SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Quarter Ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-19386
FISCHER IMAGING CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 36-2756787
(State of incorporation) (I.R.S. Employer Identification No.)
12300 North Grant Street
Denver, Colorado 80241
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 452-6800
Indicate by check mark whether the Registrant (i) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (ii) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
SHARES OUTSTANDING AS OF
TITLE OF CLASS JUNE 30, 1997
Common Stock, $0.01 par value 6,948,648
<PAGE>
FISCHER IMAGING CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations -
Three and six months ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows -
Six months ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
<PAGE>
FISCHER IMAGING CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -------------
ASSETS (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 5,122 $ 3,289
Trade accounts receivable, net of allowance for doubtful accounts
of approximately $644 and $641 at June 30, 1997 and
December 31, 1996, respectively 13,993 18,600
Inventories 18,497 23,692
Deferred income taxes 2,267 2,267
Prepaid expenses and other current assets 1,366 1,289
-------- -------
Total current as 41,245 49,137
-------- -------
PROPERTY AND EQUIPMENT (at cost):
Manufacturing equipment 9,345 8,198
Office equipment and leasehold improvements 5,143 4,666
Similar Product Sales -------- -------
14,488 12,864
Less- Accumulated depreciation and amortization 8,710 8,294
-------- -------
Property and equipment, net 5,778 4,570
-------- -------
INTANGIBLE ASSETS, net 3,968 4,327
DEFERRED INCOME TAXES 346 346
DEFERRED COSTS AND OTHER ASSETS 1,678 2,052
-------- -------
TOTAL ASSETS $ 53,015 $ 60,432
======== =======
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Trade accounts payable $ 3,679 $ 5,155
Notes payable and current maturities of long-term debt 148 283
Accrued salaries and wages 1,838 2,160
Deferred service revenue 803 805
Other current liabilities 3,030 3,587
-------- -------
Total current liabilities 9,498 11,990
LONG-TERM DEBT 65 149
OTHER NONCURRENT LIABILITIES 489 488
-------- -------
TOTAL LIABILITIES 10,052 12,627
-------- -------
STOCKHOLDERS' INVESTMENT:
Common Stock, $.01 par value, 25,000,000 shares authorized, 6,948,648
and 6,920,335 shares issued and outstanding at June 30, 1997 and
December 31, 1996, respectively 69 69
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, 1,333,333 shares
authorized, issued and outstanding at June 30, 1997 and
December 31, 1996; liquidation preference of $10,000,000 13 13
Additional paid-in capital 49,235 49,093
Accumulated deficit (6,679) (1,388)
Cumulative translation adjustment 325 18
-------- -------
TOTAL STOCKHOLDERS' INVESTMENT 42,963 47,805
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 53,015 $ 60,432
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
FISCHER IMAGING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
NET REVENUES $ 15,151 $ 21,906 $ 27,453 $ 41,979
COST OF SALES 9,808 13,021 18,360 24,609
-------- -------- -------- -------
Gross profit 5,343 8,885 9,093 17,370
OPERATING EXPENSES:
Research and development 1,554 1,745 3,066 3,209
Selling, marketing and service 4,040 4,467 8,716 8,825
General and administrative 1,081 1,142 2,242 2,273
-------- -------- -------- -------
Total operating expenses 6,675 7,354 14,024 14,307
-------- -------- -------- -------
(LOSS) EARNINGS FROM OPERATIONS (1,332) 1,531 (4,931) 3,063
Interest expense (12) (200) (49) (420)
Interest income 103 5 128 14
Other (expense) income, net (171) (80) (439) 22
-------- -------- -------- -------
(LOSS) EARNINGS BEFORE INCOME TAXES (1,412) 1,256 (5,291) 2,679
Provision for income taxes -- 310 -- 660
-------- -------- -------- -------
NET (LOSS) EARNINGS $ (1,412) $ 946 $ (5,291) $ 2,019
======== ======== ======== =======
NET (LOSS) EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ (0.17) $ 0.13 $ (.64) $ 0.27
======== ======== ======== =======
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 8,282 7,344 8,282 7,346
======== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
FISCHER IMAGING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
June 30, June 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) earnings $ (5,291) $ 2,019
-------- -------
Adjustments to reconcile net (loss) earnings to net cash
provided by (used in) operating activities-
Depreciation 904 808
Amortization of intangible assets 359 369
Provision for doubtful accounts 31 96
Sales and retirements of assets 49 21
Other changes in current assets and liabilities-
Decrease (Increase) in trade accounts receivable 4,576 (1,691)
Decrease (Increase) in inventories 5,195 (4,138)
Decrease in deferred income taxes -- 159
Increase in prepaid expenses and other current assets (77) (561)
Decrease (Increase) in deferred costs and other assets 374 (208)
Decrease in trade accounts payable (1,476) (273)
Decrease in accrued salaries and wages (322) (92)
Decrease in deferred service revenue (2) (97)
(Decrease) Increase in other current liabilities (557) 161
Other 1 79
-------- -------
Total adjustments 9,055 (5,367)
-------- -------
Net cash provided by (used in) operating activities 3,764 (3,348)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,161) (895)
Other -- (48)
-------- -------
Net cash used in investing activities (2,161) (943)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock 142 445
Net borrowings under line of credit agreement -- 3,713
Repayments of long-term debt (219) (450)
-------- -------
Net cash (used in) provided by financing activities (77) 3,708
-------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 307 81
-------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,833 (502)
CASH AND CASH EQUIVALENTS, beginning of period 3,289 968
-------- -------
CASH AND CASH EQUIVALENTS, end of period $ 5,122 $ 466
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
FISCHER IMAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
In the opinion of management, the accompanying unaudited consolidated balance
sheets and statements of operations and cash flows contain all adjustments,
consisting only of normal recurring items, necessary to present fairly the
financial position of Fischer Imaging Corporation (the "Company") at June 30,
1997, its results of operations for the three and six months ended June 30, 1997
and 1996 and cash flows for the six months ended June 30, 1997 and 1996.
The unaudited consolidated financial statements presented herein have been
prepared in accordance with the instructions to Form 10-Q and do not include all
the information and note disclosures required by generally accepted accounting
principles. The financial statements should be read in conjunction with the
audited financial statements and notes thereto contained in the Company's latest
annual report on Form 10-K for the year ended December 31, 1996.
The Company typically closes its first three fiscal quarters as of the Sunday
closest to the end of March, June and September. In 1997, to more evenly
distribute the days between quarters, the first three fiscal quarters are being
closed as of the Monday closest to the end of the respective months, or March
31, June 30, and September 29, respectively.
2. INVENTORIES
Inventories include costs of materials, direct labor and manufacturing overhead.
Inventories are priced at the lower of cost (using primarily the last-in,
first-out ("LIFO") method of valuation) or market. Writedowns for excess or
obsolete inventories are charged to expense in the period in which conditions
giving rise to the writedowns are first recognized.
Inventories consisted of the following components (in thousands):
June 30, December 31,
1997 1996
----------- --------------
FIFO cost-
Raw materials $12,539 $ 16,244
Work in process and finished goods 11,943 13,467
LIFO valuation adjustment (893) (893)
------ --------
Total before valuation reserves 23,589 28,818
Less valuation reserves (5,092) (5,126)
------ -------
Inventories, net $18,497 $ 23,692
====== =======
3. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following (in thousands):
June 30, December 31,
1997 1996
---------- -------------
Customer deposits $ 1,309 $ 1,058
Accrued warranty and installation costs 1,197 1,408
Other 524 1,121
----- -------
Total other current liabilities $ 3,030 $ 3,587
======= =======
6
<PAGE>
4. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consisted of the following (in thousands):
June 30, December 31,
1997 1996
----------- ------------
Capitalized lease obligations $ 168 $ 382
Other 45 50
------- ------
213 432
Less--Current maturities (148) (283)
------- ------
Long-term debt $ 65 $ 149
======= ======
See "Management's Discussion & Analysis - Liquidity and Capital Resources" for
an additional discussion of the Company's line of credit.
5. ISSUANCE OF STOCK
On June 27, 1996, the Company completed the sale of 1,200,000 shares of its
common stock at $12.00 per share. Proceeds, net of underwriting discount and
other expenses, of $13,121,000 were received in early July 1996 and were
primarily utilized to repay existing indebtedness under the Company's bank
revolving line of credit of approximately $6.4 million. The remaining proceeds
were invested in short-term, investment grade securities.
6. NET EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Net earnings (loss) per share is computed based on the weighted average number
of common and convertible preferred shares and, if dilutive, other common
equivalent shares outstanding during each of the periods. The Company uses the
treasury stock method for determining the effect of outstanding stock options on
earnings per share.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings per Share", which is to be
effective December 15, 1997. This statement establishes standards for computing
and presenting earnings per share. Had this statement been adopted as of January
1, 1997, (loss) earnings per share would have been as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Basic (loss) earnings per share $ (.20) $.16 $(.76) $.34
Diluted (loss) earnings per share (.17) .13 (.64) .27
</TABLE>
7. FISCHER MIDWEST MINORITY INTEREST
During the first quarter of 1996, the Company acquired the 45% minority interest
of Fischer Imaging Midwest, Inc., its domestic marketing subsidiary, in exchange
for shares of the Company's stock. The Company accounted for this transaction as
a purchase, acquiring the minority interest with a net book value of
approximately $331,000 and recording goodwill of approximately $270,000, which
is being amortized on a straight-line basis over 15 years.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of results of operations and financial condition
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. For this purpose, any statements contained herein that
are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "believes", "expects",
"anticipates", "plans", "estimates", and similar words and expressions are
intended to identify forward-looking statements. These forward-looking
statements include statements about the size and growth of the Company's
markets, the Company's future operating results including revenues and expenses,
the success of its cost-cutting measures, the effects of outsourcing and
transferring certain production from the Company's Addison, Illinois facility,
sales under its OEM agreements and otherwise, marketing arrangements for its
Mammotest products and other products, development of new products, submissions
to the FDA and receipt of FDA approvals and clearances, resolutions of
deficiencies noted by the FDA, the availability of sources of liquidity and
capital financing, and other matters. These forward-looking statements involve
risks and uncertainties. The actual results that the Company achieves may differ
materially from those discussed in such forward-looking statements due to the
risks and uncertainties described in this Form 10-Q, in the Business section of
the Company's Form 10-K for the year ended December 31, 1996 (the "Form 10-K")
under the "Risks Associated with OEM Agreements", "Risks of Technological Change
and New Products", "Risks of New Product Development and Market Acceptance",
"Manufacturing and Operating Risks", "Government Regulation", and "Product
Liability, Market Withdrawal, and Product Recalls" headings, in the Management's
Discussion and Analysis of Financial Condition and Results of Operations
("MD&A") section of the Form 10-K and elsewhere in the Form 10-K, as well as in
the "Risk Factors" section of the Company's Registration Statement on Form S-2
that was declared effective on June 27, 1996.
OVERVIEW
The Company designs, manufactures and markets specialty and general purpose
medical imaging systems for the diagnosis and treatment of disease. The
Company's newest product lines are directed towards medical specialties in which
image-guided, minimally-invasive therapies are replacing open surgical
procedures. These products are used primarily in the diagnosis and treatment of
breast cancer, heart disease and vascular disease. The Company also designs and
manufactures specialty x-ray imaging components and subsystems for several
leading medical products companies as an original equipment manufacturer ("OEM")
and sells general radiology systems for use in hospitals, clinics and
physicians' offices.
Revenues for the second quarter ended June 30, 1997 were $15,151,000, a
$2,849,000 or 23%, increase as compared to the first quarter of 1997. The
revenue increase was in all product areas, lead by a 42% increase in sales of
mammography systems. The resulting increase in gross margin, combined with a
$674,000 reduction in operating expenses, caused the operating loss for the
three months ended June 30, 1997 to be reduced from $3,879,000, or $.47 per
share, in the first quarter of 1997, to $1,412,000, or $.17 per share.
8
<PAGE>
The Company experienced substantial losses for the six months ended June 30,
1997 and break-even operating results in 1996, with losses in the second half of
the year. The Company cannot predict when it will return to profitability,
although it has taken significant steps to reduce costs and improve sales during
1997. Improvement in the Company's results of operations will depend on many
factors including, among other things, demand for the Company's products and the
ability of the Company to maintain or increase gross margins, control
manufacturing and other costs, enter into distribution agreements for its
Mammotest products and other products, implement its marketing and sales
strategies in the United States and internationally, maintain orders under OEM
agreements, renew OEM agreements on favorable terms and develop and introduce
new products that compete successfully.
The Company experienced decreases in the sales of its Mammotest systems in the
first six months of 1997. Sales of Mammotest systems during the last six months
of 1996 were flat when compared to the comparable six month period of 1995. The
Company is facing, and expects to continue to face, aggressive and successful
competition within the surgical stereotactic core needle breast biopsy market
from U. S. Surgical Corporation. The Company may not regain momentum in this
market until it enters into a distribution partnership that adequately addresses
this market.
The Company also experienced significantly lower sales under its OEM
arrangements during the fourth quarter of 1996 and the first six months of 1997
than in comparable prior periods, primarily due to decreased shipments of Tilt-C
systems to GE Medical Systems.
The Company believes that improving factory utilization and further reducing
operating expenses will be key elements in its efforts to return to acceptable
levels of profitability. The Company intends to seek, through outsourcing and
transferring the production of certain components of its products during
upcoming quarters, to significantly reduce or cease production at its Addison,
Illinois facility as a means of reducing its overall manufacturing costs. Plans
have not yet been finalized. Due to the potential costs associated with
outsourcing and transferring production, as well as other factors, there can be
no assurance as to the timing or ultimate success of such efforts.
The Company has experienced and is likely to continue to experience significant
quarterly and annual fluctuations in net revenues, operating results and net
income, depending on such factors as the timing of large system shipments to
customers, the timing of orders under OEM contracts and related manufacturing
and shipment scheduling, new product introductions and new marketing programs by
the Company and its competitors, delays in contract development projects, the
effect of economic conditions on the Company's markets, the effects of managed
healthcare on capital expenditures and reimbursement, increases in marketing and
research costs in relation to sales, regulatory clearance of new products,
seasonal purchasing patterns of hospitals and the timing of purchasing decisions
by customers. Additionally, because the timing of the occurrence of such factors
is difficult to anticipate and many of the Company's costs are fixed, the
Company may not be able to sufficiently reduce its costs in periods when its
revenues are less than anticipated and may suffer unexpected losses or lower
income in these periods.
The Company is attempting to expand its international sales and marketing
efforts, which can be expected to result in losses from its international
operations until its international revenues reach sufficient levels.
Additionally, the Company's exposure to the risks of international business,
including foreign currency risks, may increase as its international business
grows. The Company attempts to minimize these risks through measures including,
but not limited to, requiring payments in U.S. dollars and the use of
dollar-denominated letters of credit. There can be no assurance, however, that
the Company will be successful in its international sales efforts or in
minimizing any associated risks.
9
<PAGE>
The Company is subject to periodic inspections by the Food and Drug
Administration ("FDA") whose primary purpose is to audit the Company's
compliance with Current Good Manufacturing Practices ("CGMPs"), as set forth in
the Quality System Regulation. This regulation establishes standards for design,
testing, quality control and documentation procedures. Following a December 1996
inspection, the FDA issued Inspectional Observations Form 483 ("Form 483") and a
Warning Letter regarding manufacturing practices at its Denver facility. As
requested, the Company has responded to the Warning Letter regarding planned
corrective actions. By November 1, 1997 (extended from the original August 1,
1997 deadline), the Company must also obtain third-party certification of the
Company's manufacturing and quality systems. Until outstanding GMP concerns are
resolved, the Company will be unable to receive an award of a federal government
contract or new marketing or export clearance for products manufactured at its
Denver facility. Failure to correct the noted deviations, to obtain third-party
certification, and/or other ongoing FDA concerns could also result in FDA
enforcement actions which could include, among other things, seizure,
injunction, and/or criminal or civil proceedings being initiated without further
notice. The Company has also received a Non-Compliance Declaration from the
Center for Device Evaluation and Research ("CDRH") regarding violations of the
Electronic Product Radiation Control Performance Standard. The Company has
responded to the Non-Compliance Declaration describing planned corrective
actions as to some matters and requesting exemption as to others. The Company
believes that it will be able to correct the deficiencies noted in the Form 483,
the FDA Warning Letter, and the CDRH Non-Compliance Declaration, although no
assurance can be given that the corrections can be accomplished in a timely
manner, if at all.
Although the Company strives to operate within the requirements imposed by the
FDA, there can be no assurances that these deficiencies can be corrected or that
the Company will be able to satisfy FDA compliance concerns in the future. These
ongoing compliance reviews and/or related delays in future product clearances
could have a material adverse effect on the Company.
RESULTS OF OPERATIONS
The Company's net revenues and net loss were $15,151,000 and $1,412,000,
respectively, for the second quarter of 1997, as compared to revenues of
$21,906,000 and net earnings of $946,000 for the second quarter of 1996. The
most significant factor in the decline in revenues as compared to the second
quarter of 1996 was an approximately 50% decline in OEM shipments, principally
sales of Tilt-C systems to GE Medical Systems. Sales of Mammotest breast biopsy
systems also declined, as did shipments of general and specialty purpose x-ray
systems. The Company's operating results for the second quarter were negatively
affected by these decreased sales and by lower absorption of its fixed
manufacturing costs, which declined primarily as a result of lower levels of
production activity in anticipation of lower shipments and as a result of
planned reductions in inventory levels.
See "Overview" for a further discussion of the recent decline in the Company's
sales and the Company's efforts to reduce its manufacturing costs.
10
<PAGE>
The following table sets forth the percentage of net revenues represented by
certain data included in the Company's statements of operations for the periods
indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
-------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0 % 100.0% 100.0%
Gross profit 35.3 40.6 33.1 41.4
Research and development 10.3 8.0 11.2 7.6
Selling, marketing and service 26.7 20.4 31.7 21.0
General and administrative 7.1 5.2 8.2 5.4
(Loss) Earnings from operations (8.8) 7.0 (18.0) 7.3
Provision for income taxes --- 1.4 --- 1.6
Net (loss) earnings (9.3) 4.3 (19.3) 4.8
</TABLE>
Net Revenues. Second quarter net revenues were $15,151,000, a decrease of 31%
from second quarter 1996 net revenues of $21,906,000. Net revenues for the six
months ended June 30, 1997 were $27,453,000, a 35% decrease from net revenues of
$41,979,000 for the comparable six month period of 1996. The Company's decrease
in revenues for the three and six months ended June 30, 1997 compared to the
same periods in 1996 principally reflects a strong decrease in OEM shipments
(primarily the Tilt-C system sold to GE Medical Systems) but also a significant
reduction in sales of Mammotest systems, sold through direct and dealer
channels, as well as reductions in general and specialty purpose x-ray systems.
International revenues were also unfavorably impacted for the three and six
months ended June 30, 1997 compared to the same periods of 1996, due in large
part to the impact of the strong dollar on export sales to Europe and Australia.
Gross Profit. For the second quarter of 1997, gross profit expressed as a
percentage of net revenues was 35.3%, as compared to the 40.6% for the second
quarter of 1996. For the six months ended June 30, 1997, gross profit expressed
as a percentage of revenues was 33.1%, as compared to 41.4% for the same six
month period of 1996. The decline in gross profit as a percentage of revenues
was due to an increase in unfavorable manufacturing variances, as a result of a
substantial decline in production caused by the reduction in OEM and other
shipments and by the Company's successful efforts to reduce inventory levels.
The effects of increased unfavorable manufacturing variances were partly offset
by a shift in product mix from OEM shipments to proprietary products and service
revenues, which generally have higher margins.
Research and Development Expenses. Research and development expenses for the
second quarter of 1997 and 1996 were $1,554,000 and $1,745,000, respectively.
The lower level of research and development expenses over last year is primarily
attributable to efforts to narrow the focus of engineering efforts and eliminate
marginal engineering efforts. As a percentage of net revenues, second quarter
1997 and 1996 research and development expenses were 10.3% and 8.0%,
respectively. The increase as a percentage of net revenues is due to lower net
revenues in the second quarter of 1997.
11
<PAGE>
For the six months ended June 30, 1997 and 1996, research and development
expenses were $3,066,000, or 11.2% of net revenues, and $3,209,000, or 7.6% of
net revenues, respectively. The reduction is expense level is the result of
efforts to eliminate marginal engineering efforts; whereas, the reduction in
research and development as a percentage of net revenues is due to lower net
revenues for the six months ended June 30, 1997 as compared to the six months
ended June 30, 1996. The Company's primary area of focus remains the continuing
development of digital imaging products for mammography.
Selling, Marketing and Service Expenses. Selling, marketing and service expenses
for the second quarter of 1997 and 1996 were $4,040,000 and $4,467,000,
respectively, or 26.7% and 20.4%, respectively, of net revenues. For the six
months ended June 30, 1997 and 1996, selling, marketing and service expenses
were $8,716,000 and $8,825,000, respectively, or 31.7% and 21.0%, respectively,
of net revenues. The decrease in selling, marketing and service expense for the
three and six months ended June 30, 1997 as compared to the same periods of 1996
is the result of lower net revenues. The increase as a percentage of net
revenues for both the three and six months periods of 1997 as compared to the
same periods of 1996 is due to the shift in mix from OEM sales to sales of
proprietary products, for which the Company generally incurs commissions,
warranty and installation expenses.
General and Administrative Expenses. General and administrative expenses for the
second quarter of 1997 and 1996 were essentially unchanged at $1,081,000 and
$1,142,000, respectively. As a percentage of net revenues, general and
administrative expenses increased from 5.2% to 7.1% from the second quarter of
1996 to the second quarter of 1997. For the six months ended June 30, 1997,
general and administrative expenses were $2,242,000, or 8.2% of net revenues, as
compared to $2,273,000, or 5.4% of net revenues for the comparable period of
1996. The increase in general and administrative expenses as a percentage of net
revenues is primarily due to the change in net revenues, which decreased
significantly in 1997 as compared to 1996.
Interest Expense / Interest Income. Interest expense for the second quarter of
1997 and 1996 was $12,000 and $200,000, respectively. Interest income for the
second quarter of 1997 and 1996 was $103,000 and $5,000, respectively. For the
six months ended June 30, 1997, interest expense was $49,000, as compared to
$420,000 for the six months ended June 30, 1996. Interest income for the six
months ended June 30, 1997 and 1996 was $128,000 and $14,000, respectively. The
reduction in interest expense for both the three and six month periods ended
June 30, 1997 as compared to the same periods of 1996 is principally related to
reduced borrowings under the Company's revolving line of credit and other
borrowing arrangements. The Company's borrowings under its line of credit have
been reduced as a result of lower working capital requirements and as a result
of the use of proceeds from sales of Company stock to repay existing
indebtedness under the line of credit. The increase in interest income for the
three and six month periods ended June 30, 1997 as compared to the same periods
of 1996 is primarily due to average cash and cash equivalent borrowings, which
have increased as a result of the investment in short-term, investment grade
securities of the proceeds from the sale of common stock that were not utilized
to repay existing indebtedness in 1996. (See Note 5 to Notes to Consolidated
Financial Statements.)
12
<PAGE>
Net (Loss) Earnings. The Company's net loss for the second quarter of 1997 was
$1,412,000 as compared to net earnings of $946,000 for the second quarter of
1996. For the six months ended June 30, 1997, the net loss was $5,291,000, as
compared to net earnings of $2,019,000 for the comparable six month period of
1996. For the three and six month periods ended June 30, 1997, operating results
as compared to the same periods in 1996 were unfavorably impacted by the
reductions in gross margin resulting from lower sales, higher unfavorable
manufacturing variances, marketing and service expenses associated with sales
through the direct sales channel, and the unfavorable effects of foreign
translation losses caused by the strengthening U. S. dollar.
INCOME TAXES
The Company's estimated effective tax rate for the year ended December 31, 1997
is currently 0%. Accordingly, no income tax benefit has been provided for the
three and six month periods ended June 30, 1997. This rate was determined based
upon the anticipated 1997 results of operations includable in the domestic
consolidated tax return and upon projected net temporary differences between
operating results reflected in the financial statements and those required to be
reflected in the domestic consolidated tax return for 1997. As of December 31,
1996, the Company had approximately $2,613,000 of net deferred tax assets, which
represents credits that are more likely than not to be realized against taxable
income of future years. The amount of net deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income do not materialize.
No income tax provisions have been recognized for foreign tax jurisdictions and
no income tax benefits have been recognized for subsidiary losses outside the
domestic consolidated return because they are not expected to reverse in the
foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the six months ended June 30, 1997
was $3.8 million compared to $3.3 million used in operations in the comparable
period of 1996. The generation of cash flow from operations was primarily due to
a decrease in working capital. This decrease in working capital was the result
of $4.6 million in net collections of trade accounts receivable and a reduced
investment in inventories of $5.2 million, partially offset by a $1.5 million
reduction in trade accounts payable. The decrease in working capital investment
was partially offset by a net loss before depreciation and amortization of $4.0
million.
Net cash used in investing activities was $2.2 million for the six months ended
June 30, 1997, compared to $0.9 million for the same period in 1996. The
increase was principally related to capital equipment investments related to
digital mammography.
Net cash used in financing activities for the six months ended June 30, 1997 was
$0.1 million, compared to $3.7 million provided by financing activities for the
same period in 1996. The amount used in financing activities for the six months
ended June 30, 1997 was primarily due to repayments of long-term debt. The
amount provided by financing during the comparable period of 1996 was primarily
due to borrowings under the Company's line of credit, which were related to
increased working capital requirements during the period.
13
<PAGE>
As of June 30, 1997, the Company had $5.1 million in cash and cash equivalents
and working capital of $31.7 million. As of June 30, 1997, the Company had no
outstanding borrowings under any line of credit arrangements. The Company is
currently negotiating a working capital line of credit. The borrowings under the
line of credit are expected to be secured by accounts receivable, inventory and
fixed assets and to be subject to borrowing base restrictions. The Company
expects its long-term liquidity needs to be satisfied principally from cash
flows generated from operations. The Company believes that its short-term
liquidity needs can be satisfied through cash provided from operations and
current cash and cash equivalent balances if a working capital line of credit is
not finalized or finalization is delayed.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) EXHIBITS
Exhibits filed with this report:
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997 to be signed on its behalf by the undersigned thereunto duly
authorized.
FISCHER IMAGING CORPORATION
/S/ WILLIAM C. FEE
William C. Fee
Vice President /
Chief Accounting Officer
(Principal Accounting Officer)
August 6, 1997
15
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
EXHIBIT 27
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,122
<SECURITIES> 0
<RECEIVABLES> 14,637
<ALLOWANCES> 644
<INVENTORY> 18,497
<CURRENT-ASSETS> 41,245
<PP&E> 14,488
<DEPRECIATION> 8,710
<TOTAL-ASSETS> 53,015
<CURRENT-LIABILITIES> 9,498
<BONDS> 65
0
13
<COMMON> 69
<OTHER-SE> 42,881
<TOTAL-LIABILITY-AND-EQUITY> 53,015
<SALES> 15,151
<TOTAL-REVENUES> 15,151
<CGS> 9,808
<TOTAL-COSTS> 9,808
<OTHER-EXPENSES> 6,675
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> (1,412)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,412)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,412)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
