Fischer Imaging Corporation

Securities Act of 1933
Release No. 8503 / November 15, 2004

Securities Exchange Act of 1934
Release No. 50663 / November 15, 2004

Accounting And Auditing Enforcement
Release No. 2134 / November 15, 2004

Admin. Proc. File No. 3-11736

I.

The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), against Fischer Imaging Corporation ("Fischer" or "Respondent").

II.

In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over it and the subject matter of these proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934 ("Order"), as set forth below.

III.

On the basis of this Order and Respondent's Offer, the Commission finds that:

1. Fischer, a Delaware corporation based in Denver, Colorado, designs, manufactures, markets, and services specialty medical imaging systems used for the diagnosis and screening of disease. Fischer stock is registered under Section 12(g) of the Exchange Act. Fischer stock traded on the Nasdaq National Market System until it was delisted on July 7, 2003.

2. Fischer materially misstated figures reported for its revenue, inventory, net income, and gross profit in its financial statements for the first three quarters of 2000; the year ended December 31, 2000; the first three quarters of 2001; the year ended December 31, 2001; and the first three quarters of 2002. Fischer included its misleading financial results in press releases and filings with the Commission relating to these periods. Fischer also filed registration statements on Form S-3 on September 22, 2000 and on Form S-8 on March 16, 2001, which incorporate by reference the materially misstated figures reported in Fischer's periodic filings.

3. Fischer misstated its revenue because it improperly recognized revenue from transactions for which its customers had not accepted delivery. Rather than shipping equipment to these customers, Fischer stored the equipment at third party warehouses where the equipment remained insured and controlled by Fischer. Revenue recognition was inappropriate on some of these same purported sales because they were subject to outstanding contingencies, such as cancellation rights, provisions delaying payment until products were resold, and rights of return. At the end of each period during the relevant timeframe, Fischer provided false or misleading documents to its outside auditors that concealed Fischer's improper revenue recognition. Fischer knew, or was reckless in not knowing, about its improper revenue recognition.

4. Fischer overstated its inventory account by improperly valuing its excess and obsolete inventory associated with discontinued product lines. Fischer also overstated its inventory account because it valued malfunctioning parts customers had returned as if they were operational and because it double-counted certain of its raw materials. Fischer knew, or was reckless in not knowing, about its misstatement of inventory.

5. As a result of Fischer's improper revenue recognition and overstatement of inventory, Fischer materially misstated its net income in its press releases and filings with the Commission relating to the relevant periods. Fischer knew, or was reckless in not knowing, about its misstatement of net income.

6. Additionally, Fischer improperly classified labor and overhead expenses associated with its service business as other operating expenses rather than costs of sales. Because of their improper classification, Fischer failed to include these expenses in its calculation of gross profit. As a result, Fischer materially overstated its gross profit in its press releases and filings with the Commission relating to the relevant periods. Fischer knew, or was reckless in not knowing, about its misstatement of gross profit.

7. As a result of the conduct described above, Fischer, through certain of its officers and personnel, violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, which prohibit fraudulent conduct in the offer and sale of securities and in connection with the purchase or sale of securities.

8. Also as a result of the conduct described above, Fischer, through certain of its officers and personnel, violated Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13, and 12b-20 thereunder.

9. Because Fischer improperly recorded its revenue, inventory, net income, and costs of sales, its books, records, and accounts, did not, in reasonable detail, accurately and fairly reflect its transactions and dispositions of assets.

10. In addition, Fischer, through certain of its officers and personnel, failed to implement internal accounting controls that were sufficient to provide reasonable assurances that its revenue, inventory, net income, and costs of sales were accurately stated in accordance with generally accepted accounting principles.

11. As a result of the conduct described above, Fischer, through certain of its officers and personnel, violated Section 13(b)(2)(A) of the Exchange Act, which requires reporting companies to make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect their transactions and dispositions of their assets.

12. Lastly, as a result of the conduct described above, Fischer, through certain of its officers and personnel, violated Sections 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, which require all reporting companies to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles; and prohibit persons from knowingly circumventing or knowingly failing to implement a system of internal accounting controls, knowingly falsifying any book, record or account, and directly or indirectly falsifying or causing to be falsified any book, record, or account.

Fischer's Remedial Efforts

In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by Respondent and cooperation afforded the Commission staff.

Undertakings

Respondent undertakes to cooperate fully with the Commission in any and all investigations, litigations or other proceedings brought by the Commission relating to or arising from the matters described in the Order, and agrees:

1. To comply with any and all reasonable requests by the Commission's staff for company documents or other information;
    
2. To be interviewed, and to make its officers, directors, employees, agents and other representatives available to be interviewed, by the Commission's staff at such times as the Commission's staff reasonably may direct;
    
3. To appear and testify, and to make its officers, directors, employees, agents and other representatives available to appear and testify in such investigations, depositions, hearings, or trials as the Commission's staff reasonably may direct; and
    
4. That in connection with any (i) testimony of Respondent or its officers, directors, employees, agents and other representatives to be conducted by testimony session, deposition, hearing or trial, or (ii) requests for documents or other information, that any notice or subpoena for such may be addressed to its counsel, and be served by mail or facsimile.
    

In determining whether to accept the Offer, the Commission has considered these undertakings.

IV.

In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent Fischer's Offer.

Accordingly, it is hereby ORDERED that:

Respondent Fischer cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder.

By the Commission.