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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

                   For the fiscal year ended December 31, 2001

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

               For the transition period from _______ to _______ .

                         Commission file number 0-19386

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

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

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

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

        Securities Registered Pursuant to Section 12(b) of the Act: None

           Securities Registered Pursuant to Section 12(g) of the Act:

                     Common Stock, Par Value $0.01 Per Share

     Indicate by check mark whether the Registrant (1) 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
                                              -----      -----

[_]   Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.

     The aggregate market value of the common equity held by non-affiliates of
the Registrant as of March 1, 2002 was approximately $94,800,000.

The number of shares of Registrant's Common stock outstanding as of March 1,
2002 was 9,181,179.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's Proxy Statement for its 2002 Annual Meeting of
Stockholders to be filed on or prior to April 30, 2002, are incorporated by
reference into Part III of this Form 10-K.

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                                     PART 1

ITEM 1.  BUSINESS

     We develop, manufacture and market medical imaging systems for the
detection, diagnosis, and treatment of breast cancer. Through our FDA-approved
digital mammography system, SenoScan(R), and our FDA-approved Mammotest(R)
biopsy system, we serve the breast care needs of women around the world, and
have installed systems in over 1500 clinics, hospitals and imaging centers in
the United States.

     Our SenoScan(R) digital mammography system was granted pre-market approval,
or PMA, by the FDA in September 2001 for both screening and diagnostic
mammography. SenoScan's advantages over conventional x-ray film mammography
systems stem from the ability to acquire high resolution images at reduced
radiation dose, to manipulate the digital image, to transmit the images thus
enabling remote diagnosis, and to store the images in a cost effective digital
archive.

     Our Mammotest(R) stereotactic breast biopsy system is marketed for the
performance of minimally invasive breast biopsy. The Mammotest allows for a
procedure that is less invasive and is less expensive than surgical biopsy, and
can be performed under local anesthetic on an outpatient basis. Since 1990, over
1,500 Mammotest systems have been installed worldwide, with the majority of
installations occurring in the United States. We believe that our Mammotest Plus
"S" is now the premier offering for stereotactic minimally invasive breast
biopsy.

     We also produce a line of general x-ray imaging systems and a number of
specialized x-ray systems used in electrophysiology procedures. In 2001, these
systems represented approximately 22% of our revenues. We expect this percentage
to decline as sales of SenoScan increase.

Our Markets

     Breast cancer is the leading cause of death from cancer among women between
the ages of 40 and 55.

     According to the American Cancer Society, 205,000 cases of invasive breast
cancer will be diagnosed in 2002. In addition, another 47,800 cases of in-situ
breast cancer (called DCIS) will be diagnosed. Breast cancer is the leading
cause of death from cancer among women between the ages of 40 and 55 and the
second leading cause of death from cancer among all women. The American Cancer
Society's Cancer Facts recently reported a small decrease in breast cancer
mortality and we believe this reduction is due to the increased use of screening
mammography and improved breast cancer treatment.

     The National Cancer Institute tracks the number and stage of breast cancers
diagnosed every year as well as mortality from breast cancer. Breast cancer
incidence is primarily a function of a woman's age. Incidence at age 40 is about
100 per 100,000 women but increases rapidly to 400 per 100,000 for a woman aged
65. As a result, due to underlying demographics, an increasing number of breast
cancers will be diagnosed over the next 10 years even with no increase in
incidence of the disease. Including non-invasive breast cancer, over 275,000
cases will be diagnosed annually by the year 2010.

     Mammography has been recommended as an effective tool for the early
detection of breast cancer. We estimate that there will be more than 50 million
mammograms performed in the United States in 2002.

     During the last decade there have been frequent revisions to the published
guidelines for screening mammography. Generally these guidelines have been
changed to increase the frequency of recommended mammography screening to an
annual test from a test recommended every two years. In 2002, the U.S.
Department of


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Health & Human Services renewed its recommendation that women over 40 receive an
annual mammogram, with a baseline mammogram recommended for women between age 34
and 40.

     The effectiveness of screening mammography has been tested in several large
scale randomized controlled trials. The data from these trials generally
supports a 20-30% mortality reduction in women invited for screening
mammography. However, the actual benefit for women who receive mammography may
be significantly greater. The randomized controlled trials were designed to
determine if government sponsored screening mammography would reduce breast
cancer mortality. As such, women were invited to receive mammography in a study
group while a comparable control group of women were not invited. But many women
did not receive mammography who were invited while many women in the control
group "crossed over" and received mammography screening. Thus women who never
received mammography were assumed to have received the test and many died of
breast cancer while other women who were assumed not to have undergone
mammography, actually had breast cancer diagnosed as a result of mammography and
did not die of breast cancer. In May 2001, a paper published in the journal
Cancer analyzed the data from the largest of the randomized controlled trials
and found that for women in the trial who had actually received mammography,
there was a 63% reduction in mortality from breast cancer as compared to those
who did not undergo mammography. Thus we believe the benefits of screening
mammography are generally understated. In addition, since the 1970's and 1980's
when most of the trials were conducted there has been a significant improvement
in the technical quality of mammography.

     Screening Mammography

     Screening mammography began to be used in the United States in the 1970's
for the early detection of breast cancer and the number of annual procedures has
increased steadily. This increase has been driven by an increase in the number
of women aged 40 and above and by an increase in the compliance rate of women
actually receiving mammograms.

     According to the Centers for Disease Control and Prevention, 62.6% of women
over age 40 received a mammogram in 2001. As such, we estimate that in 2002
there will be more than 41 million screening mammograms in the United States.
According to the US Census Bureau, the number of women over age 40 in the United
States in 2002 is 65.8 million, and the projected U.S. population in 2010 for
women aged 40 and above is 74 million. The American Cancer Society has adopted a
goal that 90% of women over age 40 comply with screening guidelines by the year
2008. Should this goal be achieved, we believe there will be 65 million
screening mammograms performed per year by 2008, a 50% increase over the number
of screening mammograms performed in 2002.

     However, while mammography is proven to find cancers at an earlier, more
treatable stage, we believe the mammography exam can be improved. The
sensitivity of modern mammography is estimated to be around 75%, that is, if a
cancer is present there is a 75% chance screening mammography will find it. The
specificity of mammography is not very high in that as much as 10% of the women
are called back for further tests while only about 0.5% of the women actually
have breast cancer. These false positives create anxiety for women while adding
significant expense to screening mammography programs.

     Diagnostic Mammography

     If an abnormality is detected in the screening mammogram, a woman is called
back and a diagnostic mammogram and frequently an ultrasound exam is performed
to characterize a density or mass seen on the mammogram. The call back rate
varies considerably across radiologists due to both their skill in reading
mammograms and as well as their tolerance for missing cancers. As such, call
back rates range from 4% to 20% and average about 10% across the country.

     Diagnostic mammography is also performed on women who present with a
palpable breast lump in a physician's office. In addition, diagnostic
mammography is performed on patients who have undergone treatment for cancer.
While the total number of diagnostic mammograms performed per year is not known,
we estimate that about 20% of all mammography exams are diagnostic exams.


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     Breast Biopsy

     Following diagnostic mammography and ultrasound to further characterize
non-palpable breast abnormalities, we estimate that about 20% to 30% of women
who undergo diagnostic mammography proceed to a biopsy of the abnormality.

     Surgical Tissue Biopsy

     Traditional surgical tissue biopsy involves removing a golf-ball sized, or
larger, piece of tissue from the breast, and has several disadvantages:

o    It typically must be performed in an operating room, under general
     anesthesia;
o    The surgery takes about one hour and requires one to two days of
     recuperation at home;
o    The incision can be disfiguring and scarring is normally expected;
o    Internal scar tissue can interfere with the ability to detect suspicious
     lesions during subsequent mammograms; and
o    Operating room expenses and professional fees can total $2,500-5,000.

We believe that approximately 70% of breast biopsies are currently performed
using an open, traditional surgical procedure.

     Percutaneous Needle Biopsy

     A less invasive form of breast biopsy is performed using a small needle and
imaging guidance to direct the needle into the lesion detected by the mammogram.
Approximately 30% of breast biopsies are performed with a needle under image
guidance. We pioneered the clinical development of prone, stereotactic core
needle biopsy in conjunction with several radiologists in the late 1980's, and
these clinical studies resulted in the development of the Mammotest system.

     Stereotactic refers to the technique of locating a lesion in a three
dimensional field using x ray imaging, and directing the tip of a core needle to
the site of the lesion for tissue removal. With this procedure using the
Mammotest system, the patient lies prone on the table with the breast hanging
pendulant through an opening in the table. The digital x-ray imaging system is
disposed beneath the table where the breast is compressed and two digital x-ray
images are acquired at separate angles. Using the computer system, the physician
can calculate the location of the lesion and accurately direct a core needle to
within one millimeter of the targeted abnormality.

     In the mid 1990's, percutaneous breast biopsies also began to be performed
under ultrasound image guidance. Ultrasound guided breast biopsies are generally
performed faster and less expensively than stereotactic biopsy both due to the
use of real time imaging and equipment that costs about 25% of the cost of a
stereotactic table system. However, ultrasound is not able to visualize small
micro-calcifications and these types of abnormalities must be biopsied using
x-ray imaging and a stereotactic system. Additionally, ultrasound guided core
needle biopsies require more physician skill. Approximately 50% of the estimated
360,000 percutaneous biopsies performed in 2001 were guided with ultrasound.

     Stereotactic core needle biopsies are less expensive then surgical biopsies
and typically cost $1,000-$1,500. Ultrasound guided core biopsies cost $600-900.
Unlike open surgical biopsies, core needle biopsies can be performed in a breast
center, imaging center, physician's office, surgery center, or hospital. A
significant portion of the cost savings for core needle biopsy results from
moving the biopsy out of the operating room and into lower overhead facilities
such as physician offices.

     Recent changes in reimbursement have provided an opportunity for physicians
to perform core needle biopsy procedures profitably in their offices or breast
centers. We believe that lack of appropriate reimbursement has impeded the
adoption of core needle biopsy during the last ten years and provides an
explanation for the heretofore slow adoption rate of percutaneous breast biopsy.
In December 1999, the Center for Medicare and Medicaid Services, or CMS, issued
a national coverage decision memorandum for image guided breast biopsy,
concluding that


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"percutaneous image guided breast biopsy is as accurate as open surgical biopsy"
and recommending national coverage for the procedure. Following the publication
of the national coverage decision, in January 2001, the American Medical
Association, or AMA, assigned common procedural codes, or CPT codes, and values
for the percutaneous biopsy procedure. In January 2002, the reimbursement rates
for percutaneous breast biopsy were increased.

     In addition, in September 2001 the American College of Surgeons published a
consensus statement in the Journal of the American College of Surgeons that
endorsed needle biopsies as preferable to surgical biopsy in most patients. The
statement also indicated that percutaneous biopsy would often allow breast
cancer to be treated with only one trip to the operating room, providing
substantial cost savings for the healthcare system.

     We believe that this policy statement from the American College of
Surgeons, along with improved reimbursement and an increasing awareness of the
benefits of this minimally invasive procedure among women, will cause an
increase in the percentage of procedures that are performed percutaneously.

Our Strategy

     We have identified breast cancer as a disease that could significantly
benefit from imaging technology because imaging technology may improve the
detection, diagnosis, and treatment of the disease.

     Until the development of our Mammotest breast biopsy system in the early
1990's, surgery was the only accepted method of definitively diagnosing breast
cancer. A percutaneous approach to breast biopsy has opened the door for further
diagnostic and therapeutic interventions such as breast cancer ablation using
imaging guidance. Ablation refers to the process of removing a tumor using
non-surgical methods such as laser or ultrasound technologies. We believe the
introduction of our SenoScan digital mammography system will provide
radiologists with an improved method of detecting breast cancer and the
Mammotest and MammoSound will aid in determining the pathologic diagnosis for
patients with specific abnormalities. Our goal is to become the worldwide leader
for digital mammography and percutaneous breast biopsy systems.

     Our research and development efforts are focused on providing new imaging
technology optimized for breast cancer detection, diagnosis, and treatment.
These efforts will likely include image fusion techniques similar to the
MammoSound and Mammotest integration, (x-ray and ultrasound integration), but
the imaging modalities will include other techniques such as molecular imaging.

Our Products

     We serve the mammography market through screening and diagnostic digital
mammography systems and with stereotactic core needle biopsy products.

     SenoScan(R) Digital Mammography System

     We are a leader in the development of full field of view digital
mammography systems. SenoScan received FDA premarket approval in September 2001
and European Community marking in November 2001. The product has been officially
launched into the U.S. and European marketplaces. We have been developing the
SenoScan system since 1993 and from 1997 to 2000 we undertook clinical trials as
mandated by the FDA to present evidence that the SenoScan system was equivalent
to conventional x- ray film mammography systems. Approved claims as a result of
the FDA Premarket Approval process provide substantial marketing advantages over
competing full field digital mammography systems and conventional film based
systems as well. Approved claims include:

o    40-60% reduction in dose with increased dose reduction for large breasted
     women.
o    Large field of view makes it possible to image all women with fewer
     exposures
o    High resolution for visibility of subtle microcalcifications which can be
     the best indicators of early breast cancer.


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     Digital mammography provides a number of advantages over conventional x-ray
mammography:

..    With digital mammography, the image is acquired electronically and
     displayed on a computer monitor, which allows image contrast to be varied.
     This can allow a mammogram image to be contrast adjusted, so that it can be
     more easily interpreted by a physician or radiologist without subjecting
     the patient to a second mammogram. Because younger women typically have
     denser breast tissue, which is not visualized adequately with film
     mammography, this feature may be particularly useful in screening women
     under age 50.
..    A properly designed digital mammography system can reduce radiation dosage
     by at least a factor of two.
..    Other benefits include: (1) real time acquisition (film processing is not
     necessary); (2) storage of the mammogram in digital memory or on digital
     archival media; (3) an ability to implement computer-aided detection
     algorithms; and (4) telemammography (digital transmission of mammograms for
     remote display and diagnosis).

     We believe that the SenoScan system could improve the sensitivity and
specificity of mammography while exposing women to lower radiation than film
screen mammography. Our SenoScan system received PMA approval from the FDA for
screening and diagnostic mammography and was found equivalent to film
mammography but at a lower radiation dose.

     We believe our SenoScan system will result in a lower false positive rate
although we have not presented evidence to the FDA at this time that would allow
this claim. We are participating in a $27 million study sponsored by the
National Cancer Institute to measure the performance of digital mammography
systems against conventional film screen mammography systems. This trial, known
as the Digital Mammograpic Imaging Screening Trial, or DMIST, commenced in 2001
and involves 4 manufacturers and about 20 institutions. 50,000 women will be
screened with both conventional film and digital mammography. Within a couple of
years, performance studies will be conducted using both the conventional film
and the digital mammograms. Women who actually have undetected breast cancer at
the time of the screening become known because the patients are followed for two
years and the cancer is detected by subsequent mammography or by clinical
palpation. Thus the reader studies can be measured against the true state of the
disease and the population that was screened. For both film and digital
mammography, the overall accuracy can be determined as well as the sensitivity
and specificity of each modality. The four manufacturers' digital systems
participating in the trial will be reviewed in subset analysis and will allow
performance to be measured for each system.

     The SenoScan system is currently accruing patients into the DMIST trial at
five centers: three major university hospitals, a community hospital, and a
private radiology group. We believe the results of these trials will demonstrate
improved specificity for the SenoScan system as well as for the other competing
systems in the trial. A reduction in false positive exams would be seen as an
important benefit resulting from the deployment of digital mammography systems
into routine clinical use.

     The SenoScan is a slot scanning system that operates with a detector
directly coupled to the x ray tube. The charge coupled device, or CCD, x- ray
detector, 1cm in width, is scanned underneath the breast in synergy with the
x-ray tube, providing a very high resolution digital image of the breast.
Because the system does not require the use of a "scatter grid" the radiation
required to form an image is lower and the slot reduces the amount of scatter
reaching the detector thus providing an image of higher clarity.

     The SenoScan system covers a 22 by 30cm field of view thus is compatible
with more than 99% of the breast sizes in screening mammography. The detector
allows both normal and high resolution modes of operation where the normal mode
uses a 50 micron pixel size for screening mammography. For diagnostic
mammography the system can use a 25 micron pixel for a 11 by 15cm field of view.
This high resolution mode has demonstrated that visualization of micro
calcifications is enhanced as compared to film mammography.

     The Centers for Medicare and Medicare Services, or CMS, finalized Medicare
reimbursement for digital mammography effective January 1, 2002. Digital
screening mammography will be reimbursed at $120 per exam and digital diagnostic
mammography at $134 per exam. CMS also increased film screen reimbursement rates
17%, to $81


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for screening and $91 for diagnostic mammography. The average FDA-approved
Mammography Quality Standard Act, or MQSA, center performed 21 exams per day,
according to a FDA sponsored survey in August 2001.

     A major issue for digital mammography reimbursement will be the adoption
rate of increased payment by private insurance carriers outside the Medicare
program. Medicare is estimated to provide coverage to about half of the women
annually receiving mammography.

Computer Aided Detection Software

     Three companies have received FDA premarket approval to market software
that aids the radiologist in looking for breast cancer on mammography film. We
are in discussions with all three companies regarding the incorporation of these
software programs into the SenoScan digital mammography system. Our policy will
be to offer our customers on an optional basis computer aided detection, or
software programs. We believe radiologists will prefer to use computer aided
detection programs that are integrated with the digital mammography system,
since it is much less labor intensive to operate the software as part of a
digital mammography system. Film based CAD systems require the manual
digitization of the mammograms and require the radiologist to review the films
and digitally displayed marks on separate viewers. With a digital mammography
system this is accomplished with a graphical overlay on one display monitor,
making the review of digital screening mammograms with CAD much easier. Both the
CAD suppliers and we must submit PMA supplements to the FDA in order to market
CAD software with digital mammography systems. Currently, no FDA filings have
been made for any CAD software programs with SenoScan.

     Effective January 1, 2002, common procedural codes, or CPT codes with
values for computer aided detection have been assigned as used with both
screening and diagnostic mammograms. We believe the Medicare reimbursement,
which provides a global payment of about $19, will allow the adoption of these
types of programs that increase the detection rate of cancer. Further, we
believe this reimbursement will provide a further incentive for radiologists to
purchase digital mammography systems with integrated CAD software.

Film Based Mammography and Percutaneous Needle Biopsy Systems

     HFX(TM) Mammography System. HFX is designed to perform high quality, low
dose diagnostic mammograms quickly, easily and efficiently. Using a proprietary
x-ray tube, the HFX generates excellent spatial resolution, particularly at the
front edge of the image receptor where mammograms involving magnification are
performed. The HFX is available in a two-tube configuration for integration with
the Mammotest, providing a cost-efficient system capable of performing
mammograms as well as stereotactic core needle breast biopsies.

     HFX Plus(TM) Mammography System. The HFX Plus includes all the features of
the HFX system and adds small field of view digital spot imaging. The HFX Plus
is designed to accept the removable charge coupled devise or CCD, digital camera
from a Mammotest Plus stereotactic table. This allows communication with a
Mammovision Plus digital workstation. Dense or thin, low absorption tissue areas
can be evaluated on the digital camera. Digital technology gives a wider range
of contrast controls, allowing enhanced visualization of faint lesions as
compared to conventional film screen imaging.

     Mammotest(R)/Mammovision(R) Product Platform. First introduced in 1989, our
Mammotest stereotactic core needle biopsy system is designed expressly for core
needle biopsy of the breast. The Mammotest system consists of an elevating,
prone position table, a mammographic x-ray imaging system and a stereotactic
needle guidance system. We are one of only three manufacturers worldwide of
prone table biopsy systems. In 1992, we introduced Mammovision, the first charge
coupled device, or CCD, imaging system, cleared by the FDA that produces breast
tissue images on nearly a real time basis. With the aid of proprietary software,
the coordinates of a breast lesion can be quickly calculated using a computer
trackball. These coordinates are then transmitted to the Autoguide, a
motor-driven needle holder assembly that precisely aims the biopsy needle at the
lesion. Mammovision has become a standard for providing computer-based imaging
for the Mammotest system.


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     Mammotest Plus(TM)/Mammovision Plus(TM). We introduced Mammotest Plus(TM)
and Mammovision Plus(TM) in November 1995. The Mammotest Plus system permits
360-degree access to the breast. It also incorporates the features of Target on
Scout(TM) and Lateral Arm that allow small breasts (less than 2.5cm when
compressed) and breast lesions in difficult locations to be biopsied more
easily.

     Mammovision Plus is a CCD imaging system that features the ability to
remove the camera from the Mammotest table, allowing the Mammovision Plus camera
to be installed on our HFX diagnostic mammography system. As a result, near real
time digital imaging can be performed in conjunction with standard diagnostic
mammography. This allows the equipment cost to be spread across a larger number
of mammogram procedures that could be performed on a standard diagnostic
mammography system, thus, potentially expanding our market for Mammotest Plus
and Mammovision Plus systems.

     Mammotest Plus "S"(TM) Surgical System. The Mammotest Plus "S" Surgical
System was introduced in February 1998 in support of our marketing alliance with
Ethicon Endo-Surgery, Inc., a Johnson & Johnson company. The Mammotest Plus "S"
is based on the Mammotest Plus prone biopsy system, with enhancements designed
to support the more advanced techniques performed in the surgical market
segment. During 2001, the Elite Camera was introduced for more advanced, high
resolution imaging capability.

     MammoSound(TM). The Fischer Imaging Mammotest table features integrated
ultrasound, combining ultrasound and X-ray guidance with automated targeting.
Compression can be used to stabilize the breast for ultrasonic diagnostic
imaging. Stabilization creates consistency in breast architecture visualization.
Initial trials were conducted in 2001 with availability of the product expected
in 2002. The ultrasound system integrated with the Mammotest system has received
pre market approval from the FDA. MammoSound represents a breakthrough in
offering correlated x-ray and ultrasound imaging as well as automated targeting
using ultrasound guidance.

Electrophysiology Products

     The treatment of arrhythmia patients typically involves a diagnostic study
of the electrical functioning of the heart with an electrophysiology, or EP,
study. We estimate that approximately 200,000 EP studies are performed each
year. If an EP study of an arrhythmia patient demonstrates that the patient must
have a surgical procedure, the electrical activity in the patient's heart is
generally mapped in an effort to locate the precise area of the heart that is
causing the arrhythmia. We manufacture the EP x-ray imaging positioners,
tilt-tables, stimulators and recording devices which are used during these
procedures.

     EP/X(TM). The EP/X system, introduced in 1995, is an economical,
state-of-the-art single plane x-ray imaging system designed to meet the general
EP requirements of most community and teaching hospitals. The EP/X is offered
with our patented automatic pulse progressive fluoroscopy system as an option.


     EP/X(2)(TM). The EP/X(2), a cost-effective, ceiling suspended, bi-plane
fluoroscopy system, is designed to meet all the positioning requirements of
electrophysiologists, with easy access to the patient. FDA permarket approval
for the EP/X(2) was obtained in 1997.

     EPIC(R). EPIC is a computerized image management system used to integrate
and display x-ray images and electrocardiogram, or ECG, signals during an EP
procedure. The EPIC can handle both bi-plane and single plane images and
provides the ability to display three ECG signals from the EPACE recording
system on the x-ray imaging system in both the control room and the procedure
room.

     DTU-215 EP Stimulator. We currently market the DTU-215 EP Stimulator, a
four-channel stimulator for use in EP laboratories.


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General Radiology Products

     We also sell general x-ray imaging systems that use digital image capture
technology. These systems are sold domestically and internationally through
direct and dealer distribution channels for use in hospitals, clinics, and
physician's offices for general radiographic and fluoroscopic screening. We also
supply these systems to Analogic Corporation for eventual sale by Kodak's Health
Imaging Division.

     VersaRad-D(TM). The VersaRad-D is a digital version of our highly
successful Traumex emergency room and general-purpose x-ray system. VersaRad-D
capitalizes on unique positioning capabilities requiring minimal patient
movement, making it well suited for emergency room applications. It is also a
versatile general radiographic system, allowing x-ray of the chest, skeleton,
head, or other extremities. DirectRay(TM) is our digital capture technology
currently incorporated into VersaRad-D.

Sales and Marketing

     Our marketing plan for SenoScan is initially focused on over 1,000
Mammotest customers who are high volume mammography centers. While there are
9,600 MQSA centers performing mammography, the centers with the highest volume
are more likely to install a prone, stereotactic breast biopsy system as they
will be seeing a large number of patients requiring biopsy. We believe the
average Mammotest customer performs about 20 biopsies per month using
stereotactic biopsy and an equal number using ultrasound guidance. Given that
about 3% of women undergoing mammography ultimately undergo biopsy, one can
estimate that the average Mammotest customer conducts about 70 screening
mammograms per day. After adding an average volume for diagnostic mammography,
the typical Mammotest customer conducts about 85 mammograms per day. This is
about four times the average number of mammograms per day reported by the FDA in
a survey in August 2001 for all 9600 MQSA approved centers. Our sales efforts
and resources will be concentrated on these current Mammotest customers as they
would typically require 2-3 SenoScan systems in order to convert to digital
mammography and they have already demonstrated their confidence in Fischer
Imaging through the capital purchase of the Mammotest system. In addition, our
service resources are currently positioned to support these Mammotest customers
which will help reduce the number of additional service engineers required to
support new SenoScan installations. We expect service revenues for SenoScan to
grow following expiration of the SenoScan product warranties over the next year.
Currenltly, all SenoScan systems are under warranty.

     In the United States, we currently market our products through our direct
sales force and certain dealers. Direct sales offers us higher margins, more
control over the sales process and customer contacts, and ongoing service
revenues. We believe that sales of our more sophisticated products may be
enhanced by a focused and dedicated sales force. As a result, the majority of
our sales of Mammotest and EP Systems are made through our direct sales force.
As of December 31, 2001, we had 17 direct sales people whose territories
primarily cover large metropolitan areas and 2 independent dealers covering the
remainder of the United States.

     Historically, our marketing efforts have been focused in the United States.
However, we have also attempted to expand our international marketing efforts to
support our expansion into the European, Asian and Latin American markets. We
formed a subsidiary in Europe to manage our sales and our dealer relationships
in Asia and Europe. International sales have also been made through dealers in
Latin America and the Middle East. In recent years, our efforts to expand
internationally have been met with limited success. Therefore, international
operations have been consolidated, with the closing of an Australian subsidiary.
All international operations are now headquartered at Fischer Imaging
International, Norderstedt, Germany. Marketing alliances that have produced
encouraging results in the United States may, in the future, receive greater
emphasis internationally as a means of expanding our markets.


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     Our marketing activities include trade shows, advertising in professional
journals, telemarketing and the administration of seminars, conferences and
physician training programs. The marketing group develops sales leads and
assesses customer satisfaction with our products, as well as with direct and
dealer service performance.

     Our service organization is responsible for installing our products and
providing warranty service. Products sold by the direct sales force carry
limited warranties covering parts and labor for twelve months. Products sold
through dealers carry more limited warranties, with terms ranging from six to
twelve months and typically covering only parts or components. Service personnel
offer maintenance service either under contracts or at hourly rates. The direct
service organization also provides maintenance service in some foreign
countries. In other foreign countries, we use dealers and third parties to
provide maintenance service for our products. As of December 31, 2001, we
employed 31 field and technical support engineers and 9 administrative and
management personnel in our U.S. service organization.

Third-Party Reimbursement

     The Centers for Medicare and Medicare Services, or CMS, finalized Medicare
reimbursement for digital mammography effective January 1, 2002. Digital
screening mammography will be reimbursed at $120 per exam and digital diagnostic
mammography at $134 per exam. CMS also increased film screen reimbursement rates
17%, to $81 for screening and $91 for diagnostic mammography. The average MQSA
center performed 21 exams per day, according to a FDA sponsored survey in August
2001.

     A major issue for digital mammography reimbursement will be the adoption
rate of increased payment by private insurance carriers outside the Medicare
program. Medicare is estimated to provide coverage to about half of the women
annually receiving mammography.

     Medicare reimbursement for hospitals represents about 40% of all hospital
revenues. Since 1983, Medicare has limited reimbursement for Medicare inpatients
to a fixed amount, based on specified categories of diagnosis known as Diagnosis
Related Groups. Hospital profit margins have been reduced significantly since
the introduction of fixed reimbursement amounts based on Diagnosis Related
Groups. Therefore, hospitals have incentive to use less costly treatment
methods. If a new technology is considered to be more cost effective, hospitals
will frequently make capital expenditures to provide cost savings. Frequently,
Medicare reimbursement rates are reduced to reflect the adoption of a new
procedure or technique and, as a result, hospitals are generally willing to
implement new cost saving technologies before these downward adjustments in
rates become effective.

     In August 2000 Medicare implemented a prospective payment system for all
outpatient procedures performed on Medicare beneficiaries. The new payment
system uses Ambulatory Procedure Codes to group similar procedures and make
fixed payments to hospitals for the technical expenses associated with
outpatient procedures. This prospective payment system is similar to the DRG
inpatient payment system and early experience indicates difficulty in properly
determining the APC groups to which procedures belong. Technical payment amounts
for some procedures such as diagnostic mammography are well below the cost to
perform the procedure and this low reimbursement may dissuade hospitals from
expanding diagnostic mammography services. In addition, while technical payments
increased for open surgical biopsies beginning in January 2002, the technical
fees related to core needle biopsy performed in a hospital outpatient setting
actually decreased. These payment changes may adversely impact the company's
sales of mammography systems and stereo tactic breast biopsy systems.

     Reimbursement for physician services provided to Medicare beneficiaries is
made under a physician fee schedule administered by CMS and the American Medical
Association, or AMA. Procedures are assigned specific Common Procedural Codes,
or CPT codes, by the AMA CPT Editorial Panel and valued by the AMA Relative
Value Update Committee or RUC. The valuation of specific codes is accomplished
by determining the relative value of work required to perform the procedure as
well as the practice expenses associated with the procedure. The total number of
relative value units or RVUs, are multiplied by an annual conversion factor for
Medicare payments to physicians. This conversion factor is determined annually
by CMS. The conversion factor translates into dollars the total amount
physicians will receive for a particular procedure represented by a CPT code.
For 2002, Medicare reduced the conversion factor for Medicare Part B payments by
4.7%, essentially reducing physician remuneration by the same


                                       9

<PAGE>

amount for all Medicare procedures. Percutaneous breast biopsy procedures
however were generally increased as the number of RVUs allocated to the
procedure was increased by the AMA RUC Committee. In addition, rates for both
diagnostic and screening mammography were increased over the rates in 2001 by
about 17% and permanent reimbursement amounts were set for both screening and
diagnostic digital mammography. The rates for digital mammography were set about
$40 higher than the film screen mammography rates.

     Normally private insurance carriers follow Medicare's lead in determining
whether to provide coverage for medical procedures and frequently base payment
off the Medicare physician fee schedule. Historically private insurance carriers
have paid up to 40% more than Medicare rates but there is no assurance that
private carriers will continue this practice. For high volume procedures such as
mammography screening, private insurance carriers negotiate fee schedules with
providers that may in fact be lower than the Medicare fee schedule. While
Medicare reimbursement rates for digital mammography procedures is sufficient to
allow most MQSA centers to amortize the cost of systems such as our SenoScan
digital mammography system, failure of a majority of private carriers to adopt
Medicare rates for digital mammography could adversely impact the Company's
sales projections for its SenoScan system.

     In general we cannot predict what effect the policies of government
agencies and other third party payors will have on future sales of our products,
and such policies may have a material adverse impact on our business.

Strategic Alliances

     We have a strategic marketing and distribution alliance that we believe
will allow us to compete more effectively in the markets for our products.

     Ethicon Endo-Surgery, Inc., a Johnson & Johnson company. Since October
1997, we have been operating under a marketing partnership with Ethicon
Endo-Surgery, Inc. for the marketing and sale of Mammotest Plus "S", a version
of our Mammotest Plus prone biopsy system designed for the requirements of the
surgical market. The agreement purports to be an exclusive arrangement for
third-party marketing of Mammotest, and the agreement also contains certain
right of first refusal and right of first offer provisions. We are actively
seeking clarifications and modifications of this agreement. In January, we
clarified with Ethicon-Endo-Surgery that SenoScan is not covered by this
agreement, and consequently we have full control of the sales and marketing of
SenoScan. This agreement can be renewed by Ethicon Endo Surgery, Inc. in October
2002 for additional periods of three years by exercising its renewal right
together with a payment of $400,000 for each additional period to the Company.
We cannot predict whether Ethicon Endo-Surgery will exercise its renewal right.
We can terminate this agreement if Ethicon Endo-Surgery breaches its terms.

     In December 1998, we entered into an agreement with Ethicon Endo-Surgery
Europe for the distribution of the Mammotest system in Europe. Under this
agreement, we will provide applications and service support, while EES Europe
will be responsible for sales of the Mammotest system. Under the terms of this
agreement, in the event that we, in the future, were unable to meet certain
potential delivery obligations, Ethicon Endo-Surgery could have the right to
demand a liquidated damages amount of $600,000 and terminate the agreement.

Competition

     The medical device industry is intensely competitive. Many companies are
actively engaged in research and development of medical devices for mammography
breast biopsy, and many companies are specifically involved in the development
of digital imaging systems for mammography. Many of these companies have
substantially greater financial and other resources, larger research and
development staffs, and more extensive marketing and manufacturing organizations
than we do. In addition, some of them have considerable experience in regulatory
approval procedures.

     We face significant competition from large companies that are pursuing the
same or similar technologies, including digital imaging, as the technologies
used by us in our SenoScan digital mammography system. For example, the FDA has
approved two additional digital mammography systems for marketing. On January
31, 2000, the FDA cleared the Senographe 2000D from General Electric, and in
March 2002, the FDA cleared a digital mammography


                                       10

<PAGE>

system from Lorad/Hologic. Additional companies have announced plans to develop
digital mammography systems. These companies include Siemens, Kodak, and
Instrumentarium.

     Developments by others may render our digital mammography system or other
technologies obsolete or noncompetitive. We face and will continue to face
intense competition from other companies for collaborative arrangements and for
securing licenses to additional technologies. These competitors, either alone or
with their collaborative partners, may succeed in developing technologies or
products that are more effective than ours.

Backlog

     As of March 1, 2002, we had backlog of $3.5 million. We expect to fill all
of this backlog during 2002, however by year end 2002 we may have additional
backlog that will carry forward to the next fiscal year. As of December 31,
2001, we had backlog of $1.9 million, as compared to backlog of $1.4 million as
of December 31, 2000. Our backlog generally includes only product orders for
which delivery is requested within the upcoming twelve months. Backlog as of any
particular date should not be relied upon as being indicative of our revenues
for any future period.

Manufacturing

     Our products are manufactured at our manufacturing facility in Denver,
Colorado. Production processes include printed circuit board assembly and
testing, subassembly, system assembly and final testing. Our quality assurance
program includes various quality control measures from inspection of raw
materials, purchased parts and assemblies through on-line inspection.

     Our manufacturing processes are, largely, subcontracted with outsourcing
suppliers. We purchase materials and components from various suppliers that are
either standard products or built to our specifications. Certain components used
in existing products, as well as products under development, are frequently
purchased from single sources. We believe that alternative sources for such
components may generally be obtained when necessary, although the need to change
suppliers or to alternate between suppliers might cause material delays in
delivery or significantly increase costs. Moreover, we may not be able to timely
obtain components from alternate sources and on commercially reasonable terms,
if at all, and we may suffer a material adverse effect as a result.

Intellectual Property

     We seek to protect our proprietary rights through a combination of
technical experience, patent, trade secret and trademark protection and
nondisclosure agreements. Our future success will depend in part on our ability
to obtain and enforce patent protection for our products and processes, preserve
our trade secrets and operate without infringing on the patent or proprietary
rights of others. Our issued patents cover, among other things, certain features
of our Mammotest stereo tactic breast biopsy system, our SenoScan digital
mammography system, our MammoSound ultrasound biopsy option for the Mammotest
system, and our MR biopsy system.

     We have numerous U.S. and foreign issued patents and pending patent
applications covering various aspects of our products. Our current or future
patents may be challenged, invalidated or circumvented, and that the rights
thereunder may not provide us with any competitive advantages. In addition, the
laws of some foreign countries do not protect proprietary right to the same
extent as the laws of the United States. We anticipate that any attempt to
enforce our patents would be time consuming and costly. In addition, we could be
found to have infringed on patents of others and, as a result, could be required
to alter our products or processes or acquire licensing rights. Such rights
might not be available on commercially reasonable terms, if at all, requiring us
to cease making and selling any infringing products and pay damages for past
infringement.

     We also rely on trade secrets and proprietary know-how that we seek to
protect, in part, through appropriate confidentiality and proprietary
information agreements. These agreements generally provide that all confidential
information developed or made known to an individual during the course of his or
her relationship with us is not to be disclosed to third parties, except in
specific circumstances. They also generally provide that all inventions
conceived by the individual in the course of his or her services to us are our
exclusive property. Confidentiality or proprietary


                                       11

<PAGE>

information agreements may be breached, remedies for any breach may be
inadequate, and our trade secrets may otherwise become known to, or
independently developed by, our competitors.

     We, from time to time, have technology license agreements under which we
pay nominal royalties in connection with the sale of products using a third
party's technology.

     As described more fully under Item 3 "Legal Proceedings," we continue to
vigorously pursue our claims of patent infringement against Lorad covering
certain features of our stereotactic breast biopsy system.

     Fischer(R), Fischer Imaging(R), Mammotest(R), SenoScan(R), EPIC(R),
Mammovision(R), and TRAUMEX(R) are our registered trademarks, and Mammotest
Plus(TM), Mammotest Plus "S"(TM), Mammovision Plus(TM), MammoSound(TM), HFX(TM),
HFX Plus(TM), Cardiac CX/Pegasus(TM), Target on Scout(TM), EPACE(TM), and
EP/Stim(TM), EP/X(TM), and EP/X(2)(TM) are our trademarks.

Risk Factors

Our business could be harmed if SenoScan, our digital imaging system, contains
undetected errors or defects or does not meet customer needs.

     SenoScan, our digital imaging system, is a new product and may contain
undetected errors or defects. SenoScan has not been widely tested by our
customers or manufactured by us on a large scale. In addition, SenoScan may not
meet our customers' performance specifications under all conditions or for all
applications. If, despite our internal testing and testing by our customers,
SenoScan contains errors or defects or fails to meet customer needs, then we may
be required to enhance or improve SenoScan's design. We may not be able to do so
on a timely basis, if at all, and may only be able to do so at considerable
expense. The software that powers SenoScan is currently UNIX-based. We are
converting that software to run on a more user-friendly operating system. We may
encounter problems in this conversion, including delays or malfunctions of the
software. Any significant reliability problems we experience with SenoScan could
result in adverse customer reaction and negative publicity and could harm our
business and prospects.

The market for our digital imaging products is unproven.

     The market for SenoScan is unproven. We have had only limited sales of our
SenoScan system since its introduction, and our sales plan contemplates
increasing the manufacture of SenoScan systems slowly and gradually.


                                       12

<PAGE>

Thus, it will take some time before we can ascertain whether SenoScan has been
accepted by clinicians. There is a significant installed base of conventional
X-ray imaging products in hospitals and radiology practices. The use of SenoScan
in many cases would require these potential customers to either modify or
replace their existing X-ray imaging equipment. Moreover, we believe that a
major factor in the market's acceptance of digital imaging technology is the
trend toward transition by the healthcare industry from conventional film
archiving systems to storage of X-ray images electronically. Because the
benefits of our direct-to-digital technology may not be fully realized by
customers until they install an electronic storage platform, a large potential
market for these products may not develop until electronic storage is more
widely used. Because of the early stage of the markets for these products, it is
likely that our evaluation of the potential markets for these products will vary
with time. A significant market for SenoScan and digital imaging products may
not develop.

Some studies have questioned the efficacy of mammography to reduce mortality. If
mammography proves to be less effective, our business would be seriously harmed.

     Some publications have questioned the efficacy of screening mammography to
reduce mortality. If mammography is proven to be ineffective, our business would
be seriously harmed. From time-to-time analyses are published that question the
efficacy of mammography to reduce mortality from breast cancer. Most recently, a
group of researchers in Denmark led by Peter Gotzsche and Ole Olsen published a
study in the Lancet questioning the justification for screening for breast
cancer with mammography. The Gotzsche and Olsen study performed a re-analysis of
several prior studies on the efficacy of mammography, and concluded that there
was no benefit to mammography screening as a cancer prevention measure. Many
academicians and health policy groups question Gotzsche and Olsen's findings,
but even if untrue, these claims could influence mammography usage in the United
States and undermine adoption of mammography in countries where screening is not
widely adopted. In addition, the American Cancer Society and the U.S. Department
of Health and Human Services currently recommends annual mammograms for women
over the age of 40, with an initial screening at age 35. If other articles or
studies question the efficacy of mammography, or if cancer organizations or
governmental agencies cease recommendation of regular mammograms, our business
would suffer.

The strategies of our competitors, some of which hold greater resources than us,
could adversely impact our success.

     We encounter and expect to continue to encounter intense competition in the
sale of our products. Our competitors include large multinational corporations,
including GE Medical Systems, Siemens, Philips, Toshiba, and Hitachi, as well as
a number of other companies such as Hologic Corporation and Instrumentarium.
These companies typically have a larger installed base and far greater
financial, management, manufacturing, sales and marketing, and other resources
than us. As a result, they may be able to more quickly adapt to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, manufacture, promotion and sale of their products.
We also face competition from sellers of used x-ray imaging equipment,
particularly general radiology systems, at prices substantially below the prices
of our new products. In addition, we compete for acquisition opportunities,
service contracts and experienced personnel.

     Our Mammotest system principally competes with the prone-positioning breast
biopsy system manufactured by Hologic, formerly manufactured by Trex Medical
Systems. Hologic continues to aggressively price and market Lorad(TM), their
prone-positioning breast biopsy system. Many larger companies, including GE
Medical Systems, Philip and Siemens, also offer stereotactic add-on systems. In
December 1998, following the acquisition of U.S. Surgical Corporation, or USSC,
by Tyco Corporation, Trex Medical announced the termination of our OEM agreement
with USSC for the sale of the stereotactic table manufactured by Lorad on a
private label basis. In December 1999, Trex Medical announced it had agreed to
repurchase $4.7 million in inventory from USSC. These systems were part of the
Lorad assets sold by Trex to Hologic, many of which have been sold on the market
at low prices, harming our ability to sell our system at normal prices. See Item
3 "Legal Proceedings" for a discussion of our patent infringement litigation
against Trex and Hologic.

Failure of third-party payors to provide appropriate levels of reimbursement for
use of our products could harm our business.

     Sales of medical products largely depend on the reimbursement of patients'
medical expenses by government healthcare programs and private health insurers.
The costs of our products are substantial, and market acceptance of our products
depends upon our customers' ability to obtain appropriate levels of
reimbursement from third-party payors for use of our products. Technical payment
amounts for some procedures such as diagnostic mammography are well below the
cost to perform the procedure and this low reimbursement may dissuade hospitals
from expanding diagnostic mammography services. In addition, while technical
payments increased for open surgical biopsies beginning in January 2002, the
technical fees related to core needle biopsy performed in a hospital outpatient
setting actually decreased. The use of our products outside the United States is
similarly affected by reimbursement policies adopted by foreign regulatory and
insurance carriers. We cannot predict what effect the policies of government
agencies and other third party-payors will have on future sales of our products,
and such policies may have a material adverse effect on our business. For more
information on reimbursement policies and their effect on our business, please
see Item 1. Business--"Third Party Reimbursement."


                                       13

<PAGE>

     On January 31, 2000, the FDA cleared the Senographe 2000D from General
Electric for marketing in the U.S. In March 2002, the FDA cleared a digital
mammography system from Lorad/Holgic. Additional companies have announced plans
to develop digital mammography systems. These companies include Siemens, Kodak,
and Instrumentarium. To date none of these companies has made public any
submission to the FDA for PMA approval.

Our success is dependent on complying with the complex regulatory requirements
of a variety of U.S. governmental agencies.

     Our business is subject to substantial regulation by the U.S. Food and Drug
Administration, or FDA. Failure to comply with applicable regulatory
requirements can result in, among other things, civil and criminal fines, orders
to repair or replace devices or to refund the device purchase price, suspensions
and withdrawals of approvals, product recalls, detentions or seizures,
injunctions and criminal prosecutions.

     FDA regulations require manufacturers of medical devices to adhere to
"Quality Systems Regulations", which include testing, quality control and
documentation procedures for design and manufacturing. Our manufacturing
facilities are subject to periodic inspection by the FDA. In March 1995, we were
issued a Warning Letter by the FDA concerning documentation and other
deficiencies at our Denver facility. We rectified these deficiencies and
resolved this matter with the FDA later that year. Following an inspection which
concluded in December 1996, the FDA issued Inspectional Observations Form 483,
or Form 483, and a Warning Letter concerning manufacturing practices at our
Denver facility. The FDA requested a written response to the Warning Letter
regarding planned corrective actions and a favorable third-party certification
of our manufacturing and quality systems. These actions were completed. In
October 1998, following a periodic inspection, the FDA issued a Form 483
regarding possible deficiencies in manufacturing, quality, and documentation
practices. We have submitted our response to the Form 483 and have instituted
corrective actions. In August 2001, following an inspection by the FDA, we were
issued a 483 with two minor observations, which we have since rectified.

     Failure to satisfy FDA requirements can result in our inability to receive
awards of federal government contracts, to receive new marketing or export
clearances for products manufactured at our Denver facility, or FDA enforcement
actions including, among other things, product seizure, injunction, and/or
criminal or civil proceedings being initiated by the FDA without further notice.
The issuance of another Form 483 increases the possibility that one or more of
these sanctions could be imposed in the future. Although we strive to operate
within the requirements imposed by the FDA, these deficiencies may not be
corrected and we may not be able to satisfy FDA compliance concerns in the
future.

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

     The FDA has post-marketing controls that include a requirement to file
medical device reports when we become aware of information suggesting that one
of our marketed products may have caused or contributed to a death, serious
injury or serious illness or has malfunctioned in a way which could lead to that
result. We must use field performance information, which includes any reportable
events, in our quality control system to make any changes necessary to reduce or
eliminate similar events in the future. The FDA uses Medical Device Reports to
determine whether it should exercise enforcement powers, such as mandatory
product recalls, temporary suspensions of approvals, or withdrawal of 510(k)
marketing clearances or pre-market approvals. The filing of Medical Device
Reports indicating unexpected product hazards or the failure to comply with
medical device reporting requirements could have a material adverse effect on
us.

     Each of our products are required to receive FDA clearance or approval
prior to commercialization. To date, all of our products have been classified by
the FDA as Class II medical devices and have been eligible for FDA marketing
clearance under the FDA's 510(k) pre-market notification process, which is
generally less time consuming than the more involved pre-market approval process
for Class III medical devices, or PMA. We believe that most of our currently
anticipated future products and substantial modifications to existing products
will be eligible for the 510(k)


                                       14

<PAGE>

pre-market notification process. However, the FDA has required our SenoScan
system to undergo the more stringent PMA process to achieve pre market
clearance.

     Under a PMA, failure to obtain necessary regulatory approvals, the
restriction, suspension or revocation of existing approvals, or any failure to
maintain regulatory requirements could have a material adverse effect on our
business, financial condition and results of operations.

Our inability to obtain any necessary foreign regulatory clearances or approvals
for our products could harm our business and prospects.

     Sales of medical devices outside of the United States are subject to FDA
export and international regulatory requirements that vary from country to
country. The time required to obtain approval for sale internationally may be
longer or shorter than that required for FDA clearance or approval, and the
requirements may differ. We may not be able to obtain regulatory approvals in
such countries and we may incur significant costs in obtaining or maintaining
our foreign regulatory approvals. We have obtained the certifications necessary
to permit the "CE" mark to be attached to those products currently being sold in
Europe. The CE mark is an international symbol of quality that is now required
for sales into the countries which are members of the European Union. Although
we have approval to sell into the European Union, we may not be able to obtain
other international regulatory approvals. In addition, significant costs and
delays may be encountered in obtaining such approvals.

Our failure to comply with regulations governing radiation-emitting products
could harm our business and subject us to liability.

     We are also regulated by the FDA under the Radiation Control for Health and
Safety Act of 1968, which specifically addresses radiation-emitting products.
Under this law, we must submit initial reports on any new x-ray systems that
require certification. In addition, we must submit installation reports to the
FDA certifying compliance with installation instructions of the manufacturer.
Under certain circumstances, we also are required to submit Product Defect
Reports concerning our radiation emitting products to the FDA and, sometimes, to
the first purchasers of the products. Product Defect Reports describe any safety
related product defects or the failure of a product to conform to an applicable
standard of which we have become aware. Additionally, we are required to submit
Accidental Radiation Occurrence reports to the injurious exposure to any person.
However, we need not file both a Medical Device Report and an Accidental
Radiation Occurrence report on the same incident. A failure to comply with these
regulations could have a material adverse effect on us. Furthermore, discovery
of unexpected product hazards or failures to meet required standards through the
reporting system could also have a material adverse effect on us.

The success of our new products depends on successful product design efforts,
receipt of FDA clearances, and market acceptance.

     We have a number of potential new products under consideration for future
research and development. Current research and development efforts are focused
on the development of the next generation of SenoScan, our full field digital
mammography system. In addition, significant efforts are being expended on
integration of ultrasound with the Mammotest Plus "S" system. These products
involve technological innovation and require significant planning, design,
development and testing at the technological, product and manufacturing process
levels. Significant investments in research and development, equipment,
inventory, manufacturing and marketing are also required. Lengthy and expensive
clinical trials could also be required prior to submission to the FDA for FDA
clearance or approval. We may not be able to successfully design, manufacture
and market new products and the new products may not receive FDA clearance or
approval. In addition, our newest products may be used with minimally invasive
surgical procedures and we believe that we must demonstrate to physicians and
managed healthcare organizations the clinical benefits, safety, efficacy and
cost-effectiveness of our products for such procedures. In particular, we must
demonstrate that our products are an attractive alternative to other products
and methods that may be widely accepted. Surgeons may not embrace such
techniques as replacements for open surgical procedures and hospitals may not be
willing to invest in and use our products. Lack of widespread acceptance of
these products could have a material adverse effect on our future revenues and
earnings.

The uncertainty of healthcare reform could adversely affect our business.

     In recent years, the healthcare industry has undergone significant change
driven by various efforts to reduce costs, including efforts at national
healthcare reform, trends toward managed care, cuts in Medicare, consolidation
of healthcare distribution companies and collective purchasing arrangements by
office-based healthcare practitioners. Healthcare reform proposals and medical
cost containment measures in the United States and in many foreign countries
could:

o    limit the use of our products;
o    reduce reimbursement available for such use; or
o    adversely affect the use of new therapies for which our products may be
     targeted.

     These reforms or cost containment measures, including the uncertainty in
the medical community regarding their nature and effect, could harm our business
and prospects and make it difficult for us to raise additional capital on
advantageous terms, if at all.


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<PAGE>

We may not be successful in our international operations.

     Revenues from customers based outside the United States accounted for,
14.65%, 16.9%, and 15.4% of our total revenues in 2001, 2000, and 1999,
respectively. Our international business may be harmed by:

o    the expense and difficulty of establishing, expanding, and managing
     international operations;
o    the difficulty of enforcing agreements, collecting receivables, and
     protecting intellectual property in foreign countries;
o    the potential imposition by foreign countries of additional withholding
     taxes, income taxes, tariffs, or other restrictions on foreign trade;
o    potential difficulties in obtaining U.S. export licenses;
o    political and economic changes and disruptions; and
o    changes in various regulatory requirements.

Quick response to technological change will be critical to our future success.

     The market for our products is characterized by rapid and significant
changes in competitive technologies, evolving medical industry standards, and
the frequent introduction of new products. Alternative surgical procedures or
technologies or new medications may also be developed and marketed. Products
based on new technologies could replace or reduce the importance of current
procedures that use our products and render these products noncompetitive.
Therefore, our success will depend in part on our ability to respond quickly to
new product introductions, marketing campaigns and medical and technological
changes through the development of new products. We may not be able to develop
new products in a timely or cost-effective manner, if at all, and our current
products may be rendered obsolete or noncompetitive.

Our success is dependent upon establishing appropriate manufacturing processes,
resolving supply issues, obtaining adequate manufacturing resources, and being
able to contain manufacturing costs.

     The scope of the product lines we offer and the need for product
customization require a number of separate manufacturing processes and
components and significant management and engineering time and expertise.
Additionally, as we develop new products, we will be required to refine the
prototypes of these products and develop new processes to manufacture these
products in commercial quantities. We have encountered and may continue to
encounter difficulties involving inventory supply, length of production cycles
and shortages of manufacturing personnel. Due to the shifting demand for our
products and the high fixed costs associated with manufacturing these products,
we may encounter difficulty managing our operating costs. We may not be able to
reliably or efficiently manufacture our existing or new products at commercially
reasonable costs on a timely basis, if at all. Failure to effectively manage the
development and manufacture of our products could adversely affect us.


                                       16

<PAGE>

Potential product defects or related performance or safety issues might result
in product recalls, loss of market share and significant legal or insurance
costs.

     Our business exposes us to potential product liability claims which are
inherent in the manufacture and sale of medical devices and, as such, we may
face substantial liability to patients for damages resulting from the faulty
design or manufacture of products. We have been a defendant from time to time in
product liability actions. We maintain product liability insurance with coverage
limits of $5 million per occurrence and per year in the aggregate. Product
liability claims may exceed coverage limits and product liability insurance may
not be available at commercially reasonable rates, if at all. Consequently, a
product liability claim or other claim in excess of insured liabilities or with
respect to uninsured liabilities could have a material adverse effect on us.

     Complex medical devices, such as our products, can experience performance
problems in the field that require review and possible corrective action by the
manufacturer. We periodically receive reports from users of our products
relating to performance difficulties they have encountered. These or future
product problems could result in market withdrawals or product recalls, which
could have a material adverse affect on our business, financial condition and
results of operations.

If we fail to adequately protect our intellectual property, our competitive
position could be harmed.

Development and protection of our intellectual property are critical to our
business. If we do not adequately protect our intellectual property, both in the
United States and abroad, competitors may be able to practice our technologies.
Our success depends in part on our ability to:

     o    obtain patent protection for our products and processes both in the
          United States and other countries
     o    protect trade secrets
     o    prevent others from infringing on our proprietary rights

     There are numerous risks and uncertainties that we face with respect to our
patents and other proprietary rights. Currently, most pending patent
applications in the United States are maintained in secrecy until issuance, and
publication of discoveries in the scientific or patent literature tends to lag
behind actual discovery by several months. Thus, we may not have been the first
to file patent applications on our inventions. Our patent applications may not
issue into any patents. Once granted, the claims of any issued patents may not
afford meaningful protection for our technologies or products. In addition,
patents issued to us or our licensors may not provide competitive advantages for
our products or may be challenged by our competitors and subsequently narrowed,
invalidated or circumvented. Competitors may also independently develop similar
or alternative technologies or duplicate any of our technologies.

     Litigation, interference proceedings, oppositions or other proceedings that
we may become involved in with respect to our proprietary technologies could
result in substantial cost to us. Patent litigation is widespread in our
industry, and any patent litigation could harm our business. Costly litigation
might be necessary to protect our proprietary rights, and we may not have the
required resources to pursue such litigation or to protect our rights. An
adverse outcome in litigation with respect to the validity of any of our patents
could subject us to significant liabilities to third parties, divert the
attention of management and technical personnel from other business and
development concerns, require disputed rights to be licensed to or from third
parties or require us to cease using a product or technology or lose our
exclusivity rights with respect to such technology. Please see Item 3, "Legal
Proceedings" for a discussion of litigation relating to our patents.

     We also rely upon trade secrets, proprietary know-how and continuing
technological innovation to remain competitive. Additionally, our trade secrets
and know-how could otherwise become known or be independently developed by third
parties. Confidentiality agreements with our employees, consultants and
corporate partners


                                       17

<PAGE>

with access to proprietary information could be breached, and we might not have
adequate remedies for any such breach.

Our products could infringe on the intellectual property rights of others, which
may cause us to engage in costly litigation and, if we are not successful, could
cause us to pay substantial damages and prohibit us from selling our products.

     Third parties may assert infringement or other intellectual property claims
against us based on their patents or other intellectual property claims. We may
have to pay substantial damages, possibly including treble damages, for past
infringement if it is ultimately determined that our products infringe a third
party's patents. Furthermore, we may be prohibited from selling our products
before we obtain a license that, if available at all, may require us to pay
substantial royalties. Even if infringement claims against us are without merit,
defending a lawsuit takes significant time, may be expensive and may divert
management attention from other business concerns and also divert efforts of our
technical personnel.

We may be unable to build brand loyalty because our trademarks and trade names
may not be protected.

     Our registered or unregistered trademarks or trade names, such as the marks
SenoScan, Mammotest and MammoSound, may be challenged, canceled, infringed upon,
circumvented, declared generic or determined to be infringing on other marks. We
may not be able to protect our rights to these trademarks and trade names,
without which we may be unable to build brand loyalty. Brand recognition is
critical to our short-term and long term marketing strategies especially as we
commercialize future enhancements to our products. Moreover, if our trademarks
are found to infringe on marks belonging to third parties, we may be forced to
market our products under a different name, which could require a costly and
difficult re-branding effort, and we could be ordered to pay damages to a third
party.

The departure of key employees could adversely affect our future success.

     Our future performance is partially dependent on the services of Louis E.
Rivelli, our President and Chief Executive Officer, and Morgan W. Nields, our
Chairman. We have no employment agreement with Mr. Nields. We carry $5 million
of key man life insurance on Mr. Nields. In addition, our continued success will
depend heavily on our ability to attract and retain highly qualified
engineering, management, manufacturing, marketing and sales personnel. We may
not be able to continue to attract and retain such people. Failure to hire and
retain such personnel could have a material adverse effect on us.

Significant fluctuations in our quarterly operating performance or in stock
market performance generally could cause the price of our common stock to be
highly volatile.

     The market price of our common stock could be subject to significant
fluctuations in response to variations in quarterly operating results and other
factors. In addition, the securities markets have experienced significant price
and volume fluctuations from time to time in recent years that have often been
unrelated or disproportionate to the operating performance of particular
companies. These broad fluctuations may adversely affect the market price of our
common stock.

We may experience significant fluctuations in operating results, which could
cause the price of our common stock to decline.

     We have experienced fluctuations in our quarterly operating results and
anticipate that such fluctuations will continue and could intensify.
Fluctuations in operating results may result in volatility in the price of our
common stock. Although we have taken significant steps to return to
profitability, we may not achieve continued profitability, and levels of
profitability may vary significantly between quarters. As a result,
quarter-to-quarter comparisons of operating results are not necessarily
meaningful or indicative of future performance. In addition, it is likely that
our future quarterly operating results may be below the expectations of public
market analysts or investors. In such event, or in


                                       18

<PAGE>

the event that adverse medical device market conditions prevail, or are
perceived to prevail, with respect to our business or generally, the market
price of our common stock would likely be materially adversely affected.

Exercises of a significant number of stock options, or other substantial sales
of our common stock could adversely affect the market price of our common stock.

     Sales of a substantial number of shares of common stock, or the perception
that such sales could occur, could have a material adverse effect on the market
price of our common stock and could impair our ability to raise capital through
the sale of equity securities. As of March 1, 2002 there were approximately
9,181,179 shares of common stock outstanding, and there were 1,415,505 shares
reserved for issuance upon exercise of outstanding stock options, 409,933 of
which were then exercisable.

     Future sales of shares of common stock under Rule 144 of the Securities Act
     by existing holders of our common stock or through the issuance of shares
     of common stock upon the exercise of options could have an adverse effect
     on the price of our common stock.

Our policies could be significantly influenced by the voting power of our
officers, directors, and significant shareholders.

     Our officers and directors beneficially own, in the aggregate,
approximately 12.1% of our Common Stock as of March 1, 2002. As a result, the
officers and directors are able to exercise significant influence on the
election of our Board of Directors and thereby direct our policies.

Anti-takeover provisions in our charter and in other agreements, and the
concentration of share ownership, could discourage purchases of or offers to
purchase us, even if those offers might be favorable to stockholders.

     Our Certificate of Incorporation and Bylaws include provisions that may be
deemed to have anti-takeover effects and may delay, defer or prevent a takeover
attempt that stockholders might consider in their best interests. These
provisions include the ability of the Board of Directors to issue shares of
preferred stock in one or more series with such rights, obligations and
preferences as the Board of Directors may provide, a "fair price" provision, a
provision that requires stockholder action to be taken at meetings and not by
written consent, a provision under which only the Board of Directors may call
meetings of stockholders, certain advance notice procedures for nominating
candidates for election to the Board of Directors and staggered terms for our
Board of Directors.

     In November 1994, our Board of Directors adopted a stockholder rights plan
and, pursuant thereto, issued preferred stock purchase rights, or Rights to the
holders of our common stock. The Rights have certain anti-takeover effects. If
triggered, the Rights would cause substantial dilution to a person or group of
persons (other than certain exempt persons, including Morgan W. Nields, one of
our founders and our Chairman of the Board, who acquires more than 15% of our
common stock on terms not approved by the Board of Directors.

     In addition, in December 1995 the Board of Directors adopted a Retention
Bonus Plan. Pursuant to this plan, we will make payments to our executive
officers; directors and key employees in the event of a change of control, and
all outstanding unexercised options will immediately vest. This plan, like the
stockholders rights plan, may have an effect of delaying or preventing a
takeover of us.

Employees

     As of December 31, 2001, we had 158 employees, including 56 in
manufacturing, 21 in engineering, 66 in sales, marketing and service and 15 in
administration. None of our employees are parties to a collective


                                       19

<PAGE>

bargaining agreement. We consider relations with our employees to be
satisfactory. On an as-needed basis we sub-contract personnel to augment our
needs.


ITEM 2.  PROPERTIES

     We maintain a leased office and manufacturing facility in Denver, Colorado.
This facility includes approximately 120,000 square feet of office and
manufacturing space and is leased from a partnership whose general partners are
Morgan W. Nields, our Chairman of the Board, and Kenney Johnson, a stockholder.
The Denver facilities include our headquarters. We also lease office space in
Germany. We believe our present facilities are adequate for our foreseeable
future.


ITEM 3.  LEGAL PROCEEDINGS

     We are a defendant in various lawsuits incident to the operation of our
business. In addition, we may from time to time be engaged in litigation or
other legal proceeding concerning disputes with our Original Equipment
Manufacture customers. We believe that there are no pending legal proceedings
that would have a material adverse effect on our consolidated financial
position.

     In 1992,we sued Lorad Corporation (which was subsequently acquired and
became an operating division of Trex Medical Corporation) for infringement of
U.S. Patent No. 5,078,142 ( the "`142 Patent"), our patent corresponding to the
Mammotest system. Trex denies infringement and has raised a number of additional
defenses, including invalidity of the patent. In April 1998, we sued Trex
Medical Corporation for alleged patent infringement of U.S. Patent No.
5,735,264, a newly-issued patent related to the `142 Patent. The first case,
based on the `142 Patent, and the second case, based on the `264 Patent, were
consolidated in 1998, and have proceeded jointly since then.

     On September 22, 2000, Trex filed a motion asserting that all claims of the
`264 patent were invalid and/or unenforceable against Trex on the grounds that a
certificate of correction (correcting the `264 Patent and obtained by Fischer in
August, 1998) had not issued at the time the lawsuit was filed. By order dated
September 28, 2001, the court denied Trex's motion. On February 23, 2001, Trex
filed a motion asserting that Fischer's claims on the `142 Patent were invalid
based on a recent decision made by the Federal Circuit. On September 28, 2001,
the Court denied Trex's motion, but Trex may still re-file the motion depending
on the U.S. Supreme Court's review of the Federal Circuit decision.

     On November 29, 2001, we and Trex agreed on the appointment of a three
person panel to interpret the claims on the `142 and `264 Patents. The panel
will proceed with its interpretation once the U.S. Supreme Court issues its
opinion in the Federal Circuit decision, which is expected in late spring or
early summer of 2002. In connection with our lawsuits against Trex based on the
`142 and `264 patents, Trex has filed antitrust suits against us, alleging that
we are engaging in anticompetitive conduct because our patents are invalid and
we should not have sued Trex. These suits will not be decided until the outcome
of the `142 and `264 suits is known.

     In 2000, Hologic, Inc. purchased the Lorad division of Trex, including the
allegedly infringing designs and products. On November 13, 2001, we sued
Hologic, Inc. in the United States District Court for the District of
Massachusetts for infringement of the `264 Patent. Hologic has denied any
infringement.

      In addition, in December 2001 we filed patent infringement suits in France
and Germany against Lorad and/or its distributors alleging infringement of
European Patent 0-625-024. Lorad has filed counterclaims. The German patent
courts have set August 2002 for an oral hearing on the matter.


                                       20

<PAGE>

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.


                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our Common stock trades on the Nasdaq Stock Market under the symbol "FIMG."
The following table sets forth, for each of the periods indicated, the high and
low closing sale prices per share of our common stock as reported by the Nasdaq
Stock Market.

                                                            High      Low
                                                           ------    -----
          2000
          First Quarter................................... $ 5.63   $ 1.75
          Second Quarter..................................   4.06     2.06
          Third Quarter...................................   3.94     2.06
          Fourth Quarter..................................   3.88     2.38

          2001
          First Quarter................................... $ 4.88   $ 2.25
          Second Quarter..................................   7.60     3.87
          Third Quarter...................................  14.71     5.45
          Fourth Quarter..................................  17.64    12.00

     As of March 1, 2002, there were approximately 250 record holders of our
common stock. We believe that we have in excess of 1,500 beneficial owners.

     The closing sale price of our common stock on March 1, 2002 as reported by
NASDAQ was $12.01 per share.

     We have not paid any cash dividends on our common stock and intend to
retain future earnings to finance the growth of our business rather than to pay
cash dividends. We are subject to restrictions on the paying of dividends under
terms of our revolving credit agreement and under state law.


                                       21

<PAGE>

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

     The following table contains certain selected consolidated financial data
and is qualified by the detailed Consolidated Financial Statements and Notes
thereto included elsewhere in this Form 10-K. The consolidated balance sheet
data as of December 31, 2001 and 2000, and the consolidated statement of
operations data for each of the three years in the period ended December 31,
2001 have been derived from our Consolidated Financial Statements, which have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report included elsewhere herein. The consolidated balance
sheet data as of December 31, 1999, 1998 and 1997, and the consolidated
statement of operations data for the two years in the period ended December 31,
1997 is derived from our Consolidated Financial Statements which have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports, which statements are not included herein.

<TABLE>
<CAPTION>
                                                       2001        2000        1999        1998        1997
                                                     --------    --------    --------    --------    --------
<S>                                                  <C>         <C>         <C>         <C>         <C>
Statement of Operations Data:
Revenues
       Products and services .....................   $ 48,233    $ 51,016    $ 59,871    $ 59,804    $ 56,908
       Sale of manufacturing license .............       --          --         6,200        --          --
                                                     --------    --------    --------    --------    --------
          Total ..................................   $ 48,233      51,016      66,071      59,804      56,908
Cost of Sales
       Products and services .....................     23,777      25,422      36,697      36,883      39,252
       Sale of manufacturing license .............       --          --           400        --          --
                                                     --------    --------    --------    --------    --------
          Total ..................................     23,777      25,422      37,097      36,883      39,252
                                                     --------    --------    --------    --------    --------
               Gross profit ......................     24,456      25,594      28,974      22,921      17,656
Operating expenses

       Research and development ..................      3,485       3,708       5,850       6,394       6,043
       Selling, marketing and service ............     12,388      14,146      15,783      15,299      16,323
       General and administrative ................      4,984       5,205       5,945       5,284       4,988
       Litigation loss ...........................       --          --          --           500        --
       Restructuring provisions ..................       --          --           750        --         2,900
                                                     --------    --------    --------    --------    --------
          Total operating expenses ...............     20,857      23,059      28,328      27,477      30,254
                                                     --------    --------    --------    --------    --------
Earnings (loss) from operations ..................      3,599       2,535         646      (4,556)    (12,598)
Interest expense .................................       (138)       (475)       (753)       (357)       (181)
Interest income ..................................         77          65          91          74         271
Other (expense) income ...........................       (257)          7        (327)         38        (760)
                                                     --------    --------    --------    --------    --------
Earnings (loss) before income taxes ..............   $  3,281    $  2,132    $   (343)   $ (4,801)   $(13,268)
Provision (benefit) for income taxes .............       --          --          --         2,002        --
                                                     --------    --------    --------    --------    --------
Net earnings (loss) ..............................   $  3,281       2,132        (343)     (6,803)    (13,268)
                                                     ========    ========    ========    ========    ========
Net earnings (loss) per common share
       Basic .....................................   $   0.37    $   0.28    $   (.05)   $   (.97)   $  (1.91)
                                                     ========    ========    ========    ========    ========
       Diluted ...................................   $   0.34    $   0.27    $   (.05)   $   (.97)   $  (1.91)
                                                     ========    ========    ========    ========    ========
Shares used to calculate earnings (loss) per share
       Basic .....................................      8,754       7,541       7,029       6,980       6,949
                                                     ========    ========    ========    ========    ========
       Diluted ...................................      9,519       7,822       7,029       6,980       6,949
                                                     ========    ========    ========    ========    ========

Balance Sheet Data (at end of period):
Working capital ..................................   $ 28,437    $ 23,372    $ 14,739    $ 19,095    $ 25,179
Total assets .....................................     42,805      38,476      41,009      50,969      49,144
Total debt .......................................        959         879       7,134       7,425         533
Total stockholders' investment ...................     32,299      27,977      21,716      28,430      35,185
</TABLE>


                                       22

<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

     You should read the following discussion of the results of operations and
financial condition in conjunction with our consolidated financial statements
and notes thereto appearing elsewhere in this Form 10-K.

     Special Note Regarding Forward-looking Statements

     This Form 10-K, including information incorporated by reference, contains
forward-looking statements within the meaning of the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended. These statements
involve known and unknown risks, uncertainties and other factors that may cause
our actual results to be materially different from any future results or
performance expressed or implied by the forward-looking statements. Statements
that are not statements of historical fact may be deemed to be forward-looking
statements. In some cases, you can identify forward-looking statements because
they contain the words "believes," "expects," "anticipates," "plans,"
"estimates," and similar words and expressions. These forward-looking statements
include statements about:

     o    the adequacy of financial resources;

     o    future revenues, expenses and other operating results;

     o    sales under our strategic alliances, marketing arrangements, and other
          agreements pertaining to Mammotest, SenoScan and other products;

     o    the status of SenoScan and other new products in development;

     o    production and enhancement of SenoScan to meet market demands;

     o    the market penetration of SenoScan;

     o    the size and growth of our markets;

     o    the success of efforts to reduce manufacturing and other costs;

     o    our manufacturing capacity and capabilities; and

     o    the availability of raw materials and components.

     These forward-looking statements are only predictions and involve risks and
uncertanties. Given these uncertainties, you should not place undue reliance on
these forward-looking statements. In addition, these forward-looking statements
represent our estimates and assumptions only as of the date of this report, and
we expressly disclaim any duty to update these estimates and assumptions.
Factors that could cause the actual results we achieve to differ materially from
those discussed in the forward-looking statements are included in the risk
factors set forth in Item 1 of this report as well as elsewhere in this report.

Overview

   Risk of Operating Losses

     We design, manufacture and market specialty and general purpose medical
imaging systems for the diagnosis and treatment of disease. Our newer products
are directed towards medical specialties, such as diagnosing and treating breast
cancer, in which image-guided, minimally invasive therapies are replacing open
surgical procedures.

     We have experienced annual losses from operations for three of the past
five fiscal years. Significant factors giving rise to losses include: costs
associated with excessive manufacturing capacity; intense competition for our
markets; declining margins and demand for original equipment manufacture
products; and a general slowdown in capital expenditures by hospitals. We have
taken steps to reduce costs and improve sales, including:


                                       23

<PAGE>
     o    entering into distribution partnerships in 1997 and 1998 with Ethicon
          Endo-Surgery for the marketing and sale of Mammotest breast biopsy
          systems in the United States and in Europe;

     o    entering into a strategic alliance with ANALOGIC and Kodak for the
          distribution of digital radiography systems.

     o    closure of our Addison, Illinois manufacturing facility in 1999;

     o    a workforce reduction of approximately 20% in the third and fourth
          quarters of 1999; and

     o    other programs to increase efficiency

     Sustained profitability will depend on many factors, including:

     o    the successful introduction of SenoScan and achieving market
          acceptance of SenoScan.

     o    sufficient demand for our products to offset the effects of the
          reductions in our original equipment manufacture business;

     o    the adequacy of financial resources;

     o    our ability to maintain or increase gross margins;

     o    the effectiveness of our efforts to control manufacturing and other
          costs;

     o    effective negotiation and implementation of product distribution
          arrangements;

     o    effective implementation of marketing and sales strategies; and

     We expect continued fluctuations in quarterly and annual revenues,
operating results and net income, depending on such factors as:

     o    the timing of large system product orders;

     o    the success of new product introductions like SenoScan or marketing
          initiatives by us or our competitors;

     o    the effects of managed healthcare on hospital, clinic and other
          capital expenditures and reimbursement;

     o    increases in marketing and other costs in relation to sales; and

     o    seasonal patterns and other timing issues affecting customer
          purchasing decisions.

     These factors can occur unexpectedly and, because many of our costs are
fixed, we may not be able to sufficiently reduce our costs in periods when
revenues are less than anticipated and may, as a result, suffer unexpected
losses. Please see Item 1, "Business -- Risk Factors" for additional factors
which may unexpectedly reduce our revenues.

Government Regulation

     We are subject to periodic inspections by the Food and Drug Administration,
or FDA, whose primary purpose is to audit our compliance with Quality System
Regulations, which include testing, quality control and documentation
procedures. Failure to satisfy FDA requirements can result in: (1) our inability
to receive awards of federal government contracts; (2) an inability to receive
new marketing or export clearances; or (3) FDA enforcement actions including,
among other things, product seizure, injunction, and/or criminal or civil
proceedings which could be initiated without notice. Although we strive to
operate within FDA requirements, we may not be able to satisfy future FDA
compliance concerns. Sanctions resulting from FDA compliance reviews or related
delays in product clearances could have a material adverse effect on our
business, our result of operations and the price of our common stock.

                                       24

<PAGE>

Results of Operations

     The following table sets forth the percentage relationship to revenues
represented by certain data included in our statements of operations for the
years ended December 31:

                                                     2001      2000      1999
                                                    -----     -----     -----
          Revenues ............................     100.0%    100.0%    100.0 %
          Cost of sales .......................      49.3      49.8      56.1
                                                    -----     -----     -----
                 Gross profit .................      50.7      50.2      43.9
                                                    -----     -----     -----
          Operating expenses:
                 Research and development .....       7.2       7.3       8.9
                 Selling, marketing and service      25.7      27.7      23.9
                 General and administrative ...      10.3      10.2      10.1
                                                    -----     -----     -----

                      Total operating expenses       43.2      45.2      42.9
                                                    -----     -----     -----
          Income (loss) from operations .......       7.5       5.0       1.0
          Interest expense ....................      (0.3)     (0.9)     (1.1)
          Interest income .....................       0.1       0.1       0.1
          Other income (expense), net .........      (0.5)      0.0      (0.5)
                                                    -----     -----     -----
          Income (loss) before income taxes ...       6.8       4.2      (0.5)

          Provision for income taxes ..........      --        --        --
                                                    -----     -----     -----
          Net income (loss) ...................       6.8%      4.2%     (0.5)%
                                                    =====     =====     =====

2001 Compared to 2000

     Revenues. Revenues decreased to $48.2 in 2001 from $51.0 million in 2000.
The revenue decrease is due mainly to lower than expected revenue from our
radiography and electrophysiology products. In 2001, our radiography and
electrophysiology systems represented approximately 22% of our revenue. In 2001,
we had no sales of OEM equipment, completing our planned phase-out of OEM sales.

     Gross Profit. Gross profit as a percentage of total revenues increased from
50.2% in 2000 to 50.7% in 2001. This increase is due to the favorable effects of
reducing fixed overhead and manufacturing costs, as well as a shift in product
mix to mammography systems which provide higher gross margins than our
cardiovascular and general radiography products.

     Research and Development Expenses. Research and development expenses
decreased to $3.5 million, or 7.2% of total revenues, in 2001, as compared to
$3.7 million, or 7.3% of total revenues, in 2000. The decrease is primarily
attributable to the winding down of research and development expenses related to
SenoScan(R).

     Selling, Marketing and Service Expenses. Selling, marketing and service
expenses decreased to $12.4 million in 2001 as compared to $14.1 million in
2000. As a percentage of total revenues, selling, marketing and service expenses
decreased to 25.7% in 2001 from 27.7% in 2000. The decrease in selling,
marketing, and service expenses is due primarily to the restructuring of our
sales and service organizations.

     General and Administrative Expenses. General and administrative expenses
decreased $0.2 million to $5.0 million in 2001 from $5.2 million in 2000, but
increased as a percentage of total revenues, to 10.3% of total revenues in 2001
as compared to 10.2% of total revenue in 2000. The decrease in general and
administrative expenses is due to lower legal expenses in 2001 as compared to
2000.

     Interest Expense. Interest expense decreased to $0.1 million in 2001 from
$0.5 million in 2000. The decrease in interest expense is primarily due to a
decrease in borrowings under our credit facility and a more favorable interest
rate. Borrowings under our credit facility are used to fund increases in working
capital on an as-needed basis. See "Liquidity and Capital Resources."


                                       25

<PAGE>

     Net Income. Net income increased of $3.3 million in 2001 from $2.1 million
in 2000. The increase is primarily attributable to an increase in sales of
higher margin products such as our mammography system a more efficient
manufacturing process and a decrease in fixed overhead costs.

     Earnings Per Share. Diluted earnings per share increased from $0.27 in 2000
to $0.34 in 2001. The increase in net income available for common stockholders
was partially offset by an increase of 1.7 million weighted average shares
outstanding between years.

2000 Compared to 1999

     Revenues. Revenues decreased from $66.1 million in 1999 to $51.0 million in
2000. The revenue decrease is due mainly to the planned decrease in OEM sales of
$11.5 million, partially offset by a $3.4 million increase in Digital
Radiography sales. The decline in OEM shipments is due to our decision to
de-emphasize low margin OEM business.

     Gross Profit. Gross profit as a percentage of total revenues increased from
43.9% in 1999 to 50.2% in 2000. This increase is due to the favorable effects of
reducing fixed overhead and manufacturing costs, as well as a shift away from
lower margin OEM product sales.

     Research and Development Expenses. Research and development expenses were
$3.7 million or 7.3% of total revenues, in 2000, as compared to $5.9 million or
8.9% of total revenues, in 1999. The decrease in research and development
expenses is primarily attributable to the winding down of R & D expenses as
SenoScan(TM) nears transfer to production following PMA approval from FDA.

     Selling, Marketing and Service Expenses. Selling, marketing and service
expenses decreased to $14.1 million in 2000 as compared to $15.8 million in
1999. As a percentage of total revenues, selling, marketing and service expenses
increased to 27.7% in 2000 from 23.9% in 1999. The decrease in selling,
marketing, and service expenses is due primarily to the restructuring of the
sales and service organizations.

     General and Administrative Expenses. General and administrative expenses
decreased to $5.2 million in 2000 from $5.9 million in 1999. General and
administrative expenses increased to 10.2% of total revenues in 2000 as compared
to 10.1% in 1999. The decrease in general and administrative expenses is due to
lower legal expenses in 2000 as compared to 1999, partially offset by higher
administrative expenses. The decrease in legal expenses is primarily due to
reduced costs associated with our patent infringement lawsuit against Lorad
(Trex), which is expected to commence during 2001. See Item 3, Legal
Proceedings.

     Interest Expense. Interest expense decreased to $0.5 million in 2000 from
$0.8 million in 1999. The decrease in interest expense is primarily due to a
decrease in borrowings under our credit facility and a more favorable borrowing
arrangement from Wells Fargo during the 2nd quarter. These borrowings are used
to fund increases in working capital on an as needed basis. See "Liquidity and
Capital Resources."

     Net Income. Net income as reported increased from a loss of $0.3 million in
1999 to net income of $2.1 million in 2000. The increase is primarily
attributable to an increase in higher margin sales, a more efficient
manufacturing process and a decrease in fixed overhead costs.

     Earnings Per Share. Diluted earnings per share increased from a loss of
$0.05 in 1999 to earnings of $0.27 in 2000. The increase in net income available
for common stockholders was partially offset by an increase in weighted average
shares outstanding and the inclusion of partially dilutive securities in 2000.

Income Taxes

     Our effective tax rate was 0% in both 2001 and 2000. The 2001 rate reflects
a decrease of $1.3 million and the 2000 rate reflects a $0.5 million decrease in
the valuation allowance against deferred tax assets. The changes in the
allowance are due mainly to the utilization of net operating losses, which have
previously been fully reserved. At December 31, 2001, we had valuation
allowances of approximately $8.5 million. The reliability of net deferred tax
assets is dependent on our ability to generate future taxable income, and our
estimate of realizable deferred tax assets may change in the near future given
the Company's return to profitability.

Liquidity and Capital Resources

     During 2001, we generated $86,000 of cash flow from operations, $1.5
million in financing activities and utilized $0.8 million in investing
activities, resulting in a $0.4 million increase in cash. The cash flow
generated from operations was primarily due to profitable operations. Working
capital increased due primarily to an increase in receivables from the sales of
SenoScan in late 2001. Cash utilized in investing activities increased to $0.8
million in 2001, due mainly to additions of fixed assets and license fees.


                                       26

<PAGE>
     During 2000, we generated $1.6 million of cash flow from operations and
used $2.1 million in financing activities resulting in a $0.2 million decrease
in cash. The cash flow generated from operations was primarily due to a return
to profitability. Working capital increased due primarily to an
increase in inventories. The prior year's level of inventory was lower than what
would normally be a sustainable level and we also had a build up in inventory in
2000 associated with the new SenoScan product line. The increase in working
capital was partially offset by the decrease in accounts receivable. Cash
utilized in investing activities decreased from $0.7 in 1999 to zero in 2000,
due mainly to a decrease in capital expenditures. Cash utilized in financing
activities during 2000 primarily reflected $5.8 million in repayments of the
line of credit, offset partially with proceeds from the sale of 1,000,000 shares
of common stock.

     During 1999, we generated $1.1 million of cash flow from operations and
utilized $0.7 million in cash investing activities and $0.2 million in financing
activities, resulting in a $0.1 million increase in cash. The cash flow
generated from operations was primarily due to a decrease in working capital.
The decrease in working capital consisted primarily of a $5.7 million decrease
in inventories. The favorable effects on cash from changes in working capital
were partially offset by a $1.4 million decrease in accounts payable, a $1.3
million decrease in customer deposits and $1.0 million of payments for
restructuring costs. Cash utilized in investing activities decreased from $1.4
million in 1998 to $0.7 million in 1999, due in part to a decrease in capital
expenditures. Cash utilized in financing activities during 1999 primarily
reflected $0.3 million in repayments of long-term debt.

     On December 31, 2001, we had $1.2 million in cash and cash equivalents and
working capital of $28.4 million. We have an $8.0 million line of credit,
subject to borrowing base restrictions, of which $8.0 million was unused and
available. Management believes cash generated from operations, and currently
available liquidity resources will be sufficient to fund operations for the next
twelve months and beyond twelve months. We may also seek additional capital from
additional equity or debt financing.

     We have no present plans for capital expenditures in 2002 materially
different from recent years.

Critical Accounting Policies and Estimates

     The Company's discussion and analysis of its financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, the Company evaluates
its estimates, including those related to bad debts, inventories, long-lived
assets, income taxes, and contingencies and litigation. The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.

     The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements.

     The Company recognizes revenue from the sales of systems and parts at the
time the product is shipped. The Company recognizes revenue from services when
they are performed, and from pre-paid service contracts and extended warranty
contracts in the periods for which the contracts are in effect. The Company
bills for service contracts and extended warranties in advance, and records a
liability for the amount of the deferred revenue until such time as the contract
expires. In its course of business, the Company ships replacement parts to
customers, and records related revenue at the time of shipment. Certain replaced
parts may be returned for partial credit, and the Company makes estimates to
reduce current revenue to account for the future effect of those returns. Should
such parts not be returned by customers, additional revenue may be recognized in
future periods.

     The Company writes down its inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of inventory and
the estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required.

                                       27

<PAGE>

     The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of the Company's customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be
required.

Contractual Obligations

At December 31, 2001 the companies commitments under contractual obligations as
follows:

                             Payments Due by Period
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                        Less
                                                                        than                                 After
   Contractual Obligations                                 Total       1 Year     1-3 Years     4-5 Years   5 Years
   -----------------------                                ------       ------     ---------     ---------   -------
   <S>                                                    <C>            <C>      <C>           <C>          <C>
   Borrowings............................................ $  883         $ --     $   --        $   --       $  883
   Capital Lease Obligations.............................     76           34         42            --           --
   Operating Leases......................................  8,135          850      1,594         1,586        4,105
                                                          ------         ----     ------        ------       ------
   Total Contractual Cash Obligations.................... $9,094         $884     $1,636        $1,586       $4,988
                                                          ======         ====     ======        ======       ======
</TABLE>

Recent Developments

     Not Applicable.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Market risk represents the risk of loss that may impact the financial
position, results of our operations or cash flows due to adverse changes in
financial and commodity market prices and rates. We are exposed to market risk
in the areas of changes in United States interest rates and changes in foreign
currency exchange rates as measured against the United States dollar. These
exposures are directly related to our normal operating and funding activities.
Historically and as of December 31, 2001, we have not used derivative
instruments or engaged in hedging activities.

     Interest Rate Risk

     The interest payable on our line of credit is variable based on the prime
rate and, is therefore, affected by changes in market interest rates. At
December 31, 2001, there were no outstanding borrowings on the line of credit.
On an as needed basis we draw down the line of credit and repay the balance when
the temporary need for additional working capital is satisfied.

     Foreign Currency Risk

     Over the past several years, we have expanded our international sales and
marketing efforts. Our exposure to foreign currency and other international
business risks may increase as our international business grows. We attempt to
minimize these risks by: (1) generally requiring payments in U.S. dollars; (2)
using letters of credit; and (3) requiring advance deposits and through other
means. Our international sales efforts may not be successful and we may not
successfully minimize associated risks.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Please see pages F1 - F21 of this report on Form 10-K.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     None.

                                       28

<PAGE>

                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this Item is incorporated by reference to the
Proxy Statement for our annual meeting in 2002 to be filed on or prior to April
30, 2002.

ITEM 11.  EXECUTIVE COMPENSATION

     The information required by this Item is incorporated by reference to the
Proxy Statement for our annual meeting in 2002 to be filed on or prior to April
30, 2002.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this Item is incorporated by reference to the
Proxy Statement for our annual meeting in 2002 to be filed on or prior to April
30, 2002.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item is incorporated by reference to the
Proxy Statement for our annual meeting in 2002 to be filed on or prior to April
30, 2002.


                                       29

<PAGE>

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

a)   Documents filed as part of this report:

     1.   Financial Statements.

          See pages F-2 through F-24 of this Form 10-K.

     2.   Financial Statement Schedules.

          No financial statement schedules are included because the information
          is either provided in the financial statements or is not required
          under the related instructions or is inapplicable.

     3.   Exhibits.

          The following are filed as part of this report:

  Exhibit
   Number                            Description of Exhibit
   ------                            ----------------------
   3.1        Certificate of Incorporation of the Company (1)
   3.2        Bylaws of the Company (1)
   4.1        Amended and Restated Rights Agreement, dated as of November 3,
              1994, between the Company and American Securities Transfer, Inc.
              which includes the Certificate of Designation for the Series C
              Junior Participating Preferred stock as Exhibit A and the form of
              Right Certificate as Exhibit B (6)
   4.2        Certificate of Designation for the Series D Convertible Preferred
              Stock (4)
  10.1        Agreement, dated October 5, 1990, between the Company and Dornier
              Medizintechnik GmbH (1)
  10.2        Nonemployee Director Stock Option Plan, as amended (5)
  10.3        Stock Option Plan (1)
  10.4        Retention Bonus Plan (3)
  10.5        Lease Agreement dated July 31, 1992 between the Company and JN
              Properties (2)
  10.6        Agreement dated October 10, 1997, between the Company and Ethicon
              Endo-Surgery, Inc. with Addendum dated  January 29, 1998 (5)
  10.7        Addendum, dated February 5, 2002, to Agreement dated
              October 10, 1997 between the Company and Ethicon Endo-Surgery,
              Inc. (7)
  21          List of Subsidiaries (7)
  23          Consent of Arthur Andersen LLP (7)
  99.1        Company letter regarding representation by Independent
              Auditors (7)
-------------------
(1)  Incorporated by reference to the Company's Registration Statement on Form
     S-1, File No. 33-41537, as filed with the Securities and Exchange
     Commission (the "Commission") on July 3, 1991.
(2)  Incorporated by reference to the Company's Form 10-K for the year ended
     December 31, 1992, as filed with the Commission.
(3)  Incorporated by reference to the Company's Form 10-K for the year ended
     December 31, 1994, as filed with the Commission on April 14, 1995.
(4)  Incorporated by reference to the Company's Form 8-K, as filed with the
     Commission on July 3, 1995.

                                       30

<PAGE>

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

(6)  Incorporated by reference to the Company's Form 8-K/A, as filed with the
     Commission on November 9, 2001.

(7)  Filed herewith.

b)   Reports on Form 8-K

     None

c)   Exhibits

     See Item 14(a)(3) of this Form 10-K.

d)   Financial Statement Schedules

     None


                                       31

<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be singed on
its behalf by the undersigned, thereunto duly authorized.

                                       FISCHER IMAGING CORPORATION

Date: April 1, 2002                    By: /s/  Louis E. Rivelli
                                           -------------------------------------
                                           Louis E. Rivelli
                                           Chief Executive Officer

     Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant in the
capacities and on the date indicated.

<TABLE>
<CAPTION>
              Signature                           Title                        Date
              ---------                           -----                        ----
<S>                                   <C>                                    <C>

/s/ MORGAN W. NIELDS                  Chairman of the Board                  April 1, 2002
-----------------------------------
    Morgan W. Nields


/s/ LOUIS E. RIVELLI                  President, Chief Executive Officer     April 1, 2002
-----------------------------------
    Louis E. Rivelli



/s/ RODNEY B. JOHNSON                 VP Finance, Chief Financial            April 1, 2002
-----------------------------------   Officer, and Secretary
    Rodney B. Johnson


/s/ DAVID G. BRAGG, M.D.              Director                               April 1, 2002
-----------------------------------
    David G. Bragg, M.D.


/s/ GERALD D. KNUDSON                 Director                               April 1, 2002
-----------------------------------
    Gerald D. Knudson


/s/ KATHRYN A. PAUL                   Director                               April 1, 2002
-----------------------------------
    Kathryn A. Paul
</TABLE>



                                       32

<PAGE>

                           FISCHER IMAGING CORPORATION

                        CONSOLIDATED FINANCIAL STATEMENTS

                                      INDEX

                                                                           Page
                                                                           ----
Report of Independent Public Accountants ...................................F-2

Financial Statements:

     Consolidated Balance Sheets - December 31, 2001 and 2000 ..............F-3

     Consolidated Statements of Operations - For the Years Ended
        December 31, 2001, 2000 and 1999 ...................................F-4

     Consolidated Statements of Stockholders' Investment - For the
        Years Ended December 31, 2001, 2000 and 1999 .......................F-5

     Consolidated Statements of Cash Flows - For the Years Ended
        December 31, 2001, 2000 and 1999 ...................................F-6

     Notes to Consolidated Financial Statements ............................F-7



                                       F-1

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of
Fischer Imaging Corporation:

     We have audited the accompanying consolidated balance sheets of FISCHER
IMAGING CORPORATION (a Delaware corporation) and subsidiary as of December 31,
2001 and 2000, and the related consolidated statements of operations,
stockholders' investment and cash flows for each of the three years in the
period ended December 31, 2001. These financial statements are management's
responsibility. Our responsibility is to express an opinion on these financial
statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fischer Imaging Corporation
and subsidiary as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

     /s/  Arthur Andersen LLP

Denver, Colorado,
     February 12, 2002.



                                       F-2

<PAGE>
                           FISCHER IMAGING CORPORATION

                           CONSOLIDATED BALANCE SHEETS
                    (Amounts in thousands except share data)
<TABLE>
<CAPTION>
                                                                                                 December 31,
                                                                                             --------------------
                                                                                               2001        2000
                                                                                             --------    --------
<S>                                                                                          <C>         <C>
                                           ASSETS
                                           ------
CURRENT ASSETS
     Cash and cash equivalents ...........................................................   $  1,233    $    843
     Trade accounts receivable, net of allowance for doubtful accounts of approximately
       $1,278 And $1,236 at December 31, 2001 and 2000, respectively .....................     16,790      12,600
     Inventories, net ....................................................................     19,683      18,844
     Prepaid expenses and other current assets ...........................................        312         744
                                                                                             --------    --------
               Total current assets ......................................................     38,018      33,031
                                                                                             --------    --------
PROPERTY AND EQUIPMENT (at cost)
     Manufacturing equipment .............................................................      8,105       8,124
     Office equipment and leasehold improvements .........................................      6,356       6,021
                                                                                             --------    --------
                                                                                               14,461      14,145
     Less - Accumulated depreciation .....................................................     12,615      12,032
                                                                                             --------    --------
               Property and equipment, net ...............................................      1,846       2,113

INTANGIBLE ASSETS, net ...................................................................      1,589       1,841
DEFERRED COSTS AND OTHER ASSETS ..........................................................      1,352       1,491
                                                                                             --------    --------
               Total assets ..............................................................   $ 42,805    $ 38,476
                                                                                             ========    ========
                          LIABILITIES AND STOCKHOLDERS' INVESTMENT
                          ----------------------------------------

CURRENT LIABILITIES
     Current borrowings ..................................................................   $     34    $     39
     Trade accounts payable ..............................................................      3,589       3,463
     Accrued salaries and wages ..........................................................      1,816       1,781
     Customer deposits ...................................................................        115         715
     Accrued warranty and installation costs .............................................      1,201       1,206
     Deferred service revenue ............................................................        322         687
     Other current liabilities ...........................................................      2,504       1,768
                                                                                             --------    --------
             Total current liabilities ...................................................      9,581       9,659

NON-CURRENT -BORROWINGS ..................................................................        925         840
                                                                                             --------    --------
               Total liabilities .........................................................     10,506      10,499
                                                                                             --------    --------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' INVESTMENT
     Common Stock $.01 par value, 25,000,000 shares authorized 9,176,646 and 8,587,315
       shares issued and outstanding at December 31, 2001 and 2000, respectively .........   $     91    $     86
     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 ............................................       --          --
     Additional paid-in capital ..........................................................     48,798      47,377
     Accumulated deficit .................................................................    (16,389)    (19,670)
     Accumulated other comprehensive (loss) income .......................................       (201)        184
                                                                                             --------    --------
               Total stockholders' investment ............................................     32,299      27,977
                                                                                             --------    --------

               Total liabilities and stockholders' investment ............................   $ 42,805    $ 38,476
                                                                                             ========    ========
</TABLE>
              The accompanying notes are an integral part of these
                          consolidated balance sheets.

                                       F-3

<PAGE>

                           FISCHER IMAGING CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Amounts in thousands except per share data)

<TABLE>
<CAPTION>
                                                              December 31,
                                                   --------------------------------
                                                     2001        2000        1999
                                                   --------    --------    --------
<S>                                                <C>         <C>         <C>
REVENUES
     Products and services .....................   $ 48,233    $ 51,016    $ 59,871
     Sale of manufacturing license .............       --          --         6,200
                                                   --------    --------    --------
               Total revenues ..................     48,233      51,016      66,071

COST OF SALES
     Products and services .....................     23,777      25,422      36,697
     Sale of manufacturing license .............       --          --           400
                                                   --------    --------    --------
               Total cost of sales .............     23,777      25,422      37,097
                                                   --------    --------    --------
               Gross profit ....................     24,456      25,594      28,974
                                                   --------    --------    --------

OPERATING EXPENSES
     Research and development ..................      3,485       3,708       5,850
     Selling, marketing and service ............     12,388      14,146      15,783
     General and administrative ................      4,984       5,205       5,945
     Restructuring provision ...................       --          --           750
                                                   --------    --------    --------
               Total operating expenses ........     20,857      23,059      28,328
                                                   --------    --------    --------

EARNINGS FROM OPERATIONS .......................      3,599       2,535         646

NON-OPERATING INCOME (EXPENSE)
      Interest expense .........................       (138)       (475)       (753)
      Interest income ..........................         77          65          91
      Other (expense) income, net ..............       (257)          7        (327)
                                                   --------    --------    --------
                                                       (318)       (403)       (989)

EARNINGS (LOSS) BEFORE INCOME TAXES ............      3,281       2,132        (343)
     Provision for income taxes ................       --          --          --
                                                   --------    --------    --------
NET INCOME (LOSS) ..............................   $  3,281    $  2,132    $   (343)
                                                   ========    ========    ========
INCOME (LOSS) PER SHARE
     Basic .....................................   $   0.37    $   0.28    $   (.05)
                                                   ========    ========    ========
     Diluted ...................................   $   0.34    $   0.27    $   (.05)
                                                   ========    ========    ========
SHARES USED TO CALCULATE INCOME (LOSS) PER SHARE
     Basic .....................................      8,754       7,541       7,029
                                                   ========    ========    ========
     Diluted ...................................      9,519       7,822       7,029
                                                   ========    ========    ========
</TABLE>

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


                                       F-4

<PAGE>

                           FISCHER IMAGING CORPORATION

               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
                    (Amounts in thousands except share data)
<TABLE>
<CAPTION>
                                                                                                    Accumu-
                                                       Series C                                      lated
                                                        Junior    Series D                           Other
                                                       Partici-   Conver-                           Compre-   Compre-
                                        Common Stock    pating     tible     Additional   Accumu-   hensive   hensive
                                      ---------------- Preferred  Preferred    Paid-in     lated     Income    Income
                                       Shares   Amount   Stock      Stock      Capital    Deficit    (Loss)    (Loss)     Total
                                      --------- ------ ---------  ---------  ----------  ---------  --------  --------  --------
<S>                                   <C>        <C>      <C>        <C>       <C>       <C>          <C>      <C>       <C>
BALANCES, December 31, 1998........   6,980,150  $70      $ --       $13       $49,366   $(21,459)    $ 440              $28,430
Shares purchased under Employee
     Stock Purchase Plan...........      48,705   --        --        --            90        --        --                    90
Series D shares surrendered in
     Exchange for license..........       --      --        --        (8)       (6,192)       --        --                (6,200)
Cumulative translation adjustment..       --      --        --        --           --         --       (261)   $ (261)      (261)
Net loss...........................       --      --        --        --           --        (343)      --       (343)      (343)
                                                                                                               ------
Comprehensive loss.................       --      --        --        --           --         --        --       (604)      --
                                     ----------  ---      ----       ---       -------   --------     -----    ======    -------
BALANCES, December 31, 1999........   7,028,855   70        --         5        43,264    (21,802)      179               21,716
Shares purchased under Employee
     Stock Purchase Plan...........      29,387    1        --        --            49        --        --                    50
Warrants and options                      --      --        --        --            21        --        --                    21
Series D shares converted to common
     Stock.........................     506,667    5        --        (5)         --          --        --                  --
Exercise of stock options..........      22,406   --        --        --            53        --        --                    53
Issuance of new shares.............   1,000,000   10        --        --         3,990        --        --                 4,000
Cumulative translation adjustment         --      --        --        --           --         --          5    $    5          5
Net income.........................       --      --        --        --           --       2,132       --      2,132      2,132
                                                                                                               ------
Comprehensive income...............       --      --        --        --           --         --        --      2,137       --
                                     ----------  ---      ----       ---       -------   --------     -----    ======    -------
BALANCES, December 31, 2000........   8,587,315   86        --        --        47,377    (19,670)      184               27,977
Shares purchased under Employee
     Stock Purchase Plan...........     120,561    1        --        --           225        --        --                   226
Exercise of stock options..........     468,770    4        --        --         1,196        --        --                 1,200
Cumulative translation adjustment..       --      --        --        --           --         --       (385)   $ (385)      (385)
Net income.........................       --      --        --        --           --       3,281       --      3,281      3,281
                                                                                                               ------
Comprehensive income...............       --      --        --        --           --         --        --     $2,896       --
                                     ----------  ---      ----       ---       -------   --------     -----    ======    -------
BALANCES, December 31, 2001........   9,176,646  $91      $ --       $--       $48,798   $(16,389)    $(201)             $32,299
                                     ==========  ===      ====       ===       =======   ========     =====              =======
</TABLE>

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



                                       F-5

<PAGE>

                           FISCHER IMAGING CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)
<TABLE>
<CAPTION>
                                                                                     For the Years Ended
                                                                                         December 31,
                                                                                -----------------------------
                                                                                  2001       2000       1999
                                                                                -------    -------    -------
<S>                                                                             <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income (loss) ......................................................   $ 3,281    $ 2,132    $  (343)
     Adjustments to reconcile net loss to net cash  provided by operating
       activities-
               Sale of license ..............................................      --         --       (6,200)
               Restructuring provision ......................................      --         --          750
               Restructuring costs ..........................................      --         --       (1,015)
               Depreciation .................................................       717      1,481      2,122
               Amortization of intangible assets ............................       602        558        558
               Write-off of investment ......................................      --         --          100
               Provision for doubtful accounts ..............................       887      1,746        963
               Provision for excess and obsolete inventories ................       595        409      1,100
               Loss on sales and retirements of assets ......................        17        285         71
               Foreign exchange gains .......................................      --         (297)       (98)
               Change in current assets and liabilities
                         Trade accounts receivable ..........................    (5,077)     1,551       (313)
                         Inventories ........................................    (1,434)    (4,189)     5,709
                         Prepaid expenses and other current assets ..........       432        168        186
                         Accounts payable and accrued liabilities ...........       156       (685)    (1,418)
                         Customer deposits ..................................      (600)      (574)    (1,310)
                         Deferred service revenue ...........................      (365)      (469)        24
                         Other ..............................................       736       (811)       241
               Other ........................................................       139        316         22
                                                                                -------    -------    -------
                         Net cash provided by operating results .............        86      1,621      1,149
                                                                                -------    -------    -------
CASH FLOWS FROM INVESTING ACTIVITIES
               Capital expenditures .........................................      (429)      (156)      (658)
               Other ........................................................      (350)       151       --
                                                                                -------    -------    -------
                         Net cash used in investing activities ..............      (779)        (5)      (658)
                                                                                -------    -------    -------
CASH FLOWS FROM FINANCING ACTIVITIES
               Proceeds from sale of common stock, net ......................     1,426      4,124         90
               Net (repayments) borrowing under line of credit agreement ....      --       (5,803)        51
               Repayments of long-term debt .................................      --         (452)      (342)
               Borrowings ...................................................        42       --         --
                                                                                -------    -------    -------
                         Net cash provided by (used in) financing activities      1,468     (2,131)      (201)
                                                                                -------    -------    -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH .....................................      (385)       302       (163)
                                                                                -------    -------    -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................       390       (213)       127
CASH AND CASH EQUIVALENTS, beginning of period ..............................       843      1,056        929
                                                                                -------    -------    -------
CASH AND CASH EQUIVALENTS, end of period ....................................   $ 1,233    $   843    $ 1,056
                                                                                =======    =======    =======
SUPPLEMENTAL CASH FLOW DISCLOSURES
               Cash interest payments .......................................   $   138    $   502    $   649
               Cash income tax payments (refunds), net ......................        29         22         43
               Non-cash capital expenditures (capital lease financing) ......        38       --         --
</TABLE>


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


                                       F-6

<PAGE>

                           FISCHER IMAGING CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

           For the Three Years Ended December 31, 2001, 2000 and 1999
                             (Dollars in thousands)


(1)  BUSINESS ORGANIZATION

     Fischer Imaging Corporation ("Fischer" or "the Company"), a Delaware
Corporation, and its wholly owned foreign marketing subsidiary ("Fischer Imaging
International GmbH") designs, manufactures, and markets specialty and general
purpose x-ray imaging systems for the diagnosis and treatment of disease.
Fischer's principal product lines are directed toward medical specialties in
which minimally invasive techniques are replacing open surgical procedures. The
Company's existing products are principally marketed to the healthcare industry.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Principles of Consolidation

     The consolidated financial statements include Fischer and its wholly owned
subsidiary. All significant intercompany transactions and accounts have been
eliminated in consolidation.

     Use of Estimates in the Preparation of Financial Statements

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires us to make estimates
and assumptions. Such estimates and assumptions affect the reported amounts of
assets and liabilities as well as disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.

     Cash and Cash Equivalents

     For purposes of the statements of cash flows, cash and cash equivalents
include investments in highly liquid instruments with an original maturity of
three months or less.

     Financial Instruments

     The fair market value of accounts receivable, accounts payable, debt, and
other financial instruments approximates their carrying values in the
accompanying consolidated balance sheets. The fair value of debt was determined
based upon current interest rates available to Fischer.

     Inventories

     Inventories, which include costs of materials, direct labor, and
manufacturing overhead, are priced at the lower of cost (using primarily the
last-in, first-out, or LIFO method of valuation) or market. There is not a
material difference between inventories at first-in, first-out, or FIFO or LIFO.
Write-downs for excess and obsolete inventories are charged to expense in the
period when conditions giving rise to the write-downs are first recognized.

     Inventories consist of the following components (in thousands):

                                                        2001         2000
                                                      --------     --------
     FIFO cost -
          Raw materials, net......................... $  8,323     $  9,168
          Work in process and finished goods.........   11,360        9,676
                                                      --------     --------
          Inventories, net........................... $ 19,683     $ 18,844
                                                      ========     ========


                                       F-7

<PAGE>
                           FISCHER IMAGING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


     Property and Equipment

     Significant additions and improvements are capitalized at cost, while
maintenance and repairs that do not improve or extend the life of the respective
assets are charged to operations as incurred.

     Manufacturing and office equipment are depreciated on a straight-line
basis, over the estimated useful lives (ranging from 3 to 8 years) of the
respective assets. Leasehold improvements are amortized, on a straight-line
basis, over the lesser of the estimated useful life or the remaining term of the
related lease.

     Long-Lived Assets

     Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review for recoverability, Fischer estimates the
future cash flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, the
asset is written down to its estimated fair value.

     Intangible Assets

     Intangible assets resulting from acquisitions are stated at cost, net of
accumulated amortization, and are being amortized using the straight-line method
over their estimated useful lives. The estimated lives for these assets range
from 10 to 15 years.

     Software Development Costs

     Certain costs to enhance existing application software products or to
develop new software products have been capitalized. These costs are amortized
on a straight-line basis over an estimated useful life of three years.

     The following software development costs were reflected in the consolidated
balance sheets as a component of deferred costs and other assets:

                                                         2001       2000
                                                       -------    -------
     Cost............................................. $ 4,062    $ 4,011
     Less - Accumulated amortization..................  (3,896)    (3,733)
                                                       -------    -------
               Software development costs, net........ $   166    $   278
                                                       =======    =======

     Software amortization expense was $161, $383, and $351 in 2001, 2000 and
1999, respectively.

     Other Current Liabilities

     Other current liabilities consist of the following:

                                                          2001        2000
                                                        -------     -------
     Accrued sales, property, and other state
        and local taxes................................ $   914     $   587
     Other.............................................   1,590       1,181
                                                        -------     -------
               Total other current liabilities......... $ 2,504     $ 1,768
                                                        =======     =======


                                       F-8

<PAGE>

                           FISCHER IMAGING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


     Foreign Operations

     The functional currency for Fischer's foreign operations is the applicable
local currency. Assets and liabilities of foreign subsidiaries are translated at
the respective year-end exchange rates, while the statements of operations are
translated at average exchange rates during the year. Exchange rate fluctuations
on translating foreign currency into U.S. dollars result in unrealized gains or
losses referred to as translation adjustments, which are recorded as a separate
component of stockholders' investment. Transactions denominated in other than a
foreign operation's functional currency can also result in exchange gains or
losses being reflected in the results of operations. Foreign currency gains or
losses are included in the consolidated statements of operations as a component
of other income (expense).

     During 2001, the cumulative translation adjustment of approximately $22
related to the Company's European subsidiary was charged to operations. During
2000, the cumulative translation adjustment of approximately $469 related to the
Company's Australian subsidiary was charged to operations upon liquidation of
the subsidiary.

     Revenue Recognition

     The Company recognizes revenue from the sales of systems and parts at the
time the product is shipped. The Company recognizes revenue from services when
they are performed, and from pre-paid service contracts and extended warranty
contracts in the periods for which the contracts are in effect. The Company
bills for service contracts and extended warranties in advance, and records a
liability for the amount of the deferred revenue until such time as the contract
expires. In its course of business, the Company ships replacement parts to
customers, and records related revenue at the time of shipment. Certain replaced
parts may be returned for partial credit, and the Company makes estimates to
reduce current revenue to account for the future effect of those returns. Should
such parts not be returned by customers, addition revenue may be recognized in
future periods.

     Advertising Costs

     The Company expenses advertising costs as incurred, except for the costs of
advertising literature, which is capitalized and amortized over the expected
period of future benefit. Advertising costs of $184, $62 and $76 were expensed
in 2001, 2001 and 1999 respectively. As of December 31, 2001 and December 31,
2000 the Company had no capitalized advertising literature costs.

     Net Earnings or Loss Per Share

     Basic earnings or loss per share is computed by dividing the net earnings
or loss by the weighted average number of shares of common stock outstanding 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. Potentially dilutive
securities consist of the following:

                                                  2001        2000        1999
                                                 -----       -----       -----
     Weighted average common shares............. 8,754       7,541       7,029
     Stock options..............................   765         281         --
                                                 -----       -----       -----
          Total................................. 9,519       7,822       7,029
                                                 =====       =====       =====

     Common stock equivalents excluded from diluted earnings per share because
their effect is anti-dilutive are as follows (in thousands):

                                                  2001         2000       1999
                                                  ----        -----      -----
     Shares of convertible preferred stock........  --           --        507
     Effect of stock options...................... 798        1,411      1,139


                                       F-9

<PAGE>

                           FISCHER IMAGING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


     Recently Issued Accounting Pronouncements

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

Statement of Financial Accounting Standards No. 141 and No. 142.
In July 2001 the FASB issued SFAS No. 141, "Business Combinations," and SFAS No.
142, "Goodwill and Other Intangible Assets," which replaced Accounting Principle
Board ("APB") Opinion No. 16, "Business Combinations," and APB Opinion No. 17,
"Intangible Assets," respectively. SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. SFAS No. 142 requires that amortization of goodwill and certain
intangibles with an indefinite life cease upon its adoption. The Company will be
required to adopt SFAS No. 142 on January 1, 2002. After December 31, 2001,
goodwill can only be written down upon its impairment. The Company expects the
adoption of SFAS No. 141 and No. 142 will not have a material effect on the
Company's financial condition and results of operations.

Statement of Financial Accounting Standards No. 143.
In July 2001 the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." The statement requires companies to recognize the fair value of an
asset retirement liability by capitalizing that cost as part of the cost of the
related long-lived asset. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002. Adoption of this statement is not expected to have a
significant impact on the Company's financial statements.

Statement of Financial Accounting Standards No. 144.
In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets" which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001. The provisions of
this statement are generally to be applied prospectively. Management believes
the adoption of SFAS No. 144 will not have a material impact on the Company's
financial statements.

     Stock-Based Compensation Plans

     The Company accounts for its stock-based compensation plans using the
intrinsic value method under which no compensation is recognized for grants
which equal or exceed the fair value of the underlying stock on the measurement
date.



                                       F-10

<PAGE>

                           FISCHER IMAGING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(3)  INTANGIBLE ASSETS

     Intangible assets consist of the following:

                                              Estimated
                                                Lives         2001        2000
                                              ---------     -------     -------
          Goodwill...........................  14 years     $ 2,785     $ 2,785
          Non-competition agreement..........  10 years       3,569       3,569
          License............................   8 years         350         --
                                                            -------     -------
                                                              6,704       6,354
          Less - Accumulated amortization....                (5,115)     (4,513)
                                                            -------     -------
                 Intangible assets, net......               $ 1,589     $ 1,841
                                                            =======     =======

(4)  INCOME TAXES

     The provision for income taxes includes the following (in thousands):

                                                    2001        2000      1999
                                                  --------     -----    -------
     Current
          Federal................................. $   --      $ --     $   --
          State...................................     --        --         --
                                                   -------     -----    -------
                    Total current provision.......     --        --         --
                                                   -------     -----    -------
     Deferred
          Federal.................................   1,150       459     (1,350)
          State...................................     114        45       (131)
          Valuation Allowance.....................  (1,264)     (504)     1,481
                                                   -------     -----    -------
                    Total deferred provision......     --        --         --
                                                   -------     -----    -------
                              Total provision..... $   --      $ --     $   --
                                                   =======     =====    =======


     During 2001, the company utilized approximately $2.9 million of its net
operating loss carryforward to offset taxable income in that year. A valuation
allowance was previously provided against these loss carryforwards.

     The statutory federal income tax rate was 35% for the years ended December
31, 2001, 2000, and 1999. Reasons for the difference between income tax expense
reported in the statements of operations and the amount computed by applying the
statutory federal income tax rate to earnings before income taxes are as
follows:

                                                  2001       2000       1999
                                                 ------     ------    --------
     Statutory tax rate........................   35.0%      35.0%     (35.0)%
     Increase (decrease) due to:
               State income taxes..............    3.5        3.3      (25.2)
               Foreign activity................   (1.4)     (37.5)    (301.6)
               Nondeductible expenses..........    2.6        3.1       19.2
               Valuation allowance.............  (38.5)     (23.6)     431.8
               Tax credits.....................   --         19.6      (81.0)
               Other...........................   (1.2)       0.1       (8.2)
                                                 ------     ------    --------
     Effective tax rate........................   --  %      --  %      --   %
                                                 ======     ======    ========



                                       F-11

<PAGE>

                           FISCHER IMAGING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


     The domestic versus foreign component of our income (loss) before income
taxes is as follows (in thousands):

                                      2001            2000         1999
                                    -------        -------        ------
          Domestic................. $ 3,151        $ 2,459        $ (516)
          Foreign..................     130           (327)          173
                                    -------        -------        ------
               Total............... $ 3,281        $ 2,132        $ (343)
                                    =======        =======        ======

     Components of net deferred tax assets (liabilities) as of December 31, 2001
and 2000 are as follows (in thousands):

                                                        2001       2000
                                                      -------    -------
          Current -
                    Warranty reserves .............   $   385    $   304
                    Bad debt reserves .............       486        470
                    Accrued vacation ..............        52         99
                    Other accrued liabilities .....       310        378
                    Inventory reserves ............     1,354      1,389
                    Less - Valuation allowance ....    (2,587)    (2,640)
                                                      -------    -------
          Net current deferred tax asset ..........   $  --      $  --
                                                      =======    =======
          Noncurrent -
                    Software capitalization .......   $   (63)   $  (105)
                    Tax credits ...................       686        686
                    Deferred service revenue ......      --          122
                    Depreciation ..................       255        322
                    Net operating loss carryforward     4,866      6,021
                    Other .........................       154         63
                    Less - Valuation allowance ....    (5,898)    (7,109)
                                                      -------    -------
          Net noncurrent deferred tax asset .......   $  --      $  --
                                                      =======    =======


     For income tax reporting purposes, Fischer has approximately $12.8 million
of net operating loss carryforwards that expire at various dates through 2020.
The Company also has available research and development tax credits of
approximately $602, expiring at various dates through 2020, and alternative
minimum tax credits of $84. Realization is dependent on generating sufficient
taxable income prior to the expiration dates of the respective tax credits.

     The Company has provided a full valuation against its deferred tax assets
because of consecutive loss years. Given the Company's return to profitable
operations, management's view of the need for a valuation allowance may change
in the near future.

                                       F-12

<PAGE>

                           FISCHER IMAGING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(5)  BORROWINGS

     Borrowings as of December 31, 2001, and 2000, consist of the following:

<TABLE>
<CAPTION>
                                                                                  2001        2000
                                                                                  ----        ----
     <S>                                                                          <C>         <C>
     Revolving line of credit...................................................  $ --        $ --
     Capitalized lease obligations; interest rates ranging from 14% to 19%;
          monthly principal and interest payments due in varying amounts
          through April 2004; secured by leased equipment.......................    76          71
     Other......................................................................   883         808
                                                                                  ----        ----
                                                                                   959         879
     Less - Current maturities..................................................   (34)        (39)
                                                                                  ----        ----
     Non-current borrowings.....................................................  $925        $840
                                                                                  ====        ====
</TABLE>

     Revolving Credit Agreement

     The Company has available up to $8.0 million of credit, subject to further
restrictions based on eligible receivables and inventory. The maximum amount
which could have been drawn under these borrowing base restrictions was
approximately $8.0 million as of December 31, 2001. This agreement expires in
July 2003 and is secured by all tangible assets. Borrowing under the agreement
bears interest at the bank's prime rate. The bank's prime rate was 4.75% at
December 31, 2001.

     Future maturities are as follows:

                Years ending December 31,
                          2002..................................... $ 34
                          2003.....................................   34
                          2004.....................................    8
                          2005.....................................   --
                          Thereafter...............................  883
                                                                    ----
                          Total.................................... $959
                                                                    ====

(6)  RESTRUCTURING PROVISION

     During 1997, Fischer closed its Addison, Illinois manufacturing facility
requiring a $2.9 million restructuring provision for remaining lease
obligations, estimated facility closure costs, severance and certain other
non-recurring costs associated with this decision. In January 1999, Fischer
fulfilled its remaining obligations under the lease commitments by agreeing to a
$1.0 million lease buyout, completing the Addison closure.



                                       F-13

<PAGE>

                           FISCHER IMAGING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(7)  STOCKHOLDERS' INVESTMENT

     The Company is authorized to issue 5,000,000 shares of $.01 par value
preferred stock, which may be issued in one or more series and with such powers,
preferences and rights as the Company's Board of Directors may determine. In
June 1995, Fischer issued 1,333,333 shares of Series D Convertible Preferred
Stock to GE Medical Systems, or GEMS, for $10,000. The Series D Preferred Stock
was non-voting and not redeemable, had no stated dividend, a $7.50 per share
preference upon liquidation and was convertible into common stock on a
one-for-one basis (subject to customary anti-dilution protection) at the option
of the holder. The terms of the investment restricted GEMS to 25% ownership of
Fischer and, under certain change of control conditions, permitted GEMS to
exchange its Series D Preferred Stock for rights to independently manufacture
Tilt-C systems.

     On March 29, 1999, Fischer announced an agreement with GEMS, under which
826,666 or 62% of the 1,333,333 shares of Series D Convertible Preferred Stock
owned by GEMS were exchanged for a non-exclusive right to manufacture the Tilt-C
system. The sale of the manufacturing rights to the Tilt-C system was recorded
at fair value, estimated to be $6.2 million. On October 5, 2000, GEMS converted
its remaining 506,667 shares of Series D Preferred Stock into common stock.

     Retention  Bonus Plan

     In December 1995, the Board of Directors adopted a Retention Bonus Plan
(the "Plan"). Under the Plan, Fischer will vest all options to purchase shares
of its common stock and will make payments to executive officers and other key
employees (the "Participants") in the event of a change of control. A "change of
control" under the Plan is defined to include acquisition of 35% or more of the
Company's outstanding common stock, certain changes in the composition of the
Board of Directors, a consolidation or merger in which Fischer is not the
surviving corporation, the sale or other transfer of 50% or more of the assets
or earnings power, the adoption of a plan of liquidation or dissolution, or
certain other similar events. Payments made to a Participant under the Plan will
not exceed an amount equal to his or her annual base salary in effect
immediately prior to the change of control. Current Participants, including all
executive officers, were selected by the Board of Directors, who may select
additional Participants in the future.

     Anti-Takeover Contingencies

     In November 1994, the Board of Directors adopted a Stockholders Rights
Plan, giving one right to purchase a share of Series C Junior Participating
Preferred Stock for each outstanding share of common stock. These rights
generally become exercisable when anyone other than certain exempt persons
acquire more than a 15% beneficial interest in the Company. The existence of
these rights might discourage an attempt to acquire the Company or make such an
attempt more difficult. The Rights Plan was amended in 2001 to revise the
definition of an "exempt person," among other things.

(8)  STOCK-BASED COMPENSATION PLANS

     1991 Stock Option Plan

     Fischer's 1991 Stock Option Plan (the "1991 Plan") adopted June 1991 and
subsequently amended, authorizes the granting of incentive and nonqualified
stock options to acquire up to 1,750,000 shares of common stock by employees and
consultants. Exercise terms for the options granted are determined by the Board
of Directors at the time of grant. Incentive stock options may be granted at an
exercise price not less than fair market value on the date of grant with a
maximum option term of 10 years. The 1991 Plan also permits the granting of
stock appreciation rights, although none have been granted.



                                       F-14

<PAGE>

                           FISCHER IMAGING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

     A summary of the status of the 1991 Plan follows:

<TABLE>
<CAPTION>
                                                            2001             2000             1999
                                                          ---------        ---------        ---------
     <S>                                                  <C>              <C>              <C>
     Outstanding at January 1 .....................       1,508,025        1,060,650          768,925
     Granted ......................................         580,000          988,000          440,000
     Exercised ....................................        (408,770)         (21,406)            --
     Canceled .....................................        (263,750)        (519,219)        (148,275)
                                                          ---------        ---------        ---------
     Outstanding at December 31 ...................       1,415,505        1,508,025        1,060,650
                                                          =========        =========        =========

     Exercisable at December 31 ...................         409,933          358,837          394,296
                                                          =========        =========        =========
     Weighted average exercise prices:
               At beginning of period .............       $    3.15        $    4.02        $    5.56
               At end of period ...................            5.46             3.15             4.02
               Exercisable at end of period .......            3.76             3.91             5.62
               Options granted ....................            8.45             2.90             1.46
               Options exercised ..................            2.44             2.37            --
               Options canceled ...................            3.99             4.57             4.42
     Weighted average fair value of options granted
          During the period .......................       $    5.70        $    2.20        $    0.98
</TABLE>


     Following is information about options outstanding and exercisable under
the 1991 Plan as of December 31, 2001:

<TABLE>
<CAPTION>
                           Range of exercise prices                             Shares         Price
      -------------------------------------------------------------------      --------        -----
      <S>                                                                       <C>            <C>
      Weighted average exercise price for options outstanding:
                $ 1.00 - $ 3.05................................................ 458,688       $ 2.06
                $ 3.06 - $ 4.99................................................ 341,292         3.51
                $ 5.00 - $ 5.99................................................ 323,500         5.66
                $ 6.00 - $ 7.99................................................   7,000         7.08
                $ 8.00 - $11.00................................................  99,025        10.16
                $11.01 - $16.64................................................ 186,000        14.51
      Weighted average exercise price for options exercisable:
                $ 1.00 - $ 3.05................................................ 170,132       $ 1.93
                $ 3.06 - $ 4.99................................................ 122,776         3.68
                $ 5.00 - $ 5.99................................................  90,000         5.64
                $ 6.00 - $ 7.99................................................      --           --
                $ 8.00 - $11.00................................................  27,025         9.33
                $11.01 - $16.64................................................      --           --
      Weighted average remaining contractual life for options outstanding
           (in years):
                $ 1.00 - $ 3.05................................................ 458,688         8.38
                $ 3.06 - $ 4.99................................................ 341,292         8.12
                $ 5.00 - $ 5.99................................................ 323,500         5.52
                $ 6.00 - $ 7.99................................................   7,000         9.40
                $ 8.00 - $11.00................................................  99,025         7.27
                $11.01 - $16.64................................................ 186,000         9.78
</TABLE>


                                       F-15

<PAGE>

                           FISCHER IMAGING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


     The weighted average fair value of each option grant has been estimated as
of the date of grant using the Black-Scholes option-pricing model and the
following average assumptions:

                                            2001        2000        1999
                                            -----       -----       -----
     Dividend rate.........................    0%          0%          0%
     Expected volatility...................   83%         80%         79%
     Risk-free interest rate............... 4.31%       6.04%       5.53%
     Expected life (in years)..............  4.6         5.0        5.0


     Certain of the options granted under the 1991 Plan vest upon attainment of
performance objectives as well as over time. Outstanding as of December 31, 2001
are 100,000 options granted in December 1995 that vest when the market price of
the Company's stock has reached targeted price levels for a period of 45
consecutive trading days or 9 years and 11 months from the date of original
grant, whichever is earlier. Other options granted under the 1991 Plan vest
ratably over time, generally over a four year period.

     Nonemployee Director Stock Option Plan

     The Company's Nonemployee Director Stock Option Plan ( the "Director
Plan"), adopted in 1993 and amended in June 1998, authorizes the granting of
nonqualified options to acquire up to 300,000 shares of Common stock at a price
not less than fair market value on the date of grant. The Director Plan allows
for automatic annual grants upon each year of a director's service. The stock
options issued under the Director Plan may be exercised at any time from date of
grant, with a maximum option term of ten years.

     A summary of the status of the Director Plan follows:

<TABLE>
<CAPTION>
                                                         2001            2000          1999
                                                      -----------    -----------    -----------
     <S>                                              <C>            <C>            <C>
     Outstanding at January 1 .....................       158,000        125,000         89,000
     Granted ......................................        24,000         34,000         36,000
     Canceled .....................................          --             --             --
     Exercised ....................................       (60,000)        (1,000)          --
                                                      -----------    -----------    -----------

     Outstanding and exercisable at December 31 ...       122,000        158,000        125,000
                                                      ===========    ===========    ===========
     Weighted average exercise prices:
               Outstanding, at beginning of period    $      3.53    $      3.52    $      4.20
               Outstanding, at end of period ......          4.83           3.53           3.52
               Exercisable, at end of period ......          4.83           3.53           3.52
               Options granted ....................          3.41           3.11           1.83
               Options canceled ...................          --             --             --
               Options exercised ..................          3.39           2.00           --
     Weighted average fair value of options granted
         during period ............................   $      1.91    $      1.96    $      1.00
</TABLE>



                                       F-16

<PAGE>

                           FISCHER IMAGING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


     Following is information about options outstanding and exercisable under
the Director Plan as of December 31, 2001:

<TABLE>
<CAPTION>
                                                                                                     Life
                             Range of exercise prices                Shares          Price        (in years)
         -------------------------------------------------------     ------          ------       ----------
         <S>                                                         <C>             <C>          <C>
         Weighted average exercise price for options outstanding
         (all of which are exercisable):
                   $1.00  - $ 3.05.................................. 30,000          $ 2.16          7.41
                   $3.06  - $ 4.99.................................. 67,000            3.97          5.83
                   $5.00  - $ 5.99..................................     --              --            --
                   $6.00  - $ 7.99.................................. 11,000            6.50          2.15
                   $8.00  - $11.00..................................     --              --            --
                   $11.01 - $13.38.................................. 14,000           13.38          4.15
</TABLE>

     The weighted average fair value of each option grant has been estimated as
of the date of grant using the Black-Schools option-pricing model and the
following assumptions:

                                               2001       2000      1999
                                               -----      -----     -----
    Dividend rate............................     0%         0%        0%
    Expected volatility......................    83%        80%       79%
    Risk-free interest rate..................  4.48%       6.5%     5.25%
    Expected life (in years).................   3.0        3.0       3.0

     Other

     Fischer issued 10,000 and 25,000 options to external consultants in 2000
and 1999, respectively, all of which were outstanding and 14,000 of which were
exercisable at December 31, 2000. These option prices range from $2.81 to $6.50.

     Employee Stock Purchase Plan

     Under the Employee Stock Purchase Plan, or Employee Plan, adopted in
December 1991 and as amended in June 1998, the Company is authorized to issue up
to 400,000 shares of common stock to its full-time employees, nearly all of whom
are eligible to participate. Under terms of the Employee Plan, employees can
have from 2% to 5% of their salary withheld to purchase common stock. The
purchase price of the stock is 85% of the lower of its beginning-of-year or
end-of-year market price. Under the Employee Plan, Fischer issued 45,086,
29,387, and 48,705 shares during the years ended December 31, 2001, 2000 and
1999, respectively, relating to employee withholdings from the preceding years.
In 2001 the Company also distributed 75,475 shares for the current year.

     Stock-Based Compensation Plans

     Had compensation cost been recorded based upon fair value on the date of
grant utilizing the assumptions detailed above, pro forma net income (loss) and
net income (loss) per share would have been as follows for the years ended
December 31:

                                                     2001      2000      1999
                                                    -------   -------   ------
    Net income (loss):
              As reported.......................... $ 3,281   $ 2,132   $ (343)
              Pro forma............................   2,765     1,692     (811)
    Net income (loss) per common share, diluted:
              As reported.......................... $  0.34    $ 0.27   $ (.05)
              Pro forma............................    0.29      0.22     (.12)


                                       F-17

<PAGE>

                           FISCHER IMAGING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(9)  BENEFIT PLANS

     401(k) Plan

     In 1985, Fischer established The Fischer Imaging Employee Capital
Accumulation Plan, which is governed by Section 401(k) of the Internal Revenue
Code. Employees with a minimum of six months of service are eligible to
participate in the plan. The Company makes discretionary contributions that
ratably vest over a four-year period. Fischer made $90,000 $110,000 and $160,000
of discretionary contributions for the years ended December 31, 2001, 2000, and
1999, respectively.

     Incentive Compensation Plan

     Fischer has an incentive compensation plan under which management
employees, including executive officers, receive cash bonuses. The amounts of
such bonuses are determined based upon sales growth, profitability, and
employees' performances as compared to performance objectives established by the
Board of Directors.

(10) RELATED PARTY TRANSACTIONS

     Fischer leases its manufacturing and administrative facility from JN
Properties (a general partnership whose partners include the chairman of Fischer
and another stockholder). The lease, which expires in July 2012, provides for
adjustments of base rent in 2000, 2005, and 2010, based on the then fair market
rental value of the premises. The increases are subject to a 7% maximum increase
in each adjustment year. No adjustments were made to the base rent in 2001. The
current annual rent is $744,000. All taxes, insurance, and maintenance expenses
of the facility are the Company's responsibility.

     On December 1, 2001, Fischer entered into a consulting agreement with
Gerald D. Knudson, one of the Company's directors. Pursuant to the consulting
agreement, which expires December 31, 2002, Mr. Knudson will receive
compensation of $15,000 per month from the Company in exchange for his
consulting services. On November 1, 2001, Mr. Knudson was appointed Lead
Director commencing December 1, 2001, and ending May 1, 2002. Mr. Knudson will
receive compensation of $35,000 from the Company for his service as Lead
Director.

     During 1999, Fischer extended a loan in the amount of $252,000 to the
President and Chief Executive Officer pursuant to his employment agreement, in
consideration for his agreement to relocate to Colorado immediately and due to
the prices existing in the housing market in Colorado. At December 31, 2001 and
2000, $100,000 of the loan was outstanding and is to be repaid in full by August
2004. This note receivable is included in other current assets on the
accompanying consolidated balance sheets as of December 31, 2001 and 2000.

     In the second quarter of 1995, Fischer issued 1,333,333 shares of Series D
Preferred Stock to GEMS. On March 29, 1999, Fischer announced an agreement with
GEMS under which 826,666 or 62% of the 1,333,333 shares of Series D Preferred
Stock owned by GEMS were exchanged for a non-exclusive right to manufacture the
Tilt-C system, leaving 506,667 shares outstanding. The remaining 506,667 shares
of Series D Preferred Stock were converted into 506,667 shares of common stock
in October 2000. GEMS was also a significant customer, providing revenues of
approximately $13.4 million, or 20.3% of total revenues, in 1999. Sales to GEMS
in 2000, and 2001 were not significant.



                                       F-18

<PAGE>

                           FISCHER IMAGING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(11) SEGMENT INFORMATION

     Operating and Geographic Segments

     The Company operates in a single industry segment: the design, manufacture,
and marketing of x-ray imaging systems. During 1999, Fischer made a strategic
move away from Original Equipment Manufacturer, or OEM relationships. The
following is a summary of Fischer's operations by segment:

<TABLE>
<CAPTION>
                                                       United States
                                          ---------------------------------------
                                             Proprietary
                                          -------------------                               Internal
                                          Domestic   Export     OEM      Total     Europe     Sales     Total
                                          --------- --------- --------- --------- --------- --------- ---------
<S>                                        <C>        <C>        <C>     <C>        <C>        <C>      <C>
2001:
Revenues:
          Product......................... $29,343    $5,296     $  --   $34,639    $  643     $(909)   $34,373
          Service.........................  12,762        --        --    12,762     1,098        --     13,860
                                           -------    ------     -----   -------    ------     -----    -------
                                            42,105     5,296        --    47,401     1,741      (909)    48,233
                                           -------    ------     -----   -------    ------     -----    -------
Cost of sales:
          Product.........................  19,341     3,060        --    22,401       443      (264)   22,580
          Service.........................   1,001         -        --     1,001       196        --     1,197
                                           -------     -----     -----   -------    ------     -----   -------
                                            20,342     3,060        --    23,402       639      (264)   23,777
                                           -------     -----     -----   -------    ------     -----   -------
Gross profit..............................                                23,999     1,102      (645)   24,456
Operating expenses........................                                20,571       931      (645)   20,857
                                                                         -------    ------     -----   -------
Income from operations....................                                 3,428       171        --     3,599
Other expense.............................                                  (277)      (41)       --      (318)
                                                                         -------    ------     -----   -------
Net income................................                               $ 3,151    $  130     $  --   $ 3,281
                                                                         =======    ======     =====   =======
Other information:
         Identifiable assets..............                               $40,752    $2,053             $42,805
                                                                         =======    ======             =======
         Capital expenditures.............                               $   805    $   12             $   779
                                                                         =======    ======             =======
         Depreciation.....................                               $   714    $    3             $   717
                                                                         =======    ======             =======
         Amortization.....................                               $   602    $   --             $   602
                                                                         =======    ======             =======
</TABLE>


                                       F-19

<PAGE>

                           FISCHER IMAGING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

<TABLE>
<CAPTION>
                                                      United States
                                          --------------------------------------
                                             Proprietary                             International
                                          ------------------                      -------------------- Internal
                                          Domestic   Export     OEM       Total   Australia    Europe    Sales    Total
                                          --------  --------  --------  --------  ----------  ------- ---------  -------
<S>                                       <C>         <C>      <C>      <C>       <C>          <C>    <C>        <C>
2000:
Revenues:
          Product........................  $30,834    $8,324   $    --   $39,158     $   44    $  287 $(1,156)   $38,333
          Service........................   11,273        --        --    11,273        178     1,232      --     12,683
                                           -------    ------   -------   -------     ------    ------ -------    -------
                                            42,107     8,324        --    50,431        222     1,519  (1,156)    51,016
                                           -------    ------   -------   -------     ------    ------ -------    -------
Cost of sales:
          Product........................   16,788     4,526        --    21,314         41        --    (224)    21,131
          Service........................    1,432        --        --     1,432         83        89      --      1,604
                                           -------    ------   -------   -------     ------    ------      --    -------
          Allocated......................   18,220     4,526        --    22,746        124        89    (224)    22,735
                                           -------    ------   -------   -------     ------    ------ -------    -------
          Unallocated....................                                  2,687         --        --      --      2,687
                                                                         -------         --        --      --    -------
                                                                          25,433        124        89    (224)    25,422
                                                                         -------     ------    ------ -------    -------
Gross profit.............................                                 24,998         98     1,430    (932)    25,594

Operating expenses.......................                                 22,444        523     1,024    (932)    23,059
                                                                         -------     ------    ------ -------    -------
Income (loss) from operations............                                  2,554       (425)      406      --      2,535
Other (expense) income...................                                   (95)       (383)       75      --       (403)
                                                                         -------     ------    ------      --    -------
Net income (loss)........................                                $ 2,459     $ (808)   $  481 $    --    $ 2,132
                                                                         =======     ======    ====== =======    =======
Other information:
          Identifiable assets............                                $36,955     $   --    $1,521            $38,476
                                                                         =======     ======    ======            =======
          Capital expenditures...........                                $   156     $   --    $   --            $   156
                                                                         =======     ======    ======            =======
          Depreciation...................                                $ 1,449     $   32    $   --            $ 1,481
                                                                         =======     ======    ======            =======
          Amortization...................                                $   558     $   --    $   --            $   558
                                                                         =======     ======    ======            =======
1999:
Revenues:
          Product........................  $28,821    $9,475   $11,521   $49,817     $  129    $1,110 $(1,278)   $49,778
          Service........................    9,342        --        --     9,342        196       555      --     10,093
          Sale of manufacturing license..       --        --     6,200     6,200         --        --      --      6,200
                                           -------    ------   -------   -------     ------    ------ -------    -------
                                            38,163     9,475    17,721    65,359        325     1,665  (1,278)    66,071
                                           -------    ------   -------   -------     ------    ------ -------    -------
Cost of sales:
          Product........................   14,788     5,860     8,192    28,840         82       354    (438)    28,838
          Service........................    2,037        --        --     2,037         75        78    (161)     2,029
          Sale of manufacturing license..       --        --       400       400         --        --      --        400
                                           -------    ------   -------   -------     ------    ------ -------    -------
          Allocated......................   16,825     5,860     8,592    31,277        157       432    (599)    31,267
                                           -------    ------   -------   -------     ------    ------ -------    -------
          Unallocated....................                                  5,830         --        --      --      5,830
                                                                         -------     ------    ------ -------    -------
                                                                          37,107        157       432    (599)    37,097
                                                                         -------     ------    ------ -------    -------
Gross profit.............................                                 28,252        168     1,233    (679)    28,974

Operating expenses.......................                                 27,703        407       897    (679)    28,328
                                                                         -------     ------    ------ -------    -------
Income (loss)  from operations...........                                    549       (239)      336      --        646
Other (expense) income...................                                 (1,065)        57        19      --       (989)
                                                                         -------     ------    ------ -------    -------
Net (loss) income........................                                $  (516)    $ (182)   $  355 $    --    $  (343)
                                                                         =======     ======    ====== =======    =======
Other information:
          Identifiable assets............                                $39,206     $1,004    $  799            $41,009
                                                                         =======     ======    ======            =======
          Capital expenditures...........                                $   658     $   --    $   --            $   658
                                                                         =======     ======    ======            =======
          Depreciation...................                                $ 2,109     $   13    $   --            $ 2,122
                                                                         =======     ======    ======            =======
          Amortization...................                                $   558     $   --    $   --            $   558
                                                                         =======     ======    ======            =======
</TABLE>


                                       F-20

<PAGE>

                           FISCHER IMAGING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


     Internal sales from the Unites States to Europe are recorded on the basis
of established transfer pricing.

     Significant Customers

     Fischer's revenues generally are concentrated among customers in the
healthcare industry. 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.

     During 2001, 2000 and 1999, the following customers represented greater
than 5% of Fischer's revenues:

                                                      2001     2000     1999
                                                      -----    -----    -----
    Proprietary products:
             Ethicon-Endo Surgery.................... 10.3%    18.8%     7.3%
             Analogic................................  7.3      6.7     --
    OEM Products:
             GE Medical Systems (a related party).... --       --       20.3

(12) COMMITMENTS AND CONTINGENCIES

     Litigation

     Fischer is involved in miscellaneous litigation arising in the ordinary
course of business. Management believes the resolution of these contingencies
will not have a material adverse impact on the Company's operations or financial
position.



                                       F-21

<PAGE>

                           FISCHER IMAGING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

     Operating Leases

     Fischer leases buildings and equipment under various operating lease
agreements that provide for the following minimum future lease payments:

             2002.......................................... $  850
             2003..........................................    801
             2004..........................................    793
             2005..........................................    793
             2006..........................................    793
             Thereafter....................................  4,105
                                                            ------
             Total......................................... $8,135
                                                            ======

     Total rent expense was approximately $851, $800 and $900 in 2001, 2000 and
1999, respectively.

     Regulatory Actions

     Fischer is subject to periodic inspections by the Food and Drug
Administration ("FDA") whose primary purpose is to audit the Company's
compliance with Good Manufacturing Practices, which include testing, quality
control and documentation procedures.

     In October 1998, following a periodic inspection, the FDA issued a Form 483
regarding possible deficiencies in manufacturing, quality, and documentation
practices. Fischer responded to the Form 483 and instituted corrective actions.

     Failure to satisfy FDA requirements can result in an inability to receive
awards of federal government contracts, to receive new marketing or export
clearance for products, or FDA enforcement actions including, among other
things, product seizure, injunction, and/or criminal or civil proceedings being
initiated without further notice. The receipt of a Form 483 in 1998 increases
the possibility that one or more of these sanctions could be imposed in the
future. In August 2001, following an inspection by the FDA, the Company was
issued a 483 with two minor observations, which Fischer has since rectified.

     Fischer has completed discussions with the FDA regarding the FDA's order to
recall a number of diagnostic mammography systems that Fischer distributed prior
to a change in the Federal Mammography Standards. The Company's position,
mirrored by the National Electrical Manufacturers Association, or NEMA, was that
the FDA's position is inconsistent with prior performance standards published
for mammography systems. The FDA has agreed to handle this deficiency as a minor
violation and shall not go through a formal recall alert. The FDA has also
agreed to NEMA's proposal that each individual manufacturer should initiate a
corrective action plan. We are working on a corrective action plan and expect to
be in a position to certify and / or upgrade most of the install base by October
28, 2002.



                                       F-22

<PAGE>

                           FISCHER IMAGING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


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

     The Company is also subject to other federal, state, local and
international laws and regulations related to worker health and safety,
environmental protection and export controls. Management believes Fischer is in
compliance in all material respects with these other laws and regulations and
that maintaining such compliance will not have a material financial impact on
future capital expenditures or results of operations.

(14)  QUARTERLY DATA  (unaudited)

     Financial Data unaudited

<TABLE>
<CAPTION>
                                               2001      Q4 2001    Q3 2001      Q2 2001       Q1 2001
                                             --------    --------   --------     --------      --------
       <S>                                   <C>         <C>        <C>          <C>           <C>
       Revenues............................. $ 48,233    $ 11,288   $ 12,875     $ 12,824      $ 11,246
       Income from operations...............    3,599       1,342      1,034          825           398
       Net income...........................    3,281       1,282      1,041          751           207
       Basic income per share...............      .37         .14        .12          .09           .02
       Diluted income per share.............      .34         .13        .11          .08           .02
</TABLE>

<TABLE>
<CAPTION>
                                               2000      Q4 2000    Q3 2000      Q2 2000       Q1 2000
                                             --------    --------   --------     --------      --------
       <S>                                   <C>         <C>        <C>          <C>           <C>
       Revenues............................. $ 51,016    $ 13,560   $ 11,767     $ 11,946      $ 13,743
       Income from operations...............    2,535         890        532          556           557
       Net income...........................    2,132         902        414          465           351
       Basic income per share...............      .28         .11        .06          .07           .05
       Diluted income per share.............      .27         .10        .05          .06           .05
</TABLE>



                                       F-23