10-Q

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2006
or
o	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.)
370 Interlocken Blvd., Suite 400
Broomfield, Colorado	80021
(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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o                                            Accelerated filer o                                       Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o   No x

The number of shares of Registrant’s Common Stock outstanding as of August 10, 2006 was 9,398,817.

FISCHER IMAGING CORPORATION

FORM 10-Q

INDEX

PART I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements
	Consolidated Balance Sheets—June 30, 2006 (unaudited) and December 31, 2005
	Consolidated Statements of Operations (unaudited)—Three and Six-months ended June 30, 2006 and 2005
	Consolidated Statements of Cash Flows (unaudited)— Six-months ended June 30, 2006 and 2005
	Notes to Consolidated Financial Statements (unaudited)
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits
SIGNATURES

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FISCHER IMAGING CORPORATION
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share data)

	June 30,			December 31,
	2006			2005
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	2,448		$	4,499
Restricted cash	391			—
Accounts receivable, net of allowance for doubtful accounts of $139 and $383 at June 30, 2006 and December 31, 2005, respectively	655			4,026
Inventories, net	447			4,329
Prepaid expenses and other current assets	385			1,305
Total current assets	4,326			14,159
Property and equipment:
Manufacturing equipment	14			331
Office equipment and leasehold improvements	9			208
Total property and equipment	23			539
Less: accumulated depreciation	—			—
Property and equipment, net	23			539
Long-term prepaid insurance,	806			—
Total assets	$	5,155		$	14,698
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	1,501		$	2,722
Accrued salaries and wages	204			665
Customer deposits	9			1,009
Accrued warranties	311			1,040
Deferred service revenue	20			1,667
Other current liabilities	1,106			2,583
Total current liabilities	3,151			9,686
Commitments and contingencies
Stockholders’ Equity:
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, no shares issued and outstanding	—			—
Common stock, $.01 par value, 25,000,000 shares authorized; 9,398,817 shares issued and outstanding at June 30, 2006 and December 31, 2005	94			94
Paid-in capital	49,455			49,455
Accumulated deficit	(47,545		)	(44,240		)
Accumulated other comprehensive loss	—			(297		)
Total stockholders’ equity	2,004			5,012
Total liabilities and stockholders’ equity	$	5,155		$	14,698

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

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FISCHER IMAGING CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands except per share data)

(Unaudited)

	Three-months Ended						Six-months Ended
	June 30,			June 30,			June 30,			June 30,
	2006			2005			2006			2005
Revenues:
Products	$	3,904		$	7,664		$	7,841		$	18,408
Services	1,654			3,525			4,703			7,235
Total revenues	5,558			11,189			12,544			25,643
Cost of sales:
Products	3,327			10,438			7,169			18,544
Services	1,618			4,251			5,088			8,657
Total cost of sales	4,945			14,689			12,257			27,201
Gross margin	613			(3,500		)	287			(1,558		)
Operating expenses:
Research and development	—			2,062			—			4,002
Selling and marketing	—			2,069			—			4,046
General and administrative	945			2,964			2,926			4,795
Impairment of long-lived assets	—			—			230			—
Total operating expenses	945			7,095			3,156			12,843
Loss from operations	(332		)	(10,595		)	(2,869		)	(14,401		)
Other income and (expense):
Other financing (expense) income	—			2,520			—			(12		)
Interest expense	(3		)	(894		)	(69		)	(1,212		)
Interest income	17			4			39			5
Other expense, net	(269		)	(142		)	(406		)	(64		)
Net loss	$	(587	)	$	(9,107	)	$	(3,305	)	$	(15,684	)
Net loss per share:
Basic and diluted	$	(0.06	)	$	(0.97	)	$	(0.35	)	$	(1.67	)
Weighted average shares used to calculate net (loss) income per share:
Basic and diluted	9,399			9,383			9,399			9,383

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

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FISCHER IMAGING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(Unaudited)

	Six-months ended
	June 30,			June 30,
	2006			2005
Cash flows from operating activities:
Net (loss)	$	(3,305	)	$	(15,684	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	—			594
Amortization of debt issue costs	—			760
Bad debt expense	87			300
Loss upon substantially completing liquidation of the European subsidiaries	75			—
Other financing expense	—			12
Other	11			118
Impairment of long-lived assets	230			—
Change in current assets and liabilities
Accounts receivable, net	2,733			(73		)
Inventories, net	3,747			5,086
Prepaid expenses and other current assets	66			(236		)
Accounts payable	(1,340		)	174
Accrued warranties	(562		)	(725		)
Customer deposits	(263		)	(70		)
Deferred service revenue	(1,111		)	558
Other	(2,076		)	132
Net cash used in operating activities	(1,708		)	(9,054		)
Cash flows (used in) provided by investing activities:
Funding of Fischer Imaging Employee Trust	(600		)	—
Payments made from Fischer Imaging Employee Trust	214			—
Proceeds from sale of property and equipment	251			—
Europe cash on hand at time of substantially completing liquidation of the European subsidiaries	(197		)	—
Redemption of certificate of deposit (restricted cash)	—			514
Purchases of property and equipment	—			(454		)
Net cash (used in) provided by investing activities	(332		)	60
Cash flows provided by financing activities:
Proceeds from sale of common stock	—			55
Proceeds from senior secured promissory notes	—			7,000
Proceeds from junior secured promissory note	—			5,000
Payment of debt issue costs	—			(471		)
Proceeds from line of credit	—			3,311
Repayments on line of credit	—			(4,765		)
Payment on leases	—			(224		)
Net cash provided by financing activities	—			9,906
Effect of exchange rate changes on cash	(11		)	(28		)
Net decrease in cash and cash equivalents	(2,051		)	884
Cash and cash equivalents, beginning of period	4,499			1,939
Cash and cash equivalents, end of period	$	2,448		$	2,823
Supplemental Cash Flow Information:
Non-cash change in stock warrant obligation	—			(1,800		)
Non-cash increase in debt issue costs	—			1,788

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

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FISCHER IMAGING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX-MONTHS ENDED June 30, 2006

(UNAUDITED)

(1)   GENERAL

Organization

Fischer Imaging Corporation, together with its wholly owned subsidiaries (“Fischer” or the “Company”), services and sells products that meet selected needs of the broader radiology, electrophysiology and surgical markets.  The Company’s primary focus prior to the consummation of the Hologic transaction on September 29, 2005 (as discussed below) was designing, manufacturing and selling mammography and digital imaging products and using its digital imaging technology in screening and diagnostic mammograms and minimally invasive breast biopsy to aid in the early identification of breast cancer. Prior to the Kodak arrangement (as discussed below) Fischer also serviced mammography and digital imaging products used in the diagnosis of breast cancer and other diseases.

In December 2005, the Board of Directors approved the liquidation and wind-up of Fischer’s European subsidiaries.  Europe started the liquidation process on May 4, 2006 and a liquidator was designated.  As a result, Fischer no longer has control of its European subsidiaries.   Prior to May 4, 2006, the consolidated financial statements include the accounts of Fischer Imaging Corporation and all subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.  As a result of deconsolidating the subsidiaries, management recognized approximately $75,000 of losses in the accompanying consolidated statement of operations.

Hologic Transaction and Plan of Liquidation

In September 2005, Fischer consummated the sale (the “Asset Sale”) of all of its intellectual property rights related to its mammography business and products, including its SenoScan digital mammography and MammoTest stereotactic breast biopsy systems (the “Mammography Assets”) to Hologic, Inc. (“Hologic”).  Hologic granted Fischer a non-exclusive limited license to use certain Mammography Assets necessary for Fischer to continue to service and support, and satisfy warranty obligations on the installed base of SenoScan and MammoTest systems (the “Service” business); to fulfill contractual obligations to provide MammoTest and SenoScan systems to Ethicon Endo-Surgery Europe (a subsidiary of Johnson & Johnson, Inc., “EES”) and Philips Medical Systems DMC GmbH (“Philips”), respectively; and to carry out certain activities with respect to Fischer’s radiology, electrophysiology and surgical (“RE&S”) business.

Service business.  On January 23, 2006, Fischer entered into an Intellectual Property License Agreement and Services Agreement (together, the “Kodak Agreements”) with Eastman Kodak Company (“Kodak”).  The Kodak Agreements allow Kodak to act as an authorized service provider and provide service and support to the world-wide, excluding Mexico, installed base of Fischer’s mammography products.  The Kodak Agreements have reduced Fischer’s obligations and costs with respect to the Service business.  All Fischer mammography service contracts were cancelled by April 21, 2006 in the U.S. and by May 8, 2006 in Europe. All disposables revenue and time and material revenue from the Service business ended as of January 23, 2006 in the U.S.  Fischer incurred $135,000 of expense related to payments made to Kodak during the six-months ended June 30, 2006.  Services cost of sales has been reduced due to reimbursement from Kodak of approximately $350,000 during the six-months ended June 30, 2006.

Contractual obligation to EES.  On March 9, 2006, Fischer entered into an amendment (the “EES Amendment”) to the Distributor Agreement, dated December 9, 1998, as amended (the “Distributor Agreement”) between EES and Fischer.  EES placed a binding order with Fischer for 20 MammoTest tables (collectively, the “Tables”), which were shipped to various locations in Europe during the six-months ended June 30, 2006.  After completion of the Tables, the Distributor Agreement and EES Amendment terminated and no further MammoTest tables will be sold.

Contractual obligation to Philips.  The status of the Master Purchasing Agreement (“Philips Agreement”) between Fischer and Philips is still unresolved as discussed further in Note 10.  As a result, management believes no revenues will be generated from this contract.

RE&S business.  The RE&S business includes three product lines (collectively the “Product Lines”):

(1)  The VersaRad-A and VersaRad-D systems designed for general purpose radiographic imaging (“VersaRad Line”).  Substantially all of the sales of this product are sold to Kodak under an OEM Agreement.  Fischer received a significant last time

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purchase order from Kodak in February 2006, which was completed in May 2006.  Therefore, management expects that no further VersaRad units will be sold.

(2)  The EPX-60 Single Plane EP Imaging System and the SPX Surgical Imaging System (“EPX/SPX Line”).  Management expects that no further EPX/SPX units will be sold due to the departure of sales personnel.

(3)  The Bloom Electrophysiology Stimulator (“Bloom Line”).  Sales of this product have been declining and backlog is currently minimal.

In order to ensure Fischer could continue to meet its warranty and service obligations and to maximize the value of the RE&S business, the Board approved signing a Manufacturing Services Agreement (“Byers Agreement”) with Byers Peak, Inc. (“Byers”) effective July 5, 2006.  The Byers Agreement terminates upon certain conditions or immediately upon the closing of a sale of the RE&S business.  Management estimates costs under this contract will not be more than $5,000 per month.

Sale of RE&S Business.  On March 15, 2006, Fischer started an auction process to sell its RE&S business.  Fischer signed an asset purchase agreement (“RE&S Agreement”) with Byers Peak, Inc. (“Byers”) on August 21, 2006.  The assets to be sold are all of Fischer’s right, title and interest in and to the VersaRad Line, the EPX/SPX Line and the Bloom Line including some related equipment, inventory (excluding Bloom finished goods inventory), general intangibles and intellectual property necessary to design, manufacture, market, sell, distribute, support and repair the Product Lines (“RE&S Assets”).  Under the RE&S Agreement, Byers agreed, subject to the fulfillment of certain conditions, to purchase the RE&S Assets, and assume service contract and warranty repair obligations, for a minimum purchase price of $260,000 to be paid over a period ending no later than one year from the date of closing of the transaction (“Closing”).  In addition, Byers agreed to pay Fischer up to another $80,000 depending on the number of Bloom units sold by Byers during the year after the Closing.

If the RE&S Agreement is not closed, the Company may be left with continuing obligations in connection with RE&S related service and warranty obligations.  The Company will seek alternative service providers to provide continuation of service for these obligations in such circumstances.

Liquidation Plan and Bankruptcy.  Under Delaware law, any sale of all or substantially all of Fischer’s assets requires approval by Fischer’s stockholders.  The Board has determined that the sale of the assets related to the RE&S Agreement is considered a sale of all or substantially all of Fischer’s remaining assets.  In order to avoid the expense and time delay involved in securing stockholder approval and in light of Fischer’s deteriorating financial position, the Board elected to file a petition under Chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Colorado, and such petition was filed on August 22, 2006. Fischer will immediately move to have the sale under the RE&S Agreement approved pursuant to §363(b) and (f) of the Bankruptcy Code.  Management expects it could be up to two months before the Closing is complete.

 The Board of Directors intends to either file a liquidating plan of reorganization (“Liquidation Plan”) or convert the Chapter 11 case to a liquidating case under Chapter 7 of the Bankruptcy Code after the closing of the RE&S Agreement.  If a Liquidation Plan is filed, the Liquidation Plan must be approved by creditors, interest holders and the Bankruptcy Court after notice and a hearing.  It is contemplated that the Liquidation Plan will provide for the liquidation or sale of all of Fischer’s assets and the distribution of the proceeds pursuant to the priority scheme allowed under the Bankruptcy Code.  It is anticipated that in either a Chapter 11 or Chapter 7 liquidation, the liquidation process would occur over a one to two year period. Management is unable to predict whether any amounts will be available for distribution to stockholders.

Basis of Presentation

In management’s opinion, the accompanying unaudited consolidated balance sheets, statements of operations and statements of cash flows contain all adjustments necessary to present fairly in all material respects the financial position of the Company at June 30, 2006, its results of operations for the three-months and six-months ended June 30, 2006 and 2005 and its cash flows for the six-months ended June 30, 2006 and 2005.  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.

Prior year amounts have been reclassified to conform to the current year’s presentation.

The unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

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As a result of filing a petition under Chapter 11 of title 11 of the Bankruptcy Code, the basis of accounting will change from the going concern basis to that of the liquidation basis of accounting on August 22, 2006. Under the liquidation basis of accounting, assets are stated at their estimated net realizable value and liabilities are stated at their estimated settlement amounts, which estimates will be periodically reviewed and adjusted as appropriate. The valuation of assets at their net realizable value and liabilities at their anticipated settlement amounts represent estimates, based on present facts and circumstances, of the net realizable value of assets and the costs associated with carrying out the Liquidation Plan and dissolution based on certain assumptions.  Other than the write-down of approximately $1.0 million of prepaid insurance, management currently estimates there would be no further material adjustments needed under the liquidation basis.

Stock Based Compensation

During the three-months ended March 31, 2006, the Company adopted the provisions of and began accounting for stock-based compensation in accordance with, the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 123—revised 2004 (“SFAS 123R”), “Share—Based Payment” which replaced Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock—Based Compensation” and supersedes APB Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees.”  Under the fair value recognition provisions of this statement, stock—based compensation cost is measured at the option grant date based on the fair value of the award and is recognized as an expense on a straight—line basis over the requisite service period, which is the vesting period where applicable or in the case of option grants that vest immediately, over the appropriate period prior to the grant date.  The Company elected the modified—prospective method, under which prior periods are not revised for comparative purposes.  The valuation provisions of SFAS 123R apply to new option grants and to option grants that were outstanding as of January 1, 2006 and subsequently modified.  Estimated compensation cost for option grants that were outstanding as of the effective date and are not expected to be forfeited will be recognized over the remaining service period using the compensation cost estimated for the SFAS 123 pro forma disclosures.

The adoption of SFAS 123R had no impact on the consolidated financial position, results of operations and cash flows.  As a result of a reduction in work force, unvested options outstanding as of December 31, 2005 are not expected to vest.  The 2004 Equity Incentive Plan allows for automatic annual grants upon each year of director’s service of 10,000 per director on January 1.  The compensation expense related to this annual grant is recognized over the prior year of service.  No further grants under the Company’s stock option plans are expected.

The following table sets forth the pro forma amounts of net income and net income per share, for the three and six-months ended June 30, 2005, that would have resulted if Fischer had accounted for the option grants under employee stock plans under the fair value recognition provisions of SFAS 123 (in thousands, except per share amounts).

	Three-months ended			Six-months ended
	June 30, 2005			June 30, 2005
Net loss as reported	$	(9,107	)	$	(15,684	)
Fair value-based compensation cost, net of tax	(136		)	(211		)
Pro forma net loss	$	(9,243	)	$	(15,895	)
Basic and diluted loss per share:
As reported	$	(0.97	)	$	(1.67	)
Pro forma	$	(0.99	)	$	(1.69	)

(2)   REVENUE RECOGNITION

The Company follows the provisions of SEC Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements” (“SAB 104”) which provides for revenue recognition when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed and determinable and collectibility is reasonably assured. The Company’s standard business practice requires that sales transactions be supported by an executed sales agreement or an executed purchase order. The Company recognizes product revenue for its medical equipment when title and risk of loss have transferred to the customer and the Company has no post-shipment performance obligations other than installation or training.   Where installation and/or training services are provided in a sales agreement and they have not been completed at the time product revenue is recognized, the fair value of these services is deferred and subsequently recognized as revenue when each of the services are performed. In cases where the sales agreement prescribes additional consequential performance obligations or requires specific performance

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criteria be met for customer acceptance, the Company defers revenue recognition on the product sale until such conditions are satisfied.

The Company bills service contracts and extended warranty agreements in advance either monthly, quarterly, annually or at the time of the product sale, depending upon the customers’ request.  The amounts billed are recorded as deferred revenue and recognized as revenue ratably during the period for which the contracts are in effect.  The Company recognizes revenue from services billed on a time and material basis when the services are performed.  The Company also sells replacement parts to customers and records revenue at the time of shipment when title transfers. Certain replaced parts may be returned for partial credit, and the Company records sales allowances based on historical experience to account for the future effect of those returns.

Accounts receivable are carried at original invoice amounts less an estimate for doubtful accounts and sales returns based on a periodic review of outstanding receivables. Allowances are provided for known and anticipated credit losses as determined by management in the course of regularly evaluating individual customer receivables. This evaluation takes into consideration a customer’s financial condition and credit history as well as current economic conditions. Accounts receivable are written off when deemed uncollectible. Recovery of accounts receivable previously written off are recorded when received.

(3)   INVENTORIES

The Company values inventory at the lower of cost or market using the first-in, first-out (FIFO) method. The Company assesses the recoverability of inventory based on obsolescence or overstocked inventory equal to the difference between the cost of inventory and the estimated market value based upon historical experience and assumptions about future demand and changes in market conditions. In addition, the Company included estimates of the market for its remaining inventory for the RE&S business based upon the value under the RE&S Agreement.  These assessments require judgments and estimates, and valuation adjustments for excess and obsolete inventory may be recorded based on these periodic assessments.

Inventories consisted of the following components (in thousands):

	June 30,			December 31,
	2006			2005
Raw materials	$	929		$	5,120
Work in process and finished goods	1,430			6,340
Reserve for excess and obsolete inventories	(1,912		)	(7,131		)
Inventories, net	$	447		$	4,329

The following provides an explanation of the change in the reserve for excess and obsolete inventories:

Balance at beginning of year	$	7,131
Reversal of provision due to results of actual sales	(326		)
Removal of Europe balances at time of liquidation	(500		)
Write-offs charged to reserve	(4,393		)
Balance at June 30, 2006	$	1,912

(4)    IMPAIRMENT OF LONG-LIVED ASSETS

The Company’s policy is to evaluate whether there has been a permanent impairment in the value of long-lived assets, of certain identifiable intangibles and of goodwill when certain events have taken place that indicate that the remaining balance may not be recoverable.  Fischer evaluates the carrying value of its property and equipment at the consolidated level since the Company believes that is the lowest identifiable level of cash flows for these assets.  Management completed a recoverability test as of March 31, 2006.

Since the future estimated cash inflows were estimated to be near zero, the carrying amounts of the assets exceeded the estimated undiscounted cash flows.  Management estimated the fair value of the assets by reviewing the value of the remaining businesses and other long-lived assets and determined an impairment had occurred.  Fair value of the long-lived assets was determined through inquiry of advisors and comparison to other sales of fixed assets.  Therefore, an impairment of long-lived assets of $0.2 million was recognized during the three-months ended March 31, 2006, leaving approximately $227,000 net book value as of March 31, 2006 in the United States.

During the three-months ended June 30, 2006, the Board authorized and completed the sale of the majority of the

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remaining fixed assets in the United States.  As a result, cash proceeds of approximately $214,000 were generated during the three-months ended June 30, 2006.

(5)    RESTRUCTURING EXPENSE

The Company entered into termination and retention arrangements from June 2005 through March 2006 with approximately 102 employees in the U.S. and Europe.  All areas of the Company were impacted.   Retention payments under these agreements earned over the period July 1, 2005 through December 31, 2005 were $0.7 million, of which $0.3 million were paid in January 2006 and the remainder was paid in July 2006.  Retention payments under these agreements earned over the period January 1, 2006 through June 30, 2006 are were $0.4 million and were paid in July 2006.  Termination payments, earned upon involuntary termination, are estimated to be $1.4 million.  Retention payments were recognized as expense over the period earned, and termination payments were expensed over the period beginning with the date of signing agreements through the earlier of the communicated involuntary termination dates or October 31, 2006.

The Company recognized additional restructuring expense in the amount of $0.3 million and $1.5 million related to these arrangements during the three-months and six-months ended June 30, 2006, respectively.  The majority of restructuring expense was recognized in the consolidated statements of operations as products cost of sales for the three-months ended June 30, 2006.  Restructuring expense was recognized in the consolidated statements of operations as $0.6 million in products cost of sales, $0.7 million in services cost of sales and $0.2 million in general and administrative expense for the six-months ended June 30, 2006.  Management estimates its remaining future restructuring expense under these plans will be less than $0.1 million to be recognized during the remainder of 2006.

A portion of the payments to be made under the termination and retention arrangements will be paid from the irrevocable Fischer Imaging Employee Trust (the “Trust”).  During the three-months ended June 30, 2006, the Trust paid $214,000 of amounts due under the termination and retention arrangements.  This Trust was established in 2006 for the specific purpose of paying amounts owed under termination and retention arrangements or general wages to employees. The Trust was funded by the Company on January 2, 2006 with $600,000 of cash as authorized by the Board of Directors.

The following is a roll forward of the restructuring accrual (in thousands):

Balance at December 31, 2005	$	539
Expense	1,487
Removal of unpaid Europe balances at time of liquidation	(44		)
Payments	(1,647		)
Balance at June 30, 2006	$	335

The restructuring accrual is included in “Other Current Liabilities” in the accompanying consolidated balance sheet.

(6)    OTHER FINANCING EXPENSE

On February 22, 2005, the Company entered into a Note and Warrant Purchase Agreement (the “Purchase Agreement”) with ComVest.  At closing, Fischer issued and sold a senior secured promissory note in the principal amount of $5.0 million (the “Initial Note”) to ComVest. In connection with the issuance of the Initial Note, Fischer issued to ComVest a warrant (the “Warrant”) to purchase 2,000,000 shares of Common Stock at an exercise price of $4.25 per share.

On March 29, 2005 the Company amended the Purchase Agreement and ComVest provided $2.0 million in funding under a secondary note (the “Secondary Note”), bringing Fischer’s total borrowing from ComVest to $7.0 million (the “Notes”).  Also in connection with the funding of the Secondary Note, the Company agreed to amend the Warrant to provide ComVest with a put option, exercisable at $0.90 per warrant share, upon the occurrence of certain trigger events.

SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” each require issuers to classify as liabilities (or assets under certain circumstances) freestanding financial instruments which, at inception, require or may require an issuer to settle an obligation by transferring assets.  SFAS No. 150 required the warrants issued subject to a put under the Purchase Agreement to be classified as a liability in an amount equal to the estimated fair value.

As of February 22, 2005 and March 31, 2005, the stock warrant obligation fair value was estimated to be $2.9 million

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and $4.3 million, respectively.  As required per APB Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants,” the issuance proceeds were allocated between the amount applicable to the debt and the amount applicable to the warrant based upon relative fair values of the debt and the warrants at issuance date.  As a result, Fischer increased “Debt issue costs” by $1.8 million.  The difference of $2.5 million between the estimated fair value at March 31, 2005 of $4.3 million and the fair value as of June 30, 2005 of $1.8 million was recognized as non-cash “Other Financing Income” in the consolidated income statements for the three-months ended June 30, 2005.

The fair value of the stock warrant obligation was estimated using the Black-Scholes option-pricing model.  The stock price was discounted by 40% to consider marketability of the common stock itself and the resulting Black-Scholes fair value was discounted by 20% to consider the lack of marketability of the warrant.  The following summarizes the significant assumptions:

	March 31, 2005			February 22, 2005
Stock price (10-day average)	$	6.22		$	4.55
Discounted stock price	$	3.73		$	2.73
Volatility	94.9		%	94.9		%
Dividend yield	0.00		%	0.00		%
Risk-free interest rate	4.24		%	3.89		%
Expected life (years)	5.00			5.00
Black-Scholes fair value	$	2.70		$	1.84
Fair value per warrant share	$	2.16		$	1.47

In connection with the closing of the Asset Sale, ComVest exercised its put option, and at closing, Fischer paid $1.8 million in satisfaction of the stock warrant obligation.  In addition, amounts due under the ComVest promissory notes were paid upon the closing of the Asset Sale.

(7)   NET EARNINGS PER SHARE

Basic earnings or loss per share is computed by dividing the Company’s net income or loss by the weighted average number of shares of common stock outstanding at the reporting date. Diluted earnings or loss per share is determined by dividing the net earnings or loss by the sum of the weighted average number of common shares outstanding, and if not anti-dilutive, the effect of outstanding stock options determined utilizing the treasury stock method.

For the three and six-months ended June 30, 2006 and 2005, 513,250 and 1,194,000, respectively, of options to purchase shares of common stock were outstanding but not included in the computation of diluted earnings per share because the effect would have been anti-dilutive.

(8)   COMPREHENSIVE LOSS

Comprehensive loss 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 loss includes only net loss and foreign currency translation adjustments as follows (in thousands):

	Three-months Ended						Six-months Ended
	June 30,			June 30,			June 30,			June 30,
	2006			2005			2006			2005
Net loss	$	(587	)	$	(9,107	)	$	(3,305	)	(15,684	)
Foreign currency translation adjustments	303			(45		)	297			(28	)
Comprehensive loss	$	(284	)	$	(9,152	)	$	(3,008	)	(15,712	)

(9)   SEGMENT AND CUSTOMER INFORMATION

The Company has historically operated in a single industry segment: the design, manufacture and marketing of specialty digital imaging systems and other medical devices primarily used in screening, diagnostic and interventional procedures, and the provision of service to its installed base. The Company manufactured its products in the United States and distributed them

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in the United States, Europe and elsewhere.   The Company’s chief operating decision maker historically used consolidated results to make operating and strategic decisions.

Internationally, the Company marketed and supported its products primarily through its subsidiaries and various dealers.  Revenues are attributed to geographic areas based on the location of the customer.  International long-lived assets were located in Switzerland.  The following table represents a summary of revenues and long-lived assets (in thousands):

	Three-months Ended				Six-months Ended
	June 30,		June 30,		June 30,		June 30,
	2006		2005		2006		2005
Revenues:
United States	$	3,076	$	9,020	$	8,418	$	21,863
Other International	2,482		2,169		4,126		3,780
Total	$	5,558	$	11,189	$	12,544	$	25,643

	As of
	June 30,		December 31,
	2006		2005
Long-lived assets, net:
United States	$	23	$	469
International	—		70
Total	$	23	$	539

The Company’s revenues have generally been concentrated among customers in the healthcare industry and consist of healthcare organizations, government facilities and dealers. The Company establishes an allowance for uncollectible accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. Accounts receivable are generally unsecured.

Customers representing greater than 10% of the Company’s revenue during any of the reporting periods:

	Three-months Ended				Six-months Ended
	June 30,		June 30,		June 30,		June 30,
	2006		2005		2006		2005
Ethicon-Endo Surgery, Inc	47.6	%	15.4	%	42.6	%	11.4	%
Eastman Kodak Company	32.8	%	7.1	%	22.5	%	7.8	%

Revenue grouped by similar products and services (in thousands):               

	Three-months Ended				Six-months Ended
	June 30,		June 30,		June 30,		June 30,
	2006		2005		2006		2005
Product Revenue:
Digital Mammography	$	320	$	1,156	$	320	$	3,940
Stereotactic Breast Biopsy	1,554		5,059		2,681		10,701
RE&S Products	2,030		1,449		4,840		3,767
Service Revenue	1,654		3,525		4,703		7,235
Total	$	5,558	$	11,189	$	12,544	$	25,643

(10)   COMMITMENTS AND CONTINGENCIES

Litigation

On December 20, 2005, University Health Network (“UHN”) and Mount Sinai Hospital (“Mount Sinai”) filed a Statement of Claim in Ontario Canada against Fischer and Horizon Medical Services Ltd. (“Horizon”) and asserted claims seeking to recover damages relating to their purchase of two SenoScan units from Fischer.  In summary, UHN and Mount Sinai alleged, among other things, that the SenoScan units, which were manufactured by Fischer and sold by Horizon, an entity authorized to sell

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these types of machines in Canada, were defective and did not conform to certain agreed specifications.  The suit was settled out of court in July 2006 for an amount immaterial to Fischer’s financial condition and cash flow.

On December 21, 2005, Fischer filed a complaint and jury demand against Cedara Software Corporation (“Cedara”) seeking damages arising from Cedara’s breach of a contract to sell software applications products.  Cedara answered the complaint on January 30, 2006 and filed a counterclaim for unpaid invoices and other relief.  The suit was settled out of court in July 2006 for an amount immaterial to Fischer’s financial condition and cash flow.

Federal Trade Commission

Fischer received in October 2005 a request from the Federal Trade FTC (“FTC”) asking that Fischer voluntarily produce certain information and material to the FTC in connection with the Asset Sale.  On January 31, 2006, Fischer received additional information requests from the FTC in the form of a Subpoena Duces Tecum and Civil Investigative Demand as part of this ongoing investigation.  Fischer responded to the FTC requests.  On July 7, 2006 the FTC announced its decision to challenge, and the entry into a consent agreement with respect to Hologic’s 2005 purchase of the MammoTest prone stereotactic breast biopsy systems (“SBBS”) from Fischer. In its complaint, the FTC alleged that Hologic’s acquisition of the SBBS harmed American consumers by eliminating Hologic’s only significant competitor for the sale of SBBSs in the United States. According to the FTC’s announcement, under the consent agreement, Hologic is required and has agreed to sell to Siemens AG the prone SBBS assets Hologic acquired from Fischer.

Regulatory Actions

The Company is subject to periodic inspections by the Food and Drug Administration (“FDA” or the “agency”).  The primary purpose of these inspections is to verify the compliance of a company’s quality system with the requirements of FDA’s Good Manufacturing Practices, also known as the Quality System Regulation, and other FDA regulations governing medical devices.  During these inspections, the agency evaluates a company’s state of compliance with various FDA regulations and the adequacy of the company’s actions to correct observations from earlier inspections and Warning Letter(s).  In early 2005, the FDA conducted an inspection of the Company’s Quality System with the above objectives. On May 13, 2005 the FDA completed the inspection and presented a Form 483 formally describing observations with respect to the Company’s compliance with various FDA requirements. This inspection did not resolve the issues described in the Warning Letter issued to the Company in December 2002 by the FDA, which, as a result, remains in effect.  The Company retained the services of a consultant and responded to the Form 483 findings.  The response described a corrective action plan to address each of the observations included on the Form 483.  To date, there has been no written response from the FDA regarding the adequacy of the Company’s corrective action plan.   However, the Company has attended two meetings with the FDA regarding the status of the corrective actions during which the Company’s corrective action plan and actions taken have been discussed.  The Company has completed the corrective action plan defined in the response to the observations and is now operating according to the changes put into effect.

Communication will continue with the FDA regarding the Company’s ongoing progress in ensuring the effectiveness of the corrective actions that have been taken.   The Company’s goal is to address the FDA’s inspectional observations without the agency pursuing additional regulatory or enforcement action.  There can be no assurance, however, that the Company’s efforts will be successful and that the FDA will not pursue such actions which could include, but not be limited to, the issuance of another Warning Letter; a court-ordered injunction; product seizures; recall of products; and criminal and/or civil proceedings.  If an injunction is issued, it may preclude the Company from shipping products or replacement parts until corrective action is taken and verified by the FDA.

In 2006, the FDA has indicated that the 5.2.X versions of the software currently running on Fischer’s SenoScan systems should be recalled for a known archiving issue.  After consultation with the Company’s Notified Body, it was determined that this issue and its correction did not meet the criteria for a recall in the EU.  Fischer has recently developed and released to the general market a version 5.2.2 software release to correct the known archiving issue as well as increase functions for servicing the SenoScan unit.  Fischer submitted an initial recall plan to the FDA that indicated the target completion date of the software upgrades to be June 30, 2006 in the U.S.  Due to scheduling conflicts with customers to complete the action required to install the new software version, a revised plan has been submitted with a target completion date of December 31, 2006.  Management estimates that the costs related to this recall will be minimal.

Philips

Fischer received notification on September 2, 2005 by Philips that it had ceased sales activities with respect to the SenoScan product and that it intended to terminate the Philips Agreement should the Asset Sale be approved by the Company’s stockholders and consummated. Fischer met with Philips in November 2005 to communicate that Fischer had retained the right perform its obligations under the Philips Agreement but that, absent additional funding from Philips, it did not have the

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financial ability to perform the Philips Agreement.  Philips subsequently offered to settle the matter without litigation. However, in view of the financial settlement proposed by Philips, Fischer declined Philips’ offer of settlement and referred Philips to the dispute resolution provisions of the Philips Agreement.  Fischer is unable to predict whether Philips may file a suit or the amount, if any, that may be demanded by Philips, or the expense related to defending any claim.  Fischer has recognized a liability for a customer deposit made by Philips in advance of shipping the SenoScan product in the amount of $0.3 million.  Any payments made by Fischer to or in connection with a claim by Philips may materially reduce amounts, if any, that may be available for satisfaction of creditor claims and distribution to Fischer’s stockholders.

Contingent Claims

 On June 7, 2005, the Securities and Exchange Commission (“SEC”) filed a complaint in the United States District Court for the District of Colorado (“SEC Lawsuit”) and asserted claims for various violations of the Securities Acts, including fraud, falsified books and records, deceit of auditors and false SEC filings against the following former officers and directors of the Company:  Louis Rivelli, Rodney Johnson, Stephen Burke, Teresa Ayers, Craig Stevenson and Robert Hoffman (together, “Defendants”).  Some or all of the Defendants have notified the Company of potential claims or may assert claims for advancement and/or indemnification relating to, without limitation: attorneys’ fees and costs (if any) incurred in the defense of the SEC Lawsuit that have not been or will not be reimbursed pursuant to insurance policies; any settlement of the claims asserted in the Lawsuit; or any judgment obtained in the SEC Lawsuit.  The amount of such potential liabilities cannot be estimated at this time and could have a material impact on the creditors and/or stockholders.

In addition, additional unknown or contingent claims could arise.  If the amount of such claims are greater than management’s estimates, liabilities that have already been paid or settled could be unwound.  This could result in additional expenses not currently recorded.

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

Cautionary Language

This report contains forward-looking information that involves risk and uncertainties, including statements regarding our plans, objectives, expectations, and intentions.  Such statements include, without limitation:

·statements regarding various estimates we have made in preparing our financial statements;

·our intent and ability to satisfy RE&S service and warranty obligations pending completion of the sale of RE&S Assets;

·the anticipated time it will take to close the RE&S Agreement;

·our actions with respect to the sale of the RE&S business and Product Lines;

·our plans with respect to a Liquidation Plan or conversion of the Chapter 11 filing to Chapter 7;

·the anticipated time it will take to complete the liquidation process;

·our ability to locate an alternative service provider for RE&S service and warranty obligations if the RE&S business is not sold in its entirety;

·costs under the Byers Agreement;

·potential litigation or demand from Philips, including the effect of any payments to Philips and the expense of defending any claim on potential distributions to stockholders and creditors;

·the likelihood that additional claims of which management is not aware may arise;

·our ability to make distributions to stockholders; and

·statements of our expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts.

These forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those anticipated.  Factors that could cause actual results to materially differ include, without limitation, our intent and ability to satisfy RE&S service and warranty obligations pending completion of the sale of RE&S Assets; the anticipated time it will take to close the RE&S Agreement; our plans with respect to a Liquidation Plan or conversion of the Chapter 11 filing to Chapter 7; the anticipated time it will take to complete the liquidation process, the likelihood that additional claims of which management is not aware may arise, adverse actions taken by regulatory agencies, potential product defects or related performance resulting in product recalls and significant liability and legal costs; our ability to close the RE&S Agreement, and our ability to make distributions to stockholders.  Other factors that could adversely affect our business are described in our Risk Factors described in our Annual Report on Form 10-K for the year ended December 31, 2005 as revised by Part II, Item 1A Risk Factors of this Form 10-Q.  Except as otherwise required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any such statements to reflect any change in our expectations or any change in events, conditions or circumstances on which any such statement is based.

Critical Accounting Policies

Critical accounting policies are those that are most important to the portrayal of our financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates on matters that are inherently uncertain. These judgments are based on our historical experience, terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. Actual results may differ from these estimates under different assumptions or conditions.

The critical accounting policies that we believe affect the more significant judgments and estimates used in the preparation of our consolidated financial statements presented in this report are described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005. There have been no material changes to our critical accounting policies, as described in that Form 10-K, except for the impairment of long-lived assets.

Our policy is to evaluate whether there has been a permanent impairment in the value of long-lived assets when certain events have taken place that indicate that the remaining balance may not be recoverable.  We evaluate the carrying value of our property and equipment at the consolidated level since we believe that is the lowest identifiable level of cash flows for these assets.  As a result of further declines in the stock price and a decision to liquidate the remaining long-lived assets in our building, management determined a recoverability test should be completed as of March 31, 2006

Since the future estimated cash outflows are currently estimated to be near zero, the carrying amounts of the assets exceeded the estimated undiscounted cash flows.  Management estimated the fair value of the assets by reviewing the value of the remaining businesses and other long-lived assets and determined an impairment had occurred.  Fair value of the long-lived assets was determined through inquiry of advisors and comparison to other sales of fixed assets.  Therefore, an impairment of long-lived assets of $0.2 million was recognized during the three-months ended March 31, 2006.

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Overview

Prior to signing the Kodak Agreements on January 23, 2006, we serviced mammography and digital imaging products used in the diagnosis of breast cancer and other diseases as discussed in Note 1 of the accompanying consolidated financial statements. Our primary focus prior to the consummation of the Hologic Asset Sale on September 29, 2005 (as discussed below) was designing, manufacturing and selling mammography and digital imaging products and using our digital imaging technology in screening and diagnostic mammograms and minimally invasive breast biopsy to aid in the early identification of breast cancer. We continue to service and sell products that meet selected needs of the broader radiology, electrophysiology and surgical markets.

In September 2005, we consummated the sale (the “Asset Sale”) of all of our intellectual property rights related to our mammography business and products, including rights to our SenoScan digital mammography and MammoTest stereotactic breast biopsy systems to Hologic, Inc. (“Hologic”).  Under the Asset Sale Agreement, Hologic granted us a non-exclusive limited license to use certain Mammography Assets necessary for us to continue our Service business; to fulfill contractual obligations to provide MammoTest and SenoScan systems to EES and Philips, respectively; and to carry out certain activities with respect to our RE&S business.  As of May 31, 2006, no further revenue will be generated from the intellectual property sold to Hologic.

As a result, service and product revenues have significantly declined from the prior year.

Sale of RE&S Business.  As discussed further in Note 1 of the accompanying consolidated financial statements, on March 15, 2006, we started an auction process to sell the RE&S business. We signed the RE&S Agreement with Byers on August 21, 2006.  The assets to be sold are all of Fischer’s right, title and interest in and to the VersaRad Line, the EPX/SPX Line and the Bloom Line including some related equipment, inventory (excluding Bloom finished goods inventory), general intangibles and intellectual property necessary to design, manufacture, market, sell, distribute, support and repair the Product Lines (“RE&S Assets”).  Under the RE&S Agreement, Byers agreed, subject to the fulfillment of certain conditions, to purchase the RE&S Assets, and assume service contract and warranty repair obligations, for a minimum purchase price of $260,000 to be paid over a period ending no later than one year from the date of closing of the transaction (“Closing”).  In addition, Byers agreed to pay Fischer up to another $80,000 depending on the number of Bloom units sold by Byers during the year after the Closing.

Liquidation Plan and Bankruptcy.  Under Delaware law, any sale of all or substantially all of our assets requires approval by our stockholders.  The Board has determined that the sale of the assets related to the RE&S Agreement is considered a sale of all or substantially all of our remaining assets.  In order to prevent the expense and time delay involved in securing stockholder approval and in light of our financial condition, the Board elected to file a petition under Chapter 11 of title 11 of the Bankruptcy Code and such petition was filed on August 22, 2006 in the United States Bankruptcy Court for the District of Colorado.  We will immediately move to have the RE&S Agreement approved pursuant to §363(b) and (f) of the Bankruptcy Code.  We expect it could be up to two months before the Closing is complete.

The factors listed above, among others, raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements presented in this Form 10-Q, and the accompanying discussion, do not include any adjustments that might result from the outcome of this uncertainty.  As a result of filing a petition under Chapter 11 of title 11 of the Bankruptcy Code, our basis of accounting will change from the going concern basis to that of the liquidation basis of accounting on August 22, 2006. Under the liquidation basis of accounting, assets are stated at their estimated net realizable value and liabilities are stated at their estimated settlement amounts, which estimates will be periodically reviewed and adjusted as appropriate. The valuation of assets at their net realizable value and liabilities at their anticipated settlement amounts represent estimates, based on present facts and circumstances, of the net realizable value of assets and the costs associated with carrying out the Liquidation Plan and dissolution based on certain assumptions.  Other than the write-down of approximately $1.0 million of prepaid insurance, management currently estimates there would be no further material adjustments needed under the liquidation basis.

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Results of Operations

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

	Three-months Ended				Six-months Ended
	June 30,		June 30,		June 30,		June 30,
	2006		2005		2006		2005
Revenues:
Product revenues	70.2	%	68.5	%	62.5	%	71.8	%
Service revenues	29.8		31.5		37.5		28.2
Total revenues	100.0		100.0		100.0		100.0
Cost of sales:
Products	59.9		93.3		57.1		72.4
Services	29.1		38.0		40.6		33.7
Research and development	—		18.4		—		15.6
Selling and marketing	—		18.5		—		15.8
General and administrative	17.0		26.5		23.3		18.7
Impairment of long-lived assets	—		—		1.8		—
Loss from operations	(6.0	)	(94.7	)	(22.8	)	(56.2	)
Other income (expense), net	(4.6	)	13.3		(3.5	)	(5.0	)
Net (loss) income	(10.6	)%	(81.4	)%	(26.3	)%	(61.2	)%

Product Revenues

Total revenues decreased 50.3% to $5.6 million for the three-months ended June 30, 2006 from $11.2 million for the three-months ended June 30, 2005.  Product revenues decreased 49.1% to $3.9 million in the three-months ended June 30, 2006 from $7.7 million in the three-months ended June 30, 2005.

·SenoScan digital mammography product revenue during the three-months ended June 30, 2005 was $1.2 million.  As a result of the Asset Sale, there was only one sale of $0.3 million in the three-months ended June 30, 2006 and there will be no further sales of SenoScan.

·Revenues from our MammoTest breast biopsy products decreased 69.3% or $3.5 million to $1.6 million in the three-months ended June 30, 2006 from $5.1 million in the three-months ended June 30, 2005. The decrease in MammoTest product revenue is a direct result of the Asset Sale and a slight decrease in average sales price as we completed the last time purchase order from EES at prices lower than prior year.  There will be no further sales of MammoTest.

·The RE&S products revenues increased $0.6 million to $2.0 million in the three-months ended June 30, 2006 from $1.4 million in the three-months ended June 30, 2005.  The sales increase on RE&S products in the three-months ended June 30, 2006, as compared to the three-months ended June 30, 2005 was primarily due to $1.2 million volume increase in VersaRad x-ray products as a result of the last time buy purchase order from Kodak, offset by volume decreases in EPX/SPX and Bloom of $0.6 million.  Upon closing the RE&S Agreement, there will be no further sales of any of these products.

Total revenues decreased 51.1% to $12.5 million for the six-months ended June 30, 2006 from $25.6 million for the six-months ended June 30, 2005.  Product revenues decreased 57.4% to $7.8 million in the six-months ended June 30, 2006 from $18.4 million in the six-months ended June 30, 2005.

·SenoScan digital mammography product revenue during the six-months ended June 30, 2005 was $3.9 million.  As a result of the Asset Sale, there was only one sale of $0.3 million in the six-months ended June 30, 2006 and there will be no further sales of SenoScan.

·Revenues from our MammoTest breast biopsy products decreased 74.9% or $8.0 million to $2.7 million in the six-months ended June 30, 2006 from $10.7 million in the six-months ended June 30, 2005. The decrease in MammoTest product revenue is a direct result of the Asset Sale and a slight decrease in average sales price as we completed the last time purchase order from EES at prices lower than prior year.  There will be no further sales of MammoTest.

·The RE&S products revenues increased $1.1 million to $4.8 million in the six-months ended June 30, 2006 from $3.8 million in the six-months ended June 30, 2005.  The sales increase on RE&S products in the six-months

17

ended June 30, 2006, as compared to the six-months ended June 30, 2005 was primarily due to $2.5 million volume increase in VersaRad x-ray products as a result of the last time buy purchase order from Kodak, offset by volume decreases in EPX/SPX and Bloom of $1.3 million.  Upon closing the RE&S Agreement, there will be no further sales of any of these products.

Service Revenues

Our service revenues for the three-months ended June 30, 2006 decreased 53.1% to $1.7 million from $3.5 million during the three-months ended June 30, 2005. The decreases in the three-month period ended June 30, 2006 in relation to the comparable periods in 2005 are primarily due to a reduction of MammoTest and SenoScan units on service contracts in both the U.S. and Europe, the result of cancellation of service contracts in the U.S. as customers purchased service contracts from Kodak and the lack of revenue from Europe for two-thirds of the quarter due to the substantial completion of the liquidation of our European subsidiaries.  In addition, all disposables revenue and time and material revenue from the Service business ceased as of January 23, 2006 in the U.S.  We expect revenue to decline to near zero since the only remaining service contracts and service revenue will be generated from the RE&S product lines.  RE&S service revenue in the three-months ended June 30, 2006 was approximately $250,000.  Upon closing the RE&S Agreement, there will be no further revenue from RE&S service contracts.

Our service revenues for the six-months ended June 30, 2006 decreased 35.0% to $4.7 million from $7.2 million during the comparable period in 2005. The decreases in the six-month period ended June 30, 2006 in relation to the comparable periods in 2005 are primarily due to a reduction of MammoTest and SenoScan units on service contracts in both the U.S. and Europe and a result of cancellation of service contracts in the U.S. as customers purchased service contracts from Kodak.  In addition, all disposables revenue and time and material revenue from the Service business was ended as of January 23, 2006 in the U.S.  We expect revenue to decline to near zero since the only remaining service contracts and service revenue will be generated from the RE&S product lines.  RE&S service revenue in the six-months ended June 30, 2006 was approximately $517,000.  Upon closing the RE&S Agreement, there will be no further revenue from RE&S service contracts.

Cost of Sales—Products

Cost of sales for products in the three-months ended June 30, 2006 was $3.3 million, or 85.2% of product revenues, compared to $10.4 million, or 136.2% of product revenues, in the three-months ended June 30, 2005. Cost of sales for products in the three-months ended June 30, 2006 includes $0.3 million in restructuring expense related to termination and retention arrangements, a reversal of excess and obsolete inventory reserves of approximately $0.3 million as a result of higher than expected revenues and reversals of certain accruals for customer commitments of $0.4 million.  The cost of sales for products in the three-months ended June 30, 2006 excluding these items would have been $3.8 million, or 98.3% of product revenues.  The reserve for excess and obsolete inventories increased by $4.2 million in the three-months ended June 30, 2005.  In addition, cost of sales included $0.6 million in the three-months ended June 30, 2005 for purchase commitments that management estimated it was contractually liable to pay related to excess inventories.  The cost of sales for products in the three-months ended June 30, 2005 excluding the charges related to these reserves would have been $5.7 million, or 74.4% of product revenues.  The overall remaining increase in cost of product sales as a percentage of product revenues is primarily due to lower than average sales price of the MammoTest product and higher warranty costs due to outsourcing of service.

Cost of sales for products in the six-months ended June 30, 2006 was $7.2 million, or 91.4% of product revenues compared to $18.5 million, or 100.7% of product revenues, in the six-months ended June 30, 2005. Cost of sales for products in the six-months ended June 30, 2006 includes $0.6 million in restructuring expense related to termination and retention arrangements, a reversal of excess and obsolete inventory reserves of approximately $0.3 million as a result of higher than expected revenues and reversals of certain accruals for customer commitments of $0.4 million.  The cost of sales for products in the six-months ended June 30, 2006 excluding these items would have been $7.3 million or 93.6% of product revenues.  The reserve for excess and obsolete inventories increased by $4.2 million in the six-months ended June 30, 2005.  In addition, cost of sales included $0.6 million in the six-months ended June 30, 2005 for purchase commitments that management estimated it was contractually liable to pay related to excess inventories.  The cost of sales for products in the six-months ended June 30, 2005 excluding the charges related to these reserves would have been $13.9 million, or 75.6% of product revenues.  The overall remaining increase in cost of product sales as a percentage of product revenues is primarily due to lower than average sales price of the MammoTest product and higher warranty costs due to outsourcing of service.

Cost of Sales—Service

Cost of sales for services for the three-months ended June 30, 2006 decreased 61.9% to $1.6 million from $4.3 million in the three-months ended June 30, 2005.  As a percent of service revenues, cost of service sales decreased to 97.8% in the three-months ended June 30, 2006 from 120.6% in the three-months ended June 30, 2005.  Approximately $2.2 million of the

18

decrease in cost of sales is due to reductions in headcount and related employee benefits. The majority of service employee employment with Fischer was terminated on April 7, 2006 in the U.S. and April 30, 2006 in Europe.

Cost of sales for services for the six-months ended June 30, 2006 decreased 41.2% to $5.1 million from $8.7 million in the six-months ended June 30, 2005.  Approximately $3.5 million of the decrease in cost of sales is due to reductions in headcount and related employee benefits and reimbursement from Kodak for a portion of service costs offset by $0.7 million in restructuring expense related to termination and retention arrangements.

Research and Development Expenses

Research and development expenses decreased to zero in the three-months and six-months ended June 30, 2006 from $2.1 million and $4.0 million in the three-months and six-months ended June 30, 2005, respectively. Our efforts prior to the Asset Sale were focused on redesigning older products for improved reliability and serviceability and enhancing the features, functionality and reliability of the SenoScan product.

Selling and Marketing Expenses

Selling and marketing expenses decreased to zero in the three-months and six-months ended June 30, 2006 from $2.1 million and $4.0 million in the three-months and six-months ended June 30, 2005, respectively. Effective June 30, 2005, we terminated marketing activity and associated personnel.  Shortly before closing the Asset Sale, all sales personnel were terminated as part of the restructuring plan, which accounts for the remaining reduction.

General and Administrative Expenses

General and administrative expenses decreased 68.1% to $0.9 million in the three-months ended June 30, 2006 from $3.0 million in the three-months ended June 30, 2005.  Our spending for legal costs and financial advisory services was $0.8 million lower in the three-months ended June 30, 2006 as compared to the three-months ended June 30, 2005 due the reduction of work related to the Asset Sale and the settlement of a lawsuit for less than the original accrual.  In addition, we experienced $0.3 million bad debt expense during the three-months ended June 30, 2005 as a result of an inability to collect on certain accounts receivable, which did not reoccur in 2006.  The remaining change is due to headcount reductions which occurred in the last half of 2005.

General and administrative expenses decreased 39.0% to $2.9 million in the six-months ended June 30, 2006 from $4.8 million in the six-months ended June 30, 2005.  Our spending for legal costs and financial advisory services was $0.6 million lower in the first half of 2006 as compared to the first half of 2005 due the reduction of work related to the Asset Sale offset slightly by additional work related to the FTC and the settlement of a lawsuit for less than the original accrual.  In addition, we experienced $0.3 million bad debt expense during the six-months ended June 30, 2005 as a result of an inability to collect on certain accounts receivable, which did not reoccur in 2006.  The remaining change is due to headcount reductions which occurred in the last half of 2005.

Impairment of Long-Lived Assets

As discussed in Note 4 of the accompanying consolidated financial statements and Critical Accounting Policies, we recognized $0.2 million of impairment of long-lived assets in the three-months ended March 31, 2006.

Other Financing Expense

As discussed in Note 6 of the consolidated financial statements, we were required to recognize the fair value of the ComVest warrants as a stock warrant obligation.  The amount recognized in the three-months ended June 30, 2005 was approximately $2.5 million.

Interest Expense/Interest Income

Interest expense for the three-months ended June 30, 2006 decreased to $3,000 from $894,000 for the three-months ended June 30, 2005.  The interest expense in the three-months ended June 30, 2005 was related interest on the secured promissory notes entered into in the first quarter of 2005 with ComVest and amortization of the related debt issue costs.   The secured promissory notes were paid off upon closing of the Asset Sale.

Interest expense for the six-months ended June 30, 2006 decreased to $69,000 from $1.2 million for the six-months ended June 30, 2005.  The interest expense in the six-months ended June 30, 2005 was related interest on the secured promissory

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notes entered into in the first quarter of 2005 with ComVest and amortization of the related debt issue costs. Interest expense in the six-months ended June 30, 2006 is related to interest payments made as a result of settling certain state and local sales tax audits.

Other expense, net

Other expense, net includes approximately $259,000 paid to or on behalf of our European subsidiaries to settle obligations related to our contract with EES for which our European subsidiary owed approximately $349,000.  In addition, we recognized approximately $75,000 of loss from substantial completion of the liquidation of the European subsidiaries.

Income Taxes

We estimated that we would not owe taxes for 2006 and 2005. Accordingly, no income tax benefit or provision was recorded. This was determined based upon the anticipated 2006 results of operations and an available domestic net operating loss carry-forward of $32.4 million and $0.7 million of foreign net operating loss carry-forwards at December 31, 2005. As of June 30, 2006 we had a 100% valuation allowance against our deferred tax asset that resulted in a net deferred tax asset of $0.

Liquidity and Capital Resources

As of June 30, 2006, we had $2.4 million in unrestricted cash and $2.0 million in working capital compared to $4.5 million in cash and $4.5 million in working capital at December 31, 2005.  The $2.5 million net decrease in working capital is mainly the result of funding our operating losses, $1.5 million of which were due to restructuring expense recognized during the period, with the remainder due to funding operations.  In addition, we spent $1.0 million in cash to purchase directors and officer liability insurance run-off coverage during the first quarter of 2006.

A portion of the payments to be made under the termination and retention arrangements will be paid from the irrevocable Fischer Imaging Employee Trust (the “Trust”).  This Trust was established in 2006 for the specific purpose of paying amounts owed under termination and retention arrangements or general wages to employees. The Trust was funded on January 2, 2006 with $600,000 of cash as authorized by the Board of Directors.  The Trust has funded $0.3 million in termination and retention arrangements through June 30, 2006.

In order to avoid the expense and time delay involved in securing stockholder approval of the RE&S Agreement and in light of our deteriorating financial position, the Board elected to file a petition under Chapter 11 of title 11 the Bankruptcy Code, and such petition was filed on August 22, 2006.

As of July 31, 2006, we had $1.3 million in unrestricted cash.  We expect that this cash will be spent on the following:

·settle remaining balance sheet obligations,

·support operations through closing of the RE&S Agreement and complete the closing of the RE&S Agreement,

·fund legal costs to proceed through the bankruptcy process, and support the liquidation process,

·other costs related to bankruptcy such as liquidation fees, and

·pay administrative costs to wind up operations.

Operations have been significantly reduced since May 31, 2006, when we completed production and exited our main operating facility.  We currently have three employees plus approximately 15 part-time and full-time independent contractors.  In addition, we currently lease temporary office and warehouse space on a month-to-month basis.

Stockholders would only receive a distribution after all assets have been liquidated and all creditors have been paid in full.  Any distribution will be made pursuant to the priorities set forth in the Bankruptcy Code.  Under the Bankruptcy Code, the distribution priority generally is as follows: (i) secured creditors to the extent of the value of such creditor’s collateral; (ii) postpetition administrative creditors (e.g., creditors who do business with the debtor after the filing of the bankruptcy petition and provide necessary goods and services), (iii) priority claims such as unpaid prepetition wages and certain tax claims, (iv) unsecured creditors including trade creditors and (v) stockholders. Under the Bankruptcy Code, no class of claimants is entitled to a distribution unless the classes with greater priority have been paid in full or have agreed to a different treatment.

Management cannot accurately estimate the amount of distribution to our stockholders, if any, until the following are finalized or resolved:

·approval of the Liquidation Plan under the Bankruptcy Code or conversion to Chapter 7,

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·determination of any additional unknown or contingent claims through the bankruptcy process, and

·the impact of Philips’ actions with respect to the Philips Agreement.

Contractual Obligations

As of June 30, 2006, we had no contractual obligations.

Backlog

As of June 30, 2006, we had backlog of near zero consistent with the backlog as of December 31, 2005.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Risk

Prior to the start of liquidation proceedings in Europe, we were exposed to foreign currency risks through our subsidiary operations in Switzerland and Germany. We no longer believe this is a significant risk to our business.  We attempt to minimize our exposure to foreign currency and other international business risks by: (1) generally requiring payments in U.S. dollars; (2) using letters of credit; and (3) requiring advance deposits and through other means.

Interest Rate Risk

At June 30, 2006, we had approximately $0.1 million in certificate of deposits and $1.9 million in money market accounts that earn interest at variable interest rates and are therefore subject to interest rate fluctuations.  At times, cash balances with our financial institution exceed FDIC insurance limits.

Item 4.    Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.  Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in this regard.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings:

On December 20, 2005, University Health Network (“UHN”) and Mount Sinai Hospital (“Mount Sinai”) filed a Statement of Claim in Ontario, Canada against Fischer and Horizon Medical Services Ltd. (“Horizon”) and asserted claims seeking to recover damages relating to their purchase of two SenoScan units from us.  In summary, UHN and Mount Sinai allege, among other things, that the SenoScan units, which were manufactured by us and sold by Horizon, an entity authorized to sell these types of machines in Canada, were defective and did not conform to certain agreed specifications.  The suit was settled out of court in July 2006 for an amount immaterial to our financial condition and cash flows.

We received in October 2005 a request from the FTC asking that we voluntarily produce certain information and material to the FTC in connection with the Asset Sale.  On January 31, 2006, we received additional information requests from the FTC in the form of a Subpoena Duces Tecum and Civil Investigative Demand as part of this ongoing investigation. We responded to the FTC requests.  On July 7, 2006 the FTC announced its decision to challenge, and the entry into a consent agreement with respect to Hologic’s 2005 purchase of the MammoTest prone stereotactic breast biopsy systems (“SBBS”) from us. In its complaint, the FTC alleged that Hologic’s acquisition of the SBBS harmed American consumers by eliminating Hologic’s only significant competitor for the sale of SBBSs in the United States. According to the FTC’s announcement, under the consent agreement, Hologic is required and has agreed to sell to Siemens AG the prone SBBS assets Hologic acquired from us.

On December 21, 2005, we filed a complaint and jury demand against Cedara Software Corporation (“Cedara”) seeking damages arising from Cedara’s breach of a contract to sell software applications products.  Cedara answered the complaint on January 30, 2006 and filed a counterclaim for unpaid invoices and other relief.  The suit was settled out of court in July 2006 for an amount immaterial to our financial condition and cash flows.

Item 1A.  Risk Factors

The following risks are no longer considered significant:

·We may be unable to fulfill last time purchase orders from Kodak and EES at all or in a timely manner.

·Our vendors and suppliers may fail to deliver components for our products.

·Regulatory agencies could take adverse action which could have an adverse impact on our ability to continue in operation.

·Our plans to liquidate and wind-up our European subsidiaries may require additional cash or may prevent us from meeting our EES obligations.

·We may be unable to retain key employees.

·Failure to collect accounts receivable on a timely basis would materially adversely affect us.

·We are the subject of a continuing FTC investigation, and the FTC may elect to bring further action against us.

All other risks remain unchanged.

The following are new risks:

Lack of Segregation of Duties.

During the three-months ended June 30, 2006, a lack of segregation of duties was introduced due to the significant downsizing of staff in the organization in conjunction with the downsizing of the Company.  Certain duties are still segregated but others cannot be segregated while the organization has three employees and a few independent contractors dealing with general administrative and financial matters.  This normally constitutes a significant deficiency in internal controls; however, management has determined that considering the employees involved, the nature of the business operations being conducted and the control procedures in place, the risks associated with such lack of segregation of duties are insignificant and the potential benefits of adding additional employees to clearly segregate duties do not justify the expenses associated with such increases.  The existence of this weakness and deficiency potentially subjects us to additional risk that there may be material misstatements in the future as a result of the misapplication of United States generally accepted accounting principles or the improper recording of our accounts from the lack of segregation of duties.

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Potential class action lawsuit.

Historically, extraordinary corporate actions, such as the filing of a petition under the Bankruptcy Code, often lead to securities class action lawsuits being filed against a company. In the event such litigation should occur, it is likely to be expensive and, even if we ultimately prevail, the process will be time consuming and will divert management’s attention from implementing the Liquidation Plan. If we do not prevail in any such lawsuit, we may be liable for damages or we may be unable to complete some transactions that we contemplate as part of the Liquidation Plan if approved. We cannot predict the outcome or the amount of expenses and damages but the amounts could have a material adverse effect on our business, results of operations and financial condition and the timing and amount of liquidating distributions to our stockholders, if any.

Contingent Claims

On June 7, 2005, the Securities and Exchange Commission (“SEC”) filed a complaint in the United States District Court for the District of Colorado (“SEC Lawsuit”) and asserted claims for various violations of the Securities Acts, including fraud, falsified books and records, deceit of auditors and false SEC filings against the following former officers and directors of the Company:  Louis Rivelli, Rodney Johnson, Stephen Burke, Teresa Ayers, Craig Stevenson and Robert Hoffman (together, “Defendants”).  Some or all of the Defendants have notified us of potential claims or may assert claims for advancement and/or indemnification relating to, without limitation: attorneys’ fees and costs (if any) incurred in the defense of the SEC Lawsuit that have not been or will not be reimbursed pursuant to insurance policies; any settlement of the claims asserted in the Lawsuit; or any judgment obtained in the SEC Lawsuit.  The amount of such potential liabilities cannot be estimated at this time and could have a material impact on the creditors and/or stockholders.

In addition, additional unknown or contingent claims could arise.  If the amount of such claims are greater than management’s estimates, liabilities that have already been paid or settled could be unwound.  This could result in additional expenses not currently recorded.

Item 2. Unregistered Sales of Equity 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:

(a)   Exhibits:

The following is a list of exhibits filed as part of this Report on Form 10-Q.
10.1	Asset Purchase Agreement by and between Fischer Imaging Corporation and Byers Peak, Inc. dated as of August 21, 2006.
31.1	Certification of Steven Durnil, Chief Executive Officer and President, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.2	Certification of David Kirwan, Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 22, 2006	FISCHER IMAGING CORPORATION
	/s/   STEVEN DURNIL
	Steven Durnil
	Chief Executive Officer and President
Date: August 22, 2006
	/s/   DAVID KIRWAN
	David Kirwan
	Chief Financial Officer

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EX-10.1

Exhibit 10.1

ASSET PURCHASE AGREEMENT

by and between

FISCHER IMAGING CORPORATION

as “Seller”

and

BYERS PEAK, INC.

as “Buyer”

Dated as of August 21, 2006

TABLE OF CONTENTS

ARTICLE I DEFINITIONS		4
1.1	Defined Terms.	4
ARTICLE II PURCHASE AND SALE AGREEMENT		8
2.1	Transfer of Assets.	8
2.2	Assumed Liabilities.	9
2.3	Purchase Price.	9
ARTICLE III CLOSING		10
3.1	Closing.	10
3.2	Conveyances at Closing.	10
3.3	Transaction Expenses.	11
3.4	Transfer Taxes.	11
3.5	Other Closing Matters.	11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER		11
4.1	Organization and Authorization of Seller.	11
4.2	No Violation.	12
4.3	Governmental Consents and Approvals.	12
4.4	Intellectual Property.	12
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER		13
5.1	Organization of Buyer.	13
5.2	Authorization.	13
5.3	Governmental Consents and Approvals.	13
5.4	No Violation.	13
5.5	Financial Capacity.	14
ARTICLE VI ADDITIONAL COVENANTS OF SELLER		14
6.1	Maintenance of Business Prior to Closing.	14
6.2	Investigation by Buyer.	14
6.3	Consents and Reasonable Efforts.	15
ARTICLE VII CONDITIONS TO SELLER’S OBLIGATIONS		15
7.1	Entry of Sale Approval Order.	15
7.2	No Order Enjoining Sale.	15
7.3	Representations, Warranties and Covenants.	15
ARTICLE VIII CONDITIONS TO BUYER’S OBLIGATIONS		16
8.1	Entry and Finality of Sale Approval Order.	16
8.2	Representations, Warranties and Covenants.	16
8.3	Consents.	16
8.4	No Proceedings or Litigation.	16
8.5	Instruments of Conveyance, Certificates.	17
ARTICLE IX OTHER AGREEMENTS		17
9.1	Employee Matters.	17
9.2	Risk of Loss.	17
9.3	Consents to Assignment.	17
ARTICLE X MISCELLANEOUS		18

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10.1	Termination.	18
10.2	In the Event of Termination; Remedies.	18
10.3	Assignment; Successors.	19
10.4	Notices.	19
10.5	Choice of Law.	20
10.6	Entire Agreement; Amendments and Waivers.	20
10.7	Construction.	21
10.8	Third Party Beneficiaries.	21
10.9	No Waiver.	21
10.10	Multiple Counterparts.	21
10.11	Invalidity.	22
10.12	Publicity.	22
10.13	Further Assurances.	22
10.14	Access to Books and Records.	22
10.15	Cumulative Remedies.	22
10.16	Termination of Covenants, Representations, and Warranties.	23
10.17	No Impediment to Liquidation.	23
10.18	Representation by Counsel; Mutual Negotiation.	23

3

ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (this “Agreement”), dated as of August 21, 2006, is  by and between Byers Peak, Inc., a Colorado corporation (“Buyer”), and Fischer Imaging Corporation, a Delaware corporation (“Seller”).

R E C I T A L S:

Seller engages in the design, manufacture, sale, distribution, marketing, technical support and warranty and post-warranty repair of the Product Lines defined below (the “Business”).

This Agreement contemplates a transaction in which Buyer will purchase from Seller certain assets of the Business.  Specifically, Buyer will purchase the VersaRad-A and VersaRad-D systems (the “VersaRad  Line”), EPX-60 Single Plane EP Imaging System, the SPX Surgical Imaging System, EP602, and Tangent tables (the “EPX/SPX Line”) and Bloom Electrophysiology Stimulator (the “Bloom  Line”) (collectively the “Product Line”) subject to the terms and conditions of this Agreement, including its provisions regarding the assignment of liabilities.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and promises contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

1.1           Defined Terms.

As used herein, the terms below shall have the following meanings:

Affiliate has the same meaning as set forth in the Bankruptcy Code, 11 U.S.C. § 101(2).

Agreement has the meaning set forth in the preface above.

Acquired Assets means all of Seller’s right, title and interest in and to the Data, the Deliverables, the Assumed Executory Contracts, the Equipment, the Intellectual Property and the Inventory.

Assumed Executory Contracts means the Contracts and leases set forth on Schedule 1.1 (Assumed Executory Contracts) attached hereto.

Assumed Liabilities means the liabilities and obligations of or relating to the Product Line (which may be trade payable liabilities and include the warranty obligations relating to the twenty Bloom Units retained by Buyer) specifically set forth on Schedule 1.1 (Assumed Liabilities) attached hereto.

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Bankruptcy Case means the case, if necessary, filed by Debtor in the Bankruptcy Court for the District of Colorado.

Bankruptcy Code means the United States Bankruptcy Code, 11 U.S.C. § 101 et seq.

Bankruptcy Court means the United States Bankruptcy Court for the District of Colorado.

Bankruptcy Schedules means the Seller’s Schedules filed in the Bankruptcy Case.

Bloom Line has the meaning set forth in the recitals above.

Business has the meaning set forth in the recitals above.

Business Day means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of Colorado or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close.

Buyer has the meaning set forth in the preface above.

Cash Purchase Price has the meaning set forth in § 2.3 (a) below.

Closing has the meaning set forth in § 3.1 below.

Closing Date has the meaning set forth in § 3.1 below.

Confidentiality Agreement means the Confidentiality Agreement dated as of March 27, 2006 by and between the Seller and the Buyer.

Data means historical Product Line information including sales history, inventory history, product approved part list matched to approved vendor list, bills of material, warranty and repair history, price lists, end-user information, pricing and cost information, and business and marketing plans and proposals to the extent available under Seller’s document retention program and such other information as Buyer may reasonably request which relates to the Product Line but excluding (i) data so commingled with Seller’s other data such that it cannot be extracted without unreasonable expense or (ii) data obtained from third Persons subject to a confidentiality agreement or other applicable law restricting Buyer’s access to such data and such Person has refused to consent to the transfer of such data to Buyer.

Deferred Purchase Price has the meaning set forth in § 2.3 (b) below.

Deliverables means a copy (in accessible electronic or hard copy form) of the following:

(a)           all issued patent certificates and files for all issued patents and patent applications for the patents identified on Schedule 1.1 (IP-Transferred Patents) together with files for all reissuances, continuations-in-part, revisions, extensions, reexaminations and improvements thereof; all patent disclosure documentation for the patents and patent applications

5

on Schedule 1.1 (IP-Transferred Patents) and for all reissuances, continuations-in-part, revisions, extensions, reexaminations and improvements thereof;

(b)           all issued registration certificates (or to the extent accessible in Seller’s possession use or control, the original certificates) for the trademarks and service marks set forth on Schedule 1.1 (IP-Transferred Trademarks) together with the application files and any trademark searches thereof;

(c)           all documents and/or files regarding the design, development and improvement of the packaging trade dress for the Product Line;

(d)           all copyrightable works of authorship (including web pages, computer software source and object code, manuals and end user-documentation, and to the extent accessible and in Seller’s possession, use or control, a master copy thereof), and copyright application files, copyright registration and renewal certificates, if any, as set forth on Schedule 1.1 (IP-Copyrights);

(e)           all mask works, if any, and all application files and registration certificates thereof, if any;

(f)            all documents and/or files, if any, of Seller’s trade secrets;

(g)           all documents and/or files containing the proprietary confidential business information as defined in subparagraph (b) of the definition of “Intellectual Property” below;

(h)           all documents and/or files containing any other Intellectual Property;

(i)            all equipment warranties relating to the Equipment and Product Line, if any; and

(j)            all manuals relating to Intellectual Property.

Deposits shall mean the good faith deposits previously paid to Seller by Buyer in the aggregate amount of $11,000.00.

Encumbrance means any pledge, lien, charge, right of others, sublease, easement, title defect, mortgage, license, encumbrance, security interest and other adverse claim or interest of any kind or nature whatsoever, other than the liens of taxing authorities that are not properly due and payable.

Environmental Laws shall mean all applicable local, state and federal statutes and regulations relating to the protection of human health or the environment, as the foregoing are enacted and in effect prior to the Closing Date.

EPX/SPX Line has the meaning set forth in the recitals above.

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Equipment means the equipment, machinery, tools, jigs, dies, parts and other tangible property wherever located, set forth on Schedule 1.1 (Equipment) attached hereto.

Excluded Liabilities has the meaning set forth in § 2.2 below.

Final Order means an Order of the Bankruptcy Court that has not been reversed, stayed, modified or amended and as to which the time to appeal or petition for certiorari has expired and as to which no appeal or petition for certiorari is pending.

Intellectual Property means the following intangible items:

(a)           all patents and patent applications on Schedule 1.1 (IP-Transferred Patents) and all reissuances, continuations-in-part, revisions, extensions, reexaminations and improvements thereof;

(b)           all material know how, trade secrets, and proprietary confidential business information  relating to the Product Lines in Seller’s possession as of the Closing Date;

(c)           the trade names, trademarks and service marks set forth on Schedule 1.1 (IP-Transferred Trademarks) the goodwill of the business associated with and symbolized by the foregoing and all applications, registrations and renewals thereof;

(d)           all material copyrights (including web pages, computer software, manuals and end user-documentation), and all copyright applications, copyright registrations and copyright registration renewals, if any, in connection therewith, as set forth on Schedule 1.1 (IP-Copyrights); and

(e)           all mask works, if any, and all applications, registrations and renewals, if any, in connection therewith; and

(f)            URL redirection/forwarding, at the cost of Buyer, enabling prospects or other individuals entering the URL domain www.fischerimaging.com to be redirected to a URL to be established by Buyer for a period of 12 months after close of sale.

Notwithstanding the foregoing, the trade name Fischer Imaging or any derivative thereof, any registered trademark containing the trade name Fischer Imaging or any derivative thereof, or any domain name containing the name Fischer Imaging or any derivative thereof is not included in the definition of Intellectual Property.

Intellectual Property Schedules has the meaning set forth in § 4.4 below.

Inventory means those items described on Schedule 1.1 (Inventory) attached hereto. Buyer specifically acknowledges that 20 Bloom finished goods units will be retained by Seller and are not included in Inventory.

IRC means the Internal Revenue Code of 1986, as amended.

7

Maintenance Obligations has the meaning set forth in § 2.3 below.

Person means any individual, corporation, partnership, limited liability company, trust, association, joint venture or other entity or any kind whatsoever.

Personnel means all directors, officers and employees.

Product Line has the meaning set forth in the recitals above.

Purchase Price means the Cash Purchase Price plus the Deferred Purchase Price.

Representative means any attorney, accountant, agent, consultant or other representative (but shall not include Personnel).

Sale Approval Order means, in the event of a Bankruptcy Case, an order of the Bankruptcy Court, satisfactory in form and substance to Buyer, Seller and their respective counsel, entered after a hearing conducted with adequate notice, approving the transactions contemplated by this Agreement.

Sale Procedures Order means, in the event of a Bankruptcy Case, an order of the Bankruptcy Court, satisfactory in form and substance to Buyer, Seller and their respective counsel, entered after a hearing conducted with adequate notice, approving any specific sales procedures in the Bankruptcy Court.

Seller has the meaning set forth in the preface above.

Subsidiary means any corporation with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors.

Taxes shall mean all taxes, estimated taxes, assessments and other charges, including any interest, penalties, additions to tax or additional amounts that may become payable in respect thereof, imposed by any foreign, federal, state, county, local or other government or taxing authority, which taxes shall include, without limitation, all income taxes, payroll and employee withholding taxes, unemployment insurance, social security, sales and use taxes, value-added taxes, excise taxes, franchise taxes, gross receipts taxes, occupation taxes, real and personal property taxes, stamp taxes, transfer taxes, workers’ compensation and other obligations of the same or of a similar nature.

VersaRad Line has the meaning set forth in the recitals above.

8

ARTICLE II
PURCHASE AND SALE AGREEMENT

2.1           Transfer of Acquired Assets.

Upon the terms and subject to the conditions and provisions contained herein and in the Sale Procedures Order, if any, at the Closing, Seller shall sell, convey, transfer, assign and deliver to Buyer, and Buyer shall purchase, acquire and accept from Seller, the Acquired Assets free and clear of any and all Encumbrances, “as is, where is” without representations or warranties of any kind, express or implied except as contained in this Agreement.

2.2           Assumed Liabilities.

At the Closing, Buyer shall assume and undertake to pay, perform and discharge when due or required to be performed the Assumed Liabilities and the Assumed Executory Contracts.  Buyer will not assume nor have any responsibility, however, with respect to any other obligation or liability of Seller not included within the definition of Assumed Liabilities (the “Excluded Liabilities”).

2.3           Assumed Executory Contracts.

From and after the Closing Date, Buyer shall assume all of Seller’s obligations under the Assumed Executory Contracts including, if set forth on Schedule 1.1 (Assumed Executory Contracts), the obligations to provide maintenance services pursuant to the existing service contracts listed thereon (“Maintentance Obligations”).

2.4           Purchase Price.

(a)           Upon the terms and subject to the conditions set forth herein, Buyer shall pay to Seller for the sale, transfer, assignment, conveyance and delivery of the Acquired Assets, $100,000 (the “Cash Purchase Price”), net of the Deposits (i.e., $89,000 = $100,000 – Deposits of $11,000), by delivery of cash payable by wire transfer or other immediately available funds.

(b)           Buyer shall pay to Seller as additional consideration $4,000.00 per individual Bloom Electrophysiology Stimulator (“Bloom Unit”) sold by Buyer during the twelve (12) months following the Closing (the “Deferred Purchase Price”).  Buyer shall pay Seller under this Section 2.4(b) by the 20th of each month for any Bloom Units sold during the previous month.  Notwithstanding the number of Bloom Units actually sold during the twelve (12) months following Closing, Buyer shall pay to Seller pursuant to this Section 2.4(b) a minimum of $160,000, but in no event more than $240,000.  If at the end of the twelve (12) month period Buyer has not paid to Seller an aggregate minimum amount of $160,000 pursuant to this Section 2.4(b), Buyer shall pay to Seller the shortfall to Seller within fifteen (15) days after the expiration of the twelve (12) month period.

(c)           The Purchase Price shall be allocated for federal income tax purposes among the Acquired Assets in a manner reasonably agreeable to Seller and Buyer; provided that such allocation shall be made in a manner consistent with § 1060 of the IRC.

(d)           The Deposits shall be held in a segregated account, and applied in accordance with the terms of this Agreement.

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ARTICLE III
CLOSING

3.1           Closing.

Upon the terms and conditions set forth herein and, in the event of a Bankruptcy Case, in the Sale Procedures Order or the Sale Approval Order, the closing of the transactions contemplated herein (the “Closing”) shall be held at 10:00 a.m. prevailing Mountain time at the offices of Jessop & Company, P.C., 303 E 17th Ave, Suite 930, Denver, Colorado, on the later of (i) a date within two (2) Business Days after the Sale Approval Order becomes a Final Order, (ii)          , 2006, or (iii) such other date (which date shall in no event be more than three business days after the date of satisfaction or waiver of the conditions (other than conditions intended to be satisfied at the Closing) to each Party’s obligations hereunder) as the Parties may mutually determine.  The date on which the Closing occurs in accordance with the previous sentence is referred to as the “Closing Date.”

3.2           Conveyances at Closing.

At the Closing, and in connection with effecting and consummating the Closing, including, without limitation, the sale and purchase of the Acquired Assets and the delivery of the Purchase Price, Seller and Buyer shall, on the Closing Date, deliver the following:

(a)           Instruments and Possession.  Seller shall deliver to Buyer:

(i)            in the event of a Bankruptcy Case, a certified copy of the Sale Approval Order;

(ii)           originals of all Assumed Executory Contracts owned by or in the possession of Seller, otherwise copies thereof;

(iii)          assignments and transfers of Intellectual Property in the forms attached hereto as Exhibit 3.2(a)(iii);

(iv)          one or more bills of sale for the Equipment, Inventory and Deliverables in the forms attached hereto as Exhibit 3.2(a)(iv);

(b)           Deliverables.  Promptly following the Closing, Seller shall provide the Deliverables and copies of the Data to Buyer and, from time to time thereafter, such additional Data as Buyer may reasonably request;

(c)           Miscellaneous.  After the Closing Date, Seller shall deliver to Buyer such other instruments as shall be reasonably requested by Buyer to vest in Buyer title in and to the Acquired Assets in accordance with the provisions hereof.

(d)           Form of Instruments.  To the extent that a form of any document to be delivered hereunder is not attached as an Exhibit hereto, such documents shall be in form and substance, and shall be executed and delivered in a manner, reasonably satisfactory to Buyer and Seller.

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(e)           Purchase Price.  Buyer shall deliver the Cash Purchase Price, net of the Deposits, to the Seller in accordance with Section 2.4 and such other instruments of assumption as Seller and its counsel reasonably may request.

3.3           Transaction Expenses.

Except as expressly provided herein, each party shall bear its own costs and expenses, including attorney, accountant and other consultant fees, in connection with the execution and negotiation of this Agreement and the consummation of the transactions contemplated hereby.

3.4           Transfer Taxes and Costs.

All transfer, sales, use and other Taxes in connection with the transactions contemplated by this Agreement shall be paid equally by both Seller and Buyer.  All costs to register or record the transfer of any intellectual property shall be paid by Buyer.

3.5           Other Closing Matters.

Each of the parties shall use their reasonable efforts to take such other actions required hereby to be performed by it prior to or on the Closing Date.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER

Seller hereby makes, as of the date hereof, the following representations and warranties to Buyer regarding only those Acquired Assets being transferred from Seller to Buyer, subject to an appropriate vote of Seller’s shareholders or, in the event of a Bankruptcy Case, the entry of the Sale Approval Order by the Bankruptcy Court:

4.1           Organization and Authorization of Seller.

Seller is duly organized, validly existing and in good standing under the laws of the State of Delaware.  Seller has all necessary corporate power and authority to enter into this Agreement subject to Seller shareholder approval or the Sale Approval Order and has taken all corporate action necessary, to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform its obligations hereunder, and no other corporate proceedings on the part of Seller are necessary to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby.  This Agreement has been duly executed and delivered by Seller and, upon receipt of shareholder approval or the Sale Approval Order, is a valid and binding obligation of Seller, enforceable against it in accordance with its terms (except to the extent that enforcement may be affected by applicable bankruptcy, reorganization, insolvency and similar laws affecting creditors’ rights and remedies and by general principles of equity (regardless of whether enforcement is sought at law or in equity)).  Each agreement or instrument which has been or shall be entered into or executed and delivered by Seller in connection with the transactions contemplated hereby has been (or will

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be) duly authorized, executed and delivered by Seller, and is (or will be when authorized, executed and delivered) a valid and binding obligation of Seller, enforceable against it in accordance with its terms (except to the extent that enforcement may be affect by laws relating to bankruptcy, reorganization, insolvency and similar laws affecting creditors’ rights and remedies and by general principles of equity (regardless of whether enforcement is sought at law or in equity)).

4.2           No Violation.

Other than the requirement to obtain shareholder approval for the sale of all or substantially all of Seller’s assets, the execution and delivery of this Agreement and the other agreements specified herein and the consummation of the transactions contemplated hereby and thereby do not and will not (a) violate any provision of the certificate of incorporation or bylaws of Seller, (b) conflict with or violate any statute or law, or any judgment, decree, order, regulation or rule of any court or governmental authority, binding upon or applicable to Seller or by which the Acquired Assets, are bound or affected or (c) result in the creation or imposition of any lien or encumbrance on any of the Acquired Assets.

4.3           Governmental Consents and Approvals.

Except for the Sale Approval Order or the requirement to obtain shareholder approval, as applicable, no consent, waiver, agreement, approval, Permit or authorization of, or declaration, filing, notice or registration to or with, any United States federal or state, local or foreign governmental or regulatory authority is required to be made or obtained by Seller in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby or thereby.

4.4           Intellectual Property.

Those Intellectual Property assets designated as being registered on the attached Schedule 1.1 (IP-Transferred Patents), and Schedule 1.1 (IP-Transferred Trademarks), (collectively the “Intellectual Property Schedules”), are all of Seller’s registered Intellectual Property assets relating to the Product Lines.  To Seller’s actual knowledge, Seller owns all the Intellectual Property that is material to the Business as currently conducted by Seller.  To Seller’s actual knowledge, all patents, trademarks and trade names listed on the Intellectual Property Schedules and designated as being registered have been duly issued and are subsisting.  Seller has not received any written notice of invalidity, infringement or misappropriation of any rights of others with respect to such Intellectual Property.  To Seller’s actual knowledge, no other firm, corporation, association or person is infringing upon or misappropriating any such Intellectual Property.  To Seller’s actual knowledge, Seller’s use of the Intellectual Property is not infringing upon or otherwise violating the rights of any third party in or to such Intellectual Property.   To Seller’s actual knowledge, there are no restrictions on Seller’s right to sell products manufactured by Seller in connection with the Product Line that result from, are caused by or are otherwise related to any of the Intellectual Property.

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4.5           Good Title, Adequacy and Condition.

Upon receipt of the Approval Order, Seller has good and marketable title to all of the Acquired Assets, with full power to sell, assign, transfer and convey the same, free and clear of any liens or encumbrances.

ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer hereby makes the following representations and warranties as of the date hereof to Seller:

5.1           Organization of Buyer.

Buyer is duly organized, validly existing and in good standing under the laws of the State of Colorado.

5.2           Authorization.

Buyer has all necessary corporate power and authority to enter into this Agreement and has taken all corporate action necessary, to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform its obligations hereunder, and no other corporate proceedings on the part of Buyer are necessary to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby.  This Agreement has been duly executed and delivered by Buyer and is a valid and binding obligation of Buyer, enforceable against it in accordance with its terms (except to the extent that enforcement may be affected by applicable bankruptcy, reorganization, insolvency and similar laws affecting creditors’ rights and remedies and by general principles of equity (regardless of whether enforcement is sought at law or in equity)).  Each agreement or instrument which has been or shall be entered into or executed and delivered by Buyer in connection with the transactions contemplated hereby has been (or will be) duly authorized, executed and delivered by Buyer, and is (or will be when authorized, executed and delivered) a valid and binding obligation of Buyer, enforceable against it in accordance with its terms (except to the extent that enforcement may be affect by laws relating to bankruptcy, reorganization, insolvency and similar laws affecting creditors’ rights and remedies and by general principles of equity (regardless of whether enforcement is sought at law or in equity)).

5.3           Governmental Consents and Approvals.

Other than the Sale Approval Order, no consent, waiver, agreement, approval, permit or authorization of, or declaration, filing, notice or registration to or with, any United States federal or state governmental or regulatory authority is required to be made or obtained by Buyer in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby or thereby.

5.4           No Violation.

The execution and delivery of this Agreement and the other agreements specified herein and the consummation of the transactions contemplated hereby and thereby do not and will not

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(a) violate any provision of the bylaws of Buyer or (b) conflict with or violate any statute or law, or any judgment, decree, order, regulation or rule of any court or governmental authority, binding upon or applicable to Buyer or by which the property or assets of Buyer are bound or affected.

5.5           Financial Capacity.

Buyer has access to sufficient financial resources to pay the Cash Purchase Price, consummate the transactions contemplated herein and perform its obligations under the Assumed Executory Contracts and under Section 9.1 of this Agreement.

5.6           Due Diligence.

Buyer has had an opportunity to inspect and examine the Acquired Assets and to conduct any and all due diligence regarding the assets prior to making its offer.  Buyer has relied solely upon its own independent review, investigation and/or inspection of any documents and/or the assets in making its bid, except as expressly stated in this Agreement.  Buyer did not rely upon any written or oral statements, representations, promises, warranties or guaranties whatsoever, except as provided in this Agreement, whether express or implied, by operation of law or otherwise, regarding the Product Lines, or the completeness of any information provided in connection therewith or the auction.

ARTICLE VI
ADDITIONAL COVENANTS

Seller and Buyer covenant and agree with each other that from the date hereof through the Closing:

6.1           Maintenance of Business Prior to Closing.

Seller shall maintain the Acquired Assets in their current state of repair, excepting normal wear and tear.

6.2           Investigation by Buyer.

Seller shall allow Buyer and its Representatives and the financial institutions (and their counsel and representatives) providing or proposed to provide financing in connection with this Agreement and the transactions contemplated hereby, during regular business hours upon reasonable notice, to make such inspection of the Acquired Assets, business and operations of Seller and to inspect and make copies of contracts and all other documents and information requested by Buyer and related to the Product Line, including, without limitation, historical financial information concerning the Product Line, and to meet with Seller’s designated personnel and/or their representatives.  Seller shall make available to Buyer promptly upon reasonable request (a) all additional documents and information with respect to the affairs of Seller relating to the Product Line and (b) access to the Personnel and to Seller’s Representatives as Buyer, or its Representatives, may from time to time reasonably request and shall instruct such Personnel and Representatives to cooperate with Buyer and its Representatives, and to

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make available such documents and information as Buyer and its Representatives may request.  Buyer will treat and hold any information it receives in the course of the reviews contemplated by this section in accordance with the Confidentiality Agreement. 

6.3           Consents and Reasonable Efforts.

(a)           Seller shall take all reasonable actions required (i) to obtain at the earliest practicable date all consents, waivers, approvals, authorizations and agreements required hereunder,  and promptly to give all notices to, effect all registrations pursuant to, and make all other filings with or submissions to, any third parties, including, without limitation, governmental and regulatory authorities, necessary or advisable to authorize approve or permit the consummation of the transactions contemplated hereby.

(b)           Each of the parties hereto covenants and agrees, upon the terms and subject to the conditions contained herein, to pursue diligently and in good faith and use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or advisable under applicable laws and regulations to put, consummate and make effective the transactions contemplated hereby, subject to Seller’s obligations under the Sale Procedures Order, if applicable.

ARTICLE VII
CONDITIONS TO SELLER’S OBLIGATIONS

The obligations of Seller to sell the Acquired Assets and to consummate the transactions contemplated hereby are subject to the satisfaction, on or prior to the Closing Date, of each of the following conditions, any of which may be waived (in whole or in part) by Seller:

7.1           Entry of Sale Approval Order or Shareholder Approval.

In the event of a Bankruptcy Case, the Sale Approval Order shall have been entered by the Bankruptcy Court and shall not have been stayed.  If an appeal of the Sale Approval Order is filed and Buyer elects in its sole discretion to waive the condition to Closing that the Sale Approval Order shall be a Final Order then Seller shall be obligated to proceed with Closing notwithstanding the pendency of any such appeal, unless the Sale Approval Order is stayed.  Otherwise, Seller shall have obtained shareholder approval.

7.2           No Order Enjoining Sale; Proceedings or Litigation.

No judgment, injunction, order or decree shall prohibit the consummation of the transactions contemplated herein. No actions by any governmental authority shall have been instituted for the purpose of enjoining or preventing, or which question the validity or legality of, the transactions contemplated hereby.  No judgment, injunction, order or decree shall prohibit the consummation of the transactions contemplated herein.

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7.3           Representations, Warranties and Covenants.

All representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date as if such representations and warranties were made at and as of the Closing Date, and Buyer shall have performed all agreements and covenants required hereby to be performed by Buyer prior to or at the Closing Date.

7.4           Consents.

All material consents, approvals, and waivers from third parties and governmental and regulatory authorities required to consummate the transactions set forth herein or contemplated hereby, if any, shall have been obtained.

ARTICLE VIII

CONDITIONS TO BUYER’S OBLIGATIONS

The obligations of Buyer to purchase the Acquired Assets and to consummate the transactions contemplated hereby are subject to the satisfaction, on or prior to the Closing Date, of each of the following conditions, any of which may be waived (in whole or in part) by Buyer:

8.1           Entry and Finality of Sale Approval Order or Shareholder Approval.

In the event of a Bankruptcy Case, the Sale Approval Order shall have been entered by the Bankruptcy Court and shall have become a Final Order.  Otherwise, shareholder approval shall have been obtained by Seller.

8.2           Representations, Warranties and Covenants.

All representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date as if such representations and warranties were made at and as of the Closing Date, and Seller shall have performed in all material respects all agreements and covenants required hereby to be performed by Seller prior to or at the Closing Date.

8.3           Consents.

All material consents, approvals, and waivers from third parties and governmental and regulatory authorities required to consummate the transactions set forth herein or contemplated hereby, if any, shall have been obtained.

8.4           No Order Enjoining Sale; No Proceedings or Litigation.

No actions by any governmental authority shall have been instituted for the purpose of enjoining or preventing, or which question the validity or legality of, the transactions contemplated hereby.  No judgment, injunction, order or decree shall prohibit the consummation of the transactions contemplated herein.

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8.5Instruments of Conveyance, Certificates.

Seller shall have executed and delivered to Buyer all of the documents provided for in Section 3.2(a).

ARTICLE IX
OTHER AGREEMENTS

9.1Service Provider.

(a)From and after the Closing Date, Buyer agrees to the handle and fulfill all customer inquiries and requests for the Product Lines.  In addition, from and after the Closing Date, Buyer shall perform all governmental regulatory functions associated with the maintenance of the Product Lines, including, without limitation, handling of customer calls and complaints, performing any required corrections and removals, maintaining complaint logs and filing appropriate reports with the United States Food & Drug Administration (“FDA”), reviewing and analyzing customer complaints, and taking corrective action (collectively, “Customer Service and Corrective Action”) with  regard to products manufactured by Buyer from and after the Closing Date.  Notwithstanding anything herein to the contrary, Buyer shall be responsible for Customer Service and Corrective Action for the Product Lines that were manufactured by Seller prior to the Closing Date solely to the extent required by applicable law.  In addition, Buyer assumes no responsibility or obligation with respect to requests or governmental regulatory inquiries, investigations, or demands that would require the filing of a Premarket Approval Supplement with the FDA for any substantial redesign work associated with the Product Lines or its components.

(b)Indemnification.  Buyer shall indemnify, defend and hold Seller and its affiliates harmless from and against any and all costs, losses, liabilities, claims, damages or expenses (“Losses”) suffered or incurred by Seller or any of its affiliates as a result of the activities of Buyer undertaken under this Section 9.1 other than in the case of any Losses arising in whole or in part from the intentionally wrongful or grossly negligent actions of Seller from and after the Closing Date.

9.2Risk of Loss.

Seller acknowledges and agrees that Buyer does not have any liability or obligation to Seller in respect of any loss, theft or damage to property experienced by Seller at any time, whether occurring prior to, on or after the date hereof.  If Closing occurs, Buyer shall be entitled to the proceeds of any insurance or other proceeds payable with respect to the losses on the Acquired Assets for loss or damage occurring prior to the Closing Date, whether received prior to, at or after Closing.

9.3Consents to Assignment.

Anything in this Agreement to the contrary notwithstanding, this Agreement shall not constitute an agreement to assign any Assumed Executory Contract or any claim or right or any benefit arising thereunder or resulting therefrom if an attempted assignment thereof, without the

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consent of a third party thereto, would constitute a breach thereof or in any way adversely affect the rights of Buyer thereunder and, if applicable, after taking into account the operation of the Bankruptcy Code.  If such consent is not obtained, or if an attempted assignment thereof would be ineffective or would affect the rights thereunder so that Buyer would not receive all such rights, Seller will cooperate with Buyer, in all reasonable respects, to provide to Buyer the benefits under any such Assumed Executory Contract, claim or right including, without limitation, enforcement for the benefit of Buyer of any and all rights of Seller against a third party thereto arising out of the breach or cancellation by such third party or otherwise.

ARTICLE X
MISCELLANEOUS

10.1Termination.

This Agreement may be terminated prior to the Closing:

(a)by mutual written consent executed by both Buyer and Seller (and in the event of a Bankruptcy Case, subject to the approval of the Bankruptcy Court) at any time;

(b)by Buyer if any event occurs which renders satisfaction of one or more of the conditions to Buyer’s obligations set forth in Article VIII impossible; and

(c)by Seller if any event occurs which renders satisfaction of one or more of the conditions to Seller’s obligations set forth in Article VII impossible.

10.2In the Event of Termination; Remedies.

In the event of termination of this Agreement pursuant to Section 10.1:

(a)each party shall redeliver all documents, work papers and other material of any other party relating to the transactions contemplated hereby, whether obtained before or after the execution hereof, to the party furnishing the same;

(b)no confidential information received by any party with respect to the business of any other party or its Affiliates shall be disclosed to any third party, unless required by law;

(c)all obligations of the parties hereto under this Agreement shall terminate and there shall be no liability of any party hereto to any other party and each party hereto shall bear its own expenses incurred in connection with the negotiation, preparation, execution and performance of this Agreement; provided that the foregoing shall not relieve any party of liability for damages actually incurred by any other party as a result of any breach of this Agreement resulting from the willful misconduct or reckless or grossly negligent act or omission of the party permitting, causing or committing such breach; and further provided that the termination of this Agreement shall not affect the obligations of the Buyer and the Seller under the Confidentiality Agreement; and

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(d)If this Agreement is terminated pursuant to Section10.1 (c) , then the Deposits shall be retained by Seller and (i) if such default occurs prior to the entry of the Sale Approval Order, such Deposits shall be Seller’s sole and exclusive remedy against the Buyer which consideration the parties to this Agreement agree is reasonable and fair compensation for the foreseeable losses that might result from such breach considering all of the circumstances existing on the date of this Agreement, including the value of the Deposits in relation to the harm to Seller that can be reasonably anticipated, and in recognition that proof of actual damages would be difficult, costly or inconvenient or (ii) if such default occurs on or after the entry of the Sale Approval Order, the retention of such Deposit shall not be Seller’s exclusive remedy.  If this Agreement is terminated pursuant to Section 10.1 (b), then the Deposits shall be returned to Buyer with interest, if applicable. In the event of termination of this Agreement pursuant to Section 10.1 (a), then the Deposits shall be returned to Buyer with interest.

10.3Assignment; Successors.

Neither this Agreement nor any of the rights or obligations hereunder may be assigned by any party without the prior written consent of all other parties to this Agreement.  Seller agrees to the assignment by Buyer of its rights pursuant to this Agreement, to any Affiliate of Buyer; provided that no such assignment by Buyer shall relieve Buyer of any of its obligations hereunder and any such assignee shall only have such rights (as limited hereunder) and obligations as Buyer now has hereunder.  Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective representatives, heirs, legatees, successors and permitted assigns, including without limitation any Chapter 11 or Chapter 7 trustee appointed in the Bankruptcy Case, and no other person shall have any right, benefit or obligation hereunder.

10.4Notices.

All notices, requests, demands and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted if transmitted by telecopy, upon receipt of telephonic confirmation; the date after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery service (e.g., Federal Express); and upon receipt, if sent by certified or registered mail, return receipt requested.  In each case notice shall be:

If to Seller, addressed to:	Fischer Imaging Corp.
	370 Interlocken Blvd., Suite 400
	Broomfield, Colorado 80021
	Fax: (303) 327-1576
	Attention: Paula Rosson
with a copy to	Douglas W. Jessop
Attorneys for Seller:	Jessop & Company, P.C.
	303 E 17th Avenue, Suite 930
	Denver, Colorado 80203
	Fax: (303) 860-7723

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and:	Ron Levine
	Davis Graham & Stubbs LLP
	Suite 500
	1550 Seventeenth Street
	Denver, CO  80202
	Fax: (303) 893-1379
If to Buyer, addressed to:	Byers Peak, Inc.
	4975 Miller Street
	Wheat Ridge, CO 80033
	Fax: 303-232-4150
	Attention: Doug Pruett
with a copy to
Attorneys for Buyer:	Anthony A. King
	Minor & Brown, P.C.
	650 South Cherry Street, Suite 1100
	Denver, CO 80246
	Fax: 303-320-6330

or to such other place and with such other copies as either party may designate as to itself by written notice to the others.

10.5Choice of Law.

This Agreement shall be construed and interpreted, and the rights of the parties determined in accordance with, the laws of the State of Colorado.  Each party irrevocably consents to the service of any and all process in any action or proceeding arising out of or relating to this Agreement by the mailing of copies of such process to each party at its address specified in Section 10.4.  The parties hereto irrevocably submit to the exclusive jurisdiction of (i) the courts of the State of Colorado, (ii) if it has or can acquire jurisdiction, in the United State District Court for the District of Colorado, or (iii) the United States Bankruptcy Court (or any court exercising appellate jurisdiction over the Bankruptcy Court) over any dispute arising out of or relating to this Agreement or any other agreement or instrument contemplated hereby or entered into in connection herewith or any of the transactions contemplated hereby or thereby and any such dispute shall be deemed to have arisen in the State of Colorado.  Each party hereby irrevocably agrees that all claims in respect of such dispute or proceedings may be heard and determined in such dispute or proceedings may be heard and determined in such courts.  The parties hereby irrevocably waive, to the fullest extent permitted by applicable law, any objection which they may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum in connection therewith.

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10.6Entire Agreement; Amendments and Waivers.

This Agreement, together with all exhibits and schedules attached or to be attached hereto constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties (except the Confidentiality Agreement); provided that the forms of agreements attached hereto as Exhibits shall be superseded by the copies of such agreements by the parties thereto to be conclusive evidence of such parties’ approval of any change or modification or waiver of this Agreement shall be binding unless executed in writing by or on behalf of the party to be bound thereby.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

10.7Construction.

The headings and captions of the various Articles and Sections of this Agreement have been inserted solely for purposes of convenience, are not part of this Agreement, and shall not be deemed in any manner to modify, explain, expand or restrict any of the provisions of this Agreement.  Unless stated to the contrary, all references to Articles, Sections paragraphs or clauses herein shall be to the specified Article, Section, paragraph or clause of this Agreement, and all references to Exhibits and Schedules shall be to the specified Exhibits and Schedules attached hereto.  All Exhibits and Schedules attached are made a part hereof.  All terms defined herein shall have the same meaning in the Exhibits and Schedules, except as otherwise provided therein.  All references in this Agreement to “this Agreement” shall be deemed to include the Exhibits and Schedules attached hereto.  The terms “hereby”, “hereto”, “hereunder” and any similar terms as used in this Agreement, refer to this Agreement in its entirety and not only to the particular portion of this Agreement where the term is used.  Whenever in this Agreement provision is made for the payment of attorneys’ fees, such provision shall be deemed to mean reasonable attorneys’ fees and paralegals’ fees.  The term “including” when used herein shall mean “including, without limitation.”  Wherever in this Agreement the singular number is used, the same shall include the plural, and the masculine gender shall include the feminine and neuter genders, and vice versa, as the context shall require.

10.8Third Party Beneficiaries.

No Person other than the parties hereto, shall have any rights or claims under this Agreement.

10.9No Waiver.

The failure of either party hereto to seek redress for any breach, or to insist upon the strict performance, of any covenant or condition of the Agreement by the other shall not be, or be deemed to be, a waiver of the breach or failure to perform, nor prevent a subsequent act or omission in violation of, or not strictly complying with, the terms hereof from constituting a default hereunder.

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10.10Multiple Counterparts.

This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

10.11Invalidity.

In the event that any one or more of the provisions, or any portion thereof, contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision, or any portion thereof, of this Agreement or any other such instrument.

10.12Publicity.

No party shall issue any press release or make any public statement regarding the transactions contemplated hereby, without the prior approval of the other party, and the parties hereto shall issue a mutually acceptable press release as soon as practicable after the earlier of the Closing or the entry of the Sale Approval Order; provided that nothing herein shall be deemed to prohibit any party from making any disclosure which its counsel deems necessary in order to fulfill such party’s disclosure or notice obligations imposed by law or by the Sale Procedures Order.

10.13Further Assurances.

Without limiting any other rights or obligations of the parties contained in this Agreement, following the Closing, Seller agrees to execute such documents, instruments or conveyances and take such actions as may be reasonably requested by Buyer’s counsel and otherwise reasonably cooperate with Buyer, its Affiliates and their respective Representatives in connection with any action that may be necessary or advisable to put Buyer in possession of the Assets.

10.14Access to Books and Records.

Seller will permit representatives of Buyer to have access at reasonable times and with reasonable notice, and in a manner so as not to interfere with the normal business operations of Seller, to the premises, properties, personnel, books, records (excluding Tax records), contracts, and documents pertaining to the Acquired Assets.  Buyer will treat and hold any information it receives in the course of the reviews contemplated by this section in accordance with the Confidentiality Agreement.

10.15Cumulative Remedies.

All rights and remedies of either party hereto are cumulative of each other and of every other right or remedy such party may otherwise have at law or in equity, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies; provided, however, that any Person pursuing any rights and remedies with respect to access to books and records shall first agree to reasonable confidentiality restriction with Buyer.

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10.16Termination of Covenants, Representations, and Warranties.

The covenants, representations, and warranties made by Seller and/or Buyer herein shall terminate as of the Closing.  Buyer shall have no right to seek indemnification subsequent to the Closing based on a breach of a representation and/or warranty made by Seller herein or in any other document, certificate or instrument entered into by the Seller in connection herewith.

10.17No Impediment to Liquidation.

Nothing herein shall be deemed or construed so as to limit, restrict or impose any impediment to Seller’s right to liquidate, dissolve and wind-up its affairs and to cease all business activities and operations at such time as it may determine following the Closing.

10.18Representation by Counsel; Mutual Negotiation.

Each party has been represented by counsel of its choice in negotiating this Agreement.  This Agreement shall therefore be deemed to have been negotiated and prepared at the joint request, direction and construction of the parties, at arm’s length, with the advice and participation of counsel, and will be interpreted in accordance with its terms without favor to any party.

[The remainder of this page is intentionally left blank – signature page follows]

23

IN WITNESS WHEREOF, Fischer Imaging Corp. and Byers Peak, Inc. have caused this Asset Purchase Agreement to be executed by their respective duly authorized officers, and have caused their respective corporate seals to be hereunto affixed, all as of the day and year first above written.

FISCHER IMAGING CORPORATION
By:	/s/ STEVEN DURNIL
Name:	STEVEN DURNIL
Its:	President and CEO
BYERS PEAK, INC.
By:	/s/ Doug K Pruett
Name:	Doug Pruett
Its:	Vice President

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Steven Durnil, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Fischer Imaging Corporation;

2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

c.   Disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a.    All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 22, 2006	/s/   STEVEN DURNIL
	Steven Durnil
	Chief Executive Officer and President

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, David Kirwan, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Fischer Imaging Corporation;

2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b.      Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

c.       Disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a.      All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 22, 2006	/s/   DAVID KIRWAN
	David Kirwan
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Fischer Imaging Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven Durnil, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: August 22, 2006	/s/   STEVEN DURNIL
	Steven Durnil
	Chief Executive Officer and President

A signed original of this written statement required by Section 906 has been provided to Fischer Imaging Corporation and will be retained by Fischer Imaging Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Fischer Imaging Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David Kirwan, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)           The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: August 22, 2006	/s/   DAVID KIRWAN
	David Kirwan Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Fischer Imaging Corporation and will be retained by Fischer Imaging Corporation and furnished to the Securities and Exchange Commission or its staff upon request.