SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Quarter Ended September 29, 1997
[X] 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 September 29, 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 -
September 29, 1997 and December 31, 1996 3
Consolidated Statements of Operations -
Three and nine months ended September 29, 1997
and September 30, 1996 4
Consolidated Statements of Cash Flows -
Nine months ended September 29, 1997
and September 30, 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
<PAGE>
FISCHER IMAGING CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
September 29, December 31,
1997 1996
---------------- ---------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,536 $ 3,289
Trade accounts receivable, net of allowance for doubtful
accounts of approximately $728 and $641 at September 29,
1997 and December 31, 1996, respectively 13,621 18,600
Inventories 17,569 23,692
Deferred income taxes 2,267 2,267
Prepaid expenses and other current assets 1,526 1,289
-------- -------
Total current assets 41,519 49,137
-------- -------
PROPERTY AND EQUIPMENT (at cost):
Manufacturing equipment 9,443 8,198
Office equipment and leasehold improvements 5,510 4,666
-------- -------
14,953 12,864
Less- Accumulated depreciation and amortization 8,909 8,294
-------- -------
Property and equipment, net 6,044 4,570
-------- -------
INTANGIBLE ASSETS, net 3,787 4,327
DEFERRED INCOME TAXES 346 346
DEFERRED COSTS AND OTHER ASSETS 1,672 2,052
-------- -------
TOTAL ASSETS $ 53,368 $ 60,432
======== =======
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Trade accounts payable $ 4,392 $ 5,155
Notes payable and current maturities of long-term debt 256 283
Accrued salaries and wages 2,110 2,160
Accrued restructuring costs 1,600 --
Deferred service revenue 647 805
Other current liabilities 3,203 3,587
-------- -------
Total current liabilities 12,208 11,990
LONG-TERM DEBT 342 149
ACCRUED RESTRUCTURING AND OTHER NONCURRENT LIABILITIES 1,586 488
-------- -------
TOTAL LIABILITIES 14,136 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
September 29, 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
September 29, 1997 and December 31, 1996; liquidation
preference of $10,000,000 13 13
Additional paid-in capital 49,235 49,093
Accumulated deficit (10,563) (1,388)
Cumulative translation adjustment 478 18
-------- -------
TOTAL STOCKHOLDERS' INVESTMENT 39,232 47,805
-------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 53,368 $ 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 Nine Months Ended
------------------------------------- -------------------------------------
September 29, September 30, September 29, September30,
1997 1996 1997 1996
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
NET REVENUES $ 14,636 $ 20,886 $ 42,089 $ 62,865
COST OF SALES 9,439 12,953 27,799 37,562
-------- ------- ------- -------
Gross profit 5,197 7,933 14,290 25,303
OPERATING EXPENSES:
Research and development 1,327 1,816 4,393 5,025
Selling, marketing and service 3,487 4,489 12,203 13,347
General and administrative 1,248 1,265 3,490 3,538
Restructuring provision 2,900 -- 2,900 --
-------- ------- ------- -------
Total operating expenses 8,962 7,570 22,986 21,910
-------- ------- ------- -------
(LOSS) EARNINGS FROM OPERATIONS
(3,765) 363 (8,696) 3,393
Interest expense (19) (99) (68) (519)
Interest income 69 75 197 90
Other (expense) income, net (169) (13) (608) 41
-------- ------- ------- -------
(LOSS) EARNINGS BEFORE
INCOME TAXES (3,884) 326 (9,175) 3,005
Provision for income taxes 85 -- 745
-------- ------- ------- -------
NET (LOSS) EARNINGS $ (3,884) $ 241 $ (9,175) $ 2,260
======== ======= ======== =======
NET (LOSS) EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ (0.47) $ 0.03 $ (1.11) $ 0.30
======== ======= ======== =======
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 8,282 8,331 8,282 7,659
======== ======= ======== =======
</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>
Nine Months Ended
----------------------------
September 29, September 30,
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $ (9,175) $ 2,260
--------- --------
Adjustments to reconcile net (loss) earnings
to net cash provided by (used in) operating
activities-
Restructuring provision 2,900 --
Depreciation 1,398 1,191
Amortization of intangible assets 540 553
Provision for doubtful accounts 112 263
Sales and retirements of assets 152 76
Other changes in current assets and liabilities-
Decrease (Increase) in trade accounts receivable 4,867 (2,731)
Decrease (Increase) in inventories 6,123 (3,259)
Decrease in deferred income taxes -- 159
Increase in prepaid expenses and other current assets (237) (509)
Decrease (Increase) in deferred costs and other assets 380 (115)
Decrease in trade accounts payable (763) (2,802)
(Increase) Decrease in accrued salaries and wages (50) 123
Decrease in deferred service revenue (158) (388)
Decrease in accrued restructuring charges (200) --
(Decrease) Increase in other current liabilities (384) 849
Other (2) 79
-------- --------
Total adjustments 14,678 (6,511)
-------- --------
Net cash provided by (used in) operating activities 5,503 (4,251)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,497) (1,062)
Other -- (48)
-------- --------
Net cash used in investing activities (2,497) (1,110)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock 142 13,586
Net repayments under line of credit agreement -- (2,643)
Repayments of long-term debt (361) (1,553)
-------- --------
Net cash (used in ) provided by financing activities (219) 9,390
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 460 75
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,247 4,104
CASH AND CASH EQUIVALENTS, beginning of period 3,289 968
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 6,536 $ 5,072
======== ========
</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, with the exception of the restructuring provision, only of normal
recurring items, necessary to present fairly the financial position of Fischer
Imaging Corporation (the "Company") at September 29, 1997, its results of
operations for the three and nine months ended September 29, 1997 and September
30, 1996 and cash flows for the nine months ended September 29, 1997 and
September 30, 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 were
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):
September 29, December 31,
1997 1996
------------------ -----------------
FIFO cost-
Raw materials $10,977 $16,244
Work in process and finished goods 12,142 13,467
LIFO valuation adjustment (714) (893)
------ ------
Total before valuation reserves 22,405 28,818
Less valuation reserves (4,836) (5,126)
------ ------
Inventories, net $17,569 $23,692
====== ======
3. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following (in thousands):
September 29, December 31,
1997 1996
---------------- ----------------
Customer deposits $1,329 $1,058
Accrued warranty and installation costs 1,164 1,408
Other 710 1,121
----- -----
Total other current liabilities $3,203 $3,587
===== =====
6
<PAGE>
4. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consisted of the following (in thousands):
September 29, December 31,
1997 1996
--------------- --------------
Capitalized lease obligations $ 555 $ 382
Other 43 50
---- ----
598 432
Less--Current maturities (256) (283)
---- ----
Long-term debt $ 342 $ 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 (LOSS) EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Net (loss) earnings 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 Nine Months Ended
-------------------------------------- -------------------------------------
September 29, September 30, September 29, September 30,
1997 1996 1997 1996
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Basic (loss) earnings per share $ (.56) $.03 $(1.32) $.36
Diluted (loss) earnings per share (.47) .03 (1.11) .30
</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>
8. RESTRUCTURING PROVISION
During the third quarter of 1997, the Company decided to close its Addison,
Illinois manufacturing facility. Therefore, the Company, in the third quarter,
recorded a $2.9 million restructuring provision for estimated facility closing
costs, the shortfall between required lease and anticipated sublease payments
during the facility's remaining lease term, severance and certain other
non-recurring costs associated with this decision. The Company estimates that
the closure of the facility will be completed by early 1998. However, the lease
on the Addison facility runs through May 2002. During the third quarter, the
Company spent approximately $200,000 for severance and facility closing costs.
8
<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 third quarter ended September 29, 1997 were $14,636,000, a
$515,000 or 3%, decrease as compared to the second quarter of 1997. The revenue
decrease was the result of a continuing decrease in OEM shipments, partially
offset by an significant increase in sales of electrophysiology products and a
modest improvement in sales of mammography systems. The resulting decrease in
gross margin was more than offset by a $613,000 reduction in operating expenses,
causing the third quarter 1997 net loss before the restructuring provision to be
reduced from $1,412,000, or $.17 per share, in the second quarter of 1997, to
$984,000, or $.12 per share.
9
<PAGE>
The Company experienced substantial losses for the nine months ended September
29, 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 and effectively
implement 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 significantly lower sales under its OEM arrangements
during the fourth quarter of 1996 and the first nine months of 1997 than in
comparable prior periods, primarily due to decreased shipments of Tilt-C systems
to GE Medical Systems.
The Company also experienced decreases in the sales of its Mammotest systems in
the first nine 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. In October 1997, the Company
entered into distribution partnerships with Johnson and Johnson's Ethicon Endo
Surgery Division and with Imagyn Medical Technologies that it believes will help
it more adequately address this market.
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 has announced that it intends to close its
Addison, Illinois manufacturing facility and outsource or transfer Addison
production, as a means of reducing its overall manufacturing costs. Accordingly,
the Company recorded a $2.9 million restructuring provision in the third
quarter, to provide for estimated facility closing costs, the shortfall between
required lease and anticipated sublease payments during the facility's remaining
lease term, severance and certain other non-recurring costs associated with this
decision. The Company anticipates additional one-time costs associated with this
closing. 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 international sales and marketing efforts,
which can be expected to result in losses from international operations until
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.
10
<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. The Company must also obtain third-party certification of
the Company's manufacturing and quality systems. This certification is expected
to be submitted to the FDA during November 1997. 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, excluding the restructuring provision,
were $14,636,000 and $984,000, respectively, for the third quarter of 1997, as
compared to revenues of $20,886,000 and net earnings of $241,000 for the third
quarter of 1996. The most significant factor in the decline in revenues as
compared to the third quarter of 1996 was a more than 50% decline in OEM
shipments, principally sales of Tilt-C systems to GE Medical Systems. Sales of
general and special purpose x-ray systems also declined as compared to the third
quarter of 1996. These declines were partially offset by an increase in
mammography systems. The resulting decline in gross margins was partially offset
by operating expense reductions totaling $1,508,000.
Including the $2.9 million restructuring provision, the third quarter net loss
was $3,884,000. The restructuring provision relates to the Company's decision to
close its Addison, Illinois manufacturing facility. See Note 8 to Notes to
Consolidated Financial Statements.
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.
11
<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 Nine Months Ended
September 29, September 30, September 29, September 30,
-------------------------------------- ---------------------------------------
1997 1996 1997 1996
------------------ ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Gross profit 35.5 38.0 34.0 40.2
Research and development 9.1 8.7 10.4 8.0
Selling, marketing and service 23.8 21.5 29.0 21.2
General and administrative 8.5 6.1 8.3 5.6
Restructuring provision 19.8 --- 6.9 ---
(Loss) Earnings from Operations (25.7) 1.7 (20.7) 5.4
Provision for income taxes --- .4 --- 1.2
Net (loss) earnings (26.5) 1.2 (21.8) 3.6
</TABLE>
Net Revenues. Third quarter net revenues were $14,636,000, a decrease of 30%
from third quarter 1996 net revenues of $20,886,000. Net revenues for the nine
months ended September 29, 1997 were $42,089,000, a 33% decrease from net
revenues of $62,865,000 for the comparable nine month period of 1996. The
Company's decrease in revenues for the three and nine months ended September 29,
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). The
revenue decrease for the three month periods also reflects reductions in general
and specialty x-ray equipment, partly offset by improved sales of mammography
products. For the nine month periods, the decline in revenues was also caused by
reductions in mammography product sales. For both the three and nine month
periods, the declines were reflected across dealer and direct channels of
distribution, both domestically and internationally. International revenues were
unfavorably impacted for the three and nine months ended September 29, 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 third quarter of 1997, gross profit expressed as a
percentage of net revenues was 35.5%, as compared to the 38.0% for the third
quarter of 1996. For the nine months ended September 29, 1997, gross profit
expressed as a percentage of revenues was 34.0%, as compared to 40.2% for the
same nine 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.
12
<PAGE>
Research and Development Expenses. Research and development expenses for the
third quarter of 1997 and 1996 were $1,327,000 and $1,816,000, 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 well as reductions due to the transfer of
engineering activities from the Company's Addison, Illinois location. As a
percentage of net revenues, third quarter 1997 and 1996 research and development
expenses were 9.1% and 8.7%, respectively. The increase as a percentage of net
revenues is due to lower net revenues in the third quarter of 1997.
For the nine months ended September 29, 1997 and September 30, 1996, research
and development expenses were $4,393,000, or 10.4% of net revenues, and
$5,025,000, or 8.0% of net revenues, respectively. The reduction in 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 nine months ended September 29,
1997 as compared to the nine months ended September 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 third quarter of 1997 and 1996 were $3,487,000 and $4,489,000,
respectively, or 23.8% and 21.5%, respectively, of net revenues. For the nine
months ended September 29, 1997 and 1996, selling, marketing and service
expenses were $12,203,000 and $13,347,000, respectively, or 29.0% and 21.2%,
respectively, of net revenues. The decrease in selling, marketing and service
expense for the three and nine months ended September 29, 1997 as compared to
the same periods of 1996 is primarily the result of lower net revenues and is
also due to the reduced scope of marketing activities. The increase as a
percentage of net revenues for both the three and nine month periods of 1997 as
compared to the same periods of 1996 is primarily 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
third quarter of 1997 and 1996 were essentially unchanged at $1,248,000 and
$1,265,000, respectively. As a percentage of net revenues, general and
administrative expenses increased from 6.1% to 8.5% from the third quarter of
1996 to the third quarter of 1997. For the nine months ended September 29, 1997,
general and administrative expenses were $3,490,000, or 8.3% of net revenues, as
compared to $3,538,000, or 5.6% 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 third quarter of
1997 and 1996 was $19,000 and $99,000, respectively. Interest income for the
third quarter of 1997 and 1996 was $69,000 and $75,000, respectively. For the
nine months ended September 29, 1997, interest expense was $68,000, as compared
to $519,000 for the nine months ended September 30, 1996. Interest income for
the nine months ended September 29, 1997 and 1996 was $197,000 and $90,000,
respectively.
13
<PAGE>
The reduction in interest expense for both the three and nine month periods
ended September 29, 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
nine month period ended September 29, 1997 as compared to the same period of
1996 is primarily due to average cash and cash equivalent balances, which have
increased as a result of the investment in short-term 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.)
Net (Loss) Earnings. The Company's net loss for the third quarter of 1997,
excluding the restructuring provision (see Note 8 to Notes to Consolidated
Financial Statements), was $984,000 as compared to net earnings of $241,000 for
the third quarter of 1996. For the nine months ended September 29, 1997, the net
loss, excluding the restructuring provision, was $6,275,000, as compared to net
earnings of $2,260,000 for the comparable nine month period of 1996. For the
three and nine month periods ended September 29, 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.
Net loss from operations, including the restructuring provision, was $3,884,000
and $9,175,000, respectively, for the three and nine months ended September 29,
1997.
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 nine month periods ended September 29, 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.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the nine months ended September
29, 1997 was $5.5 million compared to $4.3 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 $4.9 million in net collections of trade accounts receivable
and a reduced investment in inventories of $6.1 million, partially offset by a
$0.8 million reduction in trade accounts payable. The decrease in working
capital investment was partially offset by a net loss before non-cash
restructuring, depreciation, and amortization provisions of $4.3 million.
Net cash used in investing activities was $2.5 million for the nine months ended
September 29, 1997, compared to $1.1 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 nine months ended September 29,
1997 was $0.2 million, compared to $9.4 million provided by financing activities
for the same period in 1996. The amount used in financing activities for the
nine months ended September 29, 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 proceeds from the issuance of Common Stock (See Note 5
to Notes to Consolidated Financial Statements, offset by repayments under the
Company's line of credit and other debt agreements.)
As of June 30, 1997, the Company had $6.5 million in cash and cash equivalents
and working capital of $29.3 million. As of September 29, 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.
15
<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 September 29, 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)
November 13, 1997
16
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
FINANCIAL DATA SCHEDULE
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-29-1997
<CASH> 6,536
<SECURITIES> 0
<RECEIVABLES> 14,349
<ALLOWANCES> 728
<INVENTORY> 17,569
<CURRENT-ASSETS> 41,519
<PP&E> 14,953
<DEPRECIATION> 8,909
<TOTAL-ASSETS> 53,368
<CURRENT-LIABILITIES> 12,208
<BONDS> 342
0
13
<COMMON> 69
<OTHER-SE> 39,150
<TOTAL-LIABILITY-AND-EQUITY> 53,368
<SALES> 14,636
<TOTAL-REVENUES> 14,636
<CGS> 9,439
<TOTAL-COSTS> 9,439
<OTHER-EXPENSES> 6,062
<LOSS-PROVISION> 2,900
<INTEREST-EXPENSE> 19
<INCOME-PRETAX> (3,884)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,884)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,884)
<EPS-PRIMARY> (.47)
<EPS-DILUTED> (.47)
</TABLE>
