipment                                                       8,192      9,641
 Office equipment and leasehold improvements                                   6,039      5,963
                                                                             -------    -------
                                                                              14,231     15,604
 Less- Accumulated depreciation and amortization                              11,423     11,730
                                                                             -------    -------
       Property and equipment, net                                             2,808      3,874
                                                                             -------    -------
INTANGIBLE ASSETS, net                                                         2,120      2,399
DEFERRED COSTS AND OTHER ASSETS                                                1,583      1,807
                                                                             -------    -------
       TOTAL ASSETS                                                          $38,082    $41,009
                                                                             =======    =======
</TABLE>

                    LIABILITIES AND STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
<S>                                                                         <C>        <C>
CURRENT LIABILITIES
 Notes payable and current maturities of long-term debt                      $ 4,128    $  6,031
     Trade accounts payable                                                    3,378       3,671
 Accrued salaries and wages                                                    1,763       1,792
 Customer deposits                                                             1,009       1,289
 Accrued warranty and installation costs                                       1,566       1,672
 Deferred service revenue                                                        963       1,156
 Accrued sales, property and other state and local taxes                         578         636
 Other current liabilities                                                     1,528       1,943
                                                                            --------    --------
       Total current liabilities                                              14,913      18,190

LONG-TERM DEBT                                                                   863       1,103
                                                                            --------    --------
       TOTAL LIABILITIES                                                      15,776      19,293
                                                                            --------    --------
STOCKHOLDERS' INVESTMENT
 Common Stock, $.01 par value, 25,000,000 shares authorized,
   7,074,867 and 7,028,855 shares issued and outstanding at
   July 2, 2000 and December 31, 1999, respectively                               71          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
     shares authorized, issued and outstanding at
     July 2, 2000 and December 31, 1999, respectively;
     liquidation preference of $3.8 million at July 2, 2000
     and December 31, 1999, respectively (Note 5)                                   5           5
 Additional paid-in capital                                                    43,351      43,264
 Accumulated deficit                                                          (20,987)    (21,802)
 Accumulated other comprehensive income (foreign
   currency translation adjustments)                                             (134)        179
                                                                             --------    --------
       TOTAL STOCKHOLDERS' INVESTMENT                                          22,306      21,716
                                                                             --------    --------
       TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT                        $ 38,082    $ 41,009
                                                                             ========    ========
</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                     Six Months Ended
                                                         ----------------------------          ----------------------------
                                                           July 2,           July 4,              July 2,           July 4,
                                                              2000              1999                 2000              1999
                                                         ---------         ---------            ---------         ---------
<S>                                                      <C>             <C>                   <C>              <C>
REVENUES
      Products and services                              $  11,946         $  16,695            $  25,689         $  30,860
      Sale of manufacturing license (Note 5)                    --                --                   --             6,200
                                                         ---------         ---------            ---------         ---------
      Total                                                 11,946            16,695               25,689            37,060

COST OF SALES
      Products and services                                  5,993            10,748               13,546            19,849
      Sale of manufacturing license                             --                --                   --               400
                                                         ---------         ---------            ---------         ---------
      Total                                                  5,993            10,748               13,546            20,249
                                                         ---------         ---------            ---------         ---------
             Gross profit                                    5,953             5,947               12,143            16,811

OPERATING EXPENSES
      Research and development                                 976             1,663                2,017             3,078
      Selling, marketing and service                         3,316             3,976                6,699             7,451
      General and administrative                             1,105             1,356                2,314             3,579
      Restructuring provision (Note 6)                          --               750                   --               750
                                                         ---------         ---------            ---------         ---------
              Total operating expenses                       5,397             7,745               11,030            14,858
                                                         ---------         ---------            ---------         ---------
                                                                --               750                   --               750
INCOME (LOSS) FROM OPERATIONS                                  556            (1,798)               1,113             1,953

      Interest expense                                        (177)             (129)                (345)             (409)
      Interest income                                           10                12                   30                69
      Other income (expense), net                               76               (46)                  17              (224)
                                                         ---------         ---------            ---------         ---------

INCOME (LOSS) BEFORE INCOME TAXES                              465            (1,961)                 815             1,389
      Provision for income taxes                                --                --                   --                --
                                                         ---------         ---------            ---------         ---------
NET INCOME (LOSS)                                        $     465         $  (1,961)           $     815         $   1,389
                                                         =========         =========            =========         =========

NET INCOME (LOSS) PER SHARE
      Basic                                              $    0.07         $   (0.28)           $    0.12         $    0.20
                                                         =========         =========            =========         =========
      Diluted                                            $    0.06         $   (0.28)           $    0.10         $    0.17
                                                         =========         =========            =========         =========

SHARES USED TO CALCULATE
INCOME (LOSS) PER SHARE
      Basic                                                  7,075             7,029                7,075             7,029
                                                         =========         =========            =========         =========
      Diluted                                                7,781             7,029                7,788             7,944
                                                         =========         =========            =========         =========
</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>
                                                                            Six Months Ended
                                                                     ------------------------------
                                                                          July 2,           July 4,
                                                                            2000              1999
                                                                     ------------      ------------
<S>                                                                  <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                        $        815      $      1,389
                                                                     ------------      ------------
   Adjustments to reconcile net income to net cash
   provided by operating activities--
     Noncash sale of manufacturing license                                     --            (6,200)
     Restructuring provision                                                   --               750
     Depreciation                                                             832             1,077
     Amortization of intangible assets                                        279               279
     Provision for doubtful accounts                                          753                20
     Provision for excess and obsolete inventories                            270               453
     Sales and retirements of assets                                          355                --
     Foreign exchange losses                                                    1               187
     Restructuring payments                                                    --              (754)
     Other changes in current assets and liabilities--
       Decrease in trade accounts receivable                                  462                35
       (Increase) Decrease in inventories                                    (149)            3,891
       Decrease in prepaid expenses and other current assets                   85               264
       Decrease in deferred costs and other assets                            224               383
       Decrease in trade accounts payable                                    (293)             (316)
       Decrease in accrued salaries and wages                                 (29)             (153)
       Decrease in customer deposits                                         (280)              (81)
       (Decrease) Increase in accrued warranty and installation costs        (106)              505
       Decrease in deferred service revenue                                  (193)             (324)
       (Decrease) Increase in other current liabilities                      (474)              175
     Other                                                                     --               (50)
                                                                     ------------      ------------
         Total adjustments                                                  1,737               141
                                                                     ------------      ------------
         Net cash provided by operating activities                          2,552             1,530
                                                                     ------------      ------------
CASH FLOWS FROM INVESTING ACTIVITIES
   Capital expenditures                                                      (121)             (380)
                                                                     ------------      ------------
         Net cash used in investing activities                               (121)             (380)
                                                                     ------------      ------------
CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from sales of common stock, net                                    88                90
   Net repayments under line of credit agreement                           (1,776)             (965)
   Repayments of long-term debt                                              (367)             (119)
                                                                     ------------      ------------
         Net cash used in financing activities                             (2,055)             (994)
                                                                     ------------      ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH                                      (313)               24
                                                                     ------------      ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                           63               180

CASH AND CASH EQUIVALENTS, beginning of period                              1,056               929
                                                                     ------------      ------------
CASH AND CASH EQUIVALENTS, end of period                             $      1,119      $      1,109
                                                                     ============      ============
</TABLE>

                                       5
<PAGE>

                          FISCHER IMAGING CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

(1)  GENERAL

In management's opinion, 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 July 2, 2000, its
results of operations for the three and six months ended July 2, 2000 and July
4, 1999 and its cash flows for the six months ended July 2, 2000 and July 4,
1999.  Results of operations and cash flows for the interim periods may not be
indicative of the results of operations and cash flows for the full fiscal year.

These unaudited consolidated financial statements 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, 1999.

Typically, and for the year ending December 31, 2000, the Company closes its
first three fiscal quarters as of the Sunday closest to the end of March, June
and September.


(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):

                                                 July 2,     December 31,
                                                  2000           1999
                                                -------        -------
   FIFO cost--
        Raw materials                           $ 7,182        $ 6,878
        Work in process and finished goods        8,068          8,493
   LIFO valuation adjustment                       (307)          (307)
                                                -------        -------
   Inventories, net                             $14,943        $15,064
                                                =======        =======

                                       6
<PAGE>

                          FISCHER IMAGING CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                                  (Unaudited)

(3)  NOTES PAYABLE AND LONG-TERM DEBT

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

                                                         July 2,  December 31,
                                                           2000          1999
                                                        -------       -------

    Borrowing under bank revolving line of credit       $ 4,027       $ 5,803
    Capitalized lease obligations                           145           475
    Other                                                   819           856
                                                        -------       -------
                                                          4,991         7,134
    Less--Current maturities                             (4,128)       (6,031)
                                                        -------       -------
    Long-term debt                                      $   863       $ 1,103
                                                        =======       =======

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

(4)  NET INCOME (LOSS) PER SHARE

Basic income or loss per share is computed by dividing the net income or loss by
the weighted average number of shares of common stock outstanding.  Diluted
income or loss per share is determined by dividing the net income or loss by the
sum of: (1) the weighted average number of common shares outstanding; (2) if
dilutive, the number of shares of convertible preferred stock as if converted
upon issuance; and (3) if 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,
if dilutive, diluted income per share is as follows (in thousands):
<TABLE>
<CAPTION>
                                                                      Three Months Ended      Six Months Ended
                                                                      ------------------      ----------------
                                                                      July 2,     July 4,     July 2,   July 4,
                                                                       2000        1999        2000      1999
                                                                      -------    -------      -------  -------
<S>                                                                   <C>        <C>          <C>      <C>
Weighted average number of common shares outstanding
(Shares used in Basic Earnings Per Share Computation)  ..............   7,075      7,029        7,075    7,029
                                                                      -------    -------      -------  -------
Shares of convertible preferred stock (as if converted)  ............     507        507          507      915
Effect of stock options (treasury stock method)  ....................     199         --          206      --
                                                                      -------    -------      -------  -------
Shares used in Diluted Earnings Per Share Computation, if dilutive...   7,781      7,536        7,788    7,944
                                                                      =======    =======      =======  =======
</TABLE>

For the three and six months ended July 4, 1999 the effects of the convertible
preferred stock and stock options were excluded from the calculation of diluted
income per share in the accompanying Consolidated Statements of Operations since
the result would have been anti-dilutive.  As of July 2, 2000 and July 4, 1999,
there were, respectively, 1,277,450 and 1,058,925 outstanding options to
purchase shares of Common Stock under the Company's current stock option plans.

(5)  SALE OF MANUFACTURING LICENSE

On March 29, 1999, the Company announced and agreement with General Electric
Company, on behalf of GE Medical Systems, under which 826,666, or 62%, of the
1,333,333 shares of Convertible Preferred Stock then owned by GE Medical Systems
("GEMS") were exchanged for a non-exclusive right to manufacture the Tilt-C
system, which the Company has manufactured

                                       7
<PAGE>

for GEMS since 1994. The sale of the manufacturing rights to the Tilt-C system
was recorded at fair value, estimated to be $6.2 million. The Company completed
its manufacturing for GEMS during the first quarter of 2000.

(6)  RESTRUCTURING PROVISION AND PAYMENTS

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 facility obligations by agreeing to a $1.0 million lease buyout, over
an eight month period, completing the closure within the original $2.9 million
provision.

During the second quarter of 1999, the Company decided to discontinue a product
line previously produced in its Addison facility.  Accordingly, the Company
accrued an additional $750,000 provision for the closure of the Addison
facility, principally for the discontinuing of this product line and related
product acceptance issues.


(7)  COMPREHENSIVE INCOME

Comprehensive income is defined as the change in equity of an enterprise other
than the change 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                        Six Months Ended
                                                    ----------------------------------       ----------------------------------
                                                        July 2,              July 4,              July 2,            July 4,
                                                         2000                 1999                 2000               1999
                                                    --------------      --------------       --------------      --------------
<S>                                                 <C>                 <C>                  <C>                 <C>
Net income (loss)                                   $          465      $       (1,961)      $          815      $        1,389
Foreign currency translation adjustments                      (318)                 73                 (313)                210
                                                    --------------      --------------       --------------      --------------
Comprehensive (loss) income                         $          147      $       (1,888)      $          502      $        1,599
                                                    ==============      ==============       ==============      ==============
</TABLE>

                                       8
<PAGE>

                          FISCHER IMAGING CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                                  (Unaudited)

(8)  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>
                                                    United States
                                          ----------------------------------
                                             Proprietary                        International
                                          -----------------                   ------------------  Internal
                                          Domestic  Export    OEM    Total    Australia   Europe    Sales     Total
                                          --------  -------  -----  --------  ----------  ------  ---------  --------
Three Months Ended July 2, 2000
-------------------------------
<S>                                       <C>       <C>      <C>    <C>       <C>         <C>     <C>        <C>
  Revenues:
   Product  ............................. $  7,463  $ 1,648  $ 248  $  9,359  $       --  $  278  $    (440) $  9,197
   Service  .............................    2,643       --     --     2,643          55      51         --     2,749
                                          --------  -------  -----  --------  ----------  ------  ---------  --------
                                            10,106    1,648    248    12,002          55     329       (440)   11,946
                                          --------  -------  -----  --------  ----------  ------  ---------  --------
  Costs of sales:
   Product  .............................    4,127      910     11     5,048          --      --       (165)    4,883
   Service  .............................      304       --     --       304          30      20          2       356
                                          --------  -------  -----  --------  ----------  ------  ---------  --------
   Allocated  ...........................    4,431      910     11     5,352          30      20       (163)    5,239
                                          --------  -------  -----
   Unallocated  .........................                                754          --      --         --       754
                                                                    --------  ----------  ------  ---------  --------
                                                                       6,106          30      20       (163)    5,993
                                                                    --------  ----------  ------  ---------  --------
  Gross profit  .........................                              5,896          25     309       (277)    5,953
  Operating expenses.....................                              5,305         117     252       (277)    5,397
                                                                    --------  ----------  ------  ---------  --------
  Income (loss) from operations  ........                                591         (92)     57         --       556
  Interest expense  .....................                               (177)         --      --         --      (177)
  Interest income  ......................                                  5           5      --         --        10
  Other (expense) income, net  ..........                                 88         (28)     16         --        76
                                                                    --------  ----------  ------  ---------  --------
  Net income (loss)  ....................                           $    507  $     (115) $   73  $      --  $    465
                                                                    ========  ==========  ======  =========  ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended July 4, 1999
-------------------------------
  Revenues:
<S>                                       <C>       <C>      <C>      <C>       <C>         <C>     <C>        <C>
   Product  ............................. $  8,131  $ 2,542  $ 3,413  $ 14,086  $      --   $  116  $    (180) $ 14,022
   Service  .............................    2,447       --       --     2,447         53      173         --     2,673
                                          --------  -------  -------  --------  ----------  ------  ---------  --------
                                            10,578    2,542    3,413    16,533          53     289       (180)   16,695
                                          --------  -------  -------  --------  ----------  ------  ---------  --------
  Costs of sales:
   Product  .............................    4,339    1,677    2,808     8,824          --      96       (160)    8,760
   Service  .............................      566       --       --       566          20      10        (20)      576
                                          --------  -------  -------  --------  ----------  ------  ---------  --------
   Allocated  ...........................    4,905    1,677    2,808     9,390          20     106       (180)    9,336
                                          --------  -------  -------
   Unallocated  .........................                                1,412          --      --         --     1,412
                                                                      --------  ----------  ------  ---------  --------
                                                                        10,802          20     106       (180)   10,748
                                                                      --------  ----------  ------  ---------  --------
  Gross profit  .........................                                5,731          33     183         --     5,947
  Operating expenses, including
             restructuring provision  ...                                7,639         124     (18)        --     7,745
                                                                      --------  ----------  ------  ---------  --------
  (Loss) income from operations  ........                               (1,908)        (91)    201         --    (1,798)
  Interest expense  .....................                                  (75)         --     (54)        --      (129)
  Interest income  ......................                                   10           2      --         --        12
  Other expense, net  ...................                                   (6)        120    (160)        --       (46)
  Income taxes  .........................                                   --          --      --         --        --
                                                                      --------  ----------  ------  ---------  --------
  Net (loss) income  ....................                             $ (1,979) $       31  $  (13) $      --  $ (1,961)
                                                                      ========  ==========  ======  =========  ========
</TABLE>

                                       9
<PAGE>

                          FISCHER IMAGING CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                      United States
                                          -------------------------------------
                                             Proprietary                            International
                                          -----------------                      -------------------  Internal
                                          Domestic  Export     OEM      Total    Australia   Europe     Sales      Total
                                          --------  -------  -------  ---------  ----------  -------  ---------  ---------
Six Months Ended July 2, 2000
-----------------------------
<S>                                       <C>       <C>      <C>      <C>        <C>         <C>      <C>        <C>
  Revenues:
   Product  .............................. $14,247   $4,636   $1,300   $20,183      $   --   $  533      $(712)   $20,004
   Service  ..............................   5,468       --       --     5,468         114      103         --      5,685
                                           -------  -------  -------   -------      ------   ------      -----    -------
                                            19,715    4,636    1,300    25,651         114      636       (712)    25,689
                                           -------  -------  -------   -------      ------   ------      -----    -------
  Costs of sales:
   Product  ..............................   7,652    2,503      635    10,790          --       --       (175)    10,615
   Service  ..............................     706       --       --       706          42       29         (5)       772
                                           -------  -------  -------   -------      ------   ------      -----    -------
   Allocated  ............................   8,358    2,503      635    11,496          42       29       (180)    11,387
                                           -------  -------  -------   -------
   Unallocated  ..........................                               2,159          --       --         --      2,159
                                                                       -------      ------   ------      -----    -------
                                                                        13,655          42       29       (180)    13,546
                                                                       -------      ------   ------      -----    -------
  Gross profit  ..........................                              11,996          72      607       (532)    12,143
  Operating expenses......................                              10,865         200      497       (532)    11,030
                                                                       -------      ------   ------      -----    -------
  Income (loss) from operations  .........                               1,131        (128)     110         --      1,113
  Interest expense  ......................                                (343)         --       (2)        --       (345)
  Interest income  .......................                                  21           9       --         --         30
  Other (expense) income, net  ...........                                 226        (221)      12         --         17
                                                                       -------      ------   ------               -------
  Net income (loss)  .....................                             $ 1,035      $ (340)  $  120      $  --    $   815
                                                                       =======      ======   ======      =====    =======
       Other information:
              Identifiable assets.........                             $35,978      $1,100   $1,004               $38,082
              Capital expenditures........                                 121          --       --               $   121
              Depreciation................                                 832          --       --               $   832
              Amortization................                                 279          --       --               $   279
</TABLE>

<TABLE>
<CAPTION>
Six Months Ended July 4, 1999
-----------------------------
Revenues:
<S>                                       <C>       <C>      <C>      <C>        <C>     <C>      <C>      <C>
    Product  ............................. $13,971   $6,226   $5,638   $25,835   $  21    $ 231    $(354)   $25,733
    Service  .............................   4,716       --       --     4,716      92      319       --      5,127
    Sale of manufacturing license  .......   6,200       --       --     6,200      --       --       --      6,200
                                           -------  -------  -------   -------   -----    -----    -----    -------
                                            24,887    6,226    5,638    36,751     113      550     (354)    37,060
                                           -------  -------  -------   -------   -----    -----    -----    -------
  Costs of sales:
    Product  .............................   7,404    4,333    3,964    15,701      13      159     (278)    15,595
    Service  .............................   1,122       --       --     1,122      44       30      (76)     1,120
    Sale of manufacturing license  .......     400       --       --       400      --       --       --        400
                                           -------  -------  -------   -------   -----    -----    -----    -------
    Allocated  ...........................   8,926    4,333    3,964    17,223      57      189     (354)    17,115
                                           -------  -------  -------
    Unallocated  .........................                               3,134      --       --       --      3,134
                                                                       -------   -----    -----    -----    -------
                                                                        20,357      57      189     (354)    20,249
                                                                       -------   -----    -----    -----    -------
  Gross profit  ..........................                              16,394      56      361       --     16,811
  Operating expenses, including
      restructuring provision  ...........                              14,578     216       64       --     14,858
                                                                       -------   -----    -----    -----    -------
  Income (loss) from operations  .........                               1,816    (160)     297       --      1,953
  Interest expense  ......................                                (304)     --     (105)      --       (409)
  Interest income  .......................                                  66       3       --       --         69
  Other expense, net  ....................                                 (31)    199     (392)      --       (224)
  Income taxes  ..........................                                  --      --       --       --         --
                                                                       -------   -----    -----    -----    -------
  Net income (loss)   ....................                             $ 1,547   $  42    $(200)   $  --    $ 1,389
                                                                       =======   =====    =====    =====    =======
  Other information:
    Identifiable assets  .................                             $43,171   $ 996    $ 610             $44,777
    Capital expenditures  ................                                 380      --       --                 380
    Depreciation  ........................                               1,064      13       --               1,077
    Amortization..........................                                 279      --       --                 279
</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>

(9)  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards No. 133 and No. 137. In June 1998,
the Financial Accounting Standards Board, or FASB, issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 establishes accounting and reporting standards for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. It requires an entity to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measures those instruments at fair value. In June 1999,
the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133 - An amendment of FASB Statement No. 133." SFAS
No. 137 delays the effective date of SFAS No. 133 to financial quarters and
financial years beginning after June 15, 2000. The Company does not typically
enter into arrangements that would fall under the scope of Statement No. 133 and
thus, management believes that Statement No. 133 will not significantly affect
our financial condition and results of operations.

Staff Accounting Bulletin No. 101.  In December 1999, the Securities and
Exchange Commission staff released Staff Accounting Bulletin No. 101, "Revenue
Recognition." SAB 101 provides interpretive guidance on the recognition,
presentation and disclosure of revenue in financial statements. The accounting
impact of SAB 101 is required to be determined no later than the Company's
fourth fiscal quarter of 2000. If the Company determines that its revenue
recognition policies must change to be in compliance with SAB 101, the
implementation of SAB 101 will require the Company to restate its previously
reported quarterly results for 2000 to reflect a cumulative effect of change in
accounting principle as if SAB 101 had been implemented on January 1, 2000. The
Company is currently reviewing SAB 101 to determine what impact, if any, the
adoption of SAB 101 will have on its financial position and results of
operations.

FIN No. 44.  In March 2000, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation" ("FIN No. 44"). The Interpretation clarifies the
application of APB No. 25 for certain issues related to equity based instruments
issued to employees. FIN No. 44 is effective on July 1, 2000, except for certain
transactions, and will be applied on a prospective basis. The implementation of
FIN No. 44 did not have a significant impact on the Company's financial
statements.

                                       11

<PAGE>

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

The following discussion of financial condition and results of operations 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, 1999 (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 considered 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 revenues, expenses, and other operating results;
 .  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 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 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 set forth:

(1)  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,"

(2)  in the Market for Registrant's 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,"

(3)  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," "Quantitative and Qualitative Disclosures About Market Risk,"
     "FDA Regulations," and "Recent Developments" headings,

                                       12

<PAGE>

(4)  elsewhere in the Business, MD&A, and other sections of the Form 10-K,

(5)  and in this Form 10-Q under the "Overview," section of MD&A and elsewhere.


Overview

Risk of Operating 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 has experienced annual losses from operations for four of the past
five fiscal years.  Significant factors giving rise to these losses include:
costs associated with excessive manufacturing capacity; intense competition for
some of the Company's products; declining margins and demand for OEM products;
and a general slowdown in capital expenditures by hospitals.  The Company has
taken significant steps to reduce costs and improve sales, including:

 . 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 Analogic Corporation for the marketing
  and sale of digital radiography products under Kodak's name and distribution
  system;
 . closure of the Company's Addison, Illinois manufacturing facility;
 . a workforce reduction of approximately 20% in the third and fourth quarters of
  1999; and
 . other actions to reduce operating expenses and manufacturing costs.

As a result, the Company has reported net income for the three and six month
periods ended July 2, 2000.  Sustained return to profitability will depend on
many factors, including:

 . sufficient demand for the Company's products to offset the effects of
  the reductions in OEM business;
 . the adequacy of financial resources;
 . the Company's ability to maintain or improve gross margins;
 . the effectiveness of efforts to control manufacturing and other costs;
 . effective negotiation and implementation of product distribution arrangements;
 . effective implementation of domestic and international marketing and sales
  strategies; and
 . the development and introduction of new products that compete successfully.


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

 . delays in the development projects;
 . the timing of large system product orders;
 . 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;


                                      13
<PAGE>

 . regulatory clearance of new products;
 . the effect of general economic conditions of the Company's markets;
 . seasonal patterns and other timing issues affecting customer purchasing
  decisions; and
 . the outcome of claims against the Company.

These factors can occur unexpectedly and, because many of the Company's costs
are fixed, the Company may not be able to sufficiently reduce its costs in
periods when revenues are less than anticipated and may, as a result, suffer
unexpected losses.

Over the past several years, the Company has attempted to expand its
international sales and marketing efforts. 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: (1) generally
requiring payments in U.S. dollars; (2) using letters of credit; and (3)
requiring advance deposits and through other means.  There can be no assurance,
however, that international sales efforts will be successful or that associated
risks can be minimized.

In November 1999, Kodak announced that Analogic Corp., in conjunction with the
Company and Direct Radiography Corp., would build digital radiography products
for Kodak.  In February 2000, Analogic provided a $5.4 million purchase order
for more than 50 systems.  The Company delivered ten systems under this purchase
order during the first six months of 2000.  While the Company, Kodak and
Analogic continue to work together to deliver these systems, there is no formal
agreement between the companies at this time. The Company is currently
negotiating an agreement with the companies and believes that such an agreement
will be reached in the near future.

The Company is also a party to litigation from time to time, as both plaintiff
and defendant.  As plaintiff, the Company is pursuing a substantial patent
infringement case and certain other matters.  As defendant, the Company is
involved in several litigation matters with OEM and other customers, among
others, and accrued $866,000 in the first quarter of 1999 in relation to several
of these matters.  As of July 2, 2000, the Company has made payments of $337,000
relating to settlement of these lawsuits.

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
Quality System Regulations, which include testing, quality control and
documentation procedures. In March 1995, the Company's Denver facility received
a Warning Letter from the FDA concerning documentation and other deficiencies.
The Company rectified these deficiencies and resolved the matter with the FDA in
June 1995. In December 1996, following an inspection of the Denver facility, the
FDA issued Inspectional Observations Form 483 and a subsequent Warning Letter
regarding manufacturing practices. As required, the Company responded as to
planned corrective actions and obtained a favorable third-party certification of
manufacturing and quality systems. In October 1998, following a subsequent
inspection, the FDA issued a Form 483 regarding possible deficiencies in
manufacturing, quality, and documentation practices. The Company submitted its
response to the Form 483 and is instituting corrective actions. The Company
continues to implement corrective actions and anticipates that an inspection of
the Denver facility by the FDA will take place in the near future. The recent
issuance of another Form 483 increases the possibility that one or more of the
sanctions described below could be imposed.

                                       14

<PAGE>

Failure to satisfy FDA requirements can result in: (1) the Company's inability
to receive awards of federal government contracts; (2) an inability to receive
new marketing or export clearances; or (3) FDA enforcement actions including,
among other things, product seizure, injunction, and/or criminal or civil
proceedings which could be initiated without further notice. Although the
Company believes it has instituted policies and procedures allowing it to
operate within FDA requirements, however, there can be no assurance that
deficiencies can be corrected or that the Company can satisfy future FDA
compliance concerns. Sanctions resulting from FDA compliance reviews or related
delays in product clearances could have a material adverse effect on the
Company.

Results of Operations, Excluding Restructuring Charge and Other One-Time Items

The Company's results of operations on a normalized basis for the three and six
months ended July 2, 2000 and July 4, 1999, respectively, are as follows (in
thousands):
<TABLE>
<CAPTION>
                                                             Increase (Decrease)
                                               --------------------------------------------------
                                                             Gross       Operating     Net Income
                                               Revenues      Profit      Expenses        (Loss)
                                               --------     --------     ---------     ----------
<S>                                            <C>          <C>          <C>           <C>
   Three Months Ended July 2, 2000:
      Reported results of operations           $ 11,946     $  5,953      $  5,397      $    465
                                               ========     ========      ========      ========
   Three Months Ended July 4, 1999:
      Reported results of operations           $ 16,695     $  5,947      $  7,745      $ (1,961)
      Restructuring provision (1)                    --           --          (750)          750
                                               --------     --------      --------      --------
      Normalized results of operations         $ 16,695     $  5,947      $  6,995      $ (1,211)
                                               ========     ========      ========      ========

   Six Months Ended July 2, 2000:
      Reported results of operations           $ 25,689     $ 12,143      $ 11,030      $    815
                                               ========     ========      ========      ========
   Six Months Ended July 4, 1999:
      Reported results of operations           $ 37,060     $ 16,811      $ 14,858      $  1,389
      Restructuring provision (1)                    --           --          (750)          750
      Sale of manufacturing license (2)          (6,200)      (5,800)           --        (5,800)
      Accruals for contractual issues (3)            --           --          (886)          886
                                               --------     --------      --------      --------
      Normalized results of operations         $ 30,860     $ 11,011      $ 13,222      $ (2,775)
                                               ========     ========      ========      ========
</TABLE>

(1) During the second quarter of 1999, the Company decided to discontinue a
    product line previously produced in its Addison, Illinois manufacturing
    facility and recorded an additional facility closing charge of $750,000,
    primarily for related product acceptance issues. See Note 6 to these
    unaudited consolidated financial statements.

(2) During the first quarter of 1999, 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 owned by
    G. E. Medical Systems. See Note 5 to Notes to Consolidated Financial
    Statements.

(3) Based upon legal activities occurring during the first quarter of 1999,
    management concluded that it was 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 results of operations for the six months ended July 2, 2000 and
normalized results of operations for the six months ended July 4, 1999.

Results of Operations

Overview.  Second quarter 2000 revenues and net income were $11,946,000 and
$465,000, respectively, as compared to revenues of $16,695,000 and a normalized
net loss of $1,211,000 for the second quarter of 1999.  The revenue decrease
reflected primarily the planned reductions

                                       15

<PAGE>

in OEM product shipments. Gross margin as a percentage of revenues increased
from 35.6% in the second quarter of 1999 to 49.8% in the second quarter of 2000,
primarily due to three factors: (1) efficiencies derived from our corporate
right-sizing and reorganization, as well as the implementation of a flattened
manufacturing process, (2) a continued shift towards higher margin direct sales
versus dealer and OEM sales and (3) an increase in production of higher margin
mammography and digital radiology products. Operating expenses were
significantly lower in the second quarter of 2000, as compared to the second
quarter of 1999 due to lower legal, marketing and headcount expenses. As a
result of these factors, the net income increased to $465,000 in the second
quarter of 2000 as compared to a normalized net loss of $1,211,000 in the second
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:

<TABLE>
<CAPTION>
                                                    Three Months Ended                       Six Months Ended
                                            ---------------------------------      ------------------------------------
                                                July 2,            July 4,              July 2,              July 4,
                                                 2000               1999*                2000                 1999*
                                            ------------      ---------------      ---------------      ---------------
     <S>                                    <C>                <C>                 <C>                  <C>
     Revenues                                      100.0%               100.0%               100.0%               100.0%
     Gross margin                                   49.8                 35.6                 47.3                 35.7
     Research and development                        8.2                 10.0                  7.9                 10.0
     Selling, marketing and service                 27.8                 23.8                 26.1                 24.1
     General and administrative                      9.3                  8.1                  9.0                  8.7
     Income (Loss) from Operations                   4.7                 (6.3)                 4.3                 (7.2)
     Benefit for income taxes                      -----                -----                -----                -----
     Net income (loss)                               3.9                 (7.3)                 3.2                 (9.0)
</TABLE>

* Based on normalized results of operations.  See "Results of Operations,
  Excluding Restructuring Charge and Other One-Time Items" on Page 16 of this
  Form 10-Q.

Revenues.  Second quarter 2000 revenues were $11,946,000, a 28% decrease from
second quarter 1999 revenues of $16,695,000.  The decrease reflects planned
reductions in OEM product shipments.  OEM shipments decreased from $3,413,000 in
the second quarter of fiscal 1999 to $248,000 in the second quarter of fiscal
2000.  There was also a decrease in the domestic, and export sales channels,
partly offset by an increase in the international direct sales channels.

For the six months ended July 2, 2000, revenues were $25,689,000, or about 17%
lower than normalized revenues of $30,860,000 for the six months ended July 4,
1999.  This decrease reflected decreases in OEM and electrophysiology, partly
offset by an increase in mammography, service, and general radiography revenues.
The decrease in product sales were in the international dealer and OEM channels
of distribution, partly offset by increase in international direct, U. S.
direct, dealer and service channels.

Gross Profit.   For the second quarter of 2000, gross profit expressed as a
percentage of revenues was 49.8%, as compared to 35.6% for the second quarter of
1999.  For the six months ended July 2, 2000, gross profit as a percentage of
revenues was 47.3%, as compared to normalized gross profit of 35.7% for the six
months ended July 4, 1999.  The increase in gross profit was primarily due to
efficiencies derived from our corporate right-sizing and reorganization, the
implementation of a flattened manufacturing process, a continued shift towards
higher margin direct sales versus dealer and OEM sales and an increase in
production of higher margin mammography and digital radiology products.


                                       16

<PAGE>

Research and Development Expenses.  Research and development expenses for the
second quarters of 2000 and 1999 were $976,000 and $1,663,000, respectively, or
8.2% and 10.0% of revenues, respectively.  For the six months ended July 2, 2000
and July 4, 1999, research and development expenses were $2,017,000 and
$3,078,000, respectively, or 7.9% and 10.0%, respectively, of revenues.  The
decrease in the three and six month periods ended July 2, 2000 and July 4, 1999
reflect reductions in staffing and related engineering expenses.  Although the
Company continues to aggressively pursue new product development, it has
significantly reduced its customization of existing products and has delivered a
more standard product to its customers.  This has driven the reduction in
engineering staffing and costs.

Selling, Marketing and Service Expenses. Selling, marketing and service expenses
for the second quarters of 2000 and 1999 were $3,316,000 and $3,976,000,
respectively, or 27.8% and 23.8%, respectively, of revenues.  For the six months
ended July 2, 2000 and July 4, 1999, selling, marketing and service expenses
were $6,699,000 and $7,451,000, respectively, or 26.1% and 24.1%, respectively,
of revenues.  As compared to the same three and six month period in 1999,
selling, marketing and service expenses decreased as a result of lower
headcount, reduced commissions and reduced travel expenses.

General and Administrative Expenses.  General and administrative expenses for
the second quarters of 2000 and 1999 were $1,105,000 and $1,356,000,
respectively, or 9.2% and 8.1%, respectively, of revenue.  For the six months
ended July 2, 2000 and July 4, 1999, general and administrative expenses were
$2,314,000, and $2,693,000, respectively, or 9.0% and 8.7% of revenues,
respectively.  For both the three and six month periods, the reduction was
primarily due to high legal costs in the first quarter of 1999 related to the
Company's patent infringement lawsuit against Trex Medical Corporation as well
as the reduction in headcount of certain general and administrative staff.

Interest Expense / Interest Income.  Interest expense for the three months ended
July 2, 2000 and July 4, 1999 was $177,000 and $129,000, respectively and, for
the six month periods then ended was $345,000 and $409,000, respectively.
Interest income for the second quarters of 2000 and 1999 was $10,000 and
$12,000, respectively and, for the six months ended July 2, 2000 and July 4,
1999 was $30,000 and $69,000, respectively.  The increase in interest expense,
in the three and six months ended July 2, 2000 as compared to the three and six
months ended July 4, 1999 is due primarily to higher levels of borrowings under
the Company's working capital line of credit during the second quarter ending
July 2, 2000.

Net Income/Loss.  The Company's net income for the second quarter of 2000 was
$465,000 as compared to a normalized net loss for the second quarter of 1999 of
$1,211,000.  For the six months ended July 2, 2000, the Company's net income was
$815,000 as compared to a $2,775,000 normalized net loss for the six months
ended July 4, 1999.  For the three and six months ended July 2, 2000, net income
increased relative to the three and six months ended July 4, 1999 primarily as
the result of an increase in production of higher margin mammography and digital
radiology products and efficiencies and cost savings derived from corporate
right-sizing and reorganization.


                                       17

<PAGE>

Income Taxes

The Company's estimated effective tax rate for the year ended December 31, 2000
is currently 0%.  Accordingly, no income tax benefit or provision has been
recorded for the three or six month periods ended July 2, 2000.  This rate was
determined based upon the anticipated 2000 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 2000 domestic consolidated tax return.  As
of December 31, 1999, the Company had valuation allowances of approximately
$10.3 million, reducing net deferred tax assets to $0.  The realizability of net
deferred tax assets is dependent on the Company's ability to generate 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 six months ended July 2, 2000
was $2.6 million compared to $1.5 million provided by operations in the
comparable six-month period of 1999.  The change in cash provided by operations
was due primarily to net income of $815,000 increased by non-cash expenses of
approximately $1.9 million offset by changes in working capital of approximately
$752,000.

Net cash used in investing activities was $121,000 for the six months ended July
2, 2000, down $159,000 from the comparable six-month period in 1999. The Company
anticipates that the level of spending for capital expenditures in the second
quarter of 2000 will continue, although there currently are no material
commitments for capital expenditures.

Net cash used in financing activities for the six months ended July 2, 2000 was
$2.1 million, principally resulting from the reduction in borrowings under the
Company's bank revolving line of credit, made possible by the decrease in
accounts receivable and improved profitability discussed above.

As of July 2, 2000, the Company had $1.1 million in cash and cash equivalents,
working capital of $16.7 million, and a $8.0 million bank revolving line of
credit facility, which is subject to restrictions as to availability based on
eligible receivables and inventory, as defined.  As of July 2, 2000, $3.9
million was available under this line.  The agreement is secured by the
Company's tangible assets and is for a term of three years.  The borrowings
under the agreement are subject to interest at the bank's prime rate of
interest,  9.5%, at July 2, 2000.

The Company has experienced significant losses in four of the last five years
ended December 31, 1999 and has also had negative cash flows from operations in
three of those years.  The Company has taken actions to improve its liquidity
and reduce the level of operating losses.  Most notably, the Company has entered
into a line of credit with a bank for $8.0 million and has significantly reduced
the workforce in the third and fourth quarters of 1999. These efforts have
resulted in a return to profitability and management believes the benefits of
the workforce reductions will continue to be seen in the remainder of fiscal
2000.

                                       18

<PAGE>

The company believes its current cash and cash equivalent balances, its
available borrowings under the line of credit, and cash generated from
operations will be sufficient to satisfy its liquidity needs for the remainder
of 2000.  The company may need to obtain additional debt or equity financing to
fund its long-term growth needs.

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 July 2, 2000, 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 July 2, 2000, approximately $4.1 million was outstanding with an
interest rate of 9.5% (prime).  The Company attempts to manage its interest rate
risk by aggressively reducing its borrowings with cash generated from
operations.

Foreign Currency Risk

The Company has wholly owned subsidiaries in Australia, 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 in Note 8 to Notes to Consolidated
Financial Statements, revenues in foreign currency through all foreign
subsidiaries constituted less than 3% of the Company's total revenues for the
six month periods ended July 2, 2000 and July 4, 1999.  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.


                                       19

<PAGE>

                          PART II.  OTHER INFORMATION

Item 1. Legal Proceedings:
---------------------------

  Not applicable.

Item 2. Changes in Securities and Use of Proceeds:
---------------------------------------------------

  Not applicable.

Item 3. Defaults Upon Senior Securities:
-----------------------------------------

  Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders:
-------------------------------------------------------------

  Not applicable.

Item 5. Other Information:
---------------------------

  Not applicable.

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

        (a) Documents filed as part of this report:

        1.   Financial Statements.

               See pages 3 through 5 of this Form 10-Q.

        2.   Financial Statement Schedules.

               None

        3.   Exhibits.
               The following are filed as part of this report:

<TABLE>
<CAPTION>

Exhibit   -----------------------------------------------------------------------------------------------------
 Number                                          Description of Exhibit
--------  -----------------------------------------------------------------------------------------------------
<S>       <C>
3.1       Certificate of Incorporation of the Company(1)

3.2       Bylaws of the Company(1)

4.1       Amended and Restated Rights Agreement, dated as of November 3, 1994, between the Company and
          American Securities Transfer, Inc. which includes the Certificate of Designation for the Series C
          Junior Participating Preferred Stock as Exhibit A and the form of Right Certificate as Exhibit B(4)

4.2       Certificate of Designation for the Series D Convertible Preferred Stock(4)

10.1      Agreement, dated October 5, 1990, between the Company and Dornier Medizintechnik GmbH(1)

</TABLE>


                                       20
<PAGE>

10.2      Purchase Agreement, dated August 29, 1994, between the Company and
          General Electric Company on behalf of GE Medical Systems(4)

10.3      Nonemployee Director Stock Option Plan, as amended(5)

10.4      Stock Option Plan(1)

10.5      Retention Bonus Plan(3)

10.6      Lease Agreement, dated July 31, 1992, between the Company and JN
          Properties(2)

10.7      Stock Purchase Agreement, dated as of June 20, 1995, between the
          Company and General Electric Company, acting through its GE Medical
          Systems Division ("GEMS")(4)

10.8      Registration Rights Agreement, dated as of June 20, 1995, between
          the Company and GEMS(4)

10.9      Manufacturing and License Agreement, dated as of June 20, 1995,
          between the Company and GEMS(4)

10.10     Amendment, dated as of June 20, 1995, to Purchase Agreement, dated
          as of August 29, 1994, between the Company and GEMS(4)

10.11     Agreement dated October 10, 1997, between the Company and Ethicon
          Endo-Surgery, Inc. with Addendum dated January 28, 1998.(5)

27        Financial Data Schedule(6)

----------------
(1)       Incorporated by reference to the Company's Registration Statement on
          Form S-1, File No. 33-41537, as filed with the Securities and Exchange
          Commission (the "Commission") on July 3, 1991.

(2)       Incorporated by reference to the Company's Form 10-K for the year
          ended December 31, 1992, as filed with the Commission.

(3)       Incorporated by reference to the Company's Form 10-K for the year
          ended December 31, 1994, as filed with the Commission on April 14,
          1995.

(4)       Incorporated by reference to the Company's Form 8-K, as filed with the
          Commission on July 3, 1995.

(5)       Incorporated by reference to the Company's Form 10-K for the year
          ended December 31, 1997, as filed with the Commission on March 31,
          1998.

(6)       Filed herewith.

          (b) Reports on Form 8-K

              None

          (c) Exhibits

          See Item 6(a)(3) of this Form 10-Q.

          (d) Financial Statement Schedules

              None

                                       21
<PAGE>

                                   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 July 2, 2000 to be signed on its behalf by the undersigned thereunto duly
authorized.

                            FISCHER IMAGING CORPORATION



                            /s/ LOUIS E. RIVELLI
                            --------------------
                            Louis E. Rivelli
                            President and Chief Operating Officer



August 16, 2000

                                       22